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How Do You File A Tax Amendment

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How Do You File A Tax Amendment

How do you file a tax amendment 4. How do you file a tax amendment   Detailed Examples Table of Contents These examples use actual forms to help you prepare your income tax return. How do you file a tax amendment However, the information shown on the filled-in forms is not from any actual person or scenario. How do you file a tax amendment Example 1—Mortgage loan modification. How do you file a tax amendment    In 2007, Nancy Oak bought a main home for $435,000. How do you file a tax amendment Nancy took out a $420,000 mortgage loan to buy the home and made a down payment of $15,000. How do you file a tax amendment The loan was secured by the home. How do you file a tax amendment The mortgage loan was a recourse debt, meaning that Nancy was personally liable for the debt. How do you file a tax amendment In 2008, Nancy took out a second mortgage loan (also a recourse debt) in the amount of $30,000 that was used to substantially improve her kitchen. How do you file a tax amendment    In 2011, when the outstanding principal of the first and second mortgage loans was $440,000, Nancy refinanced the two recourse loans into one recourse loan in the amount of $475,000. How do you file a tax amendment The FMV of Nancy's home at the time of the refinancing was $500,000. How do you file a tax amendment Nancy used the additional $35,000 debt ($475,000 new mortgage loan minus $440,000 outstanding principal of Nancy's first and second mortgage loans immediately before the refinancing) to pay off personal credit cards and to pay college tuition for her son. How do you file a tax amendment After the refinancing, Nancy has qualified principal residence indebtedness in the amount of $440,000 because the refinanced debt is qualified principal residence indebtedness only to the extent the amount of debt is not more than the old mortgage principal just before the refinancing. How do you file a tax amendment   In 2013, Nancy was unable to make her mortgage loan payments. How do you file a tax amendment On August 31, 2013, when the outstanding balance of her refinanced mortgage loan was still $475,000 and the FMV of the property was $425,000, Nancy's bank agreed to a loan modification (a “workout”) that resulted in a $40,000 reduction in the principal balance of her loan. How do you file a tax amendment Nancy was neither insolvent nor in bankruptcy at the time of the loan modification. How do you file a tax amendment   Nancy received a 2013 Form 1099-C from her bank in January 2014 showing canceled debt of $40,000 in box 2. How do you file a tax amendment Identifiable event code "F" appears in box 6. How do you file a tax amendment This box shows the reason the creditor has filed Form 1099-C. How do you file a tax amendment To determine if she must include the canceled debt in her income, Nancy must determine whether she meets any of the exceptions or exclusions that apply to canceled debts. How do you file a tax amendment Nancy determines that the only exception or exclusion that applies to her is the qualified principal residence indebtedness exclusion. How do you file a tax amendment   Next, Nancy determines the amount, if any, of the $40,000 of canceled debt that was qualified principal residence indebtedness. How do you file a tax amendment Although Nancy has $440,000 of qualified principal residence indebtedness, part of her loan ($35,000) was not qualified principal residence indebtedness because it was used to pay off personal credit cards and college tuition for her son. How do you file a tax amendment Applying the ordering rule, the qualified principal residence indebtedness exclusion applies only to the extent the amount canceled is more than the amount of the debt (immediately before the cancellation) that is not qualified principal residence indebtedness. How do you file a tax amendment Thus, Nancy can exclude only $5,000 of the canceled debt as qualified principal residence indebtedness ($40,000 amount canceled minus $35,000 nonqualified debt). How do you file a tax amendment   Because Nancy does not meet any other exception or exclusion, she checks only the box on line 1e of Form 982 and enters $5,000 on line 2. How do you file a tax amendment Nancy must also enter $5,000 on line 10b and reduce the basis of her main home by the $5,000 she excluded from income, bringing the adjusted basis in her home to $460,000 ($435,000 purchase price plus $30,000 substantial improvement minus $5,000). How do you file a tax amendment Nancy must also include the $35,000 nonqualified debt portion in income on Form 1040, line 21. How do you file a tax amendment You can see Nancy's Form 1099-C and a portion of her Form 1040 below. How do you file a tax amendment Nancy's 2013 Form 1099-C, Cancellation of Debt This image is too large to be displayed in the current screen. How do you file a tax amendment Please click the link to view the image. How do you file a tax amendment Form 1099-C, Cancellation of Debt Nancy's 2013 Form 1040 This image is too large to be displayed in the current screen. How do you file a tax amendment Please click the link to view the image. How do you file a tax amendment Form 1040, U. How do you file a tax amendment S. How do you file a tax amendment Individual Income Tax Nancy's Form 982 This image is too large to be displayed in the current screen. How do you file a tax amendment Please click the link to view the image. How do you file a tax amendment Form 982 Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment)              Example 2—Mortgage loan foreclosure. How do you file a tax amendment    In 2005, John and Mary Elm bought a main home for $335,000. How do you file a tax amendment John and Mary took out a $320,000 mortgage loan to buy the home and made a down payment of $15,000. How do you file a tax amendment The loan was secured by the home and is a recourse debt, meaning John and Mary are personally liable for the debt. How do you file a tax amendment   John and Mary became unable to make their mortgage loan payments and on March 1, 2013, when the outstanding balance of the mortgage loan was $315,000 and the FMV of the property was $290,000, the bank foreclosed on the property and simultaneously canceled the remaining mortgage debt. How do you file a tax amendment Immediately before the foreclosure, John and Mary's only other assets and liabilities were a checking account with a balance of $6,000, retirement savings of $13,000, and credit card debt of $5,500. How do you file a tax amendment   John and Mary received a 2013 Form 1099-C showing canceled debt of $25,000 in box 2 ($315,000 outstanding balance minus $290,000 FMV) and an FMV of $290,000 in box 7. How do you file a tax amendment Identifiable event code "D" appears in box 6. How do you file a tax amendment This box shows the reason the creditor has filed Form 1099-C. How do you file a tax amendment In order to determine if John and Mary must include the canceled debt in income, they must first determine whether they meet any of the exceptions or exclusions that apply to canceled debts. How do you file a tax amendment In this example, John and Mary meet both the insolvency and qualified principal residence indebtedness exclusions. How do you file a tax amendment Their sample Form 1099-C is shown on this page. How do you file a tax amendment   John and Mary complete the insolvency worksheet and determine that they were insolvent immediately before the cancellation because at that time their liabilities exceeded the FMV of their assets by $11,500 ($320,500 total liabilities minus $309,000 FMV of total assets). How do you file a tax amendment However, because the entire debt canceled is qualified principal residence indebtedness, the insolvency exclusion only applies if John and Mary elect to apply the insolvency exclusion instead of the qualified principal residence exclusion. How do you file a tax amendment   John and Mary do not elect to apply the insolvency exclusion instead of the qualified principal residence exclusion because under the insolvency exclusion their exclusion would be limited to the amount by which they were insolvent ($11,500). How do you file a tax amendment Instead, John and Mary check box 1e of Form 982 to exclude the canceled debt under the qualified principal residence exclusion. How do you file a tax amendment Under the qualified principal residence exclusion, the amount that John and Mary can exclude is not limited because their qualified principal residence indebtedness is not more than $2 million and no portion of the loan was nonqualified debt. How do you file a tax amendment As a result, John and Mary enter the full $25,000 of canceled debt on line 2 of Form 982. How do you file a tax amendment Because John and Mary no longer own the home due to the foreclosure, John and Mary have no remaining basis in the home at the time of the debt cancellation. How do you file a tax amendment Thus, John and Mary leave line 10b of Form 982 blank. How do you file a tax amendment   John and Mary must also determine whether they have a gain or loss from the foreclosure. How do you file a tax amendment John and Mary complete Table 1-1 (shown below) and find that they have a $45,000 loss from the foreclosure. How do you file a tax amendment Because this loss relates to their home, it is a nondeductible loss. How do you file a tax amendment   John and Mary's Form 1099-C, Insolvency Worksheet, and Form 982 follow. How do you file a tax amendment John and Mary's 2013 Form 1099-C, Cancellation of Debt This image is too large to be displayed in the current screen. How do you file a tax amendment Please click the link to view the image. How do you file a tax amendment Form 1099-C, Cancellation of Debt Table 1-1. How do you file a tax amendment Worksheet for Foreclosures and Repossessions (for John and Mary Elm) Part 1. How do you file a tax amendment Complete Part 1 only if you were personally liable for the debt (even if none of the debt was canceled). How do you file a tax amendment Otherwise, go to Part 2. How do you file a tax amendment 1. How do you file a tax amendment Enter the amount of outstanding debt immediately before the transfer of property reduced by any amount for which you remain personally liable immediately after the transfer of property $315,000. How do you file a tax amendment 00 2. How do you file a tax amendment Enter the fair market value of the transferred property $290,000. How do you file a tax amendment 00 3. How do you file a tax amendment Ordinary income from the cancellation of debt upon foreclosure or repossession. How do you file a tax amendment * Subtract line 2 from line 1. How do you file a tax amendment If less than zero, enter zero. How do you file a tax amendment Next, go to Part 2 $ 25,000. How do you file a tax amendment 00 Part 2. How do you file a tax amendment Gain or loss from foreclosure or repossession. How do you file a tax amendment   4. How do you file a tax amendment Enter the smaller of line 1 or line 2. How do you file a tax amendment If you did not complete Part 1 (because you were not personally liable for the debt), enter the amount of outstanding debt immediately before the transfer of property $290,000. How do you file a tax amendment 00 5. How do you file a tax amendment Enter any proceeds you received from the foreclosure sale   6. How do you file a tax amendment Add line 4 and line 5 $290,000. How do you file a tax amendment 00 7. How do you file a tax amendment Enter the adjusted basis of the transferred property $335,000. How do you file a tax amendment 00 8. How do you file a tax amendment Gain or loss from foreclosure or repossession. How do you file a tax amendment Subtract line 7 from line 6 ($ 45,000. How do you file a tax amendment 00) * The income may not be taxable. How do you file a tax amendment See chapter 1 for more details. How do you file a tax amendment Insolvency Worksheet—John and Mary Elm Date debt was canceled (mm/dd/yy) 03/01/13 Part I. How do you file a tax amendment Total liabilities immediately before the cancellation (do not include the same liability in more than one category) Liabilities (debts) Amount Owed Immediately Before the Cancellation 1. How do you file a tax amendment Credit card debt $ 5,500 2. How do you file a tax amendment Mortgage(s) on real property (including first and second mortgages and home equity loans) (mortgage(s) can be on personal residence, any additional residence, or property held for investment or used in a trade or business) $ 315,000 3. How do you file a tax amendment Car and other vehicle loans $ 4. How do you file a tax amendment Medical bills owed $ 5. How do you file a tax amendment Student loans $ 6. How do you file a tax amendment Accrued or past-due mortgage interest $ 7. How do you file a tax amendment Accrued or past-due real estate taxes $ 8. How do you file a tax amendment Accrued or past-due utilities (water, gas, electric) $ 9. How do you file a tax amendment Accrued or past-due child care costs $ 10. How do you file a tax amendment Federal or state income taxes remaining due (for prior tax years) $ 11. How do you file a tax amendment Judgments $ 12. How do you file a tax amendment Business debts (including those owed as a sole proprietor or partner) $ 13. How do you file a tax amendment Margin debt on stocks and other debt to purchase or secured by investment assets other than real property $ 14. How do you file a tax amendment Other liabilities (debts) not included above $ 15. How do you file a tax amendment Total liabilities immediately before the cancellation. How do you file a tax amendment Add lines 1 through 14. How do you file a tax amendment $ 320,500 Part II. How do you file a tax amendment Fair market value (FMV) of assets owned immediately before the cancellation (do not include the FMV of the same asset in more than one category) Assets FMV Immediately Before  the Cancellation 16. How do you file a tax amendment Cash and bank account balances $ 6,000 17. How do you file a tax amendment Real property, including the value of land (can be main home, any additional home, or property held for investment or used in a trade or business) $ 290,000 18. How do you file a tax amendment Cars and other vehicles $ 19. How do you file a tax amendment Computers $ 20. How do you file a tax amendment Household goods and furnishings (for example, appliances, electronics, furniture, etc. How do you file a tax amendment ) $ 21. How do you file a tax amendment Tools $ 22. How do you file a tax amendment Jewelry $ 23. How do you file a tax amendment Clothing $ 24. How do you file a tax amendment Books $ 25. How do you file a tax amendment Stocks and bonds $ 26. How do you file a tax amendment Investments in coins, stamps, paintings, or other collectibles $ 27. How do you file a tax amendment Firearms, sports, photographic, and other hobby equipment $ 28. How do you file a tax amendment Interest in retirement accounts (IRA accounts, 401(k) accounts, and other retirement accounts) $ 13,000 29. How do you file a tax amendment Interest in a pension plan $ 30. How do you file a tax amendment Interest in education accounts $ 31. How do you file a tax amendment Cash value of life insurance $ 32. How do you file a tax amendment Security deposits with landlords, utilities, and others $ 33. How do you file a tax amendment Interests in partnerships $ 34. How do you file a tax amendment Value of investment in a business $ 35. How do you file a tax amendment Other investments (for example, annuity contracts, guaranteed investment contracts, mutual funds, commodity accounts, interests in hedge funds, and options) $ 36. How do you file a tax amendment Other assets not included above $ 37. How do you file a tax amendment FMV of total assets immediately before the cancellation. How do you file a tax amendment Add lines 16 through 36. How do you file a tax amendment $ 309,000 Part III. How do you file a tax amendment Insolvency 38. How do you file a tax amendment Amount of Insolvency. How do you file a tax amendment Subtract line 37 from line 15. How do you file a tax amendment If zero or less, you are not insolvent. How do you file a tax amendment $ 11,500 John and Mary's Form 982 This image is too large to be displayed in the current screen. How do you file a tax amendment Please click the link to view the image. How do you file a tax amendment Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment)          Example 3—Mortgage loan foreclosure with debt exceeding $2 million limit. How do you file a tax amendment    In 2011, Kathy and Frank Willow got married and entered into a contract with Hive Construction Corporation to build a house for $3,000,000 to be used as their main home. How do you file a tax amendment Kathy and Frank made a $400,000 down payment and took out a $2,600,000 mortgage to finance the remaining cost of the house. How do you file a tax amendment Kathy and Frank are personally liable for the mortgage loan, which is secured by the home. How do you file a tax amendment   In November 2013, when the outstanding principal balance on the mortgage loan was $2,500,000, the FMV of the property fell to $1,750,000 and Kathy and Frank abandoned the property by permanently moving out. How do you file a tax amendment The lender foreclosed on the property and, on December 5, 2013, sold the property to another buyer for $1,750,000. How do you file a tax amendment On December 26, 2013, the lender canceled the remaining debt. How do you file a tax amendment Kathy and Frank have no tax attributes other than basis of personal-use property. How do you file a tax amendment   The lender issued a 2013 Form 1099-C to Kathy and Frank showing canceled debt of $750,000 in box 2 (the remaining balance on the $2,500,000 mortgage debt after application of the foreclosure sale proceeds) and $1,750,000 in box 7 (FMV of the property). How do you file a tax amendment Identifiable event code "D" appears in box 6. How do you file a tax amendment This box shows the reason the creditor has filed Form 1099-C. How do you file a tax amendment Although Kathy and Frank abandoned the property, the lender did not need to also file a Form 1099-A because the lender canceled the debt in connection with the foreclosure in the same calendar year. How do you file a tax amendment Kathy and Frank are filing a joint return for 2013. How do you file a tax amendment   Because the foreclosure occurred prior to the debt cancellation, Kathy and Frank first calculate their gain or loss from the foreclosure using Table 1-1. How do you file a tax amendment Because Kathy and Frank remained personally liable for the $750,000 debt remaining after the foreclosure ($2,500,000 outstanding debt immediately before the foreclosure minus $1,750,000 satisfied through the sale of the home), Kathy and Frank enter $1,750,000 on line 1 of Table 1-1 ($2,500,000 outstanding debt immediately before the foreclosure minus the $750,000 for which they remained liable). How do you file a tax amendment Completing Table 1-1, Kathy and Frank find that they have no ordinary income from the cancellation of debt upon foreclosure and that they have a $1,250,000 loss. How do you file a tax amendment Because this loss relates to their home, it is a nondeductible loss. How do you file a tax amendment   Because the lender later canceled the remaining amount of the debt, Kathy and Frank must also determine whether that canceled debt is taxable. How do you file a tax amendment Immediately before the cancellation, Kathy and Frank had $15,000 in a savings account, household furnishings with an FMV of $17,000, a car with an FMV of $10,000, and $18,000 in credit card debt. How do you file a tax amendment Kathy and Frank also had the $750,000 remaining balance on the mortgage loan at that time. How do you file a tax amendment The household furnishings originally cost $30,000. How do you file a tax amendment The car had been fully paid off (so there was no related outstanding debt) and was originally purchased for $16,000. How do you file a tax amendment Kathy and Frank had no adjustments to the cost basis of the car. How do you file a tax amendment Kathy and Frank had no other assets or liabilities at the time of the cancellation. How do you file a tax amendment Kathy and Frank complete the insolvency worksheet to calculate that they were insolvent to the extent of $726,000 immediately before the cancellation ($768,000 of total liabilities minus $42,000 FMV of total assets). How do you file a tax amendment   At the beginning of 2014, Kathy and Frank had $9,000 in their savings account and $15,000 in credit card debt. How do you file a tax amendment Kathy and Frank also owned the same car at that time (still with an FMV of $10,000 and basis of $16,000) and the same household furnishings (still with an FMV of $17,000 and a basis of $30,000). How do you file a tax amendment Kathy and Frank had no other assets or liabilities at that time. How do you file a tax amendment Kathy and Frank no longer own the home because the lender foreclosed on it in 2013. How do you file a tax amendment   Because the canceled debt is qualified principal residence indebtedness, the insolvency exclusion does not apply unless Kathy and Frank elect to apply the insolvency exclusion instead of the qualified principal residence indebtedness exclusion. How do you file a tax amendment The maximum amount that Kathy and Frank can treat as qualified principal residence indebtedness is $2,000,000. How do you file a tax amendment The remaining $500,000 ($2,500,000 outstanding mortgage loan minus $2,000,000 limit on qualified principal residence indebtedness) is not qualified principal residence indebtedness. How do you file a tax amendment Because only a part of the loan is qualified principal residence indebtedness, Kathy and Frank must apply the ordering rule to the canceled debt. How do you file a tax amendment Under the ordering rule, the qualified principal residence indebtedness exclusion applies only to the extent that the amount canceled ($750,000) exceeds the amount of the loan (immediately before the cancellation) that is not qualified principal residence indebtedness ($500,000). How do you file a tax amendment This means that Kathy and Frank can only exclude $250,000 ($750,000 amount canceled minus $500,000 nonqualified debt) under the qualified principal residence indebtedness exclusion. How do you file a tax amendment   Kathy and Frank do not elect to have the insolvency exclusion apply instead of the qualified principal residence exclusion. How do you file a tax amendment Nonetheless, they can still apply the insolvency exclusion to the $500,000 nonqualified debt because it is not qualified principal residence indebtedness. How do you file a tax amendment Kathy and Frank can exclude the remaining $500,000 canceled debt under the insolvency exclusion because they were insolvent immediately before the cancellation to the extent of $726,000. How do you file a tax amendment Thus, Kathy and Frank check the boxes on lines 1b and 1e of Form 982 and enter $750,000 on line 2 ($250,000 excluded under the qualified principal residence indebtedness exclusion plus $500,000 excluded under the insolvency exclusion). How do you file a tax amendment   Next, Kathy and Frank reduce their tax attributes using Part II of Form 982. How do you file a tax amendment Because Kathy and Frank no longer own the home due to the foreclosure, Kathy and Frank have no remaining basis in the home at the time of the debt cancellation. How do you file a tax amendment Thus, Kathy and Frank leave line 10b of Form 982 blank. How do you file a tax amendment However, Kathy and Frank are also excluding nonqualified debt under the insolvency exclusion. How do you file a tax amendment As a result, Kathy and Frank must reduce the basis of property they own based on the amount of canceled debt they are excluding from income under the insolvency rules. How do you file a tax amendment Because Kathy and Frank have no tax attributes other than basis of personal-use property to reduce, Kathy and Frank figure the amount they must include on line 10a of Form 982 by taking the smallest of: The $46,000 bases of their personal-use property held at the beginning of 2014 ($16,000 basis in the car plus $30,000 basis in household furnishings), The $500,000 of the nonbusiness debt (other than qualified principal residence indebtedness) that they are excluding from income on line 2 of Form 982, or The $43,000 excess of the total bases of the property and the amount of money they held immediately after the cancellation over their total liabilities immediately after the cancellation ($15,000 in savings account plus $30,000 basis in household furnishings plus $16,000 adjusted basis in car minus $18,000 credit card debt). How do you file a tax amendment Kathy and Frank enter $43,000 on Form 982, line 10a and reduce their bases in the car and the household furnishings in proportion to the total adjusted bases in all their property. How do you file a tax amendment Kathy and Frank reduce the basis in the car by $14,956. How do you file a tax amendment 52 ($43,000 x $16,000/$46,000). How do you file a tax amendment And they reduce the basis in the household furnishings by $28,043. How do you file a tax amendment 48 ($43,000 x $30,000/$46,000). How do you file a tax amendment   Following are Kathy and Frank's sample forms and worksheets. How do you file a tax amendment Frank and Kathy's 2013 Form 1099-C, Cancellation of Debt This image is too large to be displayed in the current screen. How do you file a tax amendment Please click the link to view the image. How do you file a tax amendment Form 1099-C, Cancellation of Debt Table 1-1. How do you file a tax amendment Worksheet for Foreclosures and Repossessions (for Frank and Kathy Willow) Part 1. How do you file a tax amendment Complete Part 1 only if you were personally liable for the debt (even if none of the debt was canceled). How do you file a tax amendment Otherwise, go to Part 2. How do you file a tax amendment 1. How do you file a tax amendment Enter the amount of outstanding debt immediately before the transfer of property reduced by any amount for which you remain personally liable immediately after the transfer of property $1,750,000. How do you file a tax amendment 00 2. How do you file a tax amendment Enter the fair market value of the transferred property $1,750,000. How do you file a tax amendment 00 3. How do you file a tax amendment Ordinary income from the cancellation of debt upon foreclosure or repossession. How do you file a tax amendment * Subtract line 2 from line 1. How do you file a tax amendment If less than zero, enter zero. How do you file a tax amendment Next, go to Part 2 $0. How do you file a tax amendment 00 Part 2. How do you file a tax amendment Gain or loss from foreclosure or repossession. How do you file a tax amendment   4. How do you file a tax amendment Enter the smaller of line 1 or line 2. How do you file a tax amendment If you did not complete Part 1 (because you were not personally liable for the debt), enter the amount of outstanding debt immediately before the transfer of property. How do you file a tax amendment $1,750,000. How do you file a tax amendment 00 5. How do you file a tax amendment Enter any proceeds you received from the foreclosure sale   6. How do you file a tax amendment Add line 4 and line 5 $1,750,000. How do you file a tax amendment 00 7. How do you file a tax amendment Enter the adjusted basis of the transferred property $3,000,000. How do you file a tax amendment 00 8. How do you file a tax amendment Gain or loss from foreclosure or repossession. How do you file a tax amendment Subtract line 7 from line 6 ($1,250,000. How do you file a tax amendment 00) * The income may not be taxable. How do you file a tax amendment See chapter 1 for more details. How do you file a tax amendment    Insolvency Worksheet—Frank and Kathy Willow Date debt was canceled (mm/dd/yy) 12/26/13 Part I. How do you file a tax amendment Total liabilities immediately before the cancellation (do not include the same liability in more than one category) Liabilities (debts) Amount Owed Immediately Before the Cancellation 1. How do you file a tax amendment Credit card debt $ 18,000 2. How do you file a tax amendment Mortgage(s) on real property (including first and second mortgages and home equity loans) (mortgage(s) can be on personal residence, any additional residence, or property held for investment or used in a trade or business) $ 750,000 3. How do you file a tax amendment Car and other vehicle loans $ 4. How do you file a tax amendment Medical bills owed $ 5. How do you file a tax amendment Student loans $ 6. How do you file a tax amendment Accrued or past-due mortgage interest $ 7. How do you file a tax amendment Accrued or past-due real estate taxes $ 8. How do you file a tax amendment Accrued or past-due utilities (water, gas, electric) $ 9. How do you file a tax amendment Accrued or past-due child care costs $ 10. How do you file a tax amendment Federal or state income taxes remaining due (for prior tax years) $ 11. How do you file a tax amendment Judgments $ 12. How do you file a tax amendment Business debts (including those owed as a sole proprietor or partner) $ 13. How do you file a tax amendment Margin debt on stocks and other debt to purchase or secured by investment assets other than real property $ 14. How do you file a tax amendment Other liabilities (debts) not included above $ 15. How do you file a tax amendment Total liabilities immediately before the cancellation. How do you file a tax amendment Add lines 1 through 14. How do you file a tax amendment $ 768,000 Part II. How do you file a tax amendment Fair market value (FMV) of assets owned immediately before the cancellation (do not include the FMV of the same asset in more than one category) Assets FMV Immediately Before  the Cancellation 16. How do you file a tax amendment Cash and bank account balances $ 15,000 17. How do you file a tax amendment Real property, including the value of land (can be main home, any additional home, or property held for investment or used in a trade or business) $ 18. How do you file a tax amendment Cars and other vehicles $ 10,000 19. How do you file a tax amendment Computers $ 20. How do you file a tax amendment Household goods and furnishings (for example, appliances, electronics, furniture, etc. How do you file a tax amendment ) $ 17,000 21. How do you file a tax amendment Tools $ 22. How do you file a tax amendment Jewelry $ 23. How do you file a tax amendment Clothing $ 24. How do you file a tax amendment Books $ 25. How do you file a tax amendment Stocks and bonds $ 26. How do you file a tax amendment Investments in coins, stamps, paintings, or other collectibles $ 27. How do you file a tax amendment Firearms, sports, photographic, and other hobby equipment $ 28. How do you file a tax amendment Interest in retirement accounts (IRA accounts, 401(k) accounts, and other retirement accounts) $ 29. How do you file a tax amendment Interest in a pension plan $ 30. How do you file a tax amendment Interest in education accounts $ 31. How do you file a tax amendment Cash value of life insurance $ 32. How do you file a tax amendment Security deposits with landlords, utilities, and others $ 33. How do you file a tax amendment Interests in partnerships $ 34. How do you file a tax amendment Value of investment in a business $ 35. How do you file a tax amendment Other investments (for example, annuity contracts, guaranteed investment contracts, mutual funds, commodity accounts, interests in hedge funds, and options) $ 36. How do you file a tax amendment Other assets not included above $ 37. How do you file a tax amendment FMV of total assets immediately before the cancellation. How do you file a tax amendment Add lines 16 through 36. How do you file a tax amendment $ 42,000 Part III. How do you file a tax amendment Insolvency 38. How do you file a tax amendment Amount of Insolvency. How do you file a tax amendment Subtract line 37 from line 15. How do you file a tax amendment If zero or less, you are not insolvent. How do you file a tax amendment $ 726,000    Frank and Kathy's Form 982 This image is too large to be displayed in the current screen. How do you file a tax amendment Please click the link to view the image. 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Understanding Your CP75C Notice

You were banned from claiming the Earned Income Credit (EIC) in a prior tax year due to your intentional disregard of the rules or a fraudulent claim. Since your ban is still in effect, we disallowed the EIC for your current tax year.


What you need to do

  • You don’t need to take further action.

You may want to

  • Review this notice with your tax preparer.
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  • Call us for assistance at the toll-free telephone number listed in the top right corner of your notice

Answers to Common Questions

What do I need to send?
If you believe we incorrectly applied the ban, you must provide documentation to show that you didn't intentionally disregard the EIC rules for the year we imposed the ban.

Can I file my tax return while I am being audited?
Yes, you should continue to file all required tax returns before the due date to avoid additional penalties and interest.


Tips for next year

If you are banned from claiming the EIC, you won’t be allowed to claim the credit until the year stated on your notice.

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The How Do You File A Tax Amendment

How do you file a tax amendment 3. How do you file a tax amendment   Reporting Rental Income, Expenses, and Losses Table of Contents Which Forms To UseSchedule E (Form 1040) Schedule C (Form 1040), Profit or Loss From Business Qualified Joint Venture Limits on Rental LossesAt-Risk Rules Passive Activity Limits Casualties and Thefts Example Figuring the net income or loss for a residential rental activity may involve more than just listing the income and deductions on Schedule E (Form 1040). How do you file a tax amendment There are activities which do not qualify to use Schedule E, such as when the activity is not engaged in to make a profit or when you provide substantial services in conjunction with the property. How do you file a tax amendment There are also the limitations which may need to be applied if you have a net loss on Schedule E. How do you file a tax amendment There are two: (1) the limitation based on the amount of investment you have at risk in your rental activity, and (2) the special limits imposed on passive activities. How do you file a tax amendment You may also have a gain or loss related to your rental property from a casualty or theft. How do you file a tax amendment This is considered separately from the income and expense information you report on Schedule E. How do you file a tax amendment Which Forms To Use The basic form for reporting residential rental income and expenses is Schedule E (Form 1040). How do you file a tax amendment However, do not use that schedule to report a not-for-profit activity. How do you file a tax amendment See Not Rented for Profit , in chapter 4. How do you file a tax amendment There are also other rental situations in which forms other than Schedule E would be used. How do you file a tax amendment Schedule E (Form 1040) If you rent buildings, rooms, or apartments, and provide basic services such as heat and light, trash collection, etc. How do you file a tax amendment , you normally report your rental income and expenses on Schedule E, Part I. How do you file a tax amendment List your total income, expenses, and depreciation for each rental property. How do you file a tax amendment Be sure to enter the number of fair rental and personal use days on line 2. How do you file a tax amendment If you have more than three rental or royalty properties, complete and attach as many Schedules E as are needed to list the properties. How do you file a tax amendment Complete lines 1 and 2 for each property. How do you file a tax amendment However, fill in lines 23a through 26 on only one Schedule E. How do you file a tax amendment On Schedule E, page 1, line 18, enter the depreciation you are claiming for each property. How do you file a tax amendment To find out if you need to attach Form 4562, see Form 4562 , later. How do you file a tax amendment If you have a loss from your rental real estate activity, you also may need to complete one or both of the following forms. How do you file a tax amendment Form 6198, At-Risk Limitations. How do you file a tax amendment See At-Risk Rules , later. How do you file a tax amendment Also see Publication 925. How do you file a tax amendment Form 8582, Passive Activity Loss Limitations. How do you file a tax amendment See Passive Activity Limits , later. How do you file a tax amendment Page 2 of Schedule E is used to report income or loss from partnerships, S corporations, estates, trusts, and real estate mortgage investment conduits. How do you file a tax amendment If you need to use page 2 of Schedule E, be sure to use page 2 of the same Schedule E you used to enter your rental activity on page 1. How do you file a tax amendment Also, include the amount from line 26 (Part I) in the “Total income or (loss)” on line 41 (Part V). How do you file a tax amendment Form 4562. How do you file a tax amendment   You must complete and attach Form 4562 for rental activities only if you are claiming: Depreciation, including the special depreciation allowance, on property placed in service during 2013; Depreciation on listed property (such as a car), regardless of when it was placed in service; or Any other car expenses, including the standard mileage rate or lease expenses. How do you file a tax amendment Otherwise, figure your depreciation on your own worksheet. How do you file a tax amendment You do not have to attach these computations to your return, but you should keep them in your records for future reference. How do you file a tax amendment   See Publication 946 for information on preparing Form 4562. How do you file a tax amendment Schedule C (Form 1040), Profit or Loss From Business Generally, Schedule C is used when you provide substantial services in conjunction with the property or the rental is part of a trade or business as a real estate dealer. How do you file a tax amendment Providing substantial services. How do you file a tax amendment   If you provide substantial services that are primarily for your tenant's convenience, such as regular cleaning, changing linen, or maid service, you report your rental income and expenses on Schedule C (Form 1040), Profit or Loss From Business, or Schedule C-EZ (Form 1040), Net Profit From Business. How do you file a tax amendment Use Form 1065, U. How do you file a tax amendment S. How do you file a tax amendment Return of Partnership Income, if your rental activity is a partnership (including a partnership with your spouse unless it is a qualified joint venture). How do you file a tax amendment Substantial services do not include the furnishing of heat and light, cleaning of public areas, trash collection, etc. How do you file a tax amendment For information, see Publication 334, Tax Guide for Small Business. How do you file a tax amendment Also, you may have to pay self-employment tax on your rental income using Schedule SE (Form 1040), Self-Employment Tax. How do you file a tax amendment For a discussion of “substantial services,” see Real Estate Rents in Publication 334, chapter 5. How do you file a tax amendment Qualified Joint Venture If you and your spouse each materially participate (see Material participation under Passive Activity Limits, later) as the only members of a jointly owned and operated real estate business, and you file a joint return for the tax year, you can make a joint election to be treated as a qualified joint venture instead of a partnership. How do you file a tax amendment This election, in most cases, will not increase the total tax owed on the joint return, but it does give each of you credit for social security earnings on which retirement benefits are based and for Medicare coverage if your rental income is subject to self-employment tax. How do you file a tax amendment If you make this election, you must report rental real estate income on Schedule E (or Schedule C if you provide substantial services). How do you file a tax amendment You will not be required to file Form 1065 for any year the election is in effect. How do you file a tax amendment Rental real estate income generally is not included in net earnings from self-employment subject to self-employment tax and generally is subject to the passive activity limits. How do you file a tax amendment If you and your spouse filed a Form 1065 for the year prior to the election, the partnership terminates at the end of the tax year immediately preceding the year the election takes effect. How do you file a tax amendment For more information on qualified joint ventures, go to IRS. How do you file a tax amendment gov and enter “qualified joint venture” in the search box. How do you file a tax amendment Limits on Rental Losses If you have a loss from your rental real estate activity, two sets of rules may limit the amount of loss you can deduct. How do you file a tax amendment You must consider these rules in the order shown below. How do you file a tax amendment Both are discussed in this section. How do you file a tax amendment At-risk rules. How do you file a tax amendment These rules are applied first if there is investment in your rental real estate activity for which you are not at risk. How do you file a tax amendment This applies only if the real property was placed in service after 1986. How do you file a tax amendment Passive activity limits. How do you file a tax amendment Generally, rental real estate activities are considered passive activities and losses are not deductible unless you have income from other passive activities to offset them. How do you file a tax amendment However, there are exceptions. How do you file a tax amendment At-Risk Rules You may be subject to the at-risk rules if you have: A loss from an activity carried on as a trade or business or for the production of income, and Amounts invested in the activity for which you are not fully at risk. How do you file a tax amendment Losses from holding real property (other than mineral property) placed in service before 1987 are not subject to the at-risk rules. How do you file a tax amendment In most cases, any loss from an activity subject to the at-risk rules is allowed only to the extent of the total amount you have at risk in the activity at the end of the tax year. How do you file a tax amendment You are considered at risk in an activity to the extent of cash and the adjusted basis of other property you contributed to the activity and certain amounts borrowed for use in the activity. How do you file a tax amendment Any loss that is disallowed because of the at-risk limits is treated as a deduction from the same activity in the next tax year. How do you file a tax amendment See Publication 925 for a discussion of the at-risk rules. How do you file a tax amendment Form 6198. How do you file a tax amendment   If you are subject to the at-risk rules, file Form 6198, At-Risk Limitations, with your tax return. How do you file a tax amendment Passive Activity Limits In most cases, all rental real estate activities (except those of certain real estate professionals, discussed later) are passive activities. How do you file a tax amendment For this purpose, a rental activity is an activity from which you receive income mainly for the use of tangible property, rather than for services. How do you file a tax amendment For a discussion of activities that are not considered rental activities, see Rental Activities in Publication 925. How do you file a tax amendment Deductions or losses from passive activities are limited. How do you file a tax amendment You generally cannot offset income, other than passive income, with losses from passive activities. How do you file a tax amendment Nor can you offset taxes on income, other than passive income, with credits resulting from passive activities. How do you file a tax amendment Any excess loss or credit is carried forward to the next tax year. How do you file a tax amendment Exceptions to the rules for figuring passive activity limits for personal use of a dwelling unit and for rental real estate with active participation are discussed later. How do you file a tax amendment For a detailed discussion of these rules, see Publication 925. How do you file a tax amendment Real estate professionals. How do you file a tax amendment   If you are a real estate professional, complete line 43 of Schedule E. How do you file a tax amendment      You qualify as a real estate professional for the tax year if you meet both of the following requirements. How do you file a tax amendment More than half of the personal services you perform in all trades or businesses during the tax year are performed in real property trades or businesses in which you materially participate. How do you file a tax amendment You perform more than 750 hours of services during the tax year in real property trades or businesses in which you materially participate. How do you file a tax amendment If you qualify as a real estate professional, rental real estate activities in which you materially participated are not passive activities. How do you file a tax amendment For purposes of determining whether you materially participated in your rental real estate activities, each interest in rental real estate is a separate activity unless you elect to treat all your interests in rental real estate as one activity. How do you file a tax amendment   Do not count personal services you perform as an employee in real property trades or businesses unless you are a 5% owner of your employer. How do you file a tax amendment You are a 5% owner if you own (or are considered to own) more than 5% of your employer's outstanding stock, or capital or profits interest. How do you file a tax amendment   Do not count your spouse's personal services to determine whether you met the requirements listed earlier to qualify as a real estate professional. How do you file a tax amendment However, you can count your spouse's participation in an activity in determining if you materially participated. How do you file a tax amendment Real property trades or businesses. How do you file a tax amendment   A real property trade or business is a trade or business that does any of the following with real property. How do you file a tax amendment Develops or redevelops it. How do you file a tax amendment Constructs or reconstructs it. How do you file a tax amendment Acquires it. How do you file a tax amendment Converts it. How do you file a tax amendment Rents or leases it. How do you file a tax amendment Operates or manages it. How do you file a tax amendment Brokers it. How do you file a tax amendment Choice to treat all interests as one activity. How do you file a tax amendment   If you were a real estate professional and had more than one rental real estate interest during the year, you can choose to treat all the interests as one activity. How do you file a tax amendment You can make this choice for any year that you qualify as a real estate professional. How do you file a tax amendment If you forgo making the choice for one year, you can still make it for a later year. How do you file a tax amendment   If you make the choice, it is binding for the tax year you make it and for any later year that you are a real estate professional. How do you file a tax amendment This is true even if you are not a real estate professional in any intervening year. How do you file a tax amendment (For that year, the exception for real estate professionals will not apply in determining whether your activity is subject to the passive activity rules. How do you file a tax amendment )   See the Instructions for Schedule E for information about making this choice. How do you file a tax amendment Material participation. How do you file a tax amendment   Generally, you materially participated in an activity for the tax year if you were involved in its operations on a regular, continuous, and substantial basis during the year. How do you file a tax amendment For details, see Publication 925 or the Instructions for Schedule C. How do you file a tax amendment Participating spouse. How do you file a tax amendment   If you are married, determine whether you materially participated in an activity by also counting any participation in the activity by your spouse during the year. How do you file a tax amendment Do this even if your spouse owns no interest in the activity or files a separate return for the year. How do you file a tax amendment Form 8582. How do you file a tax amendment    You may have to complete Form 8582 to figure the amount of any passive activity loss for the current tax year for all activities and the amount of the passive activity loss allowed on your tax return. How do you file a tax amendment See Form 8582 not required , later in this chapter, to determine if you must complete Form 8582. How do you file a tax amendment   If you are required to complete Form 8582 and are also subject to the at-risk rules, include the amount from Form 6198, line 21 (deductible loss) in column (b) of Form 8582, Worksheet 1 or 3, as required. How do you file a tax amendment Exception for Personal Use of Dwelling Unit If you used the rental property as a home during the year, any income, deductions, gain, or loss allocable to such use shall not be taken into account for purposes of the passive activity loss limitation. How do you file a tax amendment Instead, follow the rules explained in chapter 5, Personal Use of Dwelling Unit (Including Vacation Home). How do you file a tax amendment Exception for Rental Real Estate With Active Participation If you or your spouse actively participated in a passive rental real estate activity, you may be able to deduct up to $25,000 of loss from the activity from your nonpassive income. How do you file a tax amendment This special allowance is an exception to the general rule disallowing losses in excess of income from passive activities. How do you file a tax amendment Similarly, you may be able to offset credits from the activity against the tax on up to $25,000 of nonpassive income after taking into account any losses allowed under this exception. How do you file a tax amendment Example. How do you file a tax amendment Jane is single and has $40,000 in wages, $2,000 of passive income from a limited partnership, and $3,500 of passive loss from a rental real estate activity in which she actively participated. How do you file a tax amendment $2,000 of Jane's $3,500 loss offsets her passive income. How do you file a tax amendment The remaining $1,500 loss can be deducted from her $40,000 wages. How do you file a tax amendment The special allowance is not available if you were married, lived with your spouse at any time during the year, and are filing a separate return. How do you file a tax amendment Active participation. How do you file a tax amendment   You actively participated in a rental real estate activity if you (and your spouse) owned at least 10% of the rental property and you made management decisions or arranged for others to provide services (such as repairs) in a significant and bona fide sense. How do you file a tax amendment Management decisions that may count as active participation include approving new tenants, deciding on rental terms, approving expenditures, and other similar decisions. How do you file a tax amendment Example. How do you file a tax amendment Mike is single and had the following income and losses during the tax year:   Salary $42,300     Dividends 300     Interest 1,400     Rental loss (4,000)   The rental loss was from the rental of a house Mike owned. How do you file a tax amendment Mike had advertised and rented the house to the current tenant himself. How do you file a tax amendment He also collected the rents, which usually came by mail. How do you file a tax amendment All repairs were either made or contracted out by Mike. How do you file a tax amendment Although the rental loss is from a passive activity, because Mike actively participated in the rental property management he can use the entire $4,000 loss to offset his other income. How do you file a tax amendment Maximum special allowance. How do you file a tax amendment   The maximum special allowance is: $25,000 for single individuals and married individuals filing a joint return for the tax year, $12,500 for married individuals who file separate returns for the tax year and lived apart from their spouses at all times during the tax year, and $25,000 for a qualifying estate reduced by the special allowance for which the surviving spouse qualified. How do you file a tax amendment   If your modified adjusted gross income (MAGI) is $100,000 or less ($50,000 or less if married filing separately), you can deduct your loss up to the amount specified above. How do you file a tax amendment If your MAGI is more than $100,000 (more than $50,000 if married filing separately), your special allowance is limited to 50% of the difference between $150,000 ($75,000 if married filing separately) and your MAGI. How do you file a tax amendment   Generally, if your MAGI is $150,000 or more ($75,000 or more if you are married filing separately), there is no special allowance. How do you file a tax amendment Modified adjusted gross income (MAGI). How do you file a tax amendment   This is your adjusted gross income from Form 1040, U. How do you file a tax amendment S. How do you file a tax amendment Individual Income Tax Return, line 38, or Form 1040NR, U. How do you file a tax amendment S. How do you file a tax amendment Nonresident Alien Income Tax Return, line 37, figured without taking into account: The taxable amount of social security or equivalent tier 1 railroad retirement benefits, The deductible contributions to traditional individual retirement accounts (IRAs) and section 501(c)(18) pension plans, The exclusion from income of interest from Series EE and I U. How do you file a tax amendment S. How do you file a tax amendment savings bonds used to pay higher educational expenses, The exclusion of amounts received under an employer's adoption assistance program, Any passive activity income or loss included on Form 8582, Any rental real estate loss allowed to real estate professionals, Any overall loss from a publicly traded partnership (see Publicly Traded Partnerships (PTPs) in the Instructions for Form 8582), The deduction allowed for one-half of self-employment tax, The deduction allowed for interest paid on student loans, The deduction for qualified tuition and related fees, and The domestic production activities deduction (see the Instructions for Form 8903). How do you file a tax amendment Form 8582 not required. How do you file a tax amendment   Do not complete Form 8582 if you meet all of the following conditions. How do you file a tax amendment Your only passive activities were rental real estate activities in which you actively participated. How do you file a tax amendment Your overall net loss from these activities is $25,000 or less ($12,500 or less if married filing separately and you lived apart from your spouse all year). How do you file a tax amendment If married filing separately, you lived apart from your spouse all year. How do you file a tax amendment You have no prior year unallowed losses from these (or any other passive) activities. How do you file a tax amendment You have no current or prior year unallowed credits from passive activities. How do you file a tax amendment Your MAGI is $100,000 or less ($50,000 or less if married filing separately and you lived apart from your spouse all year). How do you file a tax amendment You do not hold any interest in a rental real estate activity as a limited partner or as a beneficiary of an estate or a trust. How do you file a tax amendment   If you meet all of the conditions listed above, your rental real estate activities are not limited by the passive activity rules and you do not have to complete Form 8582. How do you file a tax amendment On lines 23a through 23e of your Schedule E, enter the applicable amounts. How do you file a tax amendment Casualties and Thefts As a result of a casualty or theft, you may have a loss related to your rental property. How do you file a tax amendment You may be able to deduct the loss on your income tax return. How do you file a tax amendment Casualty. How do you file a tax amendment   This is the damage, destruction, or loss of property resulting from an identifiable event that is sudden, unexpected, or unusual. How do you file a tax amendment Such events include a storm, fire, or earthquake. How do you file a tax amendment Theft. How do you file a tax amendment   This is defined as the unlawful taking and removing of your money or property with the intent to deprive you of it. How do you file a tax amendment Gain from casualty or theft. How do you file a tax amendment   It is also possible to have a gain from a casualty or theft if you receive money, including insurance, that is more than your adjusted basis in the property. How do you file a tax amendment Generally, you must report this gain. How do you file a tax amendment However, under certain circumstances, you may defer paying tax by choosing to postpone reporting the gain. How do you file a tax amendment To do this, you generally must buy replacement property within 2 years after the close of the first tax year in which any part of your gain is realized. How do you file a tax amendment In certain circumstances, the replacement period can be greater than 2 years; see Replacement Period in Publication 547 for more information. How do you file a tax amendment The cost of the replacement property must be equal to or more than the net insurance or other payment you received. How do you file a tax amendment More information. How do you file a tax amendment   For information on business and nonbusiness casualty and theft losses, see Publication 547. How do you file a tax amendment How to report. How do you file a tax amendment    If you had a casualty or theft that involved property used in your rental activity, figure the net gain or loss in Section B of Form 4684, Casualties and Thefts. How do you file a tax amendment Follow the Instructions for Form 4684 for where to carry your net gain or loss. How do you file a tax amendment Example In February 2008, Marie Pfister bought a rental house for $135,000 (house $120,000 and land $15,000) and immediately began renting it out. How do you file a tax amendment In 2013, she rented it all 12 months for a monthly rental fee of $1,125. How do you file a tax amendment In addition to her rental income of $13,500 (12 x $1,125), Marie had the following expenses. How do you file a tax amendment Mortgage interest $8,000 Fire insurance (1-year policy) 250 Miscellaneous repairs 400 Real estate taxes imposed and paid 500 Maintenance 200 Marie depreciates the residential rental property under MACRS GDS. How do you file a tax amendment This means using the straight line method over a recovery period of 27. How do you file a tax amendment 5 years. How do you file a tax amendment She uses Table 2-2d to find her depreciation percentage. How do you file a tax amendment Because she placed the property in service in February 2008, she continues to use that row of Table 2-2d. How do you file a tax amendment For year 6, the rate is 3. How do you file a tax amendment 636%. How do you file a tax amendment Marie figures her net rental income or loss for the house as follows: Total rental income received  ($1,125 × 12) $13,500 Minus: Expenses     Mortgage interest $8,000   Fire insurance 250   Miscellaneous repairs 400   Real estate taxes 500   Maintenance 200   Total expenses 9,350 Balance $4,150 Minus: Depreciation ($120,000 x 3. How do you file a tax amendment 636%) 4,363 Net rental (loss) for house ($213)       Marie had a net loss for the year. How do you file a tax amendment Because she actively participated in her passive rental real estate activity and her loss was less than $25,000, she can deduct the loss on her return. How do you file a tax amendment Marie also meets all of the requirements for not having to file Form 8582. How do you file a tax amendment She uses Schedule E, Part I, to report her rental income and expenses. How do you file a tax amendment She enters her income, expenses, and depreciation for the house in the column for Property A and enters her loss on line 22. How do you file a tax amendment Form 4562 is not required. How do you file a tax amendment Prev  Up  Next   Home   More Online Publications