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File your taxes for free Index A Active participation, Active participation. File your taxes for free Activity Appropriate economic unit, Appropriate Economic Units Nonpassive, Activities That Are Not Passive Activities Trade or business, Passive Activities Amounts borrowed, Amounts borrowed. File your taxes for free Amounts not at risk, Amounts Not At Risk, Other loss limiting arrangements. File your taxes for free Appropriate economic unit, Appropriate Economic Units Assistance (see Tax help) At-risk activities Aggregation of, Aggregation of Activities Separation of, Separation of Activities At-risk amounts, At-Risk Amounts Government price support programs, Effect of government price support programs. File your taxes for free Increasing amounts, Effect of increasing amounts at risk in subsequent years. File your taxes for free Nonrecourse financing, Nonrecourse financing. File your taxes for free At-risk limits, At-Risk Limits Closely held corporation, Closely held C corporation. File your taxes for free Loss defined, Loss defined. File your taxes for free Partners, Loss limits for partners and S corporation shareholders. File your taxes for free S corporation shareholders, Loss limits for partners and S corporation shareholders. File your taxes for free Who is affected, Who Is Affected? At-risk rules Activities covered by, Activities Covered by the At-Risk Rules Exceptions to, Exception for holding real property placed in service before 1987. File your taxes for free Excluded business, Qualifying business. File your taxes for free Qualified corporation, Qualified corporation. File your taxes for free Qualifying business, Qualifying business. File your taxes for free Recapture rule, Recapture Rule B Borrowed amounts, Amounts borrowed. File your taxes for free C Closely held corporation, Closely held C corporation. File your taxes for free Commercial revitalization deduction, Commercial revitalization deduction (CRD). File your taxes for free Corporations Closely held, Corporations. File your taxes for free , Corporations. File your taxes for free Controlled group of, Controlled group of corporations. File your taxes for free Personal service, Corporations. File your taxes for free , Corporations. File your taxes for free Qualified, Qualified corporation. File your taxes for free CRD, Commercial revitalization deduction (CRD). File your taxes for free D Deductions, passive activity, Passive Activity Deductions Disabled farmer, Retired or disabled farmer and surviving spouse of a farmer. File your taxes for free Disclosure requirement, Appropriate Economic Units Dispositions Death, Dispositions by death. File your taxes for free Gift, Dispositions by gift. File your taxes for free Installment sale, Installment sale of an entire interest. File your taxes for free Partial, Partial dispositions. File your taxes for free E Excluded business, definition of, Qualifying business. File your taxes for free F Farm loss, Excess Farm Loss Farmer, Retired or disabled farmer and surviving spouse of a farmer. File your taxes for free Form 6198, Form 6198. File your taxes for free 8582, Step Three—Completing Form 8582 8810, Who Must Use These Rules? Former passive activity, Treatment of former passive activities. File your taxes for free Free tax services, Free help with your tax return. File your taxes for free G Grouping passive activities, Grouping Your Activities H Help (see Tax help) I Income, passive activity, Passive Activity Income L Limited entrepreneur, Limited entrepreneur. File your taxes for free Limited partners, Limited partners. File your taxes for free M Material participation, Material Participation, Corporations. File your taxes for free Modified adjusted gross income, Phaseout rule. File your taxes for free N Nonrecourse loan, Nonrecourse financing. File your taxes for free P Participation, Participation. File your taxes for free Active, Active participation. File your taxes for free Material, Material Participation Passive activity, Passive Activity Limits Comprehensive example, How To Report Your Passive Activity Loss Disposition, Dispositions Former, Treatment of former passive activities. File your taxes for free Grouping, Grouping Your Activities Limits, Passive Activity Limits Material participation, Material Participation Rental, Rental Activities Rules, Passive Activities, Grouping Your Activities Who must use these rules, Who Must Use These Rules? Passive activity deductions, Passive Activity Deductions Passive activity income, Passive Activity Income Passive income, recharacterization of, Recharacterization of Passive Income Publications (see Tax help) Publicly traded partnership, Publicly Traded Partnership, Publicly traded partnership (PTP). File your taxes for free Q Qualified person, nonrecourse financing, Qualified person. File your taxes for free Qualifying business, at-risk rules, Qualifying business. File your taxes for free R Real estate professional, Real Estate Professional Recapture rule under at-risk limits, Recapture Rule Recharacterization of passive income, Recharacterization of Passive Income Reductions of amounts at risk, Reductions of Amounts At Risk Related persons, Related persons. File your taxes for free Rental activity $25,000 offset, Special $25,000 allowance. File your taxes for free Active participation, Active participation. File your taxes for free Exceptions, Exceptions. File your taxes for free Phaseout rule, Phaseout rule. File your taxes for free Real estate professional, Real Estate Professional Retired farmer, Retired or disabled farmer and surviving spouse of a farmer. File your taxes for free S Section 1245 property, Section 1245 property. File your taxes for free Self-charged interest, Self-charged interest. File your taxes for free Separate activity, Separation of Activities Significant participation passive activities, Significant Participation Passive Activities Special $25,000 allowance, Special $25,000 allowance. File your taxes for free Surviving spouse of farmer, Retired or disabled farmer and surviving spouse of a farmer. File your taxes for free T Tax help, How To Get Tax Help Trade or business activities Definition of, Trade or Business Activities Real property, Real property trades or businesses. File your taxes for free W Worksheet 1, Worksheet 1. File your taxes for free Worksheet 3, Worksheet 3. File your taxes for free Worksheet 4, Step Four—Completing Worksheet 4 Worksheet 5, Step Five—Completing Worksheet 5 Worksheet 6, Step Six—Using Worksheets 6 and 7 Worksheet 7, Step Six—Using Worksheets 6 and 7 Worksheet A, Worksheet A. File your taxes for free , Worksheet A. File your taxes for free Significant Participation Passive Activities Worksheet B, Worksheet B. File your taxes for free , Worksheet B. File your taxes for free Significant Participation Activities With Net Income Prev  Up     Home   More Online Publications
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File your taxes for free 7. File your taxes for free   Coverdell Education Savings Account (ESA) Table of Contents Introduction What Is a Coverdell ESAQualified Education Expenses ContributionsContribution Limits Additional Tax on Excess Contributions Rollovers and Other TransfersRollovers Changing the Designated Beneficiary Transfer Because of Divorce DistributionsTax-Free Distributions Taxable Distributions When Assets Must Be Distributed Introduction If your modified adjusted gross income (MAGI) is less than $110,000 ($220,000 if filing a joint return), you may be able to establish a Coverdell ESA to finance the qualified education expenses of a designated beneficiary. File your taxes for free For most taxpayers, MAGI is the adjusted gross income as figured on their federal income tax return. File your taxes for free There is no limit on the number of separate Coverdell ESAs that can be established for a designated beneficiary. File your taxes for free However, total contributions for the beneficiary in any year cannot be more than $2,000, no matter how many accounts have been established. File your taxes for free See Contributions , later. File your taxes for free This benefit applies not only to higher education expenses, but also to elementary and secondary education expenses. File your taxes for free What is the tax benefit of the Coverdell ESA. File your taxes for free   Contributions to a Coverdell ESA are not deductible, but amounts deposited in the account grow tax free until distributed. File your taxes for free   If, for a year, distributions from an account are not more than a designated beneficiary's qualified education expenses at an eligible educational institution, the beneficiary will not owe tax on the distributions. File your taxes for free See Tax-Free Distributions , later. File your taxes for free    Table 7-1 summarizes the main features of the Coverdell ESA. File your taxes for free Table 7-1. File your taxes for free Coverdell ESA at a Glance Do not rely on this table alone. File your taxes for free It provides only general highlights. File your taxes for free See the text for definitions of terms in bold type and for more complete explanations. File your taxes for free Question Answer What is a Coverdell ESA? A savings account that is set up to pay the qualified education expenses of a designated beneficiary. File your taxes for free Where can it be established? It can be opened in the United States at any bank or other IRS-approved entity that offers Coverdell ESAs. File your taxes for free Who can have a Coverdell ESA? Any beneficiary who is under age 18 or is a special needs beneficiary. File your taxes for free Who can contribute to a Coverdell ESA? Generally, any individual (including the beneficiary) whose modified adjusted gross income for the year is less than $110,000 ($220,000 in the case of a joint return). File your taxes for free Are distributions tax free? Yes, if the distributions are not more than the beneficiary's adjusted qualified education expenses for the year. File your taxes for free What Is a Coverdell ESA A Coverdell ESA is a trust or custodial account created or organized in the United States only for the purpose of paying the qualified education expenses of the Designated beneficiary (defined later) of the account. File your taxes for free When the account is established, the designated beneficiary must be under age 18 or a special needs beneficiary. File your taxes for free To be treated as a Coverdell ESA, the account must be designated as a Coverdell ESA when it is created. File your taxes for free The document creating and governing the account must be in writing and must satisfy the following requirements. File your taxes for free The trustee or custodian must be a bank or an entity approved by the IRS. File your taxes for free The document must provide that the trustee or custodian can only accept a contribution that meets all of the following conditions. File your taxes for free The contribution is in cash. File your taxes for free The contribution is made before the beneficiary reaches age 18, unless the beneficiary is a special needs beneficiary. File your taxes for free The contribution would not result in total contributions for the year (not including rollover contributions) being more than $2,000. File your taxes for free Money in the account cannot be invested in life insurance contracts. File your taxes for free Money in the account cannot be combined with other property except in a common trust fund or common investment fund. File your taxes for free The balance in the account generally must be distributed within 30 days after the earlier of the following events. File your taxes for free The beneficiary reaches age 30, unless the beneficiary is a special needs beneficiary. File your taxes for free The beneficiary's death. File your taxes for free Qualified Education Expenses Generally, these are expenses required for the enrollment or attendance of the designated beneficiary at an eligible educational institution. File your taxes for free For purposes of Coverdell ESAs, the expenses can be either qualified higher education expenses or qualified elementary and secondary education expenses. File your taxes for free Designated beneficiary. File your taxes for free   This is the individual named in the document creating the trust or custodial account to receive the benefit of the funds in the account. File your taxes for free Contributions to a qualified tuition program (QTP). File your taxes for free   A contribution to a QTP is a qualified education expense if the contribution is on behalf of the designated beneficiary of the Coverdell ESA. File your taxes for free In the case of a change in beneficiary, this is a qualified expense only if the new beneficiary is a family member of that designated beneficiary. File your taxes for free See chapter 8, Qualified Tuition Program . File your taxes for free Eligible Educational Institution For purposes of Coverdell ESAs, an eligible educational institution can be either an eligible postsecondary school or an eligible elementary or secondary school. File your taxes for free Eligible postsecondary school. File your taxes for free   This is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U. File your taxes for free S. File your taxes for free Department of Education. File your taxes for free It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. File your taxes for free The educational institution should be able to tell you if it is an eligible educational institution. File your taxes for free   Certain educational institutions located outside the United States also participate in the U. File your taxes for free S. File your taxes for free Department of Education's Federal Student Aid (FSA) programs. File your taxes for free Eligible elementary or secondary school. File your taxes for free   This is any public, private, or religious school that provides elementary or secondary education (kindergarten through grade 12), as determined under state law. File your taxes for free Qualified Higher Education Expenses These are expenses related to enrollment or attendance at an eligible postsecondary school. File your taxes for free As shown in the following list, to be qualified, some of the expenses must be required by the school and some must be incurred by students who are enrolled at least half-time. File your taxes for free The following expenses must be required for enrollment or attendance of a designated beneficiary at an eligible postsecondary school. File your taxes for free Tuition and fees. File your taxes for free Books, supplies, and equipment. File your taxes for free Expenses for special needs services needed by a special needs beneficiary must be incurred in connection with enrollment or attendance at an eligible postsecondary school. File your taxes for free Expenses for room and board must be incurred by students who are enrolled at least half-time (defined below). File your taxes for free The expense for room and board qualifies only to the extent that it is not more than the greater of the following two amounts. File your taxes for free The allowance for room and board, as determined by the school, that was included in the cost of attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student. File your taxes for free The actual amount charged if the student is residing in housing owned or operated by the school. File your taxes for free Half-time student. File your taxes for free   A student is enrolled “at least half-time” if he or she is enrolled for at least half the full-time academic work load for the course of study the student is pursuing, as determined under the standards of the school where the student is enrolled. File your taxes for free Qualified Elementary and Secondary Education Expenses These are expenses related to enrollment or attendance at an eligible elementary or secondary school. File your taxes for free As shown in the following list, to be qualified, some of the expenses must be required or provided by the school. File your taxes for free There are special rules for computer-related expenses. File your taxes for free The following expenses must be incurred by a designated beneficiary in connection with enrollment or attendance at an eligible elementary or secondary school. File your taxes for free Tuition and fees. File your taxes for free Books, supplies, and equipment. File your taxes for free Academic tutoring. File your taxes for free Special needs services for a special needs beneficiary. File your taxes for free The following expenses must be required or provided by an eligible elementary or secondary school in connection with attendance or enrollment at the school. File your taxes for free Room and board. File your taxes for free Uniforms. File your taxes for free Transportation. File your taxes for free Supplementary items and services (including extended day programs). File your taxes for free The purchase of computer technology, equipment, or Internet access and related services is a qualified elementary and secondary education expense if it is to be used by the beneficiary and the beneficiary's family during any of the years the beneficiary is in elementary or secondary school. File your taxes for free (This does not include expenses for computer software designed for sports, games, or hobbies unless the software is predominantly educational in nature. File your taxes for free ) Contributions Any individual (including the designated beneficiary) can contribute to a Coverdell ESA if the individual's MAGI (defined later under Contribution Limits ) for the year is less than $110,000. File your taxes for free For individuals filing joint returns, that amount is $220,000. File your taxes for free Organizations, such as corporations and trusts, can also contribute to Coverdell ESAs. File your taxes for free There is no requirement that an organization's income be below a certain level. File your taxes for free Contributions must meet all of the following requirements. File your taxes for free They must be in cash. File your taxes for free They cannot be made after the beneficiary reaches age 18, unless the beneficiary is a special needs beneficiary. File your taxes for free They must be made by the due date of the contributor's tax return (not including extensions). File your taxes for free Contributions can be made to one or several Coverdell ESAs for the same designated beneficiary provided that the total contributions are not more than the contribution limits (defined later) for a year. File your taxes for free Contributions can be made, without penalty, to both a Coverdell ESA and a QTP in the same year for the same beneficiary. File your taxes for free Table 7-2 summarizes many of the features of contributing to a Coverdell ESA. File your taxes for free When contributions considered made. File your taxes for free   Contributions made to a Coverdell ESA for the preceding tax year are considered to have been made on the last day of the preceding year. File your taxes for free They must be made by the due date (not including extensions) for filing your return for the preceding year. File your taxes for free   For example, if you make a contribution to a Coverdell ESA in February 2014, and you designate it as a contribution for 2013, you are considered to have made that contribution on December 31, 2013. File your taxes for free Contribution Limits There are two yearly limits: One on the total amount that can be contributed for each designated beneficiary in any year, and One on the amount that any individual can contribute for any one designated beneficiary for a year. File your taxes for free Limit for each designated beneficiary. File your taxes for free   For 2013, the total of all contributions to all Coverdell ESAs set up for the benefit of any one designated beneficiary cannot be more than $2,000. File your taxes for free This includes contributions (other than rollovers) to all the beneficiary's Coverdell ESAs from all sources. File your taxes for free Rollovers are discussed under Rollovers and Other Transfers , later. File your taxes for free Example. File your taxes for free When Maria Luna was born in 2012, three separate Coverdell ESAs were set up for her, one by her parents, one by her grandfather, and one by her aunt. File your taxes for free In 2013, the total of all contributions to Maria's three Coverdell ESAs cannot be more than $2,000. File your taxes for free For example, if her grandfather contributed $2,000 to one of her Coverdell ESAs, no one else could contribute to any of her three accounts. File your taxes for free Or, if her parents contributed $1,000 and her aunt $600, her grandfather or someone else could contribute no more than $400. File your taxes for free These contributions could be put into any of Maria's Coverdell ESA accounts. File your taxes for free Limit for each contributor. File your taxes for free   Generally, you can contribute up to $2,000 for each designated beneficiary for 2013. File your taxes for free This is the most you can contribute for the benefit of any one beneficiary for the year, regardless of the number of Coverdell ESAs set up for the beneficiary. File your taxes for free Example. File your taxes for free The facts are the same as in the previous example except that Maria Luna's older brother, Edgar, also has a Coverdell ESA. File your taxes for free If their grandfather contributed $2,000 to Maria's Coverdell ESA in 2013, he could also contribute $2,000 to Edgar's Coverdell ESA. File your taxes for free Reduced limit. File your taxes for free   Your contribution limit may be reduced. File your taxes for free If your MAGI (defined on this page) is between $95,000 and $110,000 (between $190,000 and $220,000 if filing a joint return), the $2,000 limit for each designated beneficiary is gradually reduced (see Figuring the limit , later). File your taxes for free If your MAGI is $110,000 or more ($220,000 or more if filing a joint return), you cannot contribute to anyone's Coverdell ESA. File your taxes for free Table 7-2. File your taxes for free Coverdell ESA Contributions at a Glance Do not rely on this table alone. File your taxes for free It provides only general highlights. File your taxes for free See the text for more complete explanations. File your taxes for free Question Answer Are contributions deductible? No. File your taxes for free What is the annual contribution limit per designated beneficiary? $2,000 for each designated beneficiary. File your taxes for free What if more than one Coverdell ESA has been opened for the same designated beneficiary? The annual contribution limit is $2,000 for each beneficiary, no matter how many Coverdell ESAs are set up for that beneficiary. File your taxes for free What if more than one individual makes contributions for the same designated beneficiary? The annual contribution limit is $2,000 per beneficiary, no matter how many individuals contribute. File your taxes for free Can contributions other than cash be made to a Coverdell ESA? No. File your taxes for free When must contributions stop? No contributions can be made to a beneficiary's Coverdell ESA after he or she reaches age 18, unless the beneficiary is a special needs beneficiary. File your taxes for free Modified adjusted gross income (MAGI). File your taxes for free   For most taxpayers, MAGI is adjusted gross income (AGI) as figured on their federal income tax return. File your taxes for free MAGI when using Form 1040A. File your taxes for free   If you file Form 1040A, your MAGI is the AGI on line 22 of that form. File your taxes for free MAGI when using Form 1040. File your taxes for free   If you file Form 1040, your MAGI is the AGI on line 38 of that form, modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, and Exclusion of income by bona fide residents of Puerto Rico. File your taxes for free MAGI when using Form 1040NR. File your taxes for free   If you file Form 1040NR, your MAGI is the AGI on line 36 of that form. File your taxes for free MAGI when using Form 1040NR-EZ. File your taxes for free   If you file Form 1040NR-EZ, your MAGI is the AGI on line 10 of that form. File your taxes for free   If you have any of these adjustments, you can use Worksheet 7-1. File your taxes for free MAGI for a Coverdell ESA , later, to figure your MAGI for Form 1040. File your taxes for free Worksheet 7-1. File your taxes for free MAGI for a Coverdell ESA 1. File your taxes for free Enter your adjusted gross income  (Form 1040, line 38)   1. File your taxes for free   2. File your taxes for free Enter your foreign earned income exclusion and/or housing exclusion (Form 2555, line 45, or Form 2555-EZ, line 18)   2. File your taxes for free       3. File your taxes for free Enter your foreign housing deduction (Form 2555, line 50)   3. File your taxes for free         4. File your taxes for free Enter the amount of income from Puerto Rico you are excluding   4. File your taxes for free       5. File your taxes for free Enter the amount of income from American Samoa you are excluding (Form 4563, line 15)   5. File your taxes for free       6. File your taxes for free Add lines 2, 3, 4, and 5   6. File your taxes for free   7. File your taxes for free Add lines 1 and 6. File your taxes for free This is your  modified adjusted gross income   7. File your taxes for free   Figuring the limit. File your taxes for free    To figure the limit on the amount you can contribute for each designated beneficiary, multiply $2,000 by a fraction. File your taxes for free The numerator (top number) is your MAGI minus $95,000 ($190,000 if filing a joint return). File your taxes for free The denominator (bottom number) is $15,000 ($30,000 if filing a joint return). File your taxes for free Subtract the result from $2,000. File your taxes for free This is the amount you can contribute for each beneficiary. File your taxes for free You can use Worksheet 7-2. File your taxes for free Coverdell ESA Contribution Limit to figure the limit on contributions. File your taxes for free    Worksheet 7-2. File your taxes for free Coverdell ESA Contribution Limit 1. File your taxes for free Maximum contribution   1. File your taxes for free $2,000 2. File your taxes for free Enter your modified adjusted gross income (MAGI) for purposes of figuring the contribution limit to a Coverdell ESA (see definition or Worksheet 7-1, earlier)   2. File your taxes for free   3. File your taxes for free Enter $190,000 if married filing jointly; $95,000 for all other filers   3. File your taxes for free   4. File your taxes for free Subtract line 3 from line 2. File your taxes for free If zero or less, enter -0- on line 4, skip lines 5 through 7, and enter $2,000 on line 8   4. File your taxes for free   5. File your taxes for free Enter $30,000 if married filing jointly; $15,000 for all other filers   5. File your taxes for free     Note. File your taxes for free If the amount on line 4 is greater than or equal to the amount on line 5, stop here. File your taxes for free You are not allowed to contribute to a Coverdell ESA for 2013. File your taxes for free       6. File your taxes for free Divide line 4 by line 5 and enter the result as a decimal (rounded to at least 3 places)   6. File your taxes for free . File your taxes for free 7. File your taxes for free Multiply line 1 by line 6   7. File your taxes for free   8. File your taxes for free Subtract line 7 from line 1   8. File your taxes for free   Note: The total Coverdell ESA contributions from all sources for the designated beneficiary during the tax year may not exceed $2,000. File your taxes for free Example. File your taxes for free Paul, who is single, had a MAGI of $96,500 for 2013. File your taxes for free Paul can contribute up to $1,800 in 2013 for each beneficiary, as shown in the illustrated Worksheet 7-2, Coverdell ESA Contribution Limit–Illustrated. File your taxes for free Worksheet 7-2. File your taxes for free Coverdell ESA Contribution Limit—Illustrated 1. File your taxes for free Maximum contribution   1. File your taxes for free $2,000 2. File your taxes for free Enter your modified adjusted gross  income (MAGI) for purposes of figuring the contribution limit to a Coverdell ESA (see definition or Worksheet 7-1, earlier)   2. File your taxes for free 96,500 3. File your taxes for free Enter $190,000 if married filing jointly; $95,000 for all other filers   3. File your taxes for free 95,000 4. File your taxes for free Subtract line 3 from line 2. File your taxes for free If zero or less, enter -0- on line 4, skip lines 5 through 7, and enter $2,000 on line 8   4. File your taxes for free 1,500 5. File your taxes for free Enter $30,000 if married filing jointly; $15,000 for all other filers   5. File your taxes for free 15,000   Note. File your taxes for free If the amount on line 4 is greater than or equal to the amount on line 5,  stop here. File your taxes for free You are not allowed to  contribute to a Coverdell ESA for 2013. File your taxes for free       6. File your taxes for free Divide line 4 by line 5 and enter the result as a decimal (rounded to at least 3 places)   6. File your taxes for free . File your taxes for free 100 7. File your taxes for free Multiply line 1 by line 6   7. File your taxes for free 200 8. File your taxes for free Subtract line 7 from line 1   8. File your taxes for free 1,800 Note: The total Coverdell ESA contributions from all sources for the designated beneficiary during the tax year may not exceed $2,000. File your taxes for free Additional Tax on Excess Contributions The beneficiary must pay a 6% excise tax each year on excess contributions that are in a Coverdell ESA at the end of the year. File your taxes for free Excess contributions are the total of the following two amounts. File your taxes for free Contributions to any designated beneficiary's Coverdell ESA for the year that are more than $2,000 (or, if less, the total of each contributor's limit for the year, as discussed earlier). File your taxes for free Excess contributions for the preceding year, reduced by the total of the following two amounts: Distributions (other than those rolled over as discussed later) during the year, and The contribution limit for the current year minus the amount contributed for the current year. File your taxes for free Exceptions. File your taxes for free   The excise tax does not apply if excess contributions made during 2013 (and any earnings on them) are distributed before the first day of the sixth month of the following tax year (June 1, 2014, for a calendar year taxpayer). File your taxes for free   However, you must include the distributed earnings in gross income for the year in which the excess contribution was made. File your taxes for free You should receive Form 1099-Q, Payments From Qualified Education Programs, from each institution from which excess contributions were distributed. File your taxes for free Box 2 of that form will show the amount of earnings on your excess contributions. File your taxes for free Code “2” or “3” entered in the blank box below boxes 5 and 6 indicate the year in which the earnings are taxable. File your taxes for free See Instructions for Recipient on the back of copy B of your Form 1099-Q. File your taxes for free Enter the amount of earnings on line 21 of Form 1040 (or Form 1040NR) for the applicable tax year. File your taxes for free For more information, see Taxable Distributions , later. File your taxes for free   The excise tax does not apply to any rollover contribution. File your taxes for free Note. File your taxes for free Contributions made in one year for the preceding tax year are considered to have been made on the last day of the preceding year. File your taxes for free Example. File your taxes for free In 2012, Greta's parents and grandparents contributed a total of $2,300 to Greta's Coverdell ESA— an excess contribution of $300. File your taxes for free Because Greta did not withdraw the excess before June 1, 2013, she had to pay an additional tax of $18 (6% × $300) when she filed her 2012 tax return. File your taxes for free In 2013, excess contributions of $500 were made to Greta's account, however, she withdrew $250 from that account to use for qualified education expenses. File your taxes for free Using the steps shown earlier under Additional Tax on Excess Contributions , Greta figures the excess contribution in her account at the end of 2013 as follows. File your taxes for free (1)   $500 excess contributions made in 2013     + (2)   $300 excess contributions in ESA at end of 2012     − (2a)   $250 distribution during 2013         $550 excess at end of 2013   × 6%=$33           If Greta limits 2014 contributions to $1,450 ($2,000 maximum allowed − $550 excess contributions from 2013), she will not owe any additional tax in 2014 for excess contributions. File your taxes for free Figuring and reporting the additional tax. File your taxes for free   You figure this excise tax in Part V of Form 5329. File your taxes for free Report the additional tax on Form 1040, line 58 (or Form 1040NR, line 56). File your taxes for free Rollovers and Other Transfers Assets can be rolled over from one Coverdell ESA to another or the designated beneficiary can be changed. File your taxes for free The beneficiary's interest can be transferred to a spouse or former spouse because of divorce. File your taxes for free Rollovers Any amount distributed from a Coverdell ESA is not taxable if it is rolled over to another Coverdell ESA for the benefit of the same beneficiary or a member of the beneficiary's family (including the beneficiary's spouse) who is under age 30. File your taxes for free This age limitation does not apply if the new beneficiary is a special needs beneficiary. File your taxes for free An amount is rolled over if it is paid to another Coverdell ESA within 60 days after the date of the distribution. File your taxes for free Do not report qualifying rollovers (those that meet the above criteria) anywhere on Form 1040 or 1040NR. File your taxes for free These are not taxable distributions. File your taxes for free Members of the beneficiary's family. File your taxes for free   For these purposes, the beneficiary's family includes the beneficiary's spouse and the following other relatives of the beneficiary. File your taxes for free Son, daughter, stepchild, foster child, adopted child, or a descendant of any of them. File your taxes for free Brother, sister, stepbrother, or stepsister. File your taxes for free Father or mother or ancestor of either. File your taxes for free Stepfather or stepmother. File your taxes for free Son or daughter of a brother or sister. File your taxes for free Brother or sister of father or mother. File your taxes for free Son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law. File your taxes for free The spouse of any individual listed above. File your taxes for free First cousin. File your taxes for free Example. File your taxes for free When Aaron graduated from college last year he had $5,000 left in his Coverdell ESA. File your taxes for free He wanted to give this money to his younger sister, who was still in high school. File your taxes for free In order to avoid paying tax on the distribution of the amount remaining in his account, Aaron contributed the same amount to his sister's Coverdell ESA within 60 days of the distribution. File your taxes for free Only one rollover per Coverdell ESA is allowed during the 12-month period ending on the date of the payment or distribution. File your taxes for free This rule does not apply to the rollover of a military death gratuity or payment from Servicemembers' Group Life Insurance (SGLI). File your taxes for free Military death gratuity. File your taxes for free   If you received a military death gratuity or a payment from Servicemembers' Group Life Insurance (SGLI), you may roll over all or part of the amount received to one or more Coverdell ESAs for the benefit of members of the beneficiary's family (see Members of the beneficiary's family , earlier). File your taxes for free Such payments are made to an eligible survivor upon the death of a member of the armed forces. File your taxes for free The contribution to a Coverdell ESA from survivor benefits received cannot be made later than 1 year after the date on which you receive the gratuity or SGLI payment. File your taxes for free   This rollover contribution is not subject to (but is in addition to) the contribution limits discussed earlier under Contribution Limits . File your taxes for free The amount you roll over cannot exceed the total survivor benefits you received, reduced by contributions from these benefits to a Roth IRA or other Coverdell ESAs. File your taxes for free   The amount contributed from the survivor benefits is treated as part of your basis (cost) in the Coverdell ESA, and will not be taxed when distributed. File your taxes for free See Distributions , later. File your taxes for free The limit of one rollover per Coverdell ESA during a 12-month period does not apply to a military death gratuity or SGLI payment. File your taxes for free Changing the Designated Beneficiary The designated beneficiary can be changed. File your taxes for free See Members of the beneficiary's family , earlier. File your taxes for free There are no tax consequences if, at the time of the change, the new beneficiary is under age 30 or is a special needs beneficiary. File your taxes for free Example. File your taxes for free Assume the same situation for Aaron as in the last example (see Rollovers , earlier). File your taxes for free Instead of closing his Coverdell ESA and paying the distribution into his sister's Coverdell ESA, Aaron could have instructed the trustee of his account to simply change the name of the beneficiary on his account to that of his sister. File your taxes for free Transfer Because of Divorce If a spouse or former spouse receives a Coverdell ESA under a divorce or separation instrument, it is not a taxable transfer. File your taxes for free After the transfer, the spouse or former spouse treats the Coverdell ESA as his or her own. File your taxes for free Example. File your taxes for free In their divorce settlement, Peg received her ex-husband's Coverdell ESA. File your taxes for free In this process, the account was transferred into her name. File your taxes for free Peg now treats the funds in this Coverdell ESA as if she were the original owner. File your taxes for free Distributions The designated beneficiary of a Coverdell ESA can take a distribution at any time. File your taxes for free Whether the distributions are tax free depends, in part, on whether the distributions are equal to or less than the amount of Adjusted qualified education expenses (defined later) that the beneficiary has in the same tax year. File your taxes for free See Table 7-3, Coverdell ESA Distributions at a Glance, for highlights. File your taxes for free Table 7-3. File your taxes for free Coverdell ESA Distributions at a Glance Do not rely on this table alone. File your taxes for free It provides only general highlights. File your taxes for free See the text for definitions of terms in bold type and for more complete explanations. File your taxes for free Question Answer Is a distribution from a Coverdell ESA to pay for a designated beneficiary's qualified education expenses tax free? Generally, yes, to the extent the amount of the distribution is not more than the designated beneficiary's adjusted qualified education expenses. File your taxes for free After the designated beneficiary completes his or her education at an eligible educational institution, can amounts remaining in the Coverdell ESA be distributed? Yes. File your taxes for free Amounts must be distributed when the designated beneficiary reaches age 30, unless he or she is a special needs beneficiary. File your taxes for free Also, certain transfers to members of the beneficiary's family are permitted. File your taxes for free Does the designated beneficiary need to be enrolled for a minimum number of courses to take a tax-free distribution? No. File your taxes for free Adjusted qualified education expenses. File your taxes for free   To determine if total distributions for the year are more than the amount of qualified education expenses, reduce total qualified education expenses by any tax-free educational assistance. File your taxes for free Tax-free educational assistance includes: The tax-free part of scholarships and fellowships (see Tax-Free Scholarships and Fellowships in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Veterans' educational assistance (see Veterans' Benefits in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Pell grants (see Pell Grants and Other Title IV Need-Based Education Grants in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Employer-provided educational assistance (see chapter 11, Employer-Provided Educational Assistance ), and Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. File your taxes for free The amount you get by subtracting tax-free educational assistance from your total qualified education expenses is your adjusted qualified education expenses. File your taxes for free Tax-Free Distributions Generally, distributions are tax free if they are not more than the beneficiary's adjusted qualified education expenses for the year. File your taxes for free Do not report tax-free distributions (including qualifying rollovers) on your tax return. File your taxes for free Taxable Distributions A portion of the distributions is generally taxable to the beneficiary if the total distributions are more than the beneficiary's adjusted qualified education expenses for the year. File your taxes for free Excess distribution. File your taxes for free   This is the part of the total distribution that is more than the beneficiary's adjusted qualified education expenses for the year. File your taxes for free Earnings and basis. File your taxes for free   You will receive a Form 1099-Q for each of the Coverdell ESAs from which money was distributed in 2013. File your taxes for free The amount of your gross distribution will be shown in box 1. File your taxes for free For 2013, instead of dividing the gross distribution between your earnings (box 2) and your basis (already-taxed amount) (box 3), the payer or trustee may report the fair market value (account balance) of the Coverdell ESA as of December 31, 2013. File your taxes for free This will be shown in the blank box below boxes 5 and 6. File your taxes for free   The amount contributed from survivor benefits (see Military death gratuity , earlier) is treated as part of your basis and will not be taxed when distributed. File your taxes for free Figuring the Taxable Portion of a Distribution The taxable portion is the amount of the excess distribution that represents earnings that have accumulated tax free in the account. File your taxes for free Figure the taxable portion for 2013 as shown in the following steps. File your taxes for free Multiply the total amount distributed by a fraction. File your taxes for free The numerator is the basis (contributions not previously distributed) at the end of 2012 plus total contributions for 2013 and the denominator is the value (balance) of the account at the end of 2013 plus the amount distributed during 2013. File your taxes for free Subtract the amount figured in (1) from the total amount distributed during 2013. File your taxes for free The result is the amount of earnings included in the distribution(s). File your taxes for free Multiply the amount of earnings figured in (2) by a fraction. File your taxes for free The numerator is the adjusted qualified education expenses paid during 2013 and the denominator is the total amount distributed during 2013. File your taxes for free Subtract the amount figured in (3) from the amount figured in (2). File your taxes for free The result is the amount the beneficiary must include in income. File your taxes for free The taxable amount must be reported on Form 1040 or Form 1040NR, line 21. File your taxes for free Example. File your taxes for free You received an $850 distribution from your Coverdell ESA, to which $1,500 had been contributed before 2013. File your taxes for free There were no contributions in 2013. File your taxes for free This is your first distribution from the account, so your basis in the account on December 31, 2012, was $1,500. File your taxes for free The value (balance) of your account on December 31, 2013, was $950. File your taxes for free You had $700 of adjusted qualified education expenses (AQEE) for the year. File your taxes for free Using the steps in Figuring the Taxable Portion of a Distribution , earlier, figure the taxable portion of your distribution as follows. File your taxes for free   1. File your taxes for free $850 (distribution) × $1,500 basis + $0 contributions  $950 value + $850 distribution       =$708 (basis portion of distribution)     2. File your taxes for free $850 (distribution)−$708 (basis portion of distribution)     =$142 (earnings included in distribution)   3. File your taxes for free $142 (earnings) × $700 AQEE  $850 distribution           =$117 (tax-free earnings)     4. File your taxes for free $142 (earnings)−$117 (tax-free earnings)=$25 (taxable earnings)                 You must include $25 in income as distributed earnings not used for qualified education expenses. File your taxes for free Report this amount on Form 1040, line 21, listing the type and amount of income on the dotted line. File your taxes for free Worksheet 7-3, Coverdell ESA–Taxable Distributions and Basis , at the end of this chapter, can help you figure your adjusted qualified education expenses, how much of your distribution must be included in income, and the remaining basis in your Coverdell ESA(s). File your taxes for free Coordination With American Opportunity and Lifetime Learning Credits The American opportunity or lifetime learning credit can be claimed in the same year the beneficiary takes a tax-free distribution from a Coverdell ESA, as long as the same expenses are not used for both benefits. File your taxes for free This means the beneficiary must reduce qualified higher education expenses by tax-free educational assistance, and then further reduce them by any expenses taken into account in determining an American opportunity or lifetime learning credit. File your taxes for free Example. File your taxes for free Derek Green had $5,800 of qualified higher education expenses for 2013, his first year in college. File your taxes for free He paid his college expenses from the following sources. File your taxes for free     Partial tuition scholarship (tax free) $1,500     Coverdell ESA distribution 1,000     Gift from parents 2,100     Earnings from part-time job 1,200           Of his $5,800 of qualified higher education expenses, $4,000 was tuition and related expenses that also qualified for an American opportunity credit. File your taxes for free Derek's parents claimed a $2,500 American opportunity credit (based on $4,000 expenses) on their tax return. File your taxes for free Before Derek can determine the taxable portion of his Coverdell ESA distribution, he must reduce his total qualified higher education expenses. File your taxes for free     Total qualified higher education expenses $5,800     Minus: Tax-free educational assistance −1,500     Minus: Expenses taken into account in  figuring American opportunity credit − 4,000     Equals: Adjusted qualified higher education  expenses (AQHEE) $ 300           Since the adjusted qualified higher education expenses ($300) are less than the Coverdell ESA distribution ($1,000), part of the distribution will be taxable. File your taxes for free The balance in Derek's account was $1,800 on December 31, 2013. File your taxes for free Prior to 2013, $2,100 had been contributed to this account. File your taxes for free Contributions for 2013 totaled $400. File your taxes for free Using the four steps outlined earlier, Derek figures the taxable portion of his distribution as shown below. File your taxes for free   1. File your taxes for free $1,000 (distribution) × $2,100 basis + $400 contributions  $1,800 value + $1,000 distribution           =$893 (basis portion of distribution)     2. File your taxes for free $1,000 (distribution)−$893 (basis portion of distribution)     = $107 (earnings included in distribution)   3. File your taxes for free $107 (earnings) × $300 AQHEE  $1,000 distribution       =$32 (tax-free earnings)     4. File your taxes for free $107 (earnings)−$32 (tax-free earnings)=$75 (taxable earnings)                 Derek must include $75 in income (Form 1040, line 21). File your taxes for free This is the amount of distributed earnings not used for adjusted qualified higher education expenses. File your taxes for free Coordination With Qualified Tuition Program (QTP) Distributions If a designated beneficiary receives distributions from both a Coverdell ESA and a QTP in the same year, and the total distribution is more than the beneficiary's adjusted qualified higher education expenses, those expenses must be allocated between the distribution from the Coverdell ESA and the distribution from the QTP before figuring how much of each distribution is taxable. File your taxes for free The following two examples illustrate possible allocations. File your taxes for free Example 1. File your taxes for free In 2013, Beatrice graduated from high school and began her first semester of college. File your taxes for free That year, she had $1,000 of qualified elementary and secondary education expenses (QESEE) for high school and $3,000 of qualified higher education expenses (QHEE) for college. File your taxes for free To pay these expenses, Beatrice withdrew $800 from her Coverdell ESA and $4,200 from her QTP. File your taxes for free No one claimed Beatrice as a dependent, nor was she eligible for an education credit. File your taxes for free She did not receive any tax-free educational assistance in 2013. File your taxes for free Beatrice must allocate her total qualified education expenses between the two distributions. File your taxes for free Beatrice knows that tax-free treatment will be available if she applies her $800 Coverdell ESA distribution toward her $1,000 of qualified education expenses for high school. File your taxes for free The qualified expenses are greater than the distribution, making the $800 Coverdell ESA distribution tax free. File your taxes for free Next, Beatrice matches her $4,200 QTP distribution to her $3,000 of QHEE, and finds she has an excess QTP distribution of $1,200 ($4,200 QTP − $3,000 QHEE). File your taxes for free She cannot use the extra $200 of high school expenses (from (1) above) against the QTP distribution because those expenses do not qualify a QTP for tax-free treatment. File your taxes for free Finally, Beatrice figures the taxable and tax-free portions of her QTP distribution based on her $3,000 of QHEE. File your taxes for free (See Figuring the Taxable Portion of a Distribution in chapter 8, Qualified Tuition Program for more information. File your taxes for free ) Example 2. File your taxes for free Assume the same facts as in Example 1 , except that Beatrice withdrew $1,800 from her Coverdell ESA and $3,200 from her QTP. File your taxes for free In this case, she allocates her qualified education expenses as follows. File your taxes for free Using the same reasoning as in Example 1, Beatrice matches $1,000 of her Coverdell ESA distribution to her $1,000 of QESEE—she has $800 of her distribution remaining. File your taxes for free Because higher education expenses can also qualify a Coverdell ESA distribution for tax-free treatment, Beatrice allocates her $3,000 of QHEE between the remaining $800 Coverdell ESA and the $3,200 QTP distributions ($4,000 total). File your taxes for free   $3,000 QHEE × $800 ESA distribution  $4,000 total distribution = $600 QHEE (ESA)     $3,000 QHEE × $3,200 QTP distribution  $4,000 total distribution = $2,400 QHEE (QTP)   Beatrice then figures the taxable part of her: Coverdell ESA distribution based on qualified education expenses of $1,600 ($1,000 QESEE + $600 QHEE). File your taxes for free See Figuring the Taxable Portion of a Distribution , earlier, in this chapter. File your taxes for free   QTP distribution based on her $2,400 of QHEE (see Figuring the Taxable Portion of a Distribution in chapter 8, Qualified Tuition Program). File your taxes for free The above examples show two types of allocation between distributions from a Coverdell ESA and a QTP. File your taxes for free However, you do not have to allocate your expenses in the same way. File your taxes for free You can use any reasonable method. File your taxes for free Losses on Coverdell ESA Investments If you have a loss on your investment in a Coverdell ESA, you may be able to deduct the loss on your income tax return. File your taxes for free You can deduct the loss only when all amounts from that account have been distributed and the total distributions are less than your unrecovered basis. File your taxes for free Your basis is the total amount of contributions to that Coverdell ESA. File your taxes for free You claim the loss as a miscellaneous itemized deduction on Schedule A (Form 1040), line 23 (Schedule A (Form 1040NR), line 9), subject to the 2%-of-adjusted-gross-income limit. File your taxes for free If you have distributions from more than one Coverdell ESA account during a year, you must combine the information (amount of distribution, basis, etc. File your taxes for free ) from all such accounts in order to determine your taxable earnings for the year. File your taxes for free By doing this, the loss from one ESA account reduces the distributed earnings (if any) from any other ESA account. File your taxes for free For examples of the calculation, see Losses on QTP Investments in chapter 8, Qualified Tuition Program. File your taxes for free Additional Tax on Taxable Distributions Generally, if you receive a taxable distribution, you also must pay a 10% additional tax on the amount included in income. File your taxes for free Exceptions. File your taxes for free   The 10% additional tax does not apply to distributions: Paid to a beneficiary (or to the estate of the designated beneficiary) on or after the death of the designated beneficiary. File your taxes for free Made because the designated beneficiary is disabled. File your taxes for free A person is considered to be disabled if he or she shows proof that he or she cannot do any substantial gainful activity because of his or her physical or mental condition. File your taxes for free A physician must determine that his or her condition can be expected to result in death or to be of long-continued and indefinite duration. File your taxes for free Included in income because the designated beneficiary received: A tax-free scholarship or fellowship (see Tax-Free Scholarships and Fellowships in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Veterans' educational assistance (see Veterans' Benefits in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Employer-provided educational assistance (see chapter 11, Employer-Provided Educational Assistance ), or Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. File your taxes for free Made on account of the attendance of the designated beneficiary at a U. File your taxes for free S. File your taxes for free military academy (such as the USMA at West Point). File your taxes for free This exception applies only to the extent that the amount of the distribution does not exceed the costs of advanced education (as defined in section 2005(d)(3) of title 10 of the U. File your taxes for free S. File your taxes for free Code) attributable to such attendance. File your taxes for free Included in income only because the qualified education expenses were taken into account in determining the American opportunity or lifetime learning credit (see Coordination With American Opportunity and Lifetime Learning Credits , earlier). File your taxes for free Made before June 1, 2014, of an excess 2013 contribution (and any earnings on it). File your taxes for free The distributed earnings must be included in gross income for the year in which the excess contribution was made. File your taxes for free Exception (3) applies only to the extent the distribution is not more than the scholarship, allowance, or payment. File your taxes for free Figuring the additional tax. File your taxes for free    Use Part II of Form 5329, to figure any additional tax. File your taxes for free Report the amount on Form 1040, line 58, or Form 1040NR, line 56. File your taxes for free When Assets Must Be Distributed Any assets remaining in a Coverdell ESA must be distributed when either one of the following two events occurs. File your taxes for free The designated beneficiary reaches age 30. File your taxes for free In this case, the remaining assets must be distributed within 30 days after the beneficiary reaches age 30. File your taxes for free However, this rule does not apply if the beneficiary is a special needs beneficiary. File your taxes for free The designated beneficiary dies before reaching age 30. File your taxes for free In this case, the remaining assets must generally be distributed within 30 days after the date of death. File your taxes for free Exception for Transfer to Surviving Spouse or Family Member If a Coverdell ESA is transferred to a surviving spouse or other family member as the result of the death of the designated beneficiary, the Coverdell ESA retains its status. File your taxes for free (“Family member” was defined earlier under Rollovers . File your taxes for free ) This means the spouse or other family member can treat the Coverdell ESA as his or her own and does not need to withdraw the assets until he or she reaches age 30. File your taxes for free This age limitation does not apply if the new beneficiary is a special needs beneficiary. File your taxes for free There are no tax consequences as a result of the transfer. File your taxes for free How To Figure the Taxable Earnings When a total distribution is made because the designated beneficiary either reached age 30 or died, the earnings that accumulated tax free in the account must be included in taxable income. File your taxes for free You determine these earnings as shown in the following two steps. File your taxes for free Multiply the amount distributed by a fraction. File your taxes for free The numerator is the basis (contributions not previously distributed) at the end of 2012 plus total contributions for 2013 and the denominator is the balance in the account at the end of 2013 plus the amount distributed during 2013. File your taxes for free Subtract the amount figured in (1) from the total amount distributed during 2013. File your taxes for free The result is the amount of earnings included in the distribution. File your taxes for free For an example, see steps (1) and (2) of the Example under Figuring the Taxable Portion of a Distribution, earlier. File your taxes for free The beneficiary or other person receiving the distribution must report this amount on Form 1040, line 21, or Form 1040NR, line 21, listing the type and amount of income on the dotted line. File your taxes for free Worksheet 7-3 Instructions. File your taxes for free Coverdell ESA—Taxable Distributions and Basis Line G. File your taxes for free Enter the total distributions received from all Coverdell ESAs during 2013. File your taxes for free Do not include amounts rolled over to another ESA within 60 days (only one rollover is allowed during any 12-month period). File your taxes for free Also, do not include excess contributions that were distributed with the related earnings (or less any loss) before the first day of the sixth month of the tax year following the year for which the contributions were made. File your taxes for free Line 2. File your taxes for free Your basis (amount already taxed) in this Coverdell ESA as of December 31, 2012, is the total of:   •All contributions to this Coverdell ESA before 2013 •Minus the tax-free portion of any distributions from this Coverdell ESA before 2013. File your taxes for free   If your last distribution from this Coverdell ESA was before 2013, you must start with the basis in your account as of the end of the last year in which you took a distribution. File your taxes for free For years before 2002, you can find that amount on the last line of the worksheet in the Instructions for Form 8606, Nondeductible IRAs, that you completed for that year. File your taxes for free For years after 2001, you can find that amount by using the ending basis from the worksheet in Publication 970 for that year. File your taxes for free You can determine your basis in this Coverdell ESA as of December 31, 2012, by adding to the basis as of the end of that year any contributions made to that account after the year of the distribution and before 2013. File your taxes for free Line 4. File your taxes for free Enter the total distributions received from this Coverdell ESA in 2013. File your taxes for free Do not include amounts rolled over to another Coverdell ESA within 60 days (only one rollover is allowed during any 12-month period). File your taxes for free   Also, do not include excess contributions that were distributed with the related earnings (or less any loss) before the first day of the sixth month of the tax year following the year of the contributions. File your taxes for free Line 7. File your taxes for free Enter the total value of this Coverdell ESA as of December 31, 2013, plus any outstanding rollovers contributed to the account after 2012, but before the end of the 60-day rollover period. File your taxes for free A statement should be sent to you by January 31, 2014, for this Coverdell ESA showing the value on December 31, 2013. File your taxes for free   A rollover is a tax-free withdrawal from one Coverdell ESA that is contributed to another Coverdell ESA. File your taxes for free An outstanding rollover is any amount withdrawn within 60 days before the end of 2013 (November 2 through December 31) that was rolled over after December 31, 2013, but within the 60-day rollover period. File your taxes for free Worksheet 7-3. File your taxes for free Coverdell ESA—Taxable Distributions and Basis How to complete this worksheet. File your taxes for free • • • Complete Part I, lines A through H, on only one worksheet. File your taxes for free  Complete a separate Part II, lines 1 through 15, for each of your Coverdell ESAs. File your taxes for free  Complete Part III, the Summary (line 16), on only one worksheet. File your taxes for free Part I. File your taxes for free Qualified Education Expenses (Complete for total expenses)       A. File your taxes for free Enter your total qualified education expenses for 2013   A. File your taxes for free   B. File your taxes for free Enter those qualified education expenses paid for with tax-free educational assistance (for example, tax-free scholarships, veterans' educational benefits, Pell grants, employer-provided educational assistance)   B. File your taxes for free         C. File your taxes for free Enter those qualified higher education expenses deducted on Schedule C or C-EZ (Form 1040). File your taxes for free Schedule F (Form 1040), or as a miscellaneous itemized deduction on Schedule A (Form 1040 or 1040NR)   C. File your taxes for free         D. File your taxes for free Enter those qualified higher education expenses on which  an American opportunity or lifetime learning credit was based   D. File your taxes for free         E. File your taxes for free Add lines B, C, and D   D. File your taxes for free   F. File your taxes for free Subtract line E from line A. File your taxes for free This is your adjusted qualified education expense for 2013   E. File your taxes for free   G. File your taxes for free Enter your total distributions from all Coverdell ESAs during 2013. File your taxes for free Do not include rollovers  or the return of excess contributions (see instructions)   F. File your taxes for free   H. File your taxes for free Divide line F by line G. File your taxes for free Enter the result as a decimal (rounded to at least 3 places). File your taxes for free If the  result is 1. File your taxes for free 000 or more, enter 1. File your taxes for free 000   G. File your taxes for free . File your taxes for free Part II. File your taxes for free Taxable Distributions and Basis (Complete separately for each account) 1. File your taxes for free Enter the amount contributed to this Coverdell ESA for 2013, including contributions made for 2013 from January 1, 2014, through April 15, 2014. File your taxes for free Do not include rollovers or the return of excess contributions   1. File your taxes for free   2. File your taxes for free Enter your basis in this Coverdell ESA as of December 31, 2012 (see instructions)   2. File your taxes for free   3. File your taxes for free Add lines 1 and 2   3. File your taxes for free   4. File your taxes for free Enter the total distributions from this Coverdell ESA during 2013. File your taxes for free Do not include rollovers  or the return of excess contributions (see instructions)   4. File your taxes for free   5. File your taxes for free Multiply line 4 by line H. File your taxes for free This is the amount of adjusted qualified  education expense attributable to this Coverdell ESA   5. File your taxes for free         6. File your taxes for free Subtract line 5 from line 4   6. File your taxes for free         7. File your taxes for free Enter the total value of this Coverdell ESA as of December 31, 2013,  plus any outstanding rollovers (see instructions)   7. File your taxes for free         8. File your taxes for free Add lines 4 and 7   8. File your taxes for free         9. File your taxes for free Divide line 3 by line 8. File your taxes for free Enter the result as a decimal (rounded to  at least 3 places). File your taxes for free If the result is 1. File your taxes for free 000 or more, enter 1. File your taxes for free 000   9. File your taxes for free . File your taxes for free       10. File your taxes for free Multiply line 4 by line 9. File your taxes for free This is the amount of basis allocated to your  distributions, and is tax free   10. File your taxes for free     Note. File your taxes for free If line 6 is zero, skip lines 11 through 13, enter -0- on line 14, and go to line 15. File your taxes for free       11. File your taxes for free Subtract line 10 from line 4   11. File your taxes for free   12. File your taxes for free Divide line 5 by line 4. File your taxes for free Enter the result as a decimal (rounded to  at least 3 places). File your taxes for free If the result is 1. File your taxes for free 000 or more, enter 1. File your taxes for free 000   12. File your taxes for free . File your taxes for free       13. File your taxes for free Multiply line 11 by line 12. File your taxes for free This is the amount of qualified education  expenses allocated to your distributions, and is tax free   13. File your taxes for free   14. File your taxes for free Subtract line 13 from line 11. File your taxes for free This is the portion of the distributions from this  Coverdell ESA in 2013 that you must include in income   14. File your taxes for free   15. File your taxes for free Subtract line 10 from line 3. File your taxes for free This is your basis in this Coverdell ESA as of December 31, 2013   15. File your taxes for free   Part III. File your taxes for free Summary (Complete only once)       16. File your taxes for free Taxable amount. File your taxes for free Add together all amounts on line 14 for all your Coverdell ESAs. File your taxes for free Enter here  and include on Form 1040, line 21, or Form 1040NR, line 21, listing the type and amount of income on the dotted line   16. 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