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Filing Back Tax Returns

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Filing Back Tax Returns

Filing back tax returns 37. Filing back tax returns   Other Credits Table of Contents What's New Introduction Useful Items - You may want to see: Nonrefundable CreditsAdoption Credit Alternative Motor Vehicle Credit Alternative Fuel Vehicle Refueling Property Credit Credit to Holders of Tax Credit Bonds Foreign Tax Credit Mortgage Interest Credit Nonrefundable Credit for Prior Year Minimum Tax Plug-in Electric Drive Motor Vehicle Credit Residential Energy Credits Retirement Savings Contributions Credit (Saver's Credit) Refundable CreditsCredit for Tax on Undistributed Capital Gain Health Coverage Tax Credit Credit for Excess Social Security Tax or Railroad Retirement Tax Withheld What's New Adoption credit. Filing back tax returns  The maximum adoption credit is $12,970 for 2013. Filing back tax returns See Adoption Credit . Filing back tax returns Plug-in electric vehicle credit. Filing back tax returns  This credit has expired. Filing back tax returns Credit for prior year minimum tax. Filing back tax returns  The refundable portion of the credit for prior year minimum tax has expired. Filing back tax returns Excess withholding of social security and railroad retirement tax. Filing back tax returns  Social security tax and tier 1 railroad retirement (RRTA) tax were both withheld during 2013 at a rate of 6. Filing back tax returns 2% of wages up to $113,700. Filing back tax returns If you worked for more than one employer and had too much social security or RRTA tax withheld during 2013, you may be entitled to a credit for the excess withholding. Filing back tax returns See Credit for Excess Social Security Tax or Railroad Retirement Tax Withheld . Filing back tax returns Introduction This chapter discusses the following nonrefundable credits. Filing back tax returns Adoption credit. Filing back tax returns Alternative motor vehicle credit. Filing back tax returns Alternative fuel vehicle refueling property credit. Filing back tax returns Credit to holders of tax credit bonds. Filing back tax returns Foreign tax credit. Filing back tax returns Mortgage interest credit. Filing back tax returns Nonrefundable credit for prior year minimum tax. Filing back tax returns Plug-in electric drive motor vehicle credit. Filing back tax returns Residential energy credits. Filing back tax returns Retirement savings contributions credit. Filing back tax returns This chapter also discusses the following refundable credits. Filing back tax returns Credit for tax on undistributed capital gain. Filing back tax returns Health coverage tax credit. Filing back tax returns Credit for excess social security tax or railroad retirement tax withheld. Filing back tax returns Several other credits are discussed in other chapters in this publication. Filing back tax returns Child and dependent care credit (chapter 32). Filing back tax returns Credit for the elderly or the disabled (chapter 33). Filing back tax returns Child tax credit (chapter 34). Filing back tax returns Education credits (chapter 35). Filing back tax returns Earned income credit (chapter 36). Filing back tax returns Nonrefundable credits. Filing back tax returns   The first part of this chapter, Nonrefundable Credits , covers ten credits that you subtract from your tax. Filing back tax returns These credits may reduce your tax to zero. Filing back tax returns If these credits are more than your tax, the excess is not refunded to you. Filing back tax returns Refundable credits. Filing back tax returns   The second part of this chapter, Refundable Credits , covers three credits that are treated as payments and are refundable to you. Filing back tax returns These credits are added to the federal income tax withheld and any estimated tax payments you made. Filing back tax returns If this total is more than your total tax, the excess will be refunded to you. Filing back tax returns Useful Items - You may want to see: Publication 502 Medical and Dental Expenses 514 Foreign Tax Credit for  Individuals 530 Tax Information for Homeowners 590 Individual Retirement Arrangements (IRAs) Form (and Instructions) 1116 Foreign Tax Credit 2439 Notice to Shareholder of Undistributed Long-Term Capital Gains 5695 Residential Energy Credits 8396 Mortgage Interest Credit 8801 Credit For Prior Year Minimum Tax — Individuals, Estates, and Trusts 8828 Recapture of Federal Mortgage Subsidy 8839 Qualified Adoption Expenses 8880 Credit for Qualified Retirement Savings Contributions 8885 Health Coverage Tax Credit 8910 Alternative Motor Vehicle Credit 8911 Alternative Fuel Vehicle Refueling Property Credit 8912 Credit to Holders of Tax Credit Bonds 8936 Qualified Plug-in Electric Drive Motor Vehicle Credit Nonrefundable Credits The credits discussed in this part of the chapter can reduce your tax. Filing back tax returns However, if the total of these credits is more than your tax, the excess is not refunded to you. Filing back tax returns Adoption Credit You may be able to take a tax credit of up to $12,970 for qualified expenses paid to adopt an eligible child. Filing back tax returns The credit may be allowed for the adoption of a child with special needs even if you do not have any qualified expenses. Filing back tax returns If your modified adjusted gross income (AGI) is more than $194,580, your credit is reduced. Filing back tax returns If your modified AGI is $234,580 or more, you cannot take the credit. Filing back tax returns Qualified adoption expenses. Filing back tax returns   Qualified adoption expenses are reasonable and necessary expenses directly related to, and whose principal purpose is for, the legal adoption of an eligible child. Filing back tax returns These expenses include: Adoption fees, Court costs, Attorney fees, Travel expenses (including amounts spent for meals and lodging) while away from home, and Re-adoption expenses to adopt a foreign child. Filing back tax returns Nonqualified expenses. Filing back tax returns   Qualified adoption expenses do not include expenses: That violate state or federal law, For carrying out any surrogate parenting arrangement, For the adoption of your spouse's child, For which you received funds under any federal, state, or local program, Allowed as a credit or deduction under any other federal income tax rule, or Paid or reimbursed by your employer or any other person or organization. Filing back tax returns Eligible child. Filing back tax returns   The term “eligible child” means any individual: Under 18 years old, or Physically or mentally incapable of caring for himself or herself. Filing back tax returns Child with special needs. Filing back tax returns   An eligible child is a child with special needs if all three of the following apply. Filing back tax returns The child was a citizen or resident of the United States (including U. Filing back tax returns S. Filing back tax returns possessions) at the time the adoption process began. Filing back tax returns A state (including the District of Columbia) has determined that the child cannot or should not be returned to his or her parents' home. Filing back tax returns The state has determined that the child will not be adopted unless assistance is provided to the adoptive parents. Filing back tax returns Factors used by states to make this determination include: The child's ethnic background, The child's age, Whether the child is a member of a minority or sibling group, and Whether the child has a medical condition or a physical, mental, or emotional handicap. Filing back tax returns When to take the credit. Filing back tax returns   Generally, until the adoption becomes final, you take the credit in the year after your qualified expenses were paid or incurred. Filing back tax returns If the adoption becomes final, you take the credit in the year your expenses were paid or incurred. Filing back tax returns See the Instructions for Form 8839 for more specific information on when to take the credit. Filing back tax returns Foreign child. Filing back tax returns   If the child is not a U. Filing back tax returns S. Filing back tax returns citizen or resident at the time the adoption process began, you cannot take the credit unless the adoption becomes final. Filing back tax returns You treat all adoption expenses paid or incurred in years before the adoption becomes final as paid or incurred in the year it becomes final. Filing back tax returns How to take the credit. Filing back tax returns   Figure your 2013 nonrefundable credit and any carryforward to 2014 on Form 8839 and attach it to your Form 1040. Filing back tax returns Include the credit in your total for Form 1040, line 53. Filing back tax returns Check box c and enter “8839” on the line next to that box. Filing back tax returns More information. Filing back tax returns   For more information, see the Instructions for Form 8839. Filing back tax returns Alternative Motor Vehicle Credit You may be able to take this credit if you place a qualified fuel cell vehicle in service in 2013. Filing back tax returns Amount of credit. Filing back tax returns   Generally, you can rely on the manufacturer's certification to the IRS that a specific make, model, and model year vehicle qualifies for the credit and the amount of the credit for which it qualifies. Filing back tax returns In the case of a foreign manufacturer, you generally can rely on its domestic distributor's certification to the IRS. Filing back tax returns   Ordinarily the amount of the credit is 100% of the manufacturer's (or domestic distributor's) certification to the IRS of the maximum credit allowable. Filing back tax returns How to take the credit. Filing back tax returns   To take the credit, you must complete Form 8910 and attach it to your Form 1040. Filing back tax returns Include the credit in your total for Form 1040, line 53. Filing back tax returns Check box c and enter “8910” on the line next to that box. Filing back tax returns More information. Filing back tax returns   For more information on the credit, see the Instructions for Form 8910. Filing back tax returns Alternative Fuel Vehicle Refueling Property Credit You may be able to take a credit if you place qualified alternative fuel vehicle refueling property in service in 2013. Filing back tax returns Qualified alternative fuel vehicle refueling property. Filing back tax returns   Qualified alternative fuel vehicle refueling property is any property (other than a building or its structural components) used for either of the following. Filing back tax returns To store or dispense alternative fuel into the fuel tank of a motor vehicle propelled by the fuel, but only if the storage or dispensing is at the point where the fuel is delivered into that tank. Filing back tax returns To recharge an electric vehicle, but only if the recharging property is located at the point where the vehicle is recharged. Filing back tax returns   The following are alternative fuels. Filing back tax returns Any fuel at least 85% of the volume of which consists of one or more of the following: ethanol, natural gas, compressed natural gas, liquefied natural gas, liquefied petroleum gas, or hydrogen. Filing back tax returns Any mixture which consists of two or more of the following: biodiesel, diesel fuel, or kerosene, and at least 20% of the volume of which consists of biodiesel determined without regard to any kerosene. Filing back tax returns Electricity. Filing back tax returns Amount of the credit. Filing back tax returns   For personal use property, the credit is generally the smaller of 30% of the property's cost or $1,000. Filing back tax returns For business use property, the credit is generally the smaller of 30% of the property's cost or $30,000. Filing back tax returns How to take the credit. Filing back tax returns   To take the credit, you must complete Form 8911 and attach it to your Form 1040. Filing back tax returns Include the credit in your total for Form 1040, line 53. Filing back tax returns Check box c and enter “8911” on the line next to that box. Filing back tax returns More information. Filing back tax returns   For more information on the credit, see the Form 8911 instructions. Filing back tax returns Credit to Holders of Tax Credit Bonds Tax credit bonds are bonds in which the holder receives a tax credit in lieu of some or all of the interest on the bond. Filing back tax returns You may be able to take a credit if you are a holder of one of the following bonds. Filing back tax returns Clean renewable energy bonds (issued before 2010). Filing back tax returns New clean renewable energy bonds. Filing back tax returns Qualified energy conservation bonds. Filing back tax returns Qualified school construction bonds. Filing back tax returns Qualified zone academy bonds. Filing back tax returns Build America bonds. Filing back tax returns In some instances, an issuer may elect to receive a credit for interest paid on the bond. Filing back tax returns If the issuer makes this election, you cannot also claim a credit. Filing back tax returns Interest income. Filing back tax returns   The amount of any tax credit allowed (figured before applying tax liability limits) must be included as interest income on your tax return. Filing back tax returns How to take the credit. Filing back tax returns   Complete Form 8912 and attach it to your Form 1040. Filing back tax returns Include the credit in your total for Form 1040, line 53. Filing back tax returns Check box c and enter “8912” on the line next to that box. Filing back tax returns More information. Filing back tax returns   For more information, see the Instructions for Form 8912. Filing back tax returns Foreign Tax Credit You generally can choose to take income taxes you paid or accrued during the year to a foreign country or U. Filing back tax returns S. Filing back tax returns possession as a credit against your U. Filing back tax returns S. Filing back tax returns income tax. Filing back tax returns Or, you can deduct them as an itemized deduction (see chapter 22). Filing back tax returns You cannot take a credit (or deduction) for foreign income taxes paid on income that you exclude from U. Filing back tax returns S. Filing back tax returns tax under any of the following. Filing back tax returns Foreign earned income exclusion. Filing back tax returns Foreign housing exclusion. Filing back tax returns Income from Puerto Rico exempt from U. Filing back tax returns S. Filing back tax returns tax. Filing back tax returns Possession exclusion. Filing back tax returns Limit on the credit. Filing back tax returns   Unless you can elect not to file Form 1116 (see Exception , later), your foreign tax credit cannot be more than your U. Filing back tax returns S. Filing back tax returns tax liability (Form 1040, line 44), multiplied by a fraction. Filing back tax returns The numerator of the fraction is your taxable income from sources outside the United States. Filing back tax returns The denominator is your total taxable income from U. Filing back tax returns S. Filing back tax returns and foreign sources. Filing back tax returns See Publication 514 for more information. Filing back tax returns How to take the credit. Filing back tax returns   Complete Form 1116 and attach it to your Form 1040. Filing back tax returns Enter the credit on Form 1040, line 47. Filing back tax returns Exception. Filing back tax returns   You do not have to complete Form 1116 to take the credit if all of the following apply. Filing back tax returns All of your gross foreign source income was from interest and dividends and all of that income and the foreign tax paid on it were reported to you on Form 1099-INT, Form 1099-DIV, or Schedule K-1 (or substitute statement). Filing back tax returns If you had dividend income from shares of stock, you held those shares for at least 16 days. Filing back tax returns You are not filing Form 4563 or excluding income from sources within Puerto Rico. Filing back tax returns The total of your foreign taxes was not more than $300 (not more than $600 if married filing jointly). Filing back tax returns All of your foreign taxes were: Legally owed and not eligible for a refund, and Paid to countries that are recognized by the United States and do not support terrorism. Filing back tax returns More information. Filing back tax returns   For more information on the credit and these requirements, see the Instructions for Form 1116. Filing back tax returns Mortgage Interest Credit The mortgage interest credit is intended to help lower-income individuals own a home. Filing back tax returns If you qualify, you can take the credit each year for part of the home mortgage interest you pay. Filing back tax returns Who qualifies. Filing back tax returns   You may be eligible for the credit if you were issued a qualified mortgage credit certificate (MCC) from your state or local government. Filing back tax returns Generally, an MCC is issued only in connection with a new mortgage for the purchase of your main home. Filing back tax returns Amount of credit. Filing back tax returns   Figure your credit on Form 8396. Filing back tax returns If your mortgage loan amount is equal to (or smaller than) the certified indebtedness (loan) amount shown on your MCC, enter on Form 8396, line 1, all the interest you paid on your mortgage during the year. Filing back tax returns   If your mortgage loan amount is larger than the certified indebtedness amount shown on your MCC, you can figure the credit on only part of the interest you paid. Filing back tax returns To find the amount to enter on line 1, multiply the total interest you paid during the year on your mortgage by the following fraction. Filing back tax returns      Certified indebtedness amount on your MCC     Original amount of your mortgage   Limit based on credit rate. Filing back tax returns   If the certificate credit rate is more than 20%, the credit you are allowed cannot be more than $2,000. Filing back tax returns If two or more persons (other than a married couple filing a joint return) hold an interest in the home to which the MCC relates, this $2,000 limit must be divided based on the interest held by each person. Filing back tax returns See Publication 530 for more information. Filing back tax returns Carryforward. Filing back tax returns   Your credit (after applying the limit based on the credit rate) is also subject to a limit based on your tax that is figured using Form 8396. Filing back tax returns If your allowable credit is reduced because of this tax liability limit, you can carry forward the unused portion of the credit to the next 3 years or until used, whichever comes first. Filing back tax returns   If you are subject to the $2,000 limit because your certificate credit rate is more than 20%, you cannot carry forward any amount more than $2,000 (or your share of the $2,000 if you must divide the credit). Filing back tax returns How to take the credit. Filing back tax returns    Figure your 2013 credit and any carryforward to 2014 on Form 8396, and attach it to your Form 1040. Filing back tax returns Be sure to include any credit carryforward from 2010, 2011, and 2012. Filing back tax returns   Include the credit in your total for Form 1040, line 53. Filing back tax returns Check box c and enter “8396” on the line next to that box. Filing back tax returns Reduced home mortgage interest deduction. Filing back tax returns   If you itemize your deductions on Schedule A (Form 1040), you must reduce your home mortgage interest deduction by the amount of the mortgage interest credit shown on Form 8396, line 3. Filing back tax returns You must do this even if part of that amount is to be carried forward to 2014. Filing back tax returns For more information about the home mortgage interest deduction, see chapter 23. Filing back tax returns Recapture of federal mortgage subsidy. Filing back tax returns   If you received an MCC with your mortgage loan, you may have to recapture (pay back) all or part of the benefit you received from that program. Filing back tax returns The recapture may be required if you sell or dispose of your home at a gain during the first 9 years after the date you closed your mortgage loan. Filing back tax returns See the Instructions for Form 8828 and chapter 15 for more information. Filing back tax returns More information. Filing back tax returns   For more information on the credit, see the Form 8396 instructions. Filing back tax returns Nonrefundable Credit for Prior Year Minimum Tax The tax laws give special treatment to some kinds of income and allow special deductions and credits for some kinds of expenses. Filing back tax returns If you benefit from these laws, you may have to pay at least a minimum amount of tax in addition to any other tax on these items. Filing back tax returns This is called the alternative minimum tax. Filing back tax returns The special treatment of some items of income and expenses only allows you to postpone paying tax until a later year. Filing back tax returns If in prior years you paid alternative minimum tax because of these tax postponement items, you may be able to take a credit for prior year minimum tax against your current year's regular tax. Filing back tax returns You may be able to take a credit against your regular tax if for 2012 you had: An alternative minimum tax liability and adjustments or preferences other than exclusion items, A minimum tax credit that you are carrying forward to 2013, or An unallowed qualified electric vehicle credit. Filing back tax returns How to take the credit. Filing back tax returns    Figure your 2013 nonrefundable credit (if any), and any carryforward to 2014 on Form 8801, and attach it to your Form 1040. Filing back tax returns Include the credit in your total for Form 1040, line 53, and check box b. Filing back tax returns You can carry forward any unused credit for prior year minimum tax to later years until it is completely used. Filing back tax returns More information. Filing back tax returns   For more information on the credit, see the Instructions for Form 8801. Filing back tax returns Plug-in Electric Drive Motor Vehicle Credit You may be able to take this credit if you placed in service for business or personal use a qualified plug-in electric drive motor vehicle or a qualified two- or three-wheeled plug-in electric vehicle in 2013 and you meet some other requirements. Filing back tax returns Qualified plug-in electric drive motor vehicle. Filing back tax returns   This is a new vehicle with at least four wheels that: Is propelled to a significant extent by an electric motor that draws electricity from a battery that has a capacity of not less than 4 kilowatt hours and is capable of being recharged from an external source of electricity, and Has a gross vehicle weight of less than 14,000 pounds. Filing back tax returns Qualified two- or three-wheeled plug-in electric vehicle. Filing back tax returns   This is a new vehicle with two or three wheels that: Is capable of achieving a speed of 45 miles per hour or greater, Is propelled to a significant extent by an electric motor that draws electricity from a battery that has a capacity of not less than 2. Filing back tax returns 5 kilowatt hours and is capable of being recharged from an external source of electricity, and Has a gross vehicle weight of less than 14,000 pounds. Filing back tax returns Certification and other requirements. Filing back tax returns   Generally, you can rely on the manufacturer's (or, in the case of a foreign manufacturer, its domestic distributor's) certification to the IRS that a specific make, model, and model year vehicle qualifies for the credit and, if applicable, the amount of the credit for which it qualifies. Filing back tax returns However, if the IRS publishes an announcement that the certification for any specific make, model, and model year vehicle has been withdrawn, you cannot rely on the certification for such a vehicle purchased after the date of publication of the withdrawal announcement. Filing back tax returns   The following requirements must also be met to qualify for the credit. Filing back tax returns You are the owner of the vehicle. Filing back tax returns If the vehicle is leased, only the lessor, and not the lessee, is entitled to the credit. Filing back tax returns You placed the vehicle in service during 2013. Filing back tax returns The vehicle is manufactured primarily for use on public streets, roads, and highways. Filing back tax returns The original use of the vehicle began with you. Filing back tax returns You acquired the vehicle for your use or to lease to others, and not for resale. Filing back tax returns In the case of the qualified two- or three-wheeled plug-in electric vehicle, the vehicle is acquired after 2011 and before 2014. Filing back tax returns You use the vehicle primarily in the United States. Filing back tax returns How to take the credit. Filing back tax returns   To take the credit, you must complete Form 8936 and attach it to your Form 1040. Filing back tax returns Include the credit in your total for Form 1040, line 53. Filing back tax returns Check box c and enter “8936” on the line next to that box. Filing back tax returns More information. Filing back tax returns   For more information on the credit, see the Form 8936 instructions. Filing back tax returns Residential Energy Credits You may be able to take one or both of the following credits if you made energy saving improvements to your home located in the United States in 2013. Filing back tax returns Nonbusiness energy property credit. Filing back tax returns Residential energy efficient property credit. Filing back tax returns If you are a member of a condominium management association for a condominium you own or a tenant-stockholder in a cooperative housing corporation, you are treated as having paid your proportionate share of any costs of the association or corporation for purposes of these credits. Filing back tax returns Nonbusiness energy property credit. Filing back tax returns   You may be able to take a credit equal to the sum of: 10% of the amount paid or incurred for qualified energy efficiency improvements installed during 2013, and Any residential energy property costs paid or incurred in 2013. Filing back tax returns   There is a lifetime limit of $500 for all years after 2005, of which only $200 can be for windows; $50 for any advanced main air circulating fan; $150 for any qualified natural gas, propane, or oil furnace or hot water boiler; and $300 for any item of energy efficient building property. Filing back tax returns    If the total of nonbusiness energy property credits you have taken in previous years (after 2005) is more than $500, you cannot take this credit in 2013. Filing back tax returns   Qualified energy efficiency improvements are the following improvements that are new, can be expected to remain in use at least 5 years, and meet certain requirements for energy efficiency. Filing back tax returns Any insulation material or system that is specifically and primarily designed to reduce heat loss or gain of a home. Filing back tax returns Exterior window (including skylights). Filing back tax returns Exterior doors. Filing back tax returns Any metal or asphalt roof that has appropriate pigmented coatings or cooling granules specifically and primarily designed to reduce heat gain of the home. Filing back tax returns   Residential energy property is any of the following. Filing back tax returns Certain electric heat pump water heaters; electric heat pumps; central air conditioners; natural gas, propane, or oil water heater; and stoves that use biomass fuel. Filing back tax returns Qualified natural gas, propane, or oil furnaces; and qualified natural gas, propane, or oil hot water boilers. Filing back tax returns Certain advanced main air circulating fans used in natural gas, propane, or oil furnaces. Filing back tax returns Residential energy efficient property credit. Filing back tax returns   You may be able to take a credit of 30% of your costs of qualified solar electric property, solar water heating property, fuel cell property, small wind energy property, and geothermal heat pump property. Filing back tax returns The credit amount for costs paid for qualified fuel cell property is limited to $500 for each one-half kilowatt of capacity of the property. Filing back tax returns Basis reduction. Filing back tax returns   You must reduce the basis of your home by the amount of any credit allowed. Filing back tax returns How to take the credit. Filing back tax returns   Complete Form 5695 and attach it to your Form 1040. Filing back tax returns Enter the credit on Form 1040, line 52. Filing back tax returns More information. Filing back tax returns   For more information on these credits, see the Form 5695 instructions. Filing back tax returns Retirement Savings Contributions Credit (Saver's Credit) You may be able to take this credit if you, or your spouse if filing jointly, made: Contributions (other than rollover contributions) to a traditional or Roth IRA, Elective deferrals to a 401(k) or 403(b) plan (including designated Roth contributions) or to a governmental 457, SEP, or SIMPLE plan, Voluntary employee contributions to a qualified retirement plan (including the federal Thrift Savings Plan), or Contributions to a 501(c)(18)(D) plan. Filing back tax returns However, you cannot take the credit if either of the following applies. Filing back tax returns The amount on Form 1040, line 38, or Form 1040A, line 22, is more than $29,500 ($44,250 if head of household; $59,000 if married filing jointly). Filing back tax returns The person(s) who made the qualified contribution or elective deferral (a) was born after January 1, 1996, (b) is claimed as a dependent on someone else's 2013 tax return, or (c) was a student (defined next). Filing back tax returns Student. Filing back tax returns   You were a student if during any part of 5 calendar months of 2013 you: Were enrolled as a full-time student at a school, or Took a full-time, on-farm training course given by a school or a state, county, or local government agency. Filing back tax returns School. Filing back tax returns   A school includes a technical, trade, or mechanical school. Filing back tax returns It does not include an on-the-job training course, correspondence school, or school offering courses only through the Internet. Filing back tax returns How to take the credit. Filing back tax returns   Figure the credit on Form 8880. Filing back tax returns Enter the credit on your Form 1040, line 50, or your Form 1040A, line 32, and attach Form 8880 to your return. Filing back tax returns More information. Filing back tax returns   For more information on the credit, see the Form 8880 instructions. Filing back tax returns Refundable Credits The credits discussed in this part of the chapter are treated as payments of tax. Filing back tax returns If the total of these credits, withheld federal income tax, and estimated tax payments is more than your total tax, the excess can be refunded to you. Filing back tax returns Credit for Tax on Undistributed Capital Gain You must include in your income any amounts that regulated investment companies (commonly called mutual funds) or real estate investment trusts (REITs) allocated to you as capital gain distributions, even if you did not actually receive them. Filing back tax returns If the mutual fund or REIT paid a tax on the capital gain, you are allowed a credit for the tax since it is considered paid by you. Filing back tax returns The mutual fund or REIT will send you Form 2439 showing your share of the undistributed capital gains and the tax paid, if any. Filing back tax returns How to take the credit. Filing back tax returns   To take the credit, attach Copy B of Form 2439 to your Form 1040. Filing back tax returns Include the amount from box 2 of your Form 2439 in the total for Form 1040, line 71, and check box a. Filing back tax returns More information. Filing back tax returns   See Capital Gain Distributions in chapter 8 for more information on undistributed capital gains. Filing back tax returns Health Coverage Tax Credit You may be able to take this credit for any month in which all the following statements were true on the first day of the month. Filing back tax returns You were an eligible trade adjustment assistance (TAA) recipient, alternative TAA (ATAA) recipient, reemployment TAA (RTAA) recipient, or Pension Benefit Guaranty Corporation (PBGC) pension recipient (defined later); or you were a qualified family member of one of these individuals when the individual died or you finalized a divorce with one of these individuals. Filing back tax returns You and/or your family members were covered by a qualified health insurance plan for which you paid the entire premiums, or your portion of the premiums, directly to your health plan or to “U. Filing back tax returns S. Filing back tax returns Treasury–HCTC. Filing back tax returns ” You were not enrolled in Medicare Part A, B, or C, or you were enrolled in Medicare but your family member(s) qualified for the HCTC. Filing back tax returns You were not enrolled in Medicaid or the Children's Health Insurance Program (CHIP). Filing back tax returns You were not enrolled in the Federal Employees Health Benefits program (FEHBP) or eligible to receive benefits under the U. Filing back tax returns S. Filing back tax returns military health system (TRICARE). Filing back tax returns You were not imprisoned under federal, state, or local authority. Filing back tax returns Your employer did not pay 50% or more of the cost of coverage. Filing back tax returns You did not receive a 65% COBRA premium reduction from your former employer or COBRA administrator. Filing back tax returns But, you cannot take the credit if you can be claimed as a dependent on someone else's 2013 tax return. Filing back tax returns If you meet all of these conditions, you may be able to take a credit of up to 72. Filing back tax returns 5% of the amount you paid directly to a qualified health plan for you and any qualifying family members. Filing back tax returns You cannot take the credit for insurance premiums on coverage that was actually paid for with a National Emergency Grant. Filing back tax returns The amount you paid for qualified health insurance coverage must be reduced by any Archer MSA and health savings account distributions used to pay for the coverage. Filing back tax returns You can take this credit on your tax return or have it paid on your behalf in advance to your insurance company. Filing back tax returns If the credit is paid on your behalf in advance, that amount will reduce the amount of the credit you can take on your tax return. Filing back tax returns TAA recipient. Filing back tax returns   You were an eligible TAA recipient on the first day of the month if, for any day in that month or the prior month, you: Received a trade readjustment allowance, or Would have been entitled to receive such an allowance except that you had not exhausted all rights to any unemployment insurance (except additional compensation that is funded by a state and is not reimbursed from any federal funds) to which you were entitled (or would be entitled if you applied). Filing back tax returns Example. Filing back tax returns You received a trade adjustment allowance for January 2013. Filing back tax returns You were an eligible TAA recipient on the first day of January and February. Filing back tax returns Alternative TAA recipient. Filing back tax returns   You were an eligible alternative TAA recipient on the first day of the month if, for that month or the prior month, you received benefits under an alternative trade adjustment assistance program for older workers established by the Department of Labor. Filing back tax returns Example. Filing back tax returns You received benefits under an alternative trade adjustment assistance program for older workers for October 2013. Filing back tax returns The program was established by the Department of Labor. Filing back tax returns You were an eligible alternative TAA recipient on the first day of October and November. Filing back tax returns RTAA recipient. Filing back tax returns   You were an eligible RTAA recipient on the first day of the month if, for that month or the prior month, you received benefits under a reemployment trade adjustment assistance program for older workers established by the Department of Labor. Filing back tax returns PBGC pension recipient. Filing back tax returns   You were an eligible PBGC pension recipient on the first day of the month, if both of the following apply. Filing back tax returns You were age 55 or older on the first day of the month. Filing back tax returns You received a benefit for that month paid by the PBGC under title IV of the Employee Retirement Income Security Act of 1974 (ERISA). Filing back tax returns If you received a lump-sum payment from the PBGC after August 5, 2002, you meet item (2) above for any month that you would have received a PBGC benefit if you had not received the lump-sum payment. Filing back tax returns How to take the credit. Filing back tax returns   To take the credit, complete Form 8885 and attach it to your Form 1040. Filing back tax returns Include your credit in the total for Form 1040, line 71, and check box c. Filing back tax returns   You must attach health insurance bills (or COBRA payment coupons) and proof of payment for any amounts you include on Form 8885, line 2. Filing back tax returns For details, see Publication 502 or Form 8885. Filing back tax returns More information. Filing back tax returns   For definitions and special rules, including those relating to qualified health insurance plans, qualifying family members, the effect of certain life events, and employer-sponsored health insurance plans, see Publication 502 and the Form 8885 instructions. Filing back tax returns Credit for Excess Social Security Tax or Railroad Retirement Tax Withheld Most employers must withhold social security tax from your wages. Filing back tax returns If you work for a railroad employer, that employer must withhold tier 1 railroad retirement (RRTA) tax and tier 2 RRTA tax. Filing back tax returns If you worked for two or more employers in 2013, you may have had too much social security tax withheld from your pay. Filing back tax returns If one or more of those employers was a railroad employer, too much tier 1 RRTA tax may also have been withheld at the 6. Filing back tax returns 2% rate. Filing back tax returns You can claim the excess social security or tier 1 RRTA tax as a credit against your income tax when you file your return. Filing back tax returns For the tier 1 RRTA tax, only use the portion of the tier 1 RRTA tax that was taxed at the 6. Filing back tax returns 2% rate when figuring if excess tier 1 RRTA tax was withheld; do not include any portion of the tier 1 RRTA tax that was withheld at the Medicare tax rate (1. Filing back tax returns 45%) or the Additional Medicare Tax rate (. Filing back tax returns 9%). Filing back tax returns The following table shows the maximum amount of wages subject to tax and the maximum amount of tax that should have been withheld for 2013. Filing back tax returns Type of tax Maximum  wages subject to tax Maximum tax that should have been withheld Social security or RRTA tier 1 $113,700 $7,049. Filing back tax returns 40 RRTA tier 2 $84,300 $3,709. Filing back tax returns 20 All wages are subject to Medicare tax withholding. Filing back tax returns   Use Form 843, Claim for Refund and Request for Abatement, to claim a refund of excess tier 2 RRTA tax. Filing back tax returns Be sure to attach a copy of all of your W-2 forms. Filing back tax returns Use Worksheet 3-3 in Publication 505, Tax Withholding and Estimated Tax, to help you figure the excess amount. Filing back tax returns Employer's error. Filing back tax returns   If any one employer withheld too much social security or tier 1 RRTA tax, you cannot take the excess as a credit against your income tax. Filing back tax returns The employer should adjust the tax for you. Filing back tax returns If the employer does not adjust the overcollection, you can file a claim for refund using Form 843. Filing back tax returns Joint return. Filing back tax returns   If you are filing a joint return, you cannot add the social security or tier 1 RRTA tax withheld from your spouse's wages to the amount withheld from your wages. Filing back tax returns Figure the withholding separately for you and your spouse to determine if either of you has excess withholding. Filing back tax returns How to figure the credit if you did not work for a railroad. Filing back tax returns   If you did not work for a railroad during 2013, figure the credit as follows: 1. Filing back tax returns Add all social security tax withheld (but not more than $7,049. Filing back tax returns 40 for each employer). Filing back tax returns Enter the total here   2. Filing back tax returns Enter any uncollected social security tax on tips or group-term life insurance included in the total on Form 1040, line 60, identified by “UT”   3. Filing back tax returns Add lines 1 and 2. Filing back tax returns If $7,049. Filing back tax returns 40 or less, stop here. Filing back tax returns You cannot take  the credit   4. Filing back tax returns Social security tax limit 7,049. Filing back tax returns 40 5. Filing back tax returns Credit. Filing back tax returns Subtract line 4 from line 3. Filing back tax returns Enter the result here and on Form 1040, line 69 (or Form 1040A, line 41) $ Example. Filing back tax returns You are married and file a joint return with your spouse who had no gross income in 2013. Filing back tax returns During 2013, you worked for the Brown Technology Company and earned $60,000 in wages. Filing back tax returns Social security tax of $3,720 was withheld. Filing back tax returns You also worked for another employer in 2013 and earned $55,000 in wages. Filing back tax returns $3,410 of social security tax was withheld from these wages. Filing back tax returns Because you worked for more than one employer and your total wages were more than $113,700, you can take a credit of $80. Filing back tax returns 60 for the excess social security tax withheld. Filing back tax returns 1. Filing back tax returns Add all social security tax withheld (but not more than $7,049. Filing back tax returns 40 for each employer). Filing back tax returns Enter the total here $7,130. Filing back tax returns 00 2. Filing back tax returns Enter any uncollected social security tax on tips or group-term life insurance included in the total on Form 1040, line 60, identified by “UT” -0- 3. Filing back tax returns Add lines 1 and 2. Filing back tax returns If $7,049. Filing back tax returns 40 or less, stop here. Filing back tax returns You cannot take the credit 7,130. Filing back tax returns 00 4. Filing back tax returns Social security tax limit 7,049. Filing back tax returns 40 5. Filing back tax returns Credit. Filing back tax returns Subtract line 4 from line 3. Filing back tax returns Enter the result here and on Form 1040, line 69 (or Form 1040A, line 41) $80. Filing back tax returns 60 How to figure the credit if you worked for a railroad. Filing back tax returns   If you were a railroad employee at any time during 2013, figure the credit as follows: 1. Filing back tax returns Add all social security and tier 1 RRTA tax withheld at the 6. Filing back tax returns 2% rate (but not more than $7,049. Filing back tax returns 40 for each employer). Filing back tax returns Enter the total here   2. Filing back tax returns Enter any uncollected social security and tier 1 RRTA tax on tips or group-term life insurance included in the total on Form 1040, line 60, identified by “UT”   3. Filing back tax returns Add lines 1 and 2. Filing back tax returns If $7,049. Filing back tax returns 40 or less, stop here. Filing back tax returns You cannot take  the credit   4. Filing back tax returns Social security and tier 1 RRTA  tax limit 7,049. Filing back tax returns 40 5. Filing back tax returns Credit. Filing back tax returns Subtract line 4 from line 3. Filing back tax returns Enter the result here and on Form 1040, line 69 (or Form 1040A, line 41) $ How to take the credit. Filing back tax returns   Enter the credit on Form 1040, line 69, or include it in the total for Form 1040A, line 41. Filing back tax returns More information. Filing back tax returns   For more information on the credit, see Publication 505. Filing back tax returns Prev  Up  Next   Home   More Online Publications
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Understanding your CP88 Notice

We are holding your refund because you have not filed one or more tax returns and we believe you will owe tax.


What you need to do

  • File your personal tax return immediately or explain to us why you don't need to file.
  • Use the response form on your notice to explain:
    • why you're filing late
    • why you don't have to file
    • that you've already filed

You may want to...

 

Page Last Reviewed or Updated: 07-Mar-2014

How to get help

  • Call the 1-800 number listed on the top right corner of your notice.
  • Authorize someone (e.g., accountant) to contact the IRS on your behalf using Form 2848.
  • See if you qualify for help from a Low Income Taxpayer Clinic.
     

The Filing Back Tax Returns

Filing back tax returns 7. Filing back tax returns   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. Filing back tax returns For most taxpayers, MAGI is the adjusted gross income as figured on their federal income tax return. Filing back tax returns There is no limit on the number of separate Coverdell ESAs that can be established for a designated beneficiary. Filing back tax returns However, total contributions for the beneficiary in any year cannot be more than $2,000, no matter how many accounts have been established. Filing back tax returns See Contributions , later. Filing back tax returns This benefit applies not only to higher education expenses, but also to elementary and secondary education expenses. Filing back tax returns What is the tax benefit of the Coverdell ESA. Filing back tax returns   Contributions to a Coverdell ESA are not deductible, but amounts deposited in the account grow tax free until distributed. Filing back tax returns   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. Filing back tax returns See Tax-Free Distributions , later. Filing back tax returns    Table 7-1 summarizes the main features of the Coverdell ESA. Filing back tax returns Table 7-1. Filing back tax returns Coverdell ESA at a Glance Do not rely on this table alone. Filing back tax returns It provides only general highlights. Filing back tax returns See the text for definitions of terms in bold type and for more complete explanations. Filing back tax returns Question Answer What is a Coverdell ESA? A savings account that is set up to pay the qualified education expenses of a designated beneficiary. Filing back tax returns 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. Filing back tax returns Who can have a Coverdell ESA? Any beneficiary who is under age 18 or is a special needs beneficiary. Filing back tax returns 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). Filing back tax returns Are distributions tax free? Yes, if the distributions are not more than the beneficiary's adjusted qualified education expenses for the year. Filing back tax returns 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. Filing back tax returns When the account is established, the designated beneficiary must be under age 18 or a special needs beneficiary. Filing back tax returns To be treated as a Coverdell ESA, the account must be designated as a Coverdell ESA when it is created. Filing back tax returns The document creating and governing the account must be in writing and must satisfy the following requirements. Filing back tax returns The trustee or custodian must be a bank or an entity approved by the IRS. Filing back tax returns The document must provide that the trustee or custodian can only accept a contribution that meets all of the following conditions. Filing back tax returns The contribution is in cash. Filing back tax returns The contribution is made before the beneficiary reaches age 18, unless the beneficiary is a special needs beneficiary. Filing back tax returns The contribution would not result in total contributions for the year (not including rollover contributions) being more than $2,000. Filing back tax returns Money in the account cannot be invested in life insurance contracts. Filing back tax returns Money in the account cannot be combined with other property except in a common trust fund or common investment fund. Filing back tax returns The balance in the account generally must be distributed within 30 days after the earlier of the following events. Filing back tax returns The beneficiary reaches age 30, unless the beneficiary is a special needs beneficiary. Filing back tax returns The beneficiary's death. Filing back tax returns Qualified Education Expenses Generally, these are expenses required for the enrollment or attendance of the designated beneficiary at an eligible educational institution. Filing back tax returns For purposes of Coverdell ESAs, the expenses can be either qualified higher education expenses or qualified elementary and secondary education expenses. Filing back tax returns Designated beneficiary. Filing back tax returns   This is the individual named in the document creating the trust or custodial account to receive the benefit of the funds in the account. Filing back tax returns Contributions to a qualified tuition program (QTP). Filing back tax returns   A contribution to a QTP is a qualified education expense if the contribution is on behalf of the designated beneficiary of the Coverdell ESA. Filing back tax returns 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. Filing back tax returns See chapter 8, Qualified Tuition Program . Filing back tax returns 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. Filing back tax returns Eligible postsecondary school. Filing back tax returns   This is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U. Filing back tax returns S. Filing back tax returns Department of Education. Filing back tax returns It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. Filing back tax returns The educational institution should be able to tell you if it is an eligible educational institution. Filing back tax returns   Certain educational institutions located outside the United States also participate in the U. Filing back tax returns S. Filing back tax returns Department of Education's Federal Student Aid (FSA) programs. Filing back tax returns Eligible elementary or secondary school. Filing back tax returns   This is any public, private, or religious school that provides elementary or secondary education (kindergarten through grade 12), as determined under state law. Filing back tax returns Qualified Higher Education Expenses These are expenses related to enrollment or attendance at an eligible postsecondary school. Filing back tax returns 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. Filing back tax returns The following expenses must be required for enrollment or attendance of a designated beneficiary at an eligible postsecondary school. Filing back tax returns Tuition and fees. Filing back tax returns Books, supplies, and equipment. Filing back tax returns 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. Filing back tax returns Expenses for room and board must be incurred by students who are enrolled at least half-time (defined below). Filing back tax returns The expense for room and board qualifies only to the extent that it is not more than the greater of the following two amounts. Filing back tax returns 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. Filing back tax returns The actual amount charged if the student is residing in housing owned or operated by the school. Filing back tax returns Half-time student. Filing back tax returns   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. Filing back tax returns Qualified Elementary and Secondary Education Expenses These are expenses related to enrollment or attendance at an eligible elementary or secondary school. Filing back tax returns As shown in the following list, to be qualified, some of the expenses must be required or provided by the school. Filing back tax returns There are special rules for computer-related expenses. Filing back tax returns The following expenses must be incurred by a designated beneficiary in connection with enrollment or attendance at an eligible elementary or secondary school. Filing back tax returns Tuition and fees. Filing back tax returns Books, supplies, and equipment. Filing back tax returns Academic tutoring. Filing back tax returns Special needs services for a special needs beneficiary. Filing back tax returns The following expenses must be required or provided by an eligible elementary or secondary school in connection with attendance or enrollment at the school. Filing back tax returns Room and board. Filing back tax returns Uniforms. Filing back tax returns Transportation. Filing back tax returns Supplementary items and services (including extended day programs). Filing back tax returns 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. Filing back tax returns (This does not include expenses for computer software designed for sports, games, or hobbies unless the software is predominantly educational in nature. Filing back tax returns ) 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. Filing back tax returns For individuals filing joint returns, that amount is $220,000. Filing back tax returns Organizations, such as corporations and trusts, can also contribute to Coverdell ESAs. Filing back tax returns There is no requirement that an organization's income be below a certain level. Filing back tax returns Contributions must meet all of the following requirements. Filing back tax returns They must be in cash. Filing back tax returns They cannot be made after the beneficiary reaches age 18, unless the beneficiary is a special needs beneficiary. Filing back tax returns They must be made by the due date of the contributor's tax return (not including extensions). Filing back tax returns 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. Filing back tax returns Contributions can be made, without penalty, to both a Coverdell ESA and a QTP in the same year for the same beneficiary. Filing back tax returns Table 7-2 summarizes many of the features of contributing to a Coverdell ESA. Filing back tax returns When contributions considered made. Filing back tax returns   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. Filing back tax returns They must be made by the due date (not including extensions) for filing your return for the preceding year. Filing back tax returns   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. Filing back tax returns 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. Filing back tax returns Limit for each designated beneficiary. Filing back tax returns   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. Filing back tax returns This includes contributions (other than rollovers) to all the beneficiary's Coverdell ESAs from all sources. Filing back tax returns Rollovers are discussed under Rollovers and Other Transfers , later. Filing back tax returns Example. Filing back tax returns 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. Filing back tax returns In 2013, the total of all contributions to Maria's three Coverdell ESAs cannot be more than $2,000. Filing back tax returns 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. Filing back tax returns Or, if her parents contributed $1,000 and her aunt $600, her grandfather or someone else could contribute no more than $400. Filing back tax returns These contributions could be put into any of Maria's Coverdell ESA accounts. Filing back tax returns Limit for each contributor. Filing back tax returns   Generally, you can contribute up to $2,000 for each designated beneficiary for 2013. Filing back tax returns 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. Filing back tax returns Example. Filing back tax returns The facts are the same as in the previous example except that Maria Luna's older brother, Edgar, also has a Coverdell ESA. Filing back tax returns If their grandfather contributed $2,000 to Maria's Coverdell ESA in 2013, he could also contribute $2,000 to Edgar's Coverdell ESA. Filing back tax returns Reduced limit. Filing back tax returns   Your contribution limit may be reduced. Filing back tax returns 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). Filing back tax returns 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. Filing back tax returns Table 7-2. Filing back tax returns Coverdell ESA Contributions at a Glance Do not rely on this table alone. Filing back tax returns It provides only general highlights. Filing back tax returns See the text for more complete explanations. Filing back tax returns Question Answer Are contributions deductible? No. Filing back tax returns What is the annual contribution limit per designated beneficiary? $2,000 for each designated beneficiary. Filing back tax returns 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. Filing back tax returns 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. Filing back tax returns Can contributions other than cash be made to a Coverdell ESA? No. Filing back tax returns 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. Filing back tax returns Modified adjusted gross income (MAGI). Filing back tax returns   For most taxpayers, MAGI is adjusted gross income (AGI) as figured on their federal income tax return. Filing back tax returns MAGI when using Form 1040A. Filing back tax returns   If you file Form 1040A, your MAGI is the AGI on line 22 of that form. Filing back tax returns MAGI when using Form 1040. Filing back tax returns   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. Filing back tax returns MAGI when using Form 1040NR. Filing back tax returns   If you file Form 1040NR, your MAGI is the AGI on line 36 of that form. Filing back tax returns MAGI when using Form 1040NR-EZ. Filing back tax returns   If you file Form 1040NR-EZ, your MAGI is the AGI on line 10 of that form. Filing back tax returns   If you have any of these adjustments, you can use Worksheet 7-1. Filing back tax returns MAGI for a Coverdell ESA , later, to figure your MAGI for Form 1040. Filing back tax returns Worksheet 7-1. Filing back tax returns MAGI for a Coverdell ESA 1. Filing back tax returns Enter your adjusted gross income  (Form 1040, line 38)   1. Filing back tax returns   2. Filing back tax returns Enter your foreign earned income exclusion and/or housing exclusion (Form 2555, line 45, or Form 2555-EZ, line 18)   2. Filing back tax returns       3. Filing back tax returns Enter your foreign housing deduction (Form 2555, line 50)   3. Filing back tax returns         4. Filing back tax returns Enter the amount of income from Puerto Rico you are excluding   4. Filing back tax returns       5. Filing back tax returns Enter the amount of income from American Samoa you are excluding (Form 4563, line 15)   5. Filing back tax returns       6. Filing back tax returns Add lines 2, 3, 4, and 5   6. Filing back tax returns   7. Filing back tax returns Add lines 1 and 6. Filing back tax returns This is your  modified adjusted gross income   7. Filing back tax returns   Figuring the limit. Filing back tax returns    To figure the limit on the amount you can contribute for each designated beneficiary, multiply $2,000 by a fraction. Filing back tax returns The numerator (top number) is your MAGI minus $95,000 ($190,000 if filing a joint return). Filing back tax returns The denominator (bottom number) is $15,000 ($30,000 if filing a joint return). Filing back tax returns Subtract the result from $2,000. Filing back tax returns This is the amount you can contribute for each beneficiary. Filing back tax returns You can use Worksheet 7-2. Filing back tax returns Coverdell ESA Contribution Limit to figure the limit on contributions. Filing back tax returns    Worksheet 7-2. Filing back tax returns Coverdell ESA Contribution Limit 1. Filing back tax returns Maximum contribution   1. Filing back tax returns $2,000 2. Filing back tax returns 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. Filing back tax returns   3. Filing back tax returns Enter $190,000 if married filing jointly; $95,000 for all other filers   3. Filing back tax returns   4. Filing back tax returns Subtract line 3 from line 2. Filing back tax returns If zero or less, enter -0- on line 4, skip lines 5 through 7, and enter $2,000 on line 8   4. Filing back tax returns   5. Filing back tax returns Enter $30,000 if married filing jointly; $15,000 for all other filers   5. Filing back tax returns     Note. Filing back tax returns If the amount on line 4 is greater than or equal to the amount on line 5, stop here. Filing back tax returns You are not allowed to contribute to a Coverdell ESA for 2013. Filing back tax returns       6. Filing back tax returns Divide line 4 by line 5 and enter the result as a decimal (rounded to at least 3 places)   6. Filing back tax returns . Filing back tax returns 7. Filing back tax returns Multiply line 1 by line 6   7. Filing back tax returns   8. Filing back tax returns Subtract line 7 from line 1   8. Filing back tax returns   Note: The total Coverdell ESA contributions from all sources for the designated beneficiary during the tax year may not exceed $2,000. Filing back tax returns Example. Filing back tax returns Paul, who is single, had a MAGI of $96,500 for 2013. Filing back tax returns 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. Filing back tax returns Worksheet 7-2. Filing back tax returns Coverdell ESA Contribution Limit—Illustrated 1. Filing back tax returns Maximum contribution   1. Filing back tax returns $2,000 2. Filing back tax returns 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. Filing back tax returns 96,500 3. Filing back tax returns Enter $190,000 if married filing jointly; $95,000 for all other filers   3. Filing back tax returns 95,000 4. Filing back tax returns Subtract line 3 from line 2. Filing back tax returns If zero or less, enter -0- on line 4, skip lines 5 through 7, and enter $2,000 on line 8   4. Filing back tax returns 1,500 5. Filing back tax returns Enter $30,000 if married filing jointly; $15,000 for all other filers   5. Filing back tax returns 15,000   Note. Filing back tax returns If the amount on line 4 is greater than or equal to the amount on line 5,  stop here. Filing back tax returns You are not allowed to  contribute to a Coverdell ESA for 2013. Filing back tax returns       6. Filing back tax returns Divide line 4 by line 5 and enter the result as a decimal (rounded to at least 3 places)   6. Filing back tax returns . Filing back tax returns 100 7. Filing back tax returns Multiply line 1 by line 6   7. Filing back tax returns 200 8. Filing back tax returns Subtract line 7 from line 1   8. Filing back tax returns 1,800 Note: The total Coverdell ESA contributions from all sources for the designated beneficiary during the tax year may not exceed $2,000. Filing back tax returns 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. Filing back tax returns Excess contributions are the total of the following two amounts. Filing back tax returns 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). Filing back tax returns 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. Filing back tax returns Exceptions. Filing back tax returns   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). Filing back tax returns   However, you must include the distributed earnings in gross income for the year in which the excess contribution was made. Filing back tax returns You should receive Form 1099-Q, Payments From Qualified Education Programs, from each institution from which excess contributions were distributed. Filing back tax returns Box 2 of that form will show the amount of earnings on your excess contributions. Filing back tax returns Code “2” or “3” entered in the blank box below boxes 5 and 6 indicate the year in which the earnings are taxable. Filing back tax returns See Instructions for Recipient on the back of copy B of your Form 1099-Q. Filing back tax returns Enter the amount of earnings on line 21 of Form 1040 (or Form 1040NR) for the applicable tax year. Filing back tax returns For more information, see Taxable Distributions , later. Filing back tax returns   The excise tax does not apply to any rollover contribution. Filing back tax returns Note. Filing back tax returns Contributions made in one year for the preceding tax year are considered to have been made on the last day of the preceding year. Filing back tax returns Example. Filing back tax returns In 2012, Greta's parents and grandparents contributed a total of $2,300 to Greta's Coverdell ESA— an excess contribution of $300. Filing back tax returns 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. Filing back tax returns 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. Filing back tax returns 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. Filing back tax returns (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. Filing back tax returns Figuring and reporting the additional tax. Filing back tax returns   You figure this excise tax in Part V of Form 5329. Filing back tax returns Report the additional tax on Form 1040, line 58 (or Form 1040NR, line 56). Filing back tax returns Rollovers and Other Transfers Assets can be rolled over from one Coverdell ESA to another or the designated beneficiary can be changed. Filing back tax returns The beneficiary's interest can be transferred to a spouse or former spouse because of divorce. Filing back tax returns 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. Filing back tax returns This age limitation does not apply if the new beneficiary is a special needs beneficiary. Filing back tax returns An amount is rolled over if it is paid to another Coverdell ESA within 60 days after the date of the distribution. Filing back tax returns Do not report qualifying rollovers (those that meet the above criteria) anywhere on Form 1040 or 1040NR. Filing back tax returns These are not taxable distributions. Filing back tax returns Members of the beneficiary's family. Filing back tax returns   For these purposes, the beneficiary's family includes the beneficiary's spouse and the following other relatives of the beneficiary. Filing back tax returns Son, daughter, stepchild, foster child, adopted child, or a descendant of any of them. Filing back tax returns Brother, sister, stepbrother, or stepsister. Filing back tax returns Father or mother or ancestor of either. Filing back tax returns Stepfather or stepmother. Filing back tax returns Son or daughter of a brother or sister. Filing back tax returns Brother or sister of father or mother. Filing back tax returns Son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law. Filing back tax returns The spouse of any individual listed above. Filing back tax returns First cousin. Filing back tax returns Example. Filing back tax returns When Aaron graduated from college last year he had $5,000 left in his Coverdell ESA. Filing back tax returns He wanted to give this money to his younger sister, who was still in high school. Filing back tax returns 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. Filing back tax returns Only one rollover per Coverdell ESA is allowed during the 12-month period ending on the date of the payment or distribution. Filing back tax returns This rule does not apply to the rollover of a military death gratuity or payment from Servicemembers' Group Life Insurance (SGLI). Filing back tax returns Military death gratuity. Filing back tax returns   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). Filing back tax returns Such payments are made to an eligible survivor upon the death of a member of the armed forces. Filing back tax returns 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. Filing back tax returns   This rollover contribution is not subject to (but is in addition to) the contribution limits discussed earlier under Contribution Limits . Filing back tax returns 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. Filing back tax returns   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. Filing back tax returns See Distributions , later. Filing back tax returns The limit of one rollover per Coverdell ESA during a 12-month period does not apply to a military death gratuity or SGLI payment. Filing back tax returns Changing the Designated Beneficiary The designated beneficiary can be changed. Filing back tax returns See Members of the beneficiary's family , earlier. Filing back tax returns 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. Filing back tax returns Example. Filing back tax returns Assume the same situation for Aaron as in the last example (see Rollovers , earlier). Filing back tax returns 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. Filing back tax returns 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. Filing back tax returns After the transfer, the spouse or former spouse treats the Coverdell ESA as his or her own. Filing back tax returns Example. Filing back tax returns In their divorce settlement, Peg received her ex-husband's Coverdell ESA. Filing back tax returns In this process, the account was transferred into her name. Filing back tax returns Peg now treats the funds in this Coverdell ESA as if she were the original owner. Filing back tax returns Distributions The designated beneficiary of a Coverdell ESA can take a distribution at any time. Filing back tax returns 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. Filing back tax returns See Table 7-3, Coverdell ESA Distributions at a Glance, for highlights. Filing back tax returns Table 7-3. Filing back tax returns Coverdell ESA Distributions at a Glance Do not rely on this table alone. Filing back tax returns It provides only general highlights. Filing back tax returns See the text for definitions of terms in bold type and for more complete explanations. Filing back tax returns 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. Filing back tax returns After the designated beneficiary completes his or her education at an eligible educational institution, can amounts remaining in the Coverdell ESA be distributed? Yes. Filing back tax returns Amounts must be distributed when the designated beneficiary reaches age 30, unless he or she is a special needs beneficiary. Filing back tax returns Also, certain transfers to members of the beneficiary's family are permitted. Filing back tax returns Does the designated beneficiary need to be enrolled for a minimum number of courses to take a tax-free distribution? No. Filing back tax returns Adjusted qualified education expenses. Filing back tax returns   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. Filing back tax returns 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. Filing back tax returns The amount you get by subtracting tax-free educational assistance from your total qualified education expenses is your adjusted qualified education expenses. Filing back tax returns Tax-Free Distributions Generally, distributions are tax free if they are not more than the beneficiary's adjusted qualified education expenses for the year. Filing back tax returns Do not report tax-free distributions (including qualifying rollovers) on your tax return. Filing back tax returns 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. Filing back tax returns Excess distribution. Filing back tax returns   This is the part of the total distribution that is more than the beneficiary's adjusted qualified education expenses for the year. Filing back tax returns Earnings and basis. Filing back tax returns   You will receive a Form 1099-Q for each of the Coverdell ESAs from which money was distributed in 2013. Filing back tax returns The amount of your gross distribution will be shown in box 1. Filing back tax returns 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. Filing back tax returns This will be shown in the blank box below boxes 5 and 6. Filing back tax returns   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. Filing back tax returns 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. Filing back tax returns Figure the taxable portion for 2013 as shown in the following steps. Filing back tax returns Multiply the total amount distributed by a fraction. Filing back tax returns 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. Filing back tax returns Subtract the amount figured in (1) from the total amount distributed during 2013. Filing back tax returns The result is the amount of earnings included in the distribution(s). Filing back tax returns Multiply the amount of earnings figured in (2) by a fraction. Filing back tax returns The numerator is the adjusted qualified education expenses paid during 2013 and the denominator is the total amount distributed during 2013. Filing back tax returns Subtract the amount figured in (3) from the amount figured in (2). Filing back tax returns The result is the amount the beneficiary must include in income. Filing back tax returns The taxable amount must be reported on Form 1040 or Form 1040NR, line 21. Filing back tax returns Example. Filing back tax returns You received an $850 distribution from your Coverdell ESA, to which $1,500 had been contributed before 2013. Filing back tax returns There were no contributions in 2013. Filing back tax returns This is your first distribution from the account, so your basis in the account on December 31, 2012, was $1,500. Filing back tax returns The value (balance) of your account on December 31, 2013, was $950. Filing back tax returns You had $700 of adjusted qualified education expenses (AQEE) for the year. Filing back tax returns Using the steps in Figuring the Taxable Portion of a Distribution , earlier, figure the taxable portion of your distribution as follows. Filing back tax returns   1. Filing back tax returns $850 (distribution) × $1,500 basis + $0 contributions  $950 value + $850 distribution       =$708 (basis portion of distribution)     2. Filing back tax returns $850 (distribution)−$708 (basis portion of distribution)     =$142 (earnings included in distribution)   3. Filing back tax returns $142 (earnings) × $700 AQEE  $850 distribution           =$117 (tax-free earnings)     4. Filing back tax returns $142 (earnings)−$117 (tax-free earnings)=$25 (taxable earnings)                 You must include $25 in income as distributed earnings not used for qualified education expenses. Filing back tax returns Report this amount on Form 1040, line 21, listing the type and amount of income on the dotted line. Filing back tax returns 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). Filing back tax returns 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. Filing back tax returns 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. Filing back tax returns Example. Filing back tax returns Derek Green had $5,800 of qualified higher education expenses for 2013, his first year in college. Filing back tax returns He paid his college expenses from the following sources. Filing back tax returns     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. Filing back tax returns Derek's parents claimed a $2,500 American opportunity credit (based on $4,000 expenses) on their tax return. Filing back tax returns Before Derek can determine the taxable portion of his Coverdell ESA distribution, he must reduce his total qualified higher education expenses. Filing back tax returns     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. Filing back tax returns The balance in Derek's account was $1,800 on December 31, 2013. Filing back tax returns Prior to 2013, $2,100 had been contributed to this account. Filing back tax returns Contributions for 2013 totaled $400. Filing back tax returns Using the four steps outlined earlier, Derek figures the taxable portion of his distribution as shown below. Filing back tax returns   1. Filing back tax returns $1,000 (distribution) × $2,100 basis + $400 contributions  $1,800 value + $1,000 distribution           =$893 (basis portion of distribution)     2. Filing back tax returns $1,000 (distribution)−$893 (basis portion of distribution)     = $107 (earnings included in distribution)   3. Filing back tax returns $107 (earnings) × $300 AQHEE  $1,000 distribution       =$32 (tax-free earnings)     4. Filing back tax returns $107 (earnings)−$32 (tax-free earnings)=$75 (taxable earnings)                 Derek must include $75 in income (Form 1040, line 21). Filing back tax returns This is the amount of distributed earnings not used for adjusted qualified higher education expenses. Filing back tax returns 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. Filing back tax returns The following two examples illustrate possible allocations. Filing back tax returns Example 1. Filing back tax returns In 2013, Beatrice graduated from high school and began her first semester of college. Filing back tax returns 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. Filing back tax returns To pay these expenses, Beatrice withdrew $800 from her Coverdell ESA and $4,200 from her QTP. Filing back tax returns No one claimed Beatrice as a dependent, nor was she eligible for an education credit. Filing back tax returns She did not receive any tax-free educational assistance in 2013. Filing back tax returns Beatrice must allocate her total qualified education expenses between the two distributions. Filing back tax returns 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. Filing back tax returns The qualified expenses are greater than the distribution, making the $800 Coverdell ESA distribution tax free. Filing back tax returns 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). Filing back tax returns 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. Filing back tax returns Finally, Beatrice figures the taxable and tax-free portions of her QTP distribution based on her $3,000 of QHEE. Filing back tax returns (See Figuring the Taxable Portion of a Distribution in chapter 8, Qualified Tuition Program for more information. Filing back tax returns ) Example 2. Filing back tax returns Assume the same facts as in Example 1 , except that Beatrice withdrew $1,800 from her Coverdell ESA and $3,200 from her QTP. Filing back tax returns In this case, she allocates her qualified education expenses as follows. Filing back tax returns 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. Filing back tax returns 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). Filing back tax returns   $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). Filing back tax returns See Figuring the Taxable Portion of a Distribution , earlier, in this chapter. Filing back tax returns   QTP distribution based on her $2,400 of QHEE (see Figuring the Taxable Portion of a Distribution in chapter 8, Qualified Tuition Program). Filing back tax returns The above examples show two types of allocation between distributions from a Coverdell ESA and a QTP. Filing back tax returns However, you do not have to allocate your expenses in the same way. Filing back tax returns You can use any reasonable method. Filing back tax returns 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. Filing back tax returns 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. Filing back tax returns Your basis is the total amount of contributions to that Coverdell ESA. Filing back tax returns 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. Filing back tax returns If you have distributions from more than one Coverdell ESA account during a year, you must combine the information (amount of distribution, basis, etc. Filing back tax returns ) from all such accounts in order to determine your taxable earnings for the year. Filing back tax returns By doing this, the loss from one ESA account reduces the distributed earnings (if any) from any other ESA account. Filing back tax returns For examples of the calculation, see Losses on QTP Investments in chapter 8, Qualified Tuition Program. Filing back tax returns 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. Filing back tax returns Exceptions. Filing back tax returns   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. Filing back tax returns Made because the designated beneficiary is disabled. Filing back tax returns 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. Filing back tax returns 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. Filing back tax returns 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. Filing back tax returns Made on account of the attendance of the designated beneficiary at a U. Filing back tax returns S. Filing back tax returns military academy (such as the USMA at West Point). Filing back tax returns 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. Filing back tax returns S. Filing back tax returns Code) attributable to such attendance. Filing back tax returns 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). Filing back tax returns Made before June 1, 2014, of an excess 2013 contribution (and any earnings on it). Filing back tax returns The distributed earnings must be included in gross income for the year in which the excess contribution was made. Filing back tax returns Exception (3) applies only to the extent the distribution is not more than the scholarship, allowance, or payment. Filing back tax returns Figuring the additional tax. Filing back tax returns    Use Part II of Form 5329, to figure any additional tax. Filing back tax returns Report the amount on Form 1040, line 58, or Form 1040NR, line 56. Filing back tax returns When Assets Must Be Distributed Any assets remaining in a Coverdell ESA must be distributed when either one of the following two events occurs. Filing back tax returns The designated beneficiary reaches age 30. Filing back tax returns In this case, the remaining assets must be distributed within 30 days after the beneficiary reaches age 30. Filing back tax returns However, this rule does not apply if the beneficiary is a special needs beneficiary. Filing back tax returns The designated beneficiary dies before reaching age 30. Filing back tax returns In this case, the remaining assets must generally be distributed within 30 days after the date of death. Filing back tax returns 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. Filing back tax returns (“Family member” was defined earlier under Rollovers . Filing back tax returns ) 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. Filing back tax returns This age limitation does not apply if the new beneficiary is a special needs beneficiary. Filing back tax returns There are no tax consequences as a result of the transfer. Filing back tax returns 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. Filing back tax returns You determine these earnings as shown in the following two steps. Filing back tax returns Multiply the amount distributed by a fraction. Filing back tax returns 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. Filing back tax returns Subtract the amount figured in (1) from the total amount distributed during 2013. Filing back tax returns The result is the amount of earnings included in the distribution. Filing back tax returns For an example, see steps (1) and (2) of the Example under Figuring the Taxable Portion of a Distribution, earlier. Filing back tax returns 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. Filing back tax returns Worksheet 7-3 Instructions. Filing back tax returns Coverdell ESA—Taxable Distributions and Basis Line G. Filing back tax returns Enter the total distributions received from all Coverdell ESAs during 2013. Filing back tax returns Do not include amounts rolled over to another ESA within 60 days (only one rollover is allowed during any 12-month period). Filing back tax returns 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. Filing back tax returns Line 2. Filing back tax returns 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. Filing back tax returns   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. Filing back tax returns 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. Filing back tax returns For years after 2001, you can find that amount by using the ending basis from the worksheet in Publication 970 for that year. Filing back tax returns 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. Filing back tax returns Line 4. Filing back tax returns Enter the total distributions received from this Coverdell ESA in 2013. Filing back tax returns Do not include amounts rolled over to another Coverdell ESA within 60 days (only one rollover is allowed during any 12-month period). Filing back tax returns   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. Filing back tax returns Line 7. Filing back tax returns 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. Filing back tax returns A statement should be sent to you by January 31, 2014, for this Coverdell ESA showing the value on December 31, 2013. Filing back tax returns   A rollover is a tax-free withdrawal from one Coverdell ESA that is contributed to another Coverdell ESA. Filing back tax returns 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. Filing back tax returns Worksheet 7-3. Filing back tax returns Coverdell ESA—Taxable Distributions and Basis How to complete this worksheet. Filing back tax returns • • • Complete Part I, lines A through H, on only one worksheet. Filing back tax returns  Complete a separate Part II, lines 1 through 15, for each of your Coverdell ESAs. Filing back tax returns  Complete Part III, the Summary (line 16), on only one worksheet. Filing back tax returns Part I. Filing back tax returns Qualified Education Expenses (Complete for total expenses)       A. Filing back tax returns Enter your total qualified education expenses for 2013   A. Filing back tax returns   B. Filing back tax returns 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. Filing back tax returns         C. Filing back tax returns Enter those qualified higher education expenses deducted on Schedule C or C-EZ (Form 1040). Filing back tax returns Schedule F (Form 1040), or as a miscellaneous itemized deduction on Schedule A (Form 1040 or 1040NR)   C. Filing back tax returns         D. Filing back tax returns Enter those qualified higher education expenses on which  an American opportunity or lifetime learning credit was based   D. Filing back tax returns         E. Filing back tax returns Add lines B, C, and D   D. Filing back tax returns   F. Filing back tax returns Subtract line E from line A. Filing back tax returns This is your adjusted qualified education expense for 2013   E. Filing back tax returns   G. Filing back tax returns Enter your total distributions from all Coverdell ESAs during 2013. Filing back tax returns Do not include rollovers  or the return of excess contributions (see instructions)   F. Filing back tax returns   H. Filing back tax returns Divide line F by line G. Filing back tax returns Enter the result as a decimal (rounded to at least 3 places). Filing back tax returns If the  result is 1. Filing back tax returns 000 or more, enter 1. Filing back tax returns 000   G. Filing back tax returns . Filing back tax returns Part II. Filing back tax returns Taxable Distributions and Basis (Complete separately for each account) 1. Filing back tax returns Enter the amount contributed to this Coverdell ESA for 2013, including contributions made for 2013 from January 1, 2014, through April 15, 2014. Filing back tax returns Do not include rollovers or the return of excess contributions   1. Filing back tax returns   2. Filing back tax returns Enter your basis in this Coverdell ESA as of December 31, 2012 (see instructions)   2. Filing back tax returns   3. Filing back tax returns Add lines 1 and 2   3. Filing back tax returns   4. Filing back tax returns Enter the total distributions from this Coverdell ESA during 2013. Filing back tax returns Do not include rollovers  or the return of excess contributions (see instructions)   4. Filing back tax returns   5. Filing back tax returns Multiply line 4 by line H. Filing back tax returns This is the amount of adjusted qualified  education expense attributable to this Coverdell ESA   5. Filing back tax returns         6. Filing back tax returns Subtract line 5 from line 4   6. Filing back tax returns         7. Filing back tax returns Enter the total value of this Coverdell ESA as of December 31, 2013,  plus any outstanding rollovers (see instructions)   7. Filing back tax returns         8. Filing back tax returns Add lines 4 and 7   8. Filing back tax returns         9. Filing back tax returns Divide line 3 by line 8. Filing back tax returns Enter the result as a decimal (rounded to  at least 3 places). Filing back tax returns If the result is 1. Filing back tax returns 000 or more, enter 1. Filing back tax returns 000   9. Filing back tax returns . Filing back tax returns       10. Filing back tax returns Multiply line 4 by line 9. Filing back tax returns This is the amount of basis allocated to your  distributions, and is tax free   10. Filing back tax returns     Note. Filing back tax returns If line 6 is zero, skip lines 11 through 13, enter -0- on line 14, and go to line 15. Filing back tax returns       11. Filing back tax returns Subtract line 10 from line 4   11. Filing back tax returns   12. Filing back tax returns Divide line 5 by line 4. Filing back tax returns Enter the result as a decimal (rounded to  at least 3 places). Filing back tax returns If the result is 1. Filing back tax returns 000 or more, enter 1. Filing back tax returns 000   12. Filing back tax returns . Filing back tax returns       13. Filing back tax returns Multiply line 11 by line 12. Filing back tax returns This is the amount of qualified education  expenses allocated to your distributions, and is tax free   13. Filing back tax returns   14. Filing back tax returns Subtract line 13 from line 11. Filing back tax returns This is the portion of the distributions from this  Coverdell ESA in 2013 that you must include in income   14. Filing back tax returns   15. Filing back tax returns Subtract line 10 from line 3. Filing back tax returns This is your basis in this Coverdell ESA as of December 31, 2013   15. Filing back tax returns   Part III. Filing back tax returns Summary (Complete only once)       16. Filing back tax returns Taxable amount. Filing back tax returns Add together all amounts on line 14 for all your Coverdell ESAs. Filing back tax returns 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. Filing back tax returns   Prev  Up  Next   Home   More Online Publications