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Electronically File 2010 Taxes

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Electronically File 2010 Taxes

Electronically file 2010 taxes 23. Electronically file 2010 taxes   Interest Expense Table of Contents Introduction Useful Items - You may want to see: Home Mortgage InterestAmount Deductible Points Mortgage Insurance Premiums Form 1098, Mortgage Interest Statement Investment InterestInvestment Property Allocation of Interest Expense Limit on Deduction Items You Cannot DeductPersonal Interest Allocation of Interest How To ReportMore than one borrower. Electronically file 2010 taxes Mortgage proceeds used for business or investment. Electronically file 2010 taxes Introduction This chapter discusses what interest expenses you can deduct. Electronically file 2010 taxes Interest is the amount you pay for the use of borrowed money. Electronically file 2010 taxes The following are types of interest you can deduct as itemized deductions on Schedule A (Form 1040). Electronically file 2010 taxes Home mortgage interest, including certain points and mortgage insurance premiums. Electronically file 2010 taxes Investment interest. Electronically file 2010 taxes This chapter explains these deductions. Electronically file 2010 taxes It also explains where to deduct other types of interest and lists some types of interest you cannot deduct. Electronically file 2010 taxes Use Table 23-1 to find out where to get more information on various types of interest, including investment interest. Electronically file 2010 taxes Useful Items - You may want to see: Publication 936 Home Mortgage Interest Deduction 550 Investment Income and Expenses Home Mortgage Interest Generally, home mortgage interest is any interest you pay on a loan secured by your home (main home or a second home). Electronically file 2010 taxes The loan may be a mortgage to buy your home, a second mortgage, a line of credit, or a home equity loan. Electronically file 2010 taxes You can deduct home mortgage interest if all the following conditions are met. Electronically file 2010 taxes You file Form 1040 and itemize deductions on Schedule A (Form 1040). Electronically file 2010 taxes The mortgage is a secured debt on a qualified home in which you have an ownership interest. Electronically file 2010 taxes (Generally, your mortgage is a secured debt if you put your home up as collateral to protect the interest of the lender. Electronically file 2010 taxes The term “qualified home” means your main home or second home. Electronically file 2010 taxes For details, see Publication 936. Electronically file 2010 taxes )  Both you and the lender must intend that the loan be repaid. Electronically file 2010 taxes Amount Deductible In most cases, you can deduct all of your home mortgage interest. Electronically file 2010 taxes How much you can deduct depends on the date of the mortgage, the amount of the mortgage, and how you use the mortgage proceeds. Electronically file 2010 taxes Fully deductible interest. Electronically file 2010 taxes   If all of your mortgages fit into one or more of the following three categories at all times during the year, you can deduct all of the interest on those mortgages. Electronically file 2010 taxes (If any one mortgage fits into more than one category, add the debt that fits in each category to your other debt in the same category. Electronically file 2010 taxes )   The three categories are as follows: Mortgages you took out on or before October 13, 1987 (called grandfathered debt). Electronically file 2010 taxes Mortgages you took out after October 13, 1987, to buy, build, or improve your home (called home acquisition debt), but only if throughout 2013 these mortgages plus any grandfathered debt totaled $1 million or less ($500,000 or less if married filing separately). Electronically file 2010 taxes Mortgages you took out after October 13, 1987, other than to buy, build, or improve your home (called home equity debt), but only if throughout 2013 these mortgages totaled $100,000 or less ($50,000 or less if married filing separately) and totaled no more than the fair market value of your home reduced by (1) and (2). Electronically file 2010 taxes The dollar limits for the second and third categories apply to the combined mortgages on your main home and second home. Electronically file 2010 taxes   See Part II of Publication 936 for more detailed definitions of grandfathered, home acquisition, and home equity debt. Electronically file 2010 taxes    You can use Figure 23-A to check whether your home mortgage interest is fully deductible. Electronically file 2010 taxes Figure 23-A. Electronically file 2010 taxes Is My Home Mortgage Interest Fully Deductible? Please click here for the text description of the image. Electronically file 2010 taxes Figure 23-A. Electronically file 2010 taxes Is My Interest Fully Deductible? Limits on deduction. Electronically file 2010 taxes   You cannot fully deduct interest on a mortgage that does not fit into any of the three categories listed earlier. Electronically file 2010 taxes If this applies to you, see Part II of Publication 936 to figure the amount of interest you can deduct. Electronically file 2010 taxes Special Situations This section describes certain items that can be included as home mortgage interest and others that cannot. Electronically file 2010 taxes It also describes certain special situations that may affect your deduction. Electronically file 2010 taxes Late payment charge on mortgage payment. Electronically file 2010 taxes   You can deduct as home mortgage interest a late payment charge if it was not for a specific service performed in connection with your mortgage loan. Electronically file 2010 taxes Mortgage prepayment penalty. Electronically file 2010 taxes   If you pay off your home mortgage early, you may have to pay a penalty. Electronically file 2010 taxes You can deduct that penalty as home mortgage interest provided the penalty is not for a specific service performed or cost incurred in connection with your mortgage loan. Electronically file 2010 taxes Sale of home. Electronically file 2010 taxes   If you sell your home, you can deduct your home mortgage interest (subject to any limits that apply) paid up to, but not including, the date of sale. Electronically file 2010 taxes Example. Electronically file 2010 taxes John and Peggy Harris sold their home on May 7. Electronically file 2010 taxes Through April 30, they made home mortgage interest payments of $1,220. Electronically file 2010 taxes The settlement sheet for the sale of the home showed $50 interest for the 6-day period in May up to, but not including, the date of sale. Electronically file 2010 taxes Their mortgage interest deduction is $1,270 ($1,220 + $50). Electronically file 2010 taxes Prepaid interest. Electronically file 2010 taxes   If you pay interest in advance for a period that goes beyond the end of the tax year, you must spread this interest over the tax years to which it applies. Electronically file 2010 taxes You can deduct in each year only the interest that qualifies as home mortgage interest for that year. Electronically file 2010 taxes However, there is an exception that applies to points, discussed later. Electronically file 2010 taxes Mortgage interest credit. Electronically file 2010 taxes   You may be able to claim a mortgage interest credit if you were issued a mortgage credit certificate (MCC) by a state or local government. Electronically file 2010 taxes Figure the credit on Form 8396, Mortgage Interest Credit. Electronically file 2010 taxes If you take this credit, you must reduce your mortgage interest deduction by the amount of the credit. Electronically file 2010 taxes   For more information on the credit, see chapter 37. Electronically file 2010 taxes Ministers' and military housing allowance. Electronically file 2010 taxes   If you are a minister or a member of the uniformed services and receive a housing allowance that is not taxable, you can still deduct your home mortgage interest. Electronically file 2010 taxes Hardest Hit Fund and Emergency Homeowners' Loan Programs. Electronically file 2010 taxes   You can use a special method to compute your deduction for mortgage interest and real estate taxes on your main home if you meet the following two conditions. Electronically file 2010 taxes You received assistance under: A State Housing Finance Agency (State HFA) Hardest Hit Fund program in which program payments could be used to pay mortgage interest, or An Emergency Homeowners' Loan Program administered by the Department of Housing and Urban Development (HUD) or a state. Electronically file 2010 taxes You meet the rules to deduct all of the mortgage interest on your loan and all of the real estate taxes on your main home. Electronically file 2010 taxes If you meet these tests, then you can deduct all of the payments you actually made during the year to your mortgage servicer, the State HFA, or HUD on the home mortgage (including the amount shown on box 3 of Form 1098-MA, Mortgage Assistance Payments), but not more than the sum of the amounts shown on Form 1098, Mortgage Interest Statement, in box 1 (mortgage interest received from payer(s) / borrower(s)), box 4 (mortgage insurance premiums) and box 5 (real property taxes). Electronically file 2010 taxes However, you are not required to use this special method to compute your deduction for mortgage interest and real estate taxes on your main home. Electronically file 2010 taxes Mortgage assistance payments under section 235 of the National Housing Act. Electronically file 2010 taxes   If you qualify for mortgage assistance payments for lower-income families under section 235 of the National Housing Act, part or all of the interest on your mortgage may be paid for you. Electronically file 2010 taxes You cannot deduct the interest that is paid for you. Electronically file 2010 taxes No other effect on taxes. Electronically file 2010 taxes   Do not include these mortgage assistance payments in your income. Electronically file 2010 taxes Also, do not use these payments to reduce other deductions, such as real estate taxes. Electronically file 2010 taxes Divorced or separated individuals. Electronically file 2010 taxes   If a divorce or separation agreement requires you or your spouse or former spouse to pay home mortgage interest on a home owned by both of you, the payment of interest may be alimony. Electronically file 2010 taxes See the discussion of Payments for jointly-owned home in chapter 18. Electronically file 2010 taxes Redeemable ground rents. Electronically file 2010 taxes   If you make annual or periodic rental payments on a redeemable ground rent, you can deduct them as mortgage interest. Electronically file 2010 taxes   Payments made to end the lease and to buy the lessor's entire interest in the land are not deductible as mortgage interest. Electronically file 2010 taxes For more information, see Publication 936. Electronically file 2010 taxes Nonredeemable ground rents. Electronically file 2010 taxes   Payments on a nonredeemable ground rent are not mortgage interest. Electronically file 2010 taxes You can deduct them as rent if they are a business expense or if they are for rental property. Electronically file 2010 taxes Reverse mortgages. Electronically file 2010 taxes   A reverse mortgage is a loan where the lender pays you (in a lump sum, a monthly advance, a line of credit, or a combination of all three) while you continue to live in your home. Electronically file 2010 taxes With a reverse mortgage, you retain title to your home. Electronically file 2010 taxes Depending on the plan, your reverse mortgage becomes due with interest when you move, sell your home, reach the end of a pre-selected loan period, or die. Electronically file 2010 taxes Because reverse mortgages are considered loan advances and not income, the amount you receive is not taxable. Electronically file 2010 taxes Any interest (including original issue discount) accrued on a reverse mortgage is not deductible until the loan is paid in full. Electronically file 2010 taxes Your deduction may be limited because a reverse mortgage loan generally is subject to the limit on Home Equity Debt discussed in Publication 936. Electronically file 2010 taxes Rental payments. Electronically file 2010 taxes   If you live in a house before final settlement on the purchase, any payments you make for that period are rent and not interest. Electronically file 2010 taxes This is true even if the settlement papers call them interest. Electronically file 2010 taxes You cannot deduct these payments as home mortgage interest. Electronically file 2010 taxes Mortgage proceeds invested in tax-exempt securities. Electronically file 2010 taxes   You cannot deduct the home mortgage interest on grandfathered debt or home equity debt if you used the proceeds of the mortgage to buy securities or certificates that produce tax-free income. Electronically file 2010 taxes “Grandfathered debt” and “home equity debt” are defined earlier under Amount Deductible. Electronically file 2010 taxes Refunds of interest. Electronically file 2010 taxes   If you receive a refund of interest in the same tax year you paid it, you must reduce your interest expense by the amount refunded to you. Electronically file 2010 taxes If you receive a refund of interest you deducted in an earlier year, you generally must include the refund in income in the year you receive it. Electronically file 2010 taxes However, you need to include it only up to the amount of the deduction that reduced your tax in the earlier year. Electronically file 2010 taxes This is true whether the interest overcharge was refunded to you or was used to reduce the outstanding principal on your mortgage. Electronically file 2010 taxes    If you received a refund of interest you overpaid in an earlier year, you generally will receive a Form 1098, Mortgage Interest Statement, showing the refund in box 3. Electronically file 2010 taxes For information about Form 1098, see Form 1098, Mortgage Interest Statement , later. Electronically file 2010 taxes   For more information on how to treat refunds of interest deducted in earlier years, see Recoveries in chapter 12. Electronically file 2010 taxes Points The term “points” is used to describe certain charges paid, or treated as paid, by a borrower to obtain a home mortgage. Electronically file 2010 taxes Points may also be called loan origination fees, maximum loan charges, loan discount, or discount points. Electronically file 2010 taxes A borrower is treated as paying any points that a home seller pays for the borrower's mortgage. Electronically file 2010 taxes See Points paid by the seller , later. Electronically file 2010 taxes General Rule You generally cannot deduct the full amount of points in the year paid. Electronically file 2010 taxes Because they are prepaid interest, you generally deduct them ratably over the life (term) of the mortgage. Electronically file 2010 taxes See Deduction Allowed Ratably , next. Electronically file 2010 taxes For exceptions to the general rule, see Deduction Allowed in Year Paid , later. Electronically file 2010 taxes Deduction Allowed Ratably If you do not meet the tests listed under Deduction Allowed in Year Paid , later, the loan is not a home improvement loan, or you choose not to deduct your points in full in the year paid, you can deduct the points ratably (equally) over the life of the loan if you meet all the following tests. Electronically file 2010 taxes You use the cash method of accounting. Electronically file 2010 taxes This means you report income in the year you receive it and deduct expenses in the year you pay them. Electronically file 2010 taxes Most individuals use this method. Electronically file 2010 taxes Your loan is secured by a home. Electronically file 2010 taxes (The home does not need to be your main home. Electronically file 2010 taxes ) Your loan period is not more than 30 years. Electronically file 2010 taxes If your loan period is more than 10 years, the terms of your loan are the same as other loans offered in your area for the same or longer period. Electronically file 2010 taxes Either your loan amount is $250,000 or less, or the number of points is not more than: 4, if your loan period is 15 years or less, or 6, if your loan period is more than 15 years. Electronically file 2010 taxes Deduction Allowed in Year Paid You can fully deduct points in the year paid if you meet all the following tests. Electronically file 2010 taxes (You can use Figure 23-B as a quick guide to see whether your points are fully deductible in the year paid. Electronically file 2010 taxes ) Your loan is secured by your main home. Electronically file 2010 taxes (Your main home is the one you ordinarily live in most of the time. Electronically file 2010 taxes ) Paying points is an established business practice in the area where the loan was made. Electronically file 2010 taxes The points paid were not more than the points generally charged in that area. Electronically file 2010 taxes You use the cash method of accounting. Electronically file 2010 taxes This means you report income in the year you receive it and deduct expenses in the year you pay them. Electronically file 2010 taxes (If you want more information about this method, see Accounting Methods in chapter 1. Electronically file 2010 taxes ) The points were not paid in place of amounts that ordinarily are stated separately on the settlement statement, such as appraisal fees, inspection fees, title fees, attorney fees, and property taxes. Electronically file 2010 taxes The funds you provided at or before closing, plus any points the seller paid, were at least as much as the points charged. Electronically file 2010 taxes The funds you provided are not required to have been applied to the points. Electronically file 2010 taxes They can include a down payment, an escrow deposit, earnest money, and other funds you paid at or before closing for any purpose. Electronically file 2010 taxes You cannot have borrowed these funds from your lender or mortgage broker. Electronically file 2010 taxes You use your loan to buy or build your main home. Electronically file 2010 taxes The points were computed as a percentage of the principal amount of the mortgage. Electronically file 2010 taxes The amount is clearly shown on the settlement statement (such as the Settlement Statement, Form HUD-1) as points charged for the mortgage. Electronically file 2010 taxes The points may be shown as paid from either your funds or the seller's. Electronically file 2010 taxes Figure 23-B. Electronically file 2010 taxes Are My Points Fully Deductible This Year? Please click here for the text description of the image. Electronically file 2010 taxes Figure 23-B. Electronically file 2010 taxes Are My Points Fully Deductible This Year? Note. Electronically file 2010 taxes If you meet all of these tests, you can choose to either fully deduct the points in the year paid, or deduct them over the life of the loan. Electronically file 2010 taxes Home improvement loan. Electronically file 2010 taxes   You can also fully deduct in the year paid points paid on a loan to improve your main home, if tests (1) through (6) are met. Electronically file 2010 taxes Second home. Electronically file 2010 taxes You cannot fully deduct in the year paid points you pay on loans secured by your second home. Electronically file 2010 taxes You can deduct these points only over the life of the loan. Electronically file 2010 taxes Refinancing. Electronically file 2010 taxes   Generally, points you pay to refinance a mortgage are not deductible in full in the year you pay them. Electronically file 2010 taxes This is true even if the new mortgage is secured by your main home. Electronically file 2010 taxes   However, if you use part of the refinanced mortgage proceeds to improve your main home and you meet the first 6 tests listed under Deduction Allowed in Year Paid , earlier, you can fully deduct the part of the points related to the improvement in the year you paid them with your own funds. Electronically file 2010 taxes You can deduct the rest of the points over the life of the loan. Electronically file 2010 taxes Example 1. Electronically file 2010 taxes In 1998, Bill Fields got a mortgage to buy a home. Electronically file 2010 taxes In 2013, Bill refinanced that mortgage with a 15-year $100,000 mortgage loan. Electronically file 2010 taxes The mortgage is secured by his home. Electronically file 2010 taxes To get the new loan, he had to pay three points ($3,000). Electronically file 2010 taxes Two points ($2,000) were for prepaid interest, and one point ($1,000) was charged for services, in place of amounts that ordinarily are stated separately on the settlement statement. Electronically file 2010 taxes Bill paid the points out of his private funds, rather than out of the proceeds of the new loan. Electronically file 2010 taxes The payment of points is an established practice in the area, and the points charged are not more than the amount generally charged there. Electronically file 2010 taxes Bill's first payment on the new loan was due July 1. Electronically file 2010 taxes He made six payments on the loan in 2013 and is a cash basis taxpayer. Electronically file 2010 taxes Bill used the funds from the new mortgage to repay his existing mortgage. Electronically file 2010 taxes Although the new mortgage loan was for Bill's continued ownership of his main home, it was not for the purchase or improvement of that home. Electronically file 2010 taxes He cannot deduct all of the points in 2013. Electronically file 2010 taxes He can deduct two points ($2,000) ratably over the life of the loan. Electronically file 2010 taxes He deducts $67 [($2,000 ÷ 180 months) × 6 payments] of the points in 2013. Electronically file 2010 taxes The other point ($1,000) was a fee for services and is not deductible. Electronically file 2010 taxes Example 2. Electronically file 2010 taxes The facts are the same as in Example 1, except that Bill used $25,000 of the loan proceeds to improve his home and $75,000 to repay his existing mortgage. Electronically file 2010 taxes Bill deducts 25% ($25,000 ÷ $100,000) of the points ($2,000) in 2013. Electronically file 2010 taxes His deduction is $500 ($2,000 × 25%). Electronically file 2010 taxes Bill also deducts the ratable part of the remaining $1,500 ($2,000 − $500) that must be spread over the life of the loan. Electronically file 2010 taxes This is $50 [($1,500 ÷ 180 months) × 6 payments] in 2013. Electronically file 2010 taxes The total amount Bill deducts in 2013 is $550 ($500 + $50). Electronically file 2010 taxes Special Situations This section describes certain special situations that may affect your deduction of points. Electronically file 2010 taxes Original issue discount. Electronically file 2010 taxes   If you do not qualify to either deduct the points in the year paid or deduct them ratably over the life of the loan, or if you choose not to use either of these methods, the points reduce the issue price of the loan. Electronically file 2010 taxes This reduction results in original issue discount, which is discussed in chapter 4 of Publication 535. Electronically file 2010 taxes Amounts charged for services. Electronically file 2010 taxes   Amounts charged by the lender for specific services connected to the loan are not interest. Electronically file 2010 taxes Examples of these charges are: Appraisal fees, Notary fees, and Preparation costs for the mortgage note or deed of trust. Electronically file 2010 taxes You cannot deduct these amounts as points either in the year paid or over the life of the mortgage. Electronically file 2010 taxes Points paid by the seller. Electronically file 2010 taxes   The term “points” includes loan placement fees that the seller pays to the lender to arrange financing for the buyer. Electronically file 2010 taxes Treatment by seller. Electronically file 2010 taxes   The seller cannot deduct these fees as interest. Electronically file 2010 taxes But they are a selling expense that reduces the amount realized by the seller. Electronically file 2010 taxes See chapter 15 for information on selling your home. Electronically file 2010 taxes Treatment by buyer. Electronically file 2010 taxes    The buyer reduces the basis of the home by the amount of the seller-paid points and treats the points as if he or she had paid them. Electronically file 2010 taxes If all the tests under Deduction Allowed in Year Paid , earlier, are met, the buyer can deduct the points in the year paid. Electronically file 2010 taxes If any of those tests are not met, the buyer deducts the points over the life of the loan. Electronically file 2010 taxes   For information about basis, see chapter 13. Electronically file 2010 taxes Funds provided are less than points. Electronically file 2010 taxes   If you meet all the tests in Deduction Allowed in Year Paid , earlier, except that the funds you provided were less than the points charged to you (test (6)), you can deduct the points in the year paid, up to the amount of funds you provided. Electronically file 2010 taxes In addition, you can deduct any points paid by the seller. Electronically file 2010 taxes Example 1. Electronically file 2010 taxes When you took out a $100,000 mortgage loan to buy your home in December, you were charged one point ($1,000). Electronically file 2010 taxes You meet all the tests for deducting points in the year paid, except the only funds you provided were a $750 down payment. Electronically file 2010 taxes Of the $1,000 charged for points, you can deduct $750 in the year paid. Electronically file 2010 taxes You spread the remaining $250 over the life of the mortgage. Electronically file 2010 taxes Example 2. Electronically file 2010 taxes The facts are the same as in Example 1, except that the person who sold you your home also paid one point ($1,000) to help you get your mortgage. Electronically file 2010 taxes In the year paid, you can deduct $1,750 ($750 of the amount you were charged plus the $1,000 paid by the seller). Electronically file 2010 taxes You spread the remaining $250 over the life of the mortgage. Electronically file 2010 taxes You must reduce the basis of your home by the $1,000 paid by the seller. Electronically file 2010 taxes Excess points. Electronically file 2010 taxes   If you meet all the tests in Deduction Allowed in Year Paid , earlier, except that the points paid were more than generally paid in your area (test (3)), you deduct in the year paid only the points that are generally charged. Electronically file 2010 taxes You must spread any additional points over the life of the mortgage. Electronically file 2010 taxes Mortgage ending early. Electronically file 2010 taxes   If you spread your deduction for points over the life of the mortgage, you can deduct any remaining balance in the year the mortgage ends. Electronically file 2010 taxes However, if you refinance the mortgage with the same lender, you cannot deduct any remaining balance of spread points. Electronically file 2010 taxes Instead, deduct the remaining balance over the term of the new loan. Electronically file 2010 taxes    A mortgage may end early due to a prepayment, refinancing, foreclosure, or similar event. Electronically file 2010 taxes Example. Electronically file 2010 taxes Dan paid $3,000 in points in 2002 that he had to spread out over the 15-year life of the mortgage. Electronically file 2010 taxes He deducts $200 points per year. Electronically file 2010 taxes Through 2012, Dan has deducted $2,200 of the points. Electronically file 2010 taxes Dan prepaid his mortgage in full in 2013. Electronically file 2010 taxes He can deduct the remaining $800 of points in 2013. Electronically file 2010 taxes Limits on deduction. Electronically file 2010 taxes   You cannot fully deduct points paid on a mortgage unless the mortgage fits into one of the categories listed earlier under Fully deductible interest . Electronically file 2010 taxes See Publication 936 for details. Electronically file 2010 taxes Mortgage Insurance Premiums You can treat amounts you paid during 2013 for qualified mortgage insurance as home mortgage interest. Electronically file 2010 taxes The insurance must be in connection with home acquisition debt and the insurance contract must have been issued after 2006. Electronically file 2010 taxes Qualified mortgage insurance. Electronically file 2010 taxes   Qualified mortgage insurance is mortgage insurance provided by the Department of Veterans Affairs, the Federal Housing Administration, or the Rural Housing Service, and private mortgage insurance (as defined in section 2 of the Homeowners Protection Act of 1998 as in effect on December 20, 2006). Electronically file 2010 taxes   Mortgage insurance provided by the Department of Veterans Affairs is commonly known as a funding fee. Electronically file 2010 taxes If provided by the Rural Housing Service, it is commonly known as a guarantee fee. Electronically file 2010 taxes These fees can be deducted fully in 2013 if the mortgage insurance contract was issued in 2013. Electronically file 2010 taxes Contact the mortgage insurance issuer to determine the deductible amount if it is not reported in box 4 of Form 1098. Electronically file 2010 taxes Special rules for prepaid mortgage insurance. Electronically file 2010 taxes   Generally, if you paid premiums for qualified mortgage insurance that are allocable to periods after the close of the tax year, such premiums are treated as paid in the period to which they are allocated. Electronically file 2010 taxes You must allocate the premiums over the shorter of the stated term of the mortgage or 84 months, beginning with the month the insurance was obtained. Electronically file 2010 taxes No deduction is allowed for the unamortized balance if the mortgage is satisfied before its term. Electronically file 2010 taxes This paragraph does not apply to qualified mortgage insurance provided by the Department of Veterans Affairs or the Rural Housing Service. Electronically file 2010 taxes See the Example below. Electronically file 2010 taxes Example. Electronically file 2010 taxes Ryan purchased a home in May of 2012 and financed the home with a 15-year mortgage. Electronically file 2010 taxes Ryan also prepaid all of the $9,240 in private mortgage insurance required at the time of closing in May. Electronically file 2010 taxes Since the $9,240 in private mortgage insurance is allocable to periods after 2012, Ryan must allocate the $9,240 over the shorter of the life of the mortgage or 84 months. Electronically file 2010 taxes Ryan's adjusted gross income (AGI) for 2012 is $76,000. Electronically file 2010 taxes Ryan can deduct $880 ($9,240 ÷ 84 × 8 months) for qualified mortgage insurance premiums in 2012. Electronically file 2010 taxes For 2013, Ryan can deduct $1,320 ($9,240 ÷ 84 × 12 months) if his AGI is $100,000 or less. Electronically file 2010 taxes In this example, the mortgage insurance premiums are allocated over 84 months, which is shorter than the life of the mortgage of 15 years (180 months). Electronically file 2010 taxes Limit on deduction. Electronically file 2010 taxes   If your adjusted gross income on Form 1040, line 38, is more than $100,000 ($50,000 if your filing status is married filing separately), the amount of your mortgage insurance premiums that are otherwise deductible is reduced and may be eliminated. Electronically file 2010 taxes See Line 13 in the instructions for Schedule A (Form 1040) and complete the Mortgage Insurance Premiums Deduction Worksheet to figure the amount you can deduct. Electronically file 2010 taxes If your adjusted gross income is more than $109,000 ($54,500 if married filing separately), you cannot deduct your mortgage insurance premiums. Electronically file 2010 taxes Form 1098, Mortgage Interest Statement If you paid $600 or more of mortgage interest (including certain points and mortgage insurance premiums) during the year on any one mortgage, you generally will receive a Form 1098 or a similar statement from the mortgage holder. Electronically file 2010 taxes You will receive the statement if you pay interest to a person (including a financial institution or a cooperative housing corporation) in the course of that person's trade or business. Electronically file 2010 taxes A governmental unit is a person for purposes of furnishing the statement. Electronically file 2010 taxes The statement for each year should be sent to you by January 31 of the following year. Electronically file 2010 taxes A copy of this form will also be sent to the IRS. Electronically file 2010 taxes The statement will show the total interest you paid during the year, any mortgage insurance premiums you paid, and if you purchased a main home during the year, it also will show the deductible points paid during the year, including seller-paid points. Electronically file 2010 taxes However, it should not show any interest that was paid for you by a government agency. Electronically file 2010 taxes As a general rule, Form 1098 will include only points that you can fully deduct in the year paid. Electronically file 2010 taxes However, certain points not included on Form 1098 also may be deductible, either in the year paid or over the life of the loan. Electronically file 2010 taxes See Points , earlier, to determine whether you can deduct points not shown on Form 1098. Electronically file 2010 taxes Prepaid interest on Form 1098. Electronically file 2010 taxes   If you prepaid interest in 2013 that accrued in full by January 15, 2014, this prepaid interest may be included in box 1 of Form 1098. Electronically file 2010 taxes However, you cannot deduct the prepaid amount for January 2014 in 2013. Electronically file 2010 taxes (See Prepaid interest , earlier. Electronically file 2010 taxes ) You will have to figure the interest that accrued for 2014 and subtract it from the amount in box 1. Electronically file 2010 taxes You will include the interest for January 2014 with the other interest you pay for 2014. Electronically file 2010 taxes See How To Report , later. Electronically file 2010 taxes Refunded interest. Electronically file 2010 taxes   If you received a refund of mortgage interest you overpaid in an earlier year, you generally will receive a Form 1098 showing the refund in box 3. Electronically file 2010 taxes See Refunds of interest , earlier. Electronically file 2010 taxes Mortgage insurance premiums. Electronically file 2010 taxes   The amount of mortgage insurance premiums you paid during 2013 may be shown in box 4 of Form 1098. Electronically file 2010 taxes See Mortgage Insurance Premiums, earlier. Electronically file 2010 taxes Investment Interest This section discusses interest expenses you may be able to deduct as an investor. Electronically file 2010 taxes If you borrow money to buy property you hold for investment, the interest you pay is investment interest. Electronically file 2010 taxes You can deduct investment interest subject to the limit discussed later. Electronically file 2010 taxes However, you cannot deduct interest you incurred to produce tax-exempt income. Electronically file 2010 taxes Nor can you deduct interest expenses on straddles. Electronically file 2010 taxes Investment interest does not include any qualified home mortgage interest or any interest taken into account in computing income or loss from a passive activity. Electronically file 2010 taxes Investment Property Property held for investment includes property that produces interest, dividends, annuities, or royalties not derived in the ordinary course of a trade or business. Electronically file 2010 taxes It also includes property that produces gain or loss (not derived in the ordinary course of a trade or business) from the sale or trade of property producing these types of income or held for investment (other than an interest in a passive activity). Electronically file 2010 taxes Investment property also includes an interest in a trade or business activity in which you did not materially participate (other than a passive activity). Electronically file 2010 taxes Partners, shareholders, and beneficiaries. Electronically file 2010 taxes   To determine your investment interest, combine your share of investment interest from a partnership, S corporation, estate, or trust with your other investment interest. Electronically file 2010 taxes Allocation of Interest Expense If you borrow money for business or personal purposes as well as for investment, you must allocate the debt among those purposes. Electronically file 2010 taxes Only the interest expense on the part of the debt used for investment purposes is treated as investment interest. Electronically file 2010 taxes The allocation is not affected by the use of property that secures the debt. Electronically file 2010 taxes Limit on Deduction Generally, your deduction for investment interest expense is limited to the amount of your net investment income. Electronically file 2010 taxes You can carry over the amount of investment interest that you could not deduct because of this limit to the next tax year. Electronically file 2010 taxes The interest carried over is treated as investment interest paid or accrued in that next year. Electronically file 2010 taxes You can carry over disallowed investment interest to the next tax year even if it is more than your taxable income in the year the interest was paid or accrued. Electronically file 2010 taxes Net Investment Income Determine the amount of your net investment income by subtracting your investment expenses (other than interest expense) from your investment income. Electronically file 2010 taxes Investment income. Electronically file 2010 taxes    This generally includes your gross income from property held for investment (such as interest, dividends, annuities, and royalties). Electronically file 2010 taxes Investment income does not include Alaska Permanent Fund dividends. Electronically file 2010 taxes It also does not include qualified dividends or net capital gain unless you choose to include them. Electronically file 2010 taxes Choosing to include qualified dividends. Electronically file 2010 taxes   Investment income generally does not include qualified dividends, discussed in chapter 8. Electronically file 2010 taxes However, you can choose to include all or part of your qualified dividends in investment income. Electronically file 2010 taxes   You make this choice by completing Form 4952, line 4g, according to its instructions. Electronically file 2010 taxes   If you choose to include any amount of your qualified dividends in investment income, you must reduce your qualified dividends that are eligible for the lower capital gains tax rates by the same amount. Electronically file 2010 taxes Choosing to include net capital gain. Electronically file 2010 taxes   Investment income generally does not include net capital gain from disposing of investment property (including capital gain distributions from mutual funds). Electronically file 2010 taxes However, you can choose to include all or part of your net capital gain in investment income. Electronically file 2010 taxes    You make this choice by completing Form 4952, line 4g, according to its instructions. Electronically file 2010 taxes   If you choose to include any amount of your net capital gain in investment income, you must reduce your net capital gain that is eligible for the lower capital gains tax rates by the same amount. Electronically file 2010 taxes    Before making either choice, consider the overall effect on your tax liability. Electronically file 2010 taxes Compare your tax if you make one or both of these choices with your tax if you do not. Electronically file 2010 taxes Investment income of child reported on parent's return. Electronically file 2010 taxes    Investment income includes the part of your child's interest and dividend income that you choose to report on your return. Electronically file 2010 taxes If the child does not have qualified dividends, Alaska Permanent Fund dividends, or capital gain distributions, this is the amount on line 6 of Form 8814, Parents' Election To Report Child's Interest and Dividends. Electronically file 2010 taxes Child's qualified dividends. Electronically file 2010 taxes   If part of the amount you report is your child's qualified dividends, that part (which is reported on Form 1040, line 9b) generally does not count as investment income. Electronically file 2010 taxes However, you can choose to include all or part of it in investment income, as explained under Choosing to include qualified dividends , earlier. Electronically file 2010 taxes   Your investment income also includes the amount on Form 8814, line 12 (or, if applicable, the reduced amount figured next under Child's Alaska Permanent Fund dividends). Electronically file 2010 taxes Child's Alaska Permanent Fund dividends. Electronically file 2010 taxes   If part of the amount you report is your child's Alaska Permanent Fund dividends, that part does not count as investment income. Electronically file 2010 taxes To figure the amount of your child's income that you can consider your investment income, start with the amount on Form 8814, line 6. Electronically file 2010 taxes Multiply that amount by a percentage that is equal to the Alaska Permanent Fund dividends divided by the total amount on Form 8814, line 4. Electronically file 2010 taxes Subtract the result from the amount on Form 8814, line 12. Electronically file 2010 taxes Child's capital gain distributions. Electronically file 2010 taxes    If part of the amount you report is your child's capital gain distributions, that part (which is reported on Schedule D, line 13, or Form 1040, line 13) generally does not count as investment income. Electronically file 2010 taxes However, you can choose to include all or part of it in investment income, as explained in Choosing to include net capital gain , earlier. Electronically file 2010 taxes   Your investment income also includes the amount on Form 8814, line 12 (or, if applicable, the reduced amount figured under Child's Alaska Permanent Fund dividends , earlier). Electronically file 2010 taxes Investment expenses. Electronically file 2010 taxes   Investment expenses are your allowed deductions (other than interest expense) directly connected with the production of investment income. Electronically file 2010 taxes Investment expenses that are included as a miscellaneous itemized deduction on Schedule A (Form 1040) are allowable deductions after applying the 2% limit that applies to miscellaneous itemized deductions. Electronically file 2010 taxes Use the smaller of: The investment expenses included on Schedule A (Form 1040), line 23, or The amount on Schedule A, line 27. Electronically file 2010 taxes Losses from passive activities. Electronically file 2010 taxes   Income or expenses that you used in computing income or loss from a passive activity are not included in determining your investment income or investment expenses (including investment interest expense). Electronically file 2010 taxes See Publication 925, Passive Activity and At-Risk Rules, for information about passive activities. Electronically file 2010 taxes Form 4952 Use Form 4952, Investment Interest Expense Deduction, to figure your deduction for investment interest. Electronically file 2010 taxes Exception to use of Form 4952. Electronically file 2010 taxes   You do not have to complete Form 4952 or attach it to your return if you meet all of the following tests. Electronically file 2010 taxes Your investment interest expense is not more than your investment income from interest and ordinary dividends minus any qualified dividends. Electronically file 2010 taxes You do not have any other deductible investment expenses. Electronically file 2010 taxes You have no carryover of investment interest expense from 2012. Electronically file 2010 taxes If you meet all of these tests, you can deduct all of your investment interest. Electronically file 2010 taxes More Information For more information on investment interest, see Interest Expenses in chapter 3 of Publication 550. Electronically file 2010 taxes Items You Cannot Deduct Some interest payments are not deductible. Electronically file 2010 taxes Certain expenses similar to interest also are not deductible. Electronically file 2010 taxes Nondeductible expenses include the following items. Electronically file 2010 taxes Personal interest (discussed later). Electronically file 2010 taxes Service charges (however, see Other Expenses (Line 23) in chapter 28). Electronically file 2010 taxes Annual fees for credit cards. Electronically file 2010 taxes Loan fees. Electronically file 2010 taxes Credit investigation fees. Electronically file 2010 taxes Interest to purchase or carry tax-exempt securities. Electronically file 2010 taxes Penalties. Electronically file 2010 taxes   You cannot deduct fines and penalties paid to a government for violations of law, regardless of their nature. Electronically file 2010 taxes Personal Interest Personal interest is not deductible. Electronically file 2010 taxes Personal interest is any interest that is not home mortgage interest, investment interest, business interest, or other deductible interest. Electronically file 2010 taxes It includes the following items. Electronically file 2010 taxes Interest on car loans (unless you use the car for business). Electronically file 2010 taxes Interest on federal, state, or local income tax. Electronically file 2010 taxes Finance charges on credit cards, retail installment contracts, and revolving charge accounts incurred for personal expenses. Electronically file 2010 taxes Late payment charges by a public utility. Electronically file 2010 taxes You may be able to deduct interest you pay on a qualified student loan. Electronically file 2010 taxes For details, see Publication 970, Tax Benefits for Education. Electronically file 2010 taxes Allocation of Interest If you use the proceeds of a loan for more than one purpose (for example, personal and business), you must allocate the interest on the loan to each use. Electronically file 2010 taxes However, you do not have to allocate home mortgage interest if it is fully deductible, regardless of how the funds are used. Electronically file 2010 taxes You allocate interest (other than fully deductible home mortgage interest) on a loan in the same way as the loan itself is allocated. Electronically file 2010 taxes You do this by tracing disbursements of the debt proceeds to specific uses. Electronically file 2010 taxes For details on how to do this, see chapter 4 of Publication 535. Electronically file 2010 taxes How To Report You must file Form 1040 to deduct any home mortgage interest expense on your tax return. Electronically file 2010 taxes Where you deduct your interest expense generally depends on how you use the loan proceeds. Electronically file 2010 taxes See Table 23-1 for a summary of where to deduct your interest expense. Electronically file 2010 taxes Home mortgage interest and points. Electronically file 2010 taxes   Deduct the home mortgage interest and points reported to you on Form 1098 on Schedule A (Form 1040), line 10. Electronically file 2010 taxes If you paid more deductible interest to the financial institution than the amount shown on Form 1098, show the larger deductible amount on line 10. Electronically file 2010 taxes Attach a statement explaining the difference and print “See attached” next to line 10. Electronically file 2010 taxes    Deduct home mortgage interest that was not reported to you on Form 1098 on Schedule A (Form 1040), line 11. Electronically file 2010 taxes If you paid home mortgage interest to the person from whom you bought your home, show that person's name, address, and taxpayer identification number (TIN) on the dotted lines next to line 11. Electronically file 2010 taxes The seller must give you this number and you must give the seller your TIN. Electronically file 2010 taxes A Form W-9, Request for Taxpayer Identification Number and Certification, can be used for this purpose. Electronically file 2010 taxes Failure to meet any of these requirements may result in a $50 penalty for each failure. Electronically file 2010 taxes The TIN can be either a social security number, an individual taxpayer identification number (issued by the Internal Revenue Service), or an employer identification number. Electronically file 2010 taxes See Social Security Number (SSN) in chapter 1 for more information about TINs. Electronically file 2010 taxes    If you can take a deduction for points that were not reported to you on Form 1098, deduct those points on Schedule A (Form 1040), line 12. Electronically file 2010 taxes   Deduct mortgage insurance premiums on Schedule A (Form 1040), line 13. Electronically file 2010 taxes More than one borrower. Electronically file 2010 taxes   If you and at least one other person (other than your spouse if you file a joint return) were liable for and paid interest on a mortgage that was for your home, and the other person received a Form 1098 showing the interest that was paid during the year, attach a statement to your return explaining this. Electronically file 2010 taxes Show how much of the interest each of you paid, and give the name and address of the person who received the form. Electronically file 2010 taxes Deduct your share of the interest on Schedule A (Form 1040), line 11, and print “See attached” next to the line. Electronically file 2010 taxes Also, deduct your share of any qualified mortgage insurance premiums on Schedule A (Form 1040), line 13. Electronically file 2010 taxes   Similarly, if you are the payer of record on a mortgage on which there are other borrowers entitled to a deduction for the interest shown on the Form 1098 you received, deduct only your share of the interest on Schedule A (Form 1040), line 10. Electronically file 2010 taxes You should let each of the other borrowers know what his or her share is. Electronically file 2010 taxes Mortgage proceeds used for business or investment. Electronically file 2010 taxes    If your home mortgage interest deduction is limited, but all or part of the mortgage proceeds were used for business, investment, or other deductible activities, see Table 23-1. Electronically file 2010 taxes It shows where to deduct the part of your excess interest that is for those activities. Electronically file 2010 taxes Investment interest. Electronically file 2010 taxes    Deduct investment interest, subject to certain limits discussed in Publication 550, on Schedule A (Form 1040), line 14. Electronically file 2010 taxes Amortization of bond premium. Electronically file 2010 taxes   There are various ways to treat the premium you pay to buy taxable bonds. Electronically file 2010 taxes See Bond Premium Amortization in Publication 550. Electronically file 2010 taxes Income-producing rental or royalty interest. Electronically file 2010 taxes   Deduct interest on a loan for income-producing rental or royalty property that is not used in your business in Part I of Schedule E (Form 1040). Electronically file 2010 taxes Example. Electronically file 2010 taxes You rent out part of your home and borrow money to make repairs. Electronically file 2010 taxes You can deduct only the interest payment for the rented part in Part I of Schedule E (Form 1040). Electronically file 2010 taxes Deduct the rest of the interest payment on Schedule A (Form 1040) if it is deductible home mortgage interest. Electronically file 2010 taxes Table 23-1. Electronically file 2010 taxes Where To Deduct Your Interest Expense IF you have . Electronically file 2010 taxes . Electronically file 2010 taxes . Electronically file 2010 taxes THEN deduct it on . Electronically file 2010 taxes . Electronically file 2010 taxes . Electronically file 2010 taxes AND for more information go to . Electronically file 2010 taxes . Electronically file 2010 taxes . Electronically file 2010 taxes deductible student loan interest Form 1040, line 33, or Form 1040A, line 18 Publication 970. Electronically file 2010 taxes deductible home mortgage interest and points reported on Form 1098 Schedule A (Form 1040), line 10 Publication 936. Electronically file 2010 taxes deductible home mortgage interest not reported on Form 1098 Schedule A (Form 1040), line 11 Publication 936. Electronically file 2010 taxes deductible points not reported on Form 1098 Schedule A (Form 1040), line 12 Publication 936. Electronically file 2010 taxes deductible mortgage insurance premiums Schedule A (Form 1040), line 13 Publication 936. Electronically file 2010 taxes deductible investment interest (other than incurred to produce rents or royalties) Schedule A (Form 1040), line 14 Publication 550. Electronically file 2010 taxes deductible business interest (non-farm) Schedule C or C-EZ (Form 1040) Publication 535. Electronically file 2010 taxes deductible farm business interest Schedule F (Form 1040) Publications 225 and 535. Electronically file 2010 taxes deductible interest incurred to produce rents or royalties Schedule E (Form 1040) Publications 527 and 535. Electronically file 2010 taxes personal interest not deductible. 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Understanding your CP01H Notice

You received a CP 01H notice because we were unable to process your tax return. The IRS has locked your account because the Social Security Administration informed us that the Social Security number (SSN) of the primary or secondary taxpayer on the return belongs to someone who was deceased prior to the current tax year (before January 1, 2010 for a 2010 tax return).

Printable samples of this notice (PDF)

Tax publications you may find useful

How to get help

Calling the 1-800 number listed on the top right corner of your notice is the fastest way to get your questions answered.

You can also authorize someone (such as an accountant) to contact the IRS on your behalf using this Power of Attorney and Declaration of Representative (Form 2848).

Or you may qualify for help from a Low Income Taxpayer Clinic.
 


What you need to do

If you think our records are in error, contact the Social Security Administration to correct the situation. If the account is corrected, they will provide you with a Letter SSA 2458 showing the correction. Once the information has been corrected, follow the instructions shown on your CP 01H notice to file your return.


You may want to...


Answers to Common Questions

Why am I getting this notice?
You are receiving this notice because the Social Security Administration identified that an SSN used on the federal income tax you filed belongs to an individual who was deceased prior to January 1 of the current tax year (not calendar year). The account was locked by the IRS to prevent identity theft by the misuse of this number.

How can I get the account unlocked?
If the person to whom the Social Security number belongs is erroneously identified as deceased:

  1. Contact the Social Security Administration and have them remove the date of death.
  2. Obtain an SSA 2458 letter showing the account has been corrected.
  3. Follow the instructions for sending the SSA letter along with other information requested on the CP 01H to the IRS Service Center where you filed your original return.

Tips for next year

Be sure to use the correct Social Security numbers when preparing next year's tax return.

Page Last Reviewed or Updated: 05-Mar-2014

The Electronically File 2010 Taxes

Electronically file 2010 taxes 5. Electronically file 2010 taxes   Exemptions, Deductions, and Credits Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: Items Related to Excluded Income Exemptions Contributions to Foreign Charitable Organizations Moving ExpensesAllocation of Moving Expenses Forms To File Contributions to Individual Retirement Arrangements Taxes of Foreign Countries and U. Electronically file 2010 taxes S. Electronically file 2010 taxes PossessionsCredit for Foreign Income Taxes Deduction for Foreign Income Taxes Deduction for Other Foreign Taxes How To Report Deductions Topics - This chapter discusses: The rules concerning items related to excluded income, Exemptions, Contributions to foreign charitable organizations, Moving expenses, Contributions to individual retirement arrangements (IRAs), Taxes of foreign countries and U. Electronically file 2010 taxes S. Electronically file 2010 taxes possessions, and How to report deductions. Electronically file 2010 taxes Useful Items - You may want to see: Publication 501 Exemptions, Standard Deduction, and Filing Information 514 Foreign Tax Credit for Individuals 521 Moving Expenses 523 Selling Your Home 590 Individual Retirement Arrangements (IRAs) 597 Information on the United States—Canada Income Tax Treaty Form (and Instructions) 1116 Foreign Tax Credit 2106 Employee Business Expenses 2555 Foreign Earned Income 2555-EZ Foreign Earned Income Exclusion 3903 Moving Expenses Schedule A (Form 1040) Itemized Deductions Schedule C (Form 1040) Profit or Loss From Business SS-5 Application for a Social Security Card W-7 Application for IRS Individual Taxpayer Identification Number See chapter 7 for information about getting these publications and forms. Electronically file 2010 taxes Items Related to Excluded Income U. Electronically file 2010 taxes S. Electronically file 2010 taxes citizens and resident aliens living outside the United States generally are allowed the same deductions as citizens and residents living in the United States. Electronically file 2010 taxes If you choose to exclude foreign earned income or housing amounts, you cannot deduct, exclude, or claim a credit for any item that can be allocated to or charged against the excluded amounts. Electronically file 2010 taxes This includes any expenses, losses, and other normally deductible items that are allocable to the excluded income. Electronically file 2010 taxes You can deduct only those expenses connected with earning includible income. Electronically file 2010 taxes These rules apply only to items definitely related to the excluded earned income and they do not apply to other items that are not definitely related to any particular type of gross income. Electronically file 2010 taxes These rules do not apply to items such as: Personal exemptions, Qualified retirement contributions, Alimony payments, Charitable contributions, Medical expenses, Mortgage interest, or Real estate taxes on your personal residence. Electronically file 2010 taxes For purposes of these rules, your housing deduction is not treated as allocable to your excluded income, but the deduction for self- employment tax is. Electronically file 2010 taxes If you receive foreign earned income in a tax year after the year in which you earned it, you may have to file an amended return for the earlier year to properly adjust the amounts of deductions, credits, or exclusions allocable to your foreign earned income and housing exclusions. Electronically file 2010 taxes Example. Electronically file 2010 taxes In 2012, you had $90,400 of foreign earned income and $9,500 of deductions allocable to your foreign earned income. Electronically file 2010 taxes You did not have a housing exclusion. Electronically file 2010 taxes Because you excluded all of your foreign earned income, you would not have been able to claim any of the deductions on your 2012 return. Electronically file 2010 taxes In 2013, you received a $12,000 bonus for work you did abroad in 2012. Electronically file 2010 taxes You can exclude $4,700 of the bonus because the limit on the foreign earned income exclusion for 2012 was $95,100 and you have already excluded $90,400. Electronically file 2010 taxes Since you must include $7,300 of the bonus ($12,000 − $4,700) for work you did in 2012 in income, you can file an amended return for 2012 to claim $677 of the deductions. Electronically file 2010 taxes This is the deductions allocable to the foreign earned income ($9,500) multiplied by the includible portion of the foreign earned income ($7,300) and divided by the total foreign earned income for 2012 ($102,400). Electronically file 2010 taxes Exemptions You can claim an exemption for your nonresident alien spouse on your separate return, provided your spouse has no gross income for U. Electronically file 2010 taxes S. Electronically file 2010 taxes tax purposes and is not the dependent of another U. Electronically file 2010 taxes S. Electronically file 2010 taxes taxpayer. Electronically file 2010 taxes You also can claim exemptions for individuals who qualify as your dependents. Electronically file 2010 taxes To be your dependent, the individual must be a U. Electronically file 2010 taxes S. Electronically file 2010 taxes citizen, U. Electronically file 2010 taxes S. Electronically file 2010 taxes national, U. Electronically file 2010 taxes S. Electronically file 2010 taxes resident alien, or a resident of Canada or Mexico for some part of the calendar year in which your tax year begins. Electronically file 2010 taxes Children. Electronically file 2010 taxes   Children usually are citizens or residents of the same country as their parents. Electronically file 2010 taxes If you were a U. Electronically file 2010 taxes S. Electronically file 2010 taxes citizen when your child was born, your child generally is a U. Electronically file 2010 taxes S. Electronically file 2010 taxes citizen. Electronically file 2010 taxes This is true even if the child's other parent is a nonresident alien, the child was born in a foreign country, and the child lives abroad with the other parent. Electronically file 2010 taxes   If you have a legally adopted child who is not a U. Electronically file 2010 taxes S. Electronically file 2010 taxes citizen, U. Electronically file 2010 taxes S. Electronically file 2010 taxes resident, or U. Electronically file 2010 taxes S. Electronically file 2010 taxes national, the child meets the citizen requirement if you are a U. Electronically file 2010 taxes S. Electronically file 2010 taxes citizen or U. Electronically file 2010 taxes S. Electronically file 2010 taxes national and the child lived with you as a member of your household all year. Electronically file 2010 taxes Social security number. Electronically file 2010 taxes   You must include on your return the social security number (SSN) of each dependent for whom you claim an exemption. Electronically file 2010 taxes To get a social security number for a dependent, apply at a Social Security office or U. Electronically file 2010 taxes S. Electronically file 2010 taxes consulate. Electronically file 2010 taxes You must provide original or certified copies of documents to verify the dependent's age, identity, and citizenship, and complete Form SS-5. Electronically file 2010 taxes   If you do not have an SSN for a child who was born in 2013 and died in 2013, attach a copy of the child's birth certificate to your tax return. Electronically file 2010 taxes Print “Died” in column (2) of line 6c of your Form 1040 or Form 1040A. Electronically file 2010 taxes   If your dependent is a nonresident alien who is not eligible to get a social security number, you must list the dependent's individual taxpayer identification number (ITIN) instead of an SSN. Electronically file 2010 taxes To apply for an ITIN, file Form W-7 with the IRS. Electronically file 2010 taxes It usually takes 6 to 10 weeks to get an ITIN. Electronically file 2010 taxes Enter your dependent's ITIN wherever an SSN is requested on your tax return. Electronically file 2010 taxes More information. Electronically file 2010 taxes   For more information about exemptions, see Publication 501. Electronically file 2010 taxes Contributions to Foreign Charitable Organizations If you make contributions directly to a foreign church or other foreign charitable organization, you generally cannot deduct them. Electronically file 2010 taxes Exceptions are explained under Canadian, Mexican, and Israeli charities, later. Electronically file 2010 taxes You can deduct contributions to a U. Electronically file 2010 taxes S. Electronically file 2010 taxes organization that transfers funds to a charitable foreign organization if the U. Electronically file 2010 taxes S. Electronically file 2010 taxes organization controls the use of the funds by the foreign organization or if the foreign organization is just an administrative arm of the U. Electronically file 2010 taxes S. Electronically file 2010 taxes organization. Electronically file 2010 taxes Canadian, Mexican, and Israeli charities. Electronically file 2010 taxes   Under the income tax treaties with Canada, Mexico and Israel, you may be able to deduct contributions to certain Canadian, Mexican, and Israeli charitable organizations. Electronically file 2010 taxes Generally, you must have income from sources in Canada, Mexico, or Israel, and the organization must meet certain requirements. Electronically file 2010 taxes See Publication 597, Information on the United States-Canada Income Tax Treaty, and Publication 526, Charitable Contributions, for more information. Electronically file 2010 taxes Moving Expenses If you moved to a new home in 2013 because of your job or business, you may be able to deduct the expenses of your move. Electronically file 2010 taxes Generally, to be deductible, the moving expenses must have been paid or incurred in connection with starting work at a new job location. Electronically file 2010 taxes See Publication 521 for a complete discussion of the deduction for moving expenses and information about moves within the United States. Electronically file 2010 taxes Foreign moves. Electronically file 2010 taxes   A foreign move is a move in connection with the start of work at a new job location outside the United States and its possessions. Electronically file 2010 taxes A foreign move does not include a move back to the United States or its possessions. Electronically file 2010 taxes Allocation of Moving Expenses When your new place of work is in a foreign country, your moving expenses are directly connected with the income earned in that foreign country. Electronically file 2010 taxes If you exclude all or part of the income that you earn at the new location under the foreign earned income exclusion or the foreign housing exclusion, you cannot deduct the part of your moving expense that is allocable to the excluded income. Electronically file 2010 taxes Also, you cannot deduct the part of the moving expense related to the excluded income for a move from a foreign country to the United States if you receive a reimbursement that you are able to treat as compensation for services performed in the foreign country. Electronically file 2010 taxes Year to which expense is connected. Electronically file 2010 taxes   The moving expense is connected with earning the income (including reimbursements, as discussed in chapter 4 under Reimbursement of moving expenses ) either entirely in the year of the move or in 2 years. Electronically file 2010 taxes It is connected with earning the income entirely in the year of the move if you qualify for the foreign earned income exclusion under the bona fide residence test or physical presence test for at least 120 days during that tax year. Electronically file 2010 taxes   If you do not qualify under either the bona fide residence test or the physical presence test for at least 120 days during the year of the move, the expense is connected with earning the income in 2 years. Electronically file 2010 taxes The moving expense is connected with the year of the move and the following year if the move is from the United States to a foreign country. Electronically file 2010 taxes The moving expense is connected with the year of the move and the preceding year if the move is from a foreign country to the United States. Electronically file 2010 taxes Amount allocable to excluded income. Electronically file 2010 taxes   To figure the amount of your moving expense that is allocable to your excluded foreign earned income (and not deductible), you must multiply your total moving expense deduction by a fraction. Electronically file 2010 taxes The numerator (top number) of the fraction is the total of your excluded foreign earned income and housing amounts for both years and the denominator (bottom number) of the fraction is your total foreign earned income for both years. Electronically file 2010 taxes Example. Electronically file 2010 taxes On November 1, 2012, you transfer to Monaco. Electronically file 2010 taxes Your tax home is in Monaco, and you are a bona fide resident of Monaco for the entire tax year 2013. Electronically file 2010 taxes In 2012, you paid $6,000 for allowable moving expenses for your move from the United States to Monaco. Electronically file 2010 taxes You were fully reimbursed (under a nonaccountable plan) for these expenses in the same year. Electronically file 2010 taxes The reimbursement is included in your income. Electronically file 2010 taxes Your only other income consists of $16,000 wages earned in 2012 after the date of your move, and $100,100 wages earned in Monaco for 2013. Electronically file 2010 taxes Because you did not meet the bona fide residence test for at least 120 days during 2012, the year of the move, the moving expenses are for services you performed in both 2012 and the following year, 2013. Electronically file 2010 taxes Your total foreign earned income for both years is $122,100, consisting of $16,000 wages for 2012, $100,100 wages for 2013, and $6,000 moving expense reimbursement for both years. Electronically file 2010 taxes You have no housing exclusion. Electronically file 2010 taxes The total amount you can exclude is $113,190, consisting of the $97,600 full-year exclusion for 2013 and a $15,590 part-year exclusion for 2012 ($95,100 times the fraction of 60 qualifying bona fide residence days over 366 total days in the year). Electronically file 2010 taxes To find the part of your moving expenses that is not deductible, multiply your $6,000 total expenses by the fraction $113,190 over $122,100. Electronically file 2010 taxes The result, $5,562, is your nondeductible amount. Electronically file 2010 taxes    You must report the full amount of the moving expense reimbursement in the year in which you received the reimbursement. Electronically file 2010 taxes In the preceding example, this year was 2012. Electronically file 2010 taxes You attribute the reimbursement to both 2012 and 2013 only to figure the amount of foreign earned income eligible for exclusion for each year. Electronically file 2010 taxes Move between foreign countries. Electronically file 2010 taxes   If you move between foreign countries, your moving expense is allocable to income earned in the year of the move if you qualified under either the bona fide residence test or the physical presence test for a period that includes at least 120 days in the year of the move. Electronically file 2010 taxes New place of work in U. Electronically file 2010 taxes S. Electronically file 2010 taxes   If your new place of work is in the United States, the deductible moving expenses are directly connected with the income earned in the United States. Electronically file 2010 taxes If you treat a reimbursement from your employer as foreign earned income (see the discussion in chapter 4), you must allocate deductible moving expenses to foreign earned income. Electronically file 2010 taxes Storage expenses. Electronically file 2010 taxes   These expenses are attributable to work you do during the year in which you incur the storage expenses. Electronically file 2010 taxes You cannot deduct the amount allocable to excluded income. Electronically file 2010 taxes Moving Expense Attributable to Foreign Earnings in 2 Years If your moving expense deduction is attributable to your foreign earnings in 2 years (the year of the move and the following year), you should request an extension of time to file your return for the year of the move until after the end of the second year. Electronically file 2010 taxes By then, you should have all the information needed to properly figure the moving expense deduction. Electronically file 2010 taxes See Extensions under When To File and Pay in chapter 1. Electronically file 2010 taxes If you do not request an extension, you should figure the part of the moving expense that you cannot deduct because it is allocable to the foreign earned income you are excluding. Electronically file 2010 taxes You do this by multiplying the moving expense by a fraction, the numerator (top number) of which is your excluded foreign earned income for the year of the move, and the denominator (bottom number) of which is your total foreign earned income for the year of the move. Electronically file 2010 taxes Once you know your foreign earnings and exclusion for the following year, you must either: Adjust the moving expense deduction by filing an amended return for the year of the move, or Recapture any additional unallowable amount as income on your return for the following year. Electronically file 2010 taxes If, after you make the final computation, you have an additional amount of allowable moving expense deduction, you can claim this only on an amended return for the year of the move. Electronically file 2010 taxes You cannot claim it on the return for the second year. Electronically file 2010 taxes Forms To File Report your moving expenses on Form 3903. Electronically file 2010 taxes Report your moving expense deduction on line 26 of Form 1040. Electronically file 2010 taxes If you must reduce your moving expenses by the amount allocable to excluded income (as explained later under How To Report Deductions ), attach a statement to your return showing how you figured this amount. Electronically file 2010 taxes For more information about figuring moving expenses, see Publication 521. Electronically file 2010 taxes Contributions to Individual Retirement Arrangements Contributions to your individual retirement arrangements (IRAs) that are traditional IRAs or Roth IRAs are generally limited to the lesser of $5,500 ($6,500 if 50 or older) or your compensation that is includible in your gross income for the tax year. Electronically file 2010 taxes In determining compensation for this purpose, do not take into account amounts you exclude under either the foreign earned income exclusion or the foreign housing exclusion. Electronically file 2010 taxes Do not reduce your compensation by the foreign housing deduction. Electronically file 2010 taxes If you are covered by an employer retirement plan at work, your deduction for your contributions to your traditional IRAs is generally limited based on your modified adjusted gross income. Electronically file 2010 taxes This is your adjusted gross income figured without taking into account the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction. Electronically file 2010 taxes Other modifications are also required. Electronically file 2010 taxes For more information on IRAs, see Publication 590. Electronically file 2010 taxes Taxes of Foreign Countries and U. Electronically file 2010 taxes S. Electronically file 2010 taxes Possessions You can take either a credit or a deduction for income taxes paid to a foreign country or a U. Electronically file 2010 taxes S. Electronically file 2010 taxes possession. Electronically file 2010 taxes Taken as a deduction, foreign income taxes reduce your taxable income. Electronically file 2010 taxes Taken as a credit, foreign income taxes reduce your tax liability. Electronically file 2010 taxes You must treat all foreign income taxes the same way. Electronically file 2010 taxes If you take a credit for any foreign income taxes, you cannot deduct any foreign income taxes. Electronically file 2010 taxes However, you may be able to deduct other foreign taxes. Electronically file 2010 taxes See Deduction for Other Foreign Taxes, later. Electronically file 2010 taxes There is no rule to determine whether it is to your advantage to take a deduction or a credit for foreign income taxes. Electronically file 2010 taxes In most cases, it is to your advantage to take foreign income taxes as a tax credit, which you subtract directly from your U. Electronically file 2010 taxes S. Electronically file 2010 taxes tax liability, rather than as a deduction in figuring taxable income. Electronically file 2010 taxes However, if foreign income taxes were imposed at a high rate and the proportion of foreign income to U. Electronically file 2010 taxes S. Electronically file 2010 taxes income is small, a lower final tax may result from deducting the foreign income taxes. Electronically file 2010 taxes In any event, you should figure your tax liability both ways and then use the one that is better for you. Electronically file 2010 taxes You can make or change your choice within 10 years from the due date for filing the tax return on which you are entitled to take either the deduction or the credit. Electronically file 2010 taxes Foreign income taxes. Electronically file 2010 taxes   These are generally income taxes you pay to any foreign country or possession of the United States. Electronically file 2010 taxes Foreign income taxes on U. Electronically file 2010 taxes S. Electronically file 2010 taxes return. Electronically file 2010 taxes   Foreign income taxes can only be taken as a credit on Form 1040, line 47, or as an itemized deduction on Schedule A. Electronically file 2010 taxes These amounts cannot be included as withheld income taxes on Form 1040, line 62. Electronically file 2010 taxes Foreign taxes paid on excluded income. Electronically file 2010 taxes   You cannot take a credit or deduction for foreign income taxes paid on earnings you exclude from tax under any of the following. Electronically file 2010 taxes Foreign earned income exclusion. Electronically file 2010 taxes Foreign housing exclusion. Electronically file 2010 taxes Possession exclusion. Electronically file 2010 taxes If your wages are completely excluded, you cannot deduct or take a credit for any of the foreign taxes paid on your wages. Electronically file 2010 taxes   If only part of your wages is excluded, you cannot deduct or take a credit for the foreign income taxes allocable to the excluded part. Electronically file 2010 taxes You find the taxes allocable to your excluded wages by applying a fraction to the foreign taxes paid on foreign earned income received during the tax year. Electronically file 2010 taxes The numerator (top number) of the fraction is your excluded foreign earned income received during the tax year minus deductible expenses allocable to that income (not including the foreign housing deduction). Electronically file 2010 taxes The denominator (bottom number) of the fraction is your total foreign earned income received during the tax year minus all deductible expenses allocable to that income (including the foreign housing deduction). Electronically file 2010 taxes   If foreign law taxes both earned income and some other type of income and the taxes on the other type cannot be separated, the denominator of the fraction is the total amount of income subject to foreign tax minus deductible expenses allocable to that income. Electronically file 2010 taxes    If you take a foreign tax credit for tax on income you could have excluded under your choice to exclude foreign earned income or your choice to exclude foreign housing costs, one or both of the choices may be considered revoked. Electronically file 2010 taxes Credit for Foreign Income Taxes If you take the foreign tax credit, you may have to file Form 1116 with Form 1040. Electronically file 2010 taxes Form 1116 is used to figure the amount of foreign tax paid or accrued that can be claimed as a foreign tax credit. Electronically file 2010 taxes Do not include the amount of foreign tax paid or accrued as withheld federal income taxes on Form 1040, line 62. Electronically file 2010 taxes The foreign income tax for which you can claim a credit is the amount of legal and actual tax liability you pay or accrue during the year. Electronically file 2010 taxes The amount for which you can claim a credit is not necessarily the amount withheld by the foreign country. Electronically file 2010 taxes You cannot take a foreign tax credit for income tax you paid to a foreign country that would be refunded by the foreign country if you made a claim for refund. Electronically file 2010 taxes Subsidies. Electronically file 2010 taxes   If a foreign country returns your foreign tax payments to you in the form of a subsidy, you cannot claim a foreign tax credit based on these payments. Electronically file 2010 taxes This rule applies to a subsidy provided by any means that is determined, directly or indirectly, by reference to the amount of tax, or to the base used to figure the tax. Electronically file 2010 taxes   Some ways of providing a subsidy are refunds, credits, deductions, payments, or discharges of obligations. Electronically file 2010 taxes A credit is also not allowed if the subsidy is given to a person related to you, or persons who participated in a transaction or a related transaction with you. Electronically file 2010 taxes Limit The foreign tax credit is limited to the part of your total U. Electronically file 2010 taxes S. Electronically file 2010 taxes tax that is in proportion to your taxable income from sources outside the United States compared to your total taxable income. Electronically file 2010 taxes The allowable foreign tax credit cannot be more than your actual foreign tax liability. Electronically file 2010 taxes Exemption from limit. Electronically file 2010 taxes   You will not be subject to this limit and will not have to file Form 1116 if you meet all three of the following requirements. Electronically file 2010 taxes Your only foreign source income for the year is passive income (dividends, interest, royalties, etc. Electronically file 2010 taxes ) that is reported to you on a payee statement (such as a Form 1099-DIV or 1099-INT). Electronically file 2010 taxes Your foreign taxes for the year that qualify for the credit are not more than $300 ($600 if you are filing a joint return) and are reported on a payee statement. Electronically file 2010 taxes You elect this procedure. Electronically file 2010 taxes If you make this election, you cannot carry back or carry over any unused foreign tax to or from this year. Electronically file 2010 taxes Separate limit. Electronically file 2010 taxes   You must figure the limit on a separate basis with regard to “passive category income” and “general category income” (see the instructions for Form 1116). Electronically file 2010 taxes Figuring the limit. Electronically file 2010 taxes   In figuring taxable income in each category, you take into account only the amount that you must include in income on your federal tax return. Electronically file 2010 taxes Do not take any excluded amount into account. Electronically file 2010 taxes   To determine your taxable income in each category, deduct expenses and losses that are definitely related to that income. Electronically file 2010 taxes   Other expenses (such as itemized deductions or the standard deduction) not definitely related to specific items of income must be apportioned to the foreign income in each category by multiplying them by a fraction. Electronically file 2010 taxes The numerator (top number) of the fraction is your gross foreign income in the separate limit category. Electronically file 2010 taxes The denominator (bottom number) of the fraction is your gross income from all sources. Electronically file 2010 taxes For this purpose, gross income includes income that is excluded under the foreign earned income provisions but does not include any other exempt income. Electronically file 2010 taxes You must use special rules for deducting interest expenses. Electronically file 2010 taxes For more information on allocating and apportioning your deductions, see Publication 514. Electronically file 2010 taxes Exemptions. Electronically file 2010 taxes   Do not take the deduction for exemptions for yourself, your spouse, or your dependents in figuring taxable income for purposes of the limit. Electronically file 2010 taxes Recapture of foreign losses. Electronically file 2010 taxes   If you have an overall foreign loss and the loss reduces your U. Electronically file 2010 taxes S. Electronically file 2010 taxes source income (resulting in a reduction of your U. Electronically file 2010 taxes S. Electronically file 2010 taxes tax liability), you must recapture the loss in later years when you have taxable income from foreign sources. Electronically file 2010 taxes This is done by treating a part of your taxable income from foreign sources in later years as U. Electronically file 2010 taxes S. Electronically file 2010 taxes source income. Electronically file 2010 taxes This reduces the numerator of the limiting fraction and the resulting foreign tax credit limit. Electronically file 2010 taxes Recapture of domestic losses. Electronically file 2010 taxes   If you have an overall domestic loss (resulting in no U. Electronically file 2010 taxes S. Electronically file 2010 taxes tax liability), you cannot claim a foreign tax credit for taxes paid during that year. Electronically file 2010 taxes You must recapture the loss in later years when you have U. Electronically file 2010 taxes S. Electronically file 2010 taxes source taxable income. Electronically file 2010 taxes This is done by treating a part of your taxable income from U. Electronically file 2010 taxes S. Electronically file 2010 taxes sources in later years as foreign source income. Electronically file 2010 taxes This increases the numerator of the limiting fraction and the resulting foreign tax credit limit. Electronically file 2010 taxes Foreign tax credit carryback and carryover. Electronically file 2010 taxes   The amount of foreign income tax not allowed as a credit because of the limit can be carried back 1 year and carried forward 10 years. Electronically file 2010 taxes   More information on figuring the foreign tax credit can be found in Publication 514. Electronically file 2010 taxes Deduction for Foreign Income Taxes Instead of taking the foreign tax credit, you can deduct foreign income taxes as an itemized deduction on Schedule A (Form 1040). Electronically file 2010 taxes You can deduct only foreign income taxes paid on income that is subject to U. Electronically file 2010 taxes S. Electronically file 2010 taxes tax. Electronically file 2010 taxes You cannot deduct foreign taxes paid on earnings you exclude from tax under any of the following. Electronically file 2010 taxes Foreign earned income exclusion. Electronically file 2010 taxes Foreign housing exclusion. Electronically file 2010 taxes Possession exclusion. Electronically file 2010 taxes Example. Electronically file 2010 taxes You are a U. Electronically file 2010 taxes S. Electronically file 2010 taxes citizen and qualify to exclude your foreign earned income. Electronically file 2010 taxes Your excluded wages in Country X are $70,000 on which you paid income tax of $10,000. Electronically file 2010 taxes You received dividends from Country X of $2,000 on which you paid income tax of $600. Electronically file 2010 taxes You can deduct the $600 tax payment because the dividends relating to it are subject to U. Electronically file 2010 taxes S. Electronically file 2010 taxes tax. Electronically file 2010 taxes Because you exclude your wages, you cannot deduct the income tax of $10,000. Electronically file 2010 taxes If you exclude only a part of your wages, see the earlier discussion under Foreign taxes paid on excluded income. Electronically file 2010 taxes Deduction for Other Foreign Taxes You can deduct real property taxes you pay that are imposed on you by a foreign country. Electronically file 2010 taxes You take this deduction on Schedule A (Form 1040). Electronically file 2010 taxes You cannot deduct other foreign taxes, such as personal property taxes, unless you incurred the expenses in a trade or business or in the production of income. Electronically file 2010 taxes On the other hand, you generally can deduct personal property taxes when you pay them to U. Electronically file 2010 taxes S. Electronically file 2010 taxes possessions. Electronically file 2010 taxes But if you claim the possession exclusion, see Publication 570. Electronically file 2010 taxes The deduction for foreign taxes other than foreign income taxes is not related to the foreign tax credit. Electronically file 2010 taxes You can take deductions for these miscellaneous foreign taxes and also claim the foreign tax credit for income taxes imposed by a foreign country. Electronically file 2010 taxes How To Report Deductions If you exclude foreign earned income or housing amounts, how you show your deductions on your tax return and how you figure the amount allocable to your excluded income depends on whether the expenses are used in figuring adjusted gross income (Form 1040, line 38) or are itemized deductions. Electronically file 2010 taxes If you have deductions used in figuring adjusted gross income, enter the total amount for each of these items on the appropriate lines and schedules of Form 1040. Electronically file 2010 taxes Generally, you figure the amount of a deduction related to the excluded income by multiplying the deduction by a fraction, the numerator of which is your foreign earned income exclusion and the denominator of which is your foreign earned income. Electronically file 2010 taxes Enter the amount of the deduction(s) related to excluded income on line 44 of Form 2555. Electronically file 2010 taxes If you have itemized deductions related to excluded income, enter on Schedule A (Form 1040) only the part not related to excluded income. Electronically file 2010 taxes You figure that amount by subtracting from the total deduction the amount related to excluded income. Electronically file 2010 taxes Generally, you figure the amount that is related to the excluded income by multiplying the total deduction by a fraction, the numerator of which is your foreign earned income exclusion and the denominator of which is your foreign earned income. Electronically file 2010 taxes Attach a statement to your return showing how you figured the deductible amount. Electronically file 2010 taxes Example 1. Electronically file 2010 taxes You are a U. Electronically file 2010 taxes S. Electronically file 2010 taxes citizen employed as an accountant. Electronically file 2010 taxes Your tax home is in Germany for the entire tax year. Electronically file 2010 taxes You meet the physical presence test. Electronically file 2010 taxes Your foreign earned income for the year was $122,000 and your investment income was $10,380. Electronically file 2010 taxes After excluding $97,600, your AGI is $34,780. Electronically file 2010 taxes You had unreimbursed business expenses of $2,500 for travel and entertainment in earning your foreign income, of which $500 was for meals and entertainment. Electronically file 2010 taxes These expenses are deductible only as miscellaneous deductions on Schedule A (Form 1040). Electronically file 2010 taxes You also have $500 of miscellaneous expenses that are not related to your foreign income that you enter on line 23 of Schedule A. Electronically file 2010 taxes You must fill out Form 2106. Electronically file 2010 taxes On that form, reduce your deductible meal and entertainment expenses by 50% ($250). Electronically file 2010 taxes You must reduce the remaining $2,250 of travel and entertainment expenses by 80% ($1,800) because you excluded 80% ($97,600/$122,000) of your foreign earned income. Electronically file 2010 taxes You carry the remaining total of $450 to line 21 of Schedule A. Electronically file 2010 taxes Add the $450 to the $500 that you have on line 23 and enter the total ($950) on line 24. Electronically file 2010 taxes On line 26 of Schedule A, enter $696, which is 2% of your adjusted gross income of $34,780 (line 38, Form 1040) and subtract it from the amount on line 24. Electronically file 2010 taxes Enter $254 on line 27 of Schedule A. Electronically file 2010 taxes Example 2. Electronically file 2010 taxes You are a U. Electronically file 2010 taxes S. Electronically file 2010 taxes citizen, have a tax home in Spain, and meet the physical presence test. Electronically file 2010 taxes You are self-employed and personal services produce the business income. Electronically file 2010 taxes Your gross income was $116,931, business expenses $66,895, and net income (profit) $50,036. Electronically file 2010 taxes You choose the foreign earned income exclusion and exclude $97,600 of your gross income. Electronically file 2010 taxes Since your excluded income is 83. Electronically file 2010 taxes 47% of your total income, 83. Electronically file 2010 taxes 47% of your business expenses are not deductible. Electronically file 2010 taxes Report your total income and expenses on Schedule C (Form 1040). Electronically file 2010 taxes On Form 2555 you will show the following: Line 20a, $116,931, gross income, Lines 42 and 43, $97,600, foreign earned income exclusion, and Line 44, $55,837 (83. Electronically file 2010 taxes 47% × $66,895) business expenses attributable to the exclusion. Electronically file 2010 taxes In this situation (Example 2), you cannot use Form 2555-EZ since you had self-employment income and business expenses. Electronically file 2010 taxes Example 3. Electronically file 2010 taxes Assume in Example 2 that both capital and personal services combine to produce the business income. Electronically file 2010 taxes No more than 30% of your net income, or $15,011, assuming that this amount is a reasonable allowance for your services, is considered earned and can be excluded. Electronically file 2010 taxes Your exclusion of $15,011 is 12. Electronically file 2010 taxes 84% of your gross income ($15,011 ÷ $116,931). Electronically file 2010 taxes Because you excluded 12. Electronically file 2010 taxes 84% of your total income, $8,589 (. Electronically file 2010 taxes 1284 x $66,895) of your business expenses is attributable to the excluded income and is not deductible. Electronically file 2010 taxes Example 4. Electronically file 2010 taxes You are a U. Electronically file 2010 taxes S. Electronically file 2010 taxes citizen, have a tax home in Brazil, and meet the physical presence test. Electronically file 2010 taxes You are self-employed and both capital and personal services combine to produce business income. Electronically file 2010 taxes Your gross income was $146,000, business expenses were $172,000, and your net loss was $26,000. Electronically file 2010 taxes A reasonable allowance for the services you performed for the business is $77,000. Electronically file 2010 taxes Because you incurred a net loss, the earned income limit of 30% of your net profit does not apply. Electronically file 2010 taxes The $77,000 is foreign earned income. Electronically file 2010 taxes If you choose to exclude the $77,000, you exclude 52. Electronically file 2010 taxes 74% of your gross income ($77,000 ÷ $146,000), and 52. Electronically file 2010 taxes 74% of your business expenses ($90,713) is attributable to that income and is not deductible. Electronically file 2010 taxes Show your total income and expenses on Schedule C (Form 1040). Electronically file 2010 taxes On Form 2555, exclude $77,000 and show $90,713 on line 44. Electronically file 2010 taxes Subtract line 44 from line 43, and enter the difference as a negative (in parentheses) on line 45. Electronically file 2010 taxes Because this amount is negative, enter it as a positive (no parentheses) on line 21, Form 1040, and combine it with your other income to arrive at total income on line 22 of Form 1040. Electronically file 2010 taxes In this situation (Example 4), you would probably not want to choose the foreign earned income exclusion if this was the first year you were eligible. Electronically file 2010 taxes If you had chosen the exclusion in an earlier year, you might want to revoke the choice for this year. Electronically file 2010 taxes To do so would mean that you could not claim the exclusion again for the next 5 tax years without IRS approval. Electronically file 2010 taxes See Choosing the Exclusion in chapter 4. Electronically file 2010 taxes Example 5. Electronically file 2010 taxes You are a U. Electronically file 2010 taxes S. Electronically file 2010 taxes citizen, have a tax home in Panama, and meet the bona fide residence test. Electronically file 2010 taxes You have been performing services for clients as a partner in a firm that provides services exclusively in Panama. Electronically file 2010 taxes Capital investment is not material in producing the partnership's income. Electronically file 2010 taxes Under the terms of the partnership agreement, you are to receive 50% of the net profits. Electronically file 2010 taxes The partnership received gross income of $244,000 and incurred operating expenses of $98,250. Electronically file 2010 taxes Of the net profits of $145,750, you received $72,875 as your distributive share. Electronically file 2010 taxes You choose to exclude $97,600 of your share of the gross income. Electronically file 2010 taxes Because you exclude 80% ($97,600 ÷ $122,000) of your share of the gross income, you cannot deduct $39,300, 80% of your share of the operating expenses (. Electronically file 2010 taxes 80 × $49,125). Electronically file 2010 taxes Report $72,875, your distributive share of the partnership net profit, on Schedule E (Form 1040), Supplemental Income and Loss. Electronically file 2010 taxes On Form 2555, show $97,600 on line 42 and show $39,300 on line 44. Electronically file 2010 taxes Your exclusion on Form 2555 is $58,300. Electronically file 2010 taxes In this situation (Example 5), you cannot use Form 2555-EZ since you had earned income other than salaries and wages and you had business expenses. Electronically file 2010 taxes Prev  Up  Next   Home   More Online Publications