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File 1040ez for free Depreciation Table of Contents Introduction Special Depreciation AllowanceQualified Property Election Not To Claim the Allowance Rules for Returns Filed Before June 1, 2002 Passenger Automobiles New York Liberty Zone BenefitsSpecial Liberty Zone Depreciation Allowance Increased Section 179 Deduction Liberty Zone Leasehold Improvement Property If you depreciate business property that you acquired and placed in service after September 10, 2001, new law contains provisions that may affect your depreciation deduction for that property. File 1040ez for free Publication 946, How To Depreciate Property, contains information on depreciation. File 1040ez for free However, Publication 946 does not contain the new provisions because it was printed before the law was enacted. File 1040ez for free The new provisions are in the Supplement to Publication 946, which is reprinted below. File 1040ez for free Supplement to Publication 946 How To Depreciate Property   Introduction After Publication 946 was printed, the Job Creation and Worker Assistance Act of 2002 was signed into law by the President. File 1040ez for free The new law made several changes in the tax rules explained in the publication. File 1040ez for free Some of the changes apply to property placed in service during 2001. File 1040ez for free This supplemental publication describes those changes and explains what you should do if you are affected by them. File 1040ez for free The situations and examples in Publication 946 do not reflect any of the changes made by the Job Creation and Worker Assistance Act of 2002. File 1040ez for free The new law contains the following provisions. File 1040ez for free 30% depreciation deductions (special depreciation allowance and special New York Liberty Zone (Liberty Zone) depreciation allowance) for the year qualified property is placed in service after September 10, 2001. File 1040ez for free An increased dollar limit on the section 179 deduction for qualified Liberty Zone property purchased after September 10, 2001. File 1040ez for free A shorter recovery period for qualified Liberty Zone leasehold improvement property placed in service after September 10, 2001. File 1040ez for free An increase in the maximum depreciation deduction for 2001 for a qualified passenger automobile placed in service after September 10, 2001. File 1040ez for free If you believe you qualify for an increased deduction under any of these new rules, you must file the revised 2001 Form 4562 (dated March 2002) for 2001 calendar or fiscal years and 2000 fiscal years ending after September 10, 2001. File 1040ez for free If you have already filed a tax return, this supplemental publication explains how to claim these benefits and how to elect not to claim the special depreciation allowance or special Liberty Zone depreciation allowance. File 1040ez for free See Table 2 at the end of the supplement for an overview of the rules that apply if you filed your return before June 1, 2002. File 1040ez for free Special Depreciation Allowance You can take a special depreciation allowance for qualified property you place in service after September 10, 2001. File 1040ez for free The allowance is an additional deduction of 30% of the property's depreciable basis. File 1040ez for free To figure the depreciable basis, you must first multiply the property's cost or other basis by the percentage of business/investment use and then reduce that amount by any section 179 deduction and certain other deductions and credits for the property. File 1040ez for free See What Is the Basis for Depreciation? on page 23 in Publication 946 for more information on figuring depreciable basis. File 1040ez for free The allowance is deductible for both regular tax and alternative minimum tax (AMT) purposes. File 1040ez for free There is no AMT adjustment required for any depreciation figured on the remaining basis of the property. File 1040ez for free In the year you claim the allowance (generally the year you place the property in service), you must reduce the depreciable basis of the property by the allowance before figuring your regular depreciation deduction. File 1040ez for free Example 1. File 1040ez for free On November 1, 2001, you bought and placed in service in your business qualified property that cost $100,000. File 1040ez for free You did not elect to claim a section 179 deduction. File 1040ez for free You can deduct 30% of the cost ($30,000) as a special depreciation allowance for 2001. File 1040ez for free You use the remaining $70,000 of cost to figure your regular depreciation deduction for 2001 and later years. File 1040ez for free Example 2. File 1040ez for free The facts are the same as in Example 1, except that you choose to deduct $24,000 of the property's cost as a section 179 deduction. File 1040ez for free You use the remaining $76,000 of cost to figure your special depreciation allowance of $22,800 ($76,000 × 30%). File 1040ez for free You use the remaining $53,200 of cost to figure your regular depreciation deduction for 2001 and later years. File 1040ez for free Qualified Property To qualify for the special depreciation allowance, your property must meet the following requirements. File 1040ez for free It is new property of one of the following types. File 1040ez for free Property depreciated under the modified accelerated cost recovery system (MACRS) with a recovery period of 20 years or less. File 1040ez for free See Can You Use MACRS To Depreciate Your Property and Which Recovery Period Applies? on pages 7 and 23, respectively, in Publication 946. File 1040ez for free Water utility property. File 1040ez for free See 25-year property on page 22 in Publication 946. File 1040ez for free Computer software that is not a section 197 intangible as described in Computer software on page 5 in Publication 946. File 1040ez for free (The cost of some computer software is treated as part of the cost of hardware and is depreciated under MACRS. File 1040ez for free ) Qualified leasehold improvement property (defined later). File 1040ez for free It meets the following tests (explained later under Tests To Be Met). File 1040ez for free Acquisition date test. File 1040ez for free Placed in service date test. File 1040ez for free Original use test. File 1040ez for free It is not excepted property (explained later under Excepted Property). File 1040ez for free Qualified leasehold improvement property. File 1040ez for free    Generally, this is any improvement to an interior part of a building that is nonresidential real property, provided all of the following requirements are met. File 1040ez for free The improvement is made under or pursuant to a lease by the lessee (or any sublessee) or the lessor of that part of the building. File 1040ez for free That part of the building is to be occupied exclusively by the lessee (or any sublessee) of that part. File 1040ez for free The improvement is placed in service more than 3 years after the date the building was first placed in service. File 1040ez for free   However, a qualified leasehold improvement does not include any improvement for which the expenditure is attributable to any of the following. File 1040ez for free The enlargement of the building. File 1040ez for free Any elevator or escalator. File 1040ez for free Any structural component benefiting a common area. File 1040ez for free The internal structural framework of the building. File 1040ez for free   Generally, a binding commitment to enter into a lease is treated as a lease and the parties to the commitment are treated as the lessor and lessee. File 1040ez for free However, a binding commitment between related persons is not treated as a lease. File 1040ez for free Related persons. File 1040ez for free   For this purpose, the following are related persons. File 1040ez for free Members of an affiliated group. File 1040ez for free The persons listed in items (1) through (9) under Related persons on page 8 of Publication 946 (except that “80% or more” should be substituted for “more than 10%” each place it appears). File 1040ez for free An executor and a beneficiary of the same estate. File 1040ez for free Tests To Be Met To qualify for the special depreciation allowance, the property must meet all of the following tests. File 1040ez for free Acquisition date test. File 1040ez for free    Generally, you must have acquired the property either: After September 10, 2001, and before September 11, 2004, but only if no written binding contract for the acquisition was in effect before September 11, 2001, or Pursuant to a written binding contract entered into after September 10, 2001, and before September 11, 2004. File 1040ez for free   Property you manufacture, construct, or produce for your own use meets this test if you began the manufacture, construction, or production of the property after September 10, 2001, and before September 11, 2004. File 1040ez for free Placed in service date test. File 1040ez for free   Generally, the property must be placed in service for use in your trade or business or for the production of income after September 10, 2001, and before January 1, 2005. File 1040ez for free   If you sold property you placed in service after September 10, 2001, and you leased it back within 3 months after the property was originally placed in service, the property is treated as placed in service no earlier than the date it is used under the leaseback. File 1040ez for free Original use test. File 1040ez for free   The original use of the property must have begun with you after September 10, 2001. File 1040ez for free “Original use” means the first use to which the property is put, whether or not by you. File 1040ez for free Additional capital expenditures you incurred after September 10, 2001, to recondition or rebuild your property meet the original use test. File 1040ez for free Excepted Property The following property does not qualify for the special depreciation allowance. File 1040ez for free Property used by any person before September 11, 2001. File 1040ez for free Property required to be depreciated using ADS. File 1040ez for free This includes listed property used 50% or less in a qualified business use. File 1040ez for free Qualified New York Liberty Zone leasehold improvement property (defined next). File 1040ez for free Qualified New York Liberty Zone leasehold improvement property. File 1040ez for free   This is any qualified leasehold improvement property (as defined earlier) if all of the following requirements are met. File 1040ez for free The improvement is to a building located in the New York Liberty Zone (defined later under New York Liberty Zone Benefits). File 1040ez for free The improvement is placed in service after September 10, 2001, and before January 1, 2007. File 1040ez for free No written binding contract for the improvement was in effect before September 11, 2001. File 1040ez for free Election Not To Claim the Allowance You can elect not to claim the special depreciation allowance for qualified property. File 1040ez for free If you make this election for any property, it applies to all property in the same property class placed in service during the year. File 1040ez for free To make this election, attach a statement to your return indicating you elect not to claim the allowance and the class of property for which you are making the election. File 1040ez for free When to make election. File 1040ez for free   Generally, you must make the election on a timely filed tax return (including extensions) for the year in which you place the property in service. File 1040ez for free   However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the original return (not including extensions). File 1040ez for free Attach the election statement to the amended return. File 1040ez for free At the top of the election statement, write “Filed pursuant to section 301. File 1040ez for free 9100–2. File 1040ez for free ” Revoking an election. File 1040ez for free   Once you elect not to deduct the special depreciation allowance for a class of property, you cannot revoke the election without IRS consent. File 1040ez for free A request to revoke the election is subject to a user fee. File 1040ez for free Rules for Returns Filed Before June 1, 2002 The following rules apply if you placed qualified property in service after September 10, 2001, and filed your return before June 1, 2002. File 1040ez for free The rules apply to returns for the following years. File 1040ez for free 2000 fiscal years that end after September 10, 2001. File 1040ez for free 2001 calendar and fiscal years. File 1040ez for free Claiming the allowance. File 1040ez for free   If you did not claim the allowance on your return and did not make the election not to claim the allowance, you can do either of the following to claim the allowance. File 1040ez for free File an amended return by the due date (not including extensions) of your return for the year following the year the property was placed in service. File 1040ez for free Write “Filed Pursuant to Rev. File 1040ez for free Proc. File 1040ez for free 2002–33” at the top of the amended return. File 1040ez for free File Form 3115, Application for Change in Accounting Method, with your return for the year following the year the property was placed in service. File 1040ez for free Your return must be filed by the due date (including extensions). File 1040ez for free Write “Automatic Change Filed Under Rev. File 1040ez for free Proc. File 1040ez for free 2002–33” on the appropriate line of Form 3115. File 1040ez for free You must also file a copy (with signature) of the completed Form 3115 with the IRS National Office no later than when you file the original with your return. File 1040ez for free For more information about filing Form 3115, including the address to send it to, see Revenue Procedure 2002–9, Revenue Procedure 2002–19, and Revenue Procedure 2002–33. File 1040ez for free Example 1. File 1040ez for free You are an individual and you use the calendar year. File 1040ez for free You placed qualified property in service for your business in December 2001. File 1040ez for free You filed your 2001 income tax return before April 15, 2002. File 1040ez for free You did not claim the special depreciation allowance for the property and did not make the election not to claim the allowance. File 1040ez for free You can claim the special allowance by filing an amended 2001 return by April 15, 2003, with “Filed Pursuant to Rev. File 1040ez for free Proc. File 1040ez for free 2002–33” at the top of the amended return. File 1040ez for free You must file an amended return by April 15, 2003, even if you get an extension of time to file your 2002 tax return. File 1040ez for free Example 2. File 1040ez for free The facts concerning your 2001 return are the same as in Example 1. File 1040ez for free In addition, you got an automatic 4-month extension of time (to August 15, 2003) to file your 2002 return. File 1040ez for free You can claim the special allowance by filing a Form 3115 (with “Filed Pursuant to Rev. File 1040ez for free Proc. File 1040ez for free 2002–33” on the appropriate line) with your 2002 return by August 15, 2003. File 1040ez for free You must also file a copy of this Form 3115 with the IRS National Office no later than when you file your 2002 return. File 1040ez for free Electing not to claim the allowance. File 1040ez for free   Generally, you have elected not to claim the special depreciation allowance for a class of property if you: Filed your return timely (including extensions) for the year you placed qualified property in service and indicated on a statement with the return that you are not claiming the allowance, or Filed your return timely and filed an amended return within 6 months of the due date of the original return (not including extensions) and indicated on a statement with the amended return that you are not claiming the allowance. File 1040ez for free The statement must indicate that you are not deducting the special depreciation allowance and the class of property to which the election applies. File 1040ez for free The statement can be either attached to or written on the return. File 1040ez for free You can, for example, write “not deducting 30%” on Form 4562. File 1040ez for free Deemed election. File 1040ez for free   If you have not followed either of the procedures described above to elect not to claim the allowance, you may still be treated as making the election. File 1040ez for free You will be treated as making the election if you meet both of the following conditions. File 1040ez for free You filed your return for the year you placed the property in service and claimed depreciation, but not the special allowance, for any class of property. File 1040ez for free You do not file an amended return or a Form 3115 within the time prescribed for claiming the special allowance. File 1040ez for free See Claiming the allowance, earlier. File 1040ez for free Passenger Automobiles The limit on your depreciation deduction (including any section 179 deduction) for any passenger automobile that is qualified property (defined earlier) placed in service after September 10, 2001, and for which you claim the special depreciation allowance is increased. File 1040ez for free Generally, the limit is increased from $3,060 to $7,660. File 1040ez for free However, if the automobile is a qualified electric car, the limit is increased from $9,280 to $23,080 ($22,980 if placed in service in 2002). File 1040ez for free Table 1 shows the maximum deduction amounts for 2001. File 1040ez for free Table 1. File 1040ez for free Maximum Deduction for 2001 Qualified Vehicle Placed in Service Before Sept. File 1040ez for free 11 Placed in Service After Sept. File 1040ez for free 10 Passenger automobile $3,060 $7,660 Electric car 9,280 23,080 1 1$22,980 if you place an electric car in service in 2002. File 1040ez for free Election not to claim the allowance. File 1040ez for free   The increased maximum depreciation deduction does not apply if you elected not to claim the special depreciation allowance as explained earlier under Election Not To Claim the Allowance and Rules for Returns Filed Before June 1, 2002. File 1040ez for free New York Liberty Zone Benefits Several benefits are available for property you place in service in the New York Liberty Zone (Liberty Zone). File 1040ez for free They include a special depreciation allowance for the year you place the property in service, an increased section 179 deduction, and the classification of certain leasehold improvement property as 5-year property. File 1040ez for free Area defined. File 1040ez for free   The New York Liberty Zone is the area located on or south of Canal Street, East Broadway (east of its intersection with Canal Street), or Grand Street (east of its intersection with East Broadway) in the Borough of Manhattan in the City of New York, New York. File 1040ez for free Special Liberty Zone Depreciation Allowance You can take a special depreciation allowance for qualified Liberty Zone property you place in service after September 10, 2001. File 1040ez for free The allowance is an additional deduction of 30% of the property's depreciable basis. File 1040ez for free To figure the depreciable basis, you must first multiply the property's cost or other basis by the percentage of business/investment use and then reduce that amount by any section 179 deduction and certain other deductions and credits for the property. File 1040ez for free See What Is the Basis for Depreciation? on page 23 in Publication 946 for more information on figuring depreciable basis. File 1040ez for free The allowance is deductible for both regular tax and alternative minimum tax (AMT) purposes. File 1040ez for free There is no AMT adjustment required for any depreciation figured on the remaining basis of the property. File 1040ez for free In the year you claim the allowance (generally the year you place the property in service), you must reduce the depreciable basis of the property by the allowance before figuring your regular depreciation deduction. File 1040ez for free You cannot claim the special Liberty Zone depreciation allowance for property eligible for the special depreciation allowance explained earlier in Qualified Property under Special Depreciation Allowance. File 1040ez for free Qualified property is eligible for only one special depreciation allowance. File 1040ez for free Example 1. File 1040ez for free On November 1, 2001, you bought and placed in service in your business, which is in the Liberty Zone, qualified Liberty Zone property that cost $200,000. File 1040ez for free You did not elect to claim a section 179 deduction. File 1040ez for free You can deduct 30% of the cost ($60,000) as a special Liberty Zone depreciation allowance for 2001. File 1040ez for free You use the remaining $140,000 of cost to figure your regular depreciation deduction for 2001 and later years. File 1040ez for free Example 2. File 1040ez for free The facts are the same as in Example 1, except that you choose to deduct $59,000 of the property's cost as a section 179 deduction. File 1040ez for free (See Increased Section 179 Deduction, later, for information concerning how this section 179 deduction amount is figured). File 1040ez for free You use the remaining $141,000 of cost to figure your special Liberty Zone depreciation allowance of $42,300 ($141,000 × 30%). File 1040ez for free You use the remaining $98,700 of cost to figure your regular depreciation deduction for 2001 and later years. File 1040ez for free Qualified Liberty Zone Property For a 2001 calendar or fiscal year and a 2000 fiscal year that ends after September 10, 2001, property qualifies for the special Liberty Zone depreciation allowance if it meets the following requirements. File 1040ez for free It is one of the following types of property. File 1040ez for free Used property depreciated under MACRS with a recovery period of 20 years or less. File 1040ez for free See Can You Use MACRS To Depreciate Your Property and Which Recovery Period Applies? on pages 7 and 23, respectively, in Publication 946. File 1040ez for free Used water utility property. File 1040ez for free See 25-year property on page 22 in Publication 946. File 1040ez for free Used computer software that is not a section 197 intangible as described in Computer software on page 5 in Publication 946. File 1040ez for free (The cost of some computer software is treated as part of the cost of hardware and is depreciated under MACRS. File 1040ez for free ) Certain nonresidential real property and residential rental property (defined later). File 1040ez for free It meets the following tests (explained later under Tests to be met). File 1040ez for free Acquisition date test. File 1040ez for free Placed in service date test. File 1040ez for free Substantial use test. File 1040ez for free Original use test. File 1040ez for free It is not excepted property (explained later under Excepted property). File 1040ez for free Nonresidential real property and residential rental property. File 1040ez for free   This property is qualifying property only to the extent it rehabilitates real property damaged, or replaces real property destroyed or condemned, as a result of the terrorist attack of September 11, 2001. File 1040ez for free Property is treated as replacing destroyed or condemned property if, as part of an integrated plan, such property replaces real property included in a continuous area that includes real property destroyed or condemned. File 1040ez for free   For these purposes, real property is considered destroyed (or condemned) only if an entire building or structure was destroyed (or condemned) as a result of the terrorist attack. File 1040ez for free Otherwise, the property is considered damaged real property. File 1040ez for free For example, if certain structural components of a building (such as walls, floors, or plumbing fixtures) are damaged or destroyed as a result of the terrorist attack, but the building is not destroyed (or condemned), then only costs related to replacing the damaged or destroyed structural components qualify for the special Liberty Zone depreciation allowance. File 1040ez for free Tests to be met. File 1040ez for free   To qualify for the special Liberty Zone depreciation allowance, your property must meet all of the following tests. File 1040ez for free Acquisition date test. File 1040ez for free   You must have acquired the property by purchase after September 10, 2001, and there must not have been a binding written contract for the acquisition in effect before September 11, 2001. File 1040ez for free   For information on the acquisition of property by purchase, see Property Acquired by Purchase on page 15 of Publication 946. File 1040ez for free   Property you manufacture, construct, or produce for your own use meets this test if you began the manufacture, construction, or production of the property after September 10, 2001. File 1040ez for free Placed in service date test. File 1040ez for free   Generally, the property must be placed in service for use in your trade or business or for the production of income before January 1, 2007 (January 1, 2010, in the case of qualifying nonresidential real property and residential rental property). File 1040ez for free   If you sold property you placed in service after September 10, 2001, and you leased it back within 3 months after the property was originally placed in service, the property is treated as placed in service no earlier than the date it is used under the leaseback. File 1040ez for free Substantial use test. File 1040ez for free   Substantially all use of the property must be in the Liberty Zone and in the active conduct of your trade or business in the Liberty Zone. File 1040ez for free Original use test. File 1040ez for free   The original use of the property in the Liberty Zone must have begun with you after September 10, 2001. File 1040ez for free   Used property can be qualified Liberty Zone property if it has not previously been used within the Liberty Zone. File 1040ez for free Also, additional capital expenditures you incurred after September 10, 2001, to recondition or rebuild your property meet the original use test if the original use of the property in the Liberty Zone began with you. File 1040ez for free Excepted property. File 1040ez for free   The following property does not qualify for the special Liberty Zone depreciation allowance. File 1040ez for free Property eligible for the special depreciation allowance explained earlier in Qualified Property under Special Depreciation Allowance. File 1040ez for free Property required to be depreciated using ADS. File 1040ez for free This includes listed property used 50% or less in a qualified business use. File 1040ez for free Qualified New York Liberty Zone leasehold improvement property (defined earlier in Excepted Property under Special Depreciation Allowance). File 1040ez for free Example. File 1040ez for free In December 2001, you bought and placed in service in your business in the Liberty Zone the following property. File 1040ez for free New office furniture with a MACRS recovery period of 7 years. File 1040ez for free A used computer with a MACRS recovery period of 5 years. File 1040ez for free The computer had not previously been used within the Liberty Zone. File 1040ez for free Because the office furniture is new property, it qualifies for the special depreciation allowance, but not the special Liberty Zone depreciation allowance. File 1040ez for free Because the computer is used property that had not previously been used in the Liberty Zone, it qualifies for the special Liberty Zone depreciation allowance, but not the special depreciation allowance. File 1040ez for free Election Not To Claim the Liberty Zone Allowance You can elect not to claim the special Liberty Zone depreciation allowance for qualified property. File 1040ez for free If you make this election for any property, it applies to all property in the same property class placed in service during the year. File 1040ez for free To make this election, attach a statement to your return indicating you elect not to claim the allowance and the class of property for which you are making the election. File 1040ez for free When to make the election. File 1040ez for free   Generally, you must make the election on a timely filed tax return (including extensions) for the year in which you place the property in service. File 1040ez for free   However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the original return (not including extensions). File 1040ez for free Attach the election statement to the amended return. File 1040ez for free At the top of the election statement, write “Filed pursuant to section 301. File 1040ez for free 9100–2. File 1040ez for free ” Revoking an election. File 1040ez for free   Once you elect not to deduct the special Liberty Zone depreciation allowance for a class of property, you cannot revoke the election without IRS consent. File 1040ez for free A request to revoke the election is subject to a user fee. File 1040ez for free Returns filed before June 1, 2002. File 1040ez for free   The rules that apply to the special depreciation allowance discussed earlier in Rules for Returns Filed Before June 1, 2002 under Special Depreciation Allowance also apply to the special Liberty Zone depreciation allowance. File 1040ez for free Increased Section 179 Deduction Under section 179 of the Internal Revenue Code, you can choose to recover all or part of the cost of certain qualifying property, up to a limit, by deducting it in the year you place the property in service. File 1040ez for free For tax years beginning in 2000, that limit was $20,000. File 1040ez for free For tax years beginning in 2001 and 2002, that limit is generally $24,000. File 1040ez for free If the cost of qualifying section 179 property placed in service in a year is over $200,000, you must reduce the dollar limit (but not below zero) by the amount of the cost over $200,000. File 1040ez for free Increased Dollar Limit The dollar limit on the section 179 deduction is increased for certain property placed in service in the Liberty Zone. File 1040ez for free The increase is the smaller of the following amounts. File 1040ez for free $35,000. File 1040ez for free The cost of section 179 property that is qualified Liberty Zone property placed in service during the year. File 1040ez for free If you use the revised 2001 Form 4562 (dated March 2002) for a tax year beginning in 2000, you must reduce the section 179 dollar limit to $20,000 before adding the additional amount for qualified property. File 1040ez for free Qualified property. File 1040ez for free   To qualify for the increased section 179 deduction, your property must be section 179 property that is either: Qualified Liberty Zone property, or Property that would be qualified Liberty Zone property except that it is eligible for the special depreciation allowance. File 1040ez for free Qualified Liberty Zone property is explained earlier in Qualified Liberty Zone Property under Special Liberty Zone Depreciation Allowance. File 1040ez for free Property eligible for the special depreciation allowance is explained earlier in Qualified Property under Special Depreciation Allowance. File 1040ez for free For information on the requirements that must be met for property to qualify for the section 179 deduction, see What Property Qualifies? on page 14 of Publication 946. File 1040ez for free Example 1. File 1040ez for free In 2002, you place in service in your business, which is in the Liberty Zone, qualified property (defined earlier) costing $25,000. File 1040ez for free Because this cost is less than $35,000, the dollar limit on the section 179 deduction is increased by $25,000 to $49,000 ($24,000 + $25,000). File 1040ez for free Example 2. File 1040ez for free In 2002, you place in service in your business, which is in the Liberty Zone, qualified property (defined earlier) costing $75,000. File 1040ez for free Because $35,000 is less than the cost of the property you place in service, the dollar limit on the section 179 deduction you can claim is increased by $35,000 to $59,000 ($24,000 + $35,000). File 1040ez for free Reduced Dollar Limit Generally, you must reduce the dollar limit for a year by the cost of qualifying section 179 property placed in service in the year that is more than $200,000. File 1040ez for free However, if the cost of your Liberty Zone property exceeds $200,000, you take into account only 50% (instead of 100%) of the cost of qualified property placed in service in a year. File 1040ez for free Example. File 1040ez for free In 2002, you place in service in your business, which is in the Liberty Zone, qualified property costing $460,000. File 1040ez for free Your increased dollar limit is $59,000 ($35,000 + $24,000). File 1040ez for free Because 50% of the cost of the property you place in service ($230,000) is $30,000 more than $200,000, you must reduce your $59,000 dollar limit to $29,000 ($59,000 - $30,000). File 1040ez for free Recapture Rules Rules similar to those explained on page 20 of Publication 946 under When Must You Recapture the Deduction? apply with respect to any qualified property you stop using in the Liberty Zone. File 1040ez for free Returns Filed Before June 1, 2002 If you filed a return before June 1, 2002, and did not deduct the increased section 179 amount for qualified property placed in service after September 10, 2001, you can deduct the increased amount by filing an amended return by the due date (not including extensions) of the return for the year after the year the property was placed in service. File 1040ez for free This rule applies to returns for the following years. File 1040ez for free 2000 fiscal years that end after September 10, 2001. File 1040ez for free 2001 calendar and fiscal years. File 1040ez for free On the amended return, write “Filed Pursuant to Rev. File 1040ez for free Proc. File 1040ez for free 2002–33. File 1040ez for free ” Liberty Zone Leasehold Improvement Property Qualified Liberty Zone leasehold improvement property (described earlier in Qualified Property under Special Depreciation Allowance) is 5-year property. File 1040ez for free This means that it is depreciated over a recovery period of 5 years. File 1040ez for free For information about recovery periods, see Which Recovery Period Applies? on page 23 of Publication 946. File 1040ez for free The straight-line method must be used with respect to qualified Liberty Zone leasehold improvement property. File 1040ez for free Under ADS, the recovery period for qualified Liberty Zone leasehold improvement property is 9 years. File 1040ez for free Returns Filed Before June 1, 2002 If you filed either of the following returns before June 1, 2002, and did not depreciate qualified Liberty Zone leasehold improvement property placed in service during the tax year as 5-year property using the straight line method, you should file an amended return before you file your return for the year after the year the property was placed in service. File 1040ez for free Your 2000 fiscal year return (for a 2000 fiscal year that ends after September 10, 2001). File 1040ez for free Your 2001 calendar or fiscal year return. File 1040ez for free On the amended return, write “Filed Pursuant to Rev. File 1040ez for free Proc. File 1040ez for free 2002–33. File 1040ez for free ” Table 2. File 1040ez for free Rules for Returns Filed Before June 1, 2002 Note:This chart highlights the rules for returns affected by the Job Creation and Worker Assistance Act of 2002 that were filed before June 1, 2002, without accounting for any of the new benefits under the law. File 1040ez for free See the text for definitions and examples. File 1040ez for free Do not rely on this chart alone. File 1040ez for free IF you want to. File 1040ez for free . File 1040ez for free . File 1040ez for free THEN you. File 1040ez for free . File 1040ez for free . File 1040ez for free BY. File 1040ez for free . File 1040ez for free . File 1040ez for free claim the special depreciation allowance or special Liberty Zone depreciation allowance • must file an amended return • the due date (not including extensions) of your return for the year after the year the property was placed in service, or • must file Form 3115, Application for Change in Accounting Method, with your return for the year after the year the property was placed in service • the due date (including extensions) of your return for the year after the year the property was placed in service, and • must file a copy of your completed Form 3115 with the IRS National Office • the date you file the original Form 3115 with your return for the year after the year the property was placed in service. File 1040ez for free elect not to claim the special depreciation allowance or the special Liberty Zone depreciation allowance 1 • must have filed your return timely for the year the property was placed in service, and   • must file an amended return stating you are not claiming the allowance • the date that is 6 months after the due date of the original return (not including extensions). File 1040ez for free deduct the increased section 179 amount • must file an amended return • the due date (not including extensions) of your return for the year after the year the property was placed in service. File 1040ez for free use a 5-year recovery period for depreciating qualified Liberty Zone leasehold improvement property • should file an amended return • the date you file your return for the year after the year the property was placed in service. File 1040ez for free 1See also Deemed election under Rules for Returns Filed Before June 1, 2002, earlier. 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File 1040ez for free 7. File 1040ez for free   Interest Income Table of Contents Reminder Introduction Useful Items - You may want to see: General InformationSSN for joint account. File 1040ez for free Custodian account for your child. File 1040ez for free Penalty for failure to supply SSN. File 1040ez for free Reporting backup withholding. File 1040ez for free Savings account with parent as trustee. File 1040ez for free Interest not reported on Form 1099-INT. File 1040ez for free Nominees. File 1040ez for free Incorrect amount. File 1040ez for free Information reporting requirement. File 1040ez for free Taxable InterestInterest subject to penalty for early withdrawal. File 1040ez for free Money borrowed to invest in certificate of deposit. File 1040ez for free U. File 1040ez for free S. File 1040ez for free Savings Bonds Education Savings Bond Program U. File 1040ez for free S. File 1040ez for free Treasury Bills, Notes, and Bonds Bonds Sold Between Interest Dates Insurance State or Local Government Obligations Original Issue Discount (OID) When To Report Interest IncomeConstructive receipt. File 1040ez for free How To Report Interest IncomeSchedule B (Form 1040A or 1040). File 1040ez for free Reporting tax-exempt interest. File 1040ez for free U. File 1040ez for free S. File 1040ez for free savings bond interest previously reported. File 1040ez for free Reminder Foreign-source income. File 1040ez for free  If you are a U. File 1040ez for free S. File 1040ez for free citizen with interest income from sources outside the United States (foreign income), you must report that income on your tax return unless it is exempt by U. File 1040ez for free S. File 1040ez for free law. File 1040ez for free This is true whether you reside inside or outside the United States and whether or not you receive a Form 1099 from the foreign payer. File 1040ez for free Introduction This chapter discusses the following topics. File 1040ez for free Different types of interest income. File 1040ez for free What interest is taxable and what interest is nontaxable. File 1040ez for free When to report interest income. File 1040ez for free How to report interest income on your tax return. File 1040ez for free In general, any interest you receive or that is credited to your account and can be withdrawn is taxable income. File 1040ez for free Exceptions to this rule are discussed later in this chapter. File 1040ez for free You may be able to deduct expenses you have in earning this income on Schedule A (Form 1040) if you itemize your deductions. File 1040ez for free See Money borrowed to invest in certificate of deposit , later, and chapter 28. File 1040ez for free Useful Items - You may want to see: Publication 537 Installment Sales 550 Investment Income and Expenses 1212 Guide to Original Issue Discount (OID) Instruments Form (and Instructions) Schedule B (Form 1040A or 1040) Interest and Ordinary Dividends 8815 Exclusion of Interest From Series EE and I U. File 1040ez for free S. File 1040ez for free Savings Bonds Issued After 1989 8818 Optional Form To Record Redemption of Series EE and I U. File 1040ez for free S. File 1040ez for free Savings Bonds Issued After 1989 General Information A few items of general interest are covered here. File 1040ez for free Recordkeeping. File 1040ez for free You should keep a list showing sources and interest amounts received during the year. File 1040ez for free Also, keep the forms you receive showing your interest income (Forms 1099-INT, for example) as an important part of your records. File 1040ez for free Tax on unearned income of certain children. File 1040ez for free    Part of a child's 2013 unearned income may be taxed at the parent's tax rate. File 1040ez for free If so, Form 8615, Tax for Certain Children Who Have Unearned Income, must be completed and attached to the child's tax return. File 1040ez for free If not, Form 8615 is not required and the child's income is taxed at his or her own tax rate. File 1040ez for free   Some parents can choose to include the child's interest and dividends on the parent's return. File 1040ez for free If you can, use Form 8814, Parents' Election To Report Child's Interest and Dividends, for this purpose. File 1040ez for free   For more information about the tax on unearned income of children and the parents' election, see chapter 31. File 1040ez for free Beneficiary of an estate or trust. File 1040ez for free   Interest you receive as a beneficiary of an estate or trust is generally taxable income. File 1040ez for free You should receive a Schedule K-1 (Form 1041), Beneficiary's Share of Income, Deductions, Credits, etc. File 1040ez for free , from the fiduciary. File 1040ez for free Your copy of Schedule K-1 (Form 1041) and its instructions will tell you where to report the income on your Form 1040. File 1040ez for free Social security number (SSN). File 1040ez for free   You must give your name and SSN or individual tax identification number (ITIN) to any person required by federal tax law to make a return, statement, or other document that relates to you. File 1040ez for free This includes payers of interest. File 1040ez for free If you do not give your SSN or ITIN to the payer of interest, you may have to pay a penalty. File 1040ez for free SSN for joint account. File 1040ez for free   If the funds in a joint account belong to one person, list that person's name first on the account and give that person's SSN to the payer. File 1040ez for free (For information on who owns the funds in a joint account, see Joint accounts , later. File 1040ez for free ) If the joint account contains combined funds, give the SSN of the person whose name is listed first on the account. File 1040ez for free This is because only one name and SSN can be shown on Form 1099. File 1040ez for free   These rules apply both to joint ownership by a married couple and to joint ownership by other individuals. File 1040ez for free For example, if you open a joint savings account with your child using funds belonging to the child, list the child's name first on the account and give the child's SSN. File 1040ez for free Custodian account for your child. File 1040ez for free   If your child is the actual owner of an account that is recorded in your name as custodian for the child, give the child's SSN to the payer. File 1040ez for free For example, you must give your child's SSN to the payer of interest on an account owned by your child, even though the interest is paid to you as custodian. File 1040ez for free Penalty for failure to supply SSN. File 1040ez for free   If you do not give your SSN to the payer of interest, you may have to pay a penalty. File 1040ez for free See Failure to supply SSN under Penalties in chapter 1. File 1040ez for free Backup withholding also may apply. File 1040ez for free Backup withholding. File 1040ez for free   Your interest income is generally not subject to regular withholding. File 1040ez for free However, it may be subject to backup withholding to ensure that income tax is collected on the income. File 1040ez for free Under backup withholding, the payer of interest must withhold, as income tax, on the amount you are paid, applying the appropriate withholding rate. File 1040ez for free   Backup withholding may also be required if the IRS has determined that you underreported your interest or dividend income. File 1040ez for free For more information, see Backup Withholding in chapter 4. File 1040ez for free Reporting backup withholding. File 1040ez for free   If backup withholding is deducted from your interest income, the payer must give you a Form 1099-INT for the year indicating the amount withheld. File 1040ez for free The Form 1099-INT will show any backup withholding as “Federal income tax withheld. File 1040ez for free ” Joint accounts. File 1040ez for free   If two or more persons hold property (such as a savings account or bond) as joint tenants, tenants by the entirety, or tenants in common, each person's share of any interest from the property is determined by local law. File 1040ez for free Income from property given to a child. File 1040ez for free   Property you give as a parent to your child under the Model Gifts of Securities to Minors Act, the Uniform Gifts to Minors Act, or any similar law becomes the child's property. File 1040ez for free   Income from the property is taxable to the child, except that any part used to satisfy a legal obligation to support the child is taxable to the parent or guardian having that legal obligation. File 1040ez for free Savings account with parent as trustee. File 1040ez for free   Interest income from a savings account opened for a minor child, but placed in the name and subject to the order of the parents as trustees, is taxable to the child if, under the law of the state in which the child resides, both of the following are true. File 1040ez for free The savings account legally belongs to the child. File 1040ez for free The parents are not legally permitted to use any of the funds to support the child. File 1040ez for free Form 1099-INT. File 1040ez for free   Interest income is generally reported to you on Form 1099-INT, or a similar statement, by banks, savings and loans, and other payers of interest. File 1040ez for free This form shows you the interest you received during the year. File 1040ez for free Keep this form for your records. File 1040ez for free You do not have to attach it to your tax return. File 1040ez for free   Report on your tax return the total interest income you receive for the tax year. File 1040ez for free Interest not reported on Form 1099-INT. File 1040ez for free   Even if you do not receive Form 1099-INT, you must still report all of your interest income. File 1040ez for free For example, you may receive distributive shares of interest from partnerships or S corporations. File 1040ez for free This interest is reported to you on Schedule K-1 (Form 1065), Partner's Share of Income, Deduction, Credits, etc. File 1040ez for free , or Schedule K-1 (Form 1120S), Shareholder's Share of Income, Deductions, Credits, etc. File 1040ez for free Nominees. File 1040ez for free   Generally, if someone receives interest as a nominee for you, that person must give you a Form 1099-INT showing the interest received on your behalf. File 1040ez for free   If you receive a Form 1099-INT that includes amounts belonging to another person, see the discussion on nominee distributions under How To Report Interest Income in chapter 1 of Publication 550, or Schedule B (Form 1040A or 1040) instructions. File 1040ez for free Incorrect amount. File 1040ez for free   If you receive a Form 1099-INT that shows an incorrect amount (or other incorrect information), you should ask the issuer for a corrected form. File 1040ez for free The new Form 1099-INT you receive will be marked “Corrected. File 1040ez for free ” Form 1099-OID. File 1040ez for free   Reportable interest income also may be shown on Form 1099-OID, Original Issue Discount. File 1040ez for free For more information about amounts shown on this form, see Original Issue Discount (OID) , later in this chapter. File 1040ez for free Exempt-interest dividends. File 1040ez for free   Exempt-interest dividends you receive from a mutual fund or other regulated investment company, including those received from a qualified fund of funds in any tax year beginning after December 22, 2010, are not included in your taxable income. File 1040ez for free (However, see Information reporting requirement , next. File 1040ez for free ) Exempt-interest dividends should be shown in box 10 of Form 1099-DIV. File 1040ez for free You do not reduce your basis for distributions that are exempt-interest dividends. File 1040ez for free Information reporting requirement. File 1040ez for free   Although exempt-interest dividends are not taxable, you must show them on your tax return if you have to file. File 1040ez for free This is an information reporting requirement and does not change the exempt-interest dividends into taxable income. File 1040ez for free Note. File 1040ez for free Exempt-interest dividends paid from specified private activity bonds may be subject to the alternative minimum tax. File 1040ez for free See Alternative Minimum Tax (AMT) in chapter 30 for more information. File 1040ez for free Chapter 1 of Publication 550 contains a discussion on private activity bonds under State or Local Government Obligations. File 1040ez for free Interest on VA dividends. File 1040ez for free   Interest on insurance dividends left on deposit with the Department of Veterans Affairs (VA) is not taxable. File 1040ez for free This includes interest paid on dividends on converted United States Government Life Insurance and on National Service Life Insurance policies. File 1040ez for free Individual retirement arrangements (IRAs). File 1040ez for free   Interest on a Roth IRA generally is not taxable. File 1040ez for free Interest on a traditional IRA is tax deferred. File 1040ez for free You generally do not include it in your income until you make withdrawals from the IRA. File 1040ez for free See chapter 17. File 1040ez for free Taxable Interest Taxable interest includes interest you receive from bank accounts, loans you make to others, and other sources. File 1040ez for free The following are some sources of taxable interest. File 1040ez for free Dividends that are actually interest. File 1040ez for free   Certain distributions commonly called dividends are actually interest. File 1040ez for free You must report as interest so-called “dividends” on deposits or on share accounts in: Cooperative banks, Credit unions, Domestic building and loan associations, Domestic savings and loan associations, Federal savings and loan associations, and Mutual savings banks. File 1040ez for free  The “dividends” will be shown as interest income on Form 1099-INT. File 1040ez for free Money market funds. File 1040ez for free   Money market funds pay dividends and are offered by nonbank financial institutions, such as mutual funds and stock brokerage houses. File 1040ez for free Generally, amounts you receive from money market funds should be reported as dividends, not as interest. File 1040ez for free Certificates of deposit and other deferred interest accounts. File 1040ez for free   If you open any of these accounts, interest may be paid at fixed intervals of 1 year or less during the term of the account. File 1040ez for free You generally must include this interest in your income when you actually receive it or are entitled to receive it without paying a substantial penalty. File 1040ez for free The same is true for accounts that mature in 1 year or less and pay interest in a single payment at maturity. File 1040ez for free If interest is deferred for more than 1 year, see Original Issue Discount (OID) , later. File 1040ez for free Interest subject to penalty for early withdrawal. File 1040ez for free   If you withdraw funds from a deferred interest account before maturity, you may have to pay a penalty. File 1040ez for free You must report the total amount of interest paid or credited to your account during the year, without subtracting the penalty. File 1040ez for free See Penalty on early withdrawal of savings in chapter 1 of Publication 550 for more information on how to report the interest and deduct the penalty. File 1040ez for free Money borrowed to invest in certificate of deposit. File 1040ez for free   The interest you pay on money borrowed from a bank or savings institution to meet the minimum deposit required for a certificate of deposit from the institution and the interest you earn on the certificate are two separate items. File 1040ez for free You must report the total interest you earn on the certificate in your income. File 1040ez for free If you itemize deductions, you can deduct the interest you pay as investment interest, up to the amount of your net investment income. File 1040ez for free See Interest Expenses in chapter 3 of Publication 550. File 1040ez for free Example. File 1040ez for free You deposited $5,000 with a bank and borrowed $5,000 from the bank to make up the $10,000 minimum deposit required to buy a 6-month certificate of deposit. File 1040ez for free The certificate earned $575 at maturity in 2013, but you received only $265, which represented the $575 you earned minus $310 interest charged on your $5,000 loan. File 1040ez for free The bank gives you a Form 1099-INT for 2013 showing the $575 interest you earned. File 1040ez for free The bank also gives you a statement showing that you paid $310 interest for 2013. File 1040ez for free You must include the $575 in your income. File 1040ez for free If you itemize your deductions on Schedule A (Form 1040), you can deduct $310, subject to the net investment income limit. File 1040ez for free Gift for opening account. File 1040ez for free   If you receive noncash gifts or services for making deposits or for opening an account in a savings institution, you may have to report the value as interest. File 1040ez for free   For deposits of less than $5,000, gifts or services valued at more than $10 must be reported as interest. File 1040ez for free For deposits of $5,000 or more, gifts or services valued at more than $20 must be reported as interest. File 1040ez for free The value is determined by the cost to the financial institution. File 1040ez for free Example. File 1040ez for free You open a savings account at your local bank and deposit $800. File 1040ez for free The account earns $20 interest. File 1040ez for free You also receive a $15 calculator. File 1040ez for free If no other interest is credited to your account during the year, the Form 1099-INT you receive will show $35 interest for the year. File 1040ez for free You must report $35 interest income on your tax return. File 1040ez for free Interest on insurance dividends. File 1040ez for free   Interest on insurance dividends left on deposit with an insurance company that can be withdrawn annually is taxable to you in the year it is credited to your account. File 1040ez for free However, if you can withdraw it only on the anniversary date of the policy (or other specified date), the interest is taxable in the year that date occurs. File 1040ez for free Prepaid insurance premiums. File 1040ez for free   Any increase in the value of prepaid insurance premiums, advance premiums, or premium deposit funds is interest if it is applied to the payment of premiums due on insurance policies or made available for you to withdraw. File 1040ez for free U. File 1040ez for free S. File 1040ez for free obligations. File 1040ez for free   Interest on U. File 1040ez for free S. File 1040ez for free obligations, such as U. File 1040ez for free S. File 1040ez for free Treasury bills, notes, and bonds, issued by any agency or instrumentality of the United States is taxable for federal income tax purposes. File 1040ez for free Interest on tax refunds. File 1040ez for free   Interest you receive on tax refunds is taxable income. File 1040ez for free Interest on condemnation award. File 1040ez for free   If the condemning authority pays you interest to compensate you for a delay in payment of an award, the interest is taxable. File 1040ez for free Installment sale payments. File 1040ez for free   If a contract for the sale or exchange of property provides for deferred payments, it also usually provides for interest payable with the deferred payments. File 1040ez for free That interest is taxable when you receive it. File 1040ez for free If little or no interest is provided for in a deferred payment contract, part of each payment may be treated as interest. File 1040ez for free See Unstated Interest and Original Issue Discount in Publication 537, Installment Sales. File 1040ez for free Interest on annuity contract. File 1040ez for free   Accumulated interest on an annuity contract you sell before its maturity date is taxable. File 1040ez for free Usurious interest. File 1040ez for free   Usurious interest is interest charged at an illegal rate. File 1040ez for free This is taxable as interest unless state law automatically changes it to a payment on the principal. File 1040ez for free Interest income on frozen deposits. File 1040ez for free   Exclude from your gross income interest on frozen deposits. File 1040ez for free A deposit is frozen if, at the end of the year, you cannot withdraw any part of the deposit because: The financial institution is bankrupt or insolvent, or The state where the institution is located has placed limits on withdrawals because other financial institutions in the state are bankrupt or insolvent. File 1040ez for free   The amount of interest you must exclude is the interest that was credited on the frozen deposits minus the sum of: The net amount you withdrew from these deposits during the year, and The amount you could have withdrawn as of the end of the year (not reduced by any penalty for premature withdrawals of a time deposit). File 1040ez for free If you receive a Form 1099-INT for interest income on deposits that were frozen at the end of 2013, see Frozen deposits under How To Report Interest Income in chapter 1 of Publication 550, for information about reporting this interest income exclusion on your tax return. File 1040ez for free   The interest you exclude is treated as credited to your account in the following year. File 1040ez for free You must include it in income in the year you can withdraw it. File 1040ez for free Example. File 1040ez for free $100 of interest was credited on your frozen deposit during the year. File 1040ez for free You withdrew $80 but could not withdraw any more as of the end of the year. File 1040ez for free You must include $80 in your income and exclude $20 from your income for the year. File 1040ez for free You must include the $20 in your income for the year you can withdraw it. File 1040ez for free Bonds traded flat. File 1040ez for free   If you buy a bond at a discount when interest has been defaulted or when the interest has accrued but has not been paid, the transaction is described as trading a bond flat. File 1040ez for free The defaulted or unpaid interest is not income and is not taxable as interest if paid later. File 1040ez for free When you receive a payment of that interest, it is a return of capital that reduces the remaining cost basis of your bond. File 1040ez for free Interest that accrues after the date of purchase, however, is taxable interest income for the year it is received or accrued. File 1040ez for free See Bonds Sold Between Interest Dates , later, for more information. File 1040ez for free Below-market loans. File 1040ez for free   In general, a below-market loan is a loan on which no interest is charged or on which interest is charged at a rate below the applicable federal rate. File 1040ez for free See Below-Market Loans in chapter 1 of Publication 550 for more information. File 1040ez for free U. File 1040ez for free S. File 1040ez for free Savings Bonds This section provides tax information on U. File 1040ez for free S. File 1040ez for free savings bonds. File 1040ez for free It explains how to report the interest income on these bonds and how to treat transfers of these bonds. File 1040ez for free For other information on U. File 1040ez for free S. File 1040ez for free savings bonds, write to:  For series EE and I paper savings bonds: Bureau of the Public Debt Division of Customer Assistance P. File 1040ez for free O. File 1040ez for free Box 7012 Parkersburg, WV 26106-7012  For series EE and I electronic bonds: Bureau of the Public Debt Division of Customer Assistance P. File 1040ez for free O. File 1040ez for free Box 7015 Parkersburg, WV 26106–7015  For series HH/H: Bureau of the Public Debt Division of Customer Assistance P. File 1040ez for free O. File 1040ez for free Box 2186 Parkersburg, WV 26106-2186 Or, on the Internet, visit: www. File 1040ez for free treasurydirect. File 1040ez for free gov/indiv/indiv. File 1040ez for free htm. File 1040ez for free Accrual method taxpayers. File 1040ez for free   If you use an accrual method of accounting, you must report interest on U. File 1040ez for free S. File 1040ez for free savings bonds each year as it accrues. File 1040ez for free You cannot postpone reporting interest until you receive it or until the bonds mature. File 1040ez for free Accrual methods of accounting are explained in chapter 1 under Accounting Methods . File 1040ez for free Cash method taxpayers. File 1040ez for free   If you use the cash method of accounting, as most individual taxpayers do, you generally report the interest on U. File 1040ez for free S. File 1040ez for free savings bonds when you receive it. File 1040ez for free The cash method of accounting is explained in chapter 1 under Accounting Methods. File 1040ez for free But see Reporting options for cash method taxpayers , later. File 1040ez for free Series HH bonds. File 1040ez for free    These bonds were issued at face value. File 1040ez for free Interest is paid twice a year by direct deposit to your bank account. File 1040ez for free If you are a cash method taxpayer, you must report interest on these bonds as income in the year you receive it. File 1040ez for free   Series HH bonds were first offered in 1980 and last offered in August 2004. File 1040ez for free Before 1980, series H bonds were issued. File 1040ez for free Series H bonds are treated the same as series HH bonds. File 1040ez for free If you are a cash method taxpayer, you must report the interest when you receive it. File 1040ez for free   Series H bonds have a maturity period of 30 years. File 1040ez for free Series HH bonds mature in 20 years. File 1040ez for free The last series H bonds matured in 2009. File 1040ez for free Series EE and series I bonds. File 1040ez for free   Interest on these bonds is payable when you redeem the bonds. File 1040ez for free The difference between the purchase price and the redemption value is taxable interest. File 1040ez for free Series EE bonds. File 1040ez for free   Series EE bonds were first offered in January 1980 and have a maturity period of 30 years. File 1040ez for free   Before July 1980, series E bonds were issued. File 1040ez for free The original 10-year maturity period of series E bonds has been extended to 40 years for bonds issued before December 1965 and 30 years for bonds issued after November 1965. File 1040ez for free Paper series EE and series E bonds are issued at a discount. File 1040ez for free The face value is payable to you at maturity. File 1040ez for free Electronic series EE bonds are issued at their face value. File 1040ez for free The face value plus accrued interest is payable to you at maturity. File 1040ez for free As of January 1, 2012, paper savings bonds were no longer sold at financial institutions. File 1040ez for free   Owners of paper series EE bonds can convert them to electronic bonds. File 1040ez for free These converted bonds do not retain the denomination listed on the paper certificate but are posted at their purchase price (with accrued interest). File 1040ez for free Series I bonds. File 1040ez for free   Series I bonds were first offered in 1998. File 1040ez for free These are inflation-indexed bonds issued at their face amount with a maturity period of 30 years. File 1040ez for free The face value plus all accrued interest is payable to you at maturity. File 1040ez for free Reporting options for cash method taxpayers. File 1040ez for free   If you use the cash method of reporting income, you can report the interest on series EE, series E, and series I bonds in either of the following ways. File 1040ez for free Method 1. File 1040ez for free Postpone reporting the interest until the earlier of the year you cash or dispose of the bonds or the year they mature. File 1040ez for free (However, see Savings bonds traded , later. File 1040ez for free )  Note. File 1040ez for free Series EE bonds issued in 1983 matured in 2013. File 1040ez for free If you have used method 1, you generally must report the interest on these bonds on your 2013 return. File 1040ez for free The last series E bonds were issued in 1980 and matured in 2010. File 1040ez for free If you used method 1, you generally should have reported the interest on these bonds on your 2010 return. File 1040ez for free Method 2. File 1040ez for free Choose to report the increase in redemption value as interest each year. File 1040ez for free You must use the same method for all series EE, series E, and series I bonds you own. File 1040ez for free If you do not choose method 2 by reporting the increase in redemption value as interest each year, you must use method 1. File 1040ez for free    If you plan to cash your bonds in the same year you will pay for higher education expenses, you may want to use method 1 because you may be able to exclude the interest from your income. File 1040ez for free To learn how, see Education Savings Bond Program, later. File 1040ez for free Change from method 1. File 1040ez for free   If you want to change your method of reporting the interest from method 1 to method 2, you can do so without permission from the IRS. File 1040ez for free In the year of change you must report all interest accrued to date and not previously reported for all your bonds. File 1040ez for free   Once you choose to report the interest each year, you must continue to do so for all series EE, series E, and series I bonds you own and for any you get later, unless you request permission to change, as explained next. File 1040ez for free Change from method 2. File 1040ez for free   To change from method 2 to method 1, you must request permission from the IRS. File 1040ez for free Permission for the change is automatically granted if you send the IRS a statement that meets all the following requirements. File 1040ez for free You have typed or printed the following number at the top: “131. File 1040ez for free ” It includes your name and social security number under “131. File 1040ez for free ” It includes the year of change (both the beginning and ending dates). File 1040ez for free It identifies the savings bonds for which you are requesting this change. File 1040ez for free It includes your agreement to: Report all interest on any bonds acquired during or after the year of change when the interest is realized upon disposition, redemption, or final maturity, whichever is earliest, and Report all interest on the bonds acquired before the year of change when the interest is realized upon disposition, redemption, or final maturity, whichever is earliest, with the exception of the interest reported in prior tax years. File 1040ez for free   You must attach this statement to your tax return for the year of change, which you must file by the due date (including extensions). File 1040ez for free   You can have an automatic extension of 6 months from the due date of your return for the year of change (excluding extensions) to file the statement with an amended return. File 1040ez for free On the statement, type or print “Filed pursuant to section 301. File 1040ez for free 9100-2. File 1040ez for free ” To get this extension, you must have filed your original return for the year of the change by the due date (including extensions). File 1040ez for free    By the date you file the original statement with your return, you must also send a signed copy to the address below. File 1040ez for free   Internal Revenue Service Attention: CC:IT&A (Automatic Rulings Branch) P. File 1040ez for free O. File 1040ez for free Box 7604 Benjamin Franklin Station Washington, DC 20044   If you use a private delivery service, send the signed copy to the address below. File 1040ez for free   Internal Revenue Service Attention: CC:IT&A (Automatic Rulings Branch) Room 5336 1111 Constitution Avenue, NW  Washington, DC 20224   Instead of filing this statement, you can request permission to change from method 2 to method 1 by filing Form 3115, Application for Change in Accounting Method. File 1040ez for free In that case, follow the form instructions for an automatic change. File 1040ez for free No user fee is required. File 1040ez for free Co-owners. File 1040ez for free   If a U. File 1040ez for free S. File 1040ez for free savings bond is issued in the names of co-owners, such as you and your child or you and your spouse, interest on the bond is generally taxable to the co-owner who bought the bond. File 1040ez for free One co-owner's funds used. File 1040ez for free    If you used your funds to buy the bond, you must pay the tax on the interest. File 1040ez for free This is true even if you let the other co-owner redeem the bond and keep all the proceeds. File 1040ez for free Under these circumstances, the co-owner who redeemed the bond will receive a Form 1099-INT at the time of redemption and must provide you with another Form 1099-INT showing the amount of interest from the bond taxable to you. File 1040ez for free The co-owner who redeemed the bond is a “nominee. File 1040ez for free ” See Nominee distributions under How To Report Interest Income in chapter 1 of Publication 550 for more information about how a person who is a nominee reports interest income belonging to another person. File 1040ez for free Both co-owners' funds used. File 1040ez for free   If you and the other co-owner each contribute part of the bond's purchase price, the interest is generally taxable to each of you, in proportion to the amount each of you paid. File 1040ez for free Community property. File 1040ez for free   If you and your spouse live in a community property state and hold bonds as community property, one-half of the interest is considered received by each of you. File 1040ez for free If you file separate returns, each of you generally must report one-half of the bond interest. File 1040ez for free For more information about community property, see Publication 555. File 1040ez for free Table 7-1. File 1040ez for free   These rules are also shown in Table 7-1. File 1040ez for free Ownership transferred. File 1040ez for free   If you bought series E, series EE, or series I bonds entirely with your own funds and had them reissued in your co-owner's name or beneficiary's name alone, you must include in your gross income for the year of reissue all interest that you earned on these bonds and have not previously reported. File 1040ez for free But, if the bonds were reissued in your name alone, you do not have to report the interest accrued at that time. File 1040ez for free   This same rule applies when bonds (other than bonds held as community property) are transferred between spouses or incident to divorce. File 1040ez for free Purchased jointly. File 1040ez for free   If you and a co-owner each contributed funds to buy series E, series EE, or series I bonds jointly and later have the bonds reissued in the co-owner's name alone, you must include in your gross income for the year of reissue your share of all the interest earned on the bonds that you have not previously reported. File 1040ez for free The former co-owner does not have to include in gross income at the time of reissue his or her share of the interest earned that was not reported before the transfer. File 1040ez for free This interest, however, as well as all interest earned after the reissue, is income to the former co-owner. File 1040ez for free   This income-reporting rule also applies when the bonds are reissued in the name of your former co-owner and a new co-owner. File 1040ez for free But the new co-owner will report only his or her share of the interest earned after the transfer. File 1040ez for free   If bonds that you and a co-owner bought jointly are reissued to each of you separately in the same proportion as your contribution to the purchase price, neither you nor your co-owner has to report at that time the interest earned before the bonds were reissued. File 1040ez for free    Table 7-1. File 1040ez for free Who Pays the Tax on U. File 1040ez for free S. File 1040ez for free Savings Bond Interest IF . File 1040ez for free . File 1040ez for free . File 1040ez for free THEN the interest must be reported by . File 1040ez for free . File 1040ez for free . File 1040ez for free you buy a bond in your name and the name of another person as co-owners, using only your own funds you. File 1040ez for free you buy a bond in the name of another person, who is the sole owner of the bond the person for whom you bought the bond. File 1040ez for free you and another person buy a bond as co-owners, each contributing part of the purchase price both you and the other co-owner, in proportion to the amount each paid for the bond. File 1040ez for free you and your spouse, who live in a community property state, buy a bond that is community property you and your spouse. File 1040ez for free If you file separate returns, both you and your spouse generally report one-half of the interest. File 1040ez for free Example 1. File 1040ez for free You and your spouse each spent an equal amount to buy a $1,000 series EE savings bond. File 1040ez for free The bond was issued to you and your spouse as co-owners. File 1040ez for free You both postpone reporting interest on the bond. File 1040ez for free You later have the bond reissued as two $500 bonds, one in your name and one in your spouse's name. File 1040ez for free At that time neither you nor your spouse has to report the interest earned to the date of reissue. File 1040ez for free Example 2. File 1040ez for free You bought a $1,000 series EE savings bond entirely with your own funds. File 1040ez for free The bond was issued to you and your spouse as co-owners. File 1040ez for free You both postpone reporting interest on the bond. File 1040ez for free You later have the bond reissued as two $500 bonds, one in your name and one in your spouse's name. File 1040ez for free You must report half the interest earned to the date of reissue. File 1040ez for free Transfer to a trust. File 1040ez for free   If you own series E, series EE, or series I bonds and transfer them to a trust, giving up all rights of ownership, you must include in your income for that year the interest earned to the date of transfer if you have not already reported it. File 1040ez for free However, if you are considered the owner of the trust and if the increase in value both before and after the transfer continues to be taxable to you, you can continue to defer reporting the interest earned each year. File 1040ez for free You must include the total interest in your income in the year you cash or dispose of the bonds or the year the bonds finally mature, whichever is earlier. File 1040ez for free   The same rules apply to previously unreported interest on series EE or series E bonds if the transfer to a trust consisted of series HH or series H bonds you acquired in a trade for the series EE or series E bonds. File 1040ez for free See Savings bonds traded , later. File 1040ez for free Decedents. File 1040ez for free   The manner of reporting interest income on series E, series EE, or series I bonds, after the death of the owner (decedent), depends on the accounting and income-reporting methods previously used by the decedent. File 1040ez for free This is explained in chapter 1 of Publication 550. File 1040ez for free Savings bonds traded. File 1040ez for free   If you postponed reporting the interest on your series EE or series E bonds, you did not recognize taxable income when you traded the bonds for series HH or series H bonds, unless you received cash in the trade. File 1040ez for free (You cannot trade series I bonds for series HH bonds. File 1040ez for free After August 31, 2004, you cannot trade any other series of bonds for series HH bonds. File 1040ez for free ) Any cash you received is income up to the amount of the interest earned on the bonds traded. File 1040ez for free When your series HH or series H bonds mature, or if you dispose of them before maturity, you report as interest the difference between their redemption value and your cost. File 1040ez for free Your cost is the sum of the amount you paid for the traded series EE or series E bonds plus any amount you had to pay at the time of the trade. File 1040ez for free Example. File 1040ez for free You traded series EE bonds (on which you postponed reporting the interest) for $2,500 in series HH bonds and $223 in cash. File 1040ez for free You reported the $223 as taxable income on your tax return. File 1040ez for free At the time of the trade, the series EE bonds had accrued interest of $523 and a redemption value of $2,723. File 1040ez for free You hold the series HH bonds until maturity, when you receive $2,500. File 1040ez for free You must report $300 as interest income in the year of maturity. File 1040ez for free This is the difference between their redemption value, $2,500, and your cost, $2,200 (the amount you paid for the series EE bonds). File 1040ez for free (It is also the difference between the accrued interest of $523 on the series EE bonds and the $223 cash received on the trade. File 1040ez for free ) Choice to report interest in year of trade. File 1040ez for free   You could have chosen to treat all of the previously unreported accrued interest on the series EE or series E bonds traded for series HH bonds as income in the year of the trade. File 1040ez for free If you made this choice, it is treated as a change from method 1. File 1040ez for free See Change from method 1 under Series EE and series I bonds, earlier. File 1040ez for free Form 1099-INT for U. File 1040ez for free S. File 1040ez for free savings bonds interest. File 1040ez for free   When you cash a bond, the bank or other payer that redeems it must give you a Form 1099-INT if the interest part of the payment you receive is $10 or more. File 1040ez for free Box 3 of your Form 1099-INT should show the interest as the difference between the amount you received and the amount paid for the bond. File 1040ez for free However, your Form 1099-INT may show more interest than you have to include on your income tax return. File 1040ez for free For example, this may happen if any of the following are true. File 1040ez for free You chose to report the increase in the redemption value of the bond each year. File 1040ez for free The interest shown on your Form 1099-INT will not be reduced by amounts previously included in income. File 1040ez for free You received the bond from a decedent. File 1040ez for free The interest shown on your Form 1099-INT will not be reduced by any interest reported by the decedent before death, or on the decedent's final return, or by the estate on the estate's income tax return. File 1040ez for free Ownership of the bond was transferred. File 1040ez for free The interest shown on your Form 1099-INT will not be reduced by interest that accrued before the transfer. File 1040ez for free You were named as a co-owner, and the other co-owner contributed funds to buy the bond. File 1040ez for free The interest shown on your Form 1099-INT will not be reduced by the amount you received as nominee for the other co-owner. File 1040ez for free (See Co-owners , earlier in this chapter, for more information about the reporting requirements. File 1040ez for free ) You received the bond in a taxable distribution from a retirement or profit-sharing plan. File 1040ez for free The interest shown on your Form 1099-INT will not be reduced by the interest portion of the amount taxable as a distribution from the plan and not taxable as interest. File 1040ez for free (This amount is generally shown on Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. File 1040ez for free , for the year of distribution. File 1040ez for free )   For more information on including the correct amount of interest on your return, see How To Report Interest Income , later. File 1040ez for free Publication 550 includes examples showing how to report these amounts. File 1040ez for free    Interest on U. File 1040ez for free S. File 1040ez for free savings bonds is exempt from state and local taxes. File 1040ez for free The Form 1099-INT you receive will indicate the amount that is for U. File 1040ez for free S. File 1040ez for free savings bond interest in box 3. File 1040ez for free Education Savings Bond Program You may be able to exclude from income all or part of the interest you receive on the redemption of qualified U. File 1040ez for free S. File 1040ez for free savings bonds during the year if you pay qualified higher educational expenses during the same year. File 1040ez for free This exclusion is known as the Education Savings Bond Program. File 1040ez for free You do not qualify for this exclusion if your filing status is married filing separately. File 1040ez for free Form 8815. File 1040ez for free   Use Form 8815 to figure your exclusion. File 1040ez for free Attach the form to your Form 1040 or Form 1040A. File 1040ez for free Qualified U. File 1040ez for free S. File 1040ez for free savings bonds. File 1040ez for free   A qualified U. File 1040ez for free S. File 1040ez for free savings bond is a series EE bond issued after 1989 or a series I bond. File 1040ez for free The bond must be issued either in your name (sole owner) or in your and your spouse's names (co-owners). File 1040ez for free You must be at least 24 years old before the bond's issue date. File 1040ez for free For example, a bond bought by a parent and issued in the name of his or her child under age 24 does not qualify for the exclusion by the parent or child. File 1040ez for free    The issue date of a bond may be earlier than the date the bond is purchased because the issue date assigned to a bond is the first day of the month in which it is purchased. File 1040ez for free Beneficiary. File 1040ez for free   You can designate any individual (including a child) as a beneficiary of the bond. File 1040ez for free Verification by IRS. File 1040ez for free   If you claim the exclusion, the IRS will check it by using bond redemption information from the Department of the Treasury. File 1040ez for free Qualified expenses. File 1040ez for free   Qualified higher educational expenses are tuition and fees required for you, your spouse, or your dependent (for whom you claim an exemption) to attend an eligible educational institution. File 1040ez for free   Qualified expenses include any contribution you make to a qualified tuition program or to a Coverdell education savings account. File 1040ez for free   Qualified expenses do not include expenses for room and board or for courses involving sports, games, or hobbies that are not part of a degree or certificate granting program. File 1040ez for free Eligible educational institutions. File 1040ez for free   These institutions include most public, private, and nonprofit universities, colleges, and vocational schools that are accredited and eligible to participate in student aid programs run by the U. File 1040ez for free S. File 1040ez for free Department of Education. File 1040ez for free Reduction for certain benefits. File 1040ez for free   You must reduce your qualified higher educational expenses by all of the following tax-free benefits. File 1040ez for free Tax-free part of scholarships and fellowships (see Scholarships and fellowships in chapter 12). File 1040ez for free Expenses used to figure the tax-free portion of distributions from a Coverdell ESA. File 1040ez for free Expenses used to figure the tax-free portion of distributions from a qualified tuition program. File 1040ez for free Any tax-free payments (other than gifts or inheritances) received for educational expenses, such as Veterans' educational assistance benefits, Qualified tuition reductions, or Employer-provided educational assistance. File 1040ez for free Any expense used in figuring the American Opportunity and lifetime learning credits. File 1040ez for free Amount excludable. File 1040ez for free   If the total proceeds (interest and principal) from the qualified U. File 1040ez for free S. File 1040ez for free savings bonds you redeem during the year are not more than your adjusted qualified higher educational expenses for the year, you may be able to exclude all of the interest. File 1040ez for free If the proceeds are more than the expenses, you may be able to exclude only part of the interest. File 1040ez for free   To determine the excludable amount, multiply the interest part of the proceeds by a fraction. File 1040ez for free The numerator of the fraction is the qualified higher educational expenses you paid during the year. File 1040ez for free The denominator of the fraction is the total proceeds you received during the year. File 1040ez for free Example. File 1040ez for free In February 2013, Mark and Joan, a married couple, cashed a qualified series EE U. File 1040ez for free S. File 1040ez for free savings bond they bought in April 1997. File 1040ez for free They received proceeds of $8,372 representing principal of $5,000 and interest of $3,372. File 1040ez for free In 2013, they paid $4,000 of their daughter's college tuition. File 1040ez for free They are not claiming an education credit for that amount, and their daughter does not have any tax-free educational assistance. File 1040ez for free They can exclude $1,611 ($3,372 × ($4,000 ÷ $8,372)) of interest in 2013. File 1040ez for free They must pay tax on the remaining $1,761 ($3,372 − $1,611) interest. File 1040ez for free Modified adjusted gross income limit. File 1040ez for free   The interest exclusion is limited if your modified adjusted gross income (modified AGI) is: $74,700 to $89,700 for taxpayers filing single or head of household, and $112,050 to $142,050 for married taxpayers filing jointly or for a qualifying widow(er) with dependent child. File 1040ez for free You do not qualify for the interest exclusion if your modified AGI is equal to or more than the upper limit for your filing status. File 1040ez for free   Modified AGI, for purposes of this exclusion, is adjusted gross income (Form 1040, line 37, or Form 1040A, line 21) figured before the interest exclusion, and modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion and deduction, Exclusion of income for bona fide residents of American Samoa, Exclusion for income from Puerto Rico, Exclusion for adoption benefits received under an employer's adoption assistance program, Deduction for tuition and fees, Deduction for student loan interest, and Deduction for domestic production activities. File 1040ez for free   Use the Line 9 Worksheet in the Form 8815 instructions to figure your modified AGI. File 1040ez for free If you claim any of the exclusion or deduction items listed above (except items 6, 7, and 8), add the amount of the exclusion or deduction (except items 6, 7, and 8) to the amount on line 5 of the worksheet, and enter the total on Form 8815, line 9, as your modified AGI. File 1040ez for free   If you have investment interest expense incurred to earn royalties and other investment income, see Education Savings Bond Program in chapter 1 of Publication 550. File 1040ez for free Recordkeeping. File 1040ez for free If you claim the interest exclusion, you must keep a written record of the qualified U. File 1040ez for free S. File 1040ez for free savings bonds you redeem. File 1040ez for free Your record must include the serial number, issue date, face value, and total redemption proceeds (principal and interest) of each bond. File 1040ez for free You can use Form 8818 to record this information. File 1040ez for free You should also keep bills, receipts, canceled checks, or other documentation that shows you paid qualified higher educational expenses during the year. File 1040ez for free U. File 1040ez for free S. File 1040ez for free Treasury Bills, Notes, and Bonds Treasury bills, notes, and bonds are direct debts (obligations) of the U. File 1040ez for free S. File 1040ez for free Government. File 1040ez for free Taxation of interest. File 1040ez for free   Interest income from Treasury bills, notes, and bonds is subject to federal income tax but is exempt from all state and local income taxes. File 1040ez for free You should receive Form 1099-INT showing the interest (in box 3) paid to you for the year. File 1040ez for free   Payments of principal and interest generally will be credited to your designated checking or savings account by direct deposit through the TreasuryDirect® system. File 1040ez for free Treasury bills. File 1040ez for free   These bills generally have a 4-week, 13-week, 26-week, or 52-week maturity period. File 1040ez for free They are generally issued at a discount in the amount of $100 and multiples of $100. File 1040ez for free The difference between the discounted price you pay for the bills and the face value you receive at maturity is interest income. File 1040ez for free Generally, you report this interest income when the bill is paid at maturity. File 1040ez for free If you paid a premium for a bill (more than the face value), you generally report the premium as a section 171 deduction when the bill is paid at maturity. File 1040ez for free Treasury notes and bonds. File 1040ez for free   Treasury notes have maturity periods of more than 1 year, ranging up to 10 years. File 1040ez for free Maturity periods for Treasury bonds are longer than 10 years. File 1040ez for free Both generally are issued in denominations of $100 to $1 million and generally pay interest every 6 months. File 1040ez for free Generally, you report this interest for the year paid. File 1040ez for free For more information, see U. File 1040ez for free S. File 1040ez for free Treasury Bills, Notes, and Bonds in chapter 1 of Publication 550. File 1040ez for free For other information on Treasury notes or bonds, write to:  Bureau of the Public Debt P. File 1040ez for free O. File 1040ez for free Box 7015 Parkersburg, WV 26106-7015 Or, on the Internet, visit: www. File 1040ez for free treasurydirect. File 1040ez for free gov/indiv/indiv. File 1040ez for free htm. File 1040ez for free For information on series EE, series I, and series HH savings bonds, see U. File 1040ez for free S. File 1040ez for free Savings Bonds , earlier. File 1040ez for free Treasury inflation-protected securities (TIPS). File 1040ez for free   These securities pay interest twice a year at a fixed rate, based on a principal amount adjusted to take into account inflation and deflation. File 1040ez for free For the tax treatment of these securities, see Inflation-Indexed Debt Instruments under Original Issue Discount (OID), in Publication 550. File 1040ez for free Bonds Sold Between Interest Dates If you sell a bond between interest payment dates, part of the sales price represents interest accrued to the date of sale. File 1040ez for free You must report that part of the sales price as interest income for the year of sale. File 1040ez for free If you buy a bond between interest payment dates, part of the purchase price represents interest accrued before the date of purchase. File 1040ez for free When that interest is paid to you, treat it as a return of your capital investment, rather than interest income, by reducing your basis in the bond. File 1040ez for free See Accrued interest on bonds under How To Report Interest Income in chapter 1 of Publication 550 for information on reporting the payment. File 1040ez for free Insurance Life insurance proceeds paid to you as beneficiary of the insured person are usually not taxable. File 1040ez for free But if you receive the proceeds in installments, you must usually report a part of each installment payment as interest income. File 1040ez for free For more information about insurance proceeds received in installments, see Publication 525, Taxable and Nontaxable Income. File 1040ez for free Annuity. File 1040ez for free   If you buy an annuity with life insurance proceeds, the annuity payments you receive are taxed as pension and annuity income from a nonqualified plan, not as interest income. File 1040ez for free See chapter 10 for information on pension and annuity income from nonqualified plans. File 1040ez for free State or Local Government Obligations Interest on a bond used to finance government operations generally is not taxable if the bond is issued by a state, the District of Columbia, a possession of the United States, or any of their political subdivisions. File 1040ez for free Bonds issued after 1982 (including tribal economic development bonds issued after February 17, 2009) by an Indian tribal government are treated as issued by a state. File 1040ez for free Interest on these bonds is generally tax exempt if the bonds are part of an issue of which substantially all proceeds are to be used in the exercise of any essential government function. File 1040ez for free For information on federally guaranteed bonds, mortgage revenue bonds, arbitrage bonds, private activity bonds, qualified tax credit bonds, and Build America bonds, see State or Local Government Obligations in chapter 1 of Publication 550. File 1040ez for free Information reporting requirement. File 1040ez for free   If you must file a tax return, you are required to show any tax-exempt interest you received on your return. File 1040ez for free This is an information reporting requirement only. File 1040ez for free It does not change tax-exempt interest to taxable interest. File 1040ez for free Original Issue Discount (OID) Original issue discount (OID) is a form of interest. File 1040ez for free You generally include OID in your income as it accrues over the term of the debt instrument, whether or not you receive any payments from the issuer. File 1040ez for free A debt instrument generally has OID when the instrument is issued for a price that is less than its stated redemption price at maturity. File 1040ez for free OID is the difference between the stated redemption price at maturity and the issue price. File 1040ez for free All debt instruments that pay no interest before maturity are presumed to be issued at a discount. File 1040ez for free Zero coupon bonds are one example of these instruments. File 1040ez for free The OID accrual rules generally do not apply to short-term obligations (those with a fixed maturity date of 1 year or less from date of issue). File 1040ez for free See Discount on Short-Term Obligations in chapter 1 of Publication 550. File 1040ez for free De minimis OID. File 1040ez for free   You can treat the discount as zero if it is less than one-fourth of 1% (. File 1040ez for free 0025) of the stated redemption price at maturity multiplied by the number of full years from the date of original issue to maturity. File 1040ez for free This small discount is known as “de minimis” OID. File 1040ez for free Example 1. File 1040ez for free You bought a 10-year bond with a stated redemption price at maturity of $1,000, issued at $980 with OID of $20. File 1040ez for free One-fourth of 1% of $1,000 (stated redemption price) times 10 (the number of full years from the date of original issue to maturity) equals $25. File 1040ez for free Because the $20 discount is less than $25, the OID is treated as zero. File 1040ez for free (If you hold the bond at maturity, you will recognize $20 ($1,000 − $980) of capital gain. File 1040ez for free ) Example 2. File 1040ez for free The facts are the same as in Example 1, except that the bond was issued at $950. File 1040ez for free The OID is $50. File 1040ez for free Because the $50 discount is more than the $25 figured in Example 1, you must include the OID in income as it accrues over the term of the bond. File 1040ez for free Debt instrument bought after original issue. File 1040ez for free   If you buy a debt instrument with de minimis OID at a premium, the discount is not includible in income. File 1040ez for free If you buy a debt instrument with de minimis OID at a discount, the discount is reported under the market discount rules. File 1040ez for free See Market Discount Bonds in chapter 1 of Publication 550. File 1040ez for free Exceptions to reporting OID. File 1040ez for free   The OID rules discussed in this chapter do not apply to the following debt instruments. File 1040ez for free Tax-exempt obligations. File 1040ez for free (However, see Stripped tax-exempt obligations under Stripped Bonds and Coupons in chapter 1 of Publication 550). File 1040ez for free U. File 1040ez for free S. File 1040ez for free savings bonds. File 1040ez for free Short-term debt instruments (those with a fixed maturity date of not more than 1 year from the date of issue). File 1040ez for free Obligations issued by an individual before March 2, 1984. File 1040ez for free Loans between individuals if all the following are true. File 1040ez for free The lender is not in the business of lending money. File 1040ez for free The amount of the loan, plus the amount of any outstanding prior loans between the same individuals, is $10,000 or less. File 1040ez for free Avoiding any federal tax is not one of the principal purposes of the loan. File 1040ez for free Form 1099-OID. File 1040ez for free   The issuer of the debt instrument (or your broker if you held the instrument through a broker) should give you Form 1099-OID, or a similar statement, if the total OID for the calendar year is $10 or more. File 1040ez for free Form 1099-OID will show, in box 1, the amount of OID for the part of the year that you held the bond. File 1040ez for free It also will show, in box 2, the stated interest you must include in your income. File 1040ez for free A copy of Form 1099-OID will be sent to the IRS. File 1040ez for free Do not file your copy with your return. File 1040ez for free Keep it for your records. File 1040ez for free   In most cases, you must report the entire amount in boxes 1 and 2 of Form 1099-OID as interest income. File 1040ez for free But see Refiguring OID shown on Form 1099-OID, later in this discussion, for more information. File 1040ez for free Form 1099-OID not received. File 1040ez for free   If you had OID for the year but did not receive a Form 1099-OID, you can find tables on IRS. File 1040ez for free gov that list total OID on certain debt instruments and have information that will help you figure OID. File 1040ez for free For the latest OID tables, go to www. File 1040ez for free irs. File 1040ez for free gov and enter “OID tables” in the Search box. File 1040ez for free If your debt instrument is not listed, consult the issuer for further information about the accrued OID for the year. File 1040ez for free Nominee. File 1040ez for free   If someone else is the holder of record (the registered owner) of an OID instrument belonging to you and receives a Form 1099-OID on your behalf, that person must give you a Form 1099-OID. File 1040ez for free Refiguring OID shown on Form 1099-OID. File 1040ez for free   You must refigure the OID shown in box 1 or box 8 of Form 1099-OID if either of the following apply. File 1040ez for free You bought the debt instrument after its original issue and paid a premium or an acquisition premium. File 1040ez for free The debt instrument is a stripped bond or a stripped coupon (including certain zero coupon instruments). File 1040ez for free For information about figuring the correct amount of OID to include in your income, see Figuring OID on Long-Term Debt Instruments in Publication 1212. File 1040ez for free Refiguring periodic interest shown on Form 1099-OID. File 1040ez for free   If you disposed of a debt instrument or acquired it from another holder during the year, see Bonds Sold Between Interest Dates , earlier, for information about the treatment of periodic interest that may be shown in box 2 of Form 1099-OID for that instrument. File 1040ez for free Certificates of deposit (CDs). File 1040ez for free   If you buy a CD with a maturity of more than 1 year, you must include in income each year a part of the total interest due and report it in the same manner as other OID. File 1040ez for free   This also applies to similar deposit arrangements with banks, building and loan associations, etc. File 1040ez for free , including: Time deposits, Bonus plans, Savings certificates, Deferred income certificates, Bonus savings certificates, and Growth savings certificates. File 1040ez for free Bearer CDs. File 1040ez for free   CDs issued after 1982 generally must be in registered form. File 1040ez for free Bearer CDs are CDs not in registered form. File 1040ez for free They are not issued in the depositor's name and are transferable from one individual to another. File 1040ez for free   Banks must provide the IRS and the person redeeming a bearer CD with a Form 1099-INT. File 1040ez for free More information. File 1040ez for free   See chapter 1 of Publication 550 for more information about OID and related topics, such as market discount bonds. File 1040ez for free When To Report Interest Income When to report your interest income depends on whether you use the cash method or an accrual method to report income. File 1040ez for free Cash method. File 1040ez for free   Most individual taxpayers use the cash method. File 1040ez for free If you use this method, you generally report your interest income in the year in which you actually or constructively receive it. File 1040ez for free However, there are special rules for reporting the discount on certain debt instruments. File 1040ez for free See U. File 1040ez for free S. File 1040ez for free Savings Bonds and Original Issue Discount (OID) , earlier. File 1040ez for free Example. File 1040ez for free On September 1, 2011, you loaned another individual $2,000 at 12%, compounded annually. File 1040ez for free You are not in the business of lending money. File 1040ez for free The note stated that principal and interest would be due on August 31, 2013. File 1040ez for free In 2013, you received $2,508. File 1040ez for free 80 ($2,000 principal and $508. File 1040ez for free 80 interest). File 1040ez for free If you use the cash method, you must include in income on your 2013 return the $508. File 1040ez for free 80 interest you received in that year. File 1040ez for free Constructive receipt. File 1040ez for free   You constructively receive income when it is credited to your account or made available to you. File 1040ez for free You do not need to have physical possession of it. File 1040ez for free For example, you are considered to receive interest, dividends, or other earnings on any deposit or account in a bank, savings and loan, or similar financial institution, or interest on life insurance policy dividends left to accumulate, when they are credited to your account and subject to your withdrawal. File 1040ez for free This is true even if they are not yet entered in your passbook. File 1040ez for free   You constructively receive income on the deposit or account even if you must: Make withdrawals in multiples of even amounts, Give a notice to withdraw before making the withdrawal, Withdraw all or part of the account to withdraw the earnings, or Pay a penalty on early withdrawals, unless the interest you are to receive on an early withdrawal or redemption is substantially less than the interest payable at maturity. File 1040ez for free Accrual method. File 1040ez for free   If you use an accrual method, you report your interest income when you earn it, whether or not you have received it. File 1040ez for free Interest is earned over the term of the debt instrument. File 1040ez for free Example. File 1040ez for free If, in the previous example, you use an accrual method, you must include the interest in your income as you earn it. File 1040ez for free You would report the interest as follows: 2011, $80; 2012, $249. File 1040ez for free 60; and 2013, $179. File 1040ez for free 20. File 1040ez for free Coupon bonds. File 1040ez for free   Interest on coupon bonds is taxable in the year the coupon becomes due and payable. File 1040ez for free It does not matter when you mail the coupon for payment. File 1040ez for free How To Report Interest Income Generally, you report all your taxable interest income on Form 1040, line 8a; Form 1040A, line 8a; or Form 1040EZ, line 2. File 1040ez for free You cannot use Form 1040EZ if your taxable interest income is more than $1,500. File 1040ez for free Instead, you must use Form 1040A or Form 1040. File 1040ez for free Form 1040A. File 1040ez for free   You must complete Schedule B (Form 1040A or 1040), Part I, if you file Form 1040A and any of the following are true. File 1040ez for free Your taxable interest income is more than $1,500. File 1040ez for free You are claiming the interest exclusion under the Education Savings Bond Program (discussed earlier). File 1040ez for free You received interest from a seller-financed mortgage, and the buyer used the property as a home. File 1040ez for free You received a Form 1099-INT for U. File 1040ez for free S. File 1040ez for free savings bond interest that includes amounts you reported before 2013. File 1040ez for free You received, as a nominee, interest that actually belongs to someone else. File 1040ez for free You received a Form 1099-INT for interest on frozen deposits. File 1040ez for free You are reporting OID in an amount less than the amount shown on Form 1099-OID. File 1040ez for free You received a Form 1099-INT for interest on a bond you bought between interest payment dates. File 1040ez for free You acquired taxable bonds after 1987 and choose to reduce interest income from the bonds by any amortizable bond premium (see Bond Premium Amortization in chapter 3 of Publication 550). File 1040ez for free List each payer's name and the amount of interest income received from each payer on line 1. File 1040ez for free If you received a Form 1099-INT or Form 1099-OID from a brokerage firm, list the brokerage firm as the payer. File 1040ez for free   You cannot use Form 1040A if you must use Form 1040, as described next. File 1040ez for free Form 1040. File 1040ez for free   You must use Form 1040 instead of Form 1040A or Form 1040EZ if: You forfeited interest income because of the early withdrawal of a time deposit; You acquired taxable bonds after 1987, you choose to reduce interest income from the bonds by any amortizable bond premium, and you are deducting the excess of bond premium amortization for the accrual period over the qualified stated interest for the period (see Bond Premium Amortization in chapter 3 of Publication 550); or You received tax-exempt interest from private activity bonds issued after August 7, 1986. File 1040ez for free Schedule B (Form 1040A or 1040). File 1040ez for free   You must complete Schedule B (Form 1040A or 1040), Part I, if you file Form 1040 and any of the following apply. File 1040ez for free Your taxable interest income is more than $1,500. File 1040ez for free You are claiming the interest exclusion under the Education Savings Bond Program (discussed earlier). File 1040ez for free You received interest from a seller-financed mortgage, and the buyer used the property as a home. File 1040ez for free You received a Form 1099-INT for U. File 1040ez for free S. File 1040ez for free savings bond interest that includes amounts you reported before 2013. File 1040ez for free You received, as a nominee, interest that actually belongs to someone else. File 1040ez for free You received a Form 1099-INT for interest on frozen deposits. File 1040ez for free You received a Form 1099-INT for interest on a bond you bought between interest payment dates. File 1040ez for free You are reporting OID in an amount less than the amount shown on Form 1099-OID. File 1040ez for free Statement (2) in the preceding list under Form 1040 is true. File 1040ez for free In Part I, line 1, list each payer's name and the amount received from each. File 1040ez for free If you received a Form 1099-INT or Form 1099-OID from a brokerage firm, list the brokerage firm as the payer. File 1040ez for free Reporting tax-exempt interest. File 1040ez for free   Total your tax-exempt interest (such as interest or accrued OID on certain state and municipal bonds, including tax-exempt interest on zero coupon municipal bonds) and exempt-interest dividends from a mutual fund as shown on Form 1099-INT, box 8, and on Form 1099-DIV, box 10. File 1040ez for free Add these amounts to any other tax-exempt interest you received. File 1040ez for free Report the total on line 8b of Form 1040A or 1040. File 1040ez for free   If you file Form 1040EZ, enter “TEI” and the amount in the space to the left of line 2. File 1040ez for free Do not add tax-exempt interest in the total on Form 1040EZ, line 2. File 1040ez for free   Form 1099-INT, box 9, and Form 1099-DIV, box 11, show the tax-exempt interest subject to the alternative minimum tax on Form 6251. File 1040ez for free These amounts are already included in the amounts on Form 1099-INT, box 8, and Form 1099-DIV, box 10. File 1040ez for free Do not add the amounts in Form 1099-INT, box 9 and Form 1099-DIV, box 11 to, or subtract them from, the amounts on Form 1099-INT, box 8, and Form 1099-DIV, box 10. File 1040ez for free    Do not report interest from an individual retirement account (IRA) as tax-exempt interest. File 1040ez for free Form 1099-INT. File 1040ez for free   Your taxable interest income, except for interest from U. File 1040ez for free S. File 1040ez for free savings bonds and Treasury obligations, is shown in box 1 of Form 1099-INT. File 1040ez for free Add this amount to any other taxable interest income you received. File 1040ez for free You must report all of your taxable interest income even if you do not receive a Form 1099-INT. File 1040ez for free Generally, contact your financial institution if you do not receive a Form 1099-INT by February 15. File 1040ez for free Your identifying number may be truncated on any paper Form 1099-INT you receive. File 1040ez for free   If you forfeited interest income because of the early withdrawal of a time deposit, the deductible amount will be shown on Form 1099-INT in box 2. File 1040ez for free See Penalty on early withdrawal of savings in chapter 1 of Publication 550. File 1040ez for free   Box 3 of Form 1099-INT shows the interest income you received from U. File 1040ez for free S. File 1040ez for free savings bonds, Treasury bills, Treasury notes, and Treasury bonds. File 1040ez for free Add the amount shown in box 3 to any other taxable interest income you received, unless part of the amount in box 3 was previously included in your interest income. File 1040ez for free If part of the amount shown in box 3 was previously included in your interest income, see U. File 1040ez for free S. File 1040ez for free savings bond interest previously reported , later. File 1040ez for free   Box 4 of Form 1099-INT will contain an amount if you were subject to backup withholding. File 1040ez for free Report the amount from box 4 on Form 1040EZ, line 7; on Form 1040A, line 36; or Form 1040, line 62 (federal income tax withheld). File 1040ez for free   Box 5 of Form 1099-INT shows investment expenses you may be able to deduct as an itemized deduction. File 1040ez for free See chapter 28 for more information about investment expenses. File 1040ez for free   If there are entries in boxes 6 and 7 of Form 1099-INT, you must file Form 1040. File 1040ez for free You may be able to take a credit for the amount shown in box 6 unless you deduct this amount on line 8 of Schedule A (Form 1040). File 1040ez for free To take the credit, you may have to file Form 1116, Foreign Tax Credit. File 1040ez for free For more information, see Publication 514, Foreign Tax Credit for Individuals. File 1040ez for free U. File 1040ez for free S. File 1040ez for free savings bond interest previously reported. File 1040ez for free   If you received a Form 1099-INT for U. File 1040ez for free S. File 1040ez for free savings bond interest, the form may show interest you do not have to report. File 1040ez for free See Form 1099-INT for U. File 1040ez for free S. File 1040ez for free savings bonds interest , earlier, under U. File 1040ez for free S. File 1040ez for free Savings Bonds. File 1040ez for free   On Schedule B (Form 1040A or 1040), Part I, line 1, report all the interest shown on your Form 1099-INT. File 1040ez for free Then follow these steps. File 1040ez for free Several lines above line 2, enter a subtotal of all interest listed on line 1. File 1040ez for free Below the subtotal enter “U. File 1040ez for free S. File 1040ez for free Savings Bond Interest Previously Reported” and enter amounts previously reported or interest accrued before you received the bond. File 1040ez for free Subtract these amounts from the subtotal and enter the result on line 2. File 1040ez for free More information. File 1040ez for free   For more information about how to report interest income, see chapter 1 of Publication 550 or the instructions for the form you must file. File 1040ez for free Prev  Up  Next   Home   More Online Publications