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Form 1040x Amended Return

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Form 1040x Amended Return

Form 1040x amended return 6. Form 1040x amended return   Insurance Table of Contents What's New Introduction Topics - This chapter discusses: Useful Items - You may want to see: Deductible PremiumsSelf-Employed Health Insurance Deduction Nondeductible Premiums Capitalized Premiums When To Deduct Premiums What's New Retiree drug subsidy. Form 1040x amended return  Beginning in 2013, sponsors of certain qualified retiree prescription drug plans must account for the subsidy received by reducing the amount of qualified retiree prescription drug plans expense by the subsidy received (taking into account the taxpayer's accounting method). Form 1040x amended return For more information, see the retiree drug subsidy frequently asked questions on IRS. Form 1040x amended return gov. Form 1040x amended return Introduction You generally can deduct the ordinary and necessary cost of insurance as a business expense if it is for your trade, business, or profession. Form 1040x amended return However, you may have to capitalize certain insurance costs under the uniform capitalization rules. Form 1040x amended return For more information, see Capitalized Premiums , later. Form 1040x amended return Topics - This chapter discusses: Deductible premiums Nondeductible premiums Capitalized premiums When to deduct premiums Useful Items - You may want to see: Publication 15-B Employer's Tax Guide to Fringe Benefits 525 Taxable and Nontaxable Income 538 Accounting Periods and Methods 547 Casualties, Disasters, and Thefts Form (and Instructions) 1040 U. Form 1040x amended return S. Form 1040x amended return Individual Income Tax Return See chapter 12 for information about getting publications and forms. Form 1040x amended return Deductible Premiums You generally can deduct premiums you pay for the following kinds of insurance related to your trade or business. Form 1040x amended return Insurance that covers fire, storm, theft, accident, or similar losses. Form 1040x amended return Credit insurance that covers losses from business bad debts. Form 1040x amended return Group hospitalization and medical insurance for employees, including long-term care insurance. Form 1040x amended return If a partnership pays accident and health insurance premiums for its partners, it generally can deduct them as guaranteed payments to partners. Form 1040x amended return If an S corporation pays accident and health insurance premiums for its more-than-2% shareholder-employees, it generally can deduct them, but must also include them in the shareholder's wages subject to federal income tax withholding. Form 1040x amended return See Publication 15-B. Form 1040x amended return Liability insurance. Form 1040x amended return Malpractice insurance that covers your personal liability for professional negligence resulting in injury or damage to patients or clients. Form 1040x amended return Workers' compensation insurance set by state law that covers any claims for bodily injuries or job-related diseases suffered by employees in your business, regardless of fault. Form 1040x amended return If a partnership pays workers' compensation premiums for its partners, it generally can deduct them as guaranteed payments to partners. Form 1040x amended return If an S corporation pays workers' compensation premiums for its more-than-2% shareholder-employees, it generally can deduct them, but must also include them in the shareholder's wages. Form 1040x amended return Contributions to a state unemployment insurance fund are deductible as taxes if they are considered taxes under state law. Form 1040x amended return Overhead insurance that pays for business overhead expenses you have during long periods of disability caused by your injury or sickness. Form 1040x amended return Car and other vehicle insurance that covers vehicles used in your business for liability, damages, and other losses. Form 1040x amended return If you operate a vehicle partly for personal use, deduct only the part of the insurance premium that applies to the business use of the vehicle. Form 1040x amended return If you use the standard mileage rate to figure your car expenses, you cannot deduct any car insurance premiums. Form 1040x amended return Life insurance covering your officers and employees if you are not directly or indirectly a beneficiary under the contract. Form 1040x amended return Business interruption insurance that pays for lost profits if your business is shut down due to a fire or other cause. Form 1040x amended return Self-Employed Health Insurance Deduction You may be able to deduct premiums paid for medical and dental insurance and qualified long-term care insurance for yourself, your spouse, and your dependents. Form 1040x amended return The insurance can also cover your child who was under age 27 at the end of 2013, even if the child was not your dependent. Form 1040x amended return A child includes your son, daughter, stepchild, adopted child, or foster child. Form 1040x amended return A foster child is any child placed with you by an authorized placement agency or by judgment, decree, or other order of any court of competent jurisdiction. Form 1040x amended return One of the following statements must be true. Form 1040x amended return You were self-employed and had a net profit for the year reported on Schedule C (Form 1040), Profit or Loss From Business; Schedule C-EZ (Form 1040), Net Profit From Business; or Schedule F (Form 1040), Profit or Loss From Farming. Form 1040x amended return You were a partner with net earnings from self-employment for the year reported on Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc. Form 1040x amended return , box 14, code A. Form 1040x amended return You used one of the optional methods to figure your net earnings from self-employment on Schedule SE. Form 1040x amended return You received wages in 2013 from an S corporation in which you were a more-than-2% shareholder. Form 1040x amended return Health insurance premiums paid or reimbursed by the S corporation are shown as wages on Form W-2, Wage and Tax Statement. Form 1040x amended return The insurance plan must be established, or considered to be established as discussed in the following bullets, under your business. Form 1040x amended return For self-employed individuals filing a Schedule C, C-EZ, or F, a policy can be either in the name of the business or in the name of the individual. Form 1040x amended return For partners, a policy can be either in the name of the partnership or in the name of the partner. Form 1040x amended return You can either pay the premiums yourself or your partnership can pay them and report the premium amounts on Schedule K-1 (Form 1065) as guaranteed payments to be included in your gross income. Form 1040x amended return However, if the policy is in your name and you pay the premiums yourself, the partnership must reimburse you and report the premium amounts on Schedule K-1 (Form 1065) as guaranteed payments to be included in your gross income. Form 1040x amended return Otherwise, the insurance plan will not be considered to be established under your business. Form 1040x amended return For more-than-2% shareholders, a policy can be either in the name of the S corporation or in the name of the shareholder. Form 1040x amended return You can either pay the premiums yourself or your S corporation can pay them and report the premium amounts on Form W-2 as wages to be included in your gross income. Form 1040x amended return However, if the policy is in your name and you pay the premiums yourself, the S corporation must reimburse you and report the premium amounts on Form W-2 as wages to be included in your gross income. Form 1040x amended return Otherwise, the insurance plan will not be considered to be established under your business. Form 1040x amended return Medicare premiums you voluntarily pay to obtain insurance in your name that is similar to qualifying private health insurance can be used to figure the deduction. Form 1040x amended return If you previously filed returns without using Medicare premiums to figure the deduction, you can file timely amended returns to refigure the deduction. Form 1040x amended return For more information, see Form 1040X, Amended U. Form 1040x amended return S. Form 1040x amended return Individual Income Tax Return. Form 1040x amended return Amounts paid for health insurance coverage from retirement plan distributions that were nontaxable because you are a retired public safety officer cannot be used to figure the deduction. Form 1040x amended return Take the deduction on Form 1040, line 29. Form 1040x amended return Qualified long-term care insurance. Form 1040x amended return   You can include premiums paid on a qualified long-term care insurance contract when figuring your deduction. Form 1040x amended return But, for each person covered, you can include only the smaller of the following amounts. Form 1040x amended return The amount paid for that person. Form 1040x amended return The amount shown below. Form 1040x amended return Use the person's age at the end of the tax year. Form 1040x amended return Age 40 or younger–$360 Age 41 to 50–$680 Age 51 to 60–$1,360 Age 61 to 70–$3,640 Age 71 or older–$4,550 Qualified long-term care insurance contract. Form 1040x amended return   A qualified long-term care insurance contract is an insurance contract that only provides coverage of qualified long-term care services. Form 1040x amended return The contract must meet all the following requirements. Form 1040x amended return It must be guaranteed renewable. Form 1040x amended return It must provide that refunds, other than refunds on the death of the insured or complete surrender or cancellation of the contract, and dividends under the contract may be used only to reduce future premiums or increase future benefits. Form 1040x amended return It must not provide for a cash surrender value or other money that can be paid, assigned, pledged, or borrowed. Form 1040x amended return It generally must not pay or reimburse expenses incurred for services or items that would be reimbursed under Medicare, except where Medicare is a secondary payer or the contract makes per diem or other periodic payments without regard to expenses. Form 1040x amended return Qualified long-term care services. Form 1040x amended return   Qualified long-term care services are: Necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, and rehabilitative services, and Maintenance or personal care services. Form 1040x amended return The services must be required by a chronically ill individual and prescribed by a licensed health care practitioner. Form 1040x amended return Worksheet 6-A. Form 1040x amended return Self-Employed Health Insurance Deduction Worksheet Note. Form 1040x amended return Use a separate worksheet for each trade or business under which an insurance plan is established. Form 1040x amended return 1. Form 1040x amended return Enter the total amount paid in 2013 for health insurance coverage established under your business for 2013 for you, your spouse, and your dependents. Form 1040x amended return Your insurance can also cover your child who was under age 27 at the end of 2013, even if the child was not your dependent. Form 1040x amended return But do not include the following. Form 1040x amended return   Amounts for any month you were eligible to participate in a health plan subsidized by your or your spouse's employer or the employer of either your dependent or your child who was under the age of 27 at the end of 2013. Form 1040x amended return Any amounts paid from retirement plan distributions that were nontaxable because you are a retired public safety officer. Form 1040x amended return Any amounts you included on Form 8885, line 4. Form 1040x amended return Any qualified health insurance premiums you paid to “U. Form 1040x amended return S. Form 1040x amended return Treasury-HCTC. Form 1040x amended return ” Any health coverage tax credit advance payments shown in box 1 of Form 1099-H. Form 1040x amended return Any payments for qualified long-term care insurance (see line 2) 1. Form 1040x amended return   2. Form 1040x amended return For coverage under a qualified long-term care insurance contract, enter for each person covered the smaller of the following amounts. Form 1040x amended return       a) Total payments made for that person during the year. Form 1040x amended return       b) The amount shown below. Form 1040x amended return Use the person's age at the end of the tax year. Form 1040x amended return         $360— if that person is age 40 or younger          $680— if age 41 to 50         $1,360— if age 51 to 60         $3,640— if age 61 to 70         $4,550— if age 71 or older         Do not include payments for any month you were eligible to participate in a long-term care insurance plan subsidized by your or your spouse’s employer or the employer of either your dependent or your child who was under the age of 27 at the end of 2013. Form 1040x amended return If more than one person is covered, figure separately the amount to enter for each person. Form 1040x amended return Then enter the total of those amounts 2. Form 1040x amended return   3. Form 1040x amended return Add lines 1 and 2 3. Form 1040x amended return   4. Form 1040x amended return Enter your net profit* and any other earned income** from the trade or business under which the insurance plan is established. Form 1040x amended return Do not include Conservation Reserve Program payments exempt from self-employment tax. Form 1040x amended return If the business is an S corporation, skip to line 11 4. Form 1040x amended return   5. Form 1040x amended return Enter the total of all net profits* from: Schedule C (Form 1040), line 31; Schedule C-EZ (Form 1040), line 3; Schedule F (Form 1040), line 34; or Schedule K-1 (Form 1065), box 14, code A; plus any other income allocable to the profitable businesses. Form 1040x amended return Do not include Conservation Reserve Program payments exempt from self-employment tax. Form 1040x amended return See the Instructions for Schedule SE (Form 1040). Form 1040x amended return Do not include any net losses shown on these schedules. Form 1040x amended return 5. Form 1040x amended return   6. Form 1040x amended return Divide line 4 by line 5 6. Form 1040x amended return   7. Form 1040x amended return Multiply Form 1040, line 27, by the percentage on line 6 7. Form 1040x amended return   8. Form 1040x amended return Subtract line 7 from line 4 8. Form 1040x amended return   9. Form 1040x amended return Enter the amount, if any, from Form 1040, line 28, attributable to the same trade or business in which the insurance plan is established 9. Form 1040x amended return   10. Form 1040x amended return Subtract line 9 from line 8 10. Form 1040x amended return   11. Form 1040x amended return Enter your Medicare wages (Form W-2, box 5) from an S corporation in which you are a more-than-2% shareholder and in which the insurance plan is established 11. Form 1040x amended return   12. Form 1040x amended return Enter any amount from Form 2555, line 45, attributable to the amount entered on line 4 or 11 above, or any amount from Form 2555-EZ, line 18, attributable to the amount entered on line 11 above 12. Form 1040x amended return   13. Form 1040x amended return Subtract line 12 from line 10 or 11, whichever applies 13. Form 1040x amended return   14. Form 1040x amended return Enter the smaller of line 3 or line 13 here and on Form 1040, line 29. Form 1040x amended return Do not include this amount when figuring any medical expense deduction on Schedule A (Form 1040). Form 1040x amended return 14. Form 1040x amended return   * If you used either optional method to figure your net earnings from self-employment from any business, do not enter your net profit from the business. Form 1040x amended return Instead, enter the amount attributable to that business from Schedule SE (Form 1040), Section B, line 4b. Form 1040x amended return * *Earned income includes net earnings and gains from the sale, transfer, or licensing of property you created. Form 1040x amended return However, it does not include capital gain income. Form 1040x amended return Chronically ill individual. Form 1040x amended return   A chronically ill individual is a person who has been certified as one of the following. Form 1040x amended return An individual who has been unable, due to loss of functional capacity for at least 90 days, to perform at least two activities of daily living without substantial assistance from another individual. Form 1040x amended return Activities of daily living are eating, toileting, transferring (general mobility), bathing, dressing, and continence. Form 1040x amended return An individual who requires substantial supervision to be protected from threats to health and safety due to severe cognitive impairment. Form 1040x amended return The certification must have been made by a licensed health care practitioner within the previous 12 months. Form 1040x amended return Benefits received. Form 1040x amended return   For information on excluding benefits you receive from a long-term care contract from gross income, see Publication 525. Form 1040x amended return Other coverage. Form 1040x amended return   You cannot take the deduction for any month you were eligible to participate in any employer (including your spouse's) subsidized health plan at any time during that month, even if you did not actually participate. Form 1040x amended return In addition, if you were eligible for any month or part of a month to participate in any subsidized health plan maintained by the employer of either your dependent or your child who was under age 27 at the end of 2013, do not use amounts paid for coverage for that month to figure the deduction. Form 1040x amended return   These rules are applied separately to plans that provide long-term care insurance and plans that do not provide long-term care insurance. Form 1040x amended return However, any medical insurance payments not deductible on Form 1040, line 29, can be included as medical expenses on Schedule A (Form 1040), Itemized Deductions, if you itemize deductions. Form 1040x amended return Effect on itemized deductions. Form 1040x amended return   Subtract the health insurance deduction from your medical insurance when figuring medical expenses on Schedule A (Form 1040) if you itemize deductions. Form 1040x amended return Effect on self-employment tax. Form 1040x amended return   For tax years beginning before or after 2010, you cannot subtract the self-employed health insurance deduction when figuring net earnings for your self-employment tax from the business under which the insurance plan is established, or considered to be established as discussed earlier. Form 1040x amended return For more information, see Schedule SE (Form 1040). Form 1040x amended return How to figure the deduction. Form 1040x amended return   Generally, you can use the worksheet in the Form 1040 instructions to figure your deduction. Form 1040x amended return However, if any of the following apply, you must use Worksheet 6-A in this chapter. Form 1040x amended return You had more than one source of income subject to self-employment tax. Form 1040x amended return You file Form 2555, Foreign Earned Income, or Form 2555-EZ, Foreign Earned Income Exclusion. Form 1040x amended return You are using amounts paid for qualified long-term care insurance to figure the deduction. Form 1040x amended return If you are claiming the health coverage tax credit, complete Form 8885, Health Coverage Tax Credit, before you figure this deduction. Form 1040x amended return Health coverage tax credit. Form 1040x amended return   You may be able to take this credit only if you were an eligible trade adjustment assistance (TAA) recipient, alternative TAA (ATAA) recipient, reemployment trade adjustment assistance (RTAA) recipient, or Pension Benefit Guaranty Corporation (PBGC) pension recipient. Form 1040x amended return Use Form 8885 to figure the amount, if any, of this credit. Form 1040x amended return   When figuring the amount to enter on line 1 of Worksheet 6-A, do not include the following. Form 1040x amended return Any amounts you included on Form 8885, line 4. Form 1040x amended return Any qualified health insurance premiums you paid to “U. Form 1040x amended return S. Form 1040x amended return Treasury-HCTC. Form 1040x amended return ” Any health coverage tax credit advance payments shown in box 1 of Form 1099-H, Health Coverage Tax Credit (HCTC) Advance Payments. Form 1040x amended return More than one health plan and business. Form 1040x amended return   If you have more than one health plan during the year and each plan is established under a different business, you must use separate worksheets (Worksheet 6-A) to figure each plan's net earnings limit. Form 1040x amended return Include the premium you paid under each plan on line 1 or line 2 of that separate worksheet and your net profit (or wages) from that business on line 4 (or line 11). Form 1040x amended return For a plan that provides long-term care insurance, the total of the amounts entered for each person on line 2 of all worksheets cannot be more than the appropriate limit shown on line 2 for that person. Form 1040x amended return Nondeductible Premiums You cannot deduct premiums on the following kinds of insurance. Form 1040x amended return Self-insurance reserve funds. Form 1040x amended return You cannot deduct amounts credited to a reserve set up for self-insurance. Form 1040x amended return This applies even if you cannot get business insurance coverage for certain business risks. Form 1040x amended return However, your actual losses may be deductible. Form 1040x amended return See Publication 547. Form 1040x amended return Loss of earnings. Form 1040x amended return You cannot deduct premiums for a policy that pays for lost earnings due to sickness or disability. Form 1040x amended return However, see the discussion on overhead insurance, item (8), under Deductible Premiums , earlier. Form 1040x amended return Certain life insurance and annuities. Form 1040x amended return For contracts issued before June 9, 1997, you cannot deduct the premiums on a life insurance policy covering you, an employee, or any person with a financial interest in your business if you are directly or indirectly a beneficiary of the policy. Form 1040x amended return You are included among possible beneficiaries of the policy if the policy owner is obligated to repay a loan from you using the proceeds of the policy. Form 1040x amended return A person has a financial interest in your business if the person is an owner or part owner of the business or has lent money to the business. Form 1040x amended return For contracts issued after June 8, 1997, you generally cannot deduct the premiums on any life insurance policy, endowment contract, or annuity contract if you are directly or indirectly a beneficiary. Form 1040x amended return The disallowance applies without regard to whom the policy covers. Form 1040x amended return Partners. Form 1040x amended return If, as a partner in a partnership, you take out an insurance policy on your own life and name your partners as beneficiaries to induce them to retain their investments in the partnership, you are considered a beneficiary. Form 1040x amended return You cannot deduct the insurance premiums. Form 1040x amended return Insurance to secure a loan. Form 1040x amended return If you take out a policy on your life or on the life of another person with a financial interest in your business to get or protect a business loan, you cannot deduct the premiums as a business expense. Form 1040x amended return Nor can you deduct the premiums as interest on business loans or as an expense of financing loans. Form 1040x amended return In the event of death, the proceeds of the policy are generally not taxed as income even if they are used to liquidate the debt. Form 1040x amended return Capitalized Premiums Under the uniform capitalization rules, you must capitalize the direct costs and part of the indirect costs for certain production or resale activities. Form 1040x amended return Include these costs in the basis of property you produce or acquire for resale, rather than claiming them as a current deduction. Form 1040x amended return You recover the costs through depreciation, amortization, or cost of goods sold when you use, sell, or otherwise dispose of the property. Form 1040x amended return Indirect costs include premiums for insurance on your plant or facility, machinery, equipment, materials, property produced, or property acquired for resale. Form 1040x amended return Uniform capitalization rules. Form 1040x amended return   You may be subject to the uniform capitalization rules if you do any of the following, unless the property is produced for your use other than in a business or an activity carried on for profit. Form 1040x amended return Produce real property or tangible personal property. Form 1040x amended return For this purpose, tangible personal property includes a film, sound recording, video tape, book, or similar property. Form 1040x amended return Acquire property for resale. Form 1040x amended return However, these rules do not apply to the following property. Form 1040x amended return Personal property you acquire for resale if your average annual gross receipts are $10 million or less for the 3 prior tax years. Form 1040x amended return Property you produce if you meet either of the following conditions. Form 1040x amended return Your indirect costs of producing the property are $200,000 or less. Form 1040x amended return You use the cash method of accounting and do not account for inventories. Form 1040x amended return More information. Form 1040x amended return   For more information on these rules, see Uniform Capitalization Rules in Publication 538 and the regulations under Internal Revenue Code section 263A. Form 1040x amended return When To Deduct Premiums You can usually deduct insurance premiums in the tax year to which they apply. Form 1040x amended return Cash method. Form 1040x amended return   If you use the cash method of accounting, you generally deduct insurance premiums in the tax year you actually paid them, even if you incurred them in an earlier year. Form 1040x amended return However, see Prepayment , later. Form 1040x amended return Accrual method. Form 1040x amended return   If you use an accrual method of accounting, you cannot deduct insurance premiums before the tax year in which you incur a liability for them. Form 1040x amended return In addition, you cannot deduct insurance premiums before the tax year in which you actually pay them (unless the exception for recurring items applies). Form 1040x amended return For more information about the accrual method of accounting, see chapter 1. Form 1040x amended return For information about the exception for recurring items, see Publication 538. Form 1040x amended return Prepayment. Form 1040x amended return   You cannot deduct expenses in advance, even if you pay them in advance. Form 1040x amended return This rule applies to any expense paid far enough in advance to, in effect, create an asset with a useful life extending substantially beyond the end of the current tax year. Form 1040x amended return   Expenses such as insurance are generally allocable to a period of time. Form 1040x amended return You can deduct insurance expenses for the year to which they are allocable. Form 1040x amended return Example. Form 1040x amended return In 2013, you signed a 3-year insurance contract. Form 1040x amended return Even though you paid the premiums for 2013, 2014, and 2015 when you signed the contract, you can only deduct the premium for 2013 on your 2013 tax return. Form 1040x amended return You can deduct in 2014 and 2015 the premium allocable to those years. Form 1040x amended return Dividends received. Form 1040x amended return   If you receive dividends from business insurance and you deducted the premiums in prior years, at least part of the dividends generally are income. Form 1040x amended return For more information, see Recovery of amount deducted (tax benefit rule) in chapter 1 under How Much Can I Deduct. Form 1040x amended return Prev  Up  Next   Home   More Online Publications
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The Form 1040x Amended Return

Form 1040x amended return 1. Form 1040x amended return   Investment Income Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: General InformationSSN for joint account. Form 1040x amended return Custodian account for your child. Form 1040x amended return Penalty for failure to supply SSN. Form 1040x amended return Certification. Form 1040x amended return Underreported interest and dividends. Form 1040x amended return How to stop backup withholding due to underreporting. Form 1040x amended return How to stop backup withholding due to an incorrect identification number. Form 1040x amended return Reporting backup withholding. Form 1040x amended return Nonresident aliens. Form 1040x amended return Penalties. Form 1040x amended return Savings account with parent as trustee. Form 1040x amended return Interest IncomeInterest not reported on Form 1099-INT. Form 1040x amended return Nominees. Form 1040x amended return Incorrect amount. Form 1040x amended return Information reporting requirement. Form 1040x amended return Taxable Interest — General Below-Market Loans U. Form 1040x amended return S. Form 1040x amended return Savings Bonds U. Form 1040x amended return S. Form 1040x amended return Treasury Bills, Notes, and Bonds Bonds Sold Between Interest Dates Insurance State or Local Government Obligations Discount on Debt InstrumentsOriginal Issue Discount (OID) Market Discount Bonds Discount on Short-Term Obligations Election To Report All Interest as OID When To Report Interest IncomeConstructive receipt. Form 1040x amended return How To Report Interest IncomeSchedule B (Form 1040A or 1040). Form 1040x amended return Worksheet for savings bonds distributed from a retirement or profit-sharing plan. Form 1040x amended return File Form 1099-INT with the IRS. Form 1040x amended return Dividends and Other DistributionsDividends not reported on Form 1099-DIV. Form 1040x amended return Nominees. Form 1040x amended return Ordinary Dividends Capital Gain Distributions Nondividend Distributions Liquidating Distributions Distributions of Stock and Stock Rights Other Distributions How To Report Dividend IncomeElection. Form 1040x amended return Independent contractor. Form 1040x amended return Investment interest deducted. Form 1040x amended return Exception 1. Form 1040x amended return Exception 2. Form 1040x amended return Undistributed capital gains. Form 1040x amended return File Form 1099-DIV with the IRS. Form 1040x amended return Stripped Preferred Stock REMICs, FASITs, and Other CDOsREMICs Collateralized Debt Obligations (CDOs) FASITs S CorporationsLimit on losses and deductions. Form 1040x amended return Passive activity losses. Form 1040x amended return Form 8582. Form 1040x amended return Investment ClubsInvestments in name of member. Form 1040x amended return Tax Treatment of the Club Topics - This chapter discusses: Interest Income , Discount on Debt Instruments , When To Report Interest Income , How To Report Interest Income , Dividends and Other Distributions , How To Report Dividend Income , Stripped Preferred Stock , Real estate mortgage investment conduits (REMICs), financial asset securitization investment trusts (FASITs), and other collateralized debt obligations (CDOs) , S Corporations , and Investment Clubs . Form 1040x amended return Useful Items - You may want to see: Publication 525 Taxable and Nontaxable Income 537 Installment Sales 590 Individual Retirement Arrangements (IRAs) 925 Passive Activity and At-Risk Rules 1212 Guide to Original Issue Discount (OID) Instruments Form (and Instructions) Schedule B (Form 1040A or 1040) Interest and Ordinary Dividends Schedule D (Form 1040) Capital Gains and Losses 1040 U. Form 1040x amended return S. Form 1040x amended return Individual Income Tax Return 1040A U. Form 1040x amended return S. Form 1040x amended return Individual Income Tax Return 1040EZ Income Tax Return for Single and Joint Filers With No Dependents 1099 General Instructions for Certain Information Returns 2439 Notice to Shareholder of Undistributed Long-Term Capital Gains 3115 Application for Change in Accounting Method 6251 Alternative Minimum Tax — Individuals 8582 Passive Activity Loss Limitations 8615 Tax for Certain Children Who Have Unearned Income 8814 Parents' Election To Report Child's Interest and Dividends 8815 Exclusion of Interest From Series EE and I U. Form 1040x amended return S. Form 1040x amended return Savings Bonds Issued After 1989 8818 Optional Form To Record Redemption of Series EE and I U. Form 1040x amended return S. Form 1040x amended return Savings Bonds Issued After 1989 8824 Like-Kind Exchanges 8949 Sales and Other Dispositions of Capital Assets 8960 Net Investment Income Tax—Individuals, Estates, and Trusts See chapter 5, How To Get Tax Help , for information about getting these publications and forms. Form 1040x amended return General Information A few items of general interest are covered here. Form 1040x amended return Recordkeeping. Form 1040x amended return You should keep a list showing sources and investment income amounts you receive during the year. Form 1040x amended return Also keep the forms you receive showing your investment income (Forms 1099-INT, Interest Income, and 1099-DIV, Dividends and Distributions, for example) as an important part of your records. Form 1040x amended return Net investment income tax (NIIT). Form 1040x amended return   Beginning in 2013, you may be subject to the NIIT. Form 1040x amended return The NIIT is a 3. Form 1040x amended return 8% tax on the lesser of your net investment income or the amount of your modified adjusted gross income (MAGI) that is over a threshold amount based on your filing status. Form 1040x amended return    Filing Status Threshold Amount Married filing jointly $250,000 Married filing separately $125,000 Single $200,000 Head of household (with qualifying person) $200,000 Qualifying Widow(er) with dependent child $250,000    For more information, see Form 8960 and Instructions for Form 8960. Form 1040x amended return Tax on unearned income of certain children. Form 1040x amended return   Part of a child's 2013 unearned income may be taxed at the parent's tax rate. Form 1040x amended return This may happen if all of the following are true. Form 1040x amended return The child had more than $2,000 of unearned income. Form 1040x amended return The child is required to file a tax return. Form 1040x amended return The child was: Under age 18 at the end of 2013, Age 18 at the end of 2013 and did not have earned income that was more than half of the child's support, or A full-time student over age 18 and under age 24 at the end of 2013 and did not have earned income that was more than half of the child's support. Form 1040x amended return At least one of the child's parents was alive at the end of 2013. Form 1040x amended return The child does not file a joint return for 2013. Form 1040x amended return A child born on January 1, 1996, is considered to be age 18 at the end of 2013; a child born on January 1, 1995, is considered to be age 19 at the end of 2013; a child born on January 1, 1990, is considered to be age 24 at the end of 2013. Form 1040x amended return   If all of these statements are true, Form 8615 must be completed and attached to the child's tax return. Form 1040x amended return If any of these statements is not true, Form 8615 is not required and the child's income is taxed at his or her own tax rate. Form 1040x amended return    However, the parent can choose to include the child's interest and dividends on the parent's return if certain requirements are met. Form 1040x amended return Use Form 8814 for this purpose. Form 1040x amended return   For more information about the tax on unearned income of children and the parents' election, see Publication 929, Tax Rules for Children and Dependents. Form 1040x amended return Beneficiary of an estate or trust. Form 1040x amended return   Interest, dividends, and other investment income you receive as a beneficiary of an estate or trust is generally taxable income. Form 1040x amended return You should receive a Schedule K-1 (Form 1041), Beneficiary's Share of Income, Deductions, Credits, etc. Form 1040x amended return , from the fiduciary. Form 1040x amended return Your copy of Schedule K-1 (Form 1041) and its instructions will tell you where to report the income on your Form 1040. Form 1040x amended return Social security number (SSN). Form 1040x amended return   You must give your name and SSN or individual tax identification number (ITIN) to any person required by federal tax law to make a return, statement, or other document that relates to you. Form 1040x amended return This includes payers of interest and dividends. Form 1040x amended return If you do not give your SSN or ITIN to the payer of interest, you may have to pay a penalty. Form 1040x amended return SSN for joint account. Form 1040x amended return   If the funds in a joint account belong to one person, list that person's name first on the account and give that person's SSN to the payer. Form 1040x amended return (For information on who owns the funds in a joint account, see Joint accounts , later. Form 1040x amended return ) If the joint account contains combined funds, give the SSN of the person whose name is listed first on the account. Form 1040x amended return This is because only one name and SSN can be shown on Form 1099. Form 1040x amended return   These rules apply both to joint ownership by a married couple and to joint ownership by other individuals. Form 1040x amended return For example, if you open a joint savings account with your child using funds belonging to the child, list the child's name first on the account and give the child's SSN. Form 1040x amended return Custodian account for your child. Form 1040x amended return   If your child is the actual owner of an account that is recorded in your name as custodian for the child, give the child's SSN to the payer. Form 1040x amended return For example, you must give your child's SSN to the payer of dividends on stock owned by your child, even though the dividends are paid to you as custodian. Form 1040x amended return Penalty for failure to supply SSN. Form 1040x amended return   You will be subject to a penalty if, when required, you fail to: Include your SSN on any return, statement, or other document, Give your SSN to another person who must include it on any return, statement, or other document, or Include the SSN of another person on any return, statement, or other document. Form 1040x amended return The penalty is $50 for each failure up to a maximum penalty of $100,000 for any calendar year. Form 1040x amended return   You will not be subject to this penalty if you can show that your failure to provide the SSN was due to reasonable cause and not to willful neglect. Form 1040x amended return   If you fail to supply an SSN, you may also be subject to backup withholding. Form 1040x amended return Backup withholding. Form 1040x amended return   Your investment income is generally not subject to regular withholding. Form 1040x amended return However, it may be subject to backup withholding to ensure that income tax is collected on the income. Form 1040x amended return Under backup withholding, the bank, broker, or other payer of interest, original issue discount (OID), dividends, cash patronage dividends, or royalties must withhold, as income tax, on the amount you are paid, applying the appropriate withholding rate. Form 1040x amended return   Backup withholding applies if: You do not give the payer your identification number (either a social security number or an employer identification number) in the required manner, The IRS notifies the payer that you gave an incorrect identification number, The IRS notifies the payer that you are subject to backup withholding on interest or dividends because you have underreported interest or dividends on your income tax return, or You are required, but fail, to certify that you are not subject to backup withholding for the reason described in (3). Form 1040x amended return Certification. Form 1040x amended return   For new accounts paying interest or dividends, you must certify under penalties of perjury that your SSN is correct and that you are not subject to backup withholding. Form 1040x amended return Your payer will give you a Form W-9, Request for Taxpayer Identification Number and Certification, or similar form, to make this certification. Form 1040x amended return If you fail to make this certification, backup withholding may begin immediately on your new account or investment. Form 1040x amended return Underreported interest and dividends. Form 1040x amended return   You will be considered to have underreported your interest and dividends if the IRS has determined for a tax year that: You failed to include any part of a reportable interest or dividend payment required to be shown on your return, or You were required to file a return and to include a reportable interest or dividend payment on that return, but you failed to file the return. Form 1040x amended return How to stop backup withholding due to underreporting. Form 1040x amended return   If you have been notified that you underreported interest or dividends, you can request a determination from the IRS to prevent backup withholding from starting or to stop backup withholding once it has begun. Form 1040x amended return You must show that at least one of the following situations applies. Form 1040x amended return No underreporting occurred. Form 1040x amended return You have a bona fide dispute with the IRS about whether underreporting occurred. Form 1040x amended return Backup withholding will cause or is causing an undue hardship, and it is unlikely that you will underreport interest and dividends in the future. Form 1040x amended return You have corrected the underreporting by filing a return if you did not previously file one and by paying all taxes, penalties, and interest due for any underreported interest or dividend payments. Form 1040x amended return   If the IRS determines that backup withholding should stop, it will provide you with a certification and will notify the payers who were sent notices earlier. Form 1040x amended return How to stop backup withholding due to an incorrect identification number. Form 1040x amended return   If you have been notified by a payer that you are subject to backup withholding because you have provided an incorrect SSN or employer identification number, you can stop it by following the instructions the payer gives you. Form 1040x amended return Reporting backup withholding. Form 1040x amended return   If backup withholding is deducted from your interest or dividend income or other reportable payment, the bank or other business must give you an information return for the year (for example, a Form 1099-INT) indicating the amount withheld. Form 1040x amended return The information return will show any backup withholding as “Federal income tax withheld. Form 1040x amended return ” Nonresident aliens. Form 1040x amended return    Generally, payments made to nonresident aliens are not subject to backup withholding. Form 1040x amended return You can use Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding, to certify exempt status. Form 1040x amended return However, this does not exempt you from the 30% (or lower treaty) withholding rate that may apply to your investment income. Form 1040x amended return For information on the 30% rate, see Publication 519, U. Form 1040x amended return S. Form 1040x amended return Tax Guide for Aliens. Form 1040x amended return Penalties. Form 1040x amended return   There are civil and criminal penalties for giving false information to avoid backup withholding. Form 1040x amended return The civil penalty is $500. Form 1040x amended return The criminal penalty, upon conviction, is a fine of up to $1,000, or imprisonment of up to 1 year, or both. Form 1040x amended return Where to report investment income. Form 1040x amended return   Table 1-1 gives an overview of the forms and schedules to use to report some common types of investment income. Form 1040x amended return But see the rest of this publication for detailed information about reporting investment income. Form 1040x amended return Joint accounts. Form 1040x amended return   If two or more persons hold property (such as a savings account, bond, or stock) as joint tenants, tenants by the entirety, or tenants in common, each person's share of any interest or dividends from the property is determined by local law. Form 1040x amended return Community property states. Form 1040x amended return   If you are married and receive a distribution that is community income, one-half of the distribution is generally considered to be received by each spouse. Form 1040x amended return If you file separate returns, you must each report one-half of any taxable distribution. Form 1040x amended return See Publication 555, Community Property, for more information on community income. Form 1040x amended return   If the distribution is not considered community property and you and your spouse file separate returns, each of you must report your separate taxable distributions. Form 1040x amended return Example. Form 1040x amended return You and your spouse have a joint money market account. Form 1040x amended return Under state law, half the income from the account belongs to you, and half belongs to your spouse. Form 1040x amended return If you file separate returns, you each report half the income. Form 1040x amended return Income from property given to a child. Form 1040x amended return   Property you give as a parent to your child under the Model Gifts of Securities to Minors Act, the Uniform Gifts to Minors Act, or any similar law becomes the child's property. Form 1040x amended return   Income from the property is taxable to the child, except that any part used to satisfy a legal obligation to support the child is taxable to the parent or guardian having that legal obligation. Form 1040x amended return Savings account with parent as trustee. Form 1040x amended return   Interest income from a savings account opened for a minor child, but placed in the name and subject to the order of the parents as trustees, is taxable to the child if, under the law of the state in which the child resides, both of the following are true. Form 1040x amended return The savings account legally belongs to the child. Form 1040x amended return The parents are not legally permitted to use any of the funds to support the child. Form 1040x amended return Table 1-1. Form 1040x amended return Where To Report Common Types of Investment Income (For detailed information about reporting investment income, see the rest of this publication, especially How To Report Interest Income and How To Report Dividend Income in chapter 1. Form 1040x amended return ) Type of Income If you file Form 1040, report on . Form 1040x amended return . Form 1040x amended return . Form 1040x amended return If you can file Form 1040A, report on . Form 1040x amended return . Form 1040x amended return . Form 1040x amended return If you can file Form 1040EZ, report on . Form 1040x amended return . Form 1040x amended return . Form 1040x amended return Tax-exempt interest (Form 1099-INT, box 8) Line 8b Line 8b Space to the left of line 2 (enter “TEI” and the amount) Taxable interest that totals $1,500 or less Line 8a (You may need to file Schedule B as well. Form 1040x amended return ) Line 8a (You may need to file Schedule B as well. Form 1040x amended return ) Line 2 Taxable interest that totals more than $1,500 Line 8a; also use Schedule B, line 1 Line 8a; also use Schedule B, line 1   Savings bond interest you will exclude because of higher education expenses Schedule B; also use Form 8815 Schedule B; also use Form 8815   Ordinary dividends that total $1,500 or less Line 9a (You may need to file Schedule B as well. Form 1040x amended return ) Line 9a (You may need to file Schedule B as well. Form 1040x amended return )   Ordinary dividends that total more than $1,500 Line 9a; also use Schedule B, line 5 Line 9a; also use Schedule B, line 5   Qualified dividends (if you do not have to file Schedule D) Line 9b; also use the Qualified Dividends and Capital Gain Tax Worksheet, line 2 Line 9b; also use the Qualified Dividends and Capital Gain Tax Worksheet, line 2   Qualified dividends (if you have to file Schedule D) Line 9b; also use the Qualified Dividends and Capital Gain Tax Worksheet or the Schedule D Tax Worksheet, line 2 You cannot use Form 1040A    You cannot use Form 1040EZ Capital gain distributions (if you do not have to file Schedule D) Line 13; also use the Qualified Dividends and Capital Gain Tax Worksheet, line 3 Line 10; also use the Qualified Dividends and Capital Gain Tax Worksheet, line 3   Capital gain distributions (if you have to file Schedule D) Schedule D, line 13; also use the Qualified Dividends and Capital Gain Tax Worksheet or the Schedule D Tax Worksheet     Section 1250, 1202, or collectibles gain (Form 1099-DIV, box 2b, 2c, or 2d) Form 8949 and Schedule D     Nondividend distributions (Form 1099-DIV, box 3) Generally not reported*     Undistributed capital gains (Form 2439, boxes 1a - 1d) Schedule D     Gain or loss from sales of stocks or bonds Line 13; also use Form 8949, Schedule D, and the Qualified Dividends and Capital Gain Tax Worksheet or the Schedule D Tax Worksheet You cannot use Form 1040A   Gain or loss from exchanges of like-kind investment property Line 13; also use Schedule D, Form 8824, and the Qualified Dividends and Capital Gain Tax Worksheet or the Schedule D Tax Worksheet     *Report any amounts in excess of your basis in your mutual fund shares on Form 8949. Form 1040x amended return Use Part II if you held the shares more than 1 year. Form 1040x amended return Use Part I if you held your mutual fund shares 1 year or less. Form 1040x amended return For details on Form 8949, see Reporting Capital Gains and Losses in chapter 4, and the Instructions for Form 8949. Form 1040x amended return Accuracy-related penalty. Form 1040x amended return   An accuracy-related penalty of 20% can be charged for underpayments of tax due to negligence or disregard of rules or regulations or substantial understatement of tax. Form 1040x amended return For information on the penalty and any interest that applies, see Penalties in chapter 2. Form 1040x amended return Interest Income This section discusses the tax treatment of different types of interest income. Form 1040x amended return In general, any interest that you receive or that is credited to your account and can be withdrawn is taxable income. Form 1040x amended return (It does not have to be entered in your passbook. Form 1040x amended return ) Exceptions to this rule are discussed later. Form 1040x amended return Form 1099-INT. Form 1040x amended return   Interest income is generally reported to you on Form 1099-INT, or a similar statement, by banks, savings and loans, and other payers of interest. Form 1040x amended return This form shows you the interest you received during the year. Form 1040x amended return Keep this form for your records. Form 1040x amended return You do not have to attach it to your tax return. Form 1040x amended return   Report on your tax return the total interest income you receive for the tax year. Form 1040x amended return Interest not reported on Form 1099-INT. Form 1040x amended return   Even if you do not receive Form 1099-INT, you must still report all of your interest income. Form 1040x amended return For example, you may receive distributive shares of interest from partnerships or S corporations. Form 1040x amended return This interest is reported to you on Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc. Form 1040x amended return , and Schedule K-1 (Form 1120S), Shareholder's Share of Income, Deductions, Credits, etc. Form 1040x amended return Nominees. Form 1040x amended return   Generally, if someone receives interest as a nominee for you, that person must give you a Form 1099-INT showing the interest received on your behalf. Form 1040x amended return   If you receive a Form 1099-INT that includes amounts belonging to another person, see the discussion on Nominee distributions , later, under How To Report Interest Income. Form 1040x amended return Incorrect amount. Form 1040x amended return   If you receive a Form 1099-INT that shows an incorrect amount (or other incorrect information), you should ask the issuer for a corrected form. Form 1040x amended return The new Form 1099-INT you receive will be marked “Corrected. Form 1040x amended return ” Form 1099-OID. Form 1040x amended return   Reportable interest income also may be shown on Form 1099-OID, Original Issue Discount. Form 1040x amended return For more information about amounts shown on this form, see Original Issue Discount (OID) , later in this chapter. Form 1040x amended return Exempt-interest dividends. Form 1040x amended return   Exempt-interest dividends you receive from a mutual fund or other regulated investment company, including those received from a qualified fund of funds in any tax year beginning after December 22, 2010, are not included in your taxable income. Form 1040x amended return (However, see Information reporting requirement , next. Form 1040x amended return ) Exempt-interest dividends should be shown in box 10 of Form 1099-DIV. Form 1040x amended return You do not reduce your basis for distributions that are exempt-interest dividends. Form 1040x amended return Information reporting requirement. Form 1040x amended return   Although exempt-interest dividends are not taxable, you must show them on your tax return if you have to file. Form 1040x amended return This is an information reporting requirement and does not change the exempt-interest dividends into taxable income. Form 1040x amended return See How To Report Interest Income , later. Form 1040x amended return Note. Form 1040x amended return Exempt-interest dividends paid from specified private activity bonds may be subject to the alternative minimum tax. Form 1040x amended return The exempt-interest dividends subject to the alternative minimum tax are shown in box 11 of Form 1099-DIV. Form 1040x amended return See Form 6251 and its instructions for more information about this tax. Form 1040x amended return Private activity bonds are discussed later under State or Local Government Obligations. Form 1040x amended return Interest on VA dividends. Form 1040x amended return   Interest on insurance dividends left on deposit with the Department of Veterans Affairs (VA) is not taxable. Form 1040x amended return This includes interest paid on dividends on converted United States Government Life Insurance policies and on National Service Life Insurance policies. Form 1040x amended return Individual retirement arrangements (IRAs). Form 1040x amended return   Interest on a Roth IRA generally is not taxable. Form 1040x amended return Interest on a traditional IRA is tax deferred. Form 1040x amended return You generally do not include it in your income until you make withdrawals from the IRA. Form 1040x amended return See Publication 590 for more information. Form 1040x amended return Taxable Interest — General Taxable interest includes interest you receive from bank accounts, loans you make to others, and other sources. Form 1040x amended return The following are some sources of taxable interest. Form 1040x amended return Dividends that are actually interest. Form 1040x amended return   Certain distributions commonly called dividends are actually interest. Form 1040x amended return You must report as interest so-called “dividends” on deposits or on share accounts in: Cooperative banks, Credit unions, Domestic building and loan associations, Domestic savings and loan associations, Federal savings and loan associations, and Mutual savings banks. Form 1040x amended return  The “dividends” will be shown as interest income on Form 1099-INT. Form 1040x amended return Money market funds. Form 1040x amended return   Money market funds are offered by nonbank financial institutions such as mutual funds and stock brokerage houses, and pay dividends. Form 1040x amended return Generally, amounts you receive from money market funds should be reported as dividends, not as interest. Form 1040x amended return Certificates of deposit and other deferred interest accounts. Form 1040x amended return   If you open any of these accounts, interest may be paid at fixed intervals of 1 year or less during the term of the account. Form 1040x amended return You generally must include this interest in your income when you actually receive it or are entitled to receive it without paying a substantial penalty. Form 1040x amended return The same is true for accounts that mature in 1 year or less and pay interest in a single payment at maturity. Form 1040x amended return If interest is deferred for more than 1 year, see Original Issue Discount (OID) , later. Form 1040x amended return Interest subject to penalty for early withdrawal. Form 1040x amended return   If you withdraw funds from a deferred interest account before maturity, you may have to pay a penalty. Form 1040x amended return You must report the total amount of interest paid or credited to your account during the year, without subtracting the penalty. Form 1040x amended return See Penalty on early withdrawal of savings under How To Report Interest Income, later, for more information on how to report the interest and deduct the penalty. Form 1040x amended return Money borrowed to invest in certificate of deposit. Form 1040x amended return   The interest you pay on money borrowed from a bank or savings institution to meet the minimum deposit required for a certificate of deposit from the institution and the interest you earn on the certificate are two separate items. Form 1040x amended return You must report the total interest you earn on the certificate in your income. Form 1040x amended return If you itemize deductions, you can deduct the interest you pay as investment interest, up to the amount of your net investment income. Form 1040x amended return See Interest Expenses in chapter 3. Form 1040x amended return Example. Form 1040x amended return You deposited $5,000 with a bank and borrowed $5,000 from the bank to make up the $10,000 minimum deposit required to buy a 6-month certificate of deposit. Form 1040x amended return The certificate earned $575 at maturity in 2013, but you received only $265, which represented the $575 you earned minus $310 interest charged on your $5,000 loan. Form 1040x amended return The bank gives you a Form 1099-INT for 2013 showing the $575 interest you earned. Form 1040x amended return The bank also gives you a statement showing that you paid $310 interest for 2013. Form 1040x amended return You must include the $575 in your income. Form 1040x amended return If you itemize your deductions on Schedule A (Form 1040), Itemized Deductions, you can deduct $310, subject to the net investment income limit. Form 1040x amended return Gift for opening account. Form 1040x amended return   If you receive noncash gifts or services for making deposits or for opening an account in a savings institution, you may have to report the value as interest. Form 1040x amended return   For deposits of less than $5,000, gifts or services valued at more than $10 must be reported as interest. Form 1040x amended return For deposits of $5,000 or more, gifts or services valued at more than $20 must be reported as interest. Form 1040x amended return The value is determined by the cost to the financial institution. Form 1040x amended return Example. Form 1040x amended return You open a savings account at your local bank and deposit $800. Form 1040x amended return The account earns $20 interest. Form 1040x amended return You also receive a $15 calculator. Form 1040x amended return If no other interest is credited to your account during the year, the Form 1099-INT you receive will show $35 interest for the year. Form 1040x amended return You must report $35 interest income on your tax return. Form 1040x amended return Interest on insurance dividends. Form 1040x amended return   Interest on insurance dividends left on deposit with an insurance company that can be withdrawn annually is taxable to you in the year it is credited to your account. Form 1040x amended return However, if you can withdraw it only on the anniversary date of the policy (or other specified date), the interest is taxable in the year that date occurs. Form 1040x amended return Prepaid insurance premiums. Form 1040x amended return   Any increase in the value of prepaid insurance premiums, advance premiums, or premium deposit funds is interest if it is applied to the payment of premiums due on insurance policies or made available for you to withdraw. Form 1040x amended return U. Form 1040x amended return S. Form 1040x amended return obligations. Form 1040x amended return   Interest on U. Form 1040x amended return S. Form 1040x amended return obligations, such as U. Form 1040x amended return S. Form 1040x amended return Treasury bills, notes, and bonds, issued by any agency or instrumentality of the United States is taxable for federal income tax purposes. Form 1040x amended return Interest on tax refunds. Form 1040x amended return   Interest you receive on tax refunds is taxable income. Form 1040x amended return Interest on condemnation award. Form 1040x amended return   If the condemning authority pays you interest to compensate you for a delay in payment of an award, the interest is taxable. Form 1040x amended return Installment sale payments. Form 1040x amended return   If a contract for the sale or exchange of property provides for deferred payments, it also usually provides for interest payable with the deferred payments. Form 1040x amended return That interest is taxable when you receive it. Form 1040x amended return If little or no interest is provided for in a deferred payment contract, part of each payment may be treated as interest. Form 1040x amended return See Unstated Interest and Original Issue Discount (OID) in Publication 537. Form 1040x amended return Interest on annuity contract. Form 1040x amended return   Accumulated interest on an annuity contract you sell before its maturity date is taxable. Form 1040x amended return Usurious interest. Form 1040x amended return   Usurious interest is interest charged at an illegal rate. Form 1040x amended return This is taxable as interest unless state law automatically changes it to a payment on the principal. Form 1040x amended return Interest income on frozen deposits. Form 1040x amended return   Exclude from your gross income interest on frozen deposits. Form 1040x amended return A deposit is frozen if, at the end of the year, you cannot withdraw any part of the deposit because: The financial institution is bankrupt or insolvent, or The state in which the institution is located has placed limits on withdrawals because other financial institutions in the state are bankrupt or insolvent. Form 1040x amended return   The amount of interest you must exclude is the interest that was credited on the frozen deposits minus the sum of: The net amount you withdrew from these deposits during the year, and The amount you could have withdrawn as of the end of the year (not reduced by any penalty for premature withdrawals of a time deposit). Form 1040x amended return If you receive a Form 1099-INT for interest income on deposits that were frozen at the end of 2013, see Frozen deposits under How To Report Interest Income for information about reporting this interest income exclusion on your tax return. Form 1040x amended return   The interest you exclude is treated as credited to your account in the following year. Form 1040x amended return You must include it in income in the year you can withdraw it. Form 1040x amended return Example. Form 1040x amended return $100 of interest was credited on your frozen deposit during the year. Form 1040x amended return You withdrew $80 but could not withdraw any more as of the end of the year. Form 1040x amended return You must include $80 in your income and exclude $20 from your income for the year. Form 1040x amended return You must include the $20 in your income for the year you can withdraw it. Form 1040x amended return Bonds traded flat. Form 1040x amended return    If you buy a bond at a discount when interest has been defaulted or when the interest has accrued but has not been paid, the transaction is described as trading a bond flat. Form 1040x amended return The defaulted or unpaid interest is not income and is not taxable as interest if paid later. Form 1040x amended return When you receive a payment of that interest, it is a return of capital that reduces the remaining cost basis of your bond. Form 1040x amended return Interest that accrues after the date of purchase, however, is taxable interest income for the year received or accrued. Form 1040x amended return See Bonds Sold Between Interest Dates , later in this chapter. Form 1040x amended return Below-Market Loans If you make a below-market gift or demand loan, you must report as interest income any forgone interest (defined later) from that loan. Form 1040x amended return The below-market loan rules and exceptions are described in this section. Form 1040x amended return For more information, see section 7872 of the Internal Revenue Code and its regulations. Form 1040x amended return If you receive a below-market loan, you may be able to deduct the forgone interest as well as any interest you actually paid, but not if it is personal interest. Form 1040x amended return Loans subject to the rules. Form 1040x amended return   The rules for below-market loans apply to: Gift loans, Pay-related loans, Corporation-shareholder loans, Tax avoidance loans, and Certain loans made to qualified continuing care facilities under a continuing care contract. Form 1040x amended return A pay-related loan is any below-market loan between an employer and an employee or between an independent contractor and a person for whom the contractor provides services. Form 1040x amended return A tax avoidance loan is any below-market loan where the avoidance of federal tax is one of the main purposes of the interest arrangement. Form 1040x amended return Forgone interest. Form 1040x amended return   For any period, forgone interest is: The amount of interest that would be payable for that period if interest accrued on the loan at the applicable federal rate and was payable annually on December 31, minus Any interest actually payable on the loan for the period. Form 1040x amended return Applicable federal rate. Form 1040x amended return   Applicable federal rates are published by the IRS each month in the Internal Revenue Bulletin. Form 1040x amended return Some IRS offices have these bulletins available for research. Form 1040x amended return See chapter 5, How To Get Tax Help , for other ways to get this information. Form 1040x amended return Rules for below-market loans. Form 1040x amended return   The rules that apply to a below-market loan depend on whether the loan is a gift loan, demand loan, or term loan. Form 1040x amended return Gift and demand loans. Form 1040x amended return   A gift loan is any below-market loan where the forgone interest is in the nature of a gift. Form 1040x amended return   A demand loan is a loan payable in full at any time upon demand by the lender. Form 1040x amended return A demand loan is a below-market loan if no interest is charged or if interest is charged at a rate below the applicable federal rate. Form 1040x amended return   A demand loan or gift loan that is a below-market loan is generally treated as an arm's-length transaction in which the lender is treated as having made: A loan to the borrower in exchange for a note that requires the payment of interest at the applicable federal rate, and An additional payment to the borrower in an amount equal to the forgone interest. Form 1040x amended return The borrower is generally treated as transferring the additional payment back to the lender as interest. Form 1040x amended return The lender must report that amount as interest income. Form 1040x amended return   The lender's additional payment to the borrower is treated as a gift, dividend, contribution to capital, pay for services, or other payment, depending on the substance of the transaction. Form 1040x amended return The borrower may have to report this payment as taxable income, depending on its classification. Form 1040x amended return These transfers are considered to occur annually, generally on December 31. Form 1040x amended return Term loans. Form 1040x amended return   A term loan is any loan that is not a demand loan. Form 1040x amended return A term loan is a below-market loan if the amount of the loan is more than the present value of all payments due under the loan. Form 1040x amended return   A lender who makes a below-market term loan other than a gift loan is treated as transferring an additional lump-sum cash payment to the borrower (as a dividend, contribution to capital, etc. Form 1040x amended return ) on the date the loan is made. Form 1040x amended return The amount of this payment is the amount of the loan minus the present value, at the applicable federal rate, of all payments due under the loan. Form 1040x amended return An equal amount is treated as original issue discount (OID). Form 1040x amended return The lender must report the annual part of the OID as interest income. Form 1040x amended return The borrower may be able to deduct the OID as interest expense. Form 1040x amended return See Original Issue Discount (OID) , later. Form 1040x amended return Exceptions to the below-market loan rules. Form 1040x amended return   Exceptions to the below-market loan rules are discussed here. Form 1040x amended return Exception for loans of $10,000 or less. Form 1040x amended return   The rules for below-market loans do not apply to any day on which the total outstanding amount of loans between the borrower and lender is $10,000 or less. Form 1040x amended return This exception applies only to: Gift loans between individuals if the gift loan is not directly used to buy or carry income-producing assets, and Pay-related loans or corporation-shareholder loans if the avoidance of federal tax is not a principal purpose of the interest arrangement. Form 1040x amended return This exception does not apply to a term loan described in (2) earlier that previously has been subject to the below-market loan rules. Form 1040x amended return Those rules will continue to apply even if the outstanding balance is reduced to $10,000 or less. Form 1040x amended return Exception for loans to continuing care facilities. Form 1040x amended return   Loans to qualified continuing care facilities under continuing care contracts are not subject to the rules for below-market loans for the calendar year if the lender or the lender's spouse is age 62 or older at the end of the year. Form 1040x amended return For the definitions of qualified continuing care facility and continuing care contract, see Internal Revenue Code section 7872(h). Form 1040x amended return Exception for loans without significant tax effect. Form 1040x amended return   Loans are excluded from the below-market loan rules if their interest arrangements do not have a significant effect on the federal tax liability of the borrower or the lender. Form 1040x amended return These loans include: Loans made available by the lender to the general public on the same terms and conditions that are consistent with the lender's customary business practice; Loans subsidized by a federal, state, or municipal government that are made available under a program of general application to the public; Certain employee-relocation loans; Certain loans from a foreign person, unless the interest income would be effectively connected with the conduct of a U. Form 1040x amended return S. Form 1040x amended return trade or business and would not be exempt from U. Form 1040x amended return S. Form 1040x amended return tax under an income tax treaty; Gift loans to a charitable organization, contributions to which are deductible, if the total outstanding amount of loans between the organization and lender is $250,000 or less at all times during the tax year; and Other loans on which the interest arrangement can be shown to have no significant effect on the federal tax liability of the lender or the borrower. Form 1040x amended return For a loan described in (6) above, all the facts and circumstances are used to determine if the interest arrangement has a significant effect on the federal tax liability of the lender or borrower. Form 1040x amended return Some factors to be considered are: Whether items of income and deduction generated by the loan offset each other; The amount of these items; The cost to you of complying with the below-market loan rules, if they were to apply; and Any reasons other than taxes for structuring the transaction as a below-market loan. Form 1040x amended return If you structure a transaction to meet this exception and one of the principal purposes of that structure is the avoidance of federal tax, the loan will be considered a tax-avoidance loan, and this exception will not apply. Form 1040x amended return Limit on forgone interest for gift loans of $100,000 or less. Form 1040x amended return   For gift loans between individuals, if the outstanding loans between the lender and borrower total $100,000 or less, the forgone interest to be included in income by the lender and deducted by the borrower is limited to the amount of the borrower's net investment income for the year. Form 1040x amended return If the borrower's net investment income is $1,000 or less, it is treated as zero. Form 1040x amended return This limit does not apply to a loan if the avoidance of federal tax is one of the main purposes of the interest arrangement. Form 1040x amended return Effective dates. Form 1040x amended return    These rules apply to term loans made after June 6, 1984, and to demand loans outstanding after that date. Form 1040x amended return U. Form 1040x amended return S. Form 1040x amended return Savings Bonds This section provides tax information on U. Form 1040x amended return S. Form 1040x amended return savings bonds. Form 1040x amended return It explains how to report the interest income on these bonds and how to treat transfers of these bonds. Form 1040x amended return U. Form 1040x amended return S. Form 1040x amended return savings bonds currently offered to individuals include Series EE bonds and Series I bonds. Form 1040x amended return For other information on U. Form 1040x amended return S. Form 1040x amended return savings bonds, write to:  For Series HH/H: Bureau of the Fiscal Service Division of Customer Assistance P. Form 1040x amended return O. Form 1040x amended return Box 2186 Parkersburg, WV 26106-2186  For Series EE and I paper savings bonds: Bureau of the Fiscal Service Division of Customer Assistance P. Form 1040x amended return O. Form 1040x amended return Box 7012 Parkersburg, WV 26106-7012  For Series EE and I electronic bonds: Bureau of the Fiscal Service  Division of Customer Assistance P. Form 1040x amended return O. Form 1040x amended return Box 7015 Parkersburg, WV 26106-7015 Or, on the Internet, visit: www. Form 1040x amended return treasurydirect. Form 1040x amended return gov/indiv/indiv. Form 1040x amended return htm. Form 1040x amended return Accrual method taxpayers. Form 1040x amended return   If you use an accrual method of accounting, you must report interest on U. Form 1040x amended return S. Form 1040x amended return savings bonds each year as it accrues. Form 1040x amended return You cannot postpone reporting interest until you receive it or until the bonds mature. Form 1040x amended return Cash method taxpayers. Form 1040x amended return   If you use the cash method of accounting, as most individual taxpayers do, you generally report the interest on U. Form 1040x amended return S. Form 1040x amended return savings bonds when you receive it. Form 1040x amended return But see Reporting options for cash method taxpayers , later. Form 1040x amended return Series HH bonds. Form 1040x amended return   These bonds were issued at face value. Form 1040x amended return Interest is paid twice a year by direct deposit to your bank account. Form 1040x amended return If you are a cash method taxpayer, you must report interest on these bonds as income in the year you receive it. Form 1040x amended return   Series HH bonds were first offered in 1980 and last offered in August 2004. Form 1040x amended return Before 1980, series H bonds were issued. Form 1040x amended return Series H bonds are treated the same as series HH bonds. Form 1040x amended return If you are a cash method taxpayer, you must report the interest when you receive it. Form 1040x amended return   Series H bonds have a maturity period of 30 years. Form 1040x amended return Series HH bonds mature in 20 years. Form 1040x amended return The last series H bonds matured in 2009. Form 1040x amended return The last series HH bonds will mature in 2024. Form 1040x amended return Series EE and series I bonds. Form 1040x amended return   Interest on these bonds is payable when you redeem the bonds. Form 1040x amended return The difference between the purchase price and the redemption value is taxable interest. Form 1040x amended return Series EE bonds. Form 1040x amended return   Series EE bonds were first offered in January 1980 and have a maturity period of 30 years. Form 1040x amended return Before July 1980, series E bonds were issued. Form 1040x amended return The original 10-year maturity period of series E bonds has been extended to 40 years for bonds issued before December 1965 and 30 years for bonds issued after November 1965. Form 1040x amended return Paper series EE and series E bonds are issued at a discount. Form 1040x amended return The face value is payable to you at maturity. Form 1040x amended return Electronic series EE bonds are issued at their face value. Form 1040x amended return The face value plus accrued interest is payable to you at maturity. Form 1040x amended return As of January 1, 2012, paper savings bonds were no longer sold at financial institutions. Form 1040x amended return    Owners of paper series EE bonds can convert them to electronic bonds. Form 1040x amended return These converted bonds do not retain the denomination listed on the paper certificate but are posted at their purchase price (with accrued interest). Form 1040x amended return Series I bonds. Form 1040x amended return   Series I bonds were first offered in 1998. Form 1040x amended return These are inflation-indexed bonds issued at their face amount with a maturity period of 30 years. Form 1040x amended return The face value plus all accrued interest is payable to you at maturity. Form 1040x amended return Reporting options for cash method taxpayers. Form 1040x amended return   If you use the cash method of reporting income, you can report the interest on series EE, series E, and series I bonds in either of the following ways. Form 1040x amended return Method 1. Form 1040x amended return Postpone reporting the interest until the earlier of the year you cash or dispose of the bonds or the year in which they mature. Form 1040x amended return (However, see Savings bonds traded , later. Form 1040x amended return )  Note. Form 1040x amended return Series EE bonds issued in 1983 matured in 2013. Form 1040x amended return If you have used method 1, you generally must report the interest on these bonds on your 2013 return. Form 1040x amended return The last series E bonds were issued in 1980 and matured in 2010. Form 1040x amended return If you used method 1, you generally should have reported the interest on these bonds on your 2010 return. Form 1040x amended return Method 2. Form 1040x amended return Choose to report the increase in redemption value as interest each year. Form 1040x amended return  You must use the same method for all series EE, series E, and series I bonds you own. Form 1040x amended return If you do not choose method 2 by reporting the increase in redemption value as interest each year, you must use method 1. Form 1040x amended return If you plan to cash your bonds in the same year you will pay for higher educational expenses, you may want to use method 1 because you may be able to exclude the interest from your income. Form 1040x amended return To learn how, see Education Savings Bond Program, later. Form 1040x amended return Change from method 1. Form 1040x amended return   If you want to change your method of reporting the interest from method 1 to method 2, you can do so without permission from the IRS. Form 1040x amended return In the year of change, you must report all interest accrued to date and not previously reported for all your bonds. Form 1040x amended return   Once you choose to report the interest each year, you must continue to do so for all series EE, series E, and series I bonds you own and for any you get later, unless you request permission to change, as explained next. Form 1040x amended return Change from method 2. Form 1040x amended return   To change from method 2 to method 1, you must request permission from the IRS. Form 1040x amended return Permission for the change is automatically granted if you send the IRS a statement that meets all the following requirements. Form 1040x amended return You have typed or printed the following number at the top: “131. Form 1040x amended return ” It includes your name and social security number under “131. Form 1040x amended return ” It includes the year of change (both the beginning and ending dates). Form 1040x amended return It identifies the savings bonds for which you are requesting this change. Form 1040x amended return It includes your agreement to: Report all interest on any bonds acquired during or after the year of change when the interest is realized upon disposition, redemption, or final maturity, whichever is earliest; and Report all interest on the bonds acquired before the year of change when the interest is realized upon disposition, redemption, or final maturity, whichever is earliest, with the exception of the interest reported in prior tax years. Form 1040x amended return   You must attach this statement to your tax return for the year of change, which you must file by the due date (including extensions). Form 1040x amended return   You can have an automatic extension of 6 months from the due date of your return for the year of change (excluding extensions) to file the statement with an amended return. Form 1040x amended return On the statement, type or print “Filed pursuant to section 301. Form 1040x amended return 9100-2. Form 1040x amended return ” To get this extension, you must have filed your original return for the year of the change by the due date (including extensions). Form 1040x amended return    By the date you file the original statement with your return, you must also send a signed copy to the address below. Form 1040x amended return    Internal Revenue Service Attention: CC:IT&A (Automatic Rulings Branch) P. Form 1040x amended return O. Form 1040x amended return Box 7604 Benjamin Franklin Station Washington, DC 20044   If you use a private delivery service, send the signed copy to the address below. Form 1040x amended return Internal Revenue Service Attention: CC:IT&A  (Automatic Rulings Branch) Room 5336 1111 Constitution Avenue, NW Washington, DC 20224    Instead of filing this statement, you can request permission to change from method 2 to method 1 by filing Form 3115. Form 1040x amended return In that case, follow the form instructions for an automatic change. Form 1040x amended return No user fee is required. Form 1040x amended return Co-owners. Form 1040x amended return   If a U. Form 1040x amended return S. Form 1040x amended return savings bond is issued in the names of co-owners, such as you and your child or you and your spouse, interest on the bond is generally taxable to the co-owner who bought the bond. Form 1040x amended return One co-owner's funds used. Form 1040x amended return   If you used your funds to buy the bond, you must pay the tax on the interest. Form 1040x amended return This is true even if you let the other co-owner redeem the bond and keep all the proceeds. Form 1040x amended return Under these circumstances, the co-owner who redeemed the bond will receive a Form 1099-INT at the time of redemption and must provide you with another Form 1099-INT showing the amount of interest from the bond taxable to you. Form 1040x amended return The co-owner who redeemed the bond is a “nominee. Form 1040x amended return ” See Nominee distributions under How To Report Interest Income, later, for more information about how a person who is a nominee reports interest income belonging to another person. Form 1040x amended return Both co-owners' funds used. Form 1040x amended return   If you and the other co-owner each contribute part of the bond's purchase price, the interest is generally taxable to each of you, in proportion to the amount each of you paid. Form 1040x amended return Community property. Form 1040x amended return   If you and your spouse live in a community property state and hold bonds as community property, one-half of the interest is considered received by each of you. Form 1040x amended return If you file separate returns, each of you generally must report one-half of the bond interest. Form 1040x amended return For more information about community property, see Publication 555. Form 1040x amended return Table 1-2. Form 1040x amended return   These rules are also shown in Table 1-2. Form 1040x amended return Child as only owner. Form 1040x amended return   Interest on U. Form 1040x amended return S. Form 1040x amended return savings bonds bought for and registered only in the name of your child is income to your child, even if you paid for the bonds and are named as beneficiary. Form 1040x amended return If the bonds are series EE, series E, or series I bonds, the interest on the bonds is income to your child in the earlier of the year the bonds are cashed or disposed of or the year the bonds mature, unless your child chooses to report the interest income each year. Form 1040x amended return Choice to report interest each year. Form 1040x amended return   The choice to report the accrued interest each year can be made either by your child or by you for your child. Form 1040x amended return This choice is made by filing an income tax return that shows all the interest earned to date, and by stating on the return that your child chooses to report the interest each year. Form 1040x amended return Either you or your child should keep a copy of this return. Form 1040x amended return   Unless your child is otherwise required to file a tax return for any year after making this choice, your child does not have to file a return only to report the annual accrual of U. Form 1040x amended return S. Form 1040x amended return savings bond interest under this choice. Form 1040x amended return However, see Tax on unearned income of certain children , earlier, under General Information. Form 1040x amended return Neither you nor your child can change the way you report the interest unless you request permission from the IRS, as discussed earlier under Change from method 2 . Form 1040x amended return Ownership transferred. Form 1040x amended return   If you bought series E, series EE, or series I bonds entirely with your own funds and had them reissued in your co-owner's name or beneficiary's name alone, you must include in your gross income for the year of reissue all interest that you earned on these bonds and have not previously reported. Form 1040x amended return But, if the bonds were reissued in your name alone, you do not have to report the interest accrued at that time. Form 1040x amended return   This same rule applies when bonds (other than bonds held as community property) are transferred between spouses or incident to divorce. Form 1040x amended return Example. Form 1040x amended return You bought series EE bonds entirely with your own funds. Form 1040x amended return You did not choose to report the accrued interest each year. Form 1040x amended return Later, you transfer the bonds to your former spouse under a divorce agreement. Form 1040x amended return You must include the deferred accrued interest, from the date of the original issue of the bonds to the date of transfer, in your income in the year of transfer. Form 1040x amended return Your former spouse includes in income the interest on the bonds from the date of transfer to the date of redemption. Form 1040x amended return Table 1-2. Form 1040x amended return Who Pays the Tax on U. Form 1040x amended return S. Form 1040x amended return Savings Bond Interest IF . Form 1040x amended return . Form 1040x amended return . Form 1040x amended return THEN the interest must be reported by . Form 1040x amended return . Form 1040x amended return . Form 1040x amended return you buy a bond in your name and the name of another person as co-owners, using only your own funds you. Form 1040x amended return you buy a bond in the name of another person, who is the sole owner of the bond the person for whom you bought the bond. Form 1040x amended return you and another person buy a bond as co-owners, each contributing part of the purchase price both you and the other co-owner, in proportion to the amount each paid for the bond. Form 1040x amended return you and your spouse, who live in a community property state, buy a bond that is community property you and your spouse. Form 1040x amended return If you file separate returns, both you and your spouse generally report one-half of the interest. Form 1040x amended return Purchased jointly. Form 1040x amended return   If you and a co-owner each contributed funds to buy series E, series EE, or series I bonds jointly and later have the bonds reissued in the co-owner's name alone, you must include in your gross income for the year of reissue your share of all the interest earned on the bonds that you have not previously reported. Form 1040x amended return The former co-owner does not have to include in gross income at the time of reissue his or her share of the interest earned that was not reported before the transfer. Form 1040x amended return This interest, however, as well as all interest earned after the reissue, is income to the former co-owner. Form 1040x amended return   This income-reporting rule also applies when the bonds are reissued in the name of your former co-owner and a new co-owner. Form 1040x amended return But the new co-owner will report only his or her share of the interest earned after the transfer. Form 1040x amended return   If bonds that you and a co-owner bought jointly are reissued to each of you separately in the same proportion as your contribution to the purchase price, neither you nor your co-owner has to report at that time the interest earned before the bonds were reissued. Form 1040x amended return Example 1. Form 1040x amended return You and your spouse each spent an equal amount to buy a $1,000 series EE savings bond. Form 1040x amended return The bond was issued to you and your spouse as co-owners. Form 1040x amended return You both postpone reporting interest on the bond. Form 1040x amended return You later have the bond reissued as two $500 bonds, one in your name and one in your spouse's name. Form 1040x amended return At that time neither you nor your spouse has to report the interest earned to the date of reissue. Form 1040x amended return Example 2. Form 1040x amended return You bought a $1,000 series EE savings bond entirely with your own funds. Form 1040x amended return The bond was issued to you and your spouse as co-owners. Form 1040x amended return You both postponed reporting interest on the bond. Form 1040x amended return You later have the bond reissued as two $500 bonds, one in your name and one in your spouse's name. Form 1040x amended return You must report half the interest earned to the date of reissue. Form 1040x amended return Transfer to a trust. Form 1040x amended return   If you own series E, series EE, or series I bonds and transfer them to a trust, giving up all rights of ownership, you must include in your income for that year the interest earned to the date of transfer if you have not already reported it. Form 1040x amended return However, if you are considered the owner of the trust and if the increase in value both before and after the transfer continues to be taxable to you, you can continue to defer reporting the interest earned each year. Form 1040x amended return You must include the total interest in your income in the year you cash or dispose of the bonds or the year the bonds finally mature, whichever is earlier. Form 1040x amended return   The same rules apply to previously unreported interest on series EE or series E bonds if the transfer to a trust consisted of series HH or series H bonds you acquired in a trade for the series EE or series E bonds. Form 1040x amended return See Savings bonds traded , later. Form 1040x amended return Decedents. Form 1040x amended return   The manner of reporting interest income on series E, series EE, or series I bonds, after the death of the owner (decedent), depends on the accounting and income-reporting methods previously used by the decedent. Form 1040x amended return Decedent who reported interest each year. Form 1040x amended return   If the bonds transferred because of death were owned by a person who used an accrual method, or who used the cash method and had chosen to report the interest each year, the interest earned in the year of death up to the date of death must be reported on that person's final return. Form 1040x amended return The person who acquires the bonds includes in income only interest earned after the date of death. Form 1040x amended return Decedent who postponed reporting interest. Form 1040x amended return   If the transferred bonds were owned by a decedent who had used the cash method and had not chosen to report the interest each year, and who had bought the bonds entirely with his or her own funds, all interest earned before death must be reported in one of the following ways. Form 1040x amended return The surviving spouse or personal representative (executor, administrator, etc. Form 1040x amended return ) who files the final income tax return of the decedent can choose to include on that return all interest earned on the bonds before the decedent's death. Form 1040x amended return The person who acquires the bonds then includes in income only interest earned after the date of death. Form 1040x amended return If the choice in (1) is not made, the interest earned up to the date of death is income in respect of the decedent and should not be included in the decedent's final return. Form 1040x amended return All interest earned both before and after the decedent's death (except any part reported by the estate on its income tax return) is income to the person who acquires the bonds. Form 1040x amended return If that person uses the cash method and does not choose to report the interest each year, he or she can postpone reporting it until the year the bonds are cashed or disposed of or the year they mature, whichever is earlier. Form 1040x amended return In the year that person reports the interest, he or she can claim a deduction for any federal estate tax paid on the part of the interest included in the decedent's estate. Form 1040x amended return For more information on income in respect of a decedent, see Publication 559, Survivors, Executors, and Administrators. Form 1040x amended return Example 1. Form 1040x amended return Your uncle, a cash method taxpayer, died and left you a $1,000 series EE bond. Form 1040x amended return He had bought the bond for $500 and had not chosen to report the interest each year. Form 1040x amended return At the date of death, interest of $200 had accrued on the bond, and its value of $700 was included in your uncle's estate. Form 1040x amended return Your uncle's executor chose not to include the $200 accrued interest in your uncle's final income tax return. Form 1040x amended return The $200 is income in respect of the decedent. Form 1040x amended return You are a cash method taxpayer and do not choose to report the interest each year as it is earned. Form 1040x amended return If you cash the bond when it reaches maturity value of $1,000, you report $500 interest income—the difference between maturity value of $1,000 and the original cost of $500. Form 1040x amended return For that year, you can deduct (as a miscellaneous itemized deduction not subject to the 2%-of-adjusted-gross-income limit) any federal estate tax paid because the $200 interest was included in your uncle's estate. Form 1040x amended return Example 2. Form 1040x amended return If, in Example 1 , the executor had chosen to include the $200 accrued interest in your uncle's final return, you would report only $300 as interest when you cashed the bond at maturity. Form 1040x amended return $300 is the interest earned after your uncle's death. Form 1040x amended return Example 3. Form 1040x amended return If, in Example 1 , you make or have made the choice to report the increase in redemption value as interest each year, you include in gross income for the year you acquire the bond all of the unreported increase in value of all series E, series EE, and series I bonds you hold, including the $200 on the bond you inherited from your uncle. Form 1040x amended return Example 4. Form 1040x amended return When your aunt died, she owned series HH bonds that she had acquired in a trade for series EE bonds. Form 1040x amended return You were the beneficiary of these bonds. Form 1040x amended return Your aunt used the cash method and did not choose to report the interest on the series EE bonds each year as it accrued. Form 1040x amended return Your aunt's executor chose not to include any interest earned before your aunt's death on her final return. Form 1040x amended return The income in respect of the decedent is the sum of the unreported interest on the series EE bonds and the interest, if any, payable on the series HH bonds but not received as of the date of your aunt's death. Form 1040x amended return You must report any interest received during the year as income on your return. Form 1040x amended return The part of the interest payable but not received before your aunt's death is income in respect of the decedent and may qualify for the estate tax deduction. Form 1040x amended return For information on when to report the interest on the series EE bonds traded, see Savings bonds traded , later. Form 1040x amended return Savings bonds distributed from a retirement or profit-sharing plan. Form 1040x amended return   If you acquire a U. Form 1040x amended return S. Form 1040x amended return savings bond in a taxable distribution from a retirement or profit-sharing plan, your income for the year of distribution includes the bond's redemption value (its cost plus the interest accrued before the distribution). Form 1040x amended return When you redeem the bond (whether in the year of distribution or later), your interest income includes only the interest accrued after the bond was distributed. Form 1040x amended return To figure the interest reported as a taxable distribution and your interest income when you redeem the bond, see Worksheet for savings bonds distributed from a retirement or profit-sharing plan under How To Report Interest Income, later. Form 1040x amended return Savings bonds traded. Form 1040x amended return   If you postponed reporting the interest on your series EE or series E bonds, you did not recognize taxable income when you traded the bonds for series HH or series H bonds, unless you received cash in the trade. Form 1040x amended return (You cannot trade series I bonds for series HH bonds. Form 1040x amended return After August 31, 2004, you cannot trade any other series of bonds for series HH bonds. Form 1040x amended return ) Any cash you received is income up to the amount of the interest earned on the bonds traded. Form 1040x amended return When your series HH or series H bonds mature, or if you dispose of them before maturity, you report as interest the difference between their redemption value and your cost. Form 1040x amended return Your cost is the sum of the amount you paid for the traded series EE or series E bonds plus any amount you had to pay at the time of the trade. Form 1040x amended return Example. Form 1040x amended return You traded series EE bonds (on which you postponed reporting the interest) for $2,500 in series HH bonds and $223 in cash. Form 1040x amended return You reported the $223 as taxable income on your tax return. Form 1040x amended return At the time of the trade, the series EE bonds had accrued interest of $523 and a redemption value of $2,723. Form 1040x amended return You hold the series HH bonds until maturity, when you receive $2,500. Form 1040x amended return You must report $300 as interest income in the year of maturity. Form 1040x amended return This is the difference between their redemption value, $2,500, and your cost, $2,200 (the amount you paid for the series EE bonds). Form 1040x amended return (It is also the difference between the accrued interest of $523 on the series EE bonds and the $223 cash received on the trade. Form 1040x amended return ) Choice to report interest in year of trade. Form 1040x amended return   You could have chosen to treat all of the previously unreported accrued interest on series EE or series E bonds traded for series HH bonds as income in the year of the trade. Form 1040x amended return If you made this choice, it is treated as a change from method 1. Form 1040x amended return See Change from method 1 under Series EE and series I bonds, earlier. Form 1040x amended return Form 1099-INT for U. Form 1040x amended return S. Form 1040x amended return savings bond interest. Form 1040x amended return   When you cash a bond, the bank or other payer that redeems it must give you a Form 1099-INT if the interest part of the payment you receive is $10 or more. Form 1040x amended return Box 3 of your Form 1099-INT should show the interest as the difference between the amount you received and the amount paid for the bond. Form 1040x amended return However, your Form 1099-INT may show more interest than you have to include on your income tax return. Form 1040x amended return For example, this may happen if any of the following are true. Form 1040x amended return You chose to report the increase in the redemption value of the bond each year. Form 1040x amended return The interest shown on your Form 1099-INT will not be reduced by amounts previously included in income. Form 1040x amended return You received the bond from a decedent. Form 1040x amended return The interest shown on your Form 1099-INT will not be reduced by any interest reported by the decedent before death, or on the decedent's final return, or by the estate on the estate's income tax return. Form 1040x amended return Ownership of the bond was transferred. Form 1040x amended return The interest shown on your Form 1099-INT will not be reduced by interest that accrued before the transfer. Form 1040x amended return You were named as a co-owner, and the other co-owner contributed funds to buy the bond. Form 1040x amended return The interest shown on your Form 1099-INT will not be reduced by the amount you received as nominee for the other co-owner. Form 1040x amended return (See Co-owners , earlier in this section, for more information about the reporting requirements. Form 1040x amended return ) You received the bond in a taxable distribution from a retirement or profit-sharing plan. Form 1040x amended return The interest shown on your Form 1099-INT will not be reduced by the interest portion of the amount taxable as a distribution from the plan and not taxable as interest. Form 1040x amended return (This amount is generally shown on Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. Form 1040x amended return , for the year of distribution. Form 1040x amended return )   For more information on including the correct amount of interest on your return, see U. Form 1040x amended return S. Form 1040x amended return savings bond interest previously reported or Nominee distributions under How To Report Interest Income, later. Form 1040x amended return    Interest on U. Form 1040x amended return S. Form 1040x amended return savings bonds is exempt from state and local taxes. Form 1040x amended return The Form 1099-INT you receive will indicate the amount that is for U. Form 1040x amended return S. Form 1040x amended return savings bonds interest in box 3. Form 1040x amended return Do not include this income on your state or local income tax return. Form 1040x amended return Education Savings Bond Program You may be able to exclude from income all or part of the interest you receive on the redemption of qualified U. Form 1040x amended return S. Form 1040x amended return savings bonds during the year if you pay qualified higher educational expenses during the same year. Form 1040x amended return This exclusion is known as the Education Savings Bond Program. Form 1040x amended return You do not qualify for this exclusion if your filing status is married filing separately. Form 1040x amended return Form 8815. Form 1040x amended return   Use Form 8815 to figure your exclusion. Form 1040x amended return Attach the form to your Form 1040 or Form 1040A. Form 1040x amended return Qualified U. Form 1040x amended return S. Form 1040x amended return savings bonds. Form 1040x amended return   A qualified U. Form 1040x amended return S. Form 1040x amended return savings bond is a series EE bond issued after 1989 or a series I bond. Form 1040x amended return The bond must be issued either in your name (sole owner) or in your and your spouse's names (co-owners). Form 1040x amended return You must be at least 24 years old before the bond's issue date. Form 1040x amended return For example, a bond bought by a parent and issued in the name of his or her child under age 24 does not qualify for the exclusion by the parent or child. Form 1040x amended return    The issue date of a bond may be earlier than the date the bond is purchased because the issue date assigned to a bond is the first day of the month in which it is purchased. Form 1040x amended return Beneficiary. Form 1040x amended return   You can designate any individual (including a child) as a beneficiary of the bond. Form 1040x amended return Verification by IRS. Form 1040x amended return   If you claim the exclusion, the IRS will check it by using bond redemption information from the Department of Treasury. Form 1040x amended return Qualified expenses. Form 1040x amended return   Qualified higher educational expenses are tuition and fees required for you, your spouse, or your dependent (for whom you claim an exemption) to attend an eligible educational institution. Form 1040x amended return   Qualified expenses include any contribution you make to a qualified tuition program or to a Coverdell education savings account. Form 1040x amended return For information about these programs, see Publication 970, Tax Benefits for Education. Form 1040x amended return   Qualified expenses do not include expenses for room and board or for courses involving sports, games, or hobbies that are not part of a degree or certificate granting program. Form 1040x amended return Eligible educational institutions. Form 1040x amended return   These institutions include most public, private, and nonprofit universities, colleges, and vocational schools that are accredited and eligible to participate in student aid programs run by the Department of Education. Form 1040x amended return Reduction for certain benefits. Form 1040x amended return   You must reduce your qualified higher educational expenses by all of the following tax-free benefits. Form 1040x amended return Tax-free part of scholarships and fellowships. Form 1040x amended return Expenses used to figure the tax-free portion of distributions from a Coverdell ESA. Form 1040x amended return Expenses used to figure the tax-free portion of distributions from a qualified tuition program. Form 1040x amended return Any tax-free payments (other than gifts or inheritances) received as educational assistance, such as: Veterans' educational assistance benefits, Qualified tuition reductions, or Employer-provided educational assistance. Form 1040x amended return Any expense used in figuring the American Opportunity and lifetime learning credits. Form 1040x amended return For information about these benefits, see Publication 970. Form 1040x amended return Amount excludable. Form 1040x amended return   If the total proceeds (interest and principal) from the qualified U. Form 1040x amended return S. Form 1040x amended return savings bonds you redeem during the year are not more than your adjusted qualified higher educational expenses for the year, you may be able to exclude all of the interest. Form 1040x amended return If the proceeds are more than the expenses, you may be able to exclude only part of the interest. Form 1040x amended return   To determine the excludable amount, multiply the interest part of the proceeds by a fraction. Form 1040x amended return The numer