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How To Amend Taxes Online

How to amend taxes online 3. How to amend taxes online   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 to amend taxes online 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 to amend taxes online There are also the limitations which may need to be applied if you have a net loss on Schedule E. How to amend taxes online 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 to amend taxes online You may also have a gain or loss related to your rental property from a casualty or theft. How to amend taxes online This is considered separately from the income and expense information you report on Schedule E. How to amend taxes online Which Forms To Use The basic form for reporting residential rental income and expenses is Schedule E (Form 1040). How to amend taxes online However, do not use that schedule to report a not-for-profit activity. How to amend taxes online See Not Rented for Profit , in chapter 4. How to amend taxes online There are also other rental situations in which forms other than Schedule E would be used. How to amend taxes online Schedule E (Form 1040) If you rent buildings, rooms, or apartments, and provide basic services such as heat and light, trash collection, etc. How to amend taxes online , you normally report your rental income and expenses on Schedule E, Part I. How to amend taxes online List your total income, expenses, and depreciation for each rental property. How to amend taxes online Be sure to enter the number of fair rental and personal use days on line 2. How to amend taxes online 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 to amend taxes online Complete lines 1 and 2 for each property. How to amend taxes online However, fill in lines 23a through 26 on only one Schedule E. How to amend taxes online On Schedule E, page 1, line 18, enter the depreciation you are claiming for each property. How to amend taxes online To find out if you need to attach Form 4562, see Form 4562 , later. How to amend taxes online 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 to amend taxes online Form 6198, At-Risk Limitations. How to amend taxes online See At-Risk Rules , later. How to amend taxes online Also see Publication 925. How to amend taxes online Form 8582, Passive Activity Loss Limitations. How to amend taxes online See Passive Activity Limits , later. How to amend taxes online 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 to amend taxes online 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 to amend taxes online Also, include the amount from line 26 (Part I) in the “Total income or (loss)” on line 41 (Part V). How to amend taxes online Form 4562. How to amend taxes online   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 to amend taxes online Otherwise, figure your depreciation on your own worksheet. How to amend taxes online You do not have to attach these computations to your return, but you should keep them in your records for future reference. How to amend taxes online   See Publication 946 for information on preparing Form 4562. How to amend taxes online 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 to amend taxes online Providing substantial services. How to amend taxes online   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 to amend taxes online Use Form 1065, U. How to amend taxes online S. How to amend taxes online 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 to amend taxes online Substantial services do not include the furnishing of heat and light, cleaning of public areas, trash collection, etc. How to amend taxes online For information, see Publication 334, Tax Guide for Small Business. How to amend taxes online Also, you may have to pay self-employment tax on your rental income using Schedule SE (Form 1040), Self-Employment Tax. How to amend taxes online For a discussion of “substantial services,” see Real Estate Rents in Publication 334, chapter 5. How to amend taxes online 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 to amend taxes online 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 to amend taxes online If you make this election, you must report rental real estate income on Schedule E (or Schedule C if you provide substantial services). How to amend taxes online You will not be required to file Form 1065 for any year the election is in effect. How to amend taxes online 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 to amend taxes online 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 to amend taxes online For more information on qualified joint ventures, go to IRS. How to amend taxes online gov and enter “qualified joint venture” in the search box. How to amend taxes online 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 to amend taxes online You must consider these rules in the order shown below. How to amend taxes online Both are discussed in this section. How to amend taxes online At-risk rules. How to amend taxes online These rules are applied first if there is investment in your rental real estate activity for which you are not at risk. How to amend taxes online This applies only if the real property was placed in service after 1986. How to amend taxes online Passive activity limits. How to amend taxes online 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 to amend taxes online However, there are exceptions. How to amend taxes online 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 to amend taxes online Losses from holding real property (other than mineral property) placed in service before 1987 are not subject to the at-risk rules. How to amend taxes online 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 to amend taxes online 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 to amend taxes online 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 to amend taxes online See Publication 925 for a discussion of the at-risk rules. How to amend taxes online Form 6198. How to amend taxes online   If you are subject to the at-risk rules, file Form 6198, At-Risk Limitations, with your tax return. How to amend taxes online Passive Activity Limits In most cases, all rental real estate activities (except those of certain real estate professionals, discussed later) are passive activities. How to amend taxes online 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 to amend taxes online For a discussion of activities that are not considered rental activities, see Rental Activities in Publication 925. How to amend taxes online Deductions or losses from passive activities are limited. How to amend taxes online You generally cannot offset income, other than passive income, with losses from passive activities. How to amend taxes online Nor can you offset taxes on income, other than passive income, with credits resulting from passive activities. How to amend taxes online Any excess loss or credit is carried forward to the next tax year. How to amend taxes online 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 to amend taxes online For a detailed discussion of these rules, see Publication 925. How to amend taxes online Real estate professionals. How to amend taxes online   If you are a real estate professional, complete line 43 of Schedule E. How to amend taxes online      You qualify as a real estate professional for the tax year if you meet both of the following requirements. How to amend taxes online 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 to amend taxes online You perform more than 750 hours of services during the tax year in real property trades or businesses in which you materially participate. How to amend taxes online If you qualify as a real estate professional, rental real estate activities in which you materially participated are not passive activities. How to amend taxes online 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 to amend taxes online   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 to amend taxes online 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 to amend taxes online   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 to amend taxes online However, you can count your spouse's participation in an activity in determining if you materially participated. How to amend taxes online Real property trades or businesses. How to amend taxes online   A real property trade or business is a trade or business that does any of the following with real property. How to amend taxes online Develops or redevelops it. How to amend taxes online Constructs or reconstructs it. How to amend taxes online Acquires it. How to amend taxes online Converts it. How to amend taxes online Rents or leases it. How to amend taxes online Operates or manages it. How to amend taxes online Brokers it. How to amend taxes online Choice to treat all interests as one activity. How to amend taxes online   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 to amend taxes online You can make this choice for any year that you qualify as a real estate professional. How to amend taxes online If you forgo making the choice for one year, you can still make it for a later year. How to amend taxes online   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 to amend taxes online This is true even if you are not a real estate professional in any intervening year. How to amend taxes online (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 to amend taxes online )   See the Instructions for Schedule E for information about making this choice. How to amend taxes online Material participation. How to amend taxes online   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 to amend taxes online For details, see Publication 925 or the Instructions for Schedule C. How to amend taxes online Participating spouse. How to amend taxes online   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 to amend taxes online Do this even if your spouse owns no interest in the activity or files a separate return for the year. How to amend taxes online Form 8582. How to amend taxes online    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 to amend taxes online See Form 8582 not required , later in this chapter, to determine if you must complete Form 8582. How to amend taxes online   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 to amend taxes online 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 to amend taxes online Instead, follow the rules explained in chapter 5, Personal Use of Dwelling Unit (Including Vacation Home). How to amend taxes online 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 to amend taxes online This special allowance is an exception to the general rule disallowing losses in excess of income from passive activities. How to amend taxes online 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 to amend taxes online Example. How to amend taxes online 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 to amend taxes online $2,000 of Jane's $3,500 loss offsets her passive income. How to amend taxes online The remaining $1,500 loss can be deducted from her $40,000 wages. How to amend taxes online 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 to amend taxes online Active participation. How to amend taxes online   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 to amend taxes online Management decisions that may count as active participation include approving new tenants, deciding on rental terms, approving expenditures, and other similar decisions. How to amend taxes online Example. How to amend taxes online 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 to amend taxes online Mike had advertised and rented the house to the current tenant himself. How to amend taxes online He also collected the rents, which usually came by mail. How to amend taxes online All repairs were either made or contracted out by Mike. How to amend taxes online 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 to amend taxes online Maximum special allowance. How to amend taxes online   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 to amend taxes online   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 to amend taxes online 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 to amend taxes online   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 to amend taxes online Modified adjusted gross income (MAGI). How to amend taxes online   This is your adjusted gross income from Form 1040, U. How to amend taxes online S. How to amend taxes online Individual Income Tax Return, line 38, or Form 1040NR, U. How to amend taxes online S. How to amend taxes online 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 to amend taxes online S. How to amend taxes online 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 to amend taxes online Form 8582 not required. How to amend taxes online   Do not complete Form 8582 if you meet all of the following conditions. How to amend taxes online Your only passive activities were rental real estate activities in which you actively participated. How to amend taxes online 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 to amend taxes online If married filing separately, you lived apart from your spouse all year. How to amend taxes online You have no prior year unallowed losses from these (or any other passive) activities. How to amend taxes online You have no current or prior year unallowed credits from passive activities. How to amend taxes online 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 to amend taxes online 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 to amend taxes online   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 to amend taxes online On lines 23a through 23e of your Schedule E, enter the applicable amounts. How to amend taxes online Casualties and Thefts As a result of a casualty or theft, you may have a loss related to your rental property. How to amend taxes online You may be able to deduct the loss on your income tax return. How to amend taxes online Casualty. How to amend taxes online   This is the damage, destruction, or loss of property resulting from an identifiable event that is sudden, unexpected, or unusual. How to amend taxes online Such events include a storm, fire, or earthquake. How to amend taxes online Theft. How to amend taxes online   This is defined as the unlawful taking and removing of your money or property with the intent to deprive you of it. How to amend taxes online Gain from casualty or theft. How to amend taxes online   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 to amend taxes online Generally, you must report this gain. How to amend taxes online However, under certain circumstances, you may defer paying tax by choosing to postpone reporting the gain. How to amend taxes online 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 to amend taxes online In certain circumstances, the replacement period can be greater than 2 years; see Replacement Period in Publication 547 for more information. How to amend taxes online The cost of the replacement property must be equal to or more than the net insurance or other payment you received. How to amend taxes online More information. How to amend taxes online   For information on business and nonbusiness casualty and theft losses, see Publication 547. How to amend taxes online How to report. How to amend taxes online    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 to amend taxes online Follow the Instructions for Form 4684 for where to carry your net gain or loss. How to amend taxes online 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 to amend taxes online In 2013, she rented it all 12 months for a monthly rental fee of $1,125. How to amend taxes online In addition to her rental income of $13,500 (12 x $1,125), Marie had the following expenses. How to amend taxes online 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 to amend taxes online This means using the straight line method over a recovery period of 27. How to amend taxes online 5 years. How to amend taxes online She uses Table 2-2d to find her depreciation percentage. How to amend taxes online Because she placed the property in service in February 2008, she continues to use that row of Table 2-2d. How to amend taxes online For year 6, the rate is 3. How to amend taxes online 636%. How to amend taxes online 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 to amend taxes online 636%) 4,363 Net rental (loss) for house ($213)       Marie had a net loss for the year. How to amend taxes online 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 to amend taxes online Marie also meets all of the requirements for not having to file Form 8582. How to amend taxes online She uses Schedule E, Part I, to report her rental income and expenses. How to amend taxes online She enters her income, expenses, and depreciation for the house in the column for Property A and enters her loss on line 22. How to amend taxes online Form 4562 is not required. How to amend taxes online Prev  Up  Next   Home   More Online Publications
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Understanding Your CP2030 Notice

We are proposing changes in income, credits, and deductions reported on your U.S. Corporation Income Tax Return. We compared your information with items reported to us by banks, businesses and other payers.


What you need to do

  • Compare the information in the two columns - "Shown on return" and "Reported to IRS by others". Did you receive the income? If you received the income, was it reported on your tax return? IRS employees search the tax return to locate all income, but they may be unable to determine the source if some items are combined.
  • If it wasn't reported on your tax return, you don't need to file an amended return to report the income. Simply check the box indicating that you agree with all changes, sign and date the CP 2030 response page and return it with your check or money order made payable to the United States Treasury.
  • If you agree with the increase, but you can't pay the entire balance due, you may be able to request a payment plan. If you didn't report the income for another reason, please explain.
  • If you don't agree with the increase, check the box indicating that you don’t agree with some or all of the changes on the CP 2030 response page and return it with a signed statement explaining each item of discrepancy. If applicable, attach copies of documents to support the entries on the original return.

You may want to…

  • Send us the name, address and taxpayer identification number of the other party that received the income if it isn't yours.
  • Notify the payers to correct their records to show the name and taxpayer identification number of the person or business who actually received the income, so future reports to us are accurate.

Answers to Common Questions

Is this a bill?

No. We're asking you to verify the income, credits, and deductions reported on your tax return because they're different from the information we received from other sources. The CP 2030 is only a proposal that offers you an opportunity to disagree, partially agree, or agree with the proposed changes. We haven't charged any additional tax at this time.

Why did it take you so long to contact us about this?

Tax years generally end on Dec. 31, but we don't receive information from banks, businesses, and other payers until much later. Once we receive all the tax returns and payer information, we compare the information you reported with the information third party payers provided to us. It can take 8 months or more to complete this review.

Should I call with my response or mail it in?

If you have a simple response, such as directing us to a specific line on your original return where you reported the income, you can call a Customer Service Representative and provide the information. A toll-free number is listed in the top right hand corner of the notice.

A written response may be required if the issue is more involved, especially if you disagree with some of the proposed changes. You may want to mail copies of payer information documents such as Form(s) 1099 or Schedule(s) K-1. Include any other letters or documents that support your position. You should submit a written statement to fully explain any unusual tax situations.

I need more time to find my records and go through them all. Will you allow me additional time to respond?

Your response is due by the date shown on the notice or we'll use the proposed changes to continue processing the case. If you need more time to research your records, you can call the toll-free number at the top of your notice to request a 30 day extension. We may also provide additional time to respond if you have unusual circumstances. Additional interest and any applicable penalties will accrue on the account during the period of the extension if the tax increase is correct.

Do I have to pay the interest? Can you remove it?

The law requires us to charge interest on any tax that isn't paid by the return due date (Internal Revenue Code Section 6601).

The law doesn't permit us to reduce or remove interest for reasonable cause. However, in limited circumstances we may waive penalties. If you believe you qualify for penalty removal, you should include related information in your response.

What should I do to avoid problems like this in the future?

Keep accurate payment information from banks and other payers to verify you've received all payment information for filing your return. Review the documents to be sure they show your most current address.

Take the following actions when filing your tax return to avoid similar issues in the future:

  • Report specific income type on the correct line on the Form 1120, U.S. Corporation Income Tax Return. For example, rental income should be claimed on Form 1120, line 6 (Gross Rents). For additional information, please see the reporting instructions for Form 1120.
  • If you report income on a line not traditionally reserved for that type of income, provide a statement indicating where the income was reported. For example, your business is related to investment activity and you're reporting all interest income (including amounts reported to the IRS on Form 1099-INT, Interest Income) with your gross receipts on Form 1120, line 1.
  • Always attach a statement identifying the source of the amount reported on Form 1120, line 10 (Other Income).
  • Provide an attached statement explaining your percentage of gross proceeds (ex; reported to us on Form 1099-MISC) that you would be liable to claim on your tax return.
  • Generally, if you receive a Form 1099 for amounts that actually belong to another person, you are considered a nominee recipient. You must file a Form 1099 with the IRS (the same type of Form 1099 you received) for each of the other owners showing the amounts applicable to each.
Page Last Reviewed or Updated: 28-Feb-2014

How to get help

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

The How To Amend Taxes Online

How to amend taxes online 8. How to amend taxes online   Qualified Tuition Program (QTP) Table of Contents Introduction What Is a Qualified Tuition ProgramDesignated beneficiary. How to amend taxes online Half-time student. How to amend taxes online How Much Can You Contribute Are Distributions TaxableFiguring the Taxable Portion of a Distribution Additional Tax on Taxable Distributions Rollovers and Other TransfersRollovers Changing the Designated Beneficiary Introduction Qualified tuition programs (QTPs) are also called “529 plans. How to amend taxes online ” States may establish and maintain programs that allow you to either prepay or contribute to an account for paying a student's qualified education expenses at a postsecondary institution. How to amend taxes online Eligible educational institutions may establish and maintain programs that allow you to prepay a student's qualified education expenses. How to amend taxes online If you prepay tuition, the student (designated beneficiary) will be entitled to a waiver or a payment of qualified education expenses. How to amend taxes online You cannot deduct either payments or contributions to a QTP. How to amend taxes online For information on a specific QTP, you will need to contact the state agency or eligible educational institution that established and maintains it. How to amend taxes online What is the tax benefit of a QTP. How to amend taxes online   No tax is due on a distribution from a QTP unless the amount distributed is greater than the beneficiary's adjusted qualified education expenses. How to amend taxes online See Are Distributions Taxable , later, for more information. How to amend taxes online    Even if a QTP is used to finance a student's education, the student or the student's parents still may be eligible to claim the American opportunity credit or the lifetime learning credit. How to amend taxes online See Coordination With American Opportunity and Lifetime Learning Credits, later. How to amend taxes online What Is a Qualified Tuition Program A qualified tuition program is a program set up to allow you to either prepay, or contribute to an account established for paying, a student's qualified education expenses at an eligible educational institution. How to amend taxes online QTPs can be established and maintained by states (or agencies or instrumentalities of a state) and eligible educational institutions. How to amend taxes online The program must meet certain requirements. How to amend taxes online Your state government or the eligible educational institution in which you are interested can tell you whether or not they participate in a QTP. How to amend taxes online Qualified education expenses. How to amend taxes online   These are expenses related to enrollment or attendance at an Eligible educational institution (defined later). How to amend taxes online As shown in the following list, to be qualified, some of the expenses must be required by the institution and some must be incurred by students who are enrolled at least half-time. How to amend taxes online See Half-time student , later. How to amend taxes online The following expenses must be required for enrollment or attendance of a Designated beneficiary (defined later) at an eligible educational institution. How to amend taxes online Tuition and fees. How to amend taxes online Books, supplies, and equipment. How to amend taxes online Expenses for special needs services needed by a special needs beneficiary must be incurred in connection with enrollment or attendance at an eligible educational institution. How to amend taxes online Expenses for room and board must be incurred by students who are enrolled at least half-time. How to amend taxes online The expense for room and board qualifies only to the extent that it is not more than the greater of the following two amounts. How to amend taxes online The allowance for room and board, as determined by the eligible educational institution, that was included in the cost of attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student. How to amend taxes online The actual amount charged if the student is residing in housing owned or operated by the eligible educational institution. How to amend taxes online You will need to contact the eligible educational institution for qualified room and board costs. How to amend taxes online    For tax years after 2010, the purchase of computer technology or equipment is only a qualified education expense if the computer technology or equipment is required for enrollment or attendance at an eligible institution. How to amend taxes online Designated beneficiary. How to amend taxes online   The designated beneficiary is generally the student (or future student) for whom the QTP is intended to provide benefits. How to amend taxes online The designated beneficiary can be changed after participation in the QTP begins. How to amend taxes online If a state or local government or certain tax-exempt organizations purchase an interest in a QTP as part of a scholarship program, the designated beneficiary is the person who receives the interest as a scholarship. How to amend taxes online Half-time student. How to amend taxes online   A student is enrolled “at least half-time” if he or she is enrolled for at least half the full-time academic workload for the course of study the student is pursuing, as determined under the standards of the school where the student is enrolled. How to amend taxes online Eligible educational institution. How to amend taxes online   For purposes of a QTP, this is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U. How to amend taxes online S. How to amend taxes online Department of Education. How to amend taxes online It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. How to amend taxes online The educational institution should be able to tell you if it is an eligible educational institution. How to amend taxes online   Certain educational institutions located outside the United States also participate in the U. How to amend taxes online S. How to amend taxes online Department of Education's Federal Student Aid (FSA) programs. How to amend taxes online   How Much Can You Contribute Contributions to a QTP on behalf of any beneficiary cannot be more than the amount necessary to provide for the qualified education expenses of the beneficiary. How to amend taxes online There are no income restrictions on the individual contributors. How to amend taxes online You can contribute to both a QTP and a Coverdell ESA in the same year for the same designated beneficiary. How to amend taxes online   Are Distributions Taxable The part of a distribution representing the amount paid or contributed to a QTP does not have to be included in income. How to amend taxes online This is a return of the investment in the plan. How to amend taxes online The designated beneficiary generally does not have to include in income any earnings distributed from a QTP if the total distribution is less than or equal to adjusted qualified education expenses (defined under Figuring the Taxable Portion of a Distribution , later). How to amend taxes online Earnings and return of investment. How to amend taxes online    You will receive a Form 1099-Q, from each of the programs from which you received a QTP distribution in 2013. How to amend taxes online The amount of your gross distribution (box 1) shown on each form will be divided between your earnings (box 2) and your basis, or return of investment (box 3). How to amend taxes online Form 1099-Q should be sent to you by January 31, 2014. How to amend taxes online Figuring the Taxable Portion of a Distribution To determine if total distributions for the year are more or less than the amount of qualified education expenses, you must compare the total of all QTP distributions for the tax year to the adjusted qualified education expenses. How to amend taxes online Adjusted qualified education expenses. How to amend taxes online   This amount is the total qualified education expenses reduced by any tax-free educational assistance. How to amend taxes online Tax-free educational assistance includes: The tax-free part of scholarships and fellowships (see Tax-Free Scholarships and Fellowships in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Veterans' educational assistance (see Veterans' Benefits in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Pell grants (see Pell Grants and Other Title IV Need-Based Education Grants in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Employer-provided educational assistance (see chapter 11, Employer-Provided Educational Assistance ), and Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. How to amend taxes online Taxable earnings. How to amend taxes online   Use the following steps to figure the taxable part. How to amend taxes online Multiply the total distributed earnings shown in box 2 of Form 1099-Q by a fraction. How to amend taxes online The numerator is the adjusted qualified education expenses paid during the year and the denominator is the total amount distributed during the year. How to amend taxes online Subtract the amount figured in (1) from the total distributed earnings. How to amend taxes online The result is the amount the beneficiary must include in income. How to amend taxes online Report it on Form 1040 or Form 1040NR, line 21. How to amend taxes online Example 1. How to amend taxes online In 2007, Sara Clarke's parents opened a savings account for her with a QTP maintained by their state government. How to amend taxes online Over the years they contributed $18,000 to the account. How to amend taxes online The total balance in the account was $27,000 on the date the distribution was made. How to amend taxes online In the summer of 2013, Sara enrolled in college and had $8,300 of qualified education expenses for the rest of the year. How to amend taxes online She paid her college expenses from the following sources. How to amend taxes online   Gift from parents $1,600     Partial tuition scholarship (tax-free) 3,100     QTP distribution 5,300           Before Sara can determine the taxable part of her QTP distribution, she must reduce her total qualified education expenses by any tax-free educational assistance. How to amend taxes online   Total qualified education expenses $8,300     Minus: Tax-free educational assistance −3,100     Equals: Adjusted qualified  education expenses (AQEE) $5,200   Since the remaining expenses ($5,200) are less than the QTP distribution, part of the earnings will be taxable. How to amend taxes online Sara's Form 1099-Q shows that $950 of the QTP distribution is earnings. How to amend taxes online Sara figures the taxable part of the distributed earnings as follows. How to amend taxes online   1. How to amend taxes online $950 (earnings) × $5,200 AQEE  $5,300 distribution           =$932 (tax-free earnings)     2. How to amend taxes online $950 (earnings)−$932 (tax-free earnings)     =$18 (taxable earnings)  Sara must include $18 in income (Form 1040, line 21) as distributed QTP earnings not used for adjusted qualified education expenses. How to amend taxes online Coordination With American Opportunity and Lifetime Learning Credits An American opportunity or lifetime learning credit (education credit) can be claimed in the same year the beneficiary takes a tax-free distribution from a QTP, as long as the same expenses are not used for both benefits. How to amend taxes online This means that after the beneficiary reduces qualified education expenses by tax-free educational assistance, he or she must further reduce them by the expenses taken into account in determining the credit. How to amend taxes online Example 2. How to amend taxes online Assume the same facts as in Example 1 , except that Sara's parents claimed an American opportunity credit of $2,500 (based on $4,000 expenses). How to amend taxes online   Total qualified education expenses $8,300     Minus: Tax-free educational assistance −3,100     Minus: Expenses taken into account  in figuring American opportunity credit −4,000     Equals: Adjusted qualified  education expenses (AQEE) $1,200           The taxable part of the distribution is figured as follows. How to amend taxes online   1. How to amend taxes online $950 (earnings) × $1,200 AQEE  $5,300 distribution           =$215 (tax-free earnings)     2. How to amend taxes online $950 (earnings)−$215 (tax-free earnings)     =$735 (taxable earnings)       Sara must include $735 in income (Form 1040, line 21). How to amend taxes online This represents distributed earnings not used for adjusted qualified education expenses. How to amend taxes online Coordination With Coverdell ESA Distributions If a designated beneficiary receives distributions from both a QTP and a Coverdell ESA in the same year, and the total of these distributions is more than the beneficiary's adjusted qualified higher education expenses, the expenses must be allocated between the distributions. How to amend taxes online For purposes of this allocation, disregard any qualified elementary and secondary education expenses. How to amend taxes online Example 3. How to amend taxes online Assume the same facts as in Example 2 , except that instead of receiving a $5,300 distribution from her QTP, Sara received $4,600 from that account and $700 from her Coverdell ESA. How to amend taxes online In this case, Sara must allocate her $1,200 of adjusted qualified higher education expenses (AQHEE) between the two distributions. How to amend taxes online   $1,200 AQHEE × $700 ESA distribution  $5,300 total distribution = $158 AQHEE (ESA)     $1,200 AQHEE × $4,600 QTP distribution  $5,300 total distribution = $1,042 AQHEE (QTP)   Sara then figures the taxable portion of her Coverdell ESA distribution based on qualified higher education expenses of $158, and the taxable portion of her QTP distribution based on the other $1,042. How to amend taxes online Note. How to amend taxes online If you are required to allocate your expenses between Coverdell ESA and QTP distributions, and you have adjusted qualified elementary and secondary education expenses, see the examples in chapter 7, Coverdell Education Savings Account under Coordination With Qualified Tuition Program (QTP) Distributions . How to amend taxes online Coordination With Tuition and Fees Deduction. How to amend taxes online   A tuition and fees deduction can be claimed in the same year the beneficiary takes a tax-free distribution from a QTP, as long as the same expenses are not used for both benefits. How to amend taxes online Losses on QTP Investments If you have a loss on your investment in a QTP account, you may be able to take the loss on your income tax return. How to amend taxes online You can take the loss only when all amounts from that account have been distributed and the total distributions are less than your unrecovered basis. How to amend taxes online Your basis is the total amount of contributions to that QTP account. How to amend taxes online You claim the loss as a miscellaneous itemized deduction on Schedule A (Form 1040), line 23 (Schedule A (Form 1040NR), line 9), subject to the 2%-of-adjusted-gross-income limit. How to amend taxes online If you have distributions from more than one QTP account during a year, you must combine the information (amount of distribution, basis, etc. How to amend taxes online ) from all such accounts in order to determine your taxable earnings for the year. How to amend taxes online By doing this, the loss from one QTP account reduces the distributed earnings (if any) from any other QTP accounts. How to amend taxes online Example 1. How to amend taxes online In 2013, Taylor received a final distribution of $1,000 from QTP #1. How to amend taxes online His unrecovered basis in that account before the distribution was $3,000. How to amend taxes online If Taylor itemizes his deductions, he can claim the $2,000 loss on Schedule A (Form 1040). How to amend taxes online Example 2. How to amend taxes online Assume the same facts as in Example 1 , except that Taylor also had a distribution of $9,000 from QTP #2, giving him total distributions for 2013 of $10,000. How to amend taxes online His total basis in these distributions was $4,500 ($3,000 for QTP #1 and $1,500 for QTP #2). How to amend taxes online Taylor's adjusted qualified education expenses for 2013 totaled $6,000. How to amend taxes online In order to figure his taxable earnings, Taylor combines the two accounts and determines his taxable earnings as follows. How to amend taxes online   1. How to amend taxes online $10,000 (total distribution)−$4,500 (basis portion of distribution)     = $5,500 (earnings included in distribution)   2. How to amend taxes online $5,500 (earnings) x $6,000 AQEE  $10,000 distribution           =$3,300 (tax-free earnings)     3. How to amend taxes online $5,500 (earnings)−$3,300 (tax-free earnings)     =$2,200 (taxable earnings)                 Taylor must include $2,200 in income on Form 1040, line 21. How to amend taxes online Because Taylor's accounts must be combined, he cannot deduct his $2,000 loss (QTP #1) on Schedule A (Form 1040). How to amend taxes online Instead, the $2,000 loss reduces the total earnings that were distributed, thereby reducing his taxable earnings. How to amend taxes online Additional Tax on Taxable Distributions Generally, if you receive a taxable distribution, you also must pay a 10% additional tax on the amount included in income. How to amend taxes online Exceptions. How to amend taxes online   The 10% additional tax does not apply to distributions: Paid to a beneficiary (or to the estate of the designated beneficiary) on or after the death of the designated beneficiary. How to amend taxes online Made because the designated beneficiary is disabled. How to amend taxes online A person is considered to be disabled if he or she shows proof that he or she cannot do any substantial gainful activity because of his or her physical or mental condition. How to amend taxes online A physician must determine that his or her condition can be expected to result in death or to be of long-continued and indefinite duration. How to amend taxes online Included in income because the designated beneficiary received: A tax-free scholarship or fellowship (see Tax-Free Scholarships and Fellowships in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Veterans' educational assistance (see Veterans' Benefits in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Employer-provided educational assistance (see chapter 11, Employer-Provided Educational Assistance ), or Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. How to amend taxes online Made on account of the attendance of the designated beneficiary at a U. How to amend taxes online S. How to amend taxes online military academy (such as the USNA at Annapolis). How to amend taxes online This exception applies only to the extent that the amount of the distribution does not exceed the costs of advanced education (as defined in section 2005(d)(3) of title 10 of the U. How to amend taxes online S. How to amend taxes online Code) attributable to such attendance. How to amend taxes online Included in income only because the qualified education expenses were taken into account in determining the American opportunity or lifetime learning credit (see Coordination With American Opportunity and Lifetime Learning Credits , earlier. How to amend taxes online ) Exception (3) applies only to the extent the distribution is not more than the scholarship, allowance, or payment. How to amend taxes online Figuring the additional tax. How to amend taxes online    Use Part II of Form 5329, to figure any additional tax. How to amend taxes online Report the amount on Form 1040, line 58, or Form 1040NR, line 56. How to amend taxes online Rollovers and Other Transfers Assets can be rolled over or transferred from one QTP to another. How to amend taxes online In addition, the designated beneficiary can be changed without transferring accounts. How to amend taxes online Rollovers Any amount distributed from a QTP is not taxable if it is rolled over to another QTP for the benefit of the same beneficiary or for the benefit of a member of the beneficiary's family (including the beneficiary's spouse). How to amend taxes online An amount is rolled over if it is paid to another QTP within 60 days after the date of the distribution. How to amend taxes online Do not report qualifying rollovers (those that meet the above criteria) anywhere on Form 1040 or 1040NR. How to amend taxes online These are not taxable distributions. How to amend taxes online Members of the beneficiary's family. How to amend taxes online   For these purposes, the beneficiary's family includes the beneficiary's spouse and the following other relatives of the beneficiary. How to amend taxes online Son, daughter, stepchild, foster child, adopted child, or a descendant of any of them. How to amend taxes online Brother, sister, stepbrother, or stepsister. How to amend taxes online Father or mother or ancestor of either. How to amend taxes online Stepfather or stepmother. How to amend taxes online Son or daughter of a brother or sister. How to amend taxes online Brother or sister of father or mother. How to amend taxes online Son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law. How to amend taxes online The spouse of any individual listed above. How to amend taxes online First cousin. How to amend taxes online Example. How to amend taxes online When Aaron graduated from college last year he had $5,000 left in his QTP. How to amend taxes online He wanted to give this money to his younger brother, who was in junior high school. How to amend taxes online In order to avoid paying tax on the distribution of the amount remaining in his account, Aaron contributed the same amount to his brother's QTP within 60 days of the distribution. How to amend taxes online If the rollover is to another QTP for the same beneficiary, only one rollover is allowed within 12 months of a previous transfer to any QTP for that designated beneficiary. How to amend taxes online Changing the Designated Beneficiary There are no income tax consequences if the designated beneficiary of an account is changed to a member of the beneficiary's family. How to amend taxes online See Members of the beneficiary's family , earlier. How to amend taxes online Example. How to amend taxes online Assume the same situation as in the last example. How to amend taxes online Instead of closing his QTP and paying the distribution into his brother's QTP, Aaron could have instructed the trustee of his account to simply change the name of the beneficiary on his account to that of his brother. How to amend taxes online Prev  Up  Next   Home   More Online Publications