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Filemy2010taxreturnforfree

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Filemy2010taxreturnforfree

Filemy2010taxreturnforfree 5. Filemy2010taxreturnforfree   Personal Use of Dwelling Unit (Including Vacation Home) Table of Contents Dividing Expenses Dwelling Unit Used as a HomeMain home. Filemy2010taxreturnforfree Shared equity financing agreement. Filemy2010taxreturnforfree Donation of use of the property. Filemy2010taxreturnforfree Examples. Filemy2010taxreturnforfree Days used for repairs and maintenance. Filemy2010taxreturnforfree Days used as a main home before or after renting. Filemy2010taxreturnforfree Reporting Income and DeductionsNot used as a home. Filemy2010taxreturnforfree Used as a home but rented less than 15 days. Filemy2010taxreturnforfree Used as a home and rented 15 days or more. Filemy2010taxreturnforfree If you have any personal use of a dwelling unit (including a vacation home) that you rent, you must divide your expenses between rental use and personal use. Filemy2010taxreturnforfree In general, your rental expenses will be no more than your total expenses multiplied by a fraction; the denominator of which is the total number of days the dwelling unit is used and the numerator of which is the total number of days actually rented at a fair rental price. Filemy2010taxreturnforfree Only your rental expenses may deducted on Schedule E (Form 1040). Filemy2010taxreturnforfree Some of your personal expenses may be deductible if you itemize your deductions on Schedule A (Form 1040). Filemy2010taxreturnforfree You must also determine if the dwelling unit is considered a home. Filemy2010taxreturnforfree The amount of rental expenses that you can deduct may be limited if the dwelling unit is considered a home. Filemy2010taxreturnforfree Whether a dwelling unit is considered a home depends on how many days during the year are considered to be days of personal use. Filemy2010taxreturnforfree There is a special rule if you used the dwelling unit as a home and you rented it for less than 15 days during the year. Filemy2010taxreturnforfree Dwelling unit. Filemy2010taxreturnforfree   A dwelling unit includes a house, apartment, condominium, mobile home, boat, vacation home, or similar property. Filemy2010taxreturnforfree It also includes all structures or other property belonging to the dwelling unit. Filemy2010taxreturnforfree A dwelling unit has basic living accommodations, such as sleeping space, a toilet, and cooking facilities. Filemy2010taxreturnforfree   A dwelling unit does not include property (or part of the property) used solely as a hotel, motel, inn, or similar establishment. Filemy2010taxreturnforfree Property is used solely as a hotel, motel, inn, or similar establishment if it is regularly available for occupancy by paying customers and is not used by an owner as a home during the year. Filemy2010taxreturnforfree Example. Filemy2010taxreturnforfree You rent a room in your home that is always available for short-term occupancy by paying customers. Filemy2010taxreturnforfree You do not use the room yourself and you allow only paying customers to use the room. Filemy2010taxreturnforfree This room is used solely as a hotel, motel, inn, or similar establishment and is not a dwelling unit. Filemy2010taxreturnforfree Dividing Expenses If you use a dwelling unit for both rental and personal purposes, divide your expenses between the rental use and the personal use based on the number of days used for each purpose. Filemy2010taxreturnforfree When dividing your expenses, follow these rules. Filemy2010taxreturnforfree Any day that the unit is rented at a fair rental price is a day of rental use even if you used the unit for personal purposes that day. Filemy2010taxreturnforfree (This rule does not apply when determining whether you used the unit as a home. Filemy2010taxreturnforfree ) Any day that the unit is available for rent but not actually rented is not a day of rental use. Filemy2010taxreturnforfree Fair rental price. Filemy2010taxreturnforfree   A fair rental price for your property generally is the amount of rent that a person who is not related to you would be willing to pay. Filemy2010taxreturnforfree The rent you charge is not a fair rental price if it is substantially less than the rents charged for other properties that are similar to your property in your area. Filemy2010taxreturnforfree   Ask yourself the following questions when comparing another property with yours. Filemy2010taxreturnforfree Is it used for the same purpose? Is it approximately the same size? Is it in approximately the same condition? Does it have similar furnishings? Is it in a similar location? If any of the answers are no, the properties probably are not similar. Filemy2010taxreturnforfree Example. Filemy2010taxreturnforfree Your beach cottage was available for rent from June 1 through August 31 (92 days). Filemy2010taxreturnforfree Except for the first week in August (7 days), when you were unable to find a renter, you rented the cottage at a fair rental price during that time. Filemy2010taxreturnforfree The person who rented the cottage for July allowed you to use it over the weekend (2 days) without any reduction in or refund of rent. Filemy2010taxreturnforfree Your family also used the cottage during the last 2 weeks of May (14 days). Filemy2010taxreturnforfree The cottage was not used at all before May 17 or after August 31. Filemy2010taxreturnforfree You figure the part of the cottage expenses to treat as rental expenses as follows. Filemy2010taxreturnforfree The cottage was used for rental a total of 85 days (92 − 7). Filemy2010taxreturnforfree The days it was available for rent but not rented (7 days) are not days of rental use. Filemy2010taxreturnforfree The July weekend (2 days) you used it is rental use because you received a fair rental price for the weekend. Filemy2010taxreturnforfree You used the cottage for personal purposes for 14 days (the last 2 weeks in May). Filemy2010taxreturnforfree The total use of the cottage was 99 days (14 days personal use + 85 days rental use). Filemy2010taxreturnforfree Your rental expenses are 85/99 (86%) of the cottage expenses. Filemy2010taxreturnforfree Note. Filemy2010taxreturnforfree When determining whether you used the cottage as a home, the July weekend (2 days) you used it is considered personal use even though you received a fair rental price for the weekend. Filemy2010taxreturnforfree Therefore, you had 16 days of personal use and 83 days of rental use for this purpose. Filemy2010taxreturnforfree Because you used the cottage for personal purposes more than 14 days and more than 10% of the days of rental use (8 days), you used it as a home. Filemy2010taxreturnforfree If you have a net loss, you may not be able to deduct all of the rental expenses. Filemy2010taxreturnforfree See Dwelling Unit Used as a Home, next. Filemy2010taxreturnforfree Dwelling Unit Used as a Home If you use a dwelling unit for both rental and personal purposes, the tax treatment of the rental expenses you figured earlier under Dividing Expenses and rental income depends on whether you are considered to be using the dwelling unit as a home. Filemy2010taxreturnforfree You use a dwelling unit as a home during the tax year if you use it for personal purposes more than the greater of: 14 days, or 10% of the total days it is rented to others at a fair rental price. Filemy2010taxreturnforfree See What is a day of personal use , later. Filemy2010taxreturnforfree If a dwelling unit is used for personal purposes on a day it is rented at a fair rental price (discussed earlier), do not count that day as a day of rental use in applying (2) above. Filemy2010taxreturnforfree Instead, count it as a day of personal use in applying both (1) and (2) above. Filemy2010taxreturnforfree What is a day of personal use?   A day of personal use of a dwelling unit is any day that the unit is used by any of the following persons. Filemy2010taxreturnforfree You or any other person who owns an interest in it, unless you rent it to another owner as his or her main home under a shared equity financing agreement (defined later). Filemy2010taxreturnforfree However, see Days used as a main home before or after renting , later. Filemy2010taxreturnforfree A member of your family or a member of the family of any other person who owns an interest in it, unless the family member uses the dwelling unit as his or her main home and pays a fair rental price. Filemy2010taxreturnforfree Family includes only your spouse, brothers and sisters, half-brothers and half-sisters, ancestors (parents, grandparents, etc. Filemy2010taxreturnforfree ), and lineal descendants (children, grandchildren, etc. Filemy2010taxreturnforfree ). Filemy2010taxreturnforfree Anyone under an arrangement that lets you use some other dwelling unit. Filemy2010taxreturnforfree Anyone at less than a fair rental price. Filemy2010taxreturnforfree Main home. Filemy2010taxreturnforfree   If the other person or member of the family in (1) or (2) above has more than one home, his or her main home is ordinarily the one he or she lived in most of the time. Filemy2010taxreturnforfree Shared equity financing agreement. Filemy2010taxreturnforfree   This is an agreement under which two or more persons acquire undivided interests for more than 50 years in an entire dwelling unit, including the land, and one or more of the co-owners is entitled to occupy the unit as his or her main home upon payment of rent to the other co-owner or owners. Filemy2010taxreturnforfree Donation of use of the property. Filemy2010taxreturnforfree   You use a dwelling unit for personal purposes if: You donate the use of the unit to a charitable organization, The organization sells the use of the unit at a fund-raising event, and The “purchaser” uses the unit. Filemy2010taxreturnforfree Examples. Filemy2010taxreturnforfree   The following examples show how to determine if you have days of personal use. Filemy2010taxreturnforfree Example 1. Filemy2010taxreturnforfree You and your neighbor are co-owners of a condominium at the beach. Filemy2010taxreturnforfree Last year, you rented the unit to vacationers whenever possible. Filemy2010taxreturnforfree The unit was not used as a main home by anyone. Filemy2010taxreturnforfree Your neighbor used the unit for 2 weeks last year; you did not use it at all. Filemy2010taxreturnforfree Because your neighbor has an interest in the unit, both of you are considered to have used the unit for personal purposes during those 2 weeks. Filemy2010taxreturnforfree Example 2. Filemy2010taxreturnforfree You and your neighbors are co-owners of a house under a shared equity financing agreement. Filemy2010taxreturnforfree Your neighbors live in the house and pay you a fair rental price. Filemy2010taxreturnforfree Even though your neighbors have an interest in the house, the days your neighbors live there are not counted as days of personal use by you. Filemy2010taxreturnforfree This is because your neighbors rent the house as their main home under a shared equity financing agreement. Filemy2010taxreturnforfree Example 3. Filemy2010taxreturnforfree You own a rental property that you rent to your son. Filemy2010taxreturnforfree Your son does not own any interest in this property. Filemy2010taxreturnforfree He uses it as his main home and pays you a fair rental price. Filemy2010taxreturnforfree Your son's use of the property is not personal use by you because your son is using it as his main home, he owns no interest in the property, and he is paying you a fair rental price. Filemy2010taxreturnforfree Example 4. Filemy2010taxreturnforfree You rent your beach house to Rosa. Filemy2010taxreturnforfree Rosa rents her cabin in the mountains to you. Filemy2010taxreturnforfree You each pay a fair rental price. Filemy2010taxreturnforfree You are using your beach house for personal purposes on the days that Rosa uses it because your house is used by Rosa under an arrangement that allows you to use her cabin. Filemy2010taxreturnforfree Example 5. Filemy2010taxreturnforfree You rent an apartment to your mother at less than a fair rental price. Filemy2010taxreturnforfree You are using the apartment for personal purposes on the days that your mother rents it because you rent it for less than a fair rental price. Filemy2010taxreturnforfree Days used for repairs and maintenance. Filemy2010taxreturnforfree   Any day that you spend working substantially full time repairing and maintaining (not improving) your property is not counted as a day of personal use. Filemy2010taxreturnforfree Do not count such a day as a day of personal use even if family members use the property for recreational purposes on the same day. Filemy2010taxreturnforfree Example. Filemy2010taxreturnforfree Corey owns a cabin in the mountains that he rents for most of the year. Filemy2010taxreturnforfree He spends a week at the cabin with family members. Filemy2010taxreturnforfree Corey works on maintenance of the cabin 3 or 4 hours each day during the week and spends the rest of the time fishing, hiking, and relaxing. Filemy2010taxreturnforfree Corey's family members, however, work substantially full time on the cabin each day during the week. Filemy2010taxreturnforfree The main purpose of being at the cabin that week is to do maintenance work. Filemy2010taxreturnforfree Therefore, the use of the cabin during the week by Corey and his family will not be considered personal use by Corey. Filemy2010taxreturnforfree Days used as a main home before or after renting. Filemy2010taxreturnforfree   For purposes of determining whether a dwelling unit was used as a home, you may not have to count days you used the property as your main home before or after renting it or offering it for rent as days of personal use. Filemy2010taxreturnforfree Do not count them as days of personal use if: You rented or tried to rent the property for 12 or more consecutive months. Filemy2010taxreturnforfree You rented or tried to rent the property for a period of less than 12 consecutive months and the period ended because you sold or exchanged the property. Filemy2010taxreturnforfree However, this special rule does not apply when dividing expenses between rental and personal use. Filemy2010taxreturnforfree See Property Changed to Rental Use in chapter 4. Filemy2010taxreturnforfree Example 1. Filemy2010taxreturnforfree On February 29, 2012, you moved out of the house you had lived in for 6 years because you accepted a job in another town. Filemy2010taxreturnforfree You rented your house at a fair rental price from March 15, 2012, to May 14, 2013 (14 months). Filemy2010taxreturnforfree On June 1, 2013, you moved back into your old house. Filemy2010taxreturnforfree The days you used the house as your main home from January 1 to February 29, 2012, and from June 1 to December 31, 2013, are not counted as days of personal use. Filemy2010taxreturnforfree Therefore, you would use the rules in chapter 1 when figuring your rental income and expenses. Filemy2010taxreturnforfree Example 2. Filemy2010taxreturnforfree On January 31, you moved out of the condominium where you had lived for 3 years. Filemy2010taxreturnforfree You offered it for rent at a fair rental price beginning on February 1. Filemy2010taxreturnforfree You were unable to rent it until April. Filemy2010taxreturnforfree On September 15, you sold the condominium. Filemy2010taxreturnforfree The days you used the condominium as your main home from January 1 to January 31 are not counted as days of personal use when determining whether you used it as a home. Filemy2010taxreturnforfree Examples. Filemy2010taxreturnforfree   The following examples show how to determine whether you used your rental property as a home. Filemy2010taxreturnforfree Example 1. Filemy2010taxreturnforfree You converted the basement of your home into an apartment with a bedroom, a bathroom, and a small kitchen. Filemy2010taxreturnforfree You rented the basement apartment at a fair rental price to college students during the regular school year. Filemy2010taxreturnforfree You rented to them on a 9-month lease (273 days). Filemy2010taxreturnforfree You figured 10% of the total days rented to others at a fair rental price is 27 days. Filemy2010taxreturnforfree During June (30 days), your brothers stayed with you and lived in the basement apartment rent free. Filemy2010taxreturnforfree Your basement apartment was used as a home because you used it for personal purposes for 30 days. Filemy2010taxreturnforfree Rent-free use by your brothers is considered personal use. Filemy2010taxreturnforfree Your personal use (30 days) is more than the greater of 14 days or 10% of the total days it was rented (27 days). Filemy2010taxreturnforfree Example 2. Filemy2010taxreturnforfree You rented the guest bedroom in your home at a fair rental price during the local college's homecoming, commencement, and football weekends (a total of 27 days). Filemy2010taxreturnforfree Your sister-in-law stayed in the room, rent free, for the last 3 weeks (21 days) in July. Filemy2010taxreturnforfree You figured 10% of the total days rented to others at a fair rental price is 3 days. Filemy2010taxreturnforfree The room was used as a home because you used it for personal purposes for 21 days. Filemy2010taxreturnforfree That is more than the greater of 14 days or 10% of the 27 days it was rented (3 days). Filemy2010taxreturnforfree Example 3. Filemy2010taxreturnforfree You own a condominium apartment in a resort area. Filemy2010taxreturnforfree You rented it at a fair rental price for a total of 170 days during the year. Filemy2010taxreturnforfree For 12 of these days, the tenant was not able to use the apartment and allowed you to use it even though you did not refund any of the rent. Filemy2010taxreturnforfree Your family actually used the apartment for 10 of those days. Filemy2010taxreturnforfree Therefore, the apartment is treated as having been rented for 160 (170 – 10) days. Filemy2010taxreturnforfree You figured 10% of the total days rented to others at a fair rental price is 16 days. Filemy2010taxreturnforfree Your family also used the apartment for 7 other days during the year. Filemy2010taxreturnforfree You used the apartment as a home because you used it for personal purposes for 17 days. Filemy2010taxreturnforfree That is more than the greater of 14 days or 10% of the 160 days it was rented (16 days). Filemy2010taxreturnforfree Minimal rental use. Filemy2010taxreturnforfree   If you use the dwelling unit as a home and you rent it less than 15 days during the year, that period is not treated as rental activity. Filemy2010taxreturnforfree See Used as a home but rented less than 15 days, later, for more information. Filemy2010taxreturnforfree Limit on deductions. Filemy2010taxreturnforfree   Renting a dwelling unit that is considered a home is not a passive activity. Filemy2010taxreturnforfree Instead, if your rental expenses are more than your rental income, some or all of the excess expenses cannot be used to offset income from other sources. Filemy2010taxreturnforfree The excess expenses that cannot be used to offset income from other sources are carried forward to the next year and treated as rental expenses for the same property. Filemy2010taxreturnforfree Any expenses carried forward to the next year will be subject to any limits that apply for that year. Filemy2010taxreturnforfree This limitation will apply to expenses carried forward to another year even if you do not use the property as your home for that subsequent year. Filemy2010taxreturnforfree   To figure your deductible rental expenses for this year and any carryover to next year, use Worksheet 5–1. Filemy2010taxreturnforfree Reporting Income and Deductions Property not used for personal purposes. Filemy2010taxreturnforfree   If you do not use a dwelling unit for personal purposes, see chapter 3 for how to report your rental income and expenses. Filemy2010taxreturnforfree Property used for personal purposes. Filemy2010taxreturnforfree   If you do use a dwelling unit for personal purposes, then how you report your rental income and expenses depends on whether you used the dwelling unit as a home. Filemy2010taxreturnforfree Not used as a home. Filemy2010taxreturnforfree   If you use a dwelling unit for personal purposes, but not as a home, report all the rental income in your income. Filemy2010taxreturnforfree Since you used the dwelling unit for personal purposes, you must divide your expenses between the rental use and the personal use as described earlier in this chapter under Dividing Expenses . Filemy2010taxreturnforfree The expenses for personal use are not deductible as rental expenses. Filemy2010taxreturnforfree   Your deductible rental expenses can be more than your gross rental income; however, see Limits on Rental Losses in chapter 3. Filemy2010taxreturnforfree Used as a home but rented less than 15 days. Filemy2010taxreturnforfree   If you use a dwelling unit as a home and you rent it less than 15 days during the year, its primary function is not considered to be rental and it should not be reported on Schedule E (Form 1040). Filemy2010taxreturnforfree You are not required to report the rental income and rental expenses from this activity. Filemy2010taxreturnforfree The expenses, including qualified mortgage interest, property taxes, and any qualified casualty loss will be reported as normally allowed on Schedule A (Form 1040). Filemy2010taxreturnforfree See the Instructions for Schedule A (Form 1040) for more information on deducting these expenses. Filemy2010taxreturnforfree Used as a home and rented 15 days or more. Filemy2010taxreturnforfree   If you use a dwelling unit as a home and rent it 15 days or more during the year, include all your rental income in your income. Filemy2010taxreturnforfree Since you used the dwelling unit for personal purposes, you must divide your expenses between the rental use and the personal use as described earlier in this chapter under Dividing Expenses . Filemy2010taxreturnforfree The expenses for personal use are not deductible as rental expenses. Filemy2010taxreturnforfree   If you had a net profit from renting the dwelling unit for the year (that is, if your rental income is more than the total of your rental expenses, including depreciation), deduct all of your rental expenses. Filemy2010taxreturnforfree You do not need to use Worksheet 5-1. Filemy2010taxreturnforfree   However, if you had a net loss from renting the dwelling unit for the year, your deduction for certain rental expenses is limited. Filemy2010taxreturnforfree To figure your deductible rental expenses and any carryover to next year, use Worksheet 5–1. Filemy2010taxreturnforfree Worksheet 5-1. Filemy2010taxreturnforfree Worksheet for Figuring Rental Deductions for a Dwelling Unit Used as a Home Use this worksheet only if you answer “yes” to all of the following questions. Filemy2010taxreturnforfree Did you use the dwelling unit as a home this year? (See Dwelling Unit Used as a Home . Filemy2010taxreturnforfree ) Did you rent the dwelling unit at a fair rental price 15 days or more this year? Is the total of your rental expenses and depreciation more than your rental income? PART I. Filemy2010taxreturnforfree Rental Use Percentage A. Filemy2010taxreturnforfree Total days available for rent at fair rental price A. Filemy2010taxreturnforfree       B. Filemy2010taxreturnforfree Total days available for rent (line A) but not rented B. Filemy2010taxreturnforfree       C. Filemy2010taxreturnforfree Total days of rental use. Filemy2010taxreturnforfree Subtract line B from line A C. Filemy2010taxreturnforfree       D. Filemy2010taxreturnforfree Total days of personal use (including days rented at less than fair rental price) D. Filemy2010taxreturnforfree       E. Filemy2010taxreturnforfree Total days of rental and personal use. Filemy2010taxreturnforfree Add lines C and D E. Filemy2010taxreturnforfree       F. Filemy2010taxreturnforfree Percentage of expenses allowed for rental. Filemy2010taxreturnforfree Divide line C by line E     F. Filemy2010taxreturnforfree . Filemy2010taxreturnforfree PART II. Filemy2010taxreturnforfree Allowable Rental Expenses 1. Filemy2010taxreturnforfree Enter rents received 1. Filemy2010taxreturnforfree   2a. Filemy2010taxreturnforfree Enter the rental portion of deductible home mortgage interest and qualified mortgage insurance premiums (see instructions) 2a. Filemy2010taxreturnforfree       b. Filemy2010taxreturnforfree Enter the rental portion of real estate taxes b. Filemy2010taxreturnforfree       c. Filemy2010taxreturnforfree Enter the rental portion of deductible casualty and theft losses (see instructions) c. Filemy2010taxreturnforfree       d. Filemy2010taxreturnforfree Enter direct rental expenses (see instructions) d. Filemy2010taxreturnforfree       e. Filemy2010taxreturnforfree Fully deductible rental expenses. Filemy2010taxreturnforfree Add lines 2a–2d. Filemy2010taxreturnforfree Enter here and  on the appropriate lines on Schedule E (see instructions) 2e. Filemy2010taxreturnforfree   3. Filemy2010taxreturnforfree Subtract line 2e from line 1. Filemy2010taxreturnforfree If zero or less, enter -0- 3. Filemy2010taxreturnforfree   4a. Filemy2010taxreturnforfree Enter the rental portion of expenses directly related to operating or maintaining  the dwelling unit (such as repairs, insurance, and utilities) 4a. Filemy2010taxreturnforfree       b. Filemy2010taxreturnforfree Enter the rental portion of excess mortgage interest and qualified mortgage insurance premiums (see instructions) b. Filemy2010taxreturnforfree       c. Filemy2010taxreturnforfree Carryover of operating expenses from 2012 worksheet c. Filemy2010taxreturnforfree       d. Filemy2010taxreturnforfree Add lines 4a–4c d. Filemy2010taxreturnforfree       e. Filemy2010taxreturnforfree Allowable expenses. Filemy2010taxreturnforfree Enter the smaller of line 3 or line 4d (see instructions) 4e. Filemy2010taxreturnforfree   5. Filemy2010taxreturnforfree Subtract line 4e from line 3. Filemy2010taxreturnforfree If zero or less, enter -0- 5. Filemy2010taxreturnforfree   6a. Filemy2010taxreturnforfree Enter the rental portion of excess casualty and theft losses (see instructions) 6a. Filemy2010taxreturnforfree       b. Filemy2010taxreturnforfree Enter the rental portion of depreciation of the dwelling unit b. Filemy2010taxreturnforfree       c. Filemy2010taxreturnforfree Carryover of excess casualty losses and depreciation from 2012 worksheet c. Filemy2010taxreturnforfree       d. Filemy2010taxreturnforfree Add lines 6a–6c d. Filemy2010taxreturnforfree       e. Filemy2010taxreturnforfree Allowable excess casualty and theft losses and depreciation. Filemy2010taxreturnforfree Enter the smaller of  line 5 or line 6d (see instructions) 6e. Filemy2010taxreturnforfree   PART III. Filemy2010taxreturnforfree Carryover of Unallowed Expenses to Next Year 7a. Filemy2010taxreturnforfree Operating expenses to be carried over to next year. Filemy2010taxreturnforfree Subtract line 4e from line 4d 7a. Filemy2010taxreturnforfree   b. Filemy2010taxreturnforfree Excess casualty and theft losses and depreciation to be carried over to next year. Filemy2010taxreturnforfree  Subtract line 6e from line 6d b. Filemy2010taxreturnforfree   Worksheet 5-1 Instructions. Filemy2010taxreturnforfree Worksheet for Figuring Rental Deductions for a Dwelling Unit Used as a Home Caution. Filemy2010taxreturnforfree Use the percentage determined in Part I, line F, to figure the rental portions to enter on lines 2a–2c, 4a–4b, and 6a–6b of  Part II. Filemy2010taxreturnforfree Line 2a. Filemy2010taxreturnforfree Figure the mortgage interest on the dwelling unit that you could deduct on Schedule A as if you had not rented the unit. Filemy2010taxreturnforfree Do not include interest on a loan that did not benefit the dwelling unit. Filemy2010taxreturnforfree For example, do not include interest on a home equity loan used to pay off credit cards or other personal loans, buy a car, or pay college tuition. Filemy2010taxreturnforfree Include interest on a loan used to buy, build, or improve the dwelling unit, or to refinance such a loan. Filemy2010taxreturnforfree Include the rental portion of this interest in the total you enter on line 2a of the worksheet. Filemy2010taxreturnforfree   Figure the qualified mortgage insurance premiums on the dwelling unit that you could deduct on line 13 of Schedule A as if you had not rented the unit. Filemy2010taxreturnforfree See the Schedule A instructions. Filemy2010taxreturnforfree However, figure your adjusted gross income (Form 1040, line 38) without your rental income and expenses from the dwelling unit. Filemy2010taxreturnforfree See Line 4b to deduct the part of the qualified mortgage insurance premiums not allowed because of the adjusted gross income limit. Filemy2010taxreturnforfree Include the rental portion of the amount from Schedule A, line 13, in the total you enter on line 2a of the worksheet. Filemy2010taxreturnforfree   Note. Filemy2010taxreturnforfree Do not file this Schedule A or use it to figure the amount to deduct on line 13 of that schedule. Filemy2010taxreturnforfree Instead, figure the personal portion on a separate Schedule A. Filemy2010taxreturnforfree If you have deducted mortgage interest or qualified mortgage insurance premiums on the dwelling unit on other forms, such as Schedule C or F, remember to reduce your Schedule A deduction by that amount. Filemy2010taxreturnforfree           Line 2c. Filemy2010taxreturnforfree Figure the casualty and theft losses related to the dwelling unit that you could deduct on Schedule A as if you had not rented the dwelling unit. Filemy2010taxreturnforfree To do this, complete Section A of Form 4684, Casualties and Thefts, treating the losses as personal losses. Filemy2010taxreturnforfree If any of the loss is due to a federally declared disaster, see the Instructions for Form 4684. Filemy2010taxreturnforfree On Form 4684, line 17, enter 10% of your adjusted gross income figured without your rental income and expenses from the dwelling unit. Filemy2010taxreturnforfree Enter the rental portion of the result from Form 4684, line 18, on line 2c of this worksheet. Filemy2010taxreturnforfree   Note. Filemy2010taxreturnforfree Do not file this Form 4684 or use it to figure your personal losses on Schedule A. Filemy2010taxreturnforfree Instead, figure the personal portion on a separate Form 4684. Filemy2010taxreturnforfree           Line 2d. Filemy2010taxreturnforfree Enter the total of your rental expenses that are directly related only to the rental activity. Filemy2010taxreturnforfree These include interest on loans used for rental activities other than to buy, build, or improve the dwelling unit. Filemy2010taxreturnforfree Also include rental agency fees, advertising, office supplies, and depreciation on office equipment used in your rental activity. Filemy2010taxreturnforfree           Line 2e. Filemy2010taxreturnforfree You can deduct the amounts on lines 2a, 2b, 2c, and 2d as rental expenses on Schedule E even if your rental expenses are more than your rental income. Filemy2010taxreturnforfree Enter the amounts on lines 2a, 2b, 2c, and 2d on the appropriate lines of Schedule E. Filemy2010taxreturnforfree           Line 4b. Filemy2010taxreturnforfree On line 2a, you entered the rental portion of the mortgage interest or qualified mortgage insurance premiums you could deduct on Schedule A if you had not rented the dwelling unit. Filemy2010taxreturnforfree If you had additional mortgage interest and qualified mortgage insurance premiums that would not be deductible on Schedule A because of limits imposed on them, enter on line 4b of this worksheet the rental portion of those excess amounts. Filemy2010taxreturnforfree Do not include interest on a loan that did not benefit the dwelling unit  (as explained in the line 2a instructions). Filemy2010taxreturnforfree           Line 4e. Filemy2010taxreturnforfree You can deduct the amounts on lines 4a, 4b, and 4c as rental expenses on Schedule E only to the extent they are not more than the amount on line 4e. Filemy2010taxreturnforfree *           Line 6a. Filemy2010taxreturnforfree To find the rental portion of excess casualty and theft losses, use the Form 4684 you prepared for line 2c of this worksheet. Filemy2010taxreturnforfree   A. Filemy2010taxreturnforfree Enter the amount from Form 4684, line 10       B. Filemy2010taxreturnforfree Enter the rental portion of line A       C. Filemy2010taxreturnforfree Enter the amount from line 2c of this worksheet       D. Filemy2010taxreturnforfree Subtract line C from line B. Filemy2010taxreturnforfree Enter the result here and on line 6a of this worksheet               Line 6e. Filemy2010taxreturnforfree You can deduct the amounts on lines 6a, 6b, and 6c as rental expenses on Schedule E only to the extent they are not more than the amount on line 6e. Filemy2010taxreturnforfree * *Allocating the limited deduction. Filemy2010taxreturnforfree If you cannot deduct all of the amount on line 4d or 6d this year, you can allocate the allowable deduction in any way you wish among the expenses included on line 4d or 6d. Filemy2010taxreturnforfree Enter the amount you allocate to each expense on the appropriate line of Schedule E, Part I. Filemy2010taxreturnforfree Prev  Up  Next   Home   More Online Publications
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Managing Household Records

When was the last time you couldn't find an important paper you knew you had carefully put away? How do people decide where to store and keep such records? And how do they know what to keep, what to throw away, and when? Do you have a simple system or roadmap for important papers (PDF |download Adobe Reader) to which you or a loved one can refer to in case of an emergency?

Every household must work out its own records management system, but some general guidelines can help. A good system will provide an overview of what happens to property after a major life event occurs.

Active File

First, gather your important papers and important documents from throughout your home. Put these documents into three piles: an active file, dead storage, and items to discard or shred. The active file should include documents and financial records you deal with on a regular basis and need to refer to. Keep these readily accessible at home:

  • Appliance manuals, warranties and service contracts
  • Bank statements
  • Bill payment receipts
  • Bills awaiting payment
  • Credit card information
  • Education records, diploma, transcripts, etc.
  • Employment records
  • Family health records, including vaccination histories
  • Health benefit information
  • Household inventory
  • Income tax working papers
  • Insurance policies
  • Loan statements and payment books
  • Password list
  • Receipts for items under warranty
  • Safe deposit box inventory (and key)
  • Tax receipts, such as those received for charitable deductions


Dead Storage

All active file papers over 3-years-old are considered dead storage. This may not necessarily apply to everything—for example, appliance manuals that you use frequently should stay in the active file.

Items to Discard

  • Cancelled checks for cash or nondeductible expenses
  • Expired warranties
  • Pay stubs, after reconciling with W-2
  • Other records no longer needed, such as those that were replaced by newer versions, manuals of appliances that you've replaced, etc.
How Long to Keep Documents
Document How Long to Keep It
Bank statements 1 year, unless needed to support tax filings
Birth certificates, marriage licenses, divorce decrees, passports, education records, military service records Forever
Contracts Until updated
Credit card records Until paid, unless needed to support tax filings
Home purchase and improvement records As long as you own the property
Household inventory Forever; update as needed
Insurance, life Forever
Insurance, car, home, etc. Until you renew the policy
Investment statements Shred your monthly statements; keep annual statements until you sell the investments
Investment certificates Until you cash or sell the item
Loan documents Until you sell the item the loan was for
Real estate deeds As long as you own the property
Receipts for large purchases Until you sell or discard the item
Service contracts and warranties Until you sell or discard the item
Social Security card Forever
Social Security statement When you get your new statement online, shred the old one
Tax records 7 years from the filing date
Vehicle titles Until you sell or dispose of the car
Will Until updated

Create Your Filing System

Generally, your home file should include all the items you refer to frequently including bills, warranties, bank statements, etc. You’ll also need a secondary storage location for your more important, difficult to replace papers, such as passports, vehicle titles, birth certificates, etc. A fireproof/waterproof safe may be one possibility, but it's better to store those records in a location away from home, such as a bank safe deposit box.

Organize your home filing system (PDF | download Adobe Reader) in a way that you can understand and manage. Choose one member of your household as file manager who will take responsibility for keeping the filing up-to-date and consistent. However, in case of an emergency, everyone in the household needs to be familiar with the system, including children old enough to understand how to use it. Develop and stick to a regular filing and paperwork schedule to avoid having to deal with backlogged papers. A few minutes once or twice a week should be sufficient.

Consider scanning and storing some documents electronically since it's best to save your important documents and files in a way that can easily be carried away and accessed later. Scanning will give you easy access to your documents and allow you to transfer them via e-mail and easily make back-up copies. Investing in an external hard drive for your computer and regularly backing up important documents will allow you to carry away the external hard drive at a moment's notice.

If you don’t have the time or the desire to take these steps, or have realized that the task is too much to handle, consider asking a friend or family member to help you focus and give a fresh perspective. Or, you may want to consider hiring a professional organizer to provide structure, solutions, and systems, and help you gain a sense of control.

Safe Deposit Box

Once you have organized your documents, you’ll want to consider getting an off-site storage location, such as a safe deposit box. Use the safe deposit box for originals, but remember, you'll still need copies at home if something tragic should happen to you and your safe deposit box gets sealed. Always seal documents stored in a safe deposit box in airtight waterproof containers (like Ziploc bags) to ensure they don’t get damaged. If you'd rather keep your records at home, then get a fireproof/waterproof safe. A good rule of thumb is: Put documents in the box if you can't easily replace them or if you don't know what might happen if you don't have them.

If applicable, you should have official or certified copies of documents for your safe deposit box. "Official" means an original copy with all required signatures. Select documents, such as birth certificates, must also be certified or notarized to be considered valid. You can get most government records for free or at low cost from a government office or online at a government agency's website. If you are unsure whether you need a certified copy, or want more information about which local government office can give you originals of these documents, contact your local consumer protection office. Consult your attorney before you put an original copy of your will in a safe deposit box—some states don’t permit access after a person dies.

If you need to obtain documents regarding birth, death, marriage, or divorce, check out Where to Write for Vital Records for guidance. Be wary of companies that offer to sell you copies of official papers; you should check with the appropriate government agency to see if they will provide the same information free or at a lower price.

Consider keeping copies of the following documents in a safe deposit box or locked in a fireproof/waterproof safe in your home:

  • Adoption papers
  • Advance directives*
  • Birth and death certificates
  • Citizenship papers
  • Contracts of importance
  • Deeds and property titles
  • Household inventory
  • Life insurance policies
  • Marriage licenses and divorce decrees
  • Military discharge papers
  • Passports
  • Powers of attorney*
  • Social Security cards
  • Stock and bond certificates
  • Wills*

*Since the safe deposit box will be sealed at your death, keep a copy of your will somewhere accessible. The same goes for the advance directive and powers of attorney since you may not be able to give others access to the safe deposit box.

Grab and Go Kit for Emergencies

Disasters like floods, fires, earthquakes, and tornadoes strike without warning and can affect anyone. Your number one priority in these situations is making sure your family is safe—not finding your most recent copies of insurance policies or bank statements. An easy-to-grab emergency financial records kit (PDF | download Adobe Reader) will make sure you have access to important documents in case the unexpected happens to you.

What Documents Should You Have Ready?

Store the documents in an accordion file and keep it in your emergency supply kit so that everything you need is together. Items you should put in the kit include originals or copies of:

  • Birth and marriage certificates, divorce decrees
  • Social Security cards of household members
  • Driver's license and other wallet cards
  • Will and/or trust documents; powers of attorney
  • Recent income tax return
  • Passports and/or other identity documents
  • Military discharge papers
  • A list of your prescriptions: name of medication, dosage, pharmacy

Other important papers include:

  • Contacts for family members, employer, financial advisors, attorney, accountant, and banker
  • Insurance policy information
  • Bank, credit union, and credit card account list
  • Summary of personal, financial, property, and other vital information

Other items to consider including:

  • Safe deposit box keys and/or safe combination
  • Computer user names and passwords; CD with relevant personal, financial, legal files
  • Some emergency cash

Remember that these documents contain personal information like social security numbers and bank account information that could be used against you if it fell into the wrong hands. Be sure your emergency financial records kit is stored in a secure location in your home so it is easy for you to carry away in a disaster not for a thief to carry away in a robbery.

The Filemy2010taxreturnforfree

Filemy2010taxreturnforfree 35. Filemy2010taxreturnforfree   Education Credits Table of Contents Introduction Useful Items - You may want to see: Who Can Claim an Education Credit Qualified Education ExpensesNo Double Benefit Allowed Adjustments to Qualified Education Expenses Introduction For 2013, there are two tax credits available to persons who pay expenses for higher (postsecondary) education. Filemy2010taxreturnforfree They are: The American opportunity credit, and The lifetime learning credit. Filemy2010taxreturnforfree The chapter will present an overview of these education credits. Filemy2010taxreturnforfree To get the detailed information you will need to claim either of the credits, and for examples illustrating that information, see chapters 2 and 3 of Publication 970. Filemy2010taxreturnforfree Can you claim more than one education credit this year?   For each student, you can choose for any year only one of the credits. Filemy2010taxreturnforfree For example, if you choose to take the American opportunity credit for a child on your 2013 tax return, you cannot, for that same child, also claim the lifetime learning credit for 2013. Filemy2010taxreturnforfree   If you are eligible to claim the American opportunity credit and you are also eligible to claim the lifetime learning credit for the same student in the same year, you can choose to claim either credit, but not both. Filemy2010taxreturnforfree   If you pay qualified education expenses for more than one student in the same year, you can choose to take the American opportunity and the lifetime learning credits on a per-student, per-year basis. Filemy2010taxreturnforfree This means that, for example, you can claim the American opportunity credit for one student and the lifetime learning credit for another student in the same year. Filemy2010taxreturnforfree Table 35-1. Filemy2010taxreturnforfree Comparison of Education Credits Caution. Filemy2010taxreturnforfree You can claim both the American opportunity credit and the lifetime learning credit on the same return—but not for the same student. Filemy2010taxreturnforfree   American Opportunity Credit Lifetime Learning Credit Maximum credit Up to $2,500 credit per eligible student Up to $2,000 credit per return Limit on modified adjusted gross income (MAGI) $180,000 if married filing jointly;  $90,000 if single, head of household, or qualifying widow(er) $127,000 if married filing jointly;  $63,000 if single, head of household, or qualifying widow(er) Refundable or nonrefundable 40% of credit may be refundable Credit limited to the amount of tax you must pay on your taxable income Number of years of postsecondary education Available ONLY if the student had not completed the first 4 years of postsecondary education before 2013 Available for all years of postsecondary education and for courses to acquire or improve job skills Number of tax years credit available Available ONLY for 4 tax years per eligible student (including any year(s) the Hope credit was claimed) Available for an unlimited number of years Type of program required Student must be pursuing a program leading to a degree or other recognized education credential Student does not need to be pursuing a program leading to a degree or other recognized education credential Number of courses Student must be enrolled at least half time for at least one academic period beginning during the tax year Available for one or more courses Felony drug conviction At the end of 2013, the student had not been convicted of a felony for possessing or distributing a controlled substance Felony drug convictions do not make the student ineligible Qualified expenses Tuition, required enrollment fees, and course materials that the student needs for a course of study whether or not the materials are bought at the educational institution as a condition of enrollment or attendance Tuition and fees required for enrollment or attendance (including amounts required to be paid to the institution for course-related books, supplies, and equipment) Payments for academic periods Payments made in 2013 for academic periods beginning in 2013 or beginning in the first 3 months of 2014 Differences between the American opportunity and lifetime learning credits. Filemy2010taxreturnforfree   There are several differences between these two credits. Filemy2010taxreturnforfree These differences are summarized in Table 35-1, later. Filemy2010taxreturnforfree Useful Items - You may want to see: Publication 970 Tax Benefits for Education Form (and Instructions) 8863 Education Credits (American Opportunity and Lifetime Learning Credits) Who Can Claim an Education Credit You may be able to claim an education credit if you, your spouse, or a dependent you claim on your tax return was a student enrolled at or attending an eligible educational institution. Filemy2010taxreturnforfree The credits are based on the amount of qualified education expenses paid for the student in 2013 for academic periods beginning in 2013 and in the first 3 months of 2014. Filemy2010taxreturnforfree For example, if you paid $1,500 in December 2013 for qualified tuition for the spring 2014 semester beginning in January 2014, you may be able to use that $1,500 in figuring your 2013 education credit(s). Filemy2010taxreturnforfree Academic period. Filemy2010taxreturnforfree   An academic period includes a semester, trimester, quarter, or other period of study (such as a summer school session) as reasonably determined by an educational institution. Filemy2010taxreturnforfree In the case of an educational institution that uses credit hours or clock hours and does not have academic terms, each payment period can be treated as an academic period. Filemy2010taxreturnforfree Eligible educational institution. Filemy2010taxreturnforfree   An eligible educational institution is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U. Filemy2010taxreturnforfree S. Filemy2010taxreturnforfree Department of Education. Filemy2010taxreturnforfree It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. Filemy2010taxreturnforfree The educational institution should be able to tell you if it is an eligible educational institution. Filemy2010taxreturnforfree   Certain educational institutions located outside the United States also participate in the U. Filemy2010taxreturnforfree S. Filemy2010taxreturnforfree Department of Education's Federal Student Aid (FSA) programs. Filemy2010taxreturnforfree Who can claim a dependent's expenses. Filemy2010taxreturnforfree   If an exemption is allowed as a deduction for any person who claims the student as a dependent, all qualified education expenses of the student are treated as having been paid by that person. Filemy2010taxreturnforfree Therefore, only that person can claim an education credit for the student. Filemy2010taxreturnforfree If a student is not claimed as a dependent on another person's tax return, only the student can claim a credit. Filemy2010taxreturnforfree Expenses paid by a third party. Filemy2010taxreturnforfree   Qualified education expenses paid on behalf of the student by someone other than the student (such as a relative) are treated as paid by the student. Filemy2010taxreturnforfree However, qualified education expenses paid (or treated as paid) by a student who is claimed as a dependent on your tax return are treated as paid by you. Filemy2010taxreturnforfree Therefore, you are treated as having paid expenses that were paid by the third party. Filemy2010taxreturnforfree For more information and an example see Who Can Claim a Dependent's Expenses in Pub. Filemy2010taxreturnforfree 970, chapter 2 or 3. Filemy2010taxreturnforfree Who cannot claim a credit. Filemy2010taxreturnforfree   You cannot take an education credit if any of the following apply. Filemy2010taxreturnforfree You are claimed as a dependent on another person's tax return, such as your parent's return. Filemy2010taxreturnforfree Your filing status is married filing separately. Filemy2010taxreturnforfree You (or your spouse) were a nonresident alien for any part of 2013 and did not elect to be treated as a resident alien for tax purposes. Filemy2010taxreturnforfree Your MAGI is one of the following. Filemy2010taxreturnforfree American opportunity credit: $180,000 or more if married filing jointly, or $90,000 or more if single, head of household, or qualifying widow(er). Filemy2010taxreturnforfree Lifetime learning credit: $127,000 or more if married filing jointly, or $63,000 or more if single, head of household, or qualifying widow(er) . Filemy2010taxreturnforfree   Generally, your MAGI is the amount on your Form 1040, line 38, or Form 1040A, line 22. Filemy2010taxreturnforfree However, if you are filing Form 2555, Form 2555–EZ, or Form 4563, or are excluding income from Puerto RIco, add to the amount on your Form 1040, line 38, or Form 1040A, line 22, the amount of income you excluded. Filemy2010taxreturnforfree For details, see Pub. Filemy2010taxreturnforfree 970. Filemy2010taxreturnforfree    Figure 35-A may be helpful in determining if you can claim an education credit on your tax return. Filemy2010taxreturnforfree The American opportunity credit will always be greater than or equal to the lifetime learning credit for any student who is eligible for both credits. Filemy2010taxreturnforfree However, if any of the conditions for the American opportunity credit, listed in Table 35-1 earlier, are not met for any student, you cannot take the American opportunity credit for that student. Filemy2010taxreturnforfree You may be able to take the lifetime learning credit for part or all of that student's qualified education expenses instead. Filemy2010taxreturnforfree See Pub. Filemy2010taxreturnforfree 970 for information on other education benefits. Filemy2010taxreturnforfree Qualified Education Expenses Generally, qualified education expenses are amounts paid in 2013 for tuition and fees required for the student's enrollment or attendance at an eligible educational institution. Filemy2010taxreturnforfree It does not matter whether the expenses were paid in cash, by check, by credit or debit card, or with borrowed funds. Filemy2010taxreturnforfree For course-related books, supplies, and equipment, only certain expenses qualify. Filemy2010taxreturnforfree American opportunity credit: Qualified education expenses include amounts spent on books, supplies, and equipment needed for a course of study, whether or not the materials are purchased from the educational institution as a condition of enrollment or attendance. Filemy2010taxreturnforfree Lifetime learning credit: Qualified education expenses include amounts for books, supplies, and equipment only if required to be paid to the institution as a condition of enrollment or attendance. Filemy2010taxreturnforfree Qualified education expenses include nonacademic fees, such as student activity fees, athletic fees, or other expenses unrelated to the academic course of instruction, only if the fee must be paid to the institution as a condition of enrollment or attendance. Filemy2010taxreturnforfree However, fees for personal expenses (described below) are never qualified education expenses. Filemy2010taxreturnforfree Qualified education expenses for either credit do not include amounts paid for: Personal expenses. Filemy2010taxreturnforfree This means room and board, insurance, medical expenses (including student health fees), transportation, and other similar personal, living, or family expenses. Filemy2010taxreturnforfree Any course or other education involving sports, games, or hobbies, or any noncredit course, unless such course or other education is part of the student's degree program or (for the lifetime learning credit only) helps the student acquire or improve job skills. Filemy2010taxreturnforfree You should receive Form 1098–T, Tuition Statement, from the institution reporting either payments received in 2013 (box 1) or amounts billed in 2013 (box 2). Filemy2010taxreturnforfree However, the amount in box 1 or 2 of Form 1098–T may be different from the amount you paid (or are treated as having paid). Filemy2010taxreturnforfree In completing Form 8863, use only the amounts you actually paid (plus any amounts you are treated as having paid) in 2013, reduced as necessary, as described in Adjustments to Qualified Education Expenses , later. Filemy2010taxreturnforfree Qualified education expenses paid on behalf of the student by someone other than the student (such as a relative) are treated as paid by the student. Filemy2010taxreturnforfree Qualified education expenses paid (or treated as paid) by a student who is claimed as a dependent on your tax return are treated as paid by you. Filemy2010taxreturnforfree If you or the student takes a deduction for higher education expenses, such as on Schedule A or C (Form 1040), you cannot use those expenses in your qualified education expenses when figuring your education credits. Filemy2010taxreturnforfree Qualified education expenses for any academic period must be reduced by any tax-free educational assistance allocable to that academic period. Filemy2010taxreturnforfree See Adjustments to Qualified Education Expenses, later. Filemy2010taxreturnforfree Prepaid Expenses. Filemy2010taxreturnforfree   Qualified education expenses paid in 2013 for an academic period that begins in the first 3 months of 2014 can be used in figuring an education credit for 2013 only. Filemy2010taxreturnforfree See Academic period , earlier. Filemy2010taxreturnforfree For example, if you pay $2,000 in December 2013 for qualified tuition for the 2014 winter quarter that begins in January 2014, you can use that $2,000 in figuring an education credit for 2013 only (if you meet all the other requirements). Filemy2010taxreturnforfree    You cannot use any amount you paid in 2012 or 2014 to figure the qualified education expenses you use to figure your 2013 education credit(s). Filemy2010taxreturnforfree Paid with borrowed funds. Filemy2010taxreturnforfree   You can claim an education credit for qualified education expenses paid with the proceeds of a loan. Filemy2010taxreturnforfree Use the expenses to figure the credit for the year in which the expenses are paid, not the year in which the loan is repaid. Filemy2010taxreturnforfree Treat loan payments sent directly to the educational institution as paid on the date the institution credits the student's account. Filemy2010taxreturnforfree Student withdraws from class(es). Filemy2010taxreturnforfree   You can claim an education credit for qualified education expenses not refunded when a student withdraws. Filemy2010taxreturnforfree No Double Benefit Allowed You cannot do any of the following. Filemy2010taxreturnforfree Deduct higher education expenses on your income tax return (as, for example, a business expense) and also claim an education credit based on those same expenses. Filemy2010taxreturnforfree Claim more than one education credit based on the same qualified education expenses. Filemy2010taxreturnforfree Claim an education credit based on the same expenses used to figure the tax-free portion of a distribution from a Coverdell education savings account (ESA) or qualified tuition program (QTP). Filemy2010taxreturnforfree Claim an education credit based on qualified education expenses paid with educational assistance, such as a tax-free scholarship, grant, or employer-provided educational assistance. Filemy2010taxreturnforfree See Adjustments to Qualified Education Expenses, next. Filemy2010taxreturnforfree Adjustments to Qualified Education Expenses For each student, reduce the qualified education expenses paid in 2013 by or on behalf of that student under the following rules. Filemy2010taxreturnforfree The result is the amount of adjusted qualified education expenses for each student. Filemy2010taxreturnforfree Tax-free educational assistance. Filemy2010taxreturnforfree   For tax-free educational assistance received in 2013, reduce the qualified educational expenses for each academic period by the amount of tax-free educational assistance allocable to that academic period. Filemy2010taxreturnforfree See Academic period , earlier. Filemy2010taxreturnforfree      Tax-free educational assistance includes:    Tax-free parts of scholarships and fellowships (see chapter 12 of this publication and chapter 1 of Pub. Filemy2010taxreturnforfree 970), The tax-free part of Pell grants (see chapter 1 of Pub. Filemy2010taxreturnforfree 970), The tax-free part of employer-provided educational assistance (see Pub. Filemy2010taxreturnforfree 970), Veterans' educational assistance (see chapter 1 of Pub. Filemy2010taxreturnforfree 970), and Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. Filemy2010taxreturnforfree Generally, any scholarship or fellowship is treated as tax-free educational assistance. Filemy2010taxreturnforfree However, a scholarship or fellowship is not treated as tax-free educational assistance to the extent the student includes it in gross income (if the student is required to file a tax return) for the year the scholarship or fellowship is received and either: The scholarship or fellowship (or any part of it) must be applied (by its terms) to expenses (such as room and board) other than qualified education expenses as defined in Qualified education expenses in Pub. Filemy2010taxreturnforfree 970, chapter 1; or The scholarship or fellowship (or any part of it) may be applied (by its terms) to expenses (such as room and board) other than qualified education expenses as defined in Qualified education expenses in Pub. Filemy2010taxreturnforfree 970, chapter 1. Filemy2010taxreturnforfree You may be able to increase the combined value of an education credit and certain educational assistance if the student includes some or all of the educational assistance in income in the year received. Filemy2010taxreturnforfree For details, see Adjustments of Qualified Education Expenses, in chapters 2 and 3 of Pub. Filemy2010taxreturnforfree 970. Filemy2010taxreturnforfree Some tax-free educational assistance received after 2013 may be treated as a refund of qualified education expenses paid in 2013. Filemy2010taxreturnforfree This tax-free educational assistance is any tax-free educational assistance received by you or anyone else after 2013 for qualified education expenses paid on behalf of a student in 2013 (or attributable to enrollment at an eligible educational institution during 2013). Filemy2010taxreturnforfree If this tax-free educational assistance is received after 2013 but before you file your 2013 income tax return, see Refunds received after 2013 but before your income tax return is filed, later. Filemy2010taxreturnforfree If this tax-free educational assistance is received after 2013 and after you file your 2013 income tax return, see Refunds received after 2013 and after your income tax return is filed, later. Filemy2010taxreturnforfree Refunds. Filemy2010taxreturnforfree   A refund of qualified education expenses may reduce qualified education expenses for the tax year or may require you to repay (recapture) the credit that you claimed in an earlier year. Filemy2010taxreturnforfree Some tax-free educational assistance received after 2013 may be treated as a refund. Filemy2010taxreturnforfree See Tax-free educational assistance, earlier. Filemy2010taxreturnforfree Refunds received in 2013. Filemy2010taxreturnforfree   For each student, figure the adjusted qualified education expenses for 2013 by adding all the qualified education expenses paid in 2013 and subtracting any refunds of those expenses received from the eligible educational institution during 2013. Filemy2010taxreturnforfree Refunds received after 2013 but before your income tax return is filed. Filemy2010taxreturnforfree   If anyone receives a refund after 2013 of qualified education expenses paid on behalf of a student in 2013 and the refund is received before you file your 2013 income tax return, reduce the amount of qualified education expenses for 2013 by the amount of the refund. Filemy2010taxreturnforfree Refunds received after 2013 and after your income tax return is filed. Filemy2010taxreturnforfree   If anyone receives a refund after 2013 of qualified education expenses paid on behalf of a student in 2013 and the refund is received after you file your 2013 income tax return, you may need to repay some or all of the credit that you claimed. Filemy2010taxreturnforfree See Credit recapture, next. Filemy2010taxreturnforfree Credit recapture. Filemy2010taxreturnforfree    If any tax-free educational assistance for the qualified education expenses paid in 2013, or any refund of your qualified education expenses paid in 2013, is received after you file your 2013 income tax return, you must recapture (repay) any excess credit. Filemy2010taxreturnforfree You do this by refiguring the amount of your adjusted qualified education expenses for 2013 by reducing the expenses by the amount of the refund or tax-free educational assistance. Filemy2010taxreturnforfree You then refigure your education credit(s) for 2013 and figure the amount by which your 2013 tax liability would have increased if you had claimed the refigured credit(s). Filemy2010taxreturnforfree Include that amount as an additional tax for the year the refund or tax-free assistance was received. Filemy2010taxreturnforfree Example. Filemy2010taxreturnforfree    You paid $8,000 tuition and fees in December 2013 for your child's Spring semester beginning in January 2014. Filemy2010taxreturnforfree You filed your 2013 tax return on February 3, 2014, and claimed a lifetime learning credit of $1,600 ($8,000 qualified education expense paid x . Filemy2010taxreturnforfree 20). Filemy2010taxreturnforfree You claimed no other tax credits. Filemy2010taxreturnforfree After you filed your return, your child withdrew from two courses and you received a refund of $1,400. Filemy2010taxreturnforfree You must refigure your 2013 lifetime learning credit using $6,600 ($8,000 qualified education expenses − $1,400 refund). Filemy2010taxreturnforfree The refigured credit is $1,320 and your tax liability increased by $280. Filemy2010taxreturnforfree You must include the difference of $280 ($1,600 credit originally claimed − $1,320 refigured credit) as additional tax on your 2014 income tax return. Filemy2010taxreturnforfree See the instructions for your 2014 income tax return to determine where to include this tax. Filemy2010taxreturnforfree If you also pay qualified education expenses in 2014 for an academic period that begins in the first 3 months of 2014 and you receive tax-free educational assistance, or a refund, as described above, you may choose to reduce your qualified education expenses for 2014 instead of reducing your expenses for 2013. Filemy2010taxreturnforfree Amounts that do not reduce qualified education expenses. Filemy2010taxreturnforfree   Do not reduce qualified education expenses by amounts paid with funds the student receives as: Payment for services, such as wages, A loan, A gift, An inheritance, or A withdrawal from the student's personal savings. Filemy2010taxreturnforfree   Do not reduce the qualified education expenses by any scholarship or fellowship reported as income on the student's tax return in the following situations. Filemy2010taxreturnforfree The use of the money is restricted, by the terms of the scholarship or fellowship, to costs of attendance (such as room and board) other than qualified education expenses, as defined in Chapter 1 of Pub. Filemy2010taxreturnforfree 970. Filemy2010taxreturnforfree The use of the money is not restricted. Filemy2010taxreturnforfree   For examples, see chapter 2 in Pub. Filemy2010taxreturnforfree 970. Filemy2010taxreturnforfree Figure 35-A. Filemy2010taxreturnforfree Can You Claim an Education Credit for 2013? This image is too large to be displayed in the current screen. Filemy2010taxreturnforfree Please click the link to view the image. Filemy2010taxreturnforfree Figure 35-A. Filemy2010taxreturnforfree Can You Claim an Education Credit for 2013? Prev  Up  Next   Home   More Online Publications