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Amended Tax Returns

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Amended Tax Returns

Amended tax returns 9. Amended tax returns   Depletion Table of Contents Introduction Topics - This chapter discusses: Who Can Claim Depletion? Mineral PropertyCost Depletion Percentage Depletion Oil and Gas Wells Mines and Geothermal Deposits Lessor's Gross Income TimberTimber units. Amended tax returns Depletion unit. Amended tax returns Introduction Depletion is the using up of natural resources by mining, drilling, quarrying stone, or cutting timber. Amended tax returns The depletion deduction allows an owner or operator to account for the reduction of a product's reserves. Amended tax returns There are two ways of figuring depletion: cost depletion and percentage depletion. Amended tax returns For mineral property, you generally must use the method that gives you the larger deduction. Amended tax returns For standing timber, you must use cost depletion. Amended tax returns Topics - This chapter discusses: Who can claim depletion Mineral property Timber Who Can Claim Depletion? If you have an economic interest in mineral property or standing timber, you can take a deduction for depletion. Amended tax returns More than one person can have an economic interest in the same mineral deposit or timber. Amended tax returns In the case of leased property, the depletion deduction is divided between the lessor and the lessee. Amended tax returns You have an economic interest if both the following apply. Amended tax returns You have acquired by investment any interest in mineral deposits or standing timber. Amended tax returns You have a legal right to income from the extraction of the mineral or cutting of the timber to which you must look for a return of your capital investment. Amended tax returns A contractual relationship that allows you an economic or monetary advantage from products of the mineral deposit or standing timber is not, in itself, an economic interest. Amended tax returns A production payment carved out of, or retained on the sale of, mineral property is not an economic interest. Amended tax returns Individuals, corporations, estates, and trusts who claim depletion deductions may be liable for alternative minimum tax. Amended tax returns Basis adjustment for depletion. Amended tax returns   You must reduce the basis of your property by the depletion allowed or allowable, whichever is greater. Amended tax returns Mineral Property Mineral property includes oil and gas wells, mines, and other natural deposits (including geothermal deposits). Amended tax returns For this purpose, the term “property” means each separate interest you own in each mineral deposit in each separate tract or parcel of land. Amended tax returns You can treat two or more separate interests as one property or as separate properties. Amended tax returns See section 614 of the Internal Revenue Code and the related regulations for rules on how to treat separate mineral interests. Amended tax returns There are two ways of figuring depletion on mineral property. Amended tax returns Cost depletion. Amended tax returns Percentage depletion. Amended tax returns Generally, you must use the method that gives you the larger deduction. Amended tax returns However, unless you are an independent producer or royalty owner, you generally cannot use percentage depletion for oil and gas wells. Amended tax returns See Oil and Gas Wells , later. Amended tax returns Cost Depletion To figure cost depletion you must first determine the following. Amended tax returns The property's basis for depletion. Amended tax returns The total recoverable units of mineral in the property's natural deposit. Amended tax returns The number of units of mineral sold during the tax year. Amended tax returns Basis for depletion. Amended tax returns   To figure the property's basis for depletion, subtract all the following from the property's adjusted basis. Amended tax returns Amounts recoverable through: Depreciation deductions, Deferred expenses (including deferred exploration and development costs), and Deductions other than depletion. Amended tax returns The residual value of land and improvements at the end of operations. Amended tax returns The cost or value of land acquired for purposes other than mineral production. Amended tax returns Adjusted basis. Amended tax returns   The adjusted basis of your property is your original cost or other basis, plus certain additions and improvements, and minus certain deductions such as depletion allowed or allowable and casualty losses. Amended tax returns Your adjusted basis can never be less than zero. Amended tax returns See Publication 551, Basis of Assets, for more information on adjusted basis. Amended tax returns Total recoverable units. Amended tax returns   The total recoverable units is the sum of the following. Amended tax returns The number of units of mineral remaining at the end of the year (including units recovered but not sold). Amended tax returns The number of units of mineral sold during the tax year (determined under your method of accounting, as explained next). Amended tax returns   You must estimate or determine recoverable units (tons, pounds, ounces, barrels, thousands of cubic feet, or other measure) of mineral products using the current industry method and the most accurate and reliable information you can obtain. Amended tax returns You must include ores and minerals that are developed, in sight, blocked out, or assured. Amended tax returns You must also include probable or prospective ores or minerals that are believed to exist based on good evidence. Amended tax returns But see Elective safe harbor for owners of oil and gas property , later. Amended tax returns Number of units sold. Amended tax returns   You determine the number of units sold during the tax year based on your method of accounting. Amended tax returns Use the following table to make this determination. Amended tax returns    IF you  use . Amended tax returns . Amended tax returns . Amended tax returns THEN the units sold during the year are . Amended tax returns . Amended tax returns . Amended tax returns The cash method of accounting The units sold for which you receive payment during the tax year (regardless of the year of sale). Amended tax returns An accrual method of accounting The units sold based on your inventories and method of accounting for inventory. Amended tax returns   The number of units sold during the tax year does not include any for which depletion deductions were allowed or allowable in earlier years. Amended tax returns Figuring the cost depletion deduction. Amended tax returns   Once you have figured your property's basis for depletion, the total recoverable units, and the number of units sold during the tax year, you can figure your cost depletion deduction by taking the following steps. Amended tax returns Step Action Result 1 Divide your property's basis for depletion by total recoverable units. Amended tax returns Rate per unit. Amended tax returns 2 Multiply the rate per unit by units sold during the tax year. Amended tax returns Cost depletion deduction. Amended tax returns You must keep accounts for the depletion of each property and adjust these accounts each year for units sold and depletion claimed. Amended tax returns Elective safe harbor for owners of oil and gas property. Amended tax returns   Instead of using the method described earlier to determine the total recoverable units, you can use an elective safe harbor. Amended tax returns If you choose the elective safe harbor, the total recoverable units equal 105% of a property's proven reserves (both developed and undeveloped). Amended tax returns For details, see Revenue Procedure 2004-19 on page 563 of Internal Revenue Bulletin 2004-10, available at www. Amended tax returns irs. Amended tax returns gov/pub/irs-irbs/irb04-10. Amended tax returns pdf. Amended tax returns   To make the election, attach a statement to your timely filed (including extensions) original return for the first tax year for which the safe harbor is elected. Amended tax returns The statement must indicate that you are electing the safe harbor provided by Revenue Procedure 2004-19. Amended tax returns The election, if made, is effective for the tax year in which it is made and all later years. Amended tax returns It cannot be revoked for the tax year in which it is elected, but may be revoked in a later year. Amended tax returns Once revoked, it cannot be re-elected for the next 5 years. Amended tax returns Percentage Depletion To figure percentage depletion, you multiply a certain percentage, specified for each mineral, by your gross income from the property during the tax year. Amended tax returns The rates to be used and other rules for oil and gas wells are discussed later under Independent Producers and Royalty Owners and under Natural Gas Wells . Amended tax returns Rates and other rules for percentage depletion of other specific minerals are found later in Mines and Geothermal Deposits . Amended tax returns Gross income. Amended tax returns   When figuring percentage depletion, subtract from your gross income from the property the following amounts. Amended tax returns Any rents or royalties you paid or incurred for the property. Amended tax returns The part of any bonus you paid for a lease on the property allocable to the product sold (or that otherwise gives rise to gross income) for the tax year. Amended tax returns A bonus payment includes amounts you paid as a lessee to satisfy a production payment retained by the lessor. Amended tax returns   Use the following fraction to figure the part of the bonus you must subtract. Amended tax returns No. Amended tax returns of units sold in the tax year Recoverable units from the property × Bonus Payments For oil and gas wells and geothermal deposits, more information about the definition of gross income from the property is under Oil and Gas Wells , later. Amended tax returns For other property, more information about the definition of gross income from the property is under Mines and Geothermal Deposits , later. Amended tax returns Taxable income limit. Amended tax returns   The percentage depletion deduction generally cannot be more than 50% (100% for oil and gas property) of your taxable income from the property figured without the depletion deduction and the domestic production activities deduction. Amended tax returns   Taxable income from the property means gross income from the property minus all allowable deductions (except any deduction for depletion or domestic production activities) attributable to mining processes, including mining transportation. Amended tax returns These deductible items include, but are not limited to, the following. Amended tax returns Operating expenses. Amended tax returns Certain selling expenses. Amended tax returns Administrative and financial overhead. Amended tax returns Depreciation. Amended tax returns Intangible drilling and development costs. Amended tax returns Exploration and development expenditures. Amended tax returns Deductible taxes (see chapter 5), but not taxes that you capitalize or take as a credit. Amended tax returns Losses sustained. Amended tax returns   The following rules apply when figuring your taxable income from the property for purposes of the taxable income limit. Amended tax returns Do not deduct any net operating loss deduction from the gross income from the property. Amended tax returns Corporations do not deduct charitable contributions from the gross income from the property. Amended tax returns If, during the year, you dispose of an item of section 1245 property that was used in connection with mineral property, reduce any allowable deduction for mining expenses by the part of any gain you must report as ordinary income that is allocable to the mineral property. Amended tax returns See section 1. Amended tax returns 613-5(b)(1) of the regulations for information on how to figure the ordinary gain allocable to the property. Amended tax returns Oil and Gas Wells You cannot claim percentage depletion for an oil or gas well unless at least one of the following applies. Amended tax returns You are either an independent producer or a royalty owner. Amended tax returns The well produces natural gas that is either sold under a fixed contract or produced from geopressured brine. Amended tax returns If you are an independent producer or royalty owner, see Independent Producers and Royalty Owners , next. Amended tax returns For information on the depletion deduction for wells that produce natural gas that is either sold under a fixed contract or produced from geopressured brine, see Natural Gas Wells , later. Amended tax returns Independent Producers and Royalty Owners If you are an independent producer or royalty owner, you figure percentage depletion using a rate of 15% of the gross income from the property based on your average daily production of domestic crude oil or domestic natural gas up to your depletable oil or natural gas quantity. Amended tax returns However, certain refiners, as explained next, and certain retailers and transferees of proven oil and gas properties, as explained next, cannot claim percentage depletion. Amended tax returns For information on figuring the deduction, see Figuring percentage depletion , later. Amended tax returns Refiners who cannot claim percentage depletion. Amended tax returns   You cannot claim percentage depletion if you or a related person refine crude oil and you and the related person refined more than 75,000 barrels on any day during the tax year based on average (rather than actual) daily refinery runs for the tax year. Amended tax returns The average daily refinery run is computed by dividing total refinery runs for the tax year by the total number of days in the tax year. Amended tax returns Related person. Amended tax returns   You and another person are related persons if either of you holds a significant ownership interest in the other person or if a third person holds a significant ownership interest in both of you. Amended tax returns For example, a corporation, partnership, estate, or trust and anyone who holds a significant ownership interest in it are related persons. Amended tax returns A partnership and a trust are related persons if one person holds a significant ownership interest in each of them. Amended tax returns For purposes of the related person rules, significant ownership interest means direct or indirect ownership of 5% or more in any one of the following. Amended tax returns The value of the outstanding stock of a corporation. Amended tax returns The interest in the profits or capital of a partnership. Amended tax returns The beneficial interests in an estate or trust. Amended tax returns Any interest owned by or for a corporation, partnership, trust, or estate is considered to be owned directly both by itself and proportionately by its shareholders, partners, or beneficiaries. Amended tax returns Retailers who cannot claim percentage depletion. Amended tax returns   You cannot claim percentage depletion if both the following apply. Amended tax returns You sell oil or natural gas or their by-products directly or through a related person in any of the following situations. Amended tax returns Through a retail outlet operated by you or a related person. Amended tax returns To any person who is required under an agreement with you or a related person to use a trademark, trade name, or service mark or name owned by you or a related person in marketing or distributing oil, natural gas, or their by-products. Amended tax returns To any person given authority under an agreement with you or a related person to occupy any retail outlet owned, leased, or controlled by you or a related person. Amended tax returns The combined gross receipts from sales (not counting resales) of oil, natural gas, or their by-products by all retail outlets taken into account in (1) are more than $5 million for the tax year. Amended tax returns   For the purpose of determining if this rule applies, do not count the following. Amended tax returns Bulk sales (sales in very large quantities) of oil or natural gas to commercial or industrial users. Amended tax returns Bulk sales of aviation fuels to the Department of Defense. Amended tax returns Sales of oil or natural gas or their by-products outside the United States if none of your domestic production or that of a related person is exported during the tax year or the prior tax year. Amended tax returns Related person. Amended tax returns   To determine if you and another person are related persons, see Related person under Refiners who cannot claim percentage depletion, earlier. Amended tax returns Sales through a related person. Amended tax returns   You are considered to be selling through a related person if any sale by the related person produces gross income from which you may benefit because of your direct or indirect ownership interest in the person. Amended tax returns   You are not considered to be selling through a related person who is a retailer if all the following apply. Amended tax returns You do not have a significant ownership interest in the retailer. Amended tax returns You sell your production to persons who are not related to either you or the retailer. Amended tax returns The retailer does not buy oil or natural gas from your customers or persons related to your customers. Amended tax returns There are no arrangements for the retailer to acquire oil or natural gas you produced for resale or made available for purchase by the retailer. Amended tax returns Neither you nor the retailer knows of or controls the final disposition of the oil or natural gas you sold or the original source of the petroleum products the retailer acquired for resale. Amended tax returns Transferees who cannot claim percentage depletion. Amended tax returns   You cannot claim percentage depletion if you received your interest in a proven oil or gas property by transfer after 1974 and before October 12, 1990. Amended tax returns For a definition of the term “transfer,” see section 1. Amended tax returns 613A-7(n) of the regulations. Amended tax returns For a definition of the term “interest in proven oil or gas property,” see section 1. Amended tax returns 613A-7(p) of the regulations. Amended tax returns Figuring percentage depletion. Amended tax returns   Generally, as an independent producer or royalty owner, you figure your percentage depletion by computing your average daily production of domestic oil or gas and comparing it to your depletable oil or gas quantity. Amended tax returns If your average daily production does not exceed your depletable oil or gas quantity, you figure your percentage depletion by multiplying the gross income from the oil or gas property (defined later) by 15%. Amended tax returns If your average daily production of domestic oil or gas exceeds your depletable oil or gas quantity, you must make an allocation as explained later under Average daily production. Amended tax returns   In addition, there is a limit on the percentage depletion deduction. Amended tax returns See Taxable income limit , later. Amended tax returns Average daily production. Amended tax returns   Figure your average daily production by dividing your total domestic production of oil or gas for the tax year by the number of days in your tax year. Amended tax returns Partial interest. Amended tax returns   If you have a partial interest in the production from a property, figure your share of the production by multiplying total production from the property by your percentage of interest in the revenues from the property. Amended tax returns   You have a partial interest in the production from a property if you have a net profits interest in the property. Amended tax returns To figure the share of production for your net profits interest, you must first determine your percentage participation (as measured by the net profits) in the gross revenue from the property. Amended tax returns To figure this percentage, you divide the income you receive for your net profits interest by the gross revenue from the property. Amended tax returns Then multiply the total production from the property by your percentage participation to figure your share of the production. Amended tax returns Example. Amended tax returns Javier Robles owns oil property in which Pablo Olmos owns a 20% net profits interest. Amended tax returns During the year, the property produced 10,000 barrels of oil, which Javier sold for $200,000. Amended tax returns Javier had expenses of $90,000 attributable to the property. Amended tax returns The property generated a net profit of $110,000 ($200,000 − $90,000). Amended tax returns Pablo received income of $22,000 ($110,000 × . Amended tax returns 20) for his net profits interest. Amended tax returns Pablo determined his percentage participation to be 11% by dividing $22,000 (the income he received) by $200,000 (the gross revenue from the property). Amended tax returns Pablo determined his share of the oil production to be 1,100 barrels (10,000 barrels × 11%). Amended tax returns Depletable oil or natural gas quantity. Amended tax returns   Generally, your depletable oil quantity is 1,000 barrels. Amended tax returns Your depletable natural gas quantity is 6,000 cubic feet multiplied by the number of barrels of your depletable oil quantity that you choose to apply. Amended tax returns If you claim depletion on both oil and natural gas, you must reduce your depletable oil quantity (1,000 barrels) by the number of barrels you use to figure your depletable natural gas quantity. Amended tax returns Example. Amended tax returns You have both oil and natural gas production. Amended tax returns To figure your depletable natural gas quantity, you choose to apply 360 barrels of your 1000-barrel depletable oil quantity. Amended tax returns Your depletable natural gas quantity is 2. Amended tax returns 16 million cubic feet of gas (360 × 6000). Amended tax returns You must reduce your depletable oil quantity to 640 barrels (1000 − 360). Amended tax returns If you have production from marginal wells, see section 613A(c)(6) of the Internal Revenue Code to figure your depletable oil or natural gas quantity. Amended tax returns Also, see Notice 2012-50, available at www. Amended tax returns irs. Amended tax returns gov/irb/2012–31_IRB/index. Amended tax returns html. Amended tax returns Business entities and family members. Amended tax returns   You must allocate the depletable oil or gas quantity among the following related persons in proportion to each entity's or family member's production of domestic oil or gas for the year. Amended tax returns Corporations, trusts, and estates if 50% or more of the beneficial interest is owned by the same or related persons (considering only persons that own at least 5% of the beneficial interest). Amended tax returns You and your spouse and minor children. Amended tax returns A related person is anyone mentioned in the related persons discussion under Nondeductible loss in chapter 2 of Publication 544, except that for purposes of this allocation, item (1) in that discussion includes only an individual, his or her spouse, and minor children. Amended tax returns Controlled group of corporations. Amended tax returns   Members of the same controlled group of corporations are treated as one taxpayer when figuring the depletable oil or natural gas quantity. Amended tax returns They share the depletable quantity. Amended tax returns A controlled group of corporations is defined in section 1563(a) of the Internal Revenue Code, except that, for this purpose, the stock ownership requirement in that definition is “more than 50%” rather than “at least 80%. Amended tax returns ” Gross income from the property. Amended tax returns   For purposes of percentage depletion, gross income from the property (in the case of oil and gas wells) is the amount you receive from the sale of the oil or gas in the immediate vicinity of the well. Amended tax returns If you do not sell the oil or gas on the property, but manufacture or convert it into a refined product before sale or transport it before sale, the gross income from the property is the representative market or field price (RMFP) of the oil or gas, before conversion or transportation. Amended tax returns   If you sold gas after you removed it from the premises for a price that is lower than the RMFP, determine gross income from the property for percentage depletion purposes without regard to the RMFP. Amended tax returns   Gross income from the property does not include lease bonuses, advance royalties, or other amounts payable without regard to production from the property. Amended tax returns Average daily production exceeds depletable quantities. Amended tax returns   If your average daily production for the year is more than your depletable oil or natural gas quantity, figure your allowance for depletion for each domestic oil or natural gas property as follows. Amended tax returns Figure your average daily production of oil or natural gas for the year. Amended tax returns Figure your depletable oil or natural gas quantity for the year. Amended tax returns Figure depletion for all oil or natural gas produced from the property using a percentage depletion rate of 15%. Amended tax returns Multiply the result figured in (3) by a fraction, the numerator of which is the result figured in (2) and the denominator of which is the result figured in (1). Amended tax returns This is your depletion allowance for that property for the year. Amended tax returns Taxable income limit. Amended tax returns   If you are an independent producer or royalty owner of oil and gas, your deduction for percentage depletion is limited to the smaller of the following. Amended tax returns 100% of your taxable income from the property figured without the deduction for depletion and the deduction for domestic production activities under section 199 of the Internal Revenue Code. Amended tax returns For a definition of taxable income from the property, see Taxable income limit , earlier, under Mineral Property. Amended tax returns 65% of your taxable income from all sources, figured without the depletion allowance, the deduction for domestic production activities, any net operating loss carryback, and any capital loss carryback. Amended tax returns You can carry over to the following year any amount you cannot deduct because of the 65%-of-taxable-income limit. Amended tax returns Add it to your depletion allowance (before applying any limits) for the following year. Amended tax returns Partnerships and S Corporations Generally, each partner or S corporation shareholder, and not the partnership or S corporation, figures the depletion allowance separately. Amended tax returns (However, see Electing large partnerships must figure depletion allowance , later. Amended tax returns ) Each partner or shareholder must decide whether to use cost or percentage depletion. Amended tax returns If a partner or shareholder uses percentage depletion, he or she must apply the 65%-of-taxable-income limit using his or her taxable income from all sources. Amended tax returns Partner's or shareholder's adjusted basis. Amended tax returns   The partnership or S corporation must allocate to each partner or shareholder his or her share of the adjusted basis of each oil or gas property held by the partnership or S corporation. Amended tax returns The partnership or S corporation makes the allocation as of the date it acquires the oil or gas property. Amended tax returns   Each partner's share of the adjusted basis of the oil or gas property generally is figured according to that partner's interest in partnership capital. Amended tax returns However, in some cases, it is figured according to the partner's interest in partnership income. Amended tax returns   The partnership or S corporation adjusts the partner's or shareholder's share of the adjusted basis of the oil and gas property for any capital expenditures made for the property and for any change in partnership or S corporation interests. Amended tax returns Recordkeeping. Amended tax returns Each partner or shareholder must separately keep records of his or her share of the adjusted basis in each oil and gas property of the partnership or S corporation. Amended tax returns The partner or shareholder must reduce his or her adjusted basis by the depletion allowed or allowable on the property each year. Amended tax returns The partner or shareholder must use that reduced adjusted basis to figure cost depletion or his or her gain or loss if the partnership or S corporation disposes of the property. Amended tax returns Reporting the deduction. Amended tax returns   Information that you, as a partner or shareholder, use to figure your depletion deduction on oil and gas properties is reported by the partnership or S corporation on Schedule K-1 (Form 1065) or on Schedule K-1 (Form 1120S). Amended tax returns Deduct oil and gas depletion for your partnership or S corporation interest on Schedule E (Form 1040). Amended tax returns The depletion deducted on Schedule E is included in figuring income or loss from rental real estate or royalty properties. Amended tax returns The instructions for Schedule E explain where to report this income or loss and whether you need to file either of the following forms. Amended tax returns Form 6198, At-Risk Limitations. Amended tax returns Form 8582, Passive Activity Loss Limitations. Amended tax returns Electing large partnerships must figure depletion allowance. Amended tax returns   An electing large partnership, rather than each partner, generally must figure the depletion allowance. Amended tax returns The partnership figures the depletion allowance without taking into account the 65-percent-of-taxable-income limit and the depletable oil or natural gas quantity. Amended tax returns Also, the adjusted basis of a partner's interest in the partnership is not affected by the depletion allowance. Amended tax returns   An electing large partnership is one that meets both the following requirements. Amended tax returns The partnership had 100 or more partners in the preceding year. Amended tax returns The partnership chooses to be an electing large partnership. Amended tax returns Disqualified persons. Amended tax returns   An electing large partnership does not figure the depletion allowance of its partners that are disqualified persons. Amended tax returns Disqualified persons must figure it themselves, as explained earlier. Amended tax returns   All the following are disqualified persons. Amended tax returns Refiners who cannot claim percentage depletion (discussed under Independent Producers and Royalty Owners , earlier). Amended tax returns Retailers who cannot claim percentage depletion (discussed under Independent Producers and Royalty Owners , earlier). Amended tax returns Any partner whose average daily production of domestic crude oil and natural gas is more than 500 barrels during the tax year in which the partnership tax year ends. Amended tax returns Average daily production is discussed earlier. Amended tax returns Natural Gas Wells You can use percentage depletion for a well that produces natural gas that is either Sold under a fixed contract, or Produced from geopressured brine. Amended tax returns Natural gas sold under a fixed contract. Amended tax returns   Natural gas sold under a fixed contract qualifies for a percentage depletion rate of 22%. Amended tax returns This is domestic natural gas sold by the producer under a contract that does not provide for a price increase to reflect any increase in the seller's tax liability because of the repeal of percentage depletion for gas. Amended tax returns The contract must have been in effect from February 1, 1975, until the date of sale of the gas. Amended tax returns Price increases after February 1, 1975, are presumed to take the increase in tax liability into account unless demonstrated otherwise by clear and convincing evidence. Amended tax returns Natural gas from geopressured brine. Amended tax returns   Qualified natural gas from geopressured brine is eligible for a percentage depletion rate of 10%. Amended tax returns This is natural gas that is both the following. Amended tax returns Produced from a well you began to drill after September 1978 and before 1984. Amended tax returns Determined in accordance with section 503 of the Natural Gas Policy Act of 1978 to be produced from geopressured brine. Amended tax returns Mines and Geothermal Deposits Certain mines, wells, and other natural deposits, including geothermal deposits, qualify for percentage depletion. Amended tax returns Mines and other natural deposits. Amended tax returns   For a natural deposit, the percentage of your gross income from the property that you can deduct as depletion depends on the type of deposit. Amended tax returns   The following is a list of the percentage depletion rates for the more common minerals. Amended tax returns DEPOSITS RATE Sulphur, uranium, and, if from deposits in the United States, asbestos, lead ore, zinc ore, nickel ore, and mica 22% Gold, silver, copper, iron ore, and certain oil shale, if from deposits in the United States 15% Borax, granite, limestone, marble, mollusk shells, potash, slate, soapstone, and carbon dioxide produced from a well 14% Coal, lignite, and sodium chloride 10% Clay and shale used or sold for use in making sewer pipe or bricks or used or sold for use as sintered or burned lightweight aggregates 7½% Clay used or sold for use in making drainage and roofing tile, flower pots, and kindred products, and gravel, sand, and stone (other than stone used or sold for use by a mine owner or operator as dimension or ornamental stone) 5%   You can find a complete list of minerals and their percentage depletion rates in section 613(b) of the Internal Revenue Code. Amended tax returns Corporate deduction for iron ore and coal. Amended tax returns   The percentage depletion deduction of a corporation for iron ore and coal (including lignite) is reduced by 20% of: The percentage depletion deduction for the tax year (figured without this reduction), minus The adjusted basis of the property at the close of the tax year (figured without the depletion deduction for the tax year). Amended tax returns Gross income from the property. Amended tax returns   For property other than a geothermal deposit or an oil or gas well, gross income from the property means the gross income from mining. Amended tax returns Mining includes all the following. Amended tax returns Extracting ores or minerals from the ground. Amended tax returns Applying certain treatment processes described later. Amended tax returns Transporting ores or minerals (generally, not more than 50 miles) from the point of extraction to the plants or mills in which the treatment processes are applied. Amended tax returns Excise tax. Amended tax returns   Gross income from mining includes the separately stated excise tax received by a mine operator from the sale of coal to compensate the operator for the excise tax the mine operator must pay to finance black lung benefits. Amended tax returns Extraction. Amended tax returns   Extracting ores or minerals from the ground includes extraction by mine owners or operators of ores or minerals from the waste or residue of prior mining. Amended tax returns This does not apply to extraction from waste or residue of prior mining by the purchaser of the waste or residue or the purchaser of the rights to extract ores or minerals from the waste or residue. Amended tax returns Treatment processes. Amended tax returns   The processes included as mining depend on the ore or mineral mined. Amended tax returns To qualify as mining, the treatment processes must be applied by the mine owner or operator. Amended tax returns For a listing of treatment processes considered as mining, see section 613(c)(4) of the Internal Revenue Code and the related regulations. Amended tax returns Transportation of more than 50 miles. Amended tax returns   If the IRS finds that the ore or mineral must be transported more than 50 miles to plants or mills to be treated because of physical and other requirements, the additional authorized transportation is considered mining and included in the computation of gross income from mining. Amended tax returns    If you wish to include transportation of more than 50 miles in the computation of gross income from mining, request an advance ruling from the IRS. Amended tax returns Include in the request the facts about the physical and other requirements that prevented the construction and operation of the plant within 50 miles of the point of extraction. Amended tax returns For more information about requesting an advance ruling, see Revenue Procedure 2013-1, available at www. Amended tax returns irs. Amended tax returns gov/irb/2013-01_IRB/ar11. Amended tax returns html. Amended tax returns Disposal of coal or iron ore. Amended tax returns   You cannot take a depletion deduction for coal (including lignite) or iron ore mined in the United States if both the following apply. Amended tax returns You disposed of it after holding it for more than 1 year. Amended tax returns You disposed of it under a contract under which you retain an economic interest in the coal or iron ore. Amended tax returns Treat any gain on the disposition as a capital gain. Amended tax returns Disposal to related person. Amended tax returns   This rule does not apply if you dispose of the coal or iron ore to one of the following persons. Amended tax returns A related person (as listed in chapter 2 of Publication 544). Amended tax returns A person owned or controlled by the same interests that own or control you. Amended tax returns Geothermal deposits. Amended tax returns   Geothermal deposits located in the United States or its possessions qualify for a percentage depletion rate of 15%. Amended tax returns A geothermal deposit is a geothermal reservoir of natural heat stored in rocks or in a watery liquid or vapor. Amended tax returns For percentage depletion purposes, a geothermal deposit is not considered a gas well. Amended tax returns   Figure gross income from the property for a geothermal steam well in the same way as for oil and gas wells. Amended tax returns See Gross income from the property , earlier, under Oil and Gas Wells. Amended tax returns Percentage depletion on a geothermal deposit cannot be more than 50% of your taxable income from the property. Amended tax returns Lessor's Gross Income In the case of leased property, the depletion deduction is divided between the lessor and the lessee. Amended tax returns A lessor's gross income from the property that qualifies for percentage depletion usually is the total of the royalties received from the lease. Amended tax returns Bonuses and advanced royalties. Amended tax returns   Bonuses and advanced royalties are payments a lessee makes before production to a lessor for the grant of rights in a lease or for minerals, gas, or oil to be extracted from leased property. Amended tax returns If you are the lessor, your income from bonuses and advanced royalties received is subject to an allowance for depletion, as explained in the next two paragraphs. Amended tax returns Figuring cost depletion. Amended tax returns   To figure cost depletion on a bonus, multiply your adjusted basis in the property by a fraction, the numerator of which is the bonus and the denominator of which is the total bonus and royalties expected to be received. Amended tax returns To figure cost depletion on advanced royalties, use the computation explained earlier under Cost Depletion , treating the number of units for which the advanced royalty is received as the number of units sold. Amended tax returns Figuring percentage depletion. Amended tax returns   In the case of mines, wells, and other natural deposits other than gas, oil, or geothermal property, you may use the percentage rates discussed earlier under Mines and Geothermal Deposits . Amended tax returns Any bonus or advanced royalty payments are generally part of the gross income from the property to which the rates are applied in making the calculation. Amended tax returns However, for oil, gas, or geothermal property, gross income does not include lease bonuses, advanced royalties, or other amounts payable without regard to production from the property. Amended tax returns Ending the lease. Amended tax returns   If you receive a bonus on a lease that ends or is abandoned before you derive any income from mineral extraction, include in income the depletion deduction you took. Amended tax returns Do this for the year the lease ends or is abandoned. Amended tax returns Also increase your adjusted basis in the property to restore the depletion deduction you previously subtracted. Amended tax returns   For advanced royalties, include in income the depletion claimed on minerals for which the advanced royalties were paid if the minerals were not produced before the lease ended. Amended tax returns Include this amount in income for the year the lease ends. Amended tax returns Increase your adjusted basis in the property by the amount you include in income. Amended tax returns Delay rentals. Amended tax returns   These are payments for deferring development of the property. Amended tax returns Since delay rentals are ordinary rent, they are ordinary income that is not subject to depletion. Amended tax returns These rentals can be avoided by either abandoning the lease, beginning development operations, or obtaining production. Amended tax returns Timber You can figure timber depletion only by the cost method. Amended tax returns Percentage depletion does not apply to timber. Amended tax returns Base your depletion on your cost or other basis in the timber. Amended tax returns Your cost does not include the cost of land or any amounts recoverable through depreciation. Amended tax returns Depletion takes place when you cut standing timber. Amended tax returns You can figure your depletion deduction when the quantity of cut timber is first accurately measured in the process of exploitation. Amended tax returns Figuring cost depletion. Amended tax returns   To figure your cost depletion allowance, you multiply the number of timber units cut by your depletion unit. Amended tax returns Timber units. Amended tax returns   When you acquire timber property, you must make an estimate of the quantity of marketable timber that exists on the property. Amended tax returns You measure the timber using board feet, log scale, cords, or other units. Amended tax returns If you later determine that you have more or less units of timber, you must adjust the original estimate. Amended tax returns   The term “timber property” means your economic interest in standing timber in each tract or block representing a separate timber account. Amended tax returns Depletion unit. Amended tax returns   You figure your depletion unit each year by taking the following steps. Amended tax returns Determine your cost or adjusted basis of the timber on hand at the beginning of the year. Amended tax returns Adjusted basis is defined under Cost Depletion in the discussion on Mineral Property. Amended tax returns Add to the amount determined in (1) the cost of any timber units acquired during the year and any additions to capital. Amended tax returns Figure the number of timber units to take into account by adding the number of timber units acquired during the year to the number of timber units on hand in the account at the beginning of the year and then adding (or subtracting) any correction to the estimate of the number of timber units remaining in the account. Amended tax returns Divide the result of (2) by the result of (3). Amended tax returns This is your depletion unit. Amended tax returns Example. Amended tax returns You bought a timber tract for $160,000 and the land was worth as much as the timber. Amended tax returns Your basis for the timber is $80,000. Amended tax returns Based on an estimated one million board feet (1,000 MBF) of standing timber, you figure your depletion unit to be $80 per MBF ($80,000 ÷ 1,000). Amended tax returns If you cut 500 MBF of timber, your depletion allowance would be $40,000 (500 MBF × $80). Amended tax returns When to claim depletion. Amended tax returns   Claim your depletion allowance as a deduction in the year of sale or other disposition of the products cut from the timber, unless you choose to treat the cutting of timber as a sale or exchange (explained below). Amended tax returns Include allowable depletion for timber products not sold during the tax year the timber is cut as a cost item in the closing inventory of timber products for the year. Amended tax returns The inventory is your basis for determining gain or loss in the tax year you sell the timber products. Amended tax returns Example. Amended tax returns The facts are the same as in the previous example except that you sold only half of the timber products in the cutting year. Amended tax returns You would deduct $20,000 of the $40,000 depletion that year. Amended tax returns You would add the remaining $20,000 depletion to your closing inventory of timber products. Amended tax returns Electing to treat the cutting of timber as a sale or exchange. Amended tax returns   You can elect, under certain circumstances, to treat the cutting of timber held for more than 1 year as a sale or exchange. Amended tax returns You must make the election on your income tax return for the tax year to which it applies. Amended tax returns If you make this election, subtract the adjusted basis for depletion from the fair market value of the timber on the first day of the tax year in which you cut it to figure the gain or loss on the cutting. Amended tax returns You generally report the gain as long-term capital gain. Amended tax returns The fair market value then becomes your basis for figuring your ordinary gain or loss on the sale or other disposition of the products cut from the timber. Amended tax returns For more information, see Timber in chapter 2 of Publication 544, Sales and Other Dispositions of Assets. Amended tax returns   You may revoke an election to treat the cutting of timber as a sale or exchange without IRS's consent. Amended tax returns The prior election (and revocation) is disregarded for purposes of making a subsequent election. Amended tax returns See Form T (Timber), Forest Activities Schedule, for more information. Amended tax returns Form T. Amended tax returns   Complete and attach Form T (Timber) to your income tax return if you claim a deduction for timber depletion, choose to treat the cutting of timber as a sale or exchange, or make an outright sale of timber. Amended tax returns Prev  Up  Next   Home   More Online Publications
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Amended tax returns 2. Amended tax returns   Taxable and Nontaxable Income Table of Contents Compensation for Services Retirement Plan DistributionsIndividual Retirement Arrangements (IRAs) Pensions and Annuities Social Security and Equivalent Railroad Retirement BenefitsAre Any of Your Benefits Taxable? How Much Is Taxable? How To Report Your Benefits Lump-Sum Election Repayments More Than Gross Benefits Sickness and Injury BenefitsDisability Pensions Long-Term Care Insurance Contracts Workers' Compensation Other Sickness and Injury Benefits Life Insurance ProceedsInstallments for life. Amended tax returns Surviving spouse. Amended tax returns Endowment Contract Proceeds Accelerated Death Benefits Sale of HomeMaximum Amount of Exclusion Ownership and Use Tests Married Persons Business Use or Rental of Home Reporting the Sale Reverse Mortgages Other ItemsWelfare benefits. Amended tax returns Payments from a state fund for victims of crime. Amended tax returns Home Affordable Modification Program (HAMP). Amended tax returns Mortgage assistance payments. Amended tax returns Payments to reduce cost of winter energy use. Amended tax returns Nutrition Program for the Elderly. Amended tax returns Reemployment Trade Adjustment Assistance (RTAA). Amended tax returns Generally, income is taxable unless it is specifically exempt (not taxed) by law. Amended tax returns Your taxable income may include compensation for services, interest, dividends, rents, royalties, income from partnerships, estate or trust income, gain from sales or exchanges of property, and business income of all kinds. Amended tax returns Under special provisions of the law, certain items are partially or fully exempt from tax. Amended tax returns Provisions that are of special interest to older taxpayers are discussed in this chapter. Amended tax returns Compensation for Services Generally, you must include in gross income everything you receive in payment for personal services. Amended tax returns In addition to wages, salaries, commissions, fees, and tips, this includes other forms of compensation such as fringe benefits and stock options. Amended tax returns You need not receive the compensation in cash for it to be taxable. Amended tax returns Payments you receive in the form of goods or services generally must be included in gross income at their fair market value. Amended tax returns Volunteer work. Amended tax returns   Do not include in your gross income amounts you receive for supportive services or reimbursements for out-of-pocket expenses under any of the following volunteer programs. Amended tax returns Retired Senior Volunteer Program (RSVP). Amended tax returns Foster Grandparent Program. Amended tax returns Senior Companion Program. Amended tax returns Service Corps of Retired Executives (SCORE). Amended tax returns Unemployment compensation. Amended tax returns   You must include in income all unemployment compensation you or your spouse (if married filing jointly) received. Amended tax returns More information. Amended tax returns   See Publication 525, Taxable and Nontaxable Income, for more detailed information on specific types of income. Amended tax returns Retirement Plan Distributions This section summarizes the tax treatment of amounts you receive from traditional individual retirement arrangements (IRA), employee pensions or annuities, and disability pensions or annuities. Amended tax returns A traditional IRA is any IRA that is not a Roth or SIMPLE IRA. Amended tax returns A Roth IRA is an individual retirement plan that can be either an account or an annuity and features nondeductible contributions and tax-free distributions. Amended tax returns A SIMPLE IRA is a tax-favored retirement plan that certain small employers (including self-employed individuals) can set up for the benefit of their employees. Amended tax returns More detailed information can be found in Publication 590, Individual Retirement Arrangements (IRAs), and Publication 575, Pension and Annuity Income. Amended tax returns Individual Retirement Arrangements (IRAs) In general, distributions from a traditional IRA are taxable in the year you receive them. Amended tax returns Exceptions to the general rule are rollovers, tax-free withdrawals of contributions, and the return of nondeductible contributions. Amended tax returns These are discussed in Publication 590. Amended tax returns If you made nondeductible contributions to a traditional IRA, you must file Form 8606, Nondeductible IRAs. Amended tax returns If you do not file Form 8606 with your return, you may have to pay a $50 penalty. Amended tax returns Also, when you receive distributions from your traditional IRA, the amounts will be taxed unless you can show, with satisfactory evidence, that nondeductible contributions were made. Amended tax returns Early distributions. Amended tax returns   Generally, early distributions are amounts distributed from your traditional IRA account or annuity before you are age 59½, or amounts you receive when you cash in retirement bonds before you are age  59½. Amended tax returns You must include early distributions of taxable amounts in your gross income. Amended tax returns These taxable amounts are also subject to an additional 10% tax unless the distribution qualifies for an exception. Amended tax returns For purposes of the additional 10% tax, an IRA is a qualified retirement plan. Amended tax returns For more information about this tax, see Tax on Early Distributions under Pensions and Annuities, later. Amended tax returns After age 59½ and before age 70½. Amended tax returns   After you reach age 59½, you can receive distributions from your traditional IRA without having to pay the 10% additional tax. Amended tax returns Even though you can receive distributions after you reach age 59½, distributions are not required until you reach  age 70½. Amended tax returns Required distributions. Amended tax returns   If you are the owner of a traditional IRA, you generally must receive the entire balance in your IRA or start receiving periodic distributions from your IRA by April 1 of the year following the year in which you reach age 70½. Amended tax returns See When Must You Withdraw Assets? (Required Minimum Distributions) in Publication 590. Amended tax returns If distributions from your traditional IRA(s) are less than the required minimum distribution for the year, you may have to pay a 50% excise tax for that year on the amount not distributed as required. Amended tax returns For purposes of the 50% excise tax, an IRA is a qualified retirement plan. Amended tax returns For more information about this tax, see Tax on Excess Accumulation under Pensions and Annuities, later. Amended tax returns See also Excess Accumulations (Insufficient Distributions) in Publication 590. Amended tax returns Pensions and Annuities Generally, if you did not pay any part of the cost of your employee pension or annuity, and your employer did not withhold part of the cost of the contract from your pay while you worked, the amounts you receive each year are fully taxable. Amended tax returns However, see Insurance Premiums for Retired Public Safety Officers , later. Amended tax returns If you paid part of the cost of your pension or annuity plan (see Cost , later), you can exclude part of each annuity payment from income as a recovery of your cost (investment in the contract). Amended tax returns This tax-free part of the payment is figured when your annuity starts and remains the same each year, even if the amount of the payment changes. Amended tax returns The rest of each payment is taxable. Amended tax returns However, see Insurance Premiums for Retired Public Safety Officers , later. Amended tax returns You figure the tax-free part of the payment using one of the following methods. Amended tax returns Simplified Method. Amended tax returns You generally must use this method if your annuity is paid under a qualified plan (a qualified employee plan, a qualified employee annuity, or a tax-sheltered annuity plan or contract). Amended tax returns You cannot use this method if your annuity is paid under a nonqualified plan. Amended tax returns General Rule. Amended tax returns You must use this method if your annuity is paid under a nonqualified plan. Amended tax returns You generally cannot use this method if your annuity is paid under a qualified plan. Amended tax returns Contact your employer or plan administrator to find out if your pension or annuity is paid under a qualified or nonqualified plan. Amended tax returns You determine which method to use when you first begin receiving your annuity, and you continue using it each year that you recover part of your cost. Amended tax returns Exclusion limit. Amended tax returns   If your annuity starting date is after 1986, the total amount of annuity income you can exclude over the years as a recovery of the cost cannot exceed your total cost. Amended tax returns Any unrecovered cost at your (or the last annuitant's) death is allowed as a miscellaneous itemized deduction on the final return of the decedent. Amended tax returns This deduction is not subject to the 2%-of-adjusted-gross-income limit on miscellaneous deductions. Amended tax returns   If you contributed to your pension or annuity and your annuity starting date is before 1987, you can continue to take your monthly exclusion for as long as you receive your annuity. Amended tax returns If you chose a joint and survivor annuity, your survivor can continue to take the survivor's exclusion figured as of the annuity starting date. Amended tax returns The total exclusion may be more than your cost. Amended tax returns Cost. Amended tax returns   Before you can figure how much, if any, of your pension or annuity benefits are taxable, you must determine your cost in the plan (your investment in the contract). Amended tax returns Your total cost in the plan includes everything that you paid. Amended tax returns It also includes amounts your employer contributed that were taxable to you when paid. Amended tax returns However, see Foreign employment contributions , later. Amended tax returns   From this total cost, subtract any refunded premiums, rebates, dividends, unrepaid loans, or other tax-free amounts you received by the later of the annuity starting date or the date on which you received your first payment. Amended tax returns   The annuity starting date is the later of the first day of the first period for which you received a payment from the plan or the date on which the plan's obligations became fixed. Amended tax returns    The amount of your contributions to the plan may be shown in box 9b of any Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. Amended tax returns , that you receive. Amended tax returns Foreign employment contributions. Amended tax returns   If you worked abroad, certain amounts your employer paid into your retirement plan that were not includible in your gross income may be considered part of your cost. Amended tax returns For details, see Foreign employment contributions in Publication 575. Amended tax returns Withholding. Amended tax returns   The payer of your pension, profit-sharing, stock bonus, annuity, or deferred compensation plan will withhold income tax on the taxable part of amounts paid to you. Amended tax returns However, you can choose not to have tax withheld on the payments you receive, unless they are eligible rollover distributions. Amended tax returns (These are distributions that are eligible for rollover treatment but are not paid directly to another qualified retirement plan or to a traditional IRA. Amended tax returns ) See Withholding Tax and Estimated Tax and Rollovers in Publication 575 for more information. Amended tax returns   For payments other than eligible rollover distributions, you can tell the payer how much to withhold by filing a Form W-4P, Withholding Certificate for Pension or Annuity Payments. Amended tax returns Simplified Method. Amended tax returns   Under the Simplified Method, you figure the tax-free part of each annuity payment by dividing your cost by the total number of anticipated monthly payments. Amended tax returns For an annuity that is payable over the lives of the annuitants, this number is based on the annuitants' ages on the annuity starting date and is determined from a table. Amended tax returns For any other annuity, this number is the number of monthly annuity payments under the contract. Amended tax returns Who must use the Simplified Method. Amended tax returns   You must use the Simplified Method if your annuity starting date is after November 18, 1996, and you receive your pension or annuity payments from a qualified plan or annuity, unless you were at least 75 years old and entitled to at least 5 years of guaranteed payments (defined next). Amended tax returns   In addition, if your annuity starting date is after July 1, 1986, and before November 19, 1996, you could have chosen to use the Simplified Method for payments from a qualified plan, unless you were at least 75 years old and entitled to at least 5 years of guaranteed payments. Amended tax returns If you chose to use the Simplified Method, you must continue to use it each year that you recover part of your cost. Amended tax returns Guaranteed payments. Amended tax returns   Your annuity contract provides guaranteed payments if a minimum number of payments or a minimum amount (for example, the amount of your investment) is payable even if you and any survivor annuitant do not live to receive the minimum. Amended tax returns If the minimum amount is less than the total amount of the payments you are to receive, barring death, during the first 5 years after payments begin (figured by ignoring any payment increases), you are entitled to less than 5 years of guaranteed payments. Amended tax returns Who cannot use the Simplified Method. Amended tax returns   You cannot use the Simplified Method and must use the General Rule if you receive pension or annuity payments from: A nonqualified plan, such as a private annuity, a purchased commercial annuity, or a nonqualified employee plan, or A qualified plan if you are age 75 or older on your annuity starting date and you are entitled to at least 5 years of guaranteed payments (defined above). Amended tax returns   In addition, you had to use the General Rule for either circumstance described above if your annuity starting date is after July 1, 1986, and before November 19, 1996. Amended tax returns If you did not have to use the General Rule, you could have chosen to use it. Amended tax returns You also had to use the General Rule for payments from a qualified plan if your annuity starting date is before July 2, 1986, and you did not qualify to use the Three-Year Rule. Amended tax returns   If you had to use the General Rule (or chose to use it), you must continue to use it each year that you recover your cost. Amended tax returns   Unless your annuity starting date was before 1987, once you have recovered all of your non-taxable investment, all of each remaining payment you receive is fully taxable. Amended tax returns Once your remaining payments are fully taxable, there is no longer a concern with the General Rule or Simplified Method. Amended tax returns   Complete information on the General Rule, including the actuarial tables you need, is contained in Publication 939, General Rule for Pensions and Annuities. Amended tax returns How to use the Simplified Method. Amended tax returns   Complete the Simplified Method Worksheet in the Form 1040, Form 1040A, or Form 1040NR instructions or in Publication 575 to figure your taxable annuity for 2013. Amended tax returns Be sure to keep the completed worksheet; it will help you figure your taxable annuity next year. Amended tax returns   To complete line 3 of the worksheet, you must determine the total number of expected monthly payments for your annuity. Amended tax returns How you do this depends on whether the annuity is for a single life, multiple lives, or a fixed period. Amended tax returns For this purpose, treat an annuity that is payable over the life of an annuitant as payable for that annuitant's life even if the annuity has a fixed-period feature or also provides a temporary annuity payable to the annuitant's child under age 25. Amended tax returns    You do not need to complete line 3 of the worksheet or make the computation on line 4 if you received annuity payments last year and used last year's worksheet to figure your taxable annuity. Amended tax returns Instead, enter the amount from line 4 of last year's worksheet on line 4 of this year's worksheet. Amended tax returns Single-life annuity. Amended tax returns   If your annuity is payable for your life alone, use Table 1 at the bottom of the worksheet to determine the total number of expected monthly payments. Amended tax returns Enter on line 3 the number shown for your age on your annuity starting date. Amended tax returns This number will differ depending on whether your annuity starting date is before November 19, 1996, or after November 18, 1996. Amended tax returns Multiple-lives annuity. Amended tax returns   If your annuity is payable for the lives of more than one annuitant, use Table 2 at the bottom of the worksheet to determine the total number of expected monthly payments. Amended tax returns Enter on line 3 the number shown for the annuitants' combined ages on the annuity starting date. Amended tax returns For an annuity payable to you as the primary annuitant and to more than one survivor annuitant, combine your age and the age of the youngest survivor annuitant. Amended tax returns For an annuity that has no primary annuitant and is payable to you and others as survivor annuitants, combine the ages of the oldest and youngest annuitants. Amended tax returns Do not treat as a survivor annuitant anyone whose entitlement to payments depends on an event other than the primary annuitant's death. Amended tax returns   However, if your annuity starting date is before 1998, do not use Table 2 and do not combine the annuitants' ages. Amended tax returns Instead, you must use Table 1 at the bottom of the worksheet and enter on line 3 the number shown for the primary annuitant's age on the annuity starting date. Amended tax returns This number will differ depending on whether your annuity starting date is before November 19, 1996, or after November 18, 1996. Amended tax returns Fixed-period annuities. Amended tax returns   If your annuity does not depend in whole or in part on anyone's life expectancy, the total number of expected monthly payments to enter on line 3 of the worksheet is the number of monthly annuity payments under the contract. Amended tax returns Line 6. Amended tax returns   The amount on line 6 should include all amounts that could have been recovered in prior years. Amended tax returns If you did not recover an amount in a prior year, you may be able to amend your returns for the affected years. Amended tax returns    Be sure to keep a copy of the completed worksheet; it will help you figure your taxable annuity in later years. Amended tax returns Example. Amended tax returns Bill Smith, age 65, began receiving retirement benefits in 2013, under a joint and survivor annuity. Amended tax returns Bill's annuity starting date is January 1, 2013. Amended tax returns The benefits are to be paid over the joint lives of Bill and his wife, Kathy, age 65. Amended tax returns Bill had contributed $31,000 to a qualified plan and had received no distributions before the annuity starting date. Amended tax returns Bill is to receive a retirement benefit of $1,200 a month, and Kathy is to receive a monthly survivor benefit of $600 upon Bill's death. Amended tax returns Bill must use the Simplified Method to figure his taxable annuity because his payments are from a qualified plan and he is under age 75. Amended tax returns See the illustrated Worksheet 2-A, Simplified Method Worksheet, later. Amended tax returns You can find a blank version of this worksheet in Publication 575. Amended tax returns (The references in the illustrated worksheet are to sections in Publication 575). Amended tax returns His annuity is payable over the lives of more than one annuitant, so Bill uses his and Kathy's combined ages, 130 (65 + 65), and Table 2 at the bottom of the worksheet in completing line 3 of the worksheet and finds the line 3 amount to be 310. Amended tax returns Bill's tax-free monthly amount is $100 ($31,000 ÷ 310 as shown on line 4 of the worksheet). Amended tax returns Upon Bill's death, if Bill has not recovered the full $31,000 investment, Kathy will also exclude $100 from her $600 monthly payment. Amended tax returns The full amount of any annuity payments received after 310 payments are paid must generally be included in gross income. Amended tax returns If Bill and Kathy die before 310 payments are made, a miscellaneous itemized deduction will be allowed for the unrecovered cost on the final income tax return of the last to die. Amended tax returns This deduction is not subject to the 2%-of-adjusted-gross-income limit. Amended tax returns Worksheet 2-A. Amended tax returns Simplified Method Worksheet—Illustrated 1. Amended tax returns Enter the total pension or annuity payments received this year. Amended tax returns Also, add this amount to the total for Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a 1. Amended tax returns $ 14,400 2. Amended tax returns Enter your cost in the plan (contract) at the annuity starting date plus any death benefit exclusion* See Cost (Investment in the Contract), earlier 2. Amended tax returns 31,000   Note. Amended tax returns If your annuity starting date was before this year and you completed this worksheet last year, skip line 3 and enter the amount from line 4 of last year's worksheet on line 4 below (even if the amount of your pension or annuity has changed). Amended tax returns Otherwise, go to line 3. Amended tax returns     3. Amended tax returns Enter the appropriate number from Table 1 below. Amended tax returns But if your annuity starting date was after 1997 and the payments are for your life and that of your beneficiary, enter the appropriate number from Table 2 below 3. Amended tax returns 310 4. Amended tax returns Divide line 2 by the number on line 3 4. Amended tax returns 100 5. Amended tax returns Multiply line 4 by the number of months for which this year's payments were made. Amended tax returns If your annuity starting date was before 1987, enter this amount on line 8 below and skip lines 6, 7, 10, and 11. Amended tax returns Otherwise, go to line 6 5. Amended tax returns 1,200 6. Amended tax returns Enter any amount previously recovered tax free in years after 1986. Amended tax returns This is the amount shown on line 10 of your worksheet for last year 6. Amended tax returns 0 7. Amended tax returns Subtract line 6 from line 2 7. Amended tax returns 31,000 8. Amended tax returns Enter the smaller of line 5 or line 7 8. Amended tax returns 1,200 9. Amended tax returns Taxable amount for year. Amended tax returns Subtract line 8 from line 1. Amended tax returns Enter the result, but not less than zero. Amended tax returns Also, add this amount to the total for Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b. Amended tax returns Note. Amended tax returns If your Form 1099-R shows a larger taxable amount, use the amount figured on this line instead. Amended tax returns If you are a retired public safety officer, see Insurance Premiums for Retired Public Safety Officers, earlier, before entering an amount on your tax return. Amended tax returns 9. Amended tax returns $ 13,200 10. Amended tax returns Was your annuity starting date before 1987? □ Yes. Amended tax returns STOP. Amended tax returns Do not complete the rest of this worksheet. Amended tax returns  ☑ No. Amended tax returns Add lines 6 and 8. Amended tax returns This is the amount you have recovered tax free through 2013. Amended tax returns You will need this number if you need to fill out this worksheet next year. Amended tax returns 10. Amended tax returns 1,200 11. Amended tax returns Balance of cost to be recovered. Amended tax returns Subtract line 10 from line 2. Amended tax returns If zero, you will not have to complete this worksheet next year. Amended tax returns The payments you receive next year will generally be fully taxable 11. Amended tax returns $ 29,800 * A death benefit exclusion (up to $5,000) applied to certain benefits received by employees who died before August 21, 1996. Amended tax returns   Table 1 for Line 3 Above       AND your annuity starting date was—   IF your age on your annuity starting date was . Amended tax returns . Amended tax returns . Amended tax returns   BEFORE November 19, 1996, enter on line 3 . Amended tax returns . Amended tax returns . Amended tax returns AFTER November 18, 1996, enter on line 3 . Amended tax returns . Amended tax returns . Amended tax returns   55 or under 300 360   56-60 260 310   61-65 240 260   66-70 170 210   71 or over 120 160 Table 2 for Line 3 Above   IF the annuitants' combined ages on your annuity starting date were . Amended tax returns . Amended tax returns . Amended tax returns   THEN enter on line 3 . Amended tax returns . Amended tax returns . Amended tax returns         110 or under   410         111-120   360         121-130   310         131-140   260         141 or over   210       Survivors of retirees. Amended tax returns   Benefits paid to you as a survivor under a joint and survivor annuity must be included in your gross income in the same way the retiree would have included them in gross income. Amended tax returns   If you receive a survivor annuity because of the death of a retiree who had reported the annuity under the Three-Year Rule, include the total received in your income. Amended tax returns The retiree's cost has already been recovered tax free. Amended tax returns   If the retiree was reporting the annuity payments under the General Rule, you must apply the same exclusion percentage the retiree used to your initial payment called for in the contract. Amended tax returns The resulting tax-free amount will then remain fixed. Amended tax returns Any increases in the survivor annuity are fully taxable. Amended tax returns   If the retiree was reporting the annuity payments under the Simplified Method, the part of each payment that is tax free is the same as the tax-free amount figured by the retiree at the annuity starting date. Amended tax returns See Simplified Method , earlier. Amended tax returns How to report. Amended tax returns   If you file Form 1040, report your total annuity on line 16a, and the taxable part on line 16b. Amended tax returns If your pension or annuity is fully taxable, enter it on line 16b. Amended tax returns Do not make an entry on line 16a. Amended tax returns   If you file Form 1040A, report your total annuity on line 12a, and the taxable part on line 12b. Amended tax returns If your pension or annuity is fully taxable, enter it on line 12b. Amended tax returns Do not make an entry on line 12a. Amended tax returns   If you file Form 1040NR, report your total annuity on line 17a, and the taxable part on line 17b. Amended tax returns If your pension or annuity is fully taxable, enter it on line 17b. Amended tax returns Do not make an entry on line 17a. Amended tax returns Example. Amended tax returns You are a Form 1040 filer and you received monthly payments totaling $1,200 (12 months x $100) during 2013 from a pension plan that was completely financed by your employer. Amended tax returns You had paid no tax on the payments that your employer made to the plan, and the payments were not used to pay for accident, health, or long-term care insurance premiums (as discussed later under Insurance Premiums for Retired Public Safety Officers ). Amended tax returns The entire $1,200 is taxable. Amended tax returns You include $1,200 only on Form 1040, line 16b. Amended tax returns Joint return. Amended tax returns   If you file a joint return and you and your spouse each receive one or more pensions or annuities, report the total of the pensions and annuities on line 16a of Form 1040, line 12a of Form 1040A, or line 17a of Form 1040NR. Amended tax returns Report the total of the taxable parts on line 16b of Form 1040, line 12b of Form 1040A, or line 17b of Form 1040NR. Amended tax returns Form 1099-R. Amended tax returns   You should receive a Form 1099-R for your pension or annuity. Amended tax returns Form 1099-R shows your pension or annuity for the year and any income tax withheld. Amended tax returns You should receive a Form W-2 if you receive distributions from certain nonqualified plans. Amended tax returns You must attach Forms 1099-R or Forms W-2 to your 2013 tax return if federal income tax was withheld. Amended tax returns Generally, you should be sent these forms by January 31, 2014. Amended tax returns Nonperiodic Distributions If you receive a nonperiodic distribution from your retirement plan, you may be able to exclude all or part of it from your income as a recovery of your cost. Amended tax returns Nonperiodic distributions include cash withdrawals, distributions of current earnings (dividends) on your investment, and certain loans. Amended tax returns For information on how to figure the taxable amount of a nonperiodic distribution, see Taxation of Nonperiodic Payments in Publication 575. Amended tax returns The taxable part of a nonperiodic distribution may be subject to an additional 10% tax. Amended tax returns See Tax on Early Distributions, later. Amended tax returns Lump-sum distributions. Amended tax returns   If you receive a lump-sum distribution from a qualified employee plan or qualified employee annuity and the plan participant was born before January 2, 1936, you may be able to elect optional methods of figuring the tax on the distribution. Amended tax returns The part from active participation in the plan before 1974 may qualify as capital gain subject to a 20% tax rate. Amended tax returns The part from participation after 1973 (and any part from participation before 1974 that you do not report as capital gain) is ordinary income. Amended tax returns You may be able to use the 10-year tax option to figure tax on the ordinary income part. Amended tax returns Form 1099-R. Amended tax returns   If you receive a total distribution from a plan, you should receive a Form 1099-R. Amended tax returns If the distribution qualifies as a lump-sum distribution, box 3 shows the capital gain part of the distribution. Amended tax returns The amount in box 2a, Taxable amount, minus the amount in box 3, Capital gain, is the ordinary income part. Amended tax returns More information. Amended tax returns   For more detailed information on lump-sum distributions, see Publication 575 or Form 4972, Tax on Lump-Sum Distributions. Amended tax returns Tax on Early Distributions Most distributions you receive from your qualified retirement plan and nonqualified annuity contracts before you reach age 59½ are subject to an additional tax of 10%. Amended tax returns The tax applies to the taxable part of the distribution. Amended tax returns For this purpose, a qualified retirement plan is: A qualified employee plan (including a qualified cash or deferred arrangement (CODA) under Internal Revenue Code section 401(k)), A qualified employee annuity plan, A tax-sheltered annuity plan (403(b) plan), or An eligible state or local government section 457 deferred compensation plan (to the extent that any distribution is attributable to amounts the plan received in a direct transfer or rollover from one of the other plans listed here or an IRA). Amended tax returns  An IRA is also a qualified retirement plan for purposes of this tax. Amended tax returns General exceptions to tax. Amended tax returns   The early distribution tax does not apply to any distributions that are: Made as part of a series of substantially equal periodic payments (made at least annually) for your life (or life expectancy) or the joint lives (or joint life expectancies) of you and your designated beneficiary (if from a qualified retirement plan, the payments must begin after separation from service), Made because you are totally and permanently disabled, or Made on or after the death of the plan participant or contract holder. Amended tax returns Additional exceptions. Amended tax returns   There are additional exceptions to the early distribution tax for certain distributions from qualified retirement plans and nonqualified annuity contracts. Amended tax returns See Publication 575 for details. Amended tax returns Reporting tax. Amended tax returns   If you owe only the tax on early distributions and distribution code 1 (early distribution, no known exception) is correctly shown in Form 1099-R, box 7, multiply the taxable part of the early distribution by 10% (. Amended tax returns 10) and enter the result on Form 1040, line 58, or Form 1040NR, line 56. Amended tax returns See the instructions for line 58 of Form 1040 or line 56 of Form 1040NR for more information about reporting the early distribution tax. Amended tax returns Tax on Excess Accumulation To make sure that most of your retirement benefits are paid to you during your lifetime, rather than to your beneficiaries after your death, the payments that you receive from qualified retirement plans must begin no later than your required beginning date. Amended tax returns Unless the rule for 5% owners applies, this is generally April 1 of the year that follows the later of: The calendar year in which you reach age 70½, or The calendar year in which you retire from employment with the employer maintaining the plan. Amended tax returns However, your plan may require you to begin to receive payments by April 1 of the year that follows the year in which you reach 70½, even if you have not retired. Amended tax returns For this purpose, a qualified retirement plan includes: A qualified employee plan, A qualified employee annuity plan, An eligible section 457 deferred compensation plan, or A tax-sheltered annuity plan (403(b) plan) (for benefits accruing after 1986). Amended tax returns  An IRA is also a qualified retirement plan for purposes of this tax. Amended tax returns An excess accumulation is the undistributed remainder of the required minimum distribution that was left in your qualified retirement plan. Amended tax returns 5% owners. Amended tax returns   If you own (or are considered to own under section 318 of the Internal Revenue Code) more than 5% of the company maintaining your qualified retirement plan, you must begin to receive distributions from the plan by April 1 of the year after the calendar year in which you reach age 70½. Amended tax returns See Publication 575 for more information. Amended tax returns Amount of tax. Amended tax returns   If you do not receive the required minimum distribution, you are subject to an additional tax. Amended tax returns The tax equals 50% of the difference between the amount that must be distributed and the amount that was distributed during the tax year. Amended tax returns You can get this excise tax excused if you establish that the shortfall in distributions was due to reasonable error and that you are taking reasonable steps to remedy the shortfall. Amended tax returns Form 5329. Amended tax returns   You must file a Form 5329 if you owe a tax because you did not receive a minimum required distribution from your qualified retirement plan. Amended tax returns Additional information. Amended tax returns   For more detailed information on the tax on excess accumulation, see Publication 575. Amended tax returns Insurance Premiums for Retired Public Safety Officers If you are an eligible retired public safety officer (law enforcement officer, firefighter, chaplain, or member of a rescue squad or ambulance crew), you can elect to exclude from income distributions made from your eligible retirement plan that are used to pay the premiums for accident or health insurance or long-term care insurance. Amended tax returns The premiums can be for coverage for you, your spouse, or dependent(s). Amended tax returns The distribution must be made directly from the plan to the insurance provider. Amended tax returns You can exclude from income the smaller of the amount of the insurance premiums or $3,000. Amended tax returns You can only make this election for amounts that would otherwise be included in your income. Amended tax returns The amount excluded from your income cannot be used to claim a medical expense deduction. Amended tax returns An eligible retirement plan is a governmental plan that is a: Qualified trust, Section 403(a) plan, Section 403(b) annuity, or Section 457(b) plan. Amended tax returns If you make this election, reduce the otherwise taxable amount of your pension or annuity by the amount excluded. Amended tax returns The taxable amount shown in box 2a of any Form 1099-R that you receive does not reflect the exclusion. Amended tax returns Report your total distributions on Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a. Amended tax returns Report the taxable amount on Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b. Amended tax returns Enter “PSO” next to the appropriate line on which you report the taxable amount. Amended tax returns Railroad Retirement Benefits Benefits paid under the Railroad Retirement Act fall into two categories. Amended tax returns These categories are treated differently for income tax purposes. Amended tax returns Social security equivalent benefits. Amended tax returns   The first category is the amount of tier 1 railroad retirement benefits that equals the social security benefit that a railroad employee or beneficiary would have been entitled to receive under the social security system. Amended tax returns This part of the tier 1 benefit is the social security equivalent benefit (SSEB) and is treated for tax purposes like social security benefits. Amended tax returns (See Social Security and Equivalent Railroad Retirement Benefits , later. Amended tax returns ) Non-social security equivalent benefits. Amended tax returns   The second category contains the rest of the tier 1 benefits, called the non-social security equivalent benefit (NSSEB). Amended tax returns It also contains any tier 2 benefit, vested dual benefit (VDB), and supplemental annuity benefit. Amended tax returns This category of benefits is treated as an amount received from a qualified employee plan. Amended tax returns This allows for the tax-free (nontaxable) recovery of employee contributions from the tier 2 benefits and the NSSEB part of the tier 1 benefits. Amended tax returns Vested dual benefits and supplemental annuity benefits are non-contributory pensions and are fully taxable. Amended tax returns More information. Amended tax returns   For more information about railroad retirement benefits, see Publication 575. Amended tax returns Military Retirement Pay Military retirement pay based on age or length of service is taxable and must be included in income as a pension on Form 1040, lines 16a and 16b; on Form 1040A, lines 12a and 12b; or on Form 1040NR, lines 17a and 17b. Amended tax returns But, certain military and government disability pensions that are based on a percentage of disability from active service in the Armed Forces of any country generally are not taxable. Amended tax returns For more information, including information about veterans' benefits and insurance, see Publication 525. Amended tax returns Social Security and Equivalent Railroad Retirement Benefits This discussion explains the federal income tax rules for social security benefits and equivalent tier 1 railroad retirement benefits. Amended tax returns Social security benefits include monthly retirement, survivor, and disability benefits. Amended tax returns They do not include supplemental security income (SSI) payments, which are not taxable. Amended tax returns Equivalent tier 1 railroad retirement benefits are the part of tier 1 benefits that a railroad employee or beneficiary would have been entitled to receive under the social security system. Amended tax returns They commonly are called the social security equivalent benefit (SSEB) portion of tier 1 benefits. Amended tax returns If you received these benefits during 2013, you should have received a Form SSA-1099 or Form RRB-1099 (Form SSA-1042S or Form RRB-1042S if you are a nonresident alien), showing the amount of the benefits. Amended tax returns Are Any of Your Benefits Taxable? Note. Amended tax returns When the term “benefits” is used in this section, it applies to both social security benefits and the SSEB portion of tier 1 railroad retirement benefits. Amended tax returns  To find out whether any of your benefits may be taxable, compare the base amount for your filing status (explained later) with the total of: One-half of your benefits, plus All your other income, including tax-exempt interest. Amended tax returns When making this comparison, do not reduce your other income by any exclusions for: Interest from qualified U. Amended tax returns S. Amended tax returns savings bonds, Employer-provided adoption benefits, Foreign earned income or foreign housing, or Income earned in American Samoa or Puerto Rico by bona fide residents. Amended tax returns Figuring total income. Amended tax returns   To figure the total of one-half of your benefits plus your other income, use Worksheet 2-B. Amended tax returns If that total amount is more than your base amount, part of your benefits may be taxable. Amended tax returns If you are married and file a joint return for 2013, you and your spouse must combine your incomes and your benefits to figure whether any of your combined benefits are taxable. Amended tax returns Even if your spouse did not receive any benefits, you must add your spouse's income to yours to figure whether any of your benefits are taxable. Amended tax returns If the only income you received during 2013 was your social security or the SSEB portion of tier 1 railroad retirement benefits, your benefits generally are not taxable and you probably do not have to file a return. Amended tax returns If you have income in addition to your benefits, you may have to file a return even if none of your benefits are taxable. Amended tax returns Worksheet 2-B. Amended tax returns A Quick Way To Check if Your Benefits May Be Taxable A. Amended tax returns Enter the amount from box 5 of all your Forms SSA-1099 and RRB-1099. Amended tax returns Include  the full amount of any lump-sum benefit payments received in 2013, for 2013 and  earlier years. Amended tax returns (If you received more than one form, combine the amounts from box 5  and enter the total. Amended tax returns ) A. Amended tax returns     Note. Amended tax returns If the amount on line A is zero or less, stop here; none of your benefits are  taxable this year. Amended tax returns     B. Amended tax returns Enter one-half of the amount on line A B. Amended tax returns   C. Amended tax returns Enter your taxable pensions, wages, interest, dividends, and other taxable income C. Amended tax returns   D. Amended tax returns Enter any tax-exempt interest income (such as interest on municipal bonds) plus any exclusions from income for: •Interest from qualified U. Amended tax returns S. Amended tax returns savings bonds, •Employer-provided adoption benefits, •Foreign earned income or foreign housing, or •Income earned in American Samoa or Puerto Rico by bona fide residents D. Amended tax returns   E. Amended tax returns Add lines B, C, and D and enter the total E. Amended tax returns   F. Amended tax returns If you are: •Married filing jointly, enter $32,000 •Single, head of household, qualifying widow(er), or married filing separately and you  lived apart from your spouse for all of 2013, enter $25,000 •Married filing separately and you lived with your spouse at any time during 2013,  enter -0- F. Amended tax returns   G. Amended tax returns Is the amount on line F less than or equal to the amount on line E? □ No. Amended tax returns None of your benefits are taxable this year. Amended tax returns  □ Yes. Amended tax returns Some of your benefits may be taxable. Amended tax returns To figure how much of your benefits  are taxable, see Which worksheet to use under How Much Is Taxable. Amended tax returns     Base Amount Your base amount is: $25,000 if you are single, head of household, or qualifying widow(er) with dependent child, $25,000 if you are married filing separately and lived apart from your spouse for all of 2013, $32,000 if you are married filing jointly, or $0 if you are married filing separately and lived with your spouse at any time during 2013. Amended tax returns Repayment of Benefits Any repayment of benefits you made during 2013 must be subtracted from the gross benefits you received in 2013. Amended tax returns It does not matter whether the repayment was for a benefit you received in 2013 or in an earlier year. Amended tax returns If you repaid more than the gross benefits you received in 2013, see Repayments More Than Gross Benefits , later. Amended tax returns Your gross benefits are shown in box 3 of Form SSA-1099 or Form RRB-1099. Amended tax returns Your repayments are shown in box 4. Amended tax returns The amount in box 5 shows your net benefits for 2013 (box 3 minus box 4). Amended tax returns Use the amount in box 5 to figure whether any of your benefits are taxable. Amended tax returns Tax Withholding and Estimated Tax You can choose to have federal income tax withheld from your social security and/or the SSEB portion of your tier 1 railroad retirement benefits. Amended tax returns If you choose to do this, you must complete a Form W-4V, Voluntary Withholding Request. Amended tax returns If you do not choose to have income tax withheld, you may have to request additional withholding from other income, or pay estimated tax during the year. Amended tax returns For details, see Publication 505, Tax Withholding and Estimated Tax, or the instructions for Form 1040-ES, Estimated Tax for Individuals. Amended tax returns How Much Is Taxable? If part of your benefits is taxable, how much is taxable depends on the total amount of your benefits and other income. Amended tax returns Generally, the higher that total amount, the greater the taxable part of your benefits. Amended tax returns Maximum taxable part. Amended tax returns   The taxable part of your benefits usually cannot be more than 50%. Amended tax returns However, up to 85% of your benefits can be taxable if either of the following situations applies to you. Amended tax returns The total of one-half of your benefits and all your other income is more than $34,000 ($44,000 if you are married filing jointly). Amended tax returns You are married filing separately and lived with your spouse at any time during 2013. Amended tax returns   If you are a nonresident alien, 85% of your benefits are taxable. Amended tax returns However, this income is exempt under some tax treaties. Amended tax returns Which worksheet to use. Amended tax returns   A worksheet to figure your taxable benefits is in the instructions for your Form 1040 or 1040A. Amended tax returns However, you will need to use a different worksheet(s) if any of the following situations applies to you. Amended tax returns You contributed to a traditional individual retirement arrangement (IRA) and you or your spouse were covered by a retirement plan at work. Amended tax returns In this situation, you must use the special worksheets in Appendix B of Publication 590 to figure both your IRA deduction and your taxable benefits. Amended tax returns Situation (1) does not apply and you take one or more of the following exclusions. Amended tax returns Interest from qualified U. Amended tax returns S. Amended tax returns savings bonds (Form 8815). Amended tax returns Employer-provided adoption benefits (Form 8839). Amended tax returns Foreign earned income or housing (Form 2555 or Form 2555-EZ). Amended tax returns Income earned in American Samoa (Form 4563) or Puerto Rico by bona fide residents. Amended tax returns In these situations, you must use Worksheet 1 in Publication 915, Social Security and Equivalent Railroad Retirement Benefits, to figure your taxable benefits. Amended tax returns You received a lump-sum payment for an earlier year. Amended tax returns In this situation, also complete Worksheet 2 or 3 and Worksheet 4 in Publication 915. Amended tax returns See Lump-Sum Election , later. Amended tax returns How To Report Your Benefits If part of your benefits are taxable, you must use Form 1040, Form 1040A, or Form 1040NR. Amended tax returns You cannot use Form 1040EZ. Amended tax returns Reporting on Form 1040. Amended tax returns   Report your net benefits (the amount in box 5 of your Form SSA-1099 or Form RRB-1099) on line 20a and the taxable part on line 20b. Amended tax returns If you are married filing separately and you lived apart from your spouse for all of 2013, also enter “D” to the right of the word “benefits” on line 20a. Amended tax returns Reporting on Form 1040A. Amended tax returns   Report your net benefits (the amount in box 5 of your Form SSA-1099 or Form RRB-1099) on line 14a and the taxable part on line 14b. Amended tax returns If you are married filing separately and you lived apart from your spouse for all of 2013, also enter “D” to the right of the word “benefits” on line 14a. Amended tax returns Reporting on Form 1040NR. Amended tax returns   Report 85% of the total amount of your benefits (box 5 of your Form SSA-1042S or Form RRB-1042S) in the appropriate column of Form 1040NR, Schedule NEC, line 8. Amended tax returns Benefits not taxable. Amended tax returns   If you are filing Form 1040EZ, do not report any benefits on your tax return. Amended tax returns If you are filing Form 1040 or Form 1040A, report your net benefits (the amount in box 5 of your Form SSA-1099 or Form RRB-1099) on Form 1040, line 20a, or Form 1040A, line 14a. Amended tax returns Enter -0- on Form 1040, line 20b, or Form 1040A, line 14b. Amended tax returns If you are married filing separately and you lived apart from your spouse for all of 2013, also enter “D” to the right of the word “benefits” on Form 1040, line 20a, or Form 1040A, line 14a. Amended tax returns Lump-Sum Election You must include the taxable part of a lump-sum (retroactive) payment of benefits received in 2013 in your 2013 income, even if the payment includes benefits for an earlier year. Amended tax returns This type of lump-sum benefit payment should not be confused with the lump-sum death benefit that both the SSA and RRB pay to many of their beneficiaries. Amended tax returns No part of the lump-sum death benefit is subject to tax. Amended tax returns For more information about the lump-sum death benefit, visit the Social Security Administration website at www. Amended tax returns SSA. Amended tax returns gov, and use keyword: death benefit. Amended tax returns Generally, you use your 2013 income to figure the taxable part of the total benefits received in 2013. Amended tax returns However, you may be able to figure the taxable part of a lump-sum payment for an earlier year separately, using your income for the earlier year. Amended tax returns You can elect this method if it lowers your taxable benefits. Amended tax returns See Publication 915 for more information. Amended tax returns Repayments More Than Gross Benefits In some situations, your Form SSA-1099 or Form RRB-1099 will show that the total benefits you repaid (box 4) are more than the gross benefits (box 3) you received. Amended tax returns If this occurred, your net benefits in box 5 will be a negative figure (a figure in parentheses) and none of your benefits will be taxable. Amended tax returns If you receive more than one form, a negative figure in box 5 of one form is used to offset a positive figure in box 5 of another form for that same year. Amended tax returns If you have any questions about this negative figure, contact your local Social Security Administration office or your local U. Amended tax returns S. Amended tax returns Railroad Retirement Board field office. Amended tax returns Joint return. Amended tax returns   If you and your spouse file a joint return, and your Form SSA-1099 or RRB-1099 has a negative figure in box 5 but your spouse's does not, subtract the box 5 amount on your form from the box 5 amount on your spouse's form. Amended tax returns You do this to get your net benefits when figuring if your combined benefits are taxable. Amended tax returns Repayment of benefits received in an earlier year. Amended tax returns   If the total amount shown in box 5 of all of your Forms SSA-1099 and RRB-1099 is a negative figure, you can take an itemized deduction for the part of this negative figure that represents benefits you included in gross income in an earlier year. Amended tax returns   If this deduction is $3,000 or less, it is subject to the 2%-of-adjusted-gross-income limit that applies to certain miscellaneous itemized deductions. Amended tax returns Claim it on Schedule A (Form 1040), line 23. Amended tax returns   If this deduction is more than $3,000, you have to follow some special instructions. Amended tax returns See Publication 915 for those instructions. Amended tax returns Sickness and Injury Benefits Generally, you must report as income any amount you receive for personal injury or sickness through an accident or health plan that is paid for by your employer. Amended tax returns If both you and your employer pay for the plan, only the amount you receive that is due to your employer's payments is reported as income. Amended tax returns However, certain payments may not be taxable to you. Amended tax returns Some of these payments are discussed later in this section. Amended tax returns Also, see Military and Government Disability Pensions and Other Sickness and Injury Benefits in Publication 525. Amended tax returns Cost paid by you. Amended tax returns   If you pay the entire cost of an accident or health plan, do not include any amounts you receive from the plan for personal injury or sickness as income on your tax return. Amended tax returns If your plan reimbursed you for medical expenses you deducted in an earlier year, you may have to include some, or all, of the reimbursement in your income. Amended tax returns Disability Pensions If you retired on disability, you must include in income any disability pension you receive under a plan that is paid for by your employer. Amended tax returns You must report your taxable disability payments as wages on line 7 of Form 1040 or Form 1040A or on line 8 of Form 1040NR until you reach minimum retirement age. Amended tax returns Minimum retirement age generally is the age at which you can first receive a pension or annuity if you are not disabled. Amended tax returns If you were 65 or older by the end of 2013 or you were retired on permanent and total disability and received taxable disability income, you may be able to claim the credit for the elderly or the disabled. Amended tax returns See Credit for the Elderly or the Disabled, later. Amended tax returns For more information on this credit, see Publication 524, Credit for the Elderly or the Disabled. Amended tax returns Beginning on the day after you reach minimum retirement age, payments you receive are taxable as a pension or annuity. Amended tax returns Report the payments on lines 16a and 16b of Form 1040, on lines 12a and 12b of Form 1040A, or on lines 17a and 17b of Form 1040NR. Amended tax returns For more information on pensions and annuities, see Publication 575. Amended tax returns Retirement and profit-sharing plans. Amended tax returns   If you receive payments from a retirement or profit-sharing plan that does not provide for disability retirement, do not treat the payments as a disability pension. Amended tax returns The payments must be reported as a pension or annuity. Amended tax returns Accrued leave payment. Amended tax returns   If you retire on disability, any lump-sum payment you receive for accrued annual leave is a salary payment. Amended tax returns The payment is not a disability payment. Amended tax returns Include it in your income in the tax year you receive it. Amended tax returns Long-Term Care Insurance Contracts In most cases, long-term care insurance contracts generally are treated as accident and health insurance contracts. Amended tax returns Amounts you receive from them (other than policyholder dividends or premium refunds) generally are excludable from income as amounts received for personal injury or sickness. Amended tax returns However, the amount you can exclude may be limited. Amended tax returns Long-term care insurance contracts are discussed in more detail in Publication 525. Amended tax returns Workers' Compensation Amounts you receive as workers' compensation for an occupational sickness or injury are fully exempt from tax if they are paid under a workers' compensation act or a statute in the nature of a workers' compensation act. Amended tax returns The exemption also applies to your survivors. Amended tax returns The exemption, however, does not apply to retirement plan benefits you receive based on your age, length of service, or prior contributions to the plan, even if you retired because of an occupational sickness or injury. Amended tax returns If part of your workers' compensation reduces your social security or equivalent railroad retirement benefits, that part is considered social security (or equivalent railroad retirement) benefits and may be taxable. Amended tax returns For a discussion of the taxability of these benefits, see Social Security and Equivalent Railroad Retirement Benefits, earlier. Amended tax returns Return to work. Amended tax returns   If you return to work after qualifying for workers' compensation, salary payments you receive for performing light duties are taxable as wages. Amended tax returns Other Sickness and Injury Benefits In addition to disability pensions and annuities, you may receive other payments for sickness or injury. Amended tax returns Federal Employees' Compensation Act (FECA). Amended tax returns   Payments received under this Act for personal injury or sickness, including payments to beneficiaries in case of death, are not taxable. Amended tax returns However, you are taxed on amounts you receive under this Act as continuation of pay for up to 45 days while a claim is being decided. Amended tax returns Report this income on Form 1040, line 7; Form 1040A, line 7; on Form 1040EZ, line 1; or Form 1040NR, line 8. Amended tax returns Also, pay for sick leave while a claim is being processed is taxable and must be included in your income as wages. Amended tax returns    If part of the payments you receive under FECA reduces your social security or equivalent railroad retirement benefits, that part is considered social security (or equivalent railroad retirement) benefits and may be taxable. Amended tax returns For a discussion of the taxability of these benefits, see Social Security and Equivalent Railroad Retirement Benefits, earlier. Amended tax returns Other compensation. Amended tax returns   Many other amounts you receive as compensation for sickness or injury are not taxable. Amended tax returns These include the following amounts. Amended tax returns Benefits you receive under an accident or health insurance policy on which either you paid the premiums or your employer paid the premiums but you had to include them in your income. Amended tax returns Disability benefits you receive for loss of income or earning capacity as a result of injuries under a no-fault car insurance policy. Amended tax returns Compensation you receive for permanent loss or loss of use of a part or function of your body, for your permanent disfigurement, or for such loss or disfigurement suffered by your spouse or dependent(s). Amended tax returns This compensation must be based only on the injury and not on the period of your absence from work. Amended tax returns These benefits are not taxable even if your employer pays for the accident and health plan that provides these benefits. Amended tax returns Life Insurance Proceeds Life insurance proceeds paid to you because of the death of the insured person are not taxable unless the policy was turned over to you for a price. Amended tax returns This is true even if the proceeds were paid under an accident or health insurance policy or an endowment contract. Amended tax returns Proceeds not received in installments. Amended tax returns   If death benefits are paid to you in a lump sum or other than at regular intervals, include in your income only the benefits that are more than the amount payable to you at the time of the insured person's death. Amended tax returns If the benefit payable at death is not specified, you include in your income the benefit payments that are more than the present value of the payments at the time of death. Amended tax returns Proceeds received in installments. Amended tax returns   If you receive life insurance proceeds in installments, you can exclude part of each installment from your income. Amended tax returns   To determine the excluded part, divide the amount held by the insurance company (generally the total lump sum payable at the death of the insured person) by the number of installments to be paid. Amended tax returns Include anything over this excluded part in your income as interest. Amended tax returns Installments for life. Amended tax returns   If, as the beneficiary under an insurance contract, you are entitled to receive the proceeds in installments for the rest of your life without a refund or period-certain guarantee, you figure the excluded part of each installment by dividing the amount held by the insurance company by your life expectancy. Amended tax returns If there is a refund or period-certain guarantee, the amount held by the insurance company for this purpose is reduced by the actuarial value of the guarantee. Amended tax returns Surviving spouse. Amended tax returns   If your spouse died before October 23, 1986, and insurance proceeds paid to you because of the death of your spouse are received in installments, you can exclude, in any year, up to $1,000 of the interest included in the installments. Amended tax returns If you remarry, you can continue to take the exclusion. Amended tax returns Surrender of policy for cash. Amended tax returns   If you surrender a life insurance policy for cash, you must include in income any proceeds that are more than the cost of the life insurance policy. Amended tax returns In general, your cost (or investment in the contract) is the total of premiums that you paid for the life insurance policy, less any refunded premiums, rebates, dividends, or unrepaid loans that were not included in your income. Amended tax returns You should receive a Form 1099-R showing the total proceeds and the taxable part. Amended tax returns Report these amounts on Form 1040, lines 16a and 16b; Form 1040A, lines 12a and 12b; or Form 1040NR, lines 17a and 17b. Amended tax returns Endowment Contract Proceeds An endowment contract is a policy that pays over to you a specified amount of money on a certain date unless you die before that date, in which case, the money is paid to your designated beneficiary. Amended tax returns Endowment proceeds paid in a lump sum to you at maturity are taxable only if the proceeds are more than the cost of the policy. Amended tax returns To determine your cost, subtract from the total premiums (or other consideration) paid for the contract any amount that you previously received under the contract and excluded from your income. Amended tax returns Include in your income the part of the lump-sum payment that is more than your cost. Amended tax returns Endowment proceeds that you choose to receive in installments instead of a lump-sum payment at the maturity of the policy are taxed as an annuity. Amended tax returns The tax treatment of an annuity is explained in Publication 575. Amended tax returns For this treatment to apply, you must choose to receive the proceeds in installments before receiving any part of the lump sum. Amended tax returns This election must be made within 60 days after the lump-sum payment first becomes payable to you. Amended tax returns Accelerated Death Benefits Certain amounts paid as accelerated death benefits under a life insurance contract or viatical settlement before the insured's death are generally excluded from income if the insured is terminally or chronically ill. Amended tax returns However, see Exception , later. Amended tax returns For a chronically ill individual, accelerated death benefits paid on the basis of costs incurred for qualified long-term care services are fully excludable. Amended tax returns Accelerated death benefits paid on a per diem or other periodic basis without regard to the costs are excludable up to a limit. Amended tax returns In addition, if any portion of a death benefit under a life insurance contract on the life of a terminally or chronically ill individual is sold or assigned to a viatical settlement provider, the amount received also is excluded from income. Amended tax returns Generally, a viatical settlement provider is one who regularly engages in the business of buying or taking assignment of life insurance contracts on the lives of insured individuals who are terminally or chronically ill. Amended tax returns To report taxable accelerated death benefits made on a per diem or other periodic basis, you must file Form 8853, Archer MSAs and Long-Term Care Insurance Contracts, with your return. Amended tax returns Terminally or chronically ill defined. Amended tax returns   A terminally ill person is one who has been certified by a physician as having an illness or physical condition that reasonably can be expected to result in death within 24 months from the date of the certification. Amended tax returns A chronically ill person is one who is not terminally ill but has been certified (within the previous 12 months) by a licensed health care practitioner as meeting either of the following conditions. Amended tax returns The person is unable to perform (without substantial help) at least two activities of daily living (eating, toileting, transferring, bathing, dressing, and continence) for a period of 90 days or more because of a loss of functional capacity. Amended tax returns The person requires substantial supervision to protect himself or herself from threats to health and safety due to severe cognitive impairment. Amended tax returns Exception. Amended tax returns   The exclusion does not apply to any amount paid to a person other than the insured if that other person has an insurable interest in the life of the insured because the insured: Is a director, officer, or employee of the other person, or Has a financial interest in the business of the other person. Amended tax returns Sale of Home You may be able to exclude from income any gain up to $250,000 ($500,000 on a joint return in most cases) on the sale of your main home. Amended tax returns Generally, if you can exclude all of the gain, you do not need to report the sale on your tax return. Amended tax returns You can choose not to take the exclusion by including the gain from the sale in your gross income on your tax return for the year of the sale. Amended tax returns Main home. Amended tax returns   Usually, your main home is the home you live in most of the time and can be a: House, Houseboat, Mobile home, Cooperative apartment, or Condominium. Amended tax returns Repaying the first-time homebuyer credit because you sold your home. Amended tax returns   If you claimed a first-time homebuyer credit for your main home and you sell it, you may have to repay the credit. Amended tax returns For a home purchased in 2008 and used as your main home until sold in 2013, you must file Form 5405 and repay the balance of the unpaid credit on your 2013 tax return. Amended tax returns   For a home purchased after 2008, you generally must repay the entire credit if the home was sold (or otherwise ceased to be your main home) within 36 months of the purchase date. Amended tax returns If you purchased your home in 2009 and used it as your main home until sold in 2013, you do not have to repay the credit or file Form 5405. Amended tax returns If you purchased your home in 2010 and used it as your main home until sold in 2013, you may have to file Form 5405 and repay the entire credit on your 2013 tax return. Amended tax returns   See the Instructions for Form 5405 for more information about repaying the credit and exceptions to repayment that may apply to you. Amended tax returns Maximum Amount of Exclusion You can generally exclude up to $250,000 of the gain (other than gain allocated to periods of nonqualified use) on the sale of your main home if all of the following are true. Amended tax returns You meet the ownership test. Amended tax returns You meet the use test. Amended tax returns During the 2-year period ending on the date of the sale, you did not exclude gain from the sale of another home. Amended tax returns You may be able to exclude up to $500,000 of the gain (other than gain allocated to periods of nonqualified use) on the sale of your main home if you are married and file a joint return and meet the requirements listed in the discussion of the special rules for joint returns, later, under Married Persons . Amended tax returns Ownership and Use Tests To claim the exclusion, you must meet the ownership and use tests. Amended tax returns This means that during the 5-year period ending on the date of the sale, you must have: Owned the home for at least 2 years (the ownership test), and Lived in the home as your main home for at least 2 years (the use test). Amended tax returns Exception to ownership and use tests. Amended tax returns   If you owned and lived in the property as your main home for less than 2 years, you still can claim an exclusion in some cases. Amended tax returns Generally, you must have sold the home due to a change in place of employment, health, or unforeseen circumstances. Amended tax returns The maximum amount you can exclude will be reduced. Amended tax returns See Publication 523, Selling Your Home, for more information. Amended tax returns Exception to use test for individuals with a disability. Amended tax returns   There is an exception to the use test if, during the 5-year period before the sale of your home: You become physically or mentally unable to care for yourself, and You owned and lived in your home as your main home for a total of at least 1 year. Amended tax returns Under this exception, you are considered to live in your home during any time that you own the home and live in a facility (including a nursing home) that is licensed by a state or political subdivision to care for persons in your condition. Amended tax returns   If you meet this exception to the use test, you still have to meet the 2-out-of-5-year ownership test to claim the exclusion. Amended tax returns Exception to ownership test for property acquired in a like-kind exchange. Amended tax returns   You must have owned your main home for at least 5 years to qualify for the exclusion if you acquired your main home in a like-kind exchange. Amended tax returns This special 5-year ownership rule continues to apply to a home you acquired in a like-kind exchange and gave to another person. Amended tax returns A like-kind exchange is an exchange of property held for productive use in a trade or business or for investment. Amended tax returns See Publication 523 for more information. Amended tax returns Period of nonqualified use. Amended tax returns   Generally, the gain from the sale or exchange of your main home will not qualify for the exclusion to the extent that the gain is allocated to periods of nonqualified use. Amended tax returns Nonqualified use is any period after December 31, 2008, during which the property is not used as the main home. Amended tax returns See Publication 523 for more information. Amended tax returns Married Persons In the special situations discussed below, if you and your spouse file a joint return for the year of sale and one spouse meets the ownership and use test, you can exclude up to $250,000 of gain. Amended tax returns However, see Special rules for joint returns , next. Amended tax returns Special rules for joint returns. Amended tax returns   You can exclude up to $500,000 of the gain on the sale of your main home if all of the following are true. Amended tax returns You are married and file a joint return for the year. Amended tax returns Either you or your spouse meets the ownership test. Amended tax returns Both you and your spouse meet the use test. Amended tax returns During the 2-year period ending on the date of the sale, neither you nor your spouse exclude gain from the sale of another home. Amended tax returns Sale of home by surviving spouse. Amended tax returns   If your spouse died and you did not remarry before the date of sale, you are considered to have owned and lived in the property as your main home during any period of time when your spouse owned and lived in it as a main home. Amended tax returns   If you meet all of the following requirements, you may qualify to exclude up to $500,000 of any gain from the sale or exchange of your main home in 2013. Amended tax returns The sale or exchange took place no more than 2 years after the date of death of your spouse. Amended tax returns You have not remarried. Amended tax returns You and your spouse met the use test at the time of your spouse's death. Amended tax returns You or your spouse met the ownership test at the time of your spouse's death. Amended tax returns Neither you nor your spouse excluded gain from the sale of another home during the last 2 years. Amended tax returns Home transferred from spouse. Amended tax returns   If your home was transferred to you by your spouse (or former spouse if the transfer was incident to divorce), you are considered to have owned it during any period of time when your spouse owned it. Amended tax returns Use of home after divorce. Amended tax returns   You are considered to have used property as your main home during any period when: You owned it, and Your spouse or former spouse is allowed to live in it under a divorce or separation instrument and uses it as his or her main home. Amended tax returns Business Use or Rental of Home You may be able to exclude gain from the sale of a home that you have used for business or to produce rental income. Amended tax returns However, you must meet the ownership and use tests. Amended tax returns See Publication 523 for more information. Amended tax returns Depreciation after May 6, 1997. Amended tax returns   If you were entitled to take depreciation deductions because you used your home for business purposes or as rental property, you cannot exclude the part of your gain equal to any depreciation allowed or allowable as a deduction for periods after May 6, 1997. Amended tax returns See Publication 523 for more information. Amended tax returns Reporting the Sale Do not report the 2013 sale of your main home on your tax return unless: You have a gain and you do not qualify to exclude all of it, You have a gain and you choose not to exclude it, or You received Form 1099-S. Amended tax returns If you have a gain that you cannot or choose not to exclude, if you received a Form 1099-S, or if you have a deductible loss, report the sale on your tax return. Amended tax returns Report the sale on Part I or Part II of Form 8949 as a short-term or long-term transaction, depending on how long you owned the home. Amended tax returns If you used your home for business or to produce rental income, you may have to use Form 4797, Sales of Business Property, to report the sale of the business or rental part. Amended tax returns See Publication 523 for more information. Amended tax returns Reverse Mortgages A revers