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Form 1040 Es

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Form 1040 Es

Form 1040 es 3. Form 1040 es   Credit for Withholding and Estimated Tax for 2013 Table of Contents Introduction Topics - This chapter discusses: WithholdingForm W-2 Form W-2G The 1099 Series Form Not Correct Form Received After Filing Separate Returns Fiscal Years (FY) Estimated TaxSeparate Returns Divorced Taxpayers Excess Social Security or Railroad Retirement Tax WithholdingJoint returns. Form 1040 es Worksheet for Nonrailroad Employees Worksheets for Railroad Employees Introduction When you file your 2013 income tax return, take credit for all the income tax and excess social security or railroad retirement tax withheld from your salary, wages, pensions, etc. Form 1040 es Also take credit for the estimated tax you paid for 2013. Form 1040 es These credits are subtracted from your total tax. Form 1040 es Because these credits are refundable, you should file a return and claim these credits, even if you do not owe tax. Form 1040 es If the total of your withholding and your estimated tax payments for any payment period is less than the amount you needed to pay by the due date for that period, you may be charged a penalty, even if the total of these credits is more than your tax for the year. Form 1040 es Topics - This chapter discusses: How to take credit for withholding, How to take credit for estimated taxes you paid, and How to take credit for excess social security, Medicare, or railroad retirement tax withholding. Form 1040 es Withholding If you had income tax withheld during 2013, you generally should be sent a statement by January 31, 2014, showing your income and the tax withheld. Form 1040 es Depending on the source of your income, you will receive: Form W-2, Wage and Tax Statement, Form W-2G, Certain Gambling Winnings, or A form in the 1099 series. Form 1040 es Form W-2 Your employer is required to provide or send Form W-2 to you no later than January 31, 2014. Form 1040 es You should receive a separate Form W-2 from each employer you worked for. Form 1040 es If you stopped working before the end of 2013, your employer could have given you your Form W-2 at any time after you stopped working. Form 1040 es However, your employer must provide or send it to you by January 31, 2014. Form 1040 es If you ask for the form, your employer must send it to you within 30 days after receiving your written request or within 30 days after your final wage payment, whichever is later. Form 1040 es If you have not received your Form W-2 by January 31, contact your employer or payer to request a copy. Form 1040 es If you still do not get the form by February 15, the IRS can help you by requesting the form from your employer. Form 1040 es The phone number for the IRS is listed in chapter 5. Form 1040 es You will be asked for the following information. Form 1040 es Your name, address, city and state, zip code, and social security number. Form 1040 es Your employer's name, address, city, state, zip code, and the employer's identification number (if known). Form 1040 es An estimate of the wages you earned, the federal income tax withheld, and the period you worked for that employer. Form 1040 es The estimate should be based on year-to-date information from your final pay stub or leave-and-earnings statement, if possible. Form 1040 es Form W-2 shows your total pay and other compensation and the income tax, social security tax, and Medicare tax that was withheld during the year. Form 1040 es Total the federal income tax withheld (shown in box 2 of all Forms W-2 received) and enter that amount on the appropriate line of your tax return. Form 1040 es In addition, Form W-2 is used to report any taxable sick pay you received and any income tax withheld from your sick pay. Form 1040 es Your sick pay may be combined with other wages in one Form W-2 or you may receive a separate Form W-2 for sick pay. Form 1040 es If you file a paper tax return, attach Copy B of Form W-2 to your return. Form 1040 es Form W-2G If you had gambling winnings in 2013, the payer may have withheld income tax. Form 1040 es If tax was withheld, the payer will give you a Form W-2G showing the amount you won and the amount of tax withheld. Form 1040 es Report the amounts you won on line 21 of Form 1040. Form 1040 es Take credit for the tax withheld on line 62 of Form 1040. Form 1040 es If you had gambling winnings, you must use Form 1040; you cannot use Form 1040A or Form 1040EZ. Form 1040 es Gambling losses can be deducted on Schedule A (Form 1040) as a miscellaneous itemized deduction. Form 1040 es However, you cannot deduct more than the gambling winnings you report on Form 1040. Form 1040 es File Form W-2G with your income tax return only if it shows any federal income tax withheld in box 2. Form 1040 es The 1099 Series Most forms in the 1099 series are not filed with your return. Form 1040 es In general, these forms should be furnished to you by January 31, 2014. Form 1040 es Unless instructed to file any of these forms with your return, keep them for your records. Form 1040 es There are several different forms in this series, including: Form 1099-B, Proceeds From Broker and Barter Exchange Transactions; Form 1099-C, Cancellation of Debt; Form 1099-DIV, Dividends and Distributions; Form 1099-G, Certain Government Payments; Form 1099-INT, Interest Income; Form 1099-K, Payment Card and Third-Party Network Transactions; Form 1099-MISC, Miscellaneous Income; Form 1099-OID, Original Issue Discount; Form 1099-PATR, Taxable Distributions Received From Cooperatives; Form 1099-Q, Payments From Qualified Education Programs (Under Sections 529 and 530); Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. Form 1040 es ; Form SSA-1099, Social Security Benefit Statement; and Form RRB-1099, Payments by the Railroad Retirement Board. Form 1040 es If you received the types of income reported on some forms in the 1099 series, you may not be able to use Form 1040A or Form 1040EZ. Form 1040 es See the instructions to these forms for details. Form 1040 es Reporting your withholding. Form 1040 es   Report on your tax return all federal income tax withholding shown on your Form 1099, Form SSA-1099, and/or Form RRB-1099. Form 1040 es Include the amount withheld in the total on line 62 of Form 1040, line 36 of Form 1040A, or line 7 of Form 1040EZ. Form 1040 es Form 1099-R. Form 1040 es   Attach Form 1099-R to your paper return if federal income tax withholding is shown in box 4. Form 1040 es Do not attach any other Form 1099. Form 1040 es Form Not Correct If you receive a form with incorrect information, you should ask the payer for a corrected form. Form 1040 es Call the telephone number or write to the address given for the payer on the form. Form 1040 es The corrected Form W-2G or Form 1099 you receive will have an “X” in the “CORRECTED” box at the top of the form. Form 1040 es A special form, Form W-2c, Corrected Wage and Tax Statement, is used to correct a Form W-2. Form 1040 es In certain situations, you will receive two forms in place of the original incorrect form. Form 1040 es This will happen when your taxpayer identification number is wrong or missing, your name and address are wrong, or you received the wrong type of form (for example, a Form 1099-DIV instead of a Form 1099-INT). Form 1040 es One new form you receive will be the same incorrect form or have the same incorrect information, but all money amounts will be zero. Form 1040 es This form will have an “X” in the “CORRECTED” box at the top of the form. Form 1040 es The second new form should have all the correct information, prepared as though it is the original (the “CORRECTED” box will not be checked). Form 1040 es Form Received After Filing If you file your return and you later receive a form for income that you did not include on your return, report the income and take credit for any income tax withheld by filing Form 1040X, Amended U. Form 1040 es S. Form 1040 es Individual Income Tax Return. Form 1040 es Separate Returns If you are married but file a separate return, you can take credit only for the tax withheld from your own income. Form 1040 es Do not include any amount withheld from your spouse's income. Form 1040 es However, different rules may apply if you live in a community property state. Form 1040 es Community property states. Form 1040 es   The following are community property states. Form 1040 es Arizona. Form 1040 es California. Form 1040 es Idaho. Form 1040 es Louisiana. Form 1040 es Nevada. Form 1040 es New Mexico. Form 1040 es Texas. Form 1040 es Washington. Form 1040 es Wisconsin. Form 1040 es Generally, if you live in a community property state and file a separate return, you and your spouse each must report half of all community income in addition to your own separate income. Form 1040 es If you are required to report half of all community income, you are entitled to take credit for half of all taxes withheld on the community income. Form 1040 es If you were divorced during the year, each of you generally must report half the community income and can take credit for half the withholding on that community income for the period before the divorce. Form 1040 es   For more information on these rules, and some exceptions, see Publication 555, Community Property. Form 1040 es Fiscal Years (FY) If you file your tax return on the basis of a fiscal year (a 12-month period ending on the last day of any month except December), you must follow special rules, described below, to determine your credit for federal income tax withholding. Form 1040 es Fiscal year withholding. Form 1040 es    You can claim credit on your tax return only for the tax withheld during the calendar year (CY) ending within your fiscal year. Form 1040 es You cannot claim credit for any of the tax withheld during the calendar year beginning in your fiscal year. Form 1040 es You will be able to claim credit for that withholding on your return for your next fiscal year. Form 1040 es   The Form W-2 or 1099 you receive for the calendar year that ends during your fiscal year will show the tax withheld and the income you received during that calendar year. Form 1040 es   Although you take credit for all the withheld tax shown on the form, report only the part of the income shown on the form that you received during your fiscal year. Form 1040 es Add to that the income you received during the rest of your fiscal year. Form 1040 es Example. Form 1040 es Miles Hanson files his return for a fiscal year ending June 30, 2013. Form 1040 es In January 2013, he received a Form W-2 that showed that his wages for 2012 were $31,200 and that his income tax withheld was $3,380. Form 1040 es His records show that he had received $15,000 of the wages by June 30, 2012, and $16,200 from July 1 through December 31, 2012. Form 1040 es See Table 3-1 . Form 1040 es On his return for the fiscal year ending June 30, 2013, Miles will report the $16,200 he was paid in July through December of 2012, plus the $18,850 he was paid during the rest of the fiscal year, January 1, 2013, through June 30, 2013. Form 1040 es However, he takes credit for all $3,380 that was withheld during 2012. Form 1040 es On his return for the fiscal year ending June 30, 2012, he reported the $15,000 he was paid in January through June 2012, but took no credit for the tax withheld during that time. Form 1040 es On his return for the fiscal year ending June 30, 2014, he will take the credit for any tax withheld during 2013 but not for any tax withheld during 2014. Form 1040 es Table 3-1. Form 1040 es Example for Fiscal Year Ending June 30, 2013—Miles Hanson Date Form W-2 Miles' records Tax return for FY ending 6/30/20121 Tax return for FY ending 6/30/2013 Wages With- holding Wages With- holding Wages With- holding Wages With- holding CY 20122 $31,200 $3,380             1/1/2012 –  6/30/2012     $15,000 $1,600 $15,000       7/1/2012 –  12/31/2012     $16,200 $1,780     $16,200 $3,380 CY 2013 $37,700 $4,316 3             1/1/2013 –  6/30/2013     $18,850 $2,158     $18,850   7/1/2013 –  12/31/2013     $18,850 4 $2,158         1Miles' tax return for FY ending 6/30/2012 also included his wages for 7/1–12/31/2011 and the withholding shown on his 2011 Form W-2. Form 1040 es  2Calendar year (January 1 – December 31). Form 1040 es   3Withholding shown on 2013 Form W-2 ($4,316) will be included in Miles' tax return for FY ending 6/30/2014, the fiscal year in which calendar year 2013 ends. Form 1040 es   4Wages for 7/1–12/31/2013 ($18,850) will be included in Miles' tax return for FY ending 6/30/2014, the fiscal year in which the wages were received. Form 1040 es Backup withholding. Form 1040 es   If income tax has been withheld under the backup withholding rule, take credit for it on your tax return for the fiscal year in which you received the income. Form 1040 es Example. Form 1040 es Emily Smith's records show that she received income in November 2013 and February 2014 from which there was backup withholding ($100 and $50, respectively). Form 1040 es Emily takes credit for the entire $150 of backup withholding on her tax return for the fiscal year ending September 30, 2014. Form 1040 es Estimated Tax Take credit for all your estimated tax payments for 2013 on line 63 of Form 1040 or line 37 of Form 1040A. Form 1040 es Include any overpayment from 2012 that you had credited to your 2013 estimated tax. Form 1040 es You must use Form 1040 or Form 1040A if you paid estimated tax. Form 1040 es You cannot file Form 1040EZ. Form 1040 es If you were a beneficiary of an estate or trust, you should receive a Schedule K-1 (Form 1041), Beneficiary's Share of Income, Deductions, Credits, etc. Form 1040 es , from the fiduciary. Form 1040 es If you have estimated taxes credited to you from the estate or trust (from Schedule K-1 (Form 1041)), you must report the estimated taxes on Schedule E (Form 1040). Form 1040 es On the dotted line next to the entry space for line 37 of Schedule E (Form 1040), enter “ES payment claimed” and the amount. Form 1040 es However, do not include this amount in the total on line 37. Form 1040 es Instead, enter the amount on Form 1040, line 63. Form 1040 es This estimated tax payment for 2013 is treated as being made by you on January 15, 2014. Form 1040 es Name changed. Form 1040 es   If you changed your name, and you made estimated tax payments using your former name, attach a statement to the front of your paper tax return indicating: When you made the payments, The amount of each payment, Your name when you made the payments, and The social security number under which you made the payments. Form 1040 es  The statement should cover payments you made jointly with your spouse as well as any you made separately. Form 1040 es   Be sure to report the change to your local Social Security Administration office before filing your 2014 tax return. Form 1040 es This prevents delays in processing your return and issuing refunds. Form 1040 es It also safeguards your future social security benefits. Form 1040 es For more information, call the Social Security Administration at 1-800-772-1213. Form 1040 es Separate Returns If you and your spouse made separate estimated tax payments for 2013 and you file separate returns, you can take credit only for your own payments. Form 1040 es If you made joint estimated tax payments, you must decide how to divide the payments between your returns. Form 1040 es One of you can claim all of the estimated tax paid and the other none, or you can divide it in any other way you agree on. Form 1040 es If you cannot agree, you must divide the payments in proportion to each spouse's individual tax as shown on your separate returns for 2013. Form 1040 es Example. Form 1040 es James and Evelyn Brown made joint estimated tax payments for 2013 totaling $3,000. Form 1040 es They file separate 2013 Forms 1040. Form 1040 es James' tax is $4,000 and Evelyn's is $1,000. Form 1040 es If they do not agree on how to divide the $3,000, they must divide it proportionately between their returns. Form 1040 es Because James' tax ($4,000) is 80% of the total tax ($5,000), his share of the estimated tax is $2,400 (80% of $3,000). Form 1040 es The balance, $600 (20% of $3,000), is Evelyn's share. Form 1040 es Divorced Taxpayers If you made joint estimated tax payments for 2013 and you were divorced during the year, either you or your former spouse can claim all of the joint payments, or you each can claim part of them. Form 1040 es If you cannot agree on how to divide the payments, you must divide them in proportion to each spouse's individual tax as shown on your separate returns for 2013. Form 1040 es See Example earlier under Separate Returns. Form 1040 es If you claim any of the joint payments on your tax return, enter your former spouse's social security number (SSN) in the space provided at the top of page 1 of Form 1040 or Form 1040A. Form 1040 es If you divorced and remarried in 2013, enter your present spouse's SSN in that space. Form 1040 es Enter your former spouse's SSN, followed by “DIV,” under Payments to the left of Form 1040, line 63, or in the blank space to the left of Form 1040A, line 37. Form 1040 es Excess Social Security or Railroad Retirement Tax Withholding Most employers must withhold social security tax from your wages. Form 1040 es In some cases, however, the federal government and state and local governments do not have to withhold social security tax from their employees' wages. Form 1040 es If you work for a railroad employer, that employer must withhold tier 1 railroad retirement (RRTA) tax and tier 2 RRTA tax. Form 1040 es Two or more employers. Form 1040 es   If you worked for two or more employers in 2013, too much social security tax or tier 1 RRTA tax may have been withheld from your pay. Form 1040 es You may be able to claim the excess as a credit against your income tax when you file your return. Form 1040 es Table 3-2 shows the maximum amount that should have been withheld for any of these taxes for 2013. Form 1040 es Figure the excess withholding on the appropriate worksheet. Form 1040 es    Table 3-2. Form 1040 es Maximum Social Security and RRTA Withholding for 2013 Type of tax Maximum wages subject to tax Tax rate Maximum tax to be withheld Social security $113,700 6. Form 1040 es 2% $7,049. Form 1040 es 40 Tier 1 RRTA $113,700 6. Form 1040 es 2% $7,049. Form 1040 es 40 Tier 2 RRTA $84,300 4. Form 1040 es 4% $3,709. Form 1040 es 20 Joint returns. Form 1040 es   If you are filing a joint return, you and your spouse must figure any excess social security or tier 1 RRTA separately. Form 1040 es Note. Form 1040 es All wages are subject to Medicare tax withholding. Form 1040 es Employer's error. Form 1040 es   If you had only one employer and he or she withheld too much social security, Medicare, or tier 1 RRTA tax, ask the employer to refund the excess amount to you. Form 1040 es If the employer refuses to refund the overcollection, ask for a statement indicating the amount of the overcollection to support your claim. Form 1040 es File a claim for refund using Form 843, Claim for Refund and Request for Abatement. Form 1040 es Worksheet for Nonrailroad Employees If you did not work for a railroad during 2013, figure the excess social security withholding on Worksheet 3-1. Form 1040 es Note. Form 1040 es If you worked for both a railroad employer and a nonrailroad employer, use Worksheet 3-2, to figure excess social security and tier 1 RRTA tax. Form 1040 es Where to claim credit for excess social security withholding. Form 1040 es   If you file Form 1040, enter the excess on line 69. Form 1040 es   If you file Form 1040A, include the excess in the total on line 41. Form 1040 es Write “Excess SST” and show the amount of the credit in the space to the left of the line. Form 1040 es   You cannot claim excess social security tax withholding on Form 1040EZ. Form 1040 es Worksheets for Railroad Employees If you worked for a railroad during 2013, figure your excess withholding on Worksheet 3-2 and 3-3, as appropriate. Form 1040 es Where to claim credit for excess tier 1 RRTA withholding. Form 1040 es   If you file Form 1040, enter the excess on line 69. Form 1040 es   If you file Form 1040A, include the excess in the total on line 41. Form 1040 es Write “Excess SST” and show the amount of the credit in the space to the left of the line. Form 1040 es   You cannot claim excess tier 1 RRTA withholding on Form 1040EZ. Form 1040 es How to claim refund of excess tier 2 RRTA. Form 1040 es   To claim a refund of tier 2 tax, use Form 843. Form 1040 es Be sure to attach a copy of all of your Forms W-2. Form 1040 es   See Worksheet 3-3 and the Instructions for Form 843, for more details. Form 1040 es Worksheet 3-1. Form 1040 es Excess Social Security—Nonrailroad Employees 1. Form 1040 es Add all social security tax withheld (but not more than  $7,049. Form 1040 es 40 for each employer). Form 1040 es This tax should be shown  in box 4 of your Forms W-2. Form 1040 es Enter the total here 1. Form 1040 es   2. Form 1040 es Enter any uncollected social security tax on tips or group-term life insurance on Form 1040, line 60, identified by “UT” 2. Form 1040 es   3. Form 1040 es Add lines 1 and 2. Form 1040 es If $7,049. Form 1040 es 40 or less, stop here. Form 1040 es You cannot claim the credit 3. Form 1040 es   4. Form 1040 es Social security limit 4. Form 1040 es $7,049. Form 1040 es 40 5. Form 1040 es Excess. Form 1040 es Subtract line 4 from line 3 5. Form 1040 es   Worksheet 3-2. Form 1040 es Excess Social Security and Tier 1 RRTA—Railroad Employees 1. Form 1040 es Add all social security and tier 1 RRTA tax withheld (but not more than $7,049. Form 1040 es 40 for each employer). Form 1040 es Social security tax should be shown in box 4 and tier 1 RRTA should be shown  in box 14 of your Forms W-2. Form 1040 es Enter the total here 1. Form 1040 es   2. Form 1040 es Enter any uncollected social security and tier 1 RRTA tax on tips or group-term life insurance on Form 1040, line 60, identified by “UT” 2. Form 1040 es   3. Form 1040 es Add lines 1 and 2. Form 1040 es If $7,049. Form 1040 es 40 or less, stop here. Form 1040 es You cannot claim the credit 3. Form 1040 es   4. Form 1040 es Social security and tier 1 RRTA tax limit 4. Form 1040 es $7,049. Form 1040 es 40 5. Form 1040 es Excess. Form 1040 es Subtract line 4 from line 3 5. Form 1040 es   Worksheet 3-3. Form 1040 es Excess Tier 2 RRTA—Railroad Employees 1. Form 1040 es Add all tier 2 RRTA tax withheld (but not more than $3,709. Form 1040 es 20 for each employer). Form 1040 es Box 14 of your Forms W-2 should show tier 2 RRTA tax. Form 1040 es Enter the total here 1. Form 1040 es   2. Form 1040 es Enter any uncollected tier 2 RRTA tax on tips or group-term life insurance on Form 1040, line 60, identified by “UT” 2. Form 1040 es   3. Form 1040 es Add lines 1 and 2. Form 1040 es If $3,709. Form 1040 es 20 or less, stop here. Form 1040 es You cannot claim the credit. Form 1040 es 3. Form 1040 es   4. Form 1040 es Tier 2 RRTA tax limit 4. Form 1040 es $3,709. Form 1040 es 20 5. Form 1040 es Excess. Form 1040 es Subtract line 4 from line 3. Form 1040 es 5. Form 1040 es   Prev  Up  Next   Home   More Online Publications
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Understanding Your CP05 Notice

We’re reviewing your tax return to verify the following:

  • Your income
  • The withholding you reported on your income and social security benefits
  • The tax credits you claimed
  • The household help you claimed
  • Your business income

We’re holding your refund pending the results of our review.


What you need to do

You don’t need to take any action at this time. We may contact third parties to verify the information you reported on your return. If you haven’t received your refund or been contacted by us within 45 days from the date of this notice, you can call us at the number provided on your notice.


You may want to

  • Review this notice with your tax preparer.
  • If you are experiencing economic harm, believe an IRS system or procedure isn’t working as it should, or are seeking help in resolving tax problems that have not been resolved through normal channels, you may be eligible for Taxpayer Advocate Service (TAS) assistance. You can reach them at 1-877-777-4778 or TTY/TTD 1-800-829-4059.

Answers to Common Questions

Why was my return being reviewed?
While most returns are accepted as filed, some are selected for examination. The IRS examines some federal tax returns to determine if income, expenses, and credits are being reported accurately. The IRS selects returns for examination using various methods which include random sampling, computerized screening, and comparison of information received by the IRS such as Forms W-2 and 1099. Having your return selected for examination does not suggest that you made an error or were dishonest.

What if I did not file a tax return claiming the items you are questioning and someone else is using my name and social security number?
Send us a completed and signed Form 14039, Identity Theft Affidavit. You can download this form online at www.irs.gov. You can also refer to the IRS Identity Theft resource page for more information.


Tips for next year

Review all of your income and withholding documents for completeness and review your return to make sure you are eligible to claim all income, credits and business income that you reported.

Page Last Reviewed or Updated: 19-Feb-2014

How to get help

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

The Form 1040 Es

Form 1040 es 2. Form 1040 es   Foreclosures and Repossessions Table of Contents Amount realized and ordinary income on a recourse debt. Form 1040 es Amount realized on a nonrecourse debt. Form 1040 es If you do not make payments you owe on a loan secured by property, the lender may foreclose on the loan or repossess the property. Form 1040 es The foreclosure or repossession is treated as a sale from which you may realize gain or loss. Form 1040 es This is true even if you voluntarily return the property to the lender. Form 1040 es If the outstanding loan balance was more than the FMV of the property and the lender cancels all or part of the remaining loan balance, you also may realize ordinary income from the cancellation of debt. Form 1040 es You must report this income on your return unless certain exceptions or exclusions apply. Form 1040 es See chapter 1 for more details. Form 1040 es Borrower's gain or loss. Form 1040 es    You figure and report gain or loss from a foreclosure or repossession in the same way as gain or loss from a sale. Form 1040 es The gain is the difference between the amount realized and your adjusted basis in the transferred property (amount realized minus adjusted basis). Form 1040 es The loss is the difference between your adjusted basis in the transferred property and the amount realized (adjusted basis minus amount realized). Form 1040 es For more information on figuring gain or loss from the sale of property, see Gain or Loss From Sales and Exchanges in Publication 544. Form 1040 es You can use Table 1-1 to figure your ordinary income from the cancellation of debt and your gain or loss from a foreclosure or repossession. Form 1040 es Amount realized and ordinary income on a recourse debt. Form 1040 es    If you are personally liable for the debt, the amount realized on the foreclosure or repossession includes the smaller of: The outstanding debt immediately before the transfer reduced by any amount for which you remain personally liable immediately after the transfer, or The FMV of the transferred property. Form 1040 es The amount realized also includes any proceeds you received from the foreclosure sale. Form 1040 es If the FMV of the transferred property is less than the total outstanding debt immediately before the transfer reduced by any amount for which you remain personally liable immediately after the transfer, the difference is ordinary income from the cancellation of debt. Form 1040 es You must report this income on your return unless certain exceptions or exclusions apply. Form 1040 es See chapter 1 for more details. Form 1040 es       Example 1. Form 1040 es Tara bought a new car for $15,000. Form 1040 es She made a $2,000 downpayment and borrowed the remaining $13,000 from the dealer's credit company. Form 1040 es Tara is personally liable for the loan (recourse debt) and the car is pledged as security for the loan. Form 1040 es On August 1, 2013, the credit company repossessed the car because Tara had stopped making loan payments. Form 1040 es The balance due after taking into account the payments Tara made was $10,000. Form 1040 es The FMV of the car when it was repossessed was $9,000. Form 1040 es On November 15, 2013, the credit company forgave the remaining $1,000 balance on the loan due to insufficient assets. Form 1040 es In this case, the amount Tara realizes is $9,000. Form 1040 es This is the smaller of: The $10,000 outstanding debt immediately before the repossession reduced by the $1,000 for which she remains personally liable immediately after the repossession ($10,000 − $1,000 = $9,000), or The $9,000 FMV of the car. Form 1040 es Tara figures her gain or loss on the repossession by comparing the $9,000 amount realized with her $15,000 adjusted basis. Form 1040 es She has a $6,000 nondeductible loss. Form 1040 es After the cancellation of the remaining balance on the loan in November, Tara also has ordinary income from cancellation of debt in the amount of $1,000 (the remaining balance on the $10,000 loan after the $9,000 amount satisfied by the FMV of the repossessed car). Form 1040 es Tara must report this $1,000 on her return unless one of the exceptions or exclusions described in chapter 1 applies. Form 1040 es Example 2. Form 1040 es Lili paid $200,000 for her home. Form 1040 es She made a $15,000 downpayment and borrowed the remaining $185,000 from a bank. Form 1040 es Lili is personally liable for the mortgage loan and the house secures the loan. Form 1040 es In 2013, the bank foreclosed on the mortgage because Lili stopped making payments. Form 1040 es When the bank foreclosed the mortgage, the balance due was $180,000, the FMV of the house was $170,000, and Lili's adjusted basis was $175,000 due to a casualty loss she had deducted. Form 1040 es At the time of the foreclosure, the bank forgave $2,000 of the $10,000 debt in excess of the FMV ($180,000 minus $170,000). Form 1040 es She remained personally liable for the $8,000 balance. Form 1040 es In this case, Lili has ordinary income from the cancellation of debt in the amount of $2,000. Form 1040 es The $2,000 income from the cancellation of debt is figured by subtracting the $170,000 FMV of the house from the $172,000 difference between her total outstanding debt immediately before the transfer of property and the amount for which she remains personally liable immediately after the transfer ($180,000 minus $8,000). Form 1040 es She is able to exclude the $2,000 of canceled debt from her income under the qualified principal residence indebtedness rules discussed earlier. Form 1040 es Lili must also determine her gain or loss from the foreclosure. Form 1040 es In this case, the amount that she realizes is $170,000. Form 1040 es This is the smaller of: (a) the $180,000 outstanding debt immediately before the transfer reduced by the $8,000 for which she remains personally liable immediately after the transfer ($180,000 − $8,000 = $172,000) or (b) the $170,000 FMV of the house. Form 1040 es Lili figures her gain or loss on the foreclosure by comparing the $170,000 amount realized with her $175,000 adjusted basis. Form 1040 es She has a $5,000 nondeductible loss. Form 1040 es Table 1-1. Form 1040 es Worksheet for Foreclosures and Repossessions Part 1. Form 1040 es Complete Part 1 only if you were personally liable for the debt (even if none of the debt was canceled). Form 1040 es Otherwise, go to Part 2. Form 1040 es 1. Form 1040 es Enter the amount of outstanding debt immediately before the transfer of property reduced by any amount for which you remain personally liable immediately after the transfer of property   2. Form 1040 es Enter the fair market value of the transferred property   3. Form 1040 es Ordinary income from the cancellation of debt upon foreclosure or repossession. Form 1040 es * Subtract line 2 from line 1. Form 1040 es If less than zero, enter zero. Form 1040 es Next, go to Part 2   Part 2. Form 1040 es Gain or loss from foreclosure or repossession. Form 1040 es   4. Form 1040 es Enter the smaller of line 1 or line 2. Form 1040 es If you did not complete Part 1 (because you were not personally liable for the debt), enter the amount of outstanding debt immediately before the transfer of property   5. Form 1040 es Enter any proceeds you received from the foreclosure sale   6. Form 1040 es Add line 4 and line 5   7. Form 1040 es Enter the adjusted basis of the transferred property   8. Form 1040 es Gain or loss from foreclosure or repossession. Form 1040 es Subtract line 7 from line 6   * The income may not be taxable. Form 1040 es See chapter 1 for more details. Form 1040 es Amount realized on a nonrecourse debt. Form 1040 es    If you are not personally liable for repaying the debt secured by the transferred property, the amount you realize includes the full amount of the outstanding debt immediately before the transfer. Form 1040 es This is true even if the FMV of the property is less than the outstanding debt immediately before the transfer. Form 1040 es Example 1. Form 1040 es Tara bought a new car for $15,000. Form 1040 es She made a $2,000 downpayment and borrowed the remaining $13,000 from the dealer's credit company. Form 1040 es Tara is not personally liable for the loan (nonrecourse), but pledged the new car as security for the loan. Form 1040 es On August 1, 2013, the credit company repossessed the car because Tara had stopped making loan payments. Form 1040 es The balance due after taking into account the payments Tara made was $10,000. Form 1040 es The FMV of the car when it was repossessed was $9,000. Form 1040 es The amount Tara realized on the repossession is $10,000. Form 1040 es That is the outstanding amount of debt immediately before the repossession, even though the FMV of the car is less than $10,000. Form 1040 es Tara figures her gain or loss on the repossession by comparing the $10,000 amount realized with her $15,000 adjusted basis. Form 1040 es Tara has a $5,000 nondeductible loss. Form 1040 es Example 2. Form 1040 es Lili paid $200,000 for her home. Form 1040 es She made a $15,000 downpayment and borrowed the remaining $185,000 from a bank. Form 1040 es She is not personally liable for the loan, but grants the bank a mortgage. Form 1040 es The bank foreclosed on the mortgage because Lili stopped making payments. Form 1040 es When the bank foreclosed on the mortgage, the balance due was $180,000, the FMV of the house was $170,000, and Lili's adjusted basis was $175,000 due to a casualty loss she had deducted. Form 1040 es The amount Lili realized on the foreclosure is $180,000, the outstanding debt immediately before the foreclosure. Form 1040 es She figures her gain or loss by comparing the $180,000 amount realized with her $175,000 adjusted basis. Form 1040 es Lili has a $5,000 realized gain. Form 1040 es See Publication 523 to figure and report any taxable amount. Form 1040 es Forms 1099-A and 1099-C. Form 1040 es    A lender who acquires an interest in your property in a foreclosure or repossession should send you Form 1099-A, Acquisition or Abandonment of Secured Property, showing information you need to figure your gain or loss. Form 1040 es However, if the lender also cancels part of your debt and must file Form 1099-C, the lender can include the information about the foreclosure or repossession on that form instead of on Form 1099-A. Form 1040 es The lender must file Form 1099-C and send you a copy if the amount of debt canceled is $600 or more and the lender is a financial institution, credit union, federal government agency, or any organization that has a significant trade or business of lending money. Form 1040 es For foreclosures or repossessions occurring in 2013, these forms should be sent to you by January 31, 2014. Form 1040 es Prev  Up  Next   Home   More Online Publications