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Filing taxes for free 14. Filing taxes for free   Sale of Property Table of Contents Reminder Introduction Useful Items - You may want to see: Sales and TradesWhat Is a Sale or Trade? How To Figure Gain or Loss Nontaxable Trades Transfers Between Spouses Related Party Transactions Capital Gains and LossesCapital or Ordinary Gain or Loss Capital Assets and Noncapital Assets Holding Period Nonbusiness Bad Debts Wash Sales Rollover of Gain From Publicly Traded Securities Reminder Foreign income. Filing taxes for free  If you are a U. Filing taxes for free S. Filing taxes for free citizen who sells property located outside the United States, you must report all gains and losses from the sale of that property on your tax return unless it is exempt by U. Filing taxes for free S. Filing taxes for free law. Filing taxes for free This is true whether you reside inside or outside the United States and whether or not you receive a Form 1099 from the payer. Filing taxes for free Introduction This chapter discusses the tax consequences of selling or trading investment property. Filing taxes for free It explains the following. Filing taxes for free What a sale or trade is. Filing taxes for free Figuring gain or loss. Filing taxes for free Nontaxable trades. Filing taxes for free Related party transactions. Filing taxes for free Capital gains or losses. Filing taxes for free Capital assets and noncapital assets. Filing taxes for free Holding period. Filing taxes for free Rollover of gain from publicly traded securities. Filing taxes for free Other property transactions. Filing taxes for free   Certain transfers of property are not discussed here. Filing taxes for free They are discussed in other IRS publications. Filing taxes for free These include the following. Filing taxes for free Sales of a main home, covered in chapter 15. Filing taxes for free Installment sales, covered in Publication 537, Installment Sales. Filing taxes for free Transactions involving business property, covered in Publication 544, Sales and Other Dispositions of Assets. Filing taxes for free Dispositions of an interest in a passive activity, covered in Publication 925, Passive Activity and At-Risk Rules. Filing taxes for free    Publication 550, Investment Income and Expenses (Including Capital Gains and Losses), provides a more detailed discussion about sales and trades of investment property. Filing taxes for free Publication 550 includes information about the rules covering nonbusiness bad debts, straddles, section 1256 contracts, puts and calls, commodity futures, short sales, and wash sales. Filing taxes for free It also discusses investment-related expenses. Filing taxes for free Useful Items - You may want to see: Publication 550 Investment Income and Expenses Form (and Instructions) Schedule D (Form 1040) Capital Gains and Losses 8949 Sales and Other Dispositions of Capital Assets 8824 Like-Kind Exchanges Sales and Trades If you sold property such as stocks, bonds, or certain commodities through a broker during the year, you should receive, for each sale, a Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, or substitute statement, from the broker. Filing taxes for free Generally, you should receive the statement by February 15 of the next year. Filing taxes for free It will show the gross proceeds from the sale. Filing taxes for free If you sold a covered security in 2013, your 1099-B (or substitute statement) will show your basis. Filing taxes for free Generally, a covered security is a security you acquired after 2010, with certain exceptions. Filing taxes for free See the Instructions for Form 8949. Filing taxes for free The IRS will also get a copy of Form 1099-B from the broker. Filing taxes for free Use Form 1099-B (or substitute statement received from your broker) to complete Form 8949. Filing taxes for free What Is a Sale or Trade? This section explains what is a sale or trade. Filing taxes for free It also explains certain transactions and events that are treated as sales or trades. Filing taxes for free A sale is generally a transfer of property for money or a mortgage, note, or other promise to pay money. Filing taxes for free A trade is a transfer of property for other property or services and may be taxed in the same way as a sale. Filing taxes for free Sale and purchase. Filing taxes for free   Ordinarily, a transaction is not a trade when you voluntarily sell property for cash and immediately buy similar property to replace it. Filing taxes for free The sale and purchase are two separate transactions. Filing taxes for free But see Like-kind exchanges under Nontaxable Trades, later. Filing taxes for free Redemption of stock. Filing taxes for free   A redemption of stock is treated as a sale or trade and is subject to the capital gain or loss provisions unless the redemption is a dividend or other distribution on stock. Filing taxes for free Dividend versus sale or trade. Filing taxes for free   Whether a redemption is treated as a sale, trade, dividend, or other distribution depends on the circumstances in each case. Filing taxes for free Both direct and indirect ownership of stock will be considered. Filing taxes for free The redemption is treated as a sale or trade of stock if: The redemption is not essentially equivalent to a dividend (see chapter 8), There is a substantially disproportionate redemption of stock, There is a complete redemption of all the stock of the corporation owned by the shareholder, or The redemption is a distribution in partial liquidation of a corporation. Filing taxes for free Redemption or retirement of bonds. Filing taxes for free   A redemption or retirement of bonds or notes at their maturity is generally treated as a sale or trade. Filing taxes for free   In addition, a significant modification of a bond is treated as a trade of the original bond for a new bond. Filing taxes for free For details, see Regulations section 1. Filing taxes for free 1001-3. Filing taxes for free Surrender of stock. Filing taxes for free   A surrender of stock by a dominant shareholder who retains ownership of more than half of the corporation's voting shares is treated as a contribution to capital rather than as an immediate loss deductible from taxable income. Filing taxes for free The surrendering shareholder must reallocate his or her basis in the surrendered shares to the shares he or she retains. Filing taxes for free Worthless securities. Filing taxes for free    Stocks, stock rights, and bonds (other than those held for sale by a securities dealer) that became completely worthless during the tax year are treated as though they were sold on the last day of the tax year. Filing taxes for free This affects whether your capital loss is long term or short term. Filing taxes for free See Holding Period , later. Filing taxes for free   Worthless securities also include securities that you abandon after March 12, 2008. Filing taxes for free To abandon a security, you must permanently surrender and relinquish all rights in the security and receive no consideration in exchange for it. Filing taxes for free All the facts and circumstances determine whether the transaction is properly characterized as an abandonment or other type of transaction, such as an actual sale or exchange, contribution to capital, dividend, or gift. Filing taxes for free    If you are a cash basis taxpayer and make payments on a negotiable promissory note that you issued for stock that became worthless, you can deduct these payments as losses in the years you actually make the payments. Filing taxes for free Do not deduct them in the year the stock became worthless. Filing taxes for free How to report loss. Filing taxes for free    Report worthless securities in Part I or Part II, whichever applies, of Form 8949. Filing taxes for free In column (a), enter “Worthless. Filing taxes for free ”    Report your worthless securities transactions on Form 8949 with the correct box checked for these transactions. Filing taxes for free See Form 8949 and the Instructions for Form 8949. Filing taxes for free For more information on Form 8949 and Schedule D (Form 1040), see Reporting Capital Gains and Losses in chapter 16. Filing taxes for free See also Schedule D (Form 1040), Form 8949, and their separate instructions. Filing taxes for free Filing a claim for refund. Filing taxes for free   If you do not claim a loss for a worthless security on your original return for the year it becomes worthless, you can file a claim for a credit or refund due to the loss. Filing taxes for free You must use Form 1040X, Amended U. Filing taxes for free S. Filing taxes for free Individual Income Tax Return, to amend your return for the year the security became worthless. Filing taxes for free You must file it within 7 years from the date your original return for that year had to be filed, or 2 years from the date you paid the tax, whichever is later. Filing taxes for free For more information about filing a claim, see Amended Returns and Claims for Refund in chapter 1. Filing taxes for free How To Figure Gain or Loss You figure gain or loss on a sale or trade of property by comparing the amount you realize with the adjusted basis of the property. Filing taxes for free Gain. Filing taxes for free   If the amount you realize from a sale or trade is more than the adjusted basis of the property you transfer, the difference is a gain. Filing taxes for free Loss. Filing taxes for free   If the adjusted basis of the property you transfer is more than the amount you realize, the difference is a loss. Filing taxes for free Adjusted basis. Filing taxes for free   The adjusted basis of property is your original cost or other original basis properly adjusted (increased or decreased) for certain items. Filing taxes for free See chapter 13 for more information about determining the adjusted basis of property. Filing taxes for free Amount realized. Filing taxes for free   The amount you realize from a sale or trade of property is everything you receive for the property minus your expenses of sale (such as redemption fees, sales commissions, sales charges, or exit fees). Filing taxes for free Amount realized includes the money you receive plus the fair market value of any property or services you receive. Filing taxes for free If you received a note or other debt instrument for the property, see How To Figure Gain or Loss in chapter 4 of Publication 550 to figure the amount realized. Filing taxes for free If you finance the buyer's purchase of your property and the debt instrument does not provide for adequate stated interest, the unstated interest that you must report as ordinary income will reduce the amount realized from the sale. Filing taxes for free For more information, see Publication 537. Filing taxes for free Fair market value. Filing taxes for free   Fair market value is the price at which the property would change hands between a buyer and a seller, neither being forced to buy or sell and both having reasonable knowledge of all the relevant facts. Filing taxes for free Example. Filing taxes for free You trade A Company stock with an adjusted basis of $7,000 for B Company stock with a fair market value of $10,000, which is your amount realized. Filing taxes for free Your gain is $3,000 ($10,000 − $7,000). Filing taxes for free Debt paid off. Filing taxes for free    A debt against the property, or against you, that is paid off as a part of the transaction, or that is assumed by the buyer, must be included in the amount realized. Filing taxes for free This is true even if neither you nor the buyer is personally liable for the debt. Filing taxes for free For example, if you sell or trade property that is subject to a nonrecourse loan, the amount you realize generally includes the full amount of the note assumed by the buyer even if the amount of the note is more than the fair market value of the property. Filing taxes for free Example. Filing taxes for free You sell stock that you had pledged as security for a bank loan of $8,000. Filing taxes for free Your basis in the stock is $6,000. Filing taxes for free The buyer pays off your bank loan and pays you $20,000 in cash. Filing taxes for free The amount realized is $28,000 ($20,000 + $8,000). Filing taxes for free Your gain is $22,000 ($28,000 − $6,000). Filing taxes for free Payment of cash. Filing taxes for free   If you trade property and cash for other property, the amount you realize is the fair market value of the property you receive. Filing taxes for free Determine your gain or loss by subtracting the cash you pay plus the adjusted basis of the property you trade in from the amount you realize. Filing taxes for free If the result is a positive number, it is a gain. Filing taxes for free If the result is a negative number, it is a loss. Filing taxes for free No gain or loss. Filing taxes for free   You may have to use a basis for figuring gain that is different from the basis used for figuring loss. Filing taxes for free In this case, you may have neither a gain nor a loss. Filing taxes for free See Basis Other Than Cost in chapter 13. Filing taxes for free Nontaxable Trades This section discusses trades that generally do not result in a taxable gain or deductible loss. Filing taxes for free For more information on nontaxable trades, see chapter 1 of Publication 544. Filing taxes for free Like-kind exchanges. Filing taxes for free   If you trade business or investment property for other business or investment property of a like kind, you do not pay tax on any gain or deduct any loss until you sell or dispose of the property you receive. Filing taxes for free To be nontaxable, a trade must meet all six of the following conditions. Filing taxes for free The property must be business or investment property. Filing taxes for free You must hold both the property you trade and the property you receive for productive use in your trade or business or for investment. Filing taxes for free Neither property may be property used for personal purposes, such as your home or family car. Filing taxes for free The property must not be held primarily for sale. Filing taxes for free The property you trade and the property you receive must not be property you sell to customers, such as merchandise. Filing taxes for free The property must not be stocks, bonds, notes, choses in action, certificates of trust or beneficial interest, or other securities or evidences of indebtedness or interest, including partnership interests. Filing taxes for free However, see Special rules for mutual ditch, reservoir, or irrigation company stock, in chapter 4 of Publication 550 for an exception. Filing taxes for free Also, you can have a nontaxable trade of corporate stocks under a different rule, as discussed later. Filing taxes for free There must be a trade of like property. Filing taxes for free The trade of real estate for real estate, or personal property for similar personal property, is a trade of like property. Filing taxes for free The trade of an apartment house for a store building, or a panel truck for a pickup truck, is a trade of like property. Filing taxes for free The trade of a piece of machinery for a store building is not a trade of like property. Filing taxes for free Real property located in the United States and real property located outside the United States are not like property. Filing taxes for free Also, personal property used predominantly within the United States and personal property used predominantly outside the United States are not like property. Filing taxes for free The property to be received must be identified in writing within 45 days after the date you transfer the property given up in the trade. Filing taxes for free The property to be received must be received by the earlier of: The 180th day after the date on which you transfer the property given up in the trade, or The due date, including extensions, for your tax return for the year in which the transfer of the property given up occurs. Filing taxes for free    If you trade property with a related party in a like-kind exchange, a special rule may apply. Filing taxes for free See Related Party Transactions , later in this chapter. Filing taxes for free Also, see chapter 1 of Publication 544 for more information on exchanges of business property and special rules for exchanges using qualified intermediaries or involving multiple properties. Filing taxes for free Partly nontaxable exchange. Filing taxes for free   If you receive money or unlike property in addition to like property, and the above six conditions are met, you have a partly nontaxable trade. Filing taxes for free You are taxed on any gain you realize, but only up to the amount of the money and the fair market value of the unlike property you receive. Filing taxes for free You cannot deduct a loss. Filing taxes for free Like property and unlike property transferred. Filing taxes for free   If you give up unlike property in addition to the like property, you must recognize gain or loss on the unlike property you give up. Filing taxes for free The gain or loss is the difference between the adjusted basis of the unlike property and its fair market value. Filing taxes for free Like property and money transferred. Filing taxes for free   If all of the above conditions (1) – (6) are met, you have a nontaxable trade even if you pay money in addition to the like property. Filing taxes for free Basis of property received. Filing taxes for free   To figure the basis of the property received, see Nontaxable Exchanges in chapter 13. Filing taxes for free How to report. Filing taxes for free   You must report the trade of like property on Form 8824. Filing taxes for free If you figure a recognized gain or loss on Form 8824, report it on Schedule D (Form 1040), or on Form 4797, Sales of Business Property, whichever applies. Filing taxes for free See the instructions for Line 22 in the Instructions for Form 8824. Filing taxes for free   For information on using Form 4797, see chapter 4 of Publication 544. Filing taxes for free Corporate stocks. Filing taxes for free   The following trades of corporate stocks generally do not result in a taxable gain or a deductible loss. Filing taxes for free Corporate reorganizations. Filing taxes for free   In some instances, a company will give you common stock for preferred stock, preferred stock for common stock, or stock in one corporation for stock in another corporation. Filing taxes for free If this is a result of a merger, recapitalization, transfer to a controlled corporation, bankruptcy, corporate division, corporate acquisition, or other corporate reorganization, you do not recognize gain or loss. Filing taxes for free Stock for stock of the same corporation. Filing taxes for free   You can exchange common stock for common stock or preferred stock for preferred stock in the same corporation without having a recognized gain or loss. Filing taxes for free This is true for a trade between two stockholders as well as a trade between a stockholder and the corporation. Filing taxes for free Convertible stocks and bonds. Filing taxes for free   You generally will not have a recognized gain or loss if you convert bonds into stock or preferred stock into common stock of the same corporation according to a conversion privilege in the terms of the bond or the preferred stock certificate. Filing taxes for free Property for stock of a controlled corporation. Filing taxes for free   If you transfer property to a corporation solely in exchange for stock in that corporation, and immediately after the trade you are in control of the corporation, you ordinarily will not recognize a gain or loss. Filing taxes for free This rule applies both to individuals and to groups who transfer property to a corporation. Filing taxes for free It does not apply if the corporation is an investment company. Filing taxes for free   For this purpose, to be in control of a corporation, you or your group of transferors must own, immediately after the exchange, at least 80% of the total combined voting power of all classes of stock entitled to vote and at least 80% of the outstanding shares of each class of nonvoting stock of the corporation. Filing taxes for free   If this provision applies to you, you may have to attach to your return a complete statement of all facts pertinent to the exchange. Filing taxes for free For details, see Regulations section 1. Filing taxes for free 351-3. Filing taxes for free Additional information. Filing taxes for free   For more information on trades of stock, see Nontaxable Trades in chapter 4 of Publication 550. Filing taxes for free Insurance policies and annuities. Filing taxes for free   You will not have a recognized gain or loss if the insured or annuitant is the same under both contracts and you trade: A life insurance contract for another life insurance contract or for an endowment or annuity contract or for a qualified long-term care insurance contract, An endowment contract for another endowment contract that provides for regular payments beginning at a date no later than the beginning date under the old contract or for an annuity contract or for a qualified long-term insurance contract, An annuity contract for annuity contract or for a qualified long-term care insurance contract, or A qualified long-term care insurance contract for a qualified long-term care insurance contract. Filing taxes for free   You also may not have to recognize gain or loss on an exchange of a portion of an annuity contract for another annuity contract. Filing taxes for free For transfers completed before October 24, 2011, see Revenue Ruling 2003-76 in Internal Revenue Bulletin 2003-33 and Revenue Procedure 2008-24 in Internal Revenue Bulletin 2008-13. Filing taxes for free Revenue Ruling 2003-76 is available at www. Filing taxes for free irs. Filing taxes for free gov/irb/2003-33_IRB/ar11. Filing taxes for free html. Filing taxes for free Revenue Procedure 2008-24 is available at www. Filing taxes for free irs. Filing taxes for free gov/irb/2008-13_IRB/ar13. Filing taxes for free html. Filing taxes for free For transfers completed on or after October 24, 2011, see Revenue Ruling 2003-76, above, and Revenue Procedure 2011-38, in Internal Revenue Bulletin 2011-30. Filing taxes for free Revenue Procedure 2011-38 is available at www. Filing taxes for free irs. Filing taxes for free gov/irb/2011-30_IRB/ar09. Filing taxes for free html. Filing taxes for free   For tax years beginning after December 31, 2010, amounts received as an annuity for a period of 10 years or more, or for the lives of one or more individuals, under any portion of an annuity, endowment, or life insurance contract, are treated as a separate contract and are considered partial annuities. Filing taxes for free A portion of an annuity, endowment, or life insurance contract may be annuitized, provided that the annuitization period is for 10 years or more or for the lives of one or more individuals. Filing taxes for free The investment in the contract is allocated between the part of the contract from which amounts are received as an annuity and the part of the contract from which amounts are not received as an annuity. Filing taxes for free   Exchanges of contracts not included in this list, such as an annuity contract for an endowment contract, or an annuity or endowment contract for a life insurance contract, are taxable. Filing taxes for free Demutualization of life insurance companies. Filing taxes for free   If you received stock in exchange for your equity interest as a policyholder or an annuitant, you generally will not have a recognized gain or loss. Filing taxes for free See Demutualization of Life Insurance Companies in Publication 550. Filing taxes for free U. Filing taxes for free S. Filing taxes for free Treasury notes or bonds. Filing taxes for free   You can trade certain issues of U. Filing taxes for free S. Filing taxes for free Treasury obligations for other issues designated by the Secretary of the Treasury, with no gain or loss recognized on the trade. Filing taxes for free See Savings bonds traded in chapter 1 of Publication 550 for more information. Filing taxes for free Transfers Between Spouses Generally, no gain or loss is recognized on a transfer of property from an individual to (or in trust for the benefit of) a spouse, or if incident to a divorce, a former spouse. Filing taxes for free This nonrecognition rule does not apply in the following situations. Filing taxes for free The recipient spouse or former spouse is a nonresident alien. Filing taxes for free Property is transferred in trust and liability exceeds basis. Filing taxes for free Gain must be recognized to the extent the amount of the liabilities assumed by the trust, plus any liabilities on the property, exceed the adjusted basis of the property. Filing taxes for free For other situations, see Transfers Between Spouses in chapter 4 of Publication 550. Filing taxes for free Any transfer of property to a spouse or former spouse on which gain or loss is not recognized is treated by the recipient as a gift and is not considered a sale or exchange. Filing taxes for free The recipient's basis in the property will be the same as the adjusted basis of the giver immediately before the transfer. Filing taxes for free This carryover basis rule applies whether the adjusted basis of the transferred property is less than, equal to, or greater than either its fair market value at the time of transfer or any consideration paid by the recipient. Filing taxes for free This rule applies for purposes of determining loss as well as gain. Filing taxes for free Any gain recognized on a transfer in trust increases the basis. Filing taxes for free A transfer of property is incident to a divorce if the transfer occurs within 1 year after the date on which the marriage ends, or if the transfer is related to the ending of the marriage. Filing taxes for free Related Party Transactions Special rules apply to the sale or trade of property between related parties. Filing taxes for free Gain on sale or trade of depreciable property. Filing taxes for free   Your gain from the sale or trade of property to a related party may be ordinary income, rather than capital gain, if the property can be depreciated by the party receiving it. Filing taxes for free See chapter 3 of Publication 544 for more information. Filing taxes for free Like-kind exchanges. Filing taxes for free   Generally, if you trade business or investment property for other business or investment property of a like kind, no gain or loss is recognized. Filing taxes for free See Like-kind exchanges , earlier, under Nontaxable Trades. Filing taxes for free   This rule also applies to trades of property between related parties, defined next under Losses on sales or trades of property. Filing taxes for free However, if either you or the related party disposes of the like property within 2 years after the trade, you both must report any gain or loss not recognized on the original trade on your return filed for the year in which the later disposition occurs. Filing taxes for free See Related Party Transactions in chapter 4 of Publication 550 for exceptions. Filing taxes for free Losses on sales or trades of property. Filing taxes for free   You cannot deduct a loss on the sale or trade of property, other than a distribution in complete liquidation of a corporation, if the transaction is directly or indirectly between you and the following related parties. Filing taxes for free Members of your family. Filing taxes for free This includes only your brothers and sisters, half-brothers and half-sisters, spouse, ancestors (parents, grandparents, etc. Filing taxes for free ), and lineal descendants (children, grandchildren, etc. Filing taxes for free ). Filing taxes for free A partnership in which you directly or indirectly own more than 50% of the capital interest or the profits interest. Filing taxes for free A corporation in which you directly or indirectly own more than 50% in value of the outstanding stock. Filing taxes for free (See Constructive ownership of stock , later. Filing taxes for free ) A tax-exempt charitable or educational organization directly or indirectly controlled, in any manner or by any method, by you or by a member of your family, whether or not this control is legally enforceable. Filing taxes for free   In addition, a loss on the sale or trade of property is not deductible if the transaction is directly or indirectly between the following related parties. Filing taxes for free A grantor and fiduciary, or the fiduciary and beneficiary, of any trust. Filing taxes for free Fiduciaries of two different trusts, or the fiduciary and beneficiary of two different trusts, if the same person is the grantor of both trusts. Filing taxes for free A trust fiduciary and a corporation of which more than 50% in value of the outstanding stock is directly or indirectly owned by or for the trust, or by or for the grantor of the trust. Filing taxes for free A corporation and a partnership if the same persons own more than 50% in value of the outstanding stock of the corporation and more than 50% of the capital interest, or the profits interest, in the partnership. Filing taxes for free Two S corporations if the same persons own more than 50% in value of the outstanding stock of each corporation. Filing taxes for free Two corporations, one of which is an S corporation, if the same persons own more than 50% in value of the outstanding stock of each corporation. Filing taxes for free An executor and a beneficiary of an estate (except in the case of a sale or trade to satisfy a pecuniary bequest). Filing taxes for free Two corporations that are members of the same controlled group. Filing taxes for free (Under certain conditions, however, these losses are not disallowed but must be deferred. Filing taxes for free ) Two partnerships if the same persons own, directly or indirectly, more than 50% of the capital interests or the profit interests in both partnerships. Filing taxes for free Multiple property sales or trades. Filing taxes for free   If you sell or trade to a related party a number of blocks of stock or pieces of property in a lump sum, you must figure the gain or loss separately for each block of stock or piece of property. Filing taxes for free The gain on each item may be taxable. Filing taxes for free However, you cannot deduct the loss on any item. Filing taxes for free Also, you cannot reduce gains from the sales of any of these items by losses on the sales of any of the other items. Filing taxes for free Indirect transactions. Filing taxes for free   You cannot deduct your loss on the sale of stock through your broker if, under a prearranged plan, a related party buys the same stock you had owned. Filing taxes for free This does not apply to a trade between related parties through an exchange that is purely coincidental and is not prearranged. Filing taxes for free Constructive ownership of stock. Filing taxes for free   In determining whether a person directly or indirectly owns any of the outstanding stock of a corporation, the following rules apply. Filing taxes for free Rule 1. Filing taxes for free   Stock directly or indirectly owned by or for a corporation, partnership, estate, or trust is considered owned proportionately by or for its shareholders, partners, or beneficiaries. Filing taxes for free Rule 2. Filing taxes for free   An individual is considered to own the stock directly or indirectly owned by or for his or her family. Filing taxes for free Family includes only brothers and sisters, half-brothers and half-sisters, spouse, ancestors, and lineal descendants. Filing taxes for free Rule 3. Filing taxes for free   An individual owning, other than by applying rule 2, any stock in a corporation is considered to own the stock directly or indirectly owned by or for his or her partner. Filing taxes for free Rule 4. Filing taxes for free   When applying rule 1, 2, or 3, stock constructively owned by a person under rule 1 is treated as actually owned by that person. Filing taxes for free But stock constructively owned by an individual under rule 2 or rule 3 is not treated as owned by that individual for again applying either rule 2 or rule 3 to make another person the constructive owner of the stock. Filing taxes for free Property received from a related party. Filing taxes for free    If you sell or trade at a gain property you acquired from a related party, you recognize the gain only to the extent it is more than the loss previously disallowed to the related party. Filing taxes for free This rule applies only if you are the original transferee and you acquired the property by purchase or exchange. Filing taxes for free This rule does not apply if the related party's loss was disallowed because of the wash sale rules described in chapter 4 of Publication 550 under Wash Sales. Filing taxes for free   If you sell or trade at a loss property you acquired from a related party, you cannot recognize the loss that was not allowed to the related party. Filing taxes for free Example 1. Filing taxes for free Your brother sells you stock for $7,600. Filing taxes for free His cost basis is $10,000. Filing taxes for free Your brother cannot deduct the loss of $2,400. Filing taxes for free Later, you sell the same stock to an unrelated party for $10,500, realizing a gain of $2,900. Filing taxes for free Your reportable gain is $500 (the $2,900 gain minus the $2,400 loss not allowed to your brother). Filing taxes for free Example 2. Filing taxes for free If, in Example 1, you sold the stock for $6,900 instead of $10,500, your recognized loss is only $700 (your $7,600 basis minus $6,900). Filing taxes for free You cannot deduct the loss that was not allowed to your brother. Filing taxes for free Capital Gains and Losses This section discusses the tax treatment of gains and losses from different types of investment transactions. Filing taxes for free Character of gain or loss. Filing taxes for free   You need to classify your gains and losses as either ordinary or capital gains or losses. Filing taxes for free You then need to classify your capital gains and losses as either short term or long term. Filing taxes for free If you have long-term gains and losses, you must identify your 28% rate gains and losses. Filing taxes for free If you have a net capital gain, you must also identify any unrecaptured section 1250 gain. Filing taxes for free   The correct classification and identification helps you figure the limit on capital losses and the correct tax on capital gains. Filing taxes for free Reporting capital gains and losses is explained in chapter 16. Filing taxes for free Capital or Ordinary Gain or Loss If you have a taxable gain or a deductible loss from a transaction, it may be either a capital gain or loss or an ordinary gain or loss, depending on the circumstances. Filing taxes for free Generally, a sale or trade of a capital asset (defined next) results in a capital gain or loss. Filing taxes for free A sale or trade of a noncapital asset generally results in ordinary gain or loss. Filing taxes for free Depending on the circumstances, a gain or loss on a sale or trade of property used in a trade or business may be treated as either capital or ordinary, as explained in Publication 544. Filing taxes for free In some situations, part of your gain or loss may be a capital gain or loss and part may be an ordinary gain or loss. Filing taxes for free Capital Assets and Noncapital Assets For the most part, everything you own and use for personal purposes, pleasure, or investment is a capital asset. Filing taxes for free Some examples are: Stocks or bonds held in your personal account, A house owned and used by you and your family, Household furnishings, A car used for pleasure or commuting, Coin or stamp collections, Gems and jewelry, and Gold, silver, or any other metal. Filing taxes for free Any property you own is a capital asset, except the following noncapital assets. Filing taxes for free Property held mainly for sale to customers or property that will physically become a part of the merchandise for sale to customers. Filing taxes for free For an exception, see Capital Asset Treatment for Self-Created Musical Works , later. Filing taxes for free Depreciable property used in your trade or business, even if fully depreciated. Filing taxes for free Real property used in your trade or business. Filing taxes for free A copyright, a literary, musical, or artistic composition, a letter or memorandum, or similar property that is: Created by your personal efforts, Prepared or produced for you (in the case of a letter, memorandum, or similar property), or Acquired under circumstances (for example, by gift) entitling you to the basis of the person who created the property or for whom it was prepared or produced. Filing taxes for free For an exception to this rule, see Capital Asset Treatment for Self-Created Musical Works , later. Filing taxes for free Accounts or notes receivable acquired in the ordinary course of a trade or business for services rendered or from the sale of property described in (1). Filing taxes for free U. Filing taxes for free S. Filing taxes for free Government publications that you received from the government free or for less than the normal sales price, or that you acquired under circumstances entitling you to the basis of someone who received the publications free or for less than the normal sales price. Filing taxes for free Certain commodities derivative financial instruments held by commodities derivatives dealers. Filing taxes for free Hedging transactions, but only if the transaction is clearly identified as a hedging transaction before the close of the day on which it was acquired, originated, or entered into. Filing taxes for free Supplies of a type you regularly use or consume in the ordinary course of your trade or business. Filing taxes for free Investment Property Investment property is a capital asset. Filing taxes for free Any gain or loss from its sale or trade is generally a capital gain or loss. Filing taxes for free Gold, silver, stamps, coins, gems, etc. Filing taxes for free   These are capital assets except when they are held for sale by a dealer. Filing taxes for free Any gain or loss you have from their sale or trade generally is a capital gain or loss. Filing taxes for free Stocks, stock rights, and bonds. Filing taxes for free   All of these (including stock received as a dividend) are capital assets except when held for sale by a securities dealer. Filing taxes for free However, if you own small business stock, see Losses on Section 1244 (Small Business) Stock , later, and Losses on Small Business Investment Company Stock, in chapter 4 of Publication 550. Filing taxes for free Personal Use Property Property held for personal use only, rather than for investment, is a capital asset, and you must report a gain from its sale as a capital gain. Filing taxes for free However, you cannot deduct a loss from selling personal use property. Filing taxes for free Capital Asset Treatment for Self-Created Musical Works You can elect to treat musical compositions and copyrights in musical works as capital assets when you sell or exchange them if: Your personal efforts created the property, or You acquired the property under circumstances (for example, by gift) entitling you to the basis of the person who created the property or for whom it was prepared or produced. Filing taxes for free You must make a separate election for each musical composition (or copyright in a musical work) sold or exchanged during the tax year. Filing taxes for free You must make the election on or before the due date (including extensions) of the income tax return for the tax year of the sale or exchange. Filing taxes for free You must make the election on Form 8949 by treating the sale or exchange as the sale or exchange of a capital asset, according to Form 8949, Schedule D (Form 1040), and their separate instructions. Filing taxes for free For more information on Form 8949 and Schedule D (Form 1040), see Reporting Capital Gains and Losses in chapter 16. Filing taxes for free See also Schedule D (Form 1040), Form 8949, and their separate instructions. Filing taxes for free You can revoke the election if you have IRS approval. Filing taxes for free To get IRS approval, you must submit a request for a letter ruling under the appropriate IRS revenue procedure. Filing taxes for free See, for example, Rev. Filing taxes for free Proc. Filing taxes for free 2013-1, corrected by Announcement 2013–9, and amplified and modified by Rev. Filing taxes for free Proc. Filing taxes for free 2013–32, available at www. Filing taxes for free irs. Filing taxes for free gov/irb/2013-01_IRB/ar06. Filing taxes for free html. Filing taxes for free Alternatively, you are granted an automatic 6-month extension from the due date of your income tax return (excluding extensions) to revoke the election, provided you timely file your income tax return, and within this 6-month extension period, you file Form 1040X that treats the sale or exchange as the sale or exchange of property that is not a capital asset. Filing taxes for free Discounted Debt Instruments Treat your gain or loss on the sale, redemption, or retirement of a bond or other debt instrument originally issued at a discount or bought at a discount as capital gain or loss, except as explained in the following discussions. Filing taxes for free Short-term government obligations. Filing taxes for free   Treat gains on short-term federal, state, or local government obligations (other than tax-exempt obligations) as ordinary income up to your ratable share of the acquisition discount. Filing taxes for free This treatment applies to obligations with a fixed maturity date not more than 1 year from the date of issue. Filing taxes for free Acquisition discount is the stated redemption price at maturity minus your basis in the obligation. Filing taxes for free   However, do not treat these gains as income to the extent you previously included the discount in income. Filing taxes for free See Discount on Short-Term Obligations in chapter 1 of Publication 550. Filing taxes for free Short-term nongovernment obligations. Filing taxes for free   Treat gains on short-term nongovernment obligations as ordinary income up to your ratable share of original issue discount (OID). Filing taxes for free This treatment applies to obligations with a fixed maturity date of not more than 1 year from the date of issue. Filing taxes for free   However, to the extent you previously included the discount in income, you do not have to include it in income again. Filing taxes for free See Discount on Short-Term Obligations in chapter 1 of Publication 550. Filing taxes for free Tax-exempt state and local government bonds. Filing taxes for free   If these bonds were originally issued at a discount before September 4, 1982, or you acquired them before March 2, 1984, treat your part of OID as tax-exempt interest. Filing taxes for free To figure your gain or loss on the sale or trade of these bonds, reduce the amount realized by your part of OID. Filing taxes for free   If the bonds were issued after September 3, 1982, and acquired after March 1, 1984, increase the adjusted basis by your part of OID to figure gain or loss. Filing taxes for free For more information on the basis of these bonds, see Discounted Debt Instruments in chapter 4 of Publication 550. Filing taxes for free   Any gain from market discount is usually taxable on disposition or redemption of tax-exempt bonds. Filing taxes for free If you bought the bonds before May 1, 1993, the gain from market discount is capital gain. Filing taxes for free If you bought the bonds after April 30, 1993, the gain is ordinary income. Filing taxes for free   You figure the market discount by subtracting the price you paid for the bond from the sum of the original issue price of the bond and the amount of accumulated OID from the date of issue that represented interest to any earlier holders. Filing taxes for free For more information, see Market Discount Bonds in chapter 1 of Publication 550. Filing taxes for free    A loss on the sale or other disposition of a tax-exempt state or local government bond is deductible as a capital loss. Filing taxes for free Redeemed before maturity. Filing taxes for free   If a state or local bond issued before June 9, 1980, is redeemed before it matures, the OID is not taxable to you. Filing taxes for free   If a state or local bond issued after June 8, 1980, is redeemed before it matures, the part of OID earned while you hold the bond is not taxable to you. Filing taxes for free However, you must report the unearned part of OID as a capital gain. Filing taxes for free Example. Filing taxes for free On July 2, 2002, the date of issue, you bought a 20-year, 6% municipal bond for $800. Filing taxes for free The face amount of the bond was $1,000. Filing taxes for free The $200 discount was OID. Filing taxes for free At the time the bond was issued, the issuer had no intention of redeeming it before it matured. Filing taxes for free The bond was callable at its face amount beginning 10 years after the issue date. Filing taxes for free The issuer redeemed the bond at the end of 11 years (July 2, 2013) for its face amount of $1,000 plus accrued annual interest of $60. Filing taxes for free The OID earned during the time you held the bond, $73, is not taxable. Filing taxes for free The $60 accrued annual interest also is not taxable. Filing taxes for free However, you must report the unearned part of OID ($127) as a capital gain. Filing taxes for free Long-term debt instruments issued after 1954 and before May 28, 1969 (or before July 2, 1982, if a government instrument). Filing taxes for free   If you sell, trade, or redeem for a gain one of these debt instruments, the part of your gain that is not more than your ratable share of the OID at the time of the sale or redemption is ordinary income. Filing taxes for free The rest of the gain is capital gain. Filing taxes for free If, however, there was an intention to call the debt instrument before maturity, all of your gain that is not more than the entire OID is treated as ordinary income at the time of the sale. Filing taxes for free This treatment of taxable gain also applies to corporate instruments issued after May 27, 1969, under a written commitment that was binding on May 27, 1969, and at all times thereafter. Filing taxes for free Long-term debt instruments issued after May 27, 1969 (or after July 1, 1982, if a government instrument). Filing taxes for free   If you hold one of these debt instruments, you must include a part of OID in your gross income each year you own the instrument. Filing taxes for free Your basis in that debt instrument is increased by the amount of OID that you have included in your gross income. Filing taxes for free See Original Issue Discount (OID) in chapter 7 for information about OID that you must report on your tax return. Filing taxes for free   If you sell or trade the debt instrument before maturity, your gain is a capital gain. Filing taxes for free However, if at the time the instrument was originally issued there was an intention to call it before its maturity, your gain generally is ordinary income to the extent of the entire OID reduced by any amounts of OID previously includible in your income. Filing taxes for free In this case, the rest of the gain is capital gain. Filing taxes for free Market discount bonds. Filing taxes for free   If the debt instrument has market discount and you chose to include the discount in income as it accrued, increase your basis in the debt instrument by the accrued discount to figure capital gain or loss on its disposition. Filing taxes for free If you did not choose to include the discount in income as it accrued, you must report gain as ordinary interest income up to the instrument's accrued market discount. Filing taxes for free The rest of the gain is capital gain. Filing taxes for free See Market Discount Bonds in chapter 1 of Publication 550. Filing taxes for free   A different rule applies to market discount bonds issued before July 19, 1984, and purchased by you before May 1, 1993. Filing taxes for free See Market discount bonds under Discounted Debt Instruments in chapter 4 of Publication 550. Filing taxes for free Retirement of debt instrument. Filing taxes for free   Any amount you receive on the retirement of a debt instrument is treated in the same way as if you had sold or traded that instrument. Filing taxes for free Notes of individuals. Filing taxes for free   If you hold an obligation of an individual issued with OID after March 1, 1984, you generally must include the OID in your income currently, and your gain or loss on its sale or retirement is generally capital gain or loss. Filing taxes for free An exception to this treatment applies if the obligation is a loan between individuals and all the following requirements are met. Filing taxes for free The lender is not in the business of lending money. Filing taxes for free The amount of the loan, plus the amount of any outstanding prior loans, is $10,000 or less. Filing taxes for free Avoiding federal tax is not one of the principal purposes of the loan. Filing taxes for free   If the exception applies, or the obligation was issued before March 2, 1984, you do not include the OID in your income currently. Filing taxes for free When you sell or redeem the obligation, the part of your gain that is not more than your accrued share of OID at that time is ordinary income. Filing taxes for free The rest of the gain, if any, is capital gain. Filing taxes for free Any loss on the sale or redemption is capital loss. Filing taxes for free Deposit in Insolvent or Bankrupt Financial Institution If you lose money you have on deposit in a bank, credit union, or other financial institution that becomes insolvent or bankrupt, you may be able to deduct your loss in one of three ways. Filing taxes for free Ordinary loss. Filing taxes for free Casualty loss. Filing taxes for free Nonbusiness bad debt (short-term capital loss). Filing taxes for free  For more information, see Deposit in Insolvent or Bankrupt Financial Institution, in chapter 4 of Publication 550. Filing taxes for free Sale of Annuity The part of any gain on the sale of an annuity contract before its maturity date that is based on interest accumulated on the contract is ordinary income. Filing taxes for free Losses on Section 1244 (Small Business) Stock You can deduct as an ordinary loss, rather than as a capital loss, your loss on the sale, trade, or worthlessness of section 1244 stock. Filing taxes for free Report the loss on Form 4797, line 10. Filing taxes for free Any gain on section 1244 stock is a capital gain if the stock is a capital asset in your hands. Filing taxes for free Report the gain on Form 8949. Filing taxes for free See Losses on Section 1244 (Small Business) Stock in chapter 4 of Publication 550. Filing taxes for free For more information on Form 8949 and Schedule D (Form 1040), see Reporting Capital Gains and Losses in chapter 16. Filing taxes for free See also Schedule D (Form 1040), Form 8949, and their separate instructions. Filing taxes for free Holding Period If you sold or traded investment property, you must determine your holding period for the property. Filing taxes for free Your holding period determines whether any capital gain or loss was a short-term or long-term capital gain or loss. Filing taxes for free Long-term or short-term. Filing taxes for free   If you hold investment property more than 1 year, any capital gain or loss is a long-term capital gain or loss. Filing taxes for free If you hold the property 1 year or less, any capital gain or loss is a short-term capital gain or loss. Filing taxes for free   To determine how long you held the investment property, begin counting on the date after the day you acquired the property. Filing taxes for free The day you disposed of the property is part of your holding period. Filing taxes for free Example. Filing taxes for free If you bought investment property on February 6, 2012, and sold it on February 6, 2013, your holding period is not more than 1 year and you have a short-term capital gain or loss. Filing taxes for free If you sold it on February 7, 2013, your holding period is more than 1 year and you will have a long-term capital gain or loss. Filing taxes for free Securities traded on established market. Filing taxes for free   For securities traded on an established securities market, your holding period begins the day after the trade date you bought the securities, and ends on the trade date you sold them. Filing taxes for free    Do not confuse the trade date with the settlement date, which is the date by which the stock must be delivered and payment must be made. Filing taxes for free Example. Filing taxes for free You are a cash method, calendar year taxpayer. Filing taxes for free You sold stock at a gain on December 30, 2013. Filing taxes for free According to the rules of the stock exchange, the sale was closed by delivery of the stock 4 trading days after the sale, on January 6, 2014. Filing taxes for free You received payment of the sales price on that same day. Filing taxes for free Report your gain on your 2013 return, even though you received the payment in 2014. Filing taxes for free The gain is long term or short term depending on whether you held the stock more than 1 year. Filing taxes for free Your holding period ended on December 30. Filing taxes for free If you had sold the stock at a loss, you would also report it on your 2013 return. Filing taxes for free U. Filing taxes for free S. Filing taxes for free Treasury notes and bonds. Filing taxes for free   The holding period of U. Filing taxes for free S. Filing taxes for free Treasury notes and bonds sold at auction on the basis of yield starts the day after the Secretary of the Treasury, through news releases, gives notification of acceptance to successful bidders. Filing taxes for free The holding period of U. Filing taxes for free S. Filing taxes for free Treasury notes and bonds sold through an offering on a subscription basis at a specified yield starts the day after the subscription is submitted. Filing taxes for free Automatic investment service. Filing taxes for free   In determining your holding period for shares bought by the bank or other agent, full shares are considered bought first and any fractional shares are considered bought last. Filing taxes for free Your holding period starts on the day after the bank's purchase date. Filing taxes for free If a share was bought over more than one purchase date, your holding period for that share is a split holding period. Filing taxes for free A part of the share is considered to have been bought on each date that stock was bought by the bank with the proceeds of available funds. Filing taxes for free Nontaxable trades. Filing taxes for free   If you acquire investment property in a trade for other investment property and your basis for the new property is determined, in whole or in part, by your basis in the old property, your holding period for the new property begins on the day following the date you acquired the old property. Filing taxes for free Property received as a gift. Filing taxes for free   If you receive a gift of property and your basis is determined by the donor's adjusted basis, your holding period is considered to have started on the same day the donor's holding period started. Filing taxes for free   If your basis is determined by the fair market value of the property, your holding period starts on the day after the date of the gift. Filing taxes for free Inherited property. Filing taxes for free   Generally, if you inherited investment property, your capital gain or loss on any later disposition of that property is long-term capital gain or loss. Filing taxes for free This is true regardless of how long you actually held the property. Filing taxes for free However, if you inherited property from someone who died in 2010, see the information below. Filing taxes for free Inherited property from someone who died in 2010. Filing taxes for free   If you inherit investment property from a decedent who died in 2010, and the executor of the decedent's estate made the election to file Form 8939, refer to the information provided by the executor or see Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010, to determine your holding period. Filing taxes for free Real property bought. Filing taxes for free   To figure how long you have held real property bought under an unconditional contract, begin counting on the day after you received title to it or on the day after you took possession of it and assumed the burdens and privileges of ownership, whichever happened first. Filing taxes for free However, taking delivery or possession of real property under an option agreement is not enough to start the holding period. Filing taxes for free The holding period cannot start until there is an actual contract of sale. Filing taxes for free The holding period of the seller cannot end before that time. Filing taxes for free Real property repossessed. Filing taxes for free   If you sell real property but keep a security interest in it, and then later repossess the property under the terms of the sales contract, your holding period for a later sale includes the period you held the property before the original sale and the period after the repossession. Filing taxes for free Your holding period does not include the time between the original sale and the repossession. Filing taxes for free That is, it does not include the period during which the first buyer held the property. Filing taxes for free Stock dividends. Filing taxes for free   The holding period for stock you received as a taxable stock dividend begins on the date of distribution. Filing taxes for free   The holding period for new stock you received as a nontaxable stock dividend begins on the same day as the holding period of the old stock. Filing taxes for free This rule also applies to stock acquired in a “spin-off,” which is a distribution of stock or securities in a controlled corporation. Filing taxes for free Nontaxable stock rights. Filing taxes for free   Your holding period for nontaxable stock rights begins on the same day as the holding period of the underlying stock. Filing taxes for free The holding period for stock acquired through the exercise of stock rights begins on the date the right was exercised. Filing taxes for free Nonbusiness Bad Debts If someone owes you money that you cannot collect, you have a bad debt. Filing taxes for free You may be able to deduct the amount owed to you when you figure your tax for the year the debt becomes worthless. Filing taxes for free Generally, nonbusiness bad debts are bad debts that did not come from operating your trade or business, and are deductible as short-term capital losses. Filing taxes for free To be deductible, nonbusiness bad debts must be totally worthless. Filing taxes for free You cannot deduct a partly worthless nonbusiness debt. Filing taxes for free Genuine debt required. Filing taxes for free   A debt must be genuine for you to deduct a loss. Filing taxes for free A debt is genuine if it arises from a debtor-creditor relationship based on a valid and enforceable obligation to repay a fixed or determinable sum of money. Filing taxes for free Basis in bad debt required. Filing taxes for free    To deduct a bad debt, you must have a basis in it—that is, you must have already included the amount in your income or loaned out your cash. Filing taxes for free For example, you cannot claim a bad debt deduction for court-ordered child support not paid to you by your former spouse. Filing taxes for free If you are a cash method taxpayer (as most individuals are), you generally cannot take a bad debt deduction for unpaid salaries, wages, rents, fees, interest, dividends, and similar items. Filing taxes for free When deductible. Filing taxes for free   You can take a bad debt deduction only in the year the debt becomes worthless. Filing taxes for free You do not have to wait until a debt is due to determine whether it is worthless. Filing taxes for free A debt becomes worthless when there is no longer any chance that the amount owed will be paid. Filing taxes for free   It is not necessary to go to court if you can show that a judgment from the court would be uncollectible. Filing taxes for free You must only show that you have taken reasonable steps to collect the debt. Filing taxes for free Bankruptcy of your debtor is generally good evidence of the worthlessness of at least a part of an unsecured and unpreferred debt. Filing taxes for free How to report bad debts. Filing taxes for free    Deduct nonbusiness bad debts as short-term capital losses on Form 8949. Filing taxes for free    Make sure you report your bad debt(s) (and any other short-term transactions for which you did not receive a Form 1099-B) on Form 8949, Part I, with box C checked. Filing taxes for free    For more information on Form 8949 and Schedule D (Form 1040), see Reporting Capital Gains and Losses in chapter 16. Filing taxes for free See also Schedule D (Form 1040), Form 8949, and their separate instructions. Filing taxes for free   For each bad debt, attach a statement to your return that contains: A description of the debt, including the amount, and the date it became due, The name of the debtor, and any business or family relationship between you and the debtor, The efforts you made to collect the debt, and Why you decided the debt was worthless. Filing taxes for free For example, you could show that the borrower has declared bankruptcy, or that legal action to collect would probably not result in payment of any part of the debt. Filing taxes for free Filing a claim for refund. Filing taxes for free    If you do not deduct a bad debt on your original return for the year it becomes worthless, you can file a claim for a credit or refund due to the bad debt. Filing taxes for free To do this, use Form 1040X to amend your return for the year the debt became worthless. Filing taxes for free You must file it within 7 years from the date your original return for that year had to be filed, or 2 years from the date you paid the tax, whichever is later. Filing taxes for free For more information about filing a claim, see Amended Returns and Claims for Refund in chapter 1. Filing taxes for free Additional information. Filing taxes for free   For more information, see Nonbusiness Bad Debts in Publication 550. Filing taxes for free For information on business bad debts, see chapter 10 of Publication 535, Business Expenses. Filing taxes for free Wash Sales You cannot deduct losses from sales or trades of stock or securities in a wash sale. Filing taxes for free A wash sale occurs when you sell or trade stock or securities at a loss and within 30 days before or after the sale you: Buy substantially identical stock or securities, Acquire substantially identical stock or securities in a fully taxable trade, Acquire a contract or option to buy substantially identical stock or securities, or Acquire substantially identical stock for your individual retirement account (IRA) or Roth IRA. Filing taxes for free If your loss was disallowed because of the wash sale rules, add the disallowed loss to the cost of the new stock or securities (except in (4) above). Filing taxes for free The result is your basis in the new stock or securities. Filing taxes for free This adjustment postpones the loss deduction until the disposition of the new stock or securities. Filing taxes for free Your holding period for the new stock or securities includes the holding period of the stock or securities sold. Filing taxes for free For more information, see Wash Sales, in chapter 4 of Publication 550. Filing taxes for free Rollover of Gain From Publicly Traded Securities You may qualify for a tax-free rollover of certain gains from the sale of publicly traded securities. Filing taxes for free This means that if you buy certain replacement property and make the choice described in this section, you postpone part or all of your gain. Filing taxes for free You postpone the gain by adjusting the basis of the replacement property as described in Basis of replacement property , later. Filing taxes for free This postpones your gain until the year you dispose of the replacement property. Filing taxes for free You qualify to make this choice if you meet all the following tests. Filing taxes for free You sell publicly traded securities at a gain. Filing taxes for free Publicly traded securities are securities traded on an established securities market. Filing taxes for free Your gain from the sale is a capital gain. Filing taxes for free During the 60-day period beginning on the date of the sale, you buy replacement property. Filing taxes for free This replacement property must be either common stock of, or a partnership interest in a specialized small business investment company (SSBIC). Filing taxes for free This is any partnership or corporation licensed by the Small Business Administration under section 301(d) of the Small Business Investment Act of 1958, as in effect on May 13, 1993. Filing taxes for free Amount of gain recognized. Filing taxes for free   If you make the choice described in this section, you must recognize gain only up to the following amount. Filing taxes for free The amount realized on the sale, minus The cost of any common stock or partnership interest in an SSBIC that you bought during the 60-day period beginning on the date of sale (and did not previously take into account on an earlier sale of publicly traded securities). Filing taxes for free  If this amount is less than the amount of your gain, you can postpone the rest of your gain, subject to the limit described next. Filing taxes for free If this amount is equal to or more than the amount of your gain, you must recognize the full amount of your gain. Filing taxes for free Limit on gain postponed. Filing taxes for free   The amount of gain you can postpone each year is limited to the smaller of: $50,000 ($25,000 if you are married and file a separate return), or $500,000 ($250,000 if you are married and file a separate return), minus the amount of gain you postponed for all earlier years. Filing taxes for free Basis of replacement property. Filing taxes for free   You must subtract the amount of postponed gain from the basis of your replacement property. Filing taxes for free How to report and postpone gain. Filing taxes for free    See How to report and postpone gain under Rollover of Gain From Publicly Traded Securities in chapter 4 of Publication 550 for details. Filing taxes for free Prev  Up  Next   Home   More Online Publications
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Consumer Protection Offices

City, county, regional, and state consumer offices offer a variety of important services. They might mediate complaints, conduct investigations, prosecute offenders of consumer laws, license and regulate professional service providers, provide educational materials and advocate for consumer rights. To save time, call before sending a written complaint. Ask if the office handles the type of complaint you have and if complaint forms are provided.

State Consumer Protection Offices

Kentucky Office of the Attorney General

Website: Kentucky Office of the Attorney General

Address: Kentucky Office of the Attorney General
Consumer Protection Division
1024 Capital Center Dr.
Frankfort, KY 40601

Phone Number: 502-696-5389

Toll-free: 1-888-432-9257 (Hotline)

Kentucky Office of the Attorney General - Louisville

Website: Kentucky Office of the Attorney General - Louisville

Address: Kentucky Office of the Attorney General - Louisville
Consumer Protection Division
310 Whittington Pkwy., Suite 101
Louisville, KY 40222

Phone Number: 502-429-7134

Toll-free: 1-888-432-9257 (Hotline)

Kentucky Office of the Attorney General - Prestonsburg

Website: Kentucky Office of the Attorney General - Prestonsburg

Address: Kentucky Office of the Attorney General - Prestonsburg
361 N. Lake Dr.
Prestonsburg, KY 41653

Phone Number: 606-889-1821

Toll-free: 1-888-432-9257 (Hotline)

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Banking Authorities

The officials listed in this section regulate and supervise state-chartered banks. Many of them handle or refer problems and complaints about other types of financial institutions as well. Some also answer general questions about banking and consumer credit. If you are dealing with a federally chartered bank, check Federal Agencies.

Department of Financial Institutions

Website: Department of Financial Institutions

Address: Department of Financial Institutions
1025 Capitol Center Dr., Suite 200
Frankfort, KY 40601

Phone Number: 502-573-3390

Toll-free: 1-800-223-2579

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Insurance Regulators

Each state has its own laws and regulations for each type of insurance. The officials listed in this section enforce these laws. Many of these offices can also provide you with information to help you make informed insurance buying decisions.

Department of Insurance

Website: Department of Insurance

Address: Department of Insurance
Consumer Protection Division
PO Box 517
Frankfort, KY 40602-0517

Phone Number: 502-564-6034

Toll-free: 1-800-595-6053

TTY: 1-800-648-6056

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Securities Administrators

Each state has its own laws and regulations for securities brokers and securities - including stocks, mutual funds, commodities, real estate, etc. The officials and agencies listed in this section enforce these laws and regulations. Many of these offices can also provide information to help you make informed investment decisions.

Department of Financial Institutions

Website: Department of Financial Institutions

Address: Department of Financial Institutions
Securities Division
1025 Capitol Center Dr., Suite 200
Frankfort, KY 40601

Phone Number: 502-573-3390

Toll-free: 1-800-223-2579

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Utility Commissions

State Utility Commissions regulate services and rates for gas, electricity and telephones within your state. In some states, the utility commissions regulate other services such as water, transportation, and the moving of household goods. Many utility commissions handle consumer complaints. Sometimes, if a number of complaints are received about the same utility matter, they will conduct investigations.

Public Service Commission

Website: Public Service Commission

Address: Public Service Commission
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The Filing Taxes For Free

Filing taxes for free 2. Filing taxes for free   Taxable and Nontaxable Income Table of Contents Compensation for Services Retirement Plan DistributionsIndividual Retirement Arrangements (IRAs) Pensions and Annuities Social Security and Equivalent Railroad Retirement BenefitsAre Any of Your Benefits Taxable? How Much Is Taxable? How To Report Your Benefits Lump-Sum Election Repayments More Than Gross Benefits Sickness and Injury BenefitsDisability Pensions Long-Term Care Insurance Contracts Workers' Compensation Other Sickness and Injury Benefits Life Insurance ProceedsInstallments for life. Filing taxes for free Surviving spouse. Filing taxes for free Endowment Contract Proceeds Accelerated Death Benefits Sale of HomeMaximum Amount of Exclusion Ownership and Use Tests Married Persons Business Use or Rental of Home Reporting the Sale Reverse Mortgages Other ItemsWelfare benefits. Filing taxes for free Payments from a state fund for victims of crime. Filing taxes for free Home Affordable Modification Program (HAMP). Filing taxes for free Mortgage assistance payments. Filing taxes for free Payments to reduce cost of winter energy use. Filing taxes for free Nutrition Program for the Elderly. Filing taxes for free Reemployment Trade Adjustment Assistance (RTAA). Filing taxes for free Generally, income is taxable unless it is specifically exempt (not taxed) by law. Filing taxes for free Your taxable income may include compensation for services, interest, dividends, rents, royalties, income from partnerships, estate or trust income, gain from sales or exchanges of property, and business income of all kinds. Filing taxes for free Under special provisions of the law, certain items are partially or fully exempt from tax. Filing taxes for free Provisions that are of special interest to older taxpayers are discussed in this chapter. Filing taxes for free Compensation for Services Generally, you must include in gross income everything you receive in payment for personal services. Filing taxes for free In addition to wages, salaries, commissions, fees, and tips, this includes other forms of compensation such as fringe benefits and stock options. Filing taxes for free You need not receive the compensation in cash for it to be taxable. Filing taxes for free Payments you receive in the form of goods or services generally must be included in gross income at their fair market value. Filing taxes for free Volunteer work. Filing taxes for free   Do not include in your gross income amounts you receive for supportive services or reimbursements for out-of-pocket expenses under any of the following volunteer programs. Filing taxes for free Retired Senior Volunteer Program (RSVP). Filing taxes for free Foster Grandparent Program. Filing taxes for free Senior Companion Program. Filing taxes for free Service Corps of Retired Executives (SCORE). Filing taxes for free Unemployment compensation. Filing taxes for free   You must include in income all unemployment compensation you or your spouse (if married filing jointly) received. Filing taxes for free More information. Filing taxes for free   See Publication 525, Taxable and Nontaxable Income, for more detailed information on specific types of income. Filing taxes for free Retirement Plan Distributions This section summarizes the tax treatment of amounts you receive from traditional individual retirement arrangements (IRA), employee pensions or annuities, and disability pensions or annuities. Filing taxes for free A traditional IRA is any IRA that is not a Roth or SIMPLE IRA. Filing taxes for free A Roth IRA is an individual retirement plan that can be either an account or an annuity and features nondeductible contributions and tax-free distributions. Filing taxes for free A SIMPLE IRA is a tax-favored retirement plan that certain small employers (including self-employed individuals) can set up for the benefit of their employees. Filing taxes for free More detailed information can be found in Publication 590, Individual Retirement Arrangements (IRAs), and Publication 575, Pension and Annuity Income. Filing taxes for free Individual Retirement Arrangements (IRAs) In general, distributions from a traditional IRA are taxable in the year you receive them. Filing taxes for free Exceptions to the general rule are rollovers, tax-free withdrawals of contributions, and the return of nondeductible contributions. Filing taxes for free These are discussed in Publication 590. Filing taxes for free If you made nondeductible contributions to a traditional IRA, you must file Form 8606, Nondeductible IRAs. Filing taxes for free If you do not file Form 8606 with your return, you may have to pay a $50 penalty. Filing taxes for free Also, when you receive distributions from your traditional IRA, the amounts will be taxed unless you can show, with satisfactory evidence, that nondeductible contributions were made. Filing taxes for free Early distributions. Filing taxes for free   Generally, early distributions are amounts distributed from your traditional IRA account or annuity before you are age 59½, or amounts you receive when you cash in retirement bonds before you are age  59½. Filing taxes for free You must include early distributions of taxable amounts in your gross income. Filing taxes for free These taxable amounts are also subject to an additional 10% tax unless the distribution qualifies for an exception. Filing taxes for free For purposes of the additional 10% tax, an IRA is a qualified retirement plan. Filing taxes for free For more information about this tax, see Tax on Early Distributions under Pensions and Annuities, later. Filing taxes for free After age 59½ and before age 70½. Filing taxes for free   After you reach age 59½, you can receive distributions from your traditional IRA without having to pay the 10% additional tax. Filing taxes for free Even though you can receive distributions after you reach age 59½, distributions are not required until you reach  age 70½. Filing taxes for free Required distributions. Filing taxes for free   If you are the owner of a traditional IRA, you generally must receive the entire balance in your IRA or start receiving periodic distributions from your IRA by April 1 of the year following the year in which you reach age 70½. Filing taxes for free See When Must You Withdraw Assets? (Required Minimum Distributions) in Publication 590. Filing taxes for free If distributions from your traditional IRA(s) are less than the required minimum distribution for the year, you may have to pay a 50% excise tax for that year on the amount not distributed as required. Filing taxes for free For purposes of the 50% excise tax, an IRA is a qualified retirement plan. Filing taxes for free For more information about this tax, see Tax on Excess Accumulation under Pensions and Annuities, later. Filing taxes for free See also Excess Accumulations (Insufficient Distributions) in Publication 590. Filing taxes for free Pensions and Annuities Generally, if you did not pay any part of the cost of your employee pension or annuity, and your employer did not withhold part of the cost of the contract from your pay while you worked, the amounts you receive each year are fully taxable. Filing taxes for free However, see Insurance Premiums for Retired Public Safety Officers , later. Filing taxes for free If you paid part of the cost of your pension or annuity plan (see Cost , later), you can exclude part of each annuity payment from income as a recovery of your cost (investment in the contract). Filing taxes for free This tax-free part of the payment is figured when your annuity starts and remains the same each year, even if the amount of the payment changes. Filing taxes for free The rest of each payment is taxable. Filing taxes for free However, see Insurance Premiums for Retired Public Safety Officers , later. Filing taxes for free You figure the tax-free part of the payment using one of the following methods. Filing taxes for free Simplified Method. Filing taxes for free You generally must use this method if your annuity is paid under a qualified plan (a qualified employee plan, a qualified employee annuity, or a tax-sheltered annuity plan or contract). Filing taxes for free You cannot use this method if your annuity is paid under a nonqualified plan. Filing taxes for free General Rule. Filing taxes for free You must use this method if your annuity is paid under a nonqualified plan. Filing taxes for free You generally cannot use this method if your annuity is paid under a qualified plan. Filing taxes for free Contact your employer or plan administrator to find out if your pension or annuity is paid under a qualified or nonqualified plan. Filing taxes for free You determine which method to use when you first begin receiving your annuity, and you continue using it each year that you recover part of your cost. Filing taxes for free Exclusion limit. Filing taxes for free   If your annuity starting date is after 1986, the total amount of annuity income you can exclude over the years as a recovery of the cost cannot exceed your total cost. Filing taxes for free Any unrecovered cost at your (or the last annuitant's) death is allowed as a miscellaneous itemized deduction on the final return of the decedent. Filing taxes for free This deduction is not subject to the 2%-of-adjusted-gross-income limit on miscellaneous deductions. Filing taxes for free   If you contributed to your pension or annuity and your annuity starting date is before 1987, you can continue to take your monthly exclusion for as long as you receive your annuity. Filing taxes for free If you chose a joint and survivor annuity, your survivor can continue to take the survivor's exclusion figured as of the annuity starting date. Filing taxes for free The total exclusion may be more than your cost. Filing taxes for free Cost. Filing taxes for free   Before you can figure how much, if any, of your pension or annuity benefits are taxable, you must determine your cost in the plan (your investment in the contract). Filing taxes for free Your total cost in the plan includes everything that you paid. Filing taxes for free It also includes amounts your employer contributed that were taxable to you when paid. Filing taxes for free However, see Foreign employment contributions , later. Filing taxes for free   From this total cost, subtract any refunded premiums, rebates, dividends, unrepaid loans, or other tax-free amounts you received by the later of the annuity starting date or the date on which you received your first payment. Filing taxes for free   The annuity starting date is the later of the first day of the first period for which you received a payment from the plan or the date on which the plan's obligations became fixed. Filing taxes for free    The amount of your contributions to the plan may be shown in box 9b of any Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. Filing taxes for free , that you receive. Filing taxes for free Foreign employment contributions. Filing taxes for free   If you worked abroad, certain amounts your employer paid into your retirement plan that were not includible in your gross income may be considered part of your cost. Filing taxes for free For details, see Foreign employment contributions in Publication 575. Filing taxes for free Withholding. Filing taxes for free   The payer of your pension, profit-sharing, stock bonus, annuity, or deferred compensation plan will withhold income tax on the taxable part of amounts paid to you. Filing taxes for free However, you can choose not to have tax withheld on the payments you receive, unless they are eligible rollover distributions. Filing taxes for free (These are distributions that are eligible for rollover treatment but are not paid directly to another qualified retirement plan or to a traditional IRA. Filing taxes for free ) See Withholding Tax and Estimated Tax and Rollovers in Publication 575 for more information. Filing taxes for free   For payments other than eligible rollover distributions, you can tell the payer how much to withhold by filing a Form W-4P, Withholding Certificate for Pension or Annuity Payments. Filing taxes for free Simplified Method. Filing taxes for free   Under the Simplified Method, you figure the tax-free part of each annuity payment by dividing your cost by the total number of anticipated monthly payments. Filing taxes for free For an annuity that is payable over the lives of the annuitants, this number is based on the annuitants' ages on the annuity starting date and is determined from a table. Filing taxes for free For any other annuity, this number is the number of monthly annuity payments under the contract. Filing taxes for free Who must use the Simplified Method. Filing taxes for free   You must use the Simplified Method if your annuity starting date is after November 18, 1996, and you receive your pension or annuity payments from a qualified plan or annuity, unless you were at least 75 years old and entitled to at least 5 years of guaranteed payments (defined next). Filing taxes for free   In addition, if your annuity starting date is after July 1, 1986, and before November 19, 1996, you could have chosen to use the Simplified Method for payments from a qualified plan, unless you were at least 75 years old and entitled to at least 5 years of guaranteed payments. Filing taxes for free If you chose to use the Simplified Method, you must continue to use it each year that you recover part of your cost. Filing taxes for free Guaranteed payments. Filing taxes for free   Your annuity contract provides guaranteed payments if a minimum number of payments or a minimum amount (for example, the amount of your investment) is payable even if you and any survivor annuitant do not live to receive the minimum. Filing taxes for free If the minimum amount is less than the total amount of the payments you are to receive, barring death, during the first 5 years after payments begin (figured by ignoring any payment increases), you are entitled to less than 5 years of guaranteed payments. Filing taxes for free Who cannot use the Simplified Method. Filing taxes for free   You cannot use the Simplified Method and must use the General Rule if you receive pension or annuity payments from: A nonqualified plan, such as a private annuity, a purchased commercial annuity, or a nonqualified employee plan, or A qualified plan if you are age 75 or older on your annuity starting date and you are entitled to at least 5 years of guaranteed payments (defined above). Filing taxes for free   In addition, you had to use the General Rule for either circumstance described above if your annuity starting date is after July 1, 1986, and before November 19, 1996. Filing taxes for free If you did not have to use the General Rule, you could have chosen to use it. Filing taxes for free You also had to use the General Rule for payments from a qualified plan if your annuity starting date is before July 2, 1986, and you did not qualify to use the Three-Year Rule. Filing taxes for free   If you had to use the General Rule (or chose to use it), you must continue to use it each year that you recover your cost. Filing taxes for free   Unless your annuity starting date was before 1987, once you have recovered all of your non-taxable investment, all of each remaining payment you receive is fully taxable. Filing taxes for free Once your remaining payments are fully taxable, there is no longer a concern with the General Rule or Simplified Method. Filing taxes for free   Complete information on the General Rule, including the actuarial tables you need, is contained in Publication 939, General Rule for Pensions and Annuities. Filing taxes for free How to use the Simplified Method. Filing taxes for free   Complete the Simplified Method Worksheet in the Form 1040, Form 1040A, or Form 1040NR instructions or in Publication 575 to figure your taxable annuity for 2013. Filing taxes for free Be sure to keep the completed worksheet; it will help you figure your taxable annuity next year. Filing taxes for free   To complete line 3 of the worksheet, you must determine the total number of expected monthly payments for your annuity. Filing taxes for free How you do this depends on whether the annuity is for a single life, multiple lives, or a fixed period. Filing taxes for free For this purpose, treat an annuity that is payable over the life of an annuitant as payable for that annuitant's life even if the annuity has a fixed-period feature or also provides a temporary annuity payable to the annuitant's child under age 25. Filing taxes for free    You do not need to complete line 3 of the worksheet or make the computation on line 4 if you received annuity payments last year and used last year's worksheet to figure your taxable annuity. Filing taxes for free Instead, enter the amount from line 4 of last year's worksheet on line 4 of this year's worksheet. Filing taxes for free Single-life annuity. Filing taxes for free   If your annuity is payable for your life alone, use Table 1 at the bottom of the worksheet to determine the total number of expected monthly payments. Filing taxes for free Enter on line 3 the number shown for your age on your annuity starting date. Filing taxes for free This number will differ depending on whether your annuity starting date is before November 19, 1996, or after November 18, 1996. Filing taxes for free Multiple-lives annuity. Filing taxes for free   If your annuity is payable for the lives of more than one annuitant, use Table 2 at the bottom of the worksheet to determine the total number of expected monthly payments. Filing taxes for free Enter on line 3 the number shown for the annuitants' combined ages on the annuity starting date. Filing taxes for free For an annuity payable to you as the primary annuitant and to more than one survivor annuitant, combine your age and the age of the youngest survivor annuitant. Filing taxes for free For an annuity that has no primary annuitant and is payable to you and others as survivor annuitants, combine the ages of the oldest and youngest annuitants. Filing taxes for free Do not treat as a survivor annuitant anyone whose entitlement to payments depends on an event other than the primary annuitant's death. Filing taxes for free   However, if your annuity starting date is before 1998, do not use Table 2 and do not combine the annuitants' ages. Filing taxes for free Instead, you must use Table 1 at the bottom of the worksheet and enter on line 3 the number shown for the primary annuitant's age on the annuity starting date. Filing taxes for free This number will differ depending on whether your annuity starting date is before November 19, 1996, or after November 18, 1996. Filing taxes for free Fixed-period annuities. Filing taxes for free   If your annuity does not depend in whole or in part on anyone's life expectancy, the total number of expected monthly payments to enter on line 3 of the worksheet is the number of monthly annuity payments under the contract. Filing taxes for free Line 6. Filing taxes for free   The amount on line 6 should include all amounts that could have been recovered in prior years. Filing taxes for free If you did not recover an amount in a prior year, you may be able to amend your returns for the affected years. Filing taxes for free    Be sure to keep a copy of the completed worksheet; it will help you figure your taxable annuity in later years. Filing taxes for free Example. Filing taxes for free Bill Smith, age 65, began receiving retirement benefits in 2013, under a joint and survivor annuity. Filing taxes for free Bill's annuity starting date is January 1, 2013. Filing taxes for free The benefits are to be paid over the joint lives of Bill and his wife, Kathy, age 65. Filing taxes for free Bill had contributed $31,000 to a qualified plan and had received no distributions before the annuity starting date. Filing taxes for free Bill is to receive a retirement benefit of $1,200 a month, and Kathy is to receive a monthly survivor benefit of $600 upon Bill's death. Filing taxes for free Bill must use the Simplified Method to figure his taxable annuity because his payments are from a qualified plan and he is under age 75. Filing taxes for free See the illustrated Worksheet 2-A, Simplified Method Worksheet, later. Filing taxes for free You can find a blank version of this worksheet in Publication 575. Filing taxes for free (The references in the illustrated worksheet are to sections in Publication 575). Filing taxes for free His annuity is payable over the lives of more than one annuitant, so Bill uses his and Kathy's combined ages, 130 (65 + 65), and Table 2 at the bottom of the worksheet in completing line 3 of the worksheet and finds the line 3 amount to be 310. Filing taxes for free Bill's tax-free monthly amount is $100 ($31,000 ÷ 310 as shown on line 4 of the worksheet). Filing taxes for free Upon Bill's death, if Bill has not recovered the full $31,000 investment, Kathy will also exclude $100 from her $600 monthly payment. Filing taxes for free The full amount of any annuity payments received after 310 payments are paid must generally be included in gross income. Filing taxes for free If Bill and Kathy die before 310 payments are made, a miscellaneous itemized deduction will be allowed for the unrecovered cost on the final income tax return of the last to die. Filing taxes for free This deduction is not subject to the 2%-of-adjusted-gross-income limit. Filing taxes for free Worksheet 2-A. Filing taxes for free Simplified Method Worksheet—Illustrated 1. Filing taxes for free Enter the total pension or annuity payments received this year. Filing taxes for free Also, add this amount to the total for Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a 1. Filing taxes for free $ 14,400 2. Filing taxes for free Enter your cost in the plan (contract) at the annuity starting date plus any death benefit exclusion* See Cost (Investment in the Contract), earlier 2. Filing taxes for free 31,000   Note. Filing taxes for free If your annuity starting date was before this year and you completed this worksheet last year, skip line 3 and enter the amount from line 4 of last year's worksheet on line 4 below (even if the amount of your pension or annuity has changed). Filing taxes for free Otherwise, go to line 3. Filing taxes for free     3. Filing taxes for free Enter the appropriate number from Table 1 below. Filing taxes for free But if your annuity starting date was after 1997 and the payments are for your life and that of your beneficiary, enter the appropriate number from Table 2 below 3. Filing taxes for free 310 4. Filing taxes for free Divide line 2 by the number on line 3 4. Filing taxes for free 100 5. Filing taxes for free Multiply line 4 by the number of months for which this year's payments were made. Filing taxes for free If your annuity starting date was before 1987, enter this amount on line 8 below and skip lines 6, 7, 10, and 11. Filing taxes for free Otherwise, go to line 6 5. Filing taxes for free 1,200 6. Filing taxes for free Enter any amount previously recovered tax free in years after 1986. Filing taxes for free This is the amount shown on line 10 of your worksheet for last year 6. Filing taxes for free 0 7. Filing taxes for free Subtract line 6 from line 2 7. Filing taxes for free 31,000 8. Filing taxes for free Enter the smaller of line 5 or line 7 8. Filing taxes for free 1,200 9. Filing taxes for free Taxable amount for year. Filing taxes for free Subtract line 8 from line 1. Filing taxes for free Enter the result, but not less than zero. Filing taxes for free Also, add this amount to the total for Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b. Filing taxes for free Note. Filing taxes for free If your Form 1099-R shows a larger taxable amount, use the amount figured on this line instead. Filing taxes for free If you are a retired public safety officer, see Insurance Premiums for Retired Public Safety Officers, earlier, before entering an amount on your tax return. Filing taxes for free 9. Filing taxes for free $ 13,200 10. Filing taxes for free Was your annuity starting date before 1987? □ Yes. Filing taxes for free STOP. Filing taxes for free Do not complete the rest of this worksheet. Filing taxes for free  ☑ No. Filing taxes for free Add lines 6 and 8. Filing taxes for free This is the amount you have recovered tax free through 2013. Filing taxes for free You will need this number if you need to fill out this worksheet next year. Filing taxes for free 10. Filing taxes for free 1,200 11. Filing taxes for free Balance of cost to be recovered. Filing taxes for free Subtract line 10 from line 2. Filing taxes for free If zero, you will not have to complete this worksheet next year. Filing taxes for free The payments you receive next year will generally be fully taxable 11. Filing taxes for free $ 29,800 * A death benefit exclusion (up to $5,000) applied to certain benefits received by employees who died before August 21, 1996. Filing taxes for free   Table 1 for Line 3 Above       AND your annuity starting date was—   IF your age on your annuity starting date was . Filing taxes for free . Filing taxes for free . Filing taxes for free   BEFORE November 19, 1996, enter on line 3 . Filing taxes for free . Filing taxes for free . Filing taxes for free AFTER November 18, 1996, enter on line 3 . Filing taxes for free . Filing taxes for free . Filing taxes for free   55 or under 300 360   56-60 260 310   61-65 240 260   66-70 170 210   71 or over 120 160 Table 2 for Line 3 Above   IF the annuitants' combined ages on your annuity starting date were . Filing taxes for free . Filing taxes for free . Filing taxes for free   THEN enter on line 3 . Filing taxes for free . Filing taxes for free . Filing taxes for free         110 or under   410         111-120   360         121-130   310         131-140   260         141 or over   210       Survivors of retirees. Filing taxes for free   Benefits paid to you as a survivor under a joint and survivor annuity must be included in your gross income in the same way the retiree would have included them in gross income. Filing taxes for free   If you receive a survivor annuity because of the death of a retiree who had reported the annuity under the Three-Year Rule, include the total received in your income. Filing taxes for free The retiree's cost has already been recovered tax free. Filing taxes for free   If the retiree was reporting the annuity payments under the General Rule, you must apply the same exclusion percentage the retiree used to your initial payment called for in the contract. Filing taxes for free The resulting tax-free amount will then remain fixed. Filing taxes for free Any increases in the survivor annuity are fully taxable. Filing taxes for free   If the retiree was reporting the annuity payments under the Simplified Method, the part of each payment that is tax free is the same as the tax-free amount figured by the retiree at the annuity starting date. Filing taxes for free See Simplified Method , earlier. Filing taxes for free How to report. Filing taxes for free   If you file Form 1040, report your total annuity on line 16a, and the taxable part on line 16b. Filing taxes for free If your pension or annuity is fully taxable, enter it on line 16b. Filing taxes for free Do not make an entry on line 16a. Filing taxes for free   If you file Form 1040A, report your total annuity on line 12a, and the taxable part on line 12b. Filing taxes for free If your pension or annuity is fully taxable, enter it on line 12b. Filing taxes for free Do not make an entry on line 12a. Filing taxes for free   If you file Form 1040NR, report your total annuity on line 17a, and the taxable part on line 17b. Filing taxes for free If your pension or annuity is fully taxable, enter it on line 17b. Filing taxes for free Do not make an entry on line 17a. Filing taxes for free Example. Filing taxes for free You are a Form 1040 filer and you received monthly payments totaling $1,200 (12 months x $100) during 2013 from a pension plan that was completely financed by your employer. Filing taxes for free You had paid no tax on the payments that your employer made to the plan, and the payments were not used to pay for accident, health, or long-term care insurance premiums (as discussed later under Insurance Premiums for Retired Public Safety Officers ). Filing taxes for free The entire $1,200 is taxable. Filing taxes for free You include $1,200 only on Form 1040, line 16b. Filing taxes for free Joint return. Filing taxes for free   If you file a joint return and you and your spouse each receive one or more pensions or annuities, report the total of the pensions and annuities on line 16a of Form 1040, line 12a of Form 1040A, or line 17a of Form 1040NR. Filing taxes for free Report the total of the taxable parts on line 16b of Form 1040, line 12b of Form 1040A, or line 17b of Form 1040NR. Filing taxes for free Form 1099-R. Filing taxes for free   You should receive a Form 1099-R for your pension or annuity. Filing taxes for free Form 1099-R shows your pension or annuity for the year and any income tax withheld. Filing taxes for free You should receive a Form W-2 if you receive distributions from certain nonqualified plans. Filing taxes for free You must attach Forms 1099-R or Forms W-2 to your 2013 tax return if federal income tax was withheld. Filing taxes for free Generally, you should be sent these forms by January 31, 2014. Filing taxes for free Nonperiodic Distributions If you receive a nonperiodic distribution from your retirement plan, you may be able to exclude all or part of it from your income as a recovery of your cost. Filing taxes for free Nonperiodic distributions include cash withdrawals, distributions of current earnings (dividends) on your investment, and certain loans. Filing taxes for free For information on how to figure the taxable amount of a nonperiodic distribution, see Taxation of Nonperiodic Payments in Publication 575. Filing taxes for free The taxable part of a nonperiodic distribution may be subject to an additional 10% tax. Filing taxes for free See Tax on Early Distributions, later. Filing taxes for free Lump-sum distributions. Filing taxes for free   If you receive a lump-sum distribution from a qualified employee plan or qualified employee annuity and the plan participant was born before January 2, 1936, you may be able to elect optional methods of figuring the tax on the distribution. Filing taxes for free The part from active participation in the plan before 1974 may qualify as capital gain subject to a 20% tax rate. Filing taxes for free The part from participation after 1973 (and any part from participation before 1974 that you do not report as capital gain) is ordinary income. Filing taxes for free You may be able to use the 10-year tax option to figure tax on the ordinary income part. Filing taxes for free Form 1099-R. Filing taxes for free   If you receive a total distribution from a plan, you should receive a Form 1099-R. Filing taxes for free If the distribution qualifies as a lump-sum distribution, box 3 shows the capital gain part of the distribution. Filing taxes for free The amount in box 2a, Taxable amount, minus the amount in box 3, Capital gain, is the ordinary income part. Filing taxes for free More information. Filing taxes for free   For more detailed information on lump-sum distributions, see Publication 575 or Form 4972, Tax on Lump-Sum Distributions. Filing taxes for free Tax on Early Distributions Most distributions you receive from your qualified retirement plan and nonqualified annuity contracts before you reach age 59½ are subject to an additional tax of 10%. Filing taxes for free The tax applies to the taxable part of the distribution. Filing taxes for free For this purpose, a qualified retirement plan is: A qualified employee plan (including a qualified cash or deferred arrangement (CODA) under Internal Revenue Code section 401(k)), A qualified employee annuity plan, A tax-sheltered annuity plan (403(b) plan), or An eligible state or local government section 457 deferred compensation plan (to the extent that any distribution is attributable to amounts the plan received in a direct transfer or rollover from one of the other plans listed here or an IRA). Filing taxes for free  An IRA is also a qualified retirement plan for purposes of this tax. Filing taxes for free General exceptions to tax. Filing taxes for free   The early distribution tax does not apply to any distributions that are: Made as part of a series of substantially equal periodic payments (made at least annually) for your life (or life expectancy) or the joint lives (or joint life expectancies) of you and your designated beneficiary (if from a qualified retirement plan, the payments must begin after separation from service), Made because you are totally and permanently disabled, or Made on or after the death of the plan participant or contract holder. Filing taxes for free Additional exceptions. Filing taxes for free   There are additional exceptions to the early distribution tax for certain distributions from qualified retirement plans and nonqualified annuity contracts. Filing taxes for free See Publication 575 for details. Filing taxes for free Reporting tax. Filing taxes for free   If you owe only the tax on early distributions and distribution code 1 (early distribution, no known exception) is correctly shown in Form 1099-R, box 7, multiply the taxable part of the early distribution by 10% (. Filing taxes for free 10) and enter the result on Form 1040, line 58, or Form 1040NR, line 56. Filing taxes for free See the instructions for line 58 of Form 1040 or line 56 of Form 1040NR for more information about reporting the early distribution tax. Filing taxes for free Tax on Excess Accumulation To make sure that most of your retirement benefits are paid to you during your lifetime, rather than to your beneficiaries after your death, the payments that you receive from qualified retirement plans must begin no later than your required beginning date. Filing taxes for free Unless the rule for 5% owners applies, this is generally April 1 of the year that follows the later of: The calendar year in which you reach age 70½, or The calendar year in which you retire from employment with the employer maintaining the plan. Filing taxes for free However, your plan may require you to begin to receive payments by April 1 of the year that follows the year in which you reach 70½, even if you have not retired. Filing taxes for free For this purpose, a qualified retirement plan includes: A qualified employee plan, A qualified employee annuity plan, An eligible section 457 deferred compensation plan, or A tax-sheltered annuity plan (403(b) plan) (for benefits accruing after 1986). Filing taxes for free  An IRA is also a qualified retirement plan for purposes of this tax. Filing taxes for free An excess accumulation is the undistributed remainder of the required minimum distribution that was left in your qualified retirement plan. Filing taxes for free 5% owners. Filing taxes for free   If you own (or are considered to own under section 318 of the Internal Revenue Code) more than 5% of the company maintaining your qualified retirement plan, you must begin to receive distributions from the plan by April 1 of the year after the calendar year in which you reach age 70½. Filing taxes for free See Publication 575 for more information. Filing taxes for free Amount of tax. Filing taxes for free   If you do not receive the required minimum distribution, you are subject to an additional tax. Filing taxes for free The tax equals 50% of the difference between the amount that must be distributed and the amount that was distributed during the tax year. Filing taxes for free You can get this excise tax excused if you establish that the shortfall in distributions was due to reasonable error and that you are taking reasonable steps to remedy the shortfall. Filing taxes for free Form 5329. Filing taxes for free   You must file a Form 5329 if you owe a tax because you did not receive a minimum required distribution from your qualified retirement plan. Filing taxes for free Additional information. Filing taxes for free   For more detailed information on the tax on excess accumulation, see Publication 575. Filing taxes for free Insurance Premiums for Retired Public Safety Officers If you are an eligible retired public safety officer (law enforcement officer, firefighter, chaplain, or member of a rescue squad or ambulance crew), you can elect to exclude from income distributions made from your eligible retirement plan that are used to pay the premiums for accident or health insurance or long-term care insurance. Filing taxes for free The premiums can be for coverage for you, your spouse, or dependent(s). Filing taxes for free The distribution must be made directly from the plan to the insurance provider. Filing taxes for free You can exclude from income the smaller of the amount of the insurance premiums or $3,000. Filing taxes for free You can only make this election for amounts that would otherwise be included in your income. Filing taxes for free The amount excluded from your income cannot be used to claim a medical expense deduction. Filing taxes for free An eligible retirement plan is a governmental plan that is a: Qualified trust, Section 403(a) plan, Section 403(b) annuity, or Section 457(b) plan. Filing taxes for free If you make this election, reduce the otherwise taxable amount of your pension or annuity by the amount excluded. Filing taxes for free The taxable amount shown in box 2a of any Form 1099-R that you receive does not reflect the exclusion. Filing taxes for free Report your total distributions on Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a. Filing taxes for free Report the taxable amount on Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b. Filing taxes for free Enter “PSO” next to the appropriate line on which you report the taxable amount. Filing taxes for free Railroad Retirement Benefits Benefits paid under the Railroad Retirement Act fall into two categories. Filing taxes for free These categories are treated differently for income tax purposes. Filing taxes for free Social security equivalent benefits. Filing taxes for free   The first category is the amount of tier 1 railroad retirement benefits that equals the social security benefit that a railroad employee or beneficiary would have been entitled to receive under the social security system. Filing taxes for free This part of the tier 1 benefit is the social security equivalent benefit (SSEB) and is treated for tax purposes like social security benefits. Filing taxes for free (See Social Security and Equivalent Railroad Retirement Benefits , later. Filing taxes for free ) Non-social security equivalent benefits. Filing taxes for free   The second category contains the rest of the tier 1 benefits, called the non-social security equivalent benefit (NSSEB). Filing taxes for free It also contains any tier 2 benefit, vested dual benefit (VDB), and supplemental annuity benefit. Filing taxes for free This category of benefits is treated as an amount received from a qualified employee plan. Filing taxes for free This allows for the tax-free (nontaxable) recovery of employee contributions from the tier 2 benefits and the NSSEB part of the tier 1 benefits. Filing taxes for free Vested dual benefits and supplemental annuity benefits are non-contributory pensions and are fully taxable. Filing taxes for free More information. Filing taxes for free   For more information about railroad retirement benefits, see Publication 575. Filing taxes for free Military Retirement Pay Military retirement pay based on age or length of service is taxable and must be included in income as a pension on Form 1040, lines 16a and 16b; on Form 1040A, lines 12a and 12b; or on Form 1040NR, lines 17a and 17b. Filing taxes for free But, certain military and government disability pensions that are based on a percentage of disability from active service in the Armed Forces of any country generally are not taxable. Filing taxes for free For more information, including information about veterans' benefits and insurance, see Publication 525. Filing taxes for free Social Security and Equivalent Railroad Retirement Benefits This discussion explains the federal income tax rules for social security benefits and equivalent tier 1 railroad retirement benefits. Filing taxes for free Social security benefits include monthly retirement, survivor, and disability benefits. Filing taxes for free They do not include supplemental security income (SSI) payments, which are not taxable. Filing taxes for free Equivalent tier 1 railroad retirement benefits are the part of tier 1 benefits that a railroad employee or beneficiary would have been entitled to receive under the social security system. Filing taxes for free They commonly are called the social security equivalent benefit (SSEB) portion of tier 1 benefits. Filing taxes for free If you received these benefits during 2013, you should have received a Form SSA-1099 or Form RRB-1099 (Form SSA-1042S or Form RRB-1042S if you are a nonresident alien), showing the amount of the benefits. Filing taxes for free Are Any of Your Benefits Taxable? Note. Filing taxes for free When the term “benefits” is used in this section, it applies to both social security benefits and the SSEB portion of tier 1 railroad retirement benefits. Filing taxes for free  To find out whether any of your benefits may be taxable, compare the base amount for your filing status (explained later) with the total of: One-half of your benefits, plus All your other income, including tax-exempt interest. Filing taxes for free When making this comparison, do not reduce your other income by any exclusions for: Interest from qualified U. Filing taxes for free S. Filing taxes for free savings bonds, Employer-provided adoption benefits, Foreign earned income or foreign housing, or Income earned in American Samoa or Puerto Rico by bona fide residents. Filing taxes for free Figuring total income. Filing taxes for free   To figure the total of one-half of your benefits plus your other income, use Worksheet 2-B. Filing taxes for free If that total amount is more than your base amount, part of your benefits may be taxable. Filing taxes for free If you are married and file a joint return for 2013, you and your spouse must combine your incomes and your benefits to figure whether any of your combined benefits are taxable. Filing taxes for free Even if your spouse did not receive any benefits, you must add your spouse's income to yours to figure whether any of your benefits are taxable. Filing taxes for free If the only income you received during 2013 was your social security or the SSEB portion of tier 1 railroad retirement benefits, your benefits generally are not taxable and you probably do not have to file a return. Filing taxes for free If you have income in addition to your benefits, you may have to file a return even if none of your benefits are taxable. Filing taxes for free Worksheet 2-B. Filing taxes for free A Quick Way To Check if Your Benefits May Be Taxable A. Filing taxes for free Enter the amount from box 5 of all your Forms SSA-1099 and RRB-1099. Filing taxes for free Include  the full amount of any lump-sum benefit payments received in 2013, for 2013 and  earlier years. Filing taxes for free (If you received more than one form, combine the amounts from box 5  and enter the total. Filing taxes for free ) A. Filing taxes for free     Note. Filing taxes for free If the amount on line A is zero or less, stop here; none of your benefits are  taxable this year. Filing taxes for free     B. Filing taxes for free Enter one-half of the amount on line A B. Filing taxes for free   C. Filing taxes for free Enter your taxable pensions, wages, interest, dividends, and other taxable income C. Filing taxes for free   D. Filing taxes for free Enter any tax-exempt interest income (such as interest on municipal bonds) plus any exclusions from income for: •Interest from qualified U. Filing taxes for free S. Filing taxes for free savings bonds, •Employer-provided adoption benefits, •Foreign earned income or foreign housing, or •Income earned in American Samoa or Puerto Rico by bona fide residents D. Filing taxes for free   E. Filing taxes for free Add lines B, C, and D and enter the total E. Filing taxes for free   F. Filing taxes for free If you are: •Married filing jointly, enter $32,000 •Single, head of household, qualifying widow(er), or married filing separately and you  lived apart from your spouse for all of 2013, enter $25,000 •Married filing separately and you lived with your spouse at any time during 2013,  enter -0- F. Filing taxes for free   G. Filing taxes for free Is the amount on line F less than or equal to the amount on line E? □ No. Filing taxes for free None of your benefits are taxable this year. Filing taxes for free  □ Yes. Filing taxes for free Some of your benefits may be taxable. Filing taxes for free To figure how much of your benefits  are taxable, see Which worksheet to use under How Much Is Taxable. Filing taxes for free     Base Amount Your base amount is: $25,000 if you are single, head of household, or qualifying widow(er) with dependent child, $25,000 if you are married filing separately and lived apart from your spouse for all of 2013, $32,000 if you are married filing jointly, or $0 if you are married filing separately and lived with your spouse at any time during 2013. Filing taxes for free Repayment of Benefits Any repayment of benefits you made during 2013 must be subtracted from the gross benefits you received in 2013. Filing taxes for free It does not matter whether the repayment was for a benefit you received in 2013 or in an earlier year. Filing taxes for free If you repaid more than the gross benefits you received in 2013, see Repayments More Than Gross Benefits , later. Filing taxes for free Your gross benefits are shown in box 3 of Form SSA-1099 or Form RRB-1099. Filing taxes for free Your repayments are shown in box 4. Filing taxes for free The amount in box 5 shows your net benefits for 2013 (box 3 minus box 4). Filing taxes for free Use the amount in box 5 to figure whether any of your benefits are taxable. Filing taxes for free Tax Withholding and Estimated Tax You can choose to have federal income tax withheld from your social security and/or the SSEB portion of your tier 1 railroad retirement benefits. Filing taxes for free If you choose to do this, you must complete a Form W-4V, Voluntary Withholding Request. Filing taxes for free If you do not choose to have income tax withheld, you may have to request additional withholding from other income, or pay estimated tax during the year. Filing taxes for free For details, see Publication 505, Tax Withholding and Estimated Tax, or the instructions for Form 1040-ES, Estimated Tax for Individuals. Filing taxes for free How Much Is Taxable? If part of your benefits is taxable, how much is taxable depends on the total amount of your benefits and other income. Filing taxes for free Generally, the higher that total amount, the greater the taxable part of your benefits. Filing taxes for free Maximum taxable part. Filing taxes for free   The taxable part of your benefits usually cannot be more than 50%. Filing taxes for free However, up to 85% of your benefits can be taxable if either of the following situations applies to you. Filing taxes for free The total of one-half of your benefits and all your other income is more than $34,000 ($44,000 if you are married filing jointly). Filing taxes for free You are married filing separately and lived with your spouse at any time during 2013. Filing taxes for free   If you are a nonresident alien, 85% of your benefits are taxable. Filing taxes for free However, this income is exempt under some tax treaties. Filing taxes for free Which worksheet to use. Filing taxes for free   A worksheet to figure your taxable benefits is in the instructions for your Form 1040 or 1040A. Filing taxes for free However, you will need to use a different worksheet(s) if any of the following situations applies to you. Filing taxes for free You contributed to a traditional individual retirement arrangement (IRA) and you or your spouse were covered by a retirement plan at work. Filing taxes for free In this situation, you must use the special worksheets in Appendix B of Publication 590 to figure both your IRA deduction and your taxable benefits. Filing taxes for free Situation (1) does not apply and you take one or more of the following exclusions. Filing taxes for free Interest from qualified U. Filing taxes for free S. Filing taxes for free savings bonds (Form 8815). Filing taxes for free Employer-provided adoption benefits (Form 8839). Filing taxes for free Foreign earned income or housing (Form 2555 or Form 2555-EZ). Filing taxes for free Income earned in American Samoa (Form 4563) or Puerto Rico by bona fide residents. Filing taxes for free In these situations, you must use Worksheet 1 in Publication 915, Social Security and Equivalent Railroad Retirement Benefits, to figure your taxable benefits. Filing taxes for free You received a lump-sum payment for an earlier year. Filing taxes for free In this situation, also complete Worksheet 2 or 3 and Worksheet 4 in Publication 915. Filing taxes for free See Lump-Sum Election , later. Filing taxes for free How To Report Your Benefits If part of your benefits are taxable, you must use Form 1040, Form 1040A, or Form 1040NR. Filing taxes for free You cannot use Form 1040EZ. Filing taxes for free Reporting on Form 1040. Filing taxes for free   Report your net benefits (the amount in box 5 of your Form SSA-1099 or Form RRB-1099) on line 20a and the taxable part on line 20b. Filing taxes for free If you are married filing separately and you lived apart from your spouse for all of 2013, also enter “D” to the right of the word “benefits” on line 20a. Filing taxes for free Reporting on Form 1040A. Filing taxes for free   Report your net benefits (the amount in box 5 of your Form SSA-1099 or Form RRB-1099) on line 14a and the taxable part on line 14b. Filing taxes for free If you are married filing separately and you lived apart from your spouse for all of 2013, also enter “D” to the right of the word “benefits” on line 14a. Filing taxes for free Reporting on Form 1040NR. Filing taxes for free   Report 85% of the total amount of your benefits (box 5 of your Form SSA-1042S or Form RRB-1042S) in the appropriate column of Form 1040NR, Schedule NEC, line 8. Filing taxes for free Benefits not taxable. Filing taxes for free   If you are filing Form 1040EZ, do not report any benefits on your tax return. Filing taxes for free If you are filing Form 1040 or Form 1040A, report your net benefits (the amount in box 5 of your Form SSA-1099 or Form RRB-1099) on Form 1040, line 20a, or Form 1040A, line 14a. Filing taxes for free Enter -0- on Form 1040, line 20b, or Form 1040A, line 14b. Filing taxes for free If you are married filing separately and you lived apart from your spouse for all of 2013, also enter “D” to the right of the word “benefits” on Form 1040, line 20a, or Form 1040A, line 14a. Filing taxes for free Lump-Sum Election You must include the taxable part of a lump-sum (retroactive) payment of benefits received in 2013 in your 2013 income, even if the payment includes benefits for an earlier year. Filing taxes for free This type of lump-sum benefit payment should not be confused with the lump-sum death benefit that both the SSA and RRB pay to many of their beneficiaries. Filing taxes for free No part of the lump-sum death benefit is subject to tax. Filing taxes for free For more information about the lump-sum death benefit, visit the Social Security Administration website at www. Filing taxes for free SSA. Filing taxes for free gov, and use keyword: death benefit. Filing taxes for free Generally, you use your 2013 income to figure the taxable part of the total benefits received in 2013. Filing taxes for free However, you may be able to figure the taxable part of a lump-sum payment for an earlier year separately, using your income for the earlier year. Filing taxes for free You can elect this method if it lowers your taxable benefits. Filing taxes for free See Publication 915 for more information. Filing taxes for free Repayments More Than Gross Benefits In some situations, your Form SSA-1099 or Form RRB-1099 will show that the total benefits you repaid (box 4) are more than the gross benefits (box 3) you received. Filing taxes for free If this occurred, your net benefits in box 5 will be a negative figure (a figure in parentheses) and none of your benefits will be taxable. Filing taxes for free If you receive more than one form, a negative figure in box 5 of one form is used to offset a positive figure in box 5 of another form for that same year. Filing taxes for free If you have any questions about this negative figure, contact your local Social Security Administration office or your local U. Filing taxes for free S. Filing taxes for free Railroad Retirement Board field office. Filing taxes for free Joint return. Filing taxes for free   If you and your spouse file a joint return, and your Form SSA-1099 or RRB-1099 has a negative figure in box 5 but your spouse's does not, subtract the box 5 amount on your form from the box 5 amount on your spouse's form. Filing taxes for free You do this to get your net benefits when figuring if your combined benefits are taxable. Filing taxes for free Repayment of benefits received in an earlier year. Filing taxes for free   If the total amount shown in box 5 of all of your Forms SSA-1099 and RRB-1099 is a negative figure, you can take an itemized deduction for the part of this negative figure that represents benefits you included in gross income in an earlier year. Filing taxes for free   If this deduction is $3,000 or less, it is subject to the 2%-of-adjusted-gross-income limit that applies to certain miscellaneous itemized deductions. Filing taxes for free Claim it on Schedule A (Form 1040), line 23. Filing taxes for free   If this deduction is more than $3,000, you have to follow some special instructions. Filing taxes for free See Publication 915 for those instructions. Filing taxes for free Sickness and Injury Benefits Generally, you must report as income any amount you receive for personal injury or sickness through an accident or health plan that is paid for by your employer. Filing taxes for free If both you and your employer pay for the plan, only the amount you receive that is due to your employer's payments is reported as income. Filing taxes for free However, certain payments may not be taxable to you. Filing taxes for free Some of these payments are discussed later in this section. Filing taxes for free Also, see Military and Government Disability Pensions and Other Sickness and Injury Benefits in Publication 525. Filing taxes for free Cost paid by you. Filing taxes for free   If you pay the entire cost of an accident or health plan, do not include any amounts you receive from the plan for personal injury or sickness as income on your tax return. Filing taxes for free If your plan reimbursed you for medical expenses you deducted in an earlier year, you may have to include some, or all, of the reimbursement in your income. Filing taxes for free Disability Pensions If you retired on disability, you must include in income any disability pension you receive under a plan that is paid for by your employer. Filing taxes for free You must report your taxable disability payments as wages on line 7 of Form 1040 or Form 1040A or on line 8 of Form 1040NR until you reach minimum retirement age. Filing taxes for free Minimum retirement age generally is the age at which you can first receive a pension or annuity if you are not disabled. Filing taxes for free If you were 65 or older by the end of 2013 or you were retired on permanent and total disability and received taxable disability income, you may be able to claim the credit for the elderly or the disabled. Filing taxes for free See Credit for the Elderly or the Disabled, later. Filing taxes for free For more information on this credit, see Publication 524, Credit for the Elderly or the Disabled. Filing taxes for free Beginning on the day after you reach minimum retirement age, payments you receive are taxable as a pension or annuity. Filing taxes for free Report the payments on lines 16a and 16b of Form 1040, on lines 12a and 12b of Form 1040A, or on lines 17a and 17b of Form 1040NR. Filing taxes for free For more information on pensions and annuities, see Publication 575. Filing taxes for free Retirement and profit-sharing plans. Filing taxes for free   If you receive payments from a retirement or profit-sharing plan that does not provide for disability retirement, do not treat the payments as a disability pension. Filing taxes for free The payments must be reported as a pension or annuity. Filing taxes for free Accrued leave payment. Filing taxes for free   If you retire on disability, any lump-sum payment you receive for accrued annual leave is a salary payment. Filing taxes for free The payment is not a disability payment. Filing taxes for free Include it in your income in the tax year you receive it. Filing taxes for free Long-Term Care Insurance Contracts In most cases, long-term care insurance contracts generally are treated as accident and health insurance contracts. Filing taxes for free Amounts you receive from them (other than policyholder dividends or premium refunds) generally are excludable from income as amounts received for personal injury or sickness. Filing taxes for free However, the amount you can exclude may be limited. Filing taxes for free Long-term care insurance contracts are discussed in more detail in Publication 525. Filing taxes for free Workers' Compensation Amounts you receive as workers' compensation for an occupational sickness or injury are fully exempt from tax if they are paid under a workers' compensation act or a statute in the nature of a workers' compensation act. Filing taxes for free The exemption also applies to your survivors. Filing taxes for free The exemption, however, does not apply to retirement plan benefits you receive based on your age, length of service, or prior contributions to the plan, even if you retired because of an occupational sickness or injury. Filing taxes for free If part of your workers' compensation reduces your social security or equivalent railroad retirement benefits, that part is considered social security (or equivalent railroad retirement) benefits and may be taxable. Filing taxes for free For a discussion of the taxability of these benefits, see Social Security and Equivalent Railroad Retirement Benefits, earlier. Filing taxes for free Return to work. Filing taxes for free   If you return to work after qualifying for workers' compensation, salary payments you receive for performing light duties are taxable as wages. Filing taxes for free Other Sickness and Injury Benefits In addition to disability pensions and annuities, you may receive other payments for sickness or injury. Filing taxes for free Federal Employees' Compensation Act (FECA). Filing taxes for free   Payments received under this Act for personal injury or sickness, including payments to beneficiaries in case of death, are not taxable. Filing taxes for free However, you are taxed on amounts you receive under this Act as continuation of pay for up to 45 days while a claim is being decided. Filing taxes for free Report this income on Form 1040, line 7; Form 1040A, line 7; on Form 1040EZ, line 1; or Form 1040NR, line 8. Filing taxes for free Also, pay for sick leave while a claim is being processed is taxable and must be included in your income as wages. Filing taxes for free    If part of the payments you receive under FECA reduces your social security or equivalent railroad retirement benefits, that part is considered social security (or equivalent railroad retirement) benefits and may be taxable. Filing taxes for free For a discussion of the taxability of these benefits, see Social Security and Equivalent Railroad Retirement Benefits, earlier. Filing taxes for free Other compensation. Filing taxes for free   Many other amounts you receive as compensation for sickness or injury are not taxable. Filing taxes for free These include the following amounts. Filing taxes for free Benefits you receive under an accident or health insurance policy on which either you paid the premiums or your employer paid the premiums but you had to include them in your income. Filing taxes for free Disability benefits you receive for loss of income or earning capacity as a result of injuries under a no-fault car insurance policy. Filing taxes for free Compensation you receive for permanent loss or loss of use of a part or function of your body, for your permanent disfigurement, or for such loss or disfigurement suffered by your spouse or dependent(s). Filing taxes for free This compensation must be based only on the injury and not on the period of your absence from work. Filing taxes for free These benefits are not taxable even if your employer pays for the accident and health plan that provides these benefits. Filing taxes for free Life Insurance Proceeds Life insurance proceeds paid to you because of the death of the insured person are not taxable unless the policy was turned over to you for a price. Filing taxes for free This is true even if the proceeds were paid under an accident or health insurance policy or an endowment contract. Filing taxes for free Proceeds not received in installments. Filing taxes for free   If death benefits are paid to you in a lump sum or other than at regular intervals, include in your income only the benefits that are more than the amount payable to you at the time of the insured person's death. Filing taxes for free If the benefit payable at death is not specified, you include in your income the benefit payments that are more than the present value of the payments at the time of death. Filing taxes for free Proceeds received in installments. Filing taxes for free   If you receive life insurance proceeds in installments, you can exclude part of each installment from your income. Filing taxes for free   To determine the excluded part, divide the amount held by the insurance company (generally the total lump sum payable at the death of the insured person) by the number of installments to be paid. Filing taxes for free Include anything over this excluded part in your income as interest. Filing taxes for free Installments for life. Filing taxes for free   If, as the beneficiary under an insurance contract, you are entitled to receive the proceeds in installments for the rest of your life without a refund or period-certain guarantee, you figure the excluded part of each installment by dividing the amount held by the insurance company by your life expectancy. Filing taxes for free If there is a refund or period-certain guarantee, the amount held by the insurance company for this purpose is reduced by the actuarial value of the guarantee. Filing taxes for free Surviving spouse. Filing taxes for free   If your spouse died before October 23, 1986, and insurance proceeds paid to you because of the death of your spouse are received in installments, you can exclude, in any year, up to $1,000 of the interest included in the installments. Filing taxes for free If you remarry, you can continue to take the exclusion. Filing taxes for free Surrender of policy for cash. Filing taxes for free   If you surrender a life insurance policy for cash, you must include in income any proceeds that are more than the cost of the life insurance policy. Filing taxes for free In general, your cost (or investment in the contract) is the total of premiums that you paid for the life insurance policy, less any refunded premiums, rebates, dividends, or unrepaid loans that were not included in your income. Filing taxes for free You should receive a Form 1099-R showing the total proceeds and the taxable part. Filing taxes for free Report these amounts on Form 1040, lines 16a and 16b; Form 1040A, lines 12a and 12b; or Form 1040NR, lines 17a and 17b. Filing taxes for free Endowment Contract Proceeds An endowment contract is a policy that pays over to you a specified amount of money on a certain date unless you die before that date, in which case, the money is paid to your designated beneficiary. Filing taxes for free Endowment proceeds paid in a lump sum to you at maturity are taxable only if the proceeds are more than the cost of the policy. Filing taxes for free To determine your cost, subtract from the total premiums (or other consideration) paid for the contract any amount that you previously received under the contract and excluded from your income. Filing taxes for free Include in your income the part of the lump-sum payment that is more than your cost. Filing taxes for free Endowment proceeds that you choose to receive in installments instead of a lump-sum payment at the maturity of the policy are taxed as an annuity. Filing taxes for free The tax treatment of an annuity is explained in Publication 575. Filing taxes for free For this treatment to apply, you must choose to receive the proceeds in installments before receiving any part of the lump sum. Filing taxes for free This election must be made within 60 days after the lump-sum payment first becomes payable to you. Filing taxes for free Accelerated Death Benefits Certain amounts paid as accelerated death benefits under a life insurance contract or viatical settlement before the insured's death are generally excluded from income if the insured is terminally or chronically ill. Filing taxes for free However, see Exception , later. Filing taxes for free For a chronically ill individual, accelerated death benefits paid on the basis of costs incurred for qualified long-term care services are fully excludable. Filing taxes for free Accelerated death benefits paid on a per diem or other periodic basis without regard to the costs are excludable up to a limit. Filing taxes for free In addition, if any portion of a death benefit under a life insurance contract on the life of a terminally or chronically ill individual is sold or assigned to a viatical settlement provider, the amount received also is excluded from income. Filing taxes for free Generally, a viatical settlement provider is one who regularly engages in the business of buying or taking assignment of life insurance contracts on the lives of insured individuals who are terminally or chronically ill. Filing taxes for free To report taxable accelerated death benefits made on a per diem or other periodic basis, you must file Form 8853, Archer MSAs and Long-Term Care Insurance Contracts, with your return. Filing taxes for free Terminally or chronically ill defined. Filing taxes for free   A terminally ill person is one who has been certified by a physician as having an illness or physical condition that reasonably can be expected to result in death within 24 months from the date of the certification. Filing taxes for free A chronically ill person is one who is not terminally ill but has been certified (within the previous 12 months) by a licensed health care practitioner as meeting either of the following conditions. Filing taxes for free The person is unable to perform (without substantial help) at least two activities of daily living (eating, toileting, transferring, bathing, dressing, and continence) for a period of 90 days or more because of a loss of functional capacity. Filing taxes for free The person requires substantial supervision to protect himself or herself from threats to health and safety due to severe cognitive impairment. Filing taxes for free Exception. Filing taxes for free   The exclusion does not apply to any amount paid to a person other than the insured if that other person has an insurable interest in the life of the insured because the insured: Is a director, officer, or employee of the other person, or Has a financial interest in the business of the other person. Filing taxes for free Sale of Home You may be able to exclude from income any gain up to $250,000 ($500,000 on a joint return in most cases) on the sale of your main home. Filing taxes for free Generally, if you can exclude all of the gain, you do not need to report the sale on your tax return. Filing taxes for free You can choose not to take the exclusion by including the gain from the sale in your gross income on your tax return for the year of the sale. Filing taxes for free Main home. Filing taxes for free   Usually, your main home is the home you live in most of the time and can be a: House, Houseboat, Mobile home, Cooperative apartment, or Condominium. Filing taxes for free Repaying the first-time homebuyer credit because you sold your home. Filing taxes for free   If you claimed a first-time homebuyer credit for your main home and you sell it, you may have to repay the credit. Filing taxes for free For a home purchased in 2008 and used as your main home until sold in 2013, you must file Form 5405 and repay the balance of the unpaid credit on your 2013 tax return. Filing taxes for free   For a home purchased after 2008, you generally must repay the entire credit if the home was sold (or otherwise ceased to be your main home) within 36 months of the purchase date. Filing taxes for free If you purchased your home in 2009 and used it as your main home until sold in 2013, you do not have to repay the credit or file Form 5405. Filing taxes for free If you purchased your home in 2010 and used it as your main home until sold in 2013, you may have to file Form 5405 and repay the entire credit on your 2013 tax return. Filing taxes for free   See the Instructions for Form 5405 for more information about repaying the credit and exceptions to repayment that may apply to you. Filing taxes for free Maximum Amount of Exclusion You can generally exclude up to $250,000 of the gain (other than gain allocated to periods of nonqualified use) on the sale of your main home if all of the following are true. Filing taxes for free You meet the ownership test. Filing taxes for free You meet the use test. Filing taxes for free During the 2-year period ending on the date of the sale, you did not exclude gain from the sale of another home. Filing taxes for free You may be able to exclude up to $500,000 of the gain (other than gain allocated to periods of nonqualified use) on the sale of your main home if you are married and file a joint return and meet the requirements listed in the discussion of the special rules for joint returns, later, under Married Persons . Filing taxes for free Ownership and Use Tests To claim the exclusion, you must meet the ownership and use tests. Filing taxes for free This means that during the 5-year period ending on the date of the sale, you must have: Owned the home for at least 2 years (the ownership test), and Lived in the home as your main home for at least 2 years (the use test). Filing taxes for free Exception to ownership and use tests. Filing taxes for free   If you owned and lived in the property as your main home for less than 2 years, you still can claim an exclusion in some cases. Filing taxes for free Generally, you must have sold the home due to a change in place of employment, health, or unforeseen circumstances. Filing taxes for free The maximum amount you can exclude will be reduced. Filing taxes for free See Publication 523, Selling Your Home, for more information. Filing taxes for free Exception to use test for individuals with a disability. Filing taxes for free   There is an exception to the use test if, during the 5-year period before the sale of your home: You become physically or mentally unable to care for yourself, and You owned and lived in your home as your main home for a total of at least 1 year. Filing taxes for free Under this exception, you are considered to live in your home during any time that you own the home and live in a facility (including a nursing home) that is licensed by a state or political subdivision to care for persons in your condition. Filing taxes for free   If you meet this exception to the use test, you still have to meet the 2-out-of-5-year ownership test to claim the exclusion. Filing taxes for free Exception to ownership test for property acquired in a like-kind exchange. Filing taxes for free   You must have owned your main home for at least 5 years to qualify for the exclusion if you acquired your main home in a like-kind exchange. Filing taxes for free This special 5-year ownership rule continues to apply to a home you acquired in a like-kind exchange and gave to another person. Filing taxes for free A like-kind exchange is an exchange of property held for productive use in a trade or business or for investment. Filing taxes for free See Publication 523 for more information. Filing taxes for free Period of nonqualified use. Filing taxes for free   Generally, the gain from the sale or exchange of your main home will not qualify for the exclusion to the extent that the gain is allocated to periods of nonqualified use. Filing taxes for free Nonqualified use is any period after December 31, 2008, during which the property is not used as the main home. Filing taxes for free See Publication 523 for more information. Filing taxes for free Married Persons In the special situations discussed below, if you and your spouse file a joint return for the year of sale and one spouse meets the ownership and use test, you can exclude up to $250,000 of gain. Filing taxes for free However, see Special rules for joint returns , next. Filing taxes for free Special rules for joint returns. Filing taxes for free   You can exclude up to $500,000 of the gain on the sale of your main home if all of the following are true. Filing taxes for free You are married and file a joint return for the year. Filing taxes for free Either you or your spouse meets the ownership test. Filing taxes for free Both you and your spouse meet the use test. Filing taxes for free During the 2-year period ending on the date of the sale, neither you nor your spouse exclude gain from the sale of another home. Filing taxes for free Sale of home by surviving spouse. Filing taxes for free   If your spouse died and you did not remarry before the date of sale, you are considered to have owned and lived in the property as your main home during any period of time when your spouse owned and lived in it as a main home. Filing taxes for free   If you meet all of the following requirements, you may qualify to exclude up to $500,000 of any gain from the sale or exchange of your main home in 2013. Filing taxes for free The sale or exchange took place no more than 2 years after the date of death of your spouse. Filing taxes for free You have not remarried. Filing taxes for free You and your spouse met the use test at the time of your spouse's death. Filing taxes for free You or your spouse met the ownership test at the time of your spouse's death. Filing taxes for free Neither you nor your spouse excluded gain from the sale of another home during the last 2 years. Filing taxes for free Home transferred from spouse. Filing taxes for free   If your home was transferred to you by your spouse (or former spouse if the transfer was incident to divorce), you are considered to have owned it during any period of time when your spouse owned it. Filing taxes for free Use of home after divorce. Filing taxes for free   You are considered to have used property as your main home during any period when: You owned it, and Your spouse or former spouse is allowed to live in it under a divorce or separation instrument and uses it as his or her main home. Filing taxes for free Business Use or Rental of Home You may be able to exclude gain from the sale of a home that you have used for business or to produce rental income. Filing taxes for free However, you must meet the ownership and use tests. Filing taxes for free See Publication 523 for more information. Filing taxes for free Depreciation after May 6, 1997. Filing taxes for free   If you were entitled to take depreciation deductions because you used your home for business purposes or as rental property, you cannot exclude the part of your gain equal to any depreciation allowed or allowable as a deduction for periods after May 6, 1997. Filing taxes for free See Publication 523 for more information. Filing taxes for free Reporting the Sale Do not report the 2013 sale of your main home on your tax return unless: You have a gain and you do not qualify to exclude all of it, You have a gain and you choose not to exclude it, or You received Form 1099-S. Filing taxes for free If you have a gain that you cannot or choose not to exclude, if you received a Form 1099-S, or if you have a deductible loss, report the sale on your tax return. Filing taxes for free Report the sale on Part I or Part II of Form 8949 as a short-term or long-term transaction, depending on how long you owned the home. Filing taxes for free If you used your home for business or to produce rental income, you may have to use Form 4797, Sales of Business Property, to report the sale of the business or rental part. Filing taxes for free See Publication 523 for more information. Filing taxes for free Reverse Mortgages A revers