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Federal Ez Tax Form 2011

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Federal Ez Tax Form 2011

Federal ez tax form 2011 1. Federal ez tax form 2011   Scholarships, Fellowships, Grants, and Tuition Reductions Table of Contents Reminder Introduction Scholarships and FellowshipsTax-Free Scholarships and Fellowships Taxable Scholarships and Fellowships Reporting Scholarships and Fellowships Other Types of Educational AssistanceFulbright Grants Pell Grants and Other Title IV Need-Based Education Grants Payment to Service Academy Cadets Veterans' Benefits Qualified Tuition Reduction Reminder Individual retirement arrangements (IRAs). Federal ez tax form 2011  You can set up and make contributions to an IRA if you receive taxable compensation. Federal ez tax form 2011 Under this rule, a taxable scholarship or fellowship is compensation only if it is shown in box 1 of your Form W-2, Wage and Tax Statement. Federal ez tax form 2011 For more information about IRAs, see Publication 590. Federal ez tax form 2011 Introduction This chapter discusses the income tax treatment of various types of educational assistance you may receive if you are studying, teaching, or researching in the United States. Federal ez tax form 2011 The educational assistance can be for a primary or secondary school, a college or university, or a vocational school. Federal ez tax form 2011 Included are discussions of: Scholarships, Fellowships, Need-based education grants, such as a Pell Grant, and Qualified tuition reductions. Federal ez tax form 2011 Many types of educational assistance are tax free if they meet the requirements discussed here. Federal ez tax form 2011 Special rules apply to U. Federal ez tax form 2011 S. Federal ez tax form 2011 citizens and resident aliens who have received scholarships or fellowships for studying, teaching, or researching abroad. Federal ez tax form 2011 For information about these rules, see Publication 54, Tax Guide for U. Federal ez tax form 2011 S. Federal ez tax form 2011 Citizens and Resident Aliens Abroad. Federal ez tax form 2011 Scholarships and Fellowships A scholarship is generally an amount paid or allowed to, or for the benefit of, a student (whether an undergraduate or a graduate) at an educational institution to aid in the pursuit of his or her studies. Federal ez tax form 2011 A fellowship is generally an amount paid for the benefit of an individual to aid in the pursuit of study or research. Federal ez tax form 2011 Amount of scholarship or fellowship. Federal ez tax form 2011   The amount of a scholarship or fellowship includes the following: The value of contributed services and accommodations. Federal ez tax form 2011 This includes such services and accommodations as room (lodging), board (meals), laundry service, and similar services or accommodations that are received by an individual as a part of a scholarship or fellowship. Federal ez tax form 2011 The amount of tuition, matriculation, and other fees that are paid or remitted to the student to aid the student in pursuing study or research. Federal ez tax form 2011 Any amount received in the nature of a family allowance as a part of a scholarship or fellowship. Federal ez tax form 2011 Tax-Free Scholarships and Fellowships A scholarship or fellowship is tax free (excludable from gross income) only if you are a candidate for a degree at an eligible educational institution. Federal ez tax form 2011 A scholarship or fellowship is tax free only to the extent: It does not exceed your expenses; It is not designated or earmarked for other purposes (such as room and board), and does not require (by its terms) that it cannot be used for qualified education expenses; and It does not represent payment for teaching, research, or other services required as a condition for receiving the scholarship. Federal ez tax form 2011 (But for exceptions, see Payment for services,later. Federal ez tax form 2011 Use Worksheet 1–1 to figure the amount of a scholarship or fellowship you can exclude from gross income. Federal ez tax form 2011 Candidate for a degree. Federal ez tax form 2011   You are a candidate for a degree if you: Attend a primary or secondary school or are pursuing a degree at a college or university, or Attend an educational institution that: Provides a program that is acceptable for full credit toward a bachelor's or higher degree, or offers a program of training to prepare students for gainful employment in a recognized occupation; and Is authorized under federal or state law to provide such a program and is accredited by a nationally recognized accreditation agency. Federal ez tax form 2011 Eligible educational institution. Federal ez tax form 2011   An eligible educational institution is one whose primary function is the presentation of formal instruction and that normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance at the place where it carries on its educational activities. Federal ez tax form 2011 Qualified education expenses. Federal ez tax form 2011   For purposes of tax-free scholarships and fellowships, these are expenses for: Tuition and fees required to enroll at or attend an eligible educational institution, and Course-related expenses, such as fees, books, supplies, and equipment that are required for the courses at the eligible educational institution. Federal ez tax form 2011 These items must be required of all students in your course of instruction. Federal ez tax form 2011 Expenses that do not qualify. Federal ez tax form 2011   Qualified education expenses do not include the cost of: Room and board, Travel, Research, Clerical help, or Equipment and other expenses that are not required for enrollment in or attendance at an eligible educational institution. Federal ez tax form 2011 Payment for services. Federal ez tax form 2011   Generally, you cannot exclude from your gross income the part of any scholarship or fellowship that represents payment for teaching, research, or other services required as a condition for receiving the scholarship. Federal ez tax form 2011 This applies even if all candidates for a degree must perform the services to receive the degree. Federal ez tax form 2011 (See exceptions next. Federal ez tax form 2011 ) Exceptions. Federal ez tax form 2011   You do not have to treat as payment for services the part of any scholarship or fellowship that represents payment for teaching, research, or other services if you receive the amount under: The National Health Service Corps Scholarship Program, or The Armed Forces Health Professions Scholarship and Financial Assistance Program. Federal ez tax form 2011 Example 1. Federal ez tax form 2011 You received a scholarship of $2,500. Federal ez tax form 2011 The scholarship was not received under either of the exceptions mentioned above. Federal ez tax form 2011 As a condition for receiving the scholarship, you must serve as a part-time teaching assistant. Federal ez tax form 2011 Of the $2,500 scholarship, $1,000 represents payment for teaching. Federal ez tax form 2011 The provider of your scholarship gives you a Form W-2 showing $1,000 as income. Federal ez tax form 2011 Your qualified education expenses were at least $1,500. Federal ez tax form 2011 Assuming that all other conditions are met, $1,500 of your scholarship is tax free. Federal ez tax form 2011 The $1,000 you received for teaching is taxable. Federal ez tax form 2011 Example 2. Federal ez tax form 2011 You are a candidate for a degree at a medical school. Federal ez tax form 2011 You receive a scholarship (not under either of the exceptions mentioned above) for your medical education and training. Federal ez tax form 2011 The terms of your scholarship require you to perform future services. Federal ez tax form 2011 A substantial penalty applies if you do not comply. Federal ez tax form 2011 The entire amount of your grant is taxable as payment for services in the year it is received. Federal ez tax form 2011 Athletic Scholarships An athletic scholarship is tax free only if and to the extent it meets the requirements discussed later. Federal ez tax form 2011 Worksheet 1-1. Federal ez tax form 2011    You can use Worksheet 1-1, Taxable Scholarship and Fellowship Income , later, to figure the tax-free and taxable parts of your athletic scholarship. Federal ez tax form 2011    Worksheet 1-1. Federal ez tax form 2011 Taxable Scholarship and Fellowship Income 1. Federal ez tax form 2011 Enter the total amount of any scholarship or fellowship for 2013. Federal ez tax form 2011 See Amount of scholarship or fellowship, earlier. Federal ez tax form 2011 1. Federal ez tax form 2011       If you are a degree candidate at an eligible educational institution, go to line 2. Federal ez tax form 2011 If you are not a degree candidate at an eligible educational institution, stop here. Federal ez tax form 2011 The entire amount is taxable. Federal ez tax form 2011 For information on how to report this amount on your tax return, see Reporting Scholarships and Fellowships , earlier, in this chapter. Federal ez tax form 2011       2. Federal ez tax form 2011 Enter the amount from line 1 that was for teaching, research, or any other services required as a condition for receiving the scholarship. Federal ez tax form 2011 (Do not include amounts received for these items under the National Health Service Corps Scholarship Program or the Armed Forces Health Professions Scholarship and Financial Assistance Program. Federal ez tax form 2011 ) 2. Federal ez tax form 2011     3. Federal ez tax form 2011 Subtract line 2 from line 1 3. Federal ez tax form 2011     4. Federal ez tax form 2011 Enter the amount from line 3 that your scholarship or fellowship required you to use for other than qualified education expenses 4. Federal ez tax form 2011     5. Federal ez tax form 2011 Subtract line 4 from line 3 5. Federal ez tax form 2011     6. Federal ez tax form 2011 Enter the amount of your qualified education expenses 6. Federal ez tax form 2011     7. Federal ez tax form 2011 Enter the smaller of line 5 or line 6. Federal ez tax form 2011 This amount is the most you can exclude from your gross income (the tax-free part of the scholarship or fellowship) 7. Federal ez tax form 2011     8. Federal ez tax form 2011 Subtract line 7 from line 5 8. Federal ez tax form 2011     9. Federal ez tax form 2011 Taxable part. Federal ez tax form 2011 Add lines 2, 4, and 8. Federal ez tax form 2011 See Reporting Scholarships and Fellowships , earlier, for how to report this amount on your tax return 9. Federal ez tax form 2011     Taxable Scholarships and Fellowships If and to the extent your scholarship or fellowship does not meet the requirements described earlier, it is taxable and must be included in gross income. Federal ez tax form 2011 You can use Worksheet 1–1, Taxable Scholarship and Fellowship Income, later, to figure the tax-free and taxable parts of your scholarship or fellowship. Federal ez tax form 2011 Reporting Scholarships and Fellowships Whether you must report your scholarship or fellowship depends on whether you must file a return and whether any part of your scholarship or fellowship is taxable. Federal ez tax form 2011 If your only income is a completely tax-free scholarship or fellowship, you do not have to file a tax return and no reporting is necessary. Federal ez tax form 2011 If all or part of your scholarship or fellowship is taxable and you are required to file a tax return, report the taxable amount as explained below. Federal ez tax form 2011 You must report the taxable amount whether or not you received a Form W-2. Federal ez tax form 2011 If you receive an incorrect Form W-2, ask the payer for a corrected one. Federal ez tax form 2011 For information on whether you must file a return, see Publication 501, Exemptions, Standard Deduction, and Filing Information, or your income tax form instructions. Federal ez tax form 2011 How To Report How you report any taxable scholarship or fellowship income depends on which return you file. Federal ez tax form 2011 Form 1040EZ. Federal ez tax form 2011   If you file Form 1040EZ, include the taxable amount in the total on line 1. Federal ez tax form 2011 If the taxable amount was not reported on Form W-2, also enter “SCH” and the taxable amount in the space to the left of line 1. Federal ez tax form 2011 Form 1040A. Federal ez tax form 2011   If you file Form 1040A, include the taxable amount in the total on line 7. Federal ez tax form 2011 If the taxable amount was not reported on Form W-2, also enter “SCH” and the taxable amount in the space to the left of line 7. Federal ez tax form 2011 Form 1040. Federal ez tax form 2011   If you file Form 1040, include the taxable amount in the total on line 7. Federal ez tax form 2011 If the taxable amount was not reported on Form W-2, also enter “SCH” and the taxable amount on the dotted line next to line 7. Federal ez tax form 2011 Schedule SE (Form 1040). Federal ez tax form 2011   To determine your net earnings from self-employment, include amounts you receive under a scholarship as pay for your services that are reported to you on Form 1099-MISC, Miscellaneous Income. Federal ez tax form 2011 If your net earnings are $400 or more, you must pay self-employment tax. Federal ez tax form 2011 Use Schedule SE, Self-Employment Tax, to figure this tax. Federal ez tax form 2011 Form 1040NR. Federal ez tax form 2011   If you file Form 1040NR, report the taxable amount on line 12. Federal ez tax form 2011 Generally, you must report the amount shown in box 2 of Form(s) 1042-S, Foreign Person's U. Federal ez tax form 2011 S. Federal ez tax form 2011 Source Income Subject to Withholding. Federal ez tax form 2011 See the Instructions for Form 1040NR for more information. Federal ez tax form 2011 Form 1040NR-EZ. Federal ez tax form 2011   If you file Form 1040NR-EZ, report the taxable amount on line 5. Federal ez tax form 2011 Generally, you must report the amount shown in box 2 of Form(s) 1042-S. Federal ez tax form 2011 See the Instructions for Form 1040NR-EZ for more information. Federal ez tax form 2011 Other Types of Educational Assistance The following discussions deal with other common types of educational assistance. Federal ez tax form 2011 Fulbright Grants A Fulbright grant is generally treated as a scholarship or fellowship in figuring how much of the grant is tax free. Federal ez tax form 2011 Pell Grants and Other Title IV Need-Based Education Grants These need-based grants are treated as scholarships for purposes of determining their tax treatment. Federal ez tax form 2011 They are tax free to the extent used for qualified education expenses during the period for which a grant is awarded. Federal ez tax form 2011 Payment to Service Academy Cadets An appointment to a United States military academy is not a scholarship or fellowship. Federal ez tax form 2011 Payment you receive as a cadet or midshipman at an armed services academy is pay for personal services and will be reported to you in box 1 of Form W-2. Federal ez tax form 2011 Include this pay in your income in the year you receive it unless one of the exceptions, discussed earlier under Payment for services , applies. Federal ez tax form 2011 Veterans' Benefits Payments you receive for education, training, or subsistence under any law administered by the Department of Veterans Affairs (VA) are tax free. Federal ez tax form 2011 Do not include these payments as income on your federal tax return. Federal ez tax form 2011 If you qualify for one or more of the education benefits discussed in chapters 2 through 12, you may have to reduce the amount of education expenses qualifying for a specific benefit by part or all of your VA payments. Federal ez tax form 2011 This applies only to the part of your VA payments that is required to be used for education expenses. Federal ez tax form 2011 You may want to visit the Veteran's Administration website at www. Federal ez tax form 2011 gibill. Federal ez tax form 2011 va. Federal ez tax form 2011 gov for specific information about the various VA benefits for education. Federal ez tax form 2011 Example. Federal ez tax form 2011 You have returned to college and are receiving two education benefits under the latest GI Bill: (1) a $1,534 monthly basic housing allowance (BHA) that is directly deposited to your checking account, and (2) $3,840 paid directly to your college for tuition. Federal ez tax form 2011 Neither of these benefits is taxable and you do not report them on your tax return. Federal ez tax form 2011 You also want to claim an American opportunity credit on your return. Federal ez tax form 2011 You paid $5,000 in qualified education expenses (see chapter 2, American Opportunity Credit , later). Federal ez tax form 2011 To figure the amount of credit, you must first subtract the $3,840 from your qualified education expenses because this payment under the GI Bill was required to be used for education expenses. Federal ez tax form 2011 You do not subtract any amount of the BHA because it was paid to you and its use was not restricted. Federal ez tax form 2011 Qualified Tuition Reduction If you are allowed to study tuition free or for a reduced rate of tuition, you may not have to pay tax on this benefit. Federal ez tax form 2011 This is called a “tuition reduction. Federal ez tax form 2011 ” You do not have to include a qualified tuition reduction in your income. Federal ez tax form 2011 A tuition reduction is qualified only if you receive it from, and use it at, an eligible educational institution. Federal ez tax form 2011 You do not have to use the tuition reduction at the eligible educational institution from which you received it. Federal ez tax form 2011 In other words, if you work for an eligible educational institution and the institution arranges for you to take courses at another eligible educational institution without paying any tuition, you may not have to include the value of the free courses in your income. Federal ez tax form 2011 The rules for determining if a tuition reduction is qualified, and therefore tax free, are different if the education provided is below the graduate level or is graduate education. Federal ez tax form 2011 You must include in your income any tuition reduction you receive that is payment for your services. Federal ez tax form 2011 Eligible educational institution. Federal ez tax form 2011   An eligible educational institution is one that maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance at the place where it carries on its educational activities. Federal ez tax form 2011 Officers, owners, and highly compensated employees. Federal ez tax form 2011   Qualified tuition reductions apply to officers, owners, or highly compensated employees only if benefits are available to employees on a nondiscriminatory basis. Federal ez tax form 2011 This means that the tuition reduction benefits must be available on substantially the same basis to each member of a group of employees. Federal ez tax form 2011 The group must be defined under a reasonable classification set up by the employer. Federal ez tax form 2011 The classification must not discriminate in favor of owners, officers, or highly compensated employees. Federal ez tax form 2011 Payment for services. Federal ez tax form 2011   Generally, you must include in income the part of any qualified tuition reduction that represents payment for teaching, research, or other services by the student required as a condition of receiving the qualified tuition reduction. Federal ez tax form 2011 This applies even if all candidates for a degree must perform the services to receive the degree. Federal ez tax form 2011 (See below for exceptions. Federal ez tax form 2011 ) Exceptions. Federal ez tax form 2011   You do not have to include in income the part of any scholarship or fellowship that represents payment for teaching, research, or other services if you receive the amount under: The National Health Service Corps Scholarship Program, or The Armed Forces Health Professions Scholarship and Financial Assistance Program. Federal ez tax form 2011 Education Below the Graduate Level If you receive a tuition reduction for education below the graduate level (including primary, secondary, or high school), it is a qualified tuition reduction, and therefore tax free, only if your relationship to the educational institution providing the benefit is described below. Federal ez tax form 2011 You are an employee of the eligible educational institution. Federal ez tax form 2011 You were an employee of the eligible educational institution, but you retired or left on disability. Federal ez tax form 2011 You are a widow or widower of an individual who died while an employee of the eligible educational institution or who retired or left on disability. Federal ez tax form 2011 You are the dependent child or spouse of an individual described in (1) through (3), above. Federal ez tax form 2011 Child of deceased parents. Federal ez tax form 2011   For purposes of the qualified tuition reduction, a child is a dependent child if the child is under age 25 and both parents have died. Federal ez tax form 2011 Child of divorced parents. Federal ez tax form 2011   For purposes of the qualified tuition reduction, a dependent child of divorced parents is treated as the dependent of both parents. Federal ez tax form 2011 Graduate Education A tuition reduction you receive for graduate education is qualified, and therefore tax free, if both of the following requirements are met. Federal ez tax form 2011 It is provided by an eligible educational institution. Federal ez tax form 2011 You are a graduate student who performs teaching or research activities for the educational institution. Federal ez tax form 2011 You must include in income any other tuition reductions for graduate education that you receive. Federal ez tax form 2011 How To Report Any tuition reduction that is taxable should be included as wages in box 1 of your Form W-2. Federal ez tax form 2011 Report the amount from Form W-2, box 1, on line 7 (Form 1040 or Form 1040A) or line 1 (Form 1040EZ). Federal ez tax form 2011 Prev  Up  Next   Home   More Online Publications
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The Federal Ez Tax Form 2011

Federal ez tax form 2011 4. Federal ez tax form 2011   Detailed Examples Table of Contents These examples use actual forms to help you prepare your income tax return. Federal ez tax form 2011 However, the information shown on the filled-in forms is not from any actual person or scenario. Federal ez tax form 2011 Example 1—Mortgage loan modification. Federal ez tax form 2011    In 2007, Nancy Oak bought a main home for $435,000. Federal ez tax form 2011 Nancy took out a $420,000 mortgage loan to buy the home and made a down payment of $15,000. Federal ez tax form 2011 The loan was secured by the home. Federal ez tax form 2011 The mortgage loan was a recourse debt, meaning that Nancy was personally liable for the debt. Federal ez tax form 2011 In 2008, Nancy took out a second mortgage loan (also a recourse debt) in the amount of $30,000 that was used to substantially improve her kitchen. Federal ez tax form 2011    In 2011, when the outstanding principal of the first and second mortgage loans was $440,000, Nancy refinanced the two recourse loans into one recourse loan in the amount of $475,000. Federal ez tax form 2011 The FMV of Nancy's home at the time of the refinancing was $500,000. Federal ez tax form 2011 Nancy used the additional $35,000 debt ($475,000 new mortgage loan minus $440,000 outstanding principal of Nancy's first and second mortgage loans immediately before the refinancing) to pay off personal credit cards and to pay college tuition for her son. Federal ez tax form 2011 After the refinancing, Nancy has qualified principal residence indebtedness in the amount of $440,000 because the refinanced debt is qualified principal residence indebtedness only to the extent the amount of debt is not more than the old mortgage principal just before the refinancing. Federal ez tax form 2011   In 2013, Nancy was unable to make her mortgage loan payments. Federal ez tax form 2011 On August 31, 2013, when the outstanding balance of her refinanced mortgage loan was still $475,000 and the FMV of the property was $425,000, Nancy's bank agreed to a loan modification (a “workout”) that resulted in a $40,000 reduction in the principal balance of her loan. Federal ez tax form 2011 Nancy was neither insolvent nor in bankruptcy at the time of the loan modification. Federal ez tax form 2011   Nancy received a 2013 Form 1099-C from her bank in January 2014 showing canceled debt of $40,000 in box 2. Federal ez tax form 2011 Identifiable event code "F" appears in box 6. Federal ez tax form 2011 This box shows the reason the creditor has filed Form 1099-C. Federal ez tax form 2011 To determine if she must include the canceled debt in her income, Nancy must determine whether she meets any of the exceptions or exclusions that apply to canceled debts. Federal ez tax form 2011 Nancy determines that the only exception or exclusion that applies to her is the qualified principal residence indebtedness exclusion. Federal ez tax form 2011   Next, Nancy determines the amount, if any, of the $40,000 of canceled debt that was qualified principal residence indebtedness. Federal ez tax form 2011 Although Nancy has $440,000 of qualified principal residence indebtedness, part of her loan ($35,000) was not qualified principal residence indebtedness because it was used to pay off personal credit cards and college tuition for her son. Federal ez tax form 2011 Applying the ordering rule, the qualified principal residence indebtedness exclusion applies only to the extent the amount canceled is more than the amount of the debt (immediately before the cancellation) that is not qualified principal residence indebtedness. Federal ez tax form 2011 Thus, Nancy can exclude only $5,000 of the canceled debt as qualified principal residence indebtedness ($40,000 amount canceled minus $35,000 nonqualified debt). Federal ez tax form 2011   Because Nancy does not meet any other exception or exclusion, she checks only the box on line 1e of Form 982 and enters $5,000 on line 2. Federal ez tax form 2011 Nancy must also enter $5,000 on line 10b and reduce the basis of her main home by the $5,000 she excluded from income, bringing the adjusted basis in her home to $460,000 ($435,000 purchase price plus $30,000 substantial improvement minus $5,000). Federal ez tax form 2011 Nancy must also include the $35,000 nonqualified debt portion in income on Form 1040, line 21. Federal ez tax form 2011 You can see Nancy's Form 1099-C and a portion of her Form 1040 below. Federal ez tax form 2011 Nancy's 2013 Form 1099-C, Cancellation of Debt This image is too large to be displayed in the current screen. Federal ez tax form 2011 Please click the link to view the image. Federal ez tax form 2011 Form 1099-C, Cancellation of Debt Nancy's 2013 Form 1040 This image is too large to be displayed in the current screen. Federal ez tax form 2011 Please click the link to view the image. Federal ez tax form 2011 Form 1040, U. Federal ez tax form 2011 S. Federal ez tax form 2011 Individual Income Tax Nancy's Form 982 This image is too large to be displayed in the current screen. Federal ez tax form 2011 Please click the link to view the image. Federal ez tax form 2011 Form 982 Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment)              Example 2—Mortgage loan foreclosure. Federal ez tax form 2011    In 2005, John and Mary Elm bought a main home for $335,000. Federal ez tax form 2011 John and Mary took out a $320,000 mortgage loan to buy the home and made a down payment of $15,000. Federal ez tax form 2011 The loan was secured by the home and is a recourse debt, meaning John and Mary are personally liable for the debt. Federal ez tax form 2011   John and Mary became unable to make their mortgage loan payments and on March 1, 2013, when the outstanding balance of the mortgage loan was $315,000 and the FMV of the property was $290,000, the bank foreclosed on the property and simultaneously canceled the remaining mortgage debt. Federal ez tax form 2011 Immediately before the foreclosure, John and Mary's only other assets and liabilities were a checking account with a balance of $6,000, retirement savings of $13,000, and credit card debt of $5,500. Federal ez tax form 2011   John and Mary received a 2013 Form 1099-C showing canceled debt of $25,000 in box 2 ($315,000 outstanding balance minus $290,000 FMV) and an FMV of $290,000 in box 7. Federal ez tax form 2011 Identifiable event code "D" appears in box 6. Federal ez tax form 2011 This box shows the reason the creditor has filed Form 1099-C. Federal ez tax form 2011 In order to determine if John and Mary must include the canceled debt in income, they must first determine whether they meet any of the exceptions or exclusions that apply to canceled debts. Federal ez tax form 2011 In this example, John and Mary meet both the insolvency and qualified principal residence indebtedness exclusions. Federal ez tax form 2011 Their sample Form 1099-C is shown on this page. Federal ez tax form 2011   John and Mary complete the insolvency worksheet and determine that they were insolvent immediately before the cancellation because at that time their liabilities exceeded the FMV of their assets by $11,500 ($320,500 total liabilities minus $309,000 FMV of total assets). Federal ez tax form 2011 However, because the entire debt canceled is qualified principal residence indebtedness, the insolvency exclusion only applies if John and Mary elect to apply the insolvency exclusion instead of the qualified principal residence exclusion. Federal ez tax form 2011   John and Mary do not elect to apply the insolvency exclusion instead of the qualified principal residence exclusion because under the insolvency exclusion their exclusion would be limited to the amount by which they were insolvent ($11,500). Federal ez tax form 2011 Instead, John and Mary check box 1e of Form 982 to exclude the canceled debt under the qualified principal residence exclusion. Federal ez tax form 2011 Under the qualified principal residence exclusion, the amount that John and Mary can exclude is not limited because their qualified principal residence indebtedness is not more than $2 million and no portion of the loan was nonqualified debt. Federal ez tax form 2011 As a result, John and Mary enter the full $25,000 of canceled debt on line 2 of Form 982. Federal ez tax form 2011 Because John and Mary no longer own the home due to the foreclosure, John and Mary have no remaining basis in the home at the time of the debt cancellation. Federal ez tax form 2011 Thus, John and Mary leave line 10b of Form 982 blank. Federal ez tax form 2011   John and Mary must also determine whether they have a gain or loss from the foreclosure. Federal ez tax form 2011 John and Mary complete Table 1-1 (shown below) and find that they have a $45,000 loss from the foreclosure. Federal ez tax form 2011 Because this loss relates to their home, it is a nondeductible loss. Federal ez tax form 2011   John and Mary's Form 1099-C, Insolvency Worksheet, and Form 982 follow. Federal ez tax form 2011 John and Mary's 2013 Form 1099-C, Cancellation of Debt This image is too large to be displayed in the current screen. Federal ez tax form 2011 Please click the link to view the image. Federal ez tax form 2011 Form 1099-C, Cancellation of Debt Table 1-1. Federal ez tax form 2011 Worksheet for Foreclosures and Repossessions (for John and Mary Elm) Part 1. Federal ez tax form 2011 Complete Part 1 only if you were personally liable for the debt (even if none of the debt was canceled). Federal ez tax form 2011 Otherwise, go to Part 2. Federal ez tax form 2011 1. Federal ez tax form 2011 Enter the amount of outstanding debt immediately before the transfer of property reduced by any amount for which you remain personally liable immediately after the transfer of property $315,000. Federal ez tax form 2011 00 2. Federal ez tax form 2011 Enter the fair market value of the transferred property $290,000. Federal ez tax form 2011 00 3. Federal ez tax form 2011 Ordinary income from the cancellation of debt upon foreclosure or repossession. Federal ez tax form 2011 * Subtract line 2 from line 1. Federal ez tax form 2011 If less than zero, enter zero. Federal ez tax form 2011 Next, go to Part 2 $ 25,000. Federal ez tax form 2011 00 Part 2. Federal ez tax form 2011 Gain or loss from foreclosure or repossession. Federal ez tax form 2011   4. Federal ez tax form 2011 Enter the smaller of line 1 or line 2. Federal ez tax form 2011 If you did not complete Part 1 (because you were not personally liable for the debt), enter the amount of outstanding debt immediately before the transfer of property $290,000. Federal ez tax form 2011 00 5. Federal ez tax form 2011 Enter any proceeds you received from the foreclosure sale   6. Federal ez tax form 2011 Add line 4 and line 5 $290,000. Federal ez tax form 2011 00 7. Federal ez tax form 2011 Enter the adjusted basis of the transferred property $335,000. Federal ez tax form 2011 00 8. Federal ez tax form 2011 Gain or loss from foreclosure or repossession. Federal ez tax form 2011 Subtract line 7 from line 6 ($ 45,000. Federal ez tax form 2011 00) * The income may not be taxable. Federal ez tax form 2011 See chapter 1 for more details. Federal ez tax form 2011 Insolvency Worksheet—John and Mary Elm Date debt was canceled (mm/dd/yy) 03/01/13 Part I. Federal ez tax form 2011 Total liabilities immediately before the cancellation (do not include the same liability in more than one category) Liabilities (debts) Amount Owed Immediately Before the Cancellation 1. Federal ez tax form 2011 Credit card debt $ 5,500 2. Federal ez tax form 2011 Mortgage(s) on real property (including first and second mortgages and home equity loans) (mortgage(s) can be on personal residence, any additional residence, or property held for investment or used in a trade or business) $ 315,000 3. Federal ez tax form 2011 Car and other vehicle loans $ 4. Federal ez tax form 2011 Medical bills owed $ 5. Federal ez tax form 2011 Student loans $ 6. Federal ez tax form 2011 Accrued or past-due mortgage interest $ 7. Federal ez tax form 2011 Accrued or past-due real estate taxes $ 8. Federal ez tax form 2011 Accrued or past-due utilities (water, gas, electric) $ 9. Federal ez tax form 2011 Accrued or past-due child care costs $ 10. Federal ez tax form 2011 Federal or state income taxes remaining due (for prior tax years) $ 11. Federal ez tax form 2011 Judgments $ 12. Federal ez tax form 2011 Business debts (including those owed as a sole proprietor or partner) $ 13. Federal ez tax form 2011 Margin debt on stocks and other debt to purchase or secured by investment assets other than real property $ 14. Federal ez tax form 2011 Other liabilities (debts) not included above $ 15. Federal ez tax form 2011 Total liabilities immediately before the cancellation. Federal ez tax form 2011 Add lines 1 through 14. Federal ez tax form 2011 $ 320,500 Part II. Federal ez tax form 2011 Fair market value (FMV) of assets owned immediately before the cancellation (do not include the FMV of the same asset in more than one category) Assets FMV Immediately Before  the Cancellation 16. Federal ez tax form 2011 Cash and bank account balances $ 6,000 17. Federal ez tax form 2011 Real property, including the value of land (can be main home, any additional home, or property held for investment or used in a trade or business) $ 290,000 18. Federal ez tax form 2011 Cars and other vehicles $ 19. Federal ez tax form 2011 Computers $ 20. Federal ez tax form 2011 Household goods and furnishings (for example, appliances, electronics, furniture, etc. Federal ez tax form 2011 ) $ 21. Federal ez tax form 2011 Tools $ 22. Federal ez tax form 2011 Jewelry $ 23. Federal ez tax form 2011 Clothing $ 24. Federal ez tax form 2011 Books $ 25. Federal ez tax form 2011 Stocks and bonds $ 26. Federal ez tax form 2011 Investments in coins, stamps, paintings, or other collectibles $ 27. Federal ez tax form 2011 Firearms, sports, photographic, and other hobby equipment $ 28. Federal ez tax form 2011 Interest in retirement accounts (IRA accounts, 401(k) accounts, and other retirement accounts) $ 13,000 29. Federal ez tax form 2011 Interest in a pension plan $ 30. Federal ez tax form 2011 Interest in education accounts $ 31. Federal ez tax form 2011 Cash value of life insurance $ 32. Federal ez tax form 2011 Security deposits with landlords, utilities, and others $ 33. Federal ez tax form 2011 Interests in partnerships $ 34. Federal ez tax form 2011 Value of investment in a business $ 35. Federal ez tax form 2011 Other investments (for example, annuity contracts, guaranteed investment contracts, mutual funds, commodity accounts, interests in hedge funds, and options) $ 36. Federal ez tax form 2011 Other assets not included above $ 37. Federal ez tax form 2011 FMV of total assets immediately before the cancellation. Federal ez tax form 2011 Add lines 16 through 36. Federal ez tax form 2011 $ 309,000 Part III. Federal ez tax form 2011 Insolvency 38. Federal ez tax form 2011 Amount of Insolvency. Federal ez tax form 2011 Subtract line 37 from line 15. Federal ez tax form 2011 If zero or less, you are not insolvent. Federal ez tax form 2011 $ 11,500 John and Mary's Form 982 This image is too large to be displayed in the current screen. Federal ez tax form 2011 Please click the link to view the image. Federal ez tax form 2011 Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment)          Example 3—Mortgage loan foreclosure with debt exceeding $2 million limit. Federal ez tax form 2011    In 2011, Kathy and Frank Willow got married and entered into a contract with Hive Construction Corporation to build a house for $3,000,000 to be used as their main home. Federal ez tax form 2011 Kathy and Frank made a $400,000 down payment and took out a $2,600,000 mortgage to finance the remaining cost of the house. Federal ez tax form 2011 Kathy and Frank are personally liable for the mortgage loan, which is secured by the home. Federal ez tax form 2011   In November 2013, when the outstanding principal balance on the mortgage loan was $2,500,000, the FMV of the property fell to $1,750,000 and Kathy and Frank abandoned the property by permanently moving out. Federal ez tax form 2011 The lender foreclosed on the property and, on December 5, 2013, sold the property to another buyer for $1,750,000. Federal ez tax form 2011 On December 26, 2013, the lender canceled the remaining debt. Federal ez tax form 2011 Kathy and Frank have no tax attributes other than basis of personal-use property. Federal ez tax form 2011   The lender issued a 2013 Form 1099-C to Kathy and Frank showing canceled debt of $750,000 in box 2 (the remaining balance on the $2,500,000 mortgage debt after application of the foreclosure sale proceeds) and $1,750,000 in box 7 (FMV of the property). Federal ez tax form 2011 Identifiable event code "D" appears in box 6. Federal ez tax form 2011 This box shows the reason the creditor has filed Form 1099-C. Federal ez tax form 2011 Although Kathy and Frank abandoned the property, the lender did not need to also file a Form 1099-A because the lender canceled the debt in connection with the foreclosure in the same calendar year. Federal ez tax form 2011 Kathy and Frank are filing a joint return for 2013. Federal ez tax form 2011   Because the foreclosure occurred prior to the debt cancellation, Kathy and Frank first calculate their gain or loss from the foreclosure using Table 1-1. Federal ez tax form 2011 Because Kathy and Frank remained personally liable for the $750,000 debt remaining after the foreclosure ($2,500,000 outstanding debt immediately before the foreclosure minus $1,750,000 satisfied through the sale of the home), Kathy and Frank enter $1,750,000 on line 1 of Table 1-1 ($2,500,000 outstanding debt immediately before the foreclosure minus the $750,000 for which they remained liable). Federal ez tax form 2011 Completing Table 1-1, Kathy and Frank find that they have no ordinary income from the cancellation of debt upon foreclosure and that they have a $1,250,000 loss. Federal ez tax form 2011 Because this loss relates to their home, it is a nondeductible loss. Federal ez tax form 2011   Because the lender later canceled the remaining amount of the debt, Kathy and Frank must also determine whether that canceled debt is taxable. Federal ez tax form 2011 Immediately before the cancellation, Kathy and Frank had $15,000 in a savings account, household furnishings with an FMV of $17,000, a car with an FMV of $10,000, and $18,000 in credit card debt. Federal ez tax form 2011 Kathy and Frank also had the $750,000 remaining balance on the mortgage loan at that time. Federal ez tax form 2011 The household furnishings originally cost $30,000. Federal ez tax form 2011 The car had been fully paid off (so there was no related outstanding debt) and was originally purchased for $16,000. Federal ez tax form 2011 Kathy and Frank had no adjustments to the cost basis of the car. Federal ez tax form 2011 Kathy and Frank had no other assets or liabilities at the time of the cancellation. Federal ez tax form 2011 Kathy and Frank complete the insolvency worksheet to calculate that they were insolvent to the extent of $726,000 immediately before the cancellation ($768,000 of total liabilities minus $42,000 FMV of total assets). Federal ez tax form 2011   At the beginning of 2014, Kathy and Frank had $9,000 in their savings account and $15,000 in credit card debt. Federal ez tax form 2011 Kathy and Frank also owned the same car at that time (still with an FMV of $10,000 and basis of $16,000) and the same household furnishings (still with an FMV of $17,000 and a basis of $30,000). Federal ez tax form 2011 Kathy and Frank had no other assets or liabilities at that time. Federal ez tax form 2011 Kathy and Frank no longer own the home because the lender foreclosed on it in 2013. Federal ez tax form 2011   Because the canceled debt is qualified principal residence indebtedness, the insolvency exclusion does not apply unless Kathy and Frank elect to apply the insolvency exclusion instead of the qualified principal residence indebtedness exclusion. Federal ez tax form 2011 The maximum amount that Kathy and Frank can treat as qualified principal residence indebtedness is $2,000,000. Federal ez tax form 2011 The remaining $500,000 ($2,500,000 outstanding mortgage loan minus $2,000,000 limit on qualified principal residence indebtedness) is not qualified principal residence indebtedness. Federal ez tax form 2011 Because only a part of the loan is qualified principal residence indebtedness, Kathy and Frank must apply the ordering rule to the canceled debt. Federal ez tax form 2011 Under the ordering rule, the qualified principal residence indebtedness exclusion applies only to the extent that the amount canceled ($750,000) exceeds the amount of the loan (immediately before the cancellation) that is not qualified principal residence indebtedness ($500,000). Federal ez tax form 2011 This means that Kathy and Frank can only exclude $250,000 ($750,000 amount canceled minus $500,000 nonqualified debt) under the qualified principal residence indebtedness exclusion. Federal ez tax form 2011   Kathy and Frank do not elect to have the insolvency exclusion apply instead of the qualified principal residence exclusion. Federal ez tax form 2011 Nonetheless, they can still apply the insolvency exclusion to the $500,000 nonqualified debt because it is not qualified principal residence indebtedness. Federal ez tax form 2011 Kathy and Frank can exclude the remaining $500,000 canceled debt under the insolvency exclusion because they were insolvent immediately before the cancellation to the extent of $726,000. Federal ez tax form 2011 Thus, Kathy and Frank check the boxes on lines 1b and 1e of Form 982 and enter $750,000 on line 2 ($250,000 excluded under the qualified principal residence indebtedness exclusion plus $500,000 excluded under the insolvency exclusion). Federal ez tax form 2011   Next, Kathy and Frank reduce their tax attributes using Part II of Form 982. Federal ez tax form 2011 Because Kathy and Frank no longer own the home due to the foreclosure, Kathy and Frank have no remaining basis in the home at the time of the debt cancellation. Federal ez tax form 2011 Thus, Kathy and Frank leave line 10b of Form 982 blank. Federal ez tax form 2011 However, Kathy and Frank are also excluding nonqualified debt under the insolvency exclusion. Federal ez tax form 2011 As a result, Kathy and Frank must reduce the basis of property they own based on the amount of canceled debt they are excluding from income under the insolvency rules. Federal ez tax form 2011 Because Kathy and Frank have no tax attributes other than basis of personal-use property to reduce, Kathy and Frank figure the amount they must include on line 10a of Form 982 by taking the smallest of: The $46,000 bases of their personal-use property held at the beginning of 2014 ($16,000 basis in the car plus $30,000 basis in household furnishings), The $500,000 of the nonbusiness debt (other than qualified principal residence indebtedness) that they are excluding from income on line 2 of Form 982, or The $43,000 excess of the total bases of the property and the amount of money they held immediately after the cancellation over their total liabilities immediately after the cancellation ($15,000 in savings account plus $30,000 basis in household furnishings plus $16,000 adjusted basis in car minus $18,000 credit card debt). Federal ez tax form 2011 Kathy and Frank enter $43,000 on Form 982, line 10a and reduce their bases in the car and the household furnishings in proportion to the total adjusted bases in all their property. Federal ez tax form 2011 Kathy and Frank reduce the basis in the car by $14,956. Federal ez tax form 2011 52 ($43,000 x $16,000/$46,000). Federal ez tax form 2011 And they reduce the basis in the household furnishings by $28,043. Federal ez tax form 2011 48 ($43,000 x $30,000/$46,000). Federal ez tax form 2011   Following are Kathy and Frank's sample forms and worksheets. Federal ez tax form 2011 Frank and Kathy's 2013 Form 1099-C, Cancellation of Debt This image is too large to be displayed in the current screen. Federal ez tax form 2011 Please click the link to view the image. Federal ez tax form 2011 Form 1099-C, Cancellation of Debt Table 1-1. Federal ez tax form 2011 Worksheet for Foreclosures and Repossessions (for Frank and Kathy Willow) Part 1. Federal ez tax form 2011 Complete Part 1 only if you were personally liable for the debt (even if none of the debt was canceled). Federal ez tax form 2011 Otherwise, go to Part 2. Federal ez tax form 2011 1. Federal ez tax form 2011 Enter the amount of outstanding debt immediately before the transfer of property reduced by any amount for which you remain personally liable immediately after the transfer of property $1,750,000. Federal ez tax form 2011 00 2. Federal ez tax form 2011 Enter the fair market value of the transferred property $1,750,000. Federal ez tax form 2011 00 3. Federal ez tax form 2011 Ordinary income from the cancellation of debt upon foreclosure or repossession. Federal ez tax form 2011 * Subtract line 2 from line 1. Federal ez tax form 2011 If less than zero, enter zero. Federal ez tax form 2011 Next, go to Part 2 $0. Federal ez tax form 2011 00 Part 2. Federal ez tax form 2011 Gain or loss from foreclosure or repossession. Federal ez tax form 2011   4. Federal ez tax form 2011 Enter the smaller of line 1 or line 2. Federal ez tax form 2011 If you did not complete Part 1 (because you were not personally liable for the debt), enter the amount of outstanding debt immediately before the transfer of property. Federal ez tax form 2011 $1,750,000. Federal ez tax form 2011 00 5. Federal ez tax form 2011 Enter any proceeds you received from the foreclosure sale   6. Federal ez tax form 2011 Add line 4 and line 5 $1,750,000. Federal ez tax form 2011 00 7. Federal ez tax form 2011 Enter the adjusted basis of the transferred property $3,000,000. Federal ez tax form 2011 00 8. Federal ez tax form 2011 Gain or loss from foreclosure or repossession. Federal ez tax form 2011 Subtract line 7 from line 6 ($1,250,000. Federal ez tax form 2011 00) * The income may not be taxable. Federal ez tax form 2011 See chapter 1 for more details. Federal ez tax form 2011    Insolvency Worksheet—Frank and Kathy Willow Date debt was canceled (mm/dd/yy) 12/26/13 Part I. Federal ez tax form 2011 Total liabilities immediately before the cancellation (do not include the same liability in more than one category) Liabilities (debts) Amount Owed Immediately Before the Cancellation 1. Federal ez tax form 2011 Credit card debt $ 18,000 2. Federal ez tax form 2011 Mortgage(s) on real property (including first and second mortgages and home equity loans) (mortgage(s) can be on personal residence, any additional residence, or property held for investment or used in a trade or business) $ 750,000 3. Federal ez tax form 2011 Car and other vehicle loans $ 4. Federal ez tax form 2011 Medical bills owed $ 5. Federal ez tax form 2011 Student loans $ 6. Federal ez tax form 2011 Accrued or past-due mortgage interest $ 7. Federal ez tax form 2011 Accrued or past-due real estate taxes $ 8. Federal ez tax form 2011 Accrued or past-due utilities (water, gas, electric) $ 9. Federal ez tax form 2011 Accrued or past-due child care costs $ 10. Federal ez tax form 2011 Federal or state income taxes remaining due (for prior tax years) $ 11. Federal ez tax form 2011 Judgments $ 12. Federal ez tax form 2011 Business debts (including those owed as a sole proprietor or partner) $ 13. Federal ez tax form 2011 Margin debt on stocks and other debt to purchase or secured by investment assets other than real property $ 14. Federal ez tax form 2011 Other liabilities (debts) not included above $ 15. Federal ez tax form 2011 Total liabilities immediately before the cancellation. Federal ez tax form 2011 Add lines 1 through 14. Federal ez tax form 2011 $ 768,000 Part II. Federal ez tax form 2011 Fair market value (FMV) of assets owned immediately before the cancellation (do not include the FMV of the same asset in more than one category) Assets FMV Immediately Before  the Cancellation 16. Federal ez tax form 2011 Cash and bank account balances $ 15,000 17. Federal ez tax form 2011 Real property, including the value of land (can be main home, any additional home, or property held for investment or used in a trade or business) $ 18. Federal ez tax form 2011 Cars and other vehicles $ 10,000 19. Federal ez tax form 2011 Computers $ 20. Federal ez tax form 2011 Household goods and furnishings (for example, appliances, electronics, furniture, etc. Federal ez tax form 2011 ) $ 17,000 21. Federal ez tax form 2011 Tools $ 22. Federal ez tax form 2011 Jewelry $ 23. Federal ez tax form 2011 Clothing $ 24. Federal ez tax form 2011 Books $ 25. Federal ez tax form 2011 Stocks and bonds $ 26. Federal ez tax form 2011 Investments in coins, stamps, paintings, or other collectibles $ 27. Federal ez tax form 2011 Firearms, sports, photographic, and other hobby equipment $ 28. Federal ez tax form 2011 Interest in retirement accounts (IRA accounts, 401(k) accounts, and other retirement accounts) $ 29. Federal ez tax form 2011 Interest in a pension plan $ 30. Federal ez tax form 2011 Interest in education accounts $ 31. Federal ez tax form 2011 Cash value of life insurance $ 32. Federal ez tax form 2011 Security deposits with landlords, utilities, and others $ 33. Federal ez tax form 2011 Interests in partnerships $ 34. Federal ez tax form 2011 Value of investment in a business $ 35. Federal ez tax form 2011 Other investments (for example, annuity contracts, guaranteed investment contracts, mutual funds, commodity accounts, interests in hedge funds, and options) $ 36. Federal ez tax form 2011 Other assets not included above $ 37. Federal ez tax form 2011 FMV of total assets immediately before the cancellation. Federal ez tax form 2011 Add lines 16 through 36. Federal ez tax form 2011 $ 42,000 Part III. Federal ez tax form 2011 Insolvency 38. Federal ez tax form 2011 Amount of Insolvency. Federal ez tax form 2011 Subtract line 37 from line 15. Federal ez tax form 2011 If zero or less, you are not insolvent. Federal ez tax form 2011 $ 726,000    Frank and Kathy's Form 982 This image is too large to be displayed in the current screen. Federal ez tax form 2011 Please click the link to view the image. Federal ez tax form 2011 Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment) Prev  Up  Next   Home   More Online Publications