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Form 1040a

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Form 1040a

Form 1040a 4. Form 1040a   Special Situations Table of Contents Condominiums CooperativesDepreciation Property Changed to Rental UseBasis of Property Changed to Rental Use Figuring the Depreciation Deduction Renting Part of Property Not Rented for ProfitPostponing decision. Form 1040a Example—Property Changed to Rental Use This chapter discusses some rental real estate activities that are subject to additional rules. Form 1040a Condominiums A condominium is most often a dwelling unit in a multi-unit building, but can also take other forms, such as a townhouse or garden apartment. Form 1040a If you own a condominium, you also own a share of the common elements, such as land, lobbies, elevators, and service areas. Form 1040a You and the other condominium owners may pay dues or assessments to a special corporation that is organized to take care of the common elements. Form 1040a Special rules apply if you rent your condominium to others. Form 1040a You can deduct as rental expenses all the expenses discussed in chapters 1 and 2. Form 1040a In addition, you can deduct any dues or assessments paid for maintenance of the common elements. Form 1040a You cannot deduct special assessments you pay to a condominium management corporation for improvements. Form 1040a However, you may be able to recover your share of the cost of any improvement by taking depreciation. Form 1040a Cooperatives If you live in a cooperative, you do not own your apartment. Form 1040a Instead, a corporation owns the apartments and you are a tenant-stockholder in the cooperative housing corporation. Form 1040a If you rent your apartment to others, you usually can deduct, as a rental expense, all the maintenance fees you pay to the cooperative housing corporation. Form 1040a In addition to the maintenance fees paid to the cooperative housing corporation, you can deduct your direct payments for repairs, upkeep, and other rental expenses, including interest paid on a loan used to buy your stock in the corporation. Form 1040a Depreciation You will be depreciating your stock in the corporation rather than the apartment itself. Form 1040a Figure your depreciation deduction as follows. Form 1040a Figure the depreciation for all the depreciable real property owned by the corporation. Form 1040a (Depreciation methods are discussed in chapter 2 of this publication and Publication 946. Form 1040a ) If you bought your cooperative stock after its first offering, figure the depreciable basis of this property as follows. Form 1040a Multiply your cost per share by the total number of outstanding shares. Form 1040a Add to the amount figured in (a) any mortgage debt on the property on the date you bought the stock. Form 1040a Subtract from the amount figured in (b) any mortgage debt that is not for the depreciable real property, such as the part for the land. Form 1040a Subtract from the amount figured in (1) any depreciation for space owned by the corporation that can be rented but cannot be lived in by tenant-stockholders. Form 1040a Divide the number of your shares of stock by the total number of shares outstanding, including any shares held by the corporation. Form 1040a Multiply the result of (2) by the percentage you figured in (3). Form 1040a This is your depreciation on the stock. Form 1040a Your depreciation deduction for the year cannot be more than the part of your adjusted basis (defined in chapter 2) in the stock of the corporation that is allocable to your rental property. Form 1040a Payments added to capital account. Form 1040a   Payments earmarked for a capital asset or improvement, or otherwise charged to the corporation's capital account are added to the basis of your stock in the corporation. Form 1040a For example, you cannot deduct a payment used to pave a community parking lot, install a new roof, or pay the principal of the corporation's mortgage. Form 1040a   Treat as a capital cost the amount you were assessed for capital items. Form 1040a This cannot be more than the amount by which your payments to the corporation exceeded your share of the corporation's mortgage interest and real estate taxes. Form 1040a   Your share of interest and taxes is the amount the corporation elected to allocate to you, if it reasonably reflects those expenses for your apartment. Form 1040a Otherwise, figure your share in the following manner. Form 1040a Divide the number of your shares of stock by the total number of shares outstanding, including any shares held by the corporation. Form 1040a Multiply the corporation's deductible interest by the number you figured in (1). Form 1040a This is your share of the interest. Form 1040a Multiply the corporation's deductible taxes by the number you figured in (1). Form 1040a This is your share of the taxes. Form 1040a Property Changed to Rental Use If you change your home or other property (or a part of it) to rental use at any time other than the beginning of your tax year, you must divide yearly expenses, such as taxes and insurance, between rental use and personal use. Form 1040a You can deduct as rental expenses only the part of the expense that is for the part of the year the property was used or held for rental purposes. Form 1040a You cannot deduct depreciation or insurance for the part of the year the property was held for personal use. Form 1040a However, you can include the home mortgage interest, qualified mortgage insurance premiums, and real estate tax expenses for the part of the year the property was held for personal use as an itemized deduction on Schedule A (Form 1040). Form 1040a Example. Form 1040a Your tax year is the calendar year. Form 1040a You moved from your home in May and started renting it out on June 1. Form 1040a You can deduct as rental expenses seven-twelfths of your yearly expenses, such as taxes and insurance. Form 1040a Starting with June, you can deduct as rental expenses the amounts you pay for items generally billed monthly, such as utilities. Form 1040a When figuring depreciation, treat the property as placed in service on June 1. Form 1040a Basis of Property Changed to Rental Use When you change property you held for personal use to rental use (for example, you rent your former home), the basis for depreciation will be the lesser of fair market value or adjusted basis on the date of conversion. Form 1040a Fair market value. Form 1040a   This is the price at which the property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all the relevant facts. Form 1040a Sales of similar property, on or about the same date, may be helpful in figuring the fair market value of the property. Form 1040a Figuring the basis. Form 1040a   The basis for depreciation is the lesser of: The fair market value of the property on the date you changed it to rental use, or Your adjusted basis on the date of the change—that is, your original cost or other basis of the property, plus the cost of permanent additions or improvements since you acquired it, minus deductions for any casualty or theft losses claimed on earlier years' income tax returns and other decreases to basis. Form 1040a For other increases and decreases to basis, see Adjusted Basis in chapter 2. Form 1040a Example. Form 1040a Several years ago you built your home for $140,000 on a lot that cost you $14,000. Form 1040a Before changing the property to rental use this year, you added $28,000 of permanent improvements to the house and claimed a $3,500 casualty loss deduction for damage to the house. Form 1040a Part of the improvements qualified for a $500 residential energy credit, which you claimed on your 2010 tax return. Form 1040a Because land is not depreciable, you can only include the cost of the house when figuring the basis for depreciation. Form 1040a The adjusted basis of the house at the time of the change in its use was $164,000 ($140,000 + $28,000 − $3,500 − $500). Form 1040a On the date of the change in use, your property had a fair market value of $168,000, of which $21,000 was for the land and $147,000 was for the house. Form 1040a The basis for depreciation on the house is the fair market value on the date of the change ($147,000), because it is less than your adjusted basis ($164,000). Form 1040a Cooperatives If you change your cooperative apartment to rental use, figure your allowable depreciation as explained earlier. Form 1040a (Depreciation methods are discussed in chapter 2 of this publication and Publication 946. Form 1040a ) The basis of all the depreciable real property owned by the cooperative housing corporation is the smaller of the following amounts. Form 1040a The fair market value of the property on the date you change your apartment to rental use. Form 1040a This is considered to be the same as the corporation's adjusted basis minus straight line depreciation, unless this value is unrealistic. Form 1040a The corporation's adjusted basis in the property on that date. Form 1040a Do not subtract depreciation when figuring the corporation's adjusted basis. Form 1040a If you bought the stock after its first offering, the corporation's adjusted basis in the property is the amount figured in (1) under Depreciation (under Cooperatives, near the beginning of this chapter). Form 1040a The fair market value of the property is considered to be the same as the corporation's adjusted basis figured in this way minus straight line depreciation, unless the value is unrealistic. Form 1040a Figuring the Depreciation Deduction To figure the deduction, use the depreciation system in effect when you convert your residence to rental use. Form 1040a Generally, that will be MACRS for any conversion after 1986. Form 1040a Treat the property as placed in service on the conversion date. Form 1040a Example. Form 1040a Your converted residence (see previous example under Figuring the basis) was available for rent on August 1. Form 1040a Using Table 2-2d (see chapter 2), the percentage for Year 1 beginning in August is 1. Form 1040a 364% and the depreciation deduction for Year 1 is $2,005 ($147,000 × . Form 1040a 01364). Form 1040a Renting Part of Property If you rent part of your property, you must divide certain expenses between the part of the property used for rental purposes and the part of the property used for personal purposes, as though you actually had two separate pieces of property. Form 1040a You can deduct the expenses related to the part of the property used for rental purposes, such as home mortgage interest, qualified mortgage insurance premiums, and real estate taxes, as rental expenses on Schedule E (Form 1040). Form 1040a You can also deduct as rental expenses a portion of other expenses that normally are nondeductible personal expenses, such as expenses for electricity, or painting the outside of the house. Form 1040a There is no change in the types of expenses deductible for the personal-use part of your property. Form 1040a Generally, these expenses may be deducted only if you itemize your deductions on Schedule A (Form 1040). Form 1040a You cannot deduct any part of the cost of the first phone line even if your tenants have unlimited use of it. Form 1040a You do not have to divide the expenses that belong only to the rental part of your property. Form 1040a For example, if you paint a room that you rent, or if you pay premiums for liability insurance in connection with renting a room in your home, your entire cost is a rental expense. Form 1040a If you install a second phone line strictly for your tenant's use, all of the cost of the second line is deductible as a rental expense. Form 1040a You can deduct depreciation on the part of the house used for rental purposes as well as on the furniture and equipment you use for rental purposes. Form 1040a How to divide expenses. Form 1040a   If an expense is for both rental use and personal use, such as mortgage interest or heat for the entire house, you must divide the expense between rental use and personal use. Form 1040a You can use any reasonable method for dividing the expense. Form 1040a It may be reasonable to divide the cost of some items (for example, water) based on the number of people using them. Form 1040a The two most common methods for dividing an expense are (1) the number of rooms in your home, and (2) the square footage of your home. Form 1040a Example. Form 1040a You rent a room in your house. Form 1040a The room is 12 × 15 feet, or 180 square feet. Form 1040a Your entire house has 1,800 square feet of floor space. Form 1040a You can deduct as a rental expense 10% of any expense that must be divided between rental use and personal use. Form 1040a If your heating bill for the year for the entire house was $600, $60 ($600 × . Form 1040a 10) is a rental expense. Form 1040a The balance, $540, is a personal expense that you cannot deduct. Form 1040a Duplex. Form 1040a   A common situation is the duplex where you live in one unit and rent out the other. Form 1040a Certain expenses apply to the entire property, such as mortgage interest and real estate taxes, and must be split to determine rental and personal expenses. Form 1040a Example. Form 1040a You own a duplex and live in one half, renting the other half. Form 1040a Both units are approximately the same size. Form 1040a Last year, you paid a total of $10,000 mortgage interest and $2,000 real estate taxes for the entire property. Form 1040a You can deduct $5,000 mortgage interest and $1,000 real estate taxes on Schedule E (Form 1040), and if you itemize your deductions, you can deduct the other $5,000 mortgage interest and $1,000 real estate taxes on Schedule A (Form 1040). Form 1040a Not Rented for Profit If you do not rent your property to make a profit, you can deduct your rental expenses only up to the amount of your rental income. Form 1040a You cannot deduct a loss or carry forward to the next year any rental expenses that are more than your rental income for the year. Form 1040a Where to report. Form 1040a   Report your not-for-profit rental income on Form 1040 or 1040NR, line 21. Form 1040a For example, if you are filing Form 1040, you can include your mortgage interest and any qualified mortgage insurance premiums (if you use the property as your main home or second home), real estate taxes, and casualty losses on the appropriate lines of Schedule A (Form 1040) if you itemize your deductions. Form 1040a   If you itemize your deductions, claim your other rental expenses, subject to the rules explained in chapter 1 of Publication 535, as miscellaneous itemized deductions on Schedule A (Form 1040), line 23, or Schedule A (Form 1040NR), line 9. Form 1040a You can deduct these expenses only if they, together with certain other miscellaneous itemized deductions, total more than 2% of your adjusted gross income. Form 1040a Presumption of profit. Form 1040a   If your rental income is more than your rental expenses for at least 3 years out of a period of 5 consecutive years, you are presumed to be renting your property to make a profit. Form 1040a Postponing decision. Form 1040a   If you are starting your rental activity and do not have 3 years showing a profit, you can elect to have the presumption made after you have the 5 years of experience required by the test. Form 1040a You may choose to postpone the decision of whether the rental is for profit by filing Form 5213. Form 1040a You must file Form 5213 within 3 years after the due date of your return (determined without extensions) for the year in which you first carried on the activity or, if earlier, within 60 days after receiving written notice from the Internal Revenue Service proposing to disallow deductions attributable to the activity. Form 1040a More information. Form 1040a   For more information about the rules for an activity not engaged in for profit, see Not-for-Profit Activities in chapter 1 of Publication 535. Form 1040a Example—Property Changed to Rental Use In January, Eileen Johnson bought a condominium apartment to live in. Form 1040a Instead of selling the house she had been living in, she decided to change it to rental property. Form 1040a Eileen selected a tenant and started renting the house on February 1. Form 1040a Eileen charges $750 a month for rent and collects it herself. Form 1040a Eileen also received a $750 security deposit from her tenant. Form 1040a Because she plans to return it to her tenant at the end of the lease, she does not include it in her income. Form 1040a Her rental expenses for the year are as follows. Form 1040a   Mortgage interest $1,800     Fire insurance (1-year policy) 100     Miscellaneous repairs (after renting) 297     Real estate taxes imposed and paid 1,200   Eileen must divide the real estate taxes, mortgage interest, and fire insurance between the personal use of the property and the rental use of the property. Form 1040a She can deduct eleven-twelfths of these expenses as rental expenses. Form 1040a She can include the balance of the allowable taxes and mortgage interest on Schedule A (Form 1040) if she itemizes. Form 1040a She cannot deduct the balance of the fire insurance because it is a personal expense. Form 1040a Eileen bought this house in 1984 for $35,000. Form 1040a Her property tax was based on assessed values of $10,000 for the land and $25,000 for the house. Form 1040a Before changing it to rental property, Eileen added several improvements to the house. Form 1040a She figures her adjusted basis as follows:   Improvements Cost     House $25,000     Remodeled kitchen 4,200     Recreation room 5,800     New roof 1,600     Patio and deck 2,400     Adjusted basis $39,000   On February 1, when Eileen changed her house to rental property, the property had a fair market value of $152,000. Form 1040a Of this amount, $35,000 was for the land and $117,000 was for the house. Form 1040a Because Eileen's adjusted basis is less than the fair market value on the date of the change, Eileen uses $39,000 as her basis for depreciation. Form 1040a As specified for residential rental property, Eileen must use the straight line method of depreciation over the GDS or ADS recovery period. Form 1040a She chooses the GDS recovery period of 27. Form 1040a 5 years. Form 1040a She uses Table 2-2d to find her depreciation percentage. Form 1040a Since she placed the property in service in February, the percentage is 3. Form 1040a 182%. Form 1040a On April 1, Eileen bought a new dishwasher for the rental property at a cost of $425. Form 1040a The dishwasher is personal property used in a rental real estate activity, which has a 5-year recovery period. Form 1040a She uses Table 2-2a to find the percentage for Year 1 under “Half-year convention” (20%) to figure her depreciation deduction. Form 1040a On May 1, Eileen paid $4,000 to have a furnace installed in the house. Form 1040a The furnace is residential rental property. Form 1040a Because she placed the property in service in May, the percentage from Table 2-2d is 2. Form 1040a 273%. Form 1040a Eileen figures her net rental income or loss for the house as follows: Total rental income received  ($750 × 11) $8,250 Minus: Expenses     Mortgage interest ($1,800 × 11/12) $1,650   Fire insurance ($100 × 11/12) 92   Miscellaneous repairs 297   Real estate taxes ($1,200 × 11/12) 1,100   Total expenses 3,139 Balance $5,111 Minus: Depreciation     House ($39,000 × . Form 1040a 03182) $1,241   Dishwasher ($425 × . Form 1040a 20) 85   Furnace ($4,000 × . Form 1040a 02273) 91   Total depreciation 1,417 Net rental income for house   $3,694       Eileen uses Schedule E, Part I, to report her rental income and expenses. Form 1040a She enters her income, expenses, and depreciation for the house in the column for Property A. Form 1040a Since all property was placed in service this year, Eileen must use Form 4562 to figure the depreciation. Form 1040a See the Instructions for Form 4562 for more information on preparing the form. Form 1040a Prev  Up  Next   Home   More Online Publications
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The Form 1040a

Form 1040a Publication 970 - Additional Material Table of Contents AppendicesAppendix A. Form 1040a Illustrated Example of Education Credits Glossary Appendices The following appendices are provided to help you claim the education benefits that will give you the lowest tax. Form 1040a Appendix A—An illustrated example of education credits, including a filled-in Form 8863 showing how to claim both the American opportunity credit and lifetime learning credit for 2013. Form 1040a Appendix B—A chart summarizing some of the major differences between the education tax benefits discussed in this publication. Form 1040a It is intended only as a guide. Form 1040a Look in this publication for more complete information. Form 1040a   Appendix A. Form 1040a Illustrated Example of Education Credits Dave and Valerie Jones are married and on their 2013 joint tax return they claim exemptions for their two dependent children, Sean (age 21, social security number: 000-00-0001) and Carey (age 18, social security number: 000–00–0002). Form 1040a Their modified adjusted gross income (MAGI) on Form 1040, line 38 is $110,000. Form 1040a Because Dave and Valerie have unusually high itemized deductions, their taxable income is $10,000 and their tax before credits is $1,000. Form 1040a Sean enrolled as a full-time graduate student in August 2013 at California State College. Form 1040a He graduated with his bachelor's degree in 2012 and did not attend school from January 2013 through July 2013. Form 1040a His parents claimed the Hope Scholarship Credit for Sean for 2008 and the American opportunity credit for Sean for 2010, 2011, and 2012. Form 1040a Carey enrolled full time as a freshman at the same college in January 2013 to begin working on her bachelor's degree. Form 1040a In 2013, Dave and Valerie paid $7,000 in tuition for Sean and $8,500 in tuition for Carey. Form 1040a California State College issued two Forms 1098-T, one for Sean and one for Carey, and sent them to the Joneses' residence. Form 1040a California State College reports amounts billed in 2013 instead of amounts paid during 2013. Form 1040a In completing Form 8863, the Joneses use the amounts they paid. Form 1040a Neither Sean nor Carey has been convicted of a felony for possession or distribution of a controlled substance before the end of 2013. Form 1040a Dave and Valerie figure their education credits by completing Form 8863. Form 1040a They begin Form 8863 on page 2 before completing Part I on page 1. Form 1040a Because the Joneses have two eligible students, they will complete page 2 twice, once for their son, Sean, and once for their daughter, Carey. Form 1040a The Joneses decide to complete Part III for Carey first, as shown later. Form 1040a They carry over the amount of $2,500 entered on Part III, line 30, to Part I, line 1. Form 1040a The Joneses complete a separate Part III for their son Sean. Form 1040a They check the “Yes” box on line 23, determine that Sean is not eligible for the American opportunity credit, and go to line 31 as instructed. Form 1040a They figure their line 31 adjusted qualified education expenses for Sean to be $7,000. Form 1040a Once they have completed Part III for each student, they figure their credits. Form 1040a The Joneses figure their refundable American opportunity credit of $1,000 by completing Form 8863, Part I, lines 1 through 8. Form 1040a They enter the amount from line 8, $1,000, on line 66 of their Form 1040. Form 1040a The Joneses enter $7,000 on Part II, line 10, of Form 8863 and figure their tentative lifetime learning credit for 2013 to be $1,400 (line 12). Form 1040a They cannot claim the full amount because their MAGI of $110,000 is greater than $107,000. Form 1040a They enter the reduced amount of $1,190 (figured on Part II, line 18) on the Credit Limit Worksheet, line 1. Form 1040a The $1,190 is added to their nonrefundable American opportunity credit ($1,500 on line 2 of the Credit Limit Worksheet) for a total nonrefundable credit of $2,690. Form 1040a The Joneses enter $1,000 on line 7 of the Credit Limit Worksheet, which is the smaller of their tax from line 46 of their Form 1040 (which is $1,000) or the $2,690 on line 3 of the Credit Limit Worksheet. Form 1040a They enter $1,000 on line 19, Part II of Form 8863 and on line 49 of Form 1040. Form 1040a This image is too large to be displayed in the current screen. Form 1040a Please click the link to view the image. Form 1040a Form 1098-T Adjusted Qualified Education Expenses Worksheet (Form 8863 instructions) 1. Form 1040a Total qualified education expenses paid for or on behalf of the student in 2013 for the academic period 8,500 2. Form 1040a Less adjustments:     a. Form 1040a Tax-free educational assistance received in 2013 allocable to the academic period   0     b. Form 1040a Tax-free educational assistance received in 2014 (and before you file your 2013 tax return) allocable to the academic period   0     c. Form 1040a Refunds of qualified education expenses paid in 2013 if the refund is received in 2013 or in 2014 before you file your 2013 tax return   0   3. Form 1040a Total adjustments (add lines 2a, 2b, and 2c) 0 4. Form 1040a Adjusted qualified education expenses. Form 1040a Subtract line 3 from line 1. Form 1040a If zero or less, enter -0- 8,500 This image is too large to be displayed in the current screen. Form 1040a Please click the link to view the image. Form 1040a Form 1098-T Adjusted Qualified Education Expenses Worksheet (Form 8863 instructions) 1. Form 1040a Total qualified education expenses paid for or on behalf of the student in 2013 for the academic period 7,000 2. Form 1040a Less adjustments:     a. Form 1040a Tax-free educational assistance received in 2013 allocable to the academic period   0     b. Form 1040a Tax-free educational assistance received in 2014 (and before you file your 2013 tax return) allocable to the academic period   0     c. Form 1040a Refunds of qualified education expenses paid in 2013 if the refund is received in 2013 or in 2014 before you file your 2013 tax return   0   3. Form 1040a Total adjustments (add lines 2a, 2b, and 2c) 0 4. Form 1040a Adjusted qualified education expenses. Form 1040a Subtract line 3 from line 1. Form 1040a If zero or less, enter -0- 7,000 Credit Limit Worksheet (Form 8863 instructions) Nonrefundable Credit Worksheet 1. Form 1040a Enter the amount from Form 8863, line 18 1. Form 1040a 1,190 2. Form 1040a Enter the amount from Form 8863, line 9 2. Form 1040a 1,500 3. Form 1040a Add lines 1 and 2 3. Form 1040a 2,690 4. Form 1040a Enter the amount from: Form 1040, line 46; or Form 1040A, line 28 4. Form 1040a 1,000 5. Form 1040a Enter the amount from either: Form 1040, lines 47 and 48, and the amount from Schedule R included on Form 1040, line 53; or Form 1040A, lines 29 and 30 5. Form 1040a 0 6. Form 1040a Subtract line 5 from line 4 6. Form 1040a 1,000 7. Form 1040a   Enter the smaller of line 3 or line 6 here and on Form 8863, line 19 7. Form 1040a 1,000 This image is too large to be displayed in the current screen. Form 1040a Please click the link to view the image. Form 1040a Form 8863 for Dave and Valerie Jones This image is too large to be displayed in the current screen. Form 1040a Please click the link to view the image. Form 1040a Carey Jones page 2 This image is too large to be displayed in the current screen. Form 1040a Please click the link to view the image. Form 1040a Filled-in Form 8863 Jones page 2 Appendix B. Form 1040a Highlights of Education Tax Benefits for Tax Year 2013 This chart highlights some differences among the benefits discussed in this publication. Form 1040a See the text for definitions and details. Form 1040a Do not rely on this chart alone. Form 1040a    Caution:You generally cannot claim more than one benefit for the same education expense. Form 1040a   Scholarships,  Fellowships, Grants, and  Tuition  Reductions American Opportunity Credit Lifetime Learning Credit Student Loan Interest Deduction Tuition and Fees Deduction Coverdell ESA† Qualified Tuition Program (QTP)† Education Exception to Additional Tax on Early IRA Distributions† Education Savings Bond Program† Employer- Provided Educational Assistance† Business Deduction for Work-Related Education What is your  benefit? Amounts received may not be taxable   Credits can reduce the amount of tax you have to pay. Form 1040a    40% of the credit may be refundable (limited to $1,000 per student). Form 1040a Credits can reduce amount of tax you must pay Can deduct interest paid Can deduct expenses Earnings not  taxed Earnings not taxed No 10%  additional tax on early distribution Interest not taxed Employer benefits not taxed Can deduct expenses What is the annual limit? None $2,500 credit per student $2,000 credit per tax return     $2,500 deduction $4,000 deduction $2,000 contribution per beneficiary None Amount of qualified  education expenses Amount of qualified  education expenses $5,250 exclusion Amount of qualifying work-related education expenses What expenses  qualify besides  tuition and required enrollment fees? Course-related expenses such as fees, books, supplies, and equipment Course-related books, supplies, and equipment Amounts paid for required books, etc. Form 1040a , that must be paid to the educational institution, etc. Form 1040a , are required fees Books Supplies Equipment  Room & board  Transportation  Other necessary expenses  None Books Supplies Equipment  Expenses for special needs services  Payments to QTP  Higher education: Room & board if  at least half-time  student  Elem/sec (K–12) education: Tutoring Room & board Uniforms Transportation Computer  access Supplementary expenses Books Supplies Equipment  Room & board if  at least half-time student  Expenses for special needs services Books Supplies Equipment  Room & board if  at least half-time student  Expenses for special needs services Payments to Coverdell ESA  Payments to QTP Books Supplies Equipment Transportation  Travel  Other necessary expenses   Scholarships,  Fellowships, Grants, and  Tuition  Reductions American Opportunity Credit Lifetime Learning Credit Student Loan Interest Deduction Tuition and Fees Deduction Coverdell ESA† Qualified Tuition Program (QTP)† Education Exception to Additional Tax on Early IRA Distributions† Education Savings Bond Program† Employer- Provided Educational Assistance† Business Deduction for Work-Related Education What education qualifies? Undergraduate & graduate  K–12 Undergraduate & graduate Undergraduate & graduate  Courses to acquire or improve job skills    Undergraduate & graduate Undergraduate & graduate Undergraduate & graduate  K–12 Undergraduate & graduate Undergraduate & graduate Undergraduate & graduate Undergraduate & graduate Required by employer or law to keep present job, salary, status  Maintain or improve job skills What are some of the other  conditions that  apply? Must be in degree or vocational program  Payment of tuition and required fees must be allowed under the grant Can be claimed for only 4 tax years (which includes years Hope Scholarship Credit claimed)  Must be enrolled at least half-time in degree program  No felony drug conviction(s)  Must not have completed first 4 years of postsecondary education before end of preceding tax year. Form 1040a   No other conditions Must have been at least half-time  student in degree program Cannot claim both deduction & education credit for same student in same year Assets must be distributed at age 30 unless special  needs beneficiary No other conditions No other conditions Applies only to qualified series  EE bonds issued after 1989 or series I bonds No other conditions Cannot be to  meet minimum educational requirements of present trade/business  Cannot qualify  you for new trade/business   In what income  range do benefits  phase out? No phaseout $80,000 – $90,000  $160,000 – $180,000 for joint returns $53,000 – $63,000  $107,000 – $127,000 for joint returns $60,000 – $75,000  $125,000 –  $155,000 for  joint returns  $60,000 – $80,000  $130,000 –  $160,000 for  joint returns  $95,000 – $110,000  $190,000 – $220,000 for  joint returns No phaseout No phaseout   No phaseout No phaseout † Any nontaxable distribution is limited to the amount that does not exceed qualified education expenses. Form 1040a Glossary The education benefits included in this publication were enacted over many years, leading to a number of common terms being defined differently from one benefit to the next. Form 1040a For example, an eligible educational institution means one thing when determining if earnings from a Coverdell education savings account are not taxable and something else when determining if a scholarship or fellowship is not taxable. Form 1040a For each term listed below that has more than one definition, the definition for each education benefit is listed. Form 1040a Academic period:   A semester, trimester, quarter, or other period of study (such as a summer school session) as reasonably determined by an educational institution. Form 1040a If an educational institution uses credit hours or clock hours and does not have academic terms, each payment period can be treated as an academic period. Form 1040a Adjusted qualified education expenses (AQEE):    Qualified education expenses (defined later) reduced by any tax-free educational assistance, such as a tax-free scholarship or employer-provided educational assistance. Form 1040a They must also be reduced by any qualified education expenses deducted elsewhere on your return, used to determine an education credit or other benefit, or used to determine a tax-free distribution. Form 1040a For information on a specific benefit, see the appropriate chapter in this publication. Form 1040a Candidate for a degree:   A student who meets either of the following requirements. Form 1040a Attends a primary or secondary school or pursues a degree at a college or university, or Attends an accredited educational institution that is authorized to provide: A program that is acceptable for full credit toward a bachelor's or higher degree, or A program of training to prepare students for gainful employment in a recognized occupation. Form 1040a Designated beneficiary:   The individual named in the document creating the account/plan who is to receive the benefit of the funds in the account/plan. Form 1040a Eligible educational institution:    American opportunity credit. Form 1040a Any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the Department of Education. Form 1040a It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. Form 1040a Coverdell education savings account (ESA). Form 1040a Any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the Department of Education. Form 1040a It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. Form 1040a Also included is any public, private, or religious school that provides elementary or secondary education (kindergarten through grade 12), as determined under state law. Form 1040a Education savings bond program. Form 1040a Same as American opportunity credit in this category. Form 1040a IRA, early distributions from. Form 1040a Same as American opportunity credit in this category. Form 1040a Lifetime learning credit. Form 1040a Same as American opportunity credit in this category. Form 1040a Qualified tuition program (QTP). Form 1040a Same as American opportunity credit in this category. Form 1040a Scholarships and fellowships. Form 1040a An institution that maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance at the place where it carries on its educational activities. Form 1040a Student loan, cancellation of. Form 1040a Same as Scholarships and fellowships in this category. Form 1040a Student loan interest deduction. Form 1040a Any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the Department of Education. Form 1040a It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. Form 1040a Also included is an institution that conducts an internship or residency program leading to a degree or certificate from an institution of higher education, a hospital, or a health care facility that offers postgraduate training. Form 1040a Tuition and fees deduction. Form 1040a Same as American opportunity credit in this category. Form 1040a Eligible student:    American opportunity credit. Form 1040a A student who meets all of the following requirements for the tax year for which the credit is being determined. Form 1040a Did not have expenses that were used to figure an American opportunity or Hope Scholarship Credit in any 4 earlier tax years. Form 1040a Had not completed the first 4 years of postsecondary education (generally the freshman through senior years). Form 1040a For at least one academic period beginning in the tax year, was enrolled at least half-time in a program leading to a degree, certificate, or other recognized educational credential at an eligible educational institution. Form 1040a Was free of any federal or state felony conviction for possessing or distributing a controlled substance as of the end of the tax year. Form 1040a Lifetime learning credit. Form 1040a A student who is enrolled in one or more courses at an eligible educational institution. Form 1040a Student loan interest deduction. Form 1040a A student who was enrolled at least half-time in a program leading to a postsecondary degree, certificate, or other recognized educational credential at an eligible educational institution. Form 1040a Tuition and fees deduction. Form 1040a A student who is enrolled in one or more courses at an eligible educational institution. Form 1040a Half-time student:   A student who is enrolled for at least half the full-time academic work load for the course of study the student is pursuing, as determined under the standards of the school where the student is enrolled. Form 1040a Modified adjusted gross income (MAGI):    American opportunity credit. Form 1040a Adjusted gross income (AGI) as figured on the federal income tax return, modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, and Exclusion of income by bona fide residents of Puerto Rico. Form 1040a Coverdell education savings account (ESA). Form 1040a Same as American opportunity credit in this category. Form 1040a Education savings bond program. Form 1040a Adjusted gross income (AGI) as figured on the federal income tax return without taking into account any savings bond interest exclusion and modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, Exclusion of income by bona fide residents of Puerto Rico, Exclusion for adoption benefits received under an employer's adoption assistance program, Deduction for student loan interest, Deduction for tuition and fees, and Deduction for domestic production activities. Form 1040a Lifetime learning credit. Form 1040a Same as American opportunity credit in this category. Form 1040a Student loan interest deduction. Form 1040a Adjusted gross income (AGI) as figured on the federal income tax return without taking into account any student loan interest deduction, tuition and fees deduction, or domestic production activities deduction, and modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, and Exclusion of income by bona fide residents of Puerto Rico. Form 1040a Tuition and fees deduction. Form 1040a Adjusted gross income (AGI) as figured on the federal income tax return without taking into account any tuition and fees deduction, or domestic production activities deduction, and modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, and Exclusion of income by bona fide residents of Puerto Rico. Form 1040a Phaseout:   The amount of credit or deduction allowed is reduced when modified adjusted gross income (MAGI) is greater than a specified amount of income. Form 1040a Qualified education expenses:   See pertinent chapter for specific items. Form 1040a    American opportunity credit. Form 1040a Tuition and certain related expenses (including student activity fees) required for enrollment or attendance at an eligible educational institution. Form 1040a Books, supplies, and equipment needed for a course of study are included even if not purchased from the educational institution. Form 1040a Does not include expenses for room and board. Form 1040a Does not include expenses for courses involving sports, games, or hobbies (including noncredit courses) that are not part of the student's postsecondary degree program. Form 1040a Coverdell education savings account (ESA). Form 1040a Expenses related to or required for enrollment or attendance of the designated beneficiary at an eligible elementary, secondary, or postsecondary school. Form 1040a Many specialized expenses included for K–12. Form 1040a Also includes expenses for special needs services and contribution to qualified tuition program (QTP). Form 1040a Education savings bond program. Form 1040a Tuition and fees required to enroll at or attend an eligible educational institution. Form 1040a Also includes contributions to a qualified tuition program (QTP) or Coverdell education savings account (ESA). Form 1040a Does not include expenses for room and board. Form 1040a Does not include expenses for courses involving sports, games, or hobbies that are not part of a degree or certificate granting program. Form 1040a IRA, early distributions from. Form 1040a Tuition, fees, books, supplies, and equipment required for enrollment or attendance at an eligible educational institution, plus certain limited costs of room and board for students who are enrolled at least half-time. Form 1040a Also includes expenses for special needs services incurred by or for special needs students in connection with their enrollment or attendance. Form 1040a Lifetime learning credit. Form 1040a Tuition and certain related expenses required for enrollment or attendance at an eligible educational institution. Form 1040a Student-activity fees and expenses for course-related books, supplies, and equipment are included only if the fees and expenses must be paid to the institution as a condition of enrollment or attendance. Form 1040a Does not include expenses for room and board. Form 1040a Does not include expenses for courses involving sports, games, or hobbies (including noncredit courses) that are not part of the student's postsecondary degree program, unless taken by the student to acquire or improve job skills. Form 1040a Qualified tuition program (QTP). Form 1040a Tuition, fees, books, supplies, and equipment required for enrollment or attendance at an eligible educational institution, plus certain limited costs of room and board for students who are enrolled at least half-time. Form 1040a Includes expenses for special needs services and computer access. Form 1040a Scholarships and fellowships. Form 1040a Expenses for tuition and fees required to enroll at or attend an eligible educational institution, and course-related expenses, such as fees, books, supplies, and equipment that are required for the courses at the eligible educational institution. Form 1040a Course-related items must be required of all students in the course of instruction. Form 1040a Student loan interest deduction. Form 1040a Total costs of attending an eligible educational institution, including graduate school (however, limitations may apply to the cost of room and board allowed). Form 1040a Tuition and fees deduction. Form 1040a Tuition and certain related expenses required for enrollment or attendance at an eligible educational institution. Form 1040a Student-activity fees and expenses for course-related books, supplies, and equipment are included only if the fees and expenses must be paid to the institution as a condition of enrollment or attendance. Form 1040a Recapture:   To include as income on your current year's return an amount allowed as a deduction in a prior year. Form 1040a To include as tax on your current year's return an amount allowed as a credit in a prior year. Form 1040a Rollover:   A tax-free distribution to you of cash or other assets from a tax-favored plan that you contribute to another tax-favored plan. Form 1040a Transfer:   A movement of funds in a tax-favored plan from one trustee directly to another, either at your request or at the trustee's request. Form 1040a Prev  Up  Next   Home   More Online Publications