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Hr Block State Taxes

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Hr Block State Taxes

Hr block state taxes Publication 524 - Main Content Table of Contents Are You Eligible for the Credit?Qualified Individual Income Limits Credit Figured for You Figuring the Credit YourselfStep 1. Hr block state taxes Determine Initial Amount Step 2. Hr block state taxes Total Certain Nontaxable Pensions and Benefits Step 3. Hr block state taxes Determine Excess Adjusted Gross Income Step 4. Hr block state taxes Determine the Total of Steps 2 and 3 Step 5. Hr block state taxes Determine Your Credit Examples How To Get Tax Help Are You Eligible for the Credit? You can take the credit for the elderly or the disabled if you meet both of the following requirements. Hr block state taxes You are a qualified individual. Hr block state taxes Your income is not more than certain limits. Hr block state taxes You can use Figure A and Table 1 as guides to see if you are eligible for the credit. Hr block state taxes Use Figure A first to see if you are a qualified individual. Hr block state taxes If you are, go to Table 1 to make sure your income is not too high to take the credit. Hr block state taxes You can take the credit only if you file Form 1040 or Form 1040A. Hr block state taxes You cannot take the credit if you file Form 1040EZ or Form 1040NR. Hr block state taxes Qualified Individual You are a qualified individual for this credit if you are a U. Hr block state taxes S. Hr block state taxes citizen or resident alien, and either of the following applies. Hr block state taxes You were age 65 or older at the end of 2013. Hr block state taxes You were under age 65 at the end of 2013 and all three of the following statements are true. Hr block state taxes You retired on permanent and total disability (explained later). Hr block state taxes You received taxable disability income for 2013. Hr block state taxes On January 1, 2013, you had not reached mandatory retirement age (defined later under Disability income ). Hr block state taxes Age 65. Hr block state taxes   You are considered to be age 65 on the day before your 65th birthday. Hr block state taxes As a result, if you were born on January 1, 1949, you are considered to be age 65 at the end of 2013. Hr block state taxes U. Hr block state taxes S. Hr block state taxes Citizen or Resident Alien You must be a U. Hr block state taxes S. Hr block state taxes citizen or resident alien (or be treated as a resident alien) to take the credit. Hr block state taxes Generally, you cannot take the credit if you were a nonresident alien at any time during the tax year. Hr block state taxes Exceptions. Hr block state taxes   You may be able to take the credit if you are a nonresident alien who is married to a U. Hr block state taxes S. Hr block state taxes citizen or resident alien at the end of the tax year and you and your spouse choose to treat you as a U. Hr block state taxes S. Hr block state taxes resident alien. Hr block state taxes If you make that choice, both you and your spouse are taxed on your worldwide incomes. Hr block state taxes   If you were a nonresident alien at the beginning of the year and a resident alien at the end of the year, and you were married to a U. Hr block state taxes S. Hr block state taxes citizen or resident alien at the end of the year, you may be able to choose to be treated as a U. Hr block state taxes S. Hr block state taxes resident alien for the entire year. Hr block state taxes In that case, you may be allowed to take the credit. Hr block state taxes   For information on these choices, see chapter 1 of Publication 519, U. Hr block state taxes S. Hr block state taxes Tax Guide for Aliens. Hr block state taxes Married Persons Generally, if you are married at the end of the tax year, you and your spouse must file a joint return to take the credit. Hr block state taxes However, if you and your spouse did not live in the same household at any time during the tax year, you can file either a joint return or separate returns and still take the credit. Hr block state taxes Head of household. Hr block state taxes   You can file as head of household and qualify to take the credit, even if your spouse lived with you during the first 6 months of the year, if you meet all the following tests. Hr block state taxes You file a separate return. Hr block state taxes You paid more than half the cost of keeping up your home during the tax year. Hr block state taxes Your spouse did not live in your home at any time during the last 6 months of the tax year and the absence was not temporary. Hr block state taxes (See Temporary absences under Head of Household in Publication 501. Hr block state taxes ) Your home was the main home of your child, stepchild, or an eligible foster child for more than half the year. Hr block state taxes An eligible foster child is a child placed with you by an authorized placement agency or by judgment, decree, or other order of any court of competent jurisdiction. Hr block state taxes You can claim an exemption for that child, or you cannot claim the exemption only because the noncustodial parent can claim the child using the rules for children of divorced or separated parents. Hr block state taxes For more information, see Publication 501, Exemptions, Standard Deduction, and Filing Information. Hr block state taxes Figure A. Hr block state taxes Are You a Qualified Individual? Please click here for the text description of the image. Hr block state taxes figure a Under Age 65 If you are under age 65 at the end of 2013, you can qualify for the credit only if you are retired on permanent and total disability (discussed next) and have taxable disability income (discussed later under Disability income ). Hr block state taxes You are retired on permanent and total disability if: You were permanently and totally disabled when you retired, and You retired on disability before the close of the tax year. Hr block state taxes Even if you do not retire formally, you may be considered retired on disability when you have stopped working because of your disability. Hr block state taxes If you retired on disability before 1977, and were not permanently and totally disabled at the time, you can qualify for the credit if you were permanently and totally disabled on January 1, 1976, or January 1, 1977. Hr block state taxes You are considered to be under age 65 at the end of 2013 if you were born after January 1, 1949. Hr block state taxes Permanent and total disability. Hr block state taxes    You are permanently and totally disabled if you cannot engage in any substantial gainful activity because of your physical or mental condition. Hr block state taxes A qualified physician must certify that the condition has lasted or can be expected to last continuously for 12 months or more, or that the condition can be expected to result in death. Hr block state taxes See Physician's statement , later. Hr block state taxes Substantial gainful activity. Hr block state taxes   Substantial gainful activity is the performance of significant duties over a reasonable period of time while working for pay or profit, or in work generally done for pay or profit. Hr block state taxes Full-time work (or part-time work done at your employer's convenience) in a competitive work situation for at least the minimum wage conclusively shows that you are able to engage in substantial gainful activity. Hr block state taxes   Substantial gainful activity is not work you do to take care of yourself or your home. Hr block state taxes It is not unpaid work on hobbies, institutional therapy or training, school attendance, clubs, social programs, and similar activities. Hr block state taxes However, doing this kind of work may show that you are able to engage in substantial gainful activity. Hr block state taxes    The fact that you have not worked for some time is not, of itself, conclusive evidence that you cannot engage in substantial gainful activity. Hr block state taxes   The following examples illustrate the tests of substantial gainful activity. Hr block state taxes Example 1. Hr block state taxes Trisha, a sales clerk, retired on disability. Hr block state taxes She is 53 years old and now works as a full-time babysitter for the minimum wage. Hr block state taxes Even though Trisha is doing different work, she is able to do the duties of her new job in a full-time competitive work situation for the minimum wage. Hr block state taxes She cannot take the credit because she is able to engage in substantial gainful activity. Hr block state taxes Example 2. Hr block state taxes Tom, a bookkeeper, retired on disability. Hr block state taxes He is 59 years old and now drives a truck for a charitable organization. Hr block state taxes He sets his own hours and is not paid. Hr block state taxes Duties of this nature generally are performed for pay or profit. Hr block state taxes Some weeks he works 10 hours, and some weeks he works 40 hours. Hr block state taxes Over the year he averages 20 hours a week. Hr block state taxes The kind of work and his average hours a week conclusively show that Tom is able to engage in substantial gainful activity. Hr block state taxes This is true even though Tom is not paid and he sets his own hours. Hr block state taxes He cannot take the credit. Hr block state taxes Example 3. Hr block state taxes John, who retired on disability, took a job with a former employer on a trial basis. Hr block state taxes The purpose of the job was to see if John could do the work. Hr block state taxes The trial period lasted for 6 months during which John was paid the minimum wage. Hr block state taxes Because of John's disability, he was assigned only light duties of a nonproductive “make-work” nature. Hr block state taxes The activity was gainful because John was paid at least the minimum wage. Hr block state taxes But the activity was not substantial because his duties were nonproductive. Hr block state taxes These facts do not, by themselves, show that John is able to engage in substantial gainful activity. Hr block state taxes Example 4. Hr block state taxes Joan, who retired on disability from a job as a bookkeeper, lives with her sister who manages several motel units. Hr block state taxes Joan helps her sister for 1 or 2 hours a day by performing duties such as washing dishes, answering phones, registering guests, and bookkeeping. Hr block state taxes Joan can select the time of day when she feels most fit to work. Hr block state taxes Work of this nature, performed off and on during the day at Joan's convenience, is not activity of a “substantial and gainful” nature even if she is paid for the work. Hr block state taxes The performance of these duties does not, of itself, show that Joan is able to engage in substantial gainful activity. Hr block state taxes Sheltered employment. Hr block state taxes   Certain work offered at qualified locations to physically or mentally impaired persons is considered sheltered employment. Hr block state taxes These qualified locations are in sheltered workshops, hospitals and similar institutions, homebound programs, and Department of Veterans Affairs (VA) sponsored homes. Hr block state taxes   Compared to commercial employment, pay is lower for sheltered employment. Hr block state taxes Therefore, one usually does not look for sheltered employment if he or she can get other employment. Hr block state taxes The fact that one has accepted sheltered employment is not proof of the person's ability to engage in substantial gainful activity. Hr block state taxes Physician's statement. Hr block state taxes   If you are under age 65, you must have your physician complete a statement certifying that you were permanently and totally disabled on the date you retired. Hr block state taxes You can use the statement in the Instructions for Schedule R. Hr block state taxes   You do not have to file this statement with your Form 1040 or Form 1040A, but you must keep it for your records. Hr block state taxes Veterans. Hr block state taxes    If the Department of Veterans Affairs (VA) certifies that you are permanently and totally disabled, you can substitute VA Form 21-0172, Certification of Permanent and Total Disability, for the physician's statement you are required to keep. Hr block state taxes VA Form 21-0172 must be signed by a person authorized by the VA to do so. Hr block state taxes You can get this form from your local VA regional office. Hr block state taxes Physician's statement obtained in earlier year. Hr block state taxes   If you got a physician's statement in an earlier year and, due to your continued disabled condition, you were unable to engage in any substantial gainful activity during 2013, you may not need to get another physician's statement for 2013. Hr block state taxes For a detailed explanation of the conditions you must meet, see the instructions for Schedule R, Part II. Hr block state taxes If you meet the required conditions, check the box on your Schedule R, Part II, line 2. Hr block state taxes   If you checked box 4, 5, or 6 in Part I of Schedule R, enter in the space above the box on line 2 in Part II the first name(s) of the spouse(s) for whom the box is checked. Hr block state taxes Disability income. Hr block state taxes   If you are under age 65, you must also have taxable disability income to qualify for the credit. Hr block state taxes Disability income must meet both of the following requirements. Hr block state taxes It must be paid under your employer's accident or health plan or pension plan. Hr block state taxes It must be included in your income as wages (or payments instead of wages) for the time you are absent from work because of permanent and total disability. Hr block state taxes Payments that are not disability income. Hr block state taxes    Any payment you receive from a plan that does not provide for disability retirement is not disability income. Hr block state taxes Any lump-sum payment for accrued annual leave that you receive when you retire on disability is a salary payment and is not disability income. Hr block state taxes    For purposes of the credit for the elderly or the disabled, disability income does not include amounts you receive after you reach mandatory retirement age. Hr block state taxes Mandatory retirement age is the age set by your employer at which you would have had to retire, had you not become disabled. Hr block state taxes Income Limits To determine if you can claim the credit, you must consider two income limits. Hr block state taxes The first limit is the amount of your adjusted gross income (AGI). Hr block state taxes The second limit is the amount of nontaxable social security and other nontaxable pensions, annuities, or disability income you received. Hr block state taxes The limits are shown in Table 1. Hr block state taxes If your AGI and your nontaxable pensions, annuities, or disability income are less than the income limits, you may be able to claim the credit. Hr block state taxes See Figuring the Credit Yourself , later. Hr block state taxes Table 1. Hr block state taxes Income Limits IF your filing status is THEN, even if you qualify (see Figure A), you CANNOT take the credit if   Your adjusted gross income (AGI)* is equal to or more than. Hr block state taxes . Hr block state taxes . Hr block state taxes     OR the total of your nontaxable social security and other nontaxable pension(s), annuities, or disability income is equal to or more than. Hr block state taxes . Hr block state taxes . Hr block state taxes   single, head of household, or qualifying widow(er) with dependent child   $17,500     $5,000   married filing jointly and only one spouse qualifies in Figure A   $20,000     $5,000   married filing jointly and both spouses qualify in Figure A   $25,000     $7,500   married filing separately and you lived apart from your spouse for all of 2013   $12,500     $3,750   * AGI is the amount on Form 1040A, line 22, or Form 1040, line 38. Hr block state taxes If your AGI or your nontaxable pensions, annuities, or disability income are equal to or more than the income limits, you cannot take the credit. Hr block state taxes Credit Figured for You You can figure the credit yourself, or the Internal Revenue Service (IRS) will figure it for you. Hr block state taxes See Figuring the Credit Yourself , next. Hr block state taxes If you can take the credit and you want the IRS to figure the credit for you, attach Schedule R to your return. Hr block state taxes Check the appropriate box in Part I of Schedule R and fill in Part II and lines 11, 13a, and 13b of Part III, if they apply to you. Hr block state taxes If you file Form 1040A, enter “CFE” in the space to the left of Form 1040A, line 30. Hr block state taxes If you file Form 1040, check box c on Form 1040, line 53, and enter “CFE” on the line next to that box. Hr block state taxes Attach Schedule R to your return. Hr block state taxes Table 2. Hr block state taxes Initial Amounts IF your filing status is. Hr block state taxes . Hr block state taxes . Hr block state taxes   THEN enter on line 10 of Schedule R. Hr block state taxes . Hr block state taxes . Hr block state taxes single,head of household, or qualifying widow(er) with dependent child and, by the end of 2013, you were       • 65 or older $5,000   • under 65 and retired on permanent and total disability1 $5,000 married filing a joint return and by the end of 2013       • both of you were 65 or older $7,500   • both of you were under 65 and one of you retired on permanent and total disability1 $5,000   • both of you were under 65 and both of you retired on permanent and total disability2 $7,500   • one of you was 65 or older, and the other was under 65 and retired on permanent  and total disability3 $7,500   • one of you was 65 or older, and the other was under 65 and not retired on permanent  and total disability $5,000 married filing a separate return and you did not live with your spouse at any time during the year and, by the end of 2013, you were       • 65 or older $3,750   • under 65 and retired on permanent and total disability1 $3,750   1 Amount cannot be more than the taxable disability income. Hr block state taxes     2 Amount cannot be more than your combined taxable disability income. Hr block state taxes     3 Amount is $5,000 plus the taxable disability income of the spouse under age 65, but not more than $7,500. Hr block state taxes   Figuring the Credit Yourself If you figure the credit yourself, fill out the front of Schedule R. Hr block state taxes Next, fill out Schedule R, Part III. Hr block state taxes If you file Form 1040A, enter the amount from Schedule R, line 22 on line 30. Hr block state taxes If you file Form 1040, include the amount from Schedule R, line 22 on line 53, check box c, and enter “Sch R” on the line next to that box. Hr block state taxes There are five steps in Part III to determine the amount of your credit. Hr block state taxes Determine your initial amount (lines 10–12). Hr block state taxes Determine the total of any nontaxable social security and certain other nontaxable pensions, annuities, and disability benefits you received (lines 13a, 13b, and 13c). Hr block state taxes Determine your excess adjusted gross income (lines 14–17). Hr block state taxes Determine the total of steps 2 and 3 (line 18). Hr block state taxes Determine your credit (lines 19–22). Hr block state taxes These steps are discussed in more detail next. Hr block state taxes Step 1. Hr block state taxes Determine Initial Amount To figure the credit, you must first determine your initial amount using lines 10 through 12. Hr block state taxes See Table 2. Hr block state taxes Your initial amount is on line 12. Hr block state taxes Initial amounts for persons under age 65. Hr block state taxes   If you are a qualified individual under age 65, your initial amount cannot be more than your taxable disability income. Hr block state taxes Special rules for joint returns. Hr block state taxes   If you are a qualified individual under age 65, and your spouse is also a qualified individual, your initial amount is your taxable disability income plus $5,000. Hr block state taxes   If you are a qualified individual, and both you and your spouse are under age 65, your initial amount cannot be more than your combined taxable disability income. Hr block state taxes Step 2. Hr block state taxes Total Certain Nontaxable Pensions and Benefits Step 2 is to figure the total amount of nontaxable social security and certain other nontaxable payments you received during the year. Hr block state taxes You must reduce your initial amount by these payments. Hr block state taxes Enter these nontaxable payments on lines 13a or 13b and total them on line 13c. Hr block state taxes If you are married filing jointly, you must enter the combined amount of nontaxable payments both you and your spouse received. Hr block state taxes Worksheets are provided in the instructions for Forms 1040 and 1040A to help you determine if any of your social security benefits (or equivalent railroad retirement benefits) are taxable. Hr block state taxes Include the following nontaxable payments in the amounts you enter on lines 13a and 13b. Hr block state taxes Nontaxable social security payments. Hr block state taxes This is the nontaxable part of the benefits shown in box 5 of Form SSA-1099, Social Security Benefit Statement, before deducting any amounts withheld to pay premiums on supplementary Medicare insurance, and before any reduction because of benefits received under workers' compensation. Hr block state taxes (Do not include a lump-sum death benefit payment you may receive as a surviving spouse, or a surviving child's insurance benefit payments you may receive as a guardian. Hr block state taxes ) Nontaxable railroad retirement pension payments treated as social security. Hr block state taxes This is the nontaxable part of the benefits shown in box 5 of Form RRB-1099, Payments by the Railroad Retirement Board. Hr block state taxes Nontaxable pension or annuity payments or disability benefits that are paid under a law administered by the Department of Veterans Affairs (VA). Hr block state taxes (Do not include amounts received as a pension, annuity, or similar allowance for personal injuries or sickness resulting from active service in the armed forces of any country or in the National Oceanic and Atmospheric Administration or the Public Health Service, or as a disability annuity under section 808 of the Foreign Service Act of 1980. Hr block state taxes ) Pension or annuity payments or disability benefits that are excluded from income under any provision of federal law other than the Internal Revenue Code. Hr block state taxes (Do not include amounts that are a return of your cost of a pension or annuity. Hr block state taxes These amounts do not reduce your initial amount. Hr block state taxes ) You should be sure to take into account all of the nontaxable amounts you receive. Hr block state taxes These amounts are verified by the IRS through information supplied by other government agencies. Hr block state taxes Step 3. Hr block state taxes Determine Excess Adjusted Gross Income You also must reduce your initial amount by your excess adjusted gross income. Hr block state taxes Figure your excess adjusted gross income on lines 14–17. Hr block state taxes You figure your excess adjusted gross income as follows. Hr block state taxes Subtract from your adjusted gross income (Form 1040A, line 22 or Form 1040, line 38) the amount shown for your filing status. Hr block state taxes $7,500 if you are single, a head of household, or a qualifying widow(er) with dependent child, $10,000 if you are married filing jointly, or $5,000 if you are married filing separately and you and your spouse did not live in the same household at any time during the tax year. Hr block state taxes Divide the result of (1) by 2. Hr block state taxes Step 4. Hr block state taxes Determine the Total of Steps 2 and 3 To determine if you can take the credit, you must add (on line 18) the amounts you figured in Step 2 (line 13c) and Step 3 (line 17). Hr block state taxes Step 5. Hr block state taxes Determine Your Credit Subtract the amount determined in Step 4 (line 18) from the amount determined in Step 1 (line 12), and multiply the result by 15% (. Hr block state taxes 15). Hr block state taxes In certain cases, the amount of your credit may be limited. Hr block state taxes See Limit on credit , later. Hr block state taxes Example. Hr block state taxes You are 66 years old and your spouse is 64. Hr block state taxes Your spouse is not disabled. Hr block state taxes You file a joint return on Form 1040. Hr block state taxes Your adjusted gross income is $14,630. Hr block state taxes Together you received $3,200 from social security, which was nontaxable. Hr block state taxes You figure the credit as follows: Example applying the 5 step process Amount (Line references (shown in parentheses) are to the Schedule R)      1. Hr block state taxes Initial amount (line 12) $5,000 2. Hr block state taxes Total nontaxable social security  and other nontaxable  pensions (line 13c) $3,200   3. Hr block state taxes Excess adjusted gross income  ($14,630–$10,000) ÷ 2 (line 17) 2,315   4. Hr block state taxes Add (2) and (3) (line 18) 5,515 5. Hr block state taxes Subtract (4) from (1) (line 12 – line 18 = line 19) (Do not enter less than -0-) $ -0- You cannot take the credit because your nontaxable social security plus your excess adjusted gross income is more than your initial amount. Hr block state taxes Limit on credit. Hr block state taxes   The amount of credit you can claim is generally limited to the amount of your tax. Hr block state taxes Use the Credit Limit Worksheet in the Instructions for Schedule R to determine if your credit is limited. Hr block state taxes Examples The following examples illustrate the credit for the elderly or the disabled. Hr block state taxes The initial amounts are taken from Table 2, earlier. Hr block state taxes Example 1. Hr block state taxes James Davis is 58 years old, single, and files Form 1040A. Hr block state taxes In 2011 he retired on permanent and total disability, and he is still permanently and totally disabled. Hr block state taxes He got the required physician's statement in 2011 and kept it with his tax records. Hr block state taxes His physician signed on line B of the statement. Hr block state taxes This year James checks the box in Schedule R, Part II. Hr block state taxes He does not need to get another statement for 2013. Hr block state taxes He received the following income for the year: Nontaxable social security $1,500 Interest (taxable) 100 Taxable disability pension 11,400       James' adjusted gross income is $11,500 ($11,400 + $100). Hr block state taxes He figures the credit on Schedule R as follows: 1. Hr block state taxes Initial amount   $5,000 2. Hr block state taxes Taxable disability pension   11,400 3. Hr block state taxes Smaller of line 1 or line 2   5,000 4. Hr block state taxes Nontaxable social security  benefits $1,500     5. Hr block state taxes Excess adjusted gross income  ($11,500 − $7,500) ÷ 2 2,000     6. Hr block state taxes Add lines 4 and 5   3,500 7. Hr block state taxes Subtract line 6 from line 3  (Do not enter less than (-0-))   1,500 8. Hr block state taxes Multiply line 7 by 15% (. Hr block state taxes 15)   225 9. Hr block state taxes Enter the amount from the  Credit Limit Worksheet in the  Instructions for Schedule R, line 21   151 10. Hr block state taxes Credit (Enter the smaller of  line 8 or line 9)   $ 151 He enters $151 on line 30 of Form 1040A. Hr block state taxes The Schedule R for James Davis is not shown. Hr block state taxes Example 2. Hr block state taxes William White is 53. Hr block state taxes His wife Helen is 49. Hr block state taxes William had a stroke 3 years ago and retired on permanent and total disability. Hr block state taxes He is still permanently and totally disabled because of the stroke. Hr block state taxes In November, Helen was injured in an accident at work and retired on permanent and total disability. Hr block state taxes William received nontaxable social security disability benefits of $2,000 during the year and a taxable disability pension of $6,200. Hr block state taxes Helen earned $12,500 from her job and received a taxable disability pension of $1,700. Hr block state taxes Their joint return on Form 1040 shows adjusted gross income of $20,400 ($6,200 + $12,500 + $1,700). Hr block state taxes They do not itemize deductions. Hr block state taxes They do not have any amounts that would increase their standard deduction. Hr block state taxes Helen's doctor completed the physician's statement in the Instructions for Schedule R. Hr block state taxes Helen is not required to include the statement with their return, but she must keep it for her records. Hr block state taxes William got a physician's statement for the year he had the stroke. Hr block state taxes His doctor had signed on line B of that physician's statement to certify that William was permanently and totally disabled. Hr block state taxes William has kept the physician's statement with his records. Hr block state taxes He checks the box on Schedule R, Part II and writes his first name in the space above the box on line 2. Hr block state taxes William and Helen use Schedule R to figure their $41 credit for the elderly or the disabled. Hr block state taxes They attach Schedule R to their Form 1040 and enter $41 on line 53. Hr block state taxes They check box c on line 53 and enter “Sch R” on the line next to that box. Hr block state taxes See their filled-in Schedule R and Helen's filled-in physician's statement, later. Hr block state taxes Instructions for Physician's Statement     Taxpayer Physician If you retired after 1976, enter the date you retired in the space provided on the statement below. Hr block state taxes A person is permanently and totally disabled if both of the following apply:   1. Hr block state taxes He or she cannot engage in any substantial gainful activity because of a physical or mental condition. Hr block state taxes   2. Hr block state taxes A physician determines that the disability has lasted or can be expected to last continuously for at least a year or can lead to death. Hr block state taxes Physician's Statement     I certify that Helen A. Hr block state taxes White Name of disabled person was permanently and totally disabled on January 1, 1976, or January 1, 1977, or was permanently and totally disabled on the date he or she retired. Hr block state taxes If retired after 1976, enter the date retired ▶ November 1, 2013   Physician: Sign your name on either A or B below. Hr block state taxes AThe disability has lasted or can be expected to last continuously for at least a year     Physician's signatureDate BThere is no reasonable probability that the disabled condition will ever improve Ayden D. Hr block state taxes Doctor 2/8/14   Physician's signatureDate Physician's name Physician's address Ayden D. Hr block state taxes Doctor 1900 Green St. Hr block state taxes , Hometown, MD 20000         This image is too large to be displayed in the current screen. Hr block state taxes Please click the link to view the image. Hr block state taxes Page 1 of Schedule R for the Whites This image is too large to be displayed in the current screen. Hr block state taxes Please click the link to view the image. Hr block state taxes Page 2 of Schedule R for the Whites How To Get Tax Help Go online, use a smart phone, call or walk in to an office near you. Hr block state taxes Whether it's help with a tax issue, preparing your tax return or picking up a free publication or form, get the help you need the way you want it. Hr block state taxes Free help with your tax return. Hr block state taxes   Free help in preparing your return is available nationwide from IRS-certified volunteers. Hr block state taxes The Volunteer Income Tax Assistance (VITA) program is designed to help low-to-moderate income, elderly, persons with disabilities, and limited English proficient taxpayers. Hr block state taxes The Tax Counseling for the Elderly (TCE) program is designed to assist taxpayers age 60 and older with their tax returns. Hr block state taxes Most VITA and TCE sites offer free electronic filing and all volunteers will let you know about credits and deductions you may be entitled to claim. Hr block state taxes Some VITA and TCE sites provide taxpayers the opportunity to prepare their return with the assistance of an IRS-certified volunteer. Hr block state taxes To find the nearest VITA or TCE site, visit IRS. Hr block state taxes gov or call 1-800-906-9887. Hr block state taxes   As part of the TCE program, AARP offers the Tax-Aide counseling program. Hr block state taxes To find the nearest AARP Tax-Aide site, visit AARP's website at www. Hr block state taxes aarp. Hr block state taxes org/money/taxaide or call 1-888-227-7669. Hr block state taxes   For more information on these programs, go to IRS. Hr block state taxes gov and enter “VITA” in the search box. Hr block state taxes Internet. Hr block state taxes IRS. Hr block state taxes gov and IRS2Go are ready when you are — every day, every night, 24 hours a day, 7 days a week. Hr block state taxes Apply for an Employer Identification Number (EIN). Hr block state taxes Go to IRS. Hr block state taxes gov and enter Apply for an EIN in the search box. Hr block state taxes Request an Electronic Filing PIN by going to IRS. Hr block state taxes gov and entering Electronic Filing PIN in the search box. Hr block state taxes Check the status of your 2013 refund with Where's My Refund? Go to IRS. Hr block state taxes gov or the IRS2Go app, and click on Where's My Refund? You'll get a personalized refund date as soon as the IRS processes your tax return and approves your refund. Hr block state taxes If you e-file, your refund status is usually available within 24 hours after the IRS receives your tax return or 4 weeks after you've mailed a paper return. Hr block state taxes Check the status of your amended return. Hr block state taxes Go to IRS. Hr block state taxes gov and enter Where's My Amended Return in the search box. Hr block state taxes Download forms, instructions, and publications, including some accessible versions. Hr block state taxes Order free transcripts of your tax returns or tax account using the Order a Transcript tool on IRS. Hr block state taxes gov or IRS2Go. Hr block state taxes Tax return and tax account transcripts are generally available for the current year and past three years. Hr block state taxes Figure your income tax withholding with the IRS Withholding Calculator on IRS. Hr block state taxes gov. Hr block state taxes Use it if you've had too much or too little withheld, your personal situation has changed, you're starting a new job or you just want to see if you're having the right amount withheld. Hr block state taxes Determine if you might be subject to the Alternative Minimum Tax by using the Alternative Minimum Tax Assistant on IRS. Hr block state taxes gov. Hr block state taxes Locate the nearest Taxpayer Assistance Center using the Office Locator tool on IRS. Hr block state taxes gov or IRS2Go. Hr block state taxes Stop by most business days for face-to-face tax help, no appointment necessary — just walk in. Hr block state taxes An employee can explain IRS letters, request adjustments to your tax account or help you set up a payment plan. Hr block state taxes Before you visit, check the Office Locator for the address, phone number, hours of operation and the services provided. Hr block state taxes If you have an ongoing tax account problem or a special need, such as a disability, you can request an appointment. Hr block state taxes Call the local number listed in the Office Locator, or look in the phone book under United States Government, Internal Revenue Service. Hr block state taxes Locate the nearest volunteer help site with the VITA Locator Tool on IRS. Hr block state taxes gov. Hr block state taxes Low-to-moderate income, elderly, persons with disabilities, and limited English proficient taxpayers can get free help with their tax return from the nationwide Volunteer Income Tax Assistance (VITA) program. Hr block state taxes The Tax Counseling for the Elderly (TCE) program helps taxpayers 60 and older with their tax returns. Hr block state taxes Most VITA and TCE sites offer free electronic filing and some provide IRS-certified volunteers who can help prepare your tax return. Hr block state taxes AARP offers the Tax-Aide counseling program as part of the TCE program. Hr block state taxes Visit AARP's website to find the nearest Tax-Aide location. Hr block state taxes Research your tax questions. Hr block state taxes Search publications and instructions by topic or keyword. Hr block state taxes Read the Internal Revenue Code, regulations, or other official guidance. Hr block state taxes Read Internal Revenue Bulletins. Hr block state taxes Sign up to receive local and national tax news by email. Hr block state taxes Phone. Hr block state taxes You can call the IRS, or you can carry it in your pocket with the IRS2Go app on your smart phone or tablet. Hr block state taxes Download the free IRS2Go mobile app from the iTunes app store or from Google Play. Hr block state taxes Use it to watch the IRS YouTube channel, get IRS news as soon as it's released to the public, order transcripts of your tax returns or tax account, check your refund status, subscribe to filing season updates or daily tax tips, and follow the IRS Twitter news feed, @IRSnews, to get the latest federal tax news, including information about tax law changes and important IRS programs. Hr block state taxes Call to locate the nearest volunteer help site, 1-800-906-9887. Hr block state taxes Low-to-moderate income, elderly, persons with disabilities, and limited English proficient taxpayers can get free help with their tax return from the nationwide Volunteer Income Tax Assistance (VITA) program. Hr block state taxes The Tax Counseling for the Elderly (TCE) program helps taxpayers 60 and older with their tax returns. Hr block state taxes Most VITA and TCE sites offer free electronic filing. Hr block state taxes Some VITA and TCE sites provide IRS-certified volunteers who can help prepare your tax return. Hr block state taxes Through the TCE program, AARP offers the Tax-Aide counseling program; call 1-888-227-7669 to find the nearest Tax-Aide location. Hr block state taxes Call to check the status of your 2013 refund, 1-800-829-1954 or 1-800-829-4477. Hr block state taxes The automated Where's My Refund? information is available 24 hours a day, 7 days a week. Hr block state taxes If you e-file, your refund status is usually available within 24 hours after the IRS receives your tax return or 4 weeks after you've mailed a paper return. Hr block state taxes Before you call, have your 2013 tax return handy so you can provide your social security number, your filing status, and the exact whole dollar amount of your refund. Hr block state taxes Where's My Refund? can give you a personalized refund date as soon as the IRS processes your tax return and approves your refund. Hr block state taxes Where's My Refund? includes information for the most recent return filed in the current year and does not include information about amended returns. Hr block state taxes Call the Amended Return Hotline, 1-866-464-2050, to check the status of your amended return. Hr block state taxes Call to order forms, instructions and publications, 1-800-TAX-FORM (1-800-829-3676) to order current-year forms, instructions and publications, and prior-year forms and instructions (limited to 5 years). Hr block state taxes You should receive your order within 10 business days. Hr block state taxes Call to order transcripts of your tax returns or tax account, 1-800-908-9946. Hr block state taxes Follow the prompts to provide your Social Security Number or Individual Taxpayer Identification Number, date of birth, street address and ZIP code. Hr block state taxes Call for TeleTax topics, 1-800-829-4477, to listen to pre-recorded messages covering various tax topics. Hr block state taxes Call to ask tax questions, 1-800-829-1040. Hr block state taxes Call using TTY/TDD equipment, 1-800-829-4059 to ask tax questions or order forms and publications. Hr block state taxes The TTY/TDD telephone number is for people who are deaf, hard of hearing, or have a speech disability. Hr block state taxes These individuals can also contact the IRS through relay services such as the Federal Relay Service available at www. Hr block state taxes gsa. Hr block state taxes gov/fedrelay. Hr block state taxes Walk-in. Hr block state taxes You can find a selection of forms, publications and services — in-person, face-to-face. Hr block state taxes Products. Hr block state taxes You can walk in to some post offices, libraries, and IRS offices to pick up certain forms, instructions, and publications. Hr block state taxes Some IRS offices, libraries, and city and county government offices have a collection of products available to photocopy from reproducible proofs. Hr block state taxes Services. Hr block state taxes You can walk in to your local TAC most business days for personal, face-to-face tax help. Hr block state taxes An employee can explain IRS letters, request adjustments to your tax account, or help you set up a payment plan. Hr block state taxes If you need to resolve a tax problem, have questions about how the tax law applies to your individual tax return, or you are more comfortable talking with someone in person, visit your local TAC where you can talk with an IRS representative face-to-face. Hr block state taxes No appointment is necessary—just walk in. Hr block state taxes Before visiting, check www. Hr block state taxes irs. Hr block state taxes gov/localcontacts for hours of operation and services provided. Hr block state taxes Mail. Hr block state taxes You can send your order for forms, instructions, and publications to the address below. Hr block state taxes You should receive a response within 10 business days after your request is received. Hr block state taxes  Internal Revenue Service 1201 N. Hr block state taxes Mitsubishi Motorway Bloomington, IL 61705-6613 The Taxpayer Advocate Service Is Here to Help You. Hr block state taxes   The Taxpayer Advocate Service (TAS) is your voice at the IRS. Hr block state taxes Our job is to ensure that every taxpayer is treated fairly and that you know and understand your rights. Hr block state taxes What can TAS do for you?   We can offer you free help with IRS problems that you can't resolve on your own. Hr block state taxes We know this process can be confusing, but the worst thing you can do is nothing at all! TAS can help if you can't resolve your tax problem and: Your problem is causing financial difficulties for you, your family, or your business. Hr block state taxes You face (or your business is facing) an immediate threat of adverse action. Hr block state taxes You've tried repeatedly to contact the IRS but no one has responded, or the IRS hasn't responded by the date promised. Hr block state taxes   If you qualify for our help, you'll be assigned to one advocate who'll be with you at every turn and will do everything possible to resolve your problem. Hr block state taxes Here's why we can help: TAS is an independent organization within the IRS. Hr block state taxes Our advocates know how to work with the IRS. Hr block state taxes Our services are free and tailored to meet your needs. Hr block state taxes We have offices in every state, the District of Columbia, and Puerto Rico. Hr block state taxes How can you reach us?   If you think TAS can help you, call your local advocate, whose number is in your local directory and at www. Hr block state taxes irs. Hr block state taxes gov/advocate, or call us toll-free at 1-877-777-4778. Hr block state taxes How else does TAS help taxpayers?   TAS also works to resolve large-scale, systemic problems that affect many taxpayers. Hr block state taxes If you know of one of these broad issues, please report it to us through our Systemic Advocacy Management System at www. Hr block state taxes irs. Hr block state taxes gov/sams. Hr block state taxes Low Income Taxpayer Clinics. Hr block state taxes   Low Income Taxpayer Clinics (LITCs) serve individuals whose income is below a certain level and need to resolve tax problems such as audits, appeals, and tax collection disputes. Hr block state taxes Some clinics can provide information about taxpayer rights and responsibilities in different languages for individuals who speak English as a second language. Hr block state taxes Visit www. Hr block state taxes TaxpayerAdvocate. Hr block state taxes irs. Hr block state taxes gov or see IRS Publication 4134, Low Income Taxpayer Clinic List. 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The Hr Block State Taxes

Hr block state taxes 3. Hr block state taxes   Investment Expenses Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: Limits on DeductionsPassive activity. Hr block state taxes Other income (nonpassive income). Hr block state taxes Expenses. Hr block state taxes Additional information. Hr block state taxes Interest ExpensesInvestment Interest Limit on Deduction Bond Premium AmortizationSpecial rules to determine amounts payable on a bond. Hr block state taxes Basis. Hr block state taxes How To Figure Amortization Choosing To Amortize How To Report Amortization Expenses of Producing IncomeFees to buy or sell. Hr block state taxes Including mutual fund or REMIC expenses in income. Hr block state taxes Nondeductible ExpensesUsed as collateral. Hr block state taxes Short-sale expenses. Hr block state taxes Expenses for both tax-exempt and taxable income. Hr block state taxes State income taxes. Hr block state taxes Nondeductible amount. Hr block state taxes Basis adjustment. Hr block state taxes How To Report Investment Expenses When To Report Investment Expenses Topics - This chapter discusses: Limits on Deductions , Interest Expenses , Bond Premium Amortization , Expenses of Producing Income , Nondeductible Expenses , How To Report Investment Expenses , and When To Report Investment Expenses . Hr block state taxes Useful Items - You may want to see: Publication 535 Business Expenses 925 Passive Activity and At-Risk Rules 929 Tax Rules for Children and Dependents Form (and Instructions) Schedule A (Form 1040) Itemized Deductions 4952 Investment Interest Expense Deduction See chapter 5, How To Get Tax Help , for information about getting these publications and forms. Hr block state taxes Limits on Deductions Your deductions for investment expenses may be limited by: The at-risk rules, The passive activity loss limits, The limit on investment interest, or The 2% limit on certain miscellaneous itemized deductions. Hr block state taxes The at-risk rules and passive activity rules are explained briefly in this section. Hr block state taxes The limit on investment interest is explained later in this chapter under Interest Expenses . Hr block state taxes The 2% limit is explained later in this chapter under Expenses of Producing Income . Hr block state taxes At-risk rules. Hr block state taxes   Special at-risk rules apply to most income-producing activities. Hr block state taxes These rules limit the amount of loss you can deduct to the amount you risk losing in the activity. Hr block state taxes Generally, this is the cash and the adjusted basis of property you contribute to the activity. Hr block state taxes It also includes money you borrow for use in the activity if you are personally liable for repayment or if you use property not used in the activity as security for the loan. Hr block state taxes For more information, see Publication 925. Hr block state taxes Passive activity losses and credits. Hr block state taxes   The amount of losses and tax credits you can claim from passive activities is limited. Hr block state taxes Generally, you are allowed to deduct passive activity losses only up to the amount of your passive activity income. Hr block state taxes Also, you can use credits from passive activities only against tax on the income from passive activities. Hr block state taxes There are exceptions for certain activities, such as rental real estate activities. Hr block state taxes Passive activity. Hr block state taxes   A passive activity generally is any activity involving the conduct of any trade or business in which you do not materially participate and any rental activity. Hr block state taxes However, if you are involved in renting real estate, the activity is not a passive activity if both of the following are true. Hr block state taxes More than one-half of the personal services you perform during the year in all trades or businesses are performed in real property trades or businesses in which you materially participate. Hr block state taxes You perform more than 750 hours of services during the year in real property trades or businesses in which you materially participate. Hr block state taxes  The term “trade or business” generally means any activity that involves the conduct of a trade or business, is conducted in anticipation of starting a trade or business, or involves certain research or experimental expenditures. Hr block state taxes However, it does not include rental activities or certain activities treated as incidental to holding property for investment. Hr block state taxes   You are considered to materially participate in an activity if you are involved on a regular, continuous, and substantial basis in the operations of the activity. Hr block state taxes Other income (nonpassive income). Hr block state taxes    Generally, you can use losses from passive activities only to offset income from passive activities. Hr block state taxes You cannot use passive activity losses to offset your other income, such as your wages or your portfolio income. Hr block state taxes Portfolio income includes gross income from interest, dividends, annuities, or royalties that is not derived in the ordinary course of a trade or business. Hr block state taxes It also includes gains or losses (not derived in the ordinary course of a trade or business) from the sale or trade of property (other than an interest in a passive activity) producing portfolio income or held for investment. Hr block state taxes This includes capital gain distributions from mutual funds (and other regulated investment companies) and real estate investment trusts. Hr block state taxes   You cannot use passive activity losses to offset Alaska Permanent Fund dividends. Hr block state taxes Expenses. Hr block state taxes   Do not include in the computation of your passive activity income or loss: Expenses (other than interest) that are clearly and directly allocable to your portfolio income, or Interest expense properly allocable to portfolio income. Hr block state taxes However, this interest and other expenses may be subject to other limits. Hr block state taxes These limits are explained in the rest of this chapter. Hr block state taxes Additional information. Hr block state taxes   For more information about determining and reporting income and losses from passive activities, see Publication 925. Hr block state taxes Interest Expenses This section discusses interest expenses you may be able to deduct as an investor. Hr block state taxes For information on business interest, see chapter 4 of Publication 535. Hr block state taxes You cannot deduct personal interest expenses other than qualified home mortgage interest, as explained in Publication 936, Home Mortgage Interest Deduction, and interest on certain student loans, as explained in Publication 970. Hr block state taxes Investment Interest If you borrow money to buy property you hold for investment, the interest you pay is investment interest. Hr block state taxes You can deduct investment interest subject to the limit discussed later. Hr block state taxes However, you cannot deduct interest you incurred to produce tax-exempt income. Hr block state taxes See Tax-exempt income under Nondeductible Expenses, later. Hr block state taxes You also cannot deduct interest expenses on straddles discussed under Interest expense and carrying charges on straddles , later. Hr block state taxes Investment interest does not include any qualified home mortgage interest or any interest taken into account in computing income or loss from a passive activity. Hr block state taxes Investment property. Hr block state taxes   Property held for investment includes property that produces interest, dividends, annuities, or royalties not derived in the ordinary course of a trade or business. Hr block state taxes It also includes property that produces gain or loss (not derived in the ordinary course of a trade or business) from the sale or trade of property producing these types of income or held for investment (other than an interest in a passive activity). Hr block state taxes Investment property also includes an interest in a trade or business activity in which you did not materially participate (other than a passive activity). Hr block state taxes Partners, shareholders, and beneficiaries. Hr block state taxes   To determine your investment interest, combine your share of investment interest from a partnership, S corporation, estate, or trust with your other investment interest. Hr block state taxes Allocation of Interest Expense If you borrow money for business or personal purposes as well as for investment, you must allocate the debt among those purposes. Hr block state taxes Only the interest expense on the part of the debt used for investment purposes is treated as investment interest. Hr block state taxes The allocation is not affected by the use of property that secures the debt. Hr block state taxes Example 1. Hr block state taxes You borrow $10,000 and use $8,000 to buy stock. Hr block state taxes You use the other $2,000 to buy items for your home. Hr block state taxes Since 80% of the debt is used for, and allocated to, investment purposes, 80% of the interest on that debt is investment interest. Hr block state taxes The other 20% is nondeductible personal interest. Hr block state taxes Debt proceeds received in cash. Hr block state taxes   If you receive debt proceeds in cash, the proceeds are generally not treated as investment property. Hr block state taxes Debt proceeds deposited in account. Hr block state taxes   If you deposit debt proceeds in an account, that deposit is treated as investment property, regardless of whether the account bears interest. Hr block state taxes But, if you withdraw the funds and use them for another purpose, you must reallocate the debt to determine the amount considered to be for investment purposes. Hr block state taxes Example 2. Hr block state taxes Assume in Example 1 that you borrowed the money on March 1 and immediately bought the stock for $8,000. Hr block state taxes You did not buy the household items until June 1. Hr block state taxes You had deposited the $2,000 in the bank. Hr block state taxes You had no other transactions on the bank account until June. Hr block state taxes You did not sell the stock, and you made no principal payments on the debt. Hr block state taxes You paid interest from another account. Hr block state taxes The $8,000 is treated as being used for an investment purpose. Hr block state taxes The $2,000 is treated as being used for an investment purpose for the 3-month period. Hr block state taxes Your total interest expense for 3 months on this debt is investment interest. Hr block state taxes In June, when you spend the $2,000 for household items, you must begin to allocate 80% of the debt and the interest expense to investment purposes and 20% to personal purposes. Hr block state taxes Amounts paid within 30 days. Hr block state taxes   If you receive loan proceeds in cash or if the loan proceeds are deposited in an account, you can treat any payment (up to the amount of the proceeds) made from any account you own, or from cash, as made from those proceeds. Hr block state taxes This applies to any payment made within 30 days before or after the proceeds are received in cash or deposited in your account. Hr block state taxes   If you received the loan proceeds in cash, you can treat the payment as made on the date you received the cash instead of the date you actually made the payment. Hr block state taxes Payments on debt may require new allocation. Hr block state taxes   As you repay a debt used for more than one purpose, you must reallocate the balance. Hr block state taxes You must first reduce the amount allocated to personal purposes by the repayment. Hr block state taxes You then reallocate the rest of the debt to find what part is for investment purposes. Hr block state taxes Example 3. Hr block state taxes If, in Example 2 , you repay $500 on November 1, the entire repayment is applied against the amount allocated to personal purposes. Hr block state taxes The debt balance is now allocated as $8,000 for investment purposes and $1,500 for personal purposes. Hr block state taxes Until the next reallocation is necessary, 84% ($8,000 ÷ $9,500) of the debt and the interest expense is allocated to investment. Hr block state taxes Pass-through entities. Hr block state taxes   If you use borrowed funds to buy an interest in a partnership or S corporation, then the interest on those funds must be allocated based on the assets of the entity. Hr block state taxes If you contribute to the capital of the entity, you can make the allocation using any reasonable method. Hr block state taxes Additional allocation rules. Hr block state taxes   For more information about allocating interest expense, see chapter 4 of Publication 535. Hr block state taxes When To Deduct Investment Interest If you use the cash method of accounting, you must pay the interest before you can deduct it. Hr block state taxes If you use an accrual method of accounting, you can deduct interest over the period it accrues, regardless of when you pay it. Hr block state taxes For an exception, see Unpaid expenses owed to related party under When To Report Investment Expenses, later in this chapter. Hr block state taxes Example. Hr block state taxes You borrowed $1,000 on August 26, 2013, payable in 90 days at 12% interest. Hr block state taxes On November 26, 2013, you paid this with a new note for $1,030, due on February 26, 2014. Hr block state taxes If you use the cash method of accounting, you cannot deduct any part of the $30 interest on your return for 2013 because you did not actually pay it. Hr block state taxes If you use an accrual method, you may be able to deduct a portion of the interest on the loans through December 31, 2013, on your return for 2013. Hr block state taxes Interest paid in advance. Hr block state taxes   Generally, if you pay interest in advance for a period that goes beyond the end of the tax year, you must spread the interest over the tax years to which it belongs under the OID rules discussed in chapter 1. Hr block state taxes You can deduct in each year only the interest for that year. Hr block state taxes Interest on margin accounts. Hr block state taxes   If you are a cash method taxpayer, you can deduct interest on margin accounts to buy taxable securities as investment interest in the year you paid it. Hr block state taxes You are considered to have paid interest on these accounts only when you actually pay the broker or when payment becomes available to the broker through your account. Hr block state taxes Payment may become available to the broker through your account when the broker collects dividends or interest for your account, or sells securities held for you or received from you. Hr block state taxes   You cannot deduct any interest on money borrowed for personal reasons. Hr block state taxes Limit on interest deduction for market discount bonds. Hr block state taxes   The amount you can deduct for interest expense you paid or accrued during the year to buy or carry a market discount bond may be limited. Hr block state taxes This limit does not apply if you accrue the market discount and include it in your income currently. Hr block state taxes   Under this limit, the interest is deductible only to the extent it is more than: The total interest and OID includible in gross income for the bond for the year, plus The market discount for the number of days you held the bond during the year. Hr block state taxes Figure the amount in (2) above using the rules for figuring accrued market discount in chapter 1 under Market Discount Bonds . Hr block state taxes Interest not deducted due to limit. Hr block state taxes   In the year you dispose of the bond, you can deduct any interest expense you were not allowed to deduct in earlier years because of the limit. Hr block state taxes Choosing to deduct disallowed interest expense before the year of disposition. Hr block state taxes   You can choose to deduct disallowed interest expense in any year before the year you dispose of the bond, up to your net interest income from the bond during the year. Hr block state taxes The rest of the disallowed interest expense remains deductible in the year you dispose of the bond. Hr block state taxes Net interest income. Hr block state taxes   This is the interest income (including OID) from the bond that you include in income for the year, minus the interest expense paid or accrued during the year to purchase or carry the bond. Hr block state taxes Limit on interest deduction for short-term obligations. Hr block state taxes   If the current income inclusion rules discussed in chapter 1 under Discount on Short-Term Obligations do not apply to you, the amount you can deduct for interest expense you paid or accrued during the year to buy or carry a short-term obligation is limited. Hr block state taxes   The interest is deductible only to the extent it is more than: The amount of acquisition discount or OID on the obligation for the tax year, plus The amount of any interest payable on the obligation for the year that is not included in income because of your accounting method (other than interest taken into account in determining the amount of acquisition discount or OID). Hr block state taxes The method of determining acquisition discount and OID for short-term obligations is discussed in chapter 1 under Discount on Short-Term Obligations . Hr block state taxes Interest not deducted due to limit. Hr block state taxes   In the year you dispose of the obligation, or, if you choose, in another year in which you have net interest income from the obligation, you can deduct any interest expense you were not allowed to deduct for an earlier year because of the limit. Hr block state taxes Follow the same rules provided in the earlier discussion under Limit on interest deduction for market discount bonds , earlier. Hr block state taxes Limit on Deduction Generally, your deduction for investment interest expense is limited to your net investment income. Hr block state taxes You can carry over the amount of investment interest you could not deduct because of this limit to the next tax year. Hr block state taxes The interest carried over is treated as investment interest paid or accrued in that next year. Hr block state taxes You can carry over disallowed investment interest to the next tax year even if it is more than your taxable income in the year the interest was paid or accrued. Hr block state taxes Net Investment Income Determine the amount of your net investment income by subtracting your investment expenses (other than interest expense) from your investment income. Hr block state taxes Investment income. Hr block state taxes   This generally includes your gross income from property held for investment (such as interest, dividends, annuities, and royalties). Hr block state taxes Investment income does not include Alaska Permanent Fund dividends. Hr block state taxes It also does not include qualified dividends or net capital gain unless you choose to include them. Hr block state taxes Choosing to include qualified dividends. Hr block state taxes   Investment income generally does not include qualified dividends, discussed in chapter 1. Hr block state taxes However, you can choose to include all or part of your qualified dividends in investment income. Hr block state taxes   You make this choice by completing Form 4952, line 4g, according to its instructions. Hr block state taxes   If you choose to include any of your qualified dividends in investment income, you must reduce your qualified dividends that are eligible for the lower capital gains tax rates by the same amount. Hr block state taxes Choosing to include net capital gain. Hr block state taxes    Investment income generally does not include net capital gain from disposing of investment property (including capital gain distributions from mutual funds). Hr block state taxes However, you can choose to include all or part of your net capital gain in investment income. Hr block state taxes   You make this choice by completing Form 4952, line 4g, according to its instructions. Hr block state taxes   If you choose to include any of your net capital gain in investment income, you must reduce your net capital gain that is eligible for the lower capital gains tax rates by the same amount. Hr block state taxes   For more information about the capital gains rates, see Capital Gain Tax Rates in chapter 4. Hr block state taxes    Before making either choice, consider the overall effect on your tax liability. Hr block state taxes Compare your tax if you make one or both of these choices with your tax if you do not. Hr block state taxes Investment income of child reported on parent's return. Hr block state taxes   Investment income includes the part of your child's interest and dividend income you choose to report on your return. Hr block state taxes If the child does not have qualified dividends, Alaska Permanent Fund dividends, or capital gain distributions, this is the amount on line 6 of Form 8814. Hr block state taxes Include it on line 4a of Form 4952. Hr block state taxes Example. Hr block state taxes Your 8-year-old son has interest income of $2,200, which you choose to report on your own return. Hr block state taxes You enter $2,200 on Form 8814, lines 1a and 4, and $200 on lines 6 and 12 and complete Part II. Hr block state taxes Also enter $200 on Form 1040, line 21. Hr block state taxes Your investment income includes this $200. Hr block state taxes Child's qualified dividends. Hr block state taxes   If part of the amount you report is your child's qualified dividends, that part (which is reported on Form 1040, line 9b) generally does not count as investment income. Hr block state taxes However, you can choose to include all or part of it in investment income, as explained under Choosing to include qualified dividends , earlier. Hr block state taxes   Your investment income also includes the amount on Form 8814, line 12 (or, if applicable, the reduced amount figured next under Child's Alaska Permanent Fund dividends). Hr block state taxes Child's Alaska Permanent Fund dividends. Hr block state taxes   If part of the amount you report is your child's Alaska Permanent Fund dividends, that part does not count as investment income. Hr block state taxes To figure the amount of your child's income that you can consider your investment income, start with the amount on Form 8814, line 6. Hr block state taxes Multiply that amount by a percentage that is equal to the Alaska Permanent Fund dividends divided by the total amount on Form 8814, line 4. Hr block state taxes Subtract the result from the amount on Form 8814, line 12. Hr block state taxes Example. Hr block state taxes Your 10-year-old child has taxable interest income of $4,000 and Alaska Permanent Fund dividends of $2,000. Hr block state taxes You choose to report this on your return. Hr block state taxes You enter $4,000 on Form 8814, line 1a, $2,000 on line 2a, and $6,000 on line 4. Hr block state taxes You then enter $4,000 on Form 8814, lines 6 and 12, and Form 1040, line 21. Hr block state taxes You figure the amount of your child's income that you can consider your investment income as follows: $4,000 − ($4,000 × ($2,000 ÷ $6,000)) = $2,667 You include the result, $2,667, on Form 4952, line 4a. Hr block state taxes Child's capital gain distributions. Hr block state taxes   If part of the amount you report is your child's capital gain distributions, that part (which is reported on Schedule D (Form 1040), line 13, or Form 1040, line 13) generally does not count as investment income. Hr block state taxes However, you can choose to include all or part of it in investment income, as explained in Choosing to include net capital gain , earlier. Hr block state taxes   Your investment income also includes the amount on Form 8814, line 12 (or, if applicable, the reduced amount figured under Child's Alaska Permanent Fund dividends , earlier). Hr block state taxes Investment expenses. Hr block state taxes   Investment expenses are your allowed deductions (other than interest expense) directly connected with the production of investment income. Hr block state taxes Investment expenses that are included as a miscellaneous itemized deduction on Schedule A (Form 1040) are allowable deductions after applying the 2% limit that applies to miscellaneous itemized deductions. Hr block state taxes Use the smaller of: The investment expenses included on Schedule A (Form 1040), line 23, or The amount on Schedule A (Form 1040), line 27. Hr block state taxes See Expenses of Producing Income , later, for a discussion of the 2% limit. Hr block state taxes Losses from passive activities. Hr block state taxes   Income or expenses that you used in computing income or loss from a passive activity are not included in determining your investment income or investment expenses (including investment interest expense). Hr block state taxes See Publication 925 for information about passive activities. Hr block state taxes Example. Hr block state taxes Ted is a partner in a partnership that operates a business. Hr block state taxes However, he does not materially participate in the partnership's business. Hr block state taxes Ted's interest in the partnership is considered a passive activity. Hr block state taxes Ted's investment income from interest and dividends (other than qualified dividends) is $10,000. Hr block state taxes His investment expenses (other than interest) are $3,200 after taking into account the 2% limit on miscellaneous itemized deductions. Hr block state taxes His investment interest expense is $8,000. Hr block state taxes Ted also has income from the partnership of $2,000. Hr block state taxes Ted figures his net investment income and the limit on his investment interest expense deduction in the following way: Total investment income $10,000 Minus: Investment expenses (other than interest) 3,200 Net investment income $6,800 Deductible investment interest expense for the year $6,800 The $2,000 of income from the passive activity is not used in determining Ted's net investment income. Hr block state taxes His investment interest deduction for the year is limited to $6,800, the amount of his net investment income. Hr block state taxes Form 4952 Use Form 4952 to figure your deduction for investment interest. Hr block state taxes See Form 4952 for more information. Hr block state taxes Exception to use of Form 4952. Hr block state taxes   You do not have to complete Form 4952 or attach it to your return if you meet all of the following tests. Hr block state taxes Your investment interest expense is not more than your investment income from interest and ordinary dividends minus any qualified dividends. Hr block state taxes You do not have any other deductible investment expenses. Hr block state taxes You have no carryover of investment interest expense from 2012. Hr block state taxes   If you meet all of these tests, you can deduct all of your investment interest. Hr block state taxes    Bond Premium Amortization If you pay a premium to buy a bond, the premium is part of your basis in the bond. Hr block state taxes If the bond yields taxable interest, you can choose to amortize the premium. Hr block state taxes This generally means that each year, over the life of the bond, you use a part of the premium to reduce the amount of interest includible in your income. Hr block state taxes If you make this choice, you must reduce your basis in the bond by the amortization for the year. Hr block state taxes If the bond yields tax-exempt interest, you must amortize the premium. Hr block state taxes This amortized amount is not deductible in determining taxable income. Hr block state taxes However, each year you must reduce your basis in the bond (and tax-exempt interest otherwise reportable on Form 1040, line 8b) by the amortization for the year. Hr block state taxes Bond premium. Hr block state taxes   Bond premium is the amount by which your basis in the bond right after you get it is more than the total of all amounts payable on the bond after you get it (other than payments of qualified stated interest). Hr block state taxes For example, a bond with a maturity value of $1,000 generally would have a $50 premium if you buy it for $1,050. Hr block state taxes Special rules to determine amounts payable on a bond. Hr block state taxes   For special rules that apply to determine the amounts payable on a variable rate bond, an inflation-indexed debt instrument, a bond that provides for certain alternative payment schedules (for example, a bond callable prior to the stated maturity date of the bond), or a bond that provides for remote or incidental contingencies, see Regulations section 1. Hr block state taxes 171-3. Hr block state taxes Basis. Hr block state taxes   In general, your basis for figuring bond premium amortization is the same as your basis for figuring any loss on the sale of the bond. Hr block state taxes However, you may need to use a different basis for: Convertible bonds, Bonds you got in a trade, and Bonds whose basis has to be determined using the basis of the person who transferred the bond to you. Hr block state taxes See Regulations section 1. Hr block state taxes 171-1(e). Hr block state taxes Dealers. Hr block state taxes   A dealer in taxable bonds (or anyone who holds them mainly for sale to customers in the ordinary course of a trade or business or who would properly include bonds in inventory at the close of the tax year) cannot claim a deduction for amortizable bond premium. Hr block state taxes   See section 75 of the Internal Revenue Code for the treatment of bond premium by a dealer in tax-exempt bonds. Hr block state taxes How To Figure Amortization For bonds issued after September 27, 1985, you must amortize bond premium using a constant yield method on the basis of the bond's yield to maturity, determined by using the bond's basis and compounding at the close of each accrual period. Hr block state taxes Constant yield method. Hr block state taxes   Figure the bond premium amortization for each accrual period as follows. Hr block state taxes Step 1: Determine your yield. Hr block state taxes   Your yield is the discount rate that, when used in figuring the present value of all remaining payments to be made on the bond (including payments of qualified stated interest), produces an amount equal to your basis in the bond. Hr block state taxes Figure the yield as of the date you got the bond. Hr block state taxes It must be constant over the term of the bond and must be figured to at least two decimal places when expressed as a percentage. Hr block state taxes   If you do not know the yield, consult your broker or tax advisor. Hr block state taxes Databases available to them are likely to show the yield at the date of purchase. Hr block state taxes Step 2: Determine the accrual periods. Hr block state taxes   You can choose the accrual periods to use. Hr block state taxes They may be of any length and may vary in length over the term of the bond, but each accrual period can be no longer than 1 year and each scheduled payment of principal or interest must occur either on the first or the final day of an accrual period. Hr block state taxes The computation is simplest if accrual periods are the same as the intervals between interest payment dates. Hr block state taxes Step 3: Determine the bond premium for the accrual period. Hr block state taxes   To do this, multiply your adjusted acquisition price at the beginning of the accrual period by your yield. Hr block state taxes Then subtract the result from the qualified stated interest for the period. Hr block state taxes   Your adjusted acquisition price at the beginning of the first accrual period is the same as your basis. Hr block state taxes After that, it is your basis decreased by the amount of bond premium amortized for earlier periods and the amount of any payment previously made on the bond other than a payment of qualified stated interest. Hr block state taxes Example. Hr block state taxes On February 1, 2012, you bought a taxable bond for $110,000. Hr block state taxes The bond has a stated principal amount of $100,000, payable at maturity on February 1, 2019, making your premium $10,000 ($110,000 − $100,000). Hr block state taxes The bond pays qualified stated interest of $10,000 on February 1 of each year. Hr block state taxes Your yield is 8. Hr block state taxes 07439% compounded annually. Hr block state taxes You choose to use annual accrual periods ending on February 1 of each year. Hr block state taxes To find your bond premium amortization for the accrual period ending on February 1, 2013, you multiply the adjusted acquisition price at the beginning of the period ($110,000) by your yield. Hr block state taxes When you subtract the result ($8,881. Hr block state taxes 83) from the qualified stated interest for the period ($10,000), you find that your bond premium amortization for the period is $1,118. Hr block state taxes 17. Hr block state taxes Special rules to figure amortization. Hr block state taxes   For special rules to figure the bond premium amortization on a variable rate bond, an inflation-indexed debt instrument, a bond that provides for certain alternative payment schedules (for example, a bond callable prior to the stated maturity date of the bond), or a bond that provides for remote or incidental contingencies, see Regulations section 1. Hr block state taxes 171-3. Hr block state taxes Bonds Issued Before September 28, 1985 For these bonds, you can amortize bond premium using any reasonable method. Hr block state taxes Reasonable methods include: The straight-line method, and The Revenue Ruling 82-10 method. Hr block state taxes Straight-line method. Hr block state taxes   Under this method, the amount of your bond premium amortization is the same each month. Hr block state taxes Divide the number of months you held the bond during the year by the number of months from the beginning of the tax year (or, if later, the date of acquisition) to the date of maturity or earlier call date. Hr block state taxes Then multiply the result by the bond premium (reduced by any bond premium amortization claimed in earlier years). Hr block state taxes This gives you your bond premium amortization for the year. Hr block state taxes Revenue Ruling 82-10 method. Hr block state taxes   Under this method, the amount of your bond premium amortization increases each month over the life of the bond. Hr block state taxes This method is explained in Revenue Ruling 82-10, 1982-1 C. Hr block state taxes B. Hr block state taxes 46. Hr block state taxes Choosing To Amortize You choose to amortize the premium on taxable bonds by reporting the amortization for the year on your income tax return for the first tax year you want the choice to apply. Hr block state taxes You should attach a statement to your return that you are making this choice under section 171. Hr block state taxes See How To Report Amortization, next. Hr block state taxes This choice is binding for the year you make it and for later tax years. Hr block state taxes It applies to all taxable bonds you own in the year you make the choice and also to those you acquire in later years. Hr block state taxes You can change your decision to amortize bond premium only with the written approval of the IRS. Hr block state taxes To request approval, use Form 3115. Hr block state taxes For more information on requesting approval, see section 5 of the Appendix to Revenue Procedure 2011-14 in Internal Revenue Bulletin 2011-4. Hr block state taxes You can find Revenue Procedure 2011-14 at www. Hr block state taxes irs. Hr block state taxes gov/irb/2011-04_IRB/ar08. Hr block state taxes html. Hr block state taxes How To Report Amortization Subtract the bond premium amortization from your interest income from these bonds. Hr block state taxes Report the bond's interest on Schedule B (Form 1040A or 1040), line 1. Hr block state taxes Under your last entry on line 1, put a subtotal of all interest listed on line 1. Hr block state taxes Below this subtotal, print “ABP Adjustment,” and the total interest you received. Hr block state taxes Subtract this amount from the subtotal, and enter the result on line 2. Hr block state taxes Bond premium amortization more than interest. Hr block state taxes   If the amount of your bond premium amortization for an accrual period is more than the qualified stated interest for the period, you can deduct the difference as a miscellaneous itemized deduction on Schedule A (Form 1040), line 28. Hr block state taxes    But your deduction is limited to the amount by which your total interest inclusions on the bond in prior accrual periods is more than your total bond premium deductions on the bond in prior periods. Hr block state taxes Any amount you cannot deduct because of this limit can be carried forward to the next accrual period. Hr block state taxes Pre-1998 election to amortize bond premium. Hr block state taxes   Generally, if you first elected to amortize bond premium before 1998, the above treatment of the premium does not apply to bonds you acquired before 1988. Hr block state taxes Bonds acquired before October 23, 1986. Hr block state taxes   The amortization of the premium on these bonds is a miscellaneous itemized deduction not subject to the 2%-of-adjusted-gross-income limit. Hr block state taxes Bonds acquired after October 22, 1986, but before 1988. Hr block state taxes    The amortization of the premium on these bonds is investment interest expense subject to the investment interest limit, unless you choose to treat it as an offset to interest income on the bond. Hr block state taxes Expenses of Producing Income You deduct investment expenses (other than interest expenses) as miscellaneous itemized deductions on Schedule A (Form 1040). Hr block state taxes To be deductible, these expenses must be ordinary and necessary expenses paid or incurred: To produce or collect income, or To manage property held for producing income. Hr block state taxes The expenses must be directly related to the income or income-producing property, and the income must be taxable to you. Hr block state taxes The deduction for most income-producing expenses is subject to a 2% limit that also applies to certain other miscellaneous itemized deductions. Hr block state taxes The amount deductible is limited to the total of these miscellaneous deductions that is more than 2% of your adjusted gross income. Hr block state taxes For information on how to report expenses of producing income, see How To Report Investment Expenses , later. Hr block state taxes Attorney or accounting fees. Hr block state taxes   You can deduct attorney or accounting fees that are necessary to produce or collect taxable income. Hr block state taxes However, in some cases, attorney or accounting fees are part of the basis of property. Hr block state taxes See Basis of Investment Property in chapter 4. Hr block state taxes Automatic investment service and dividend reinvestment plans. Hr block state taxes   A bank may offer its checking account customers an automatic investment service so that, for a charge, each customer can choose to invest a part of the checking account each month in common stock. Hr block state taxes Or a bank that is a dividend disbursing agent for a number of publicly-owned corporations may set up an automatic dividend reinvestment service. Hr block state taxes Through that service, cash dividends are reinvested in more shares of stock after the bank deducts a service charge. Hr block state taxes   A corporation in which you own stock also may have a dividend reinvestment plan. Hr block state taxes This plan lets you choose to use your dividends to buy more shares of stock in the corporation instead of receiving the dividends in cash. Hr block state taxes   You can deduct the monthly service charge you pay to a bank to participate in an automatic investment service. Hr block state taxes If you participate in a dividend reinvestment plan, you can deduct any service charge subtracted from your cash dividends before the dividends are used to buy more shares of stock. Hr block state taxes Deduct the charges in the year you pay them. Hr block state taxes Clerical help and office rent. Hr block state taxes   You can deduct office expenses, such as rent and clerical help, you incurred in connection with your investments and collecting the taxable income on your investments. Hr block state taxes Cost of replacing missing securities. Hr block state taxes   To replace your taxable securities that are mislaid, lost, stolen, or destroyed, you may have to post an indemnity bond. Hr block state taxes You can deduct the premium you pay to buy the indemnity bond and the related incidental expenses. Hr block state taxes   You may, however, get a refund of part of the bond premium if the missing securities are recovered within a specified time. Hr block state taxes Under certain types of insurance policies, you can recover some of the expenses. Hr block state taxes   If you receive the refund in the tax year you pay the amounts, you can deduct only the difference between the expenses paid and the amount refunded. Hr block state taxes If the refund is made in a later tax year, you must include the refund in income in the year you received it, but only to the extent that the expenses decreased your tax in the year you deducted them. Hr block state taxes Fees to collect income. Hr block state taxes   You can deduct fees you pay to a broker, bank, trustee, or similar agent to collect investment income, such as your taxable bond or mortgage interest, or your dividends on shares of stock. Hr block state taxes Fees to buy or sell. Hr block state taxes   You cannot deduct a fee you pay to a broker to acquire investment property, such as stocks or bonds. Hr block state taxes You must add the fee to the cost of the property. Hr block state taxes See Basis of Investment Property in chapter 4. Hr block state taxes    You cannot deduct any broker's fees, commissions, or option premiums you pay (or that were netted out) in connection with the sale of investment property. Hr block state taxes They can be used only to figure gain or loss from the sale. Hr block state taxes See Reporting Capital Gains and Losses , in chapter 4, for more information about the treatment of these sale expenses. Hr block state taxes Investment counsel and advice. Hr block state taxes   You can deduct fees you pay for counsel and advice about investments that produce taxable income. Hr block state taxes This includes amounts you pay for investment advisory services. Hr block state taxes Safe deposit box rent. Hr block state taxes   You can deduct rent you pay for a safe deposit box if you use the box to store taxable income-producing stocks, bonds, or other investment-related papers and documents. Hr block state taxes If you also use the box to store tax-exempt securities or personal items, you can deduct only part of the rent. Hr block state taxes See Tax-exempt income under Nondeductible Expenses, later, to figure what part you can deduct. Hr block state taxes State and local transfer taxes. Hr block state taxes   You cannot deduct the state and local transfer taxes you pay when you buy or sell securities. Hr block state taxes If you pay these transfer taxes when you buy securities, you must treat them as part of the cost of the property. Hr block state taxes If you pay these transfer taxes when you sell securities, you must treat them as a reduction in the amount realized. Hr block state taxes Trustee's commissions for revocable trust. Hr block state taxes   If you set up a revocable trust and have its income distributed to you, you can deduct the commission you pay the trustee for managing the trust to the extent it is to produce or collect taxable income or to manage property. Hr block state taxes However, you cannot deduct any part of the commission used for producing or collecting tax-exempt income or for managing property that produces tax-exempt income. Hr block state taxes   If you are a cash-basis taxpayer and pay the commissions for several years in advance, you must deduct a part of the commission each year. Hr block state taxes You cannot deduct the entire amount in the year you pay it. Hr block state taxes Investment expenses from pass-through entities. Hr block state taxes   If you hold an interest in a partnership, S corporation, real estate mortgage investment conduit (REMIC), or a nonpublicly offered mutual fund, you can deduct your share of that entity's investment expenses. Hr block state taxes A partnership or S corporation will show your share of these expenses on your Schedule K-1 (Form 1065) or Schedule K-1 (Form 1120S). Hr block state taxes A nonpublicly offered mutual fund will indicate your share of these expenses in box 5 of Form 1099-DIV (or substitute statement). Hr block state taxes Publicly-offered mutual funds are discussed later. Hr block state taxes   If you hold an interest in a REMIC, any expenses relating to your residual interest investment will be shown on Schedule Q (Form 1066), line 3b. Hr block state taxes Any expenses relating to your regular interest investment will appear in box 5 of Form 1099-INT (or substitute statement) or box 9 of Form 1099-OID (or substitute statement). Hr block state taxes   Report your share of these investment expenses on Schedule A (Form 1040), subject to the 2% limit, in the same manner as your other investment expenses. Hr block state taxes Including mutual fund or REMIC expenses in income. Hr block state taxes   Your share of the investment expenses of a REMIC or a nonpublicly offered mutual fund, as described above, are considered to be indirect deductions through that pass-through entity. Hr block state taxes You must include in your gross income an amount equal to the expenses allocated to you, whether or not you are able to claim a deduction for those expenses. Hr block state taxes If you are a shareholder in a nonpublicly offered mutual fund, you must include on your return the full amount of ordinary dividends or other distributions of stock, as shown in box 1a of Form 1099-DIV (or substitute statement). Hr block state taxes If you are a residual interest holder in a REMIC, you must report as ordinary income on Schedule E (Form 1040) the total amounts shown on Schedule Q (Form 1066), lines 1b and 3b. Hr block state taxes If you are a REMIC regular interest holder, you must include the amount of any expense allocation you received on Form 1040, line 8a. Hr block state taxes Publicly-offered mutual funds. Hr block state taxes   Most mutual funds are publicly offered. Hr block state taxes These mutual funds, generally, are traded on an established securities exchange. Hr block state taxes These funds do not pass investment expenses through to you. Hr block state taxes Instead, the dividend income they report to you in box 1a of Form 1099-DIV (or substitute statement) is already reduced by your share of investment expenses. Hr block state taxes As a result, you cannot deduct the expenses on your return. Hr block state taxes   Include the amount from box 1a of Form 1099-DIV (or substitute statement) in your income. Hr block state taxes    A publicly offered mutual fund is one that: Is continuously offered pursuant to a public offering, Is regularly traded on an established securities market, and Is held by or for no fewer than 500 persons at any time during the year. Hr block state taxes Contact your mutual fund if you are not sure whether it is publicly offered. Hr block state taxes Nondeductible Expenses Some expenses that you incur as an investor are not deductible. Hr block state taxes Stockholders' meetings. Hr block state taxes   You cannot deduct transportation and other expenses you pay to attend stockholders' meetings of companies in which you have no interest other than owning stock. Hr block state taxes This is true even if your purpose in attending is to get information that would be useful in making further investments. Hr block state taxes Investment-related seminar. Hr block state taxes   You cannot deduct expenses for attending a convention, seminar, or similar meeting for investment purposes. Hr block state taxes Single-premium life insurance, endowment, and annuity contracts. Hr block state taxes   You cannot deduct interest on money you borrow to buy or carry a single-premium life insurance, endowment, or annuity contract. Hr block state taxes Used as collateral. Hr block state taxes   If you use a single premium annuity contract as collateral to obtain or continue a mortgage loan, you cannot deduct any interest on the loan that is collateralized by the annuity contract. Hr block state taxes Figure the amount of interest expense disallowed by multiplying the current interest rate on the mortgage loan by the lesser of the amount of the annuity contract used as collateral or the amount of the loan. Hr block state taxes Borrowing on insurance. Hr block state taxes   Generally, you cannot deduct interest on money you borrow to buy or carry a life insurance, endowment, or annuity contract if you plan to systematically borrow part or all of the increases in the cash value of the contract. Hr block state taxes This rule applies to the interest on the total amount borrowed to buy or carry the contract, not just the interest on the borrowed increases in the cash value. Hr block state taxes Tax-exempt income. Hr block state taxes   You cannot deduct expenses you incur to produce tax-exempt income. Hr block state taxes Nor can you deduct interest on money you borrow to buy tax-exempt securities or shares in a mutual fund or other regulated investment company that distributes only exempt-interest dividends. Hr block state taxes Short-sale expenses. Hr block state taxes   The rule disallowing a deduction for interest expenses on tax-exempt securities applies to amounts you pay in connection with personal property used in a short sale or amounts paid by others for the use of any collateral in connection with the short sale. Hr block state taxes However, it does not apply to the expenses you incur if you deposit cash as collateral for the property used in the short sale and the cash does not earn a material return during the period of the sale. Hr block state taxes Short sales are discussed in Short Sales in chapter 4. Hr block state taxes Expenses for both tax-exempt and taxable income. Hr block state taxes   You may have expenses that are for both tax-exempt and taxable income. Hr block state taxes If you cannot specifically identify what part of the expenses is for each type of income, you can divide the expenses, using reasonable proportions based on facts and circumstances. Hr block state taxes You must attach a statement to your return showing how you divided the expenses and stating that each deduction claimed is not based on tax-exempt income. Hr block state taxes   One accepted method for dividing expenses is to do it in the same proportion that each type of income is to the total income. Hr block state taxes If the expenses relate in part to capital gains and losses, include the gains, but not the losses, in figuring this proportion. Hr block state taxes To find the part of the expenses that is for the tax-exempt income, divide your tax-exempt income by the total income and multiply your expenses by the result. Hr block state taxes Example. Hr block state taxes You received $6,000 interest; $4,800 was tax-exempt and $1,200 was taxable. Hr block state taxes In earning this income, you had $500 of expenses. Hr block state taxes You cannot specifically identify the amount of each expense item that is for each income item, so you must divide your expenses. Hr block state taxes 80% ($4,800 tax-exempt interest divided by $6,000 total interest) of your expenses is for the tax-exempt income. Hr block state taxes You cannot deduct $400 (80% of $500) of the expenses. Hr block state taxes You can deduct $100 (the rest of the expenses) because they are for the taxable interest. Hr block state taxes State income taxes. Hr block state taxes   If you itemize your deductions, you can deduct, as taxes, state income taxes on interest income that is exempt from federal income tax. Hr block state taxes But you cannot deduct, as either taxes or investment expenses, state income taxes on other exempt income. Hr block state taxes Interest expense and carrying charges on straddles. Hr block state taxes   You cannot deduct interest and carrying charges allocable to personal property that is part of a straddle. Hr block state taxes The nondeductible interest and carrying charges are added to the basis of the straddle property. Hr block state taxes However, this treatment does not apply if: All the offsetting positions making up the straddle either consist of one or more qualified covered call options and the optioned stock, or consist of section 1256 contracts (and the straddle is not part of a larger straddle); or The straddle is a hedging transaction. Hr block state taxes  For information about straddles, including definitions of the terms used in this discussion, see Straddles in chapter 4. Hr block state taxes   Interest includes any amount you pay or incur in connection with personal property used in a short sale. Hr block state taxes However, you must first apply the rules discussed in Payments in lieu of dividends under Short Sales in chapter 4. Hr block state taxes   To determine the interest on market discount bonds and short-term obligations that are part of a straddle, you must first apply the rules discussed under Limit on interest deduction for market discount bonds and Limit on interest deduction for short-term obligations (both under Interest Expenses, earlier). Hr block state taxes Nondeductible amount. Hr block state taxes   Figure the nondeductible interest and carrying charges on straddle property as follows. Hr block state taxes Add: Interest on indebtedness incurred or continued to buy or carry the personal property, and All other amounts (including charges to insure, store, or transport the personal property) paid or incurred to carry the personal property. Hr block state taxes Subtract from the amount in (1): Interest (including OID) includible in gross income for the year on the personal property, Any income from the personal property treated as ordinary income on the disposition of short-term government obligations or as ordinary income under the market discount and short-term bond provisions — see Discount on Debt Instruments in chapter 1, The dividends includible in gross income for the year from the personal property, and Any payment on a loan of the personal property for use in a short sale that is includible in gross income. Hr block state taxes Basis adjustment. Hr block state taxes   Add the nondeductible amount to the basis of your straddle property. Hr block state taxes How To Report Investment Expenses To deduct your investment expenses, you must itemize deductions on Schedule A (Form 1040). Hr block state taxes Enter your deductible investment interest expense on Schedule A (Form1040), line 14. Hr block state taxes Include any deductible short sale expenses. Hr block state taxes (See Short Sales in chapter 4 for information on these expenses. Hr block state taxes ) Also attach a completed Form 4952 if you used that form to figure your investment interest expense. Hr block state taxes Enter the total amount of your other investment expenses (other than interest expenses) on Schedule A (Form 1040), line 23. Hr block state taxes List the type and amount of each expense on the dotted lines next to line 23. Hr block state taxes (If necessary, you can show the required information on an attached statement. Hr block state taxes ) For information on how to report amortizable bond premium, see Bond Premium Amortization , earlier in this chapter. Hr block state taxes When To Report Investment Expenses If you use the cash method to report income and expenses, you generally deduct your expenses, except for certain prepaid interest, in the year you pay them. Hr block state taxes If you use an accrual method, you generally deduct your expenses when you incur a liability for them, rather than when you pay them. Hr block state taxes Also see When To Deduct Investment Interest , earlier in this chapter. Hr block state taxes Unpaid expenses owed to related party. Hr block state taxes   If you use an accrual method, you cannot deduct interest and other expenses owed to a related cash-basis person until payment is made and the amount is includible in the gross income of that person. Hr block state taxes The relationship, for purposes of this rule, is determined as of the end of the tax year for which the interest or expense would otherwise be deductible. Hr block state taxes If a deduction is denied under this rule, this rule will continue to apply even if your relationship with the person ceases to exist before the amount is includible in the gross income of that person. Hr block state taxes   This rule generally applies to those relationships listed in chapter 4 under Related Party Transactions . Hr block state taxes It also applies to accruals by partnerships to partners, partners to partnerships, shareholders to S corporations, and S corporations to shareholders. Hr block state taxes   The postponement of deductions for unpaid expenses and interest under the related party rule does not apply to OID, regardless of when payment is made. Hr block state taxes This rule also does not apply to loans with below-market interest rates or to certain payments for the use of property and services when the lender or recipient has to include payments periodically in income, even if a payment has not been made. Hr block state taxes Prev  Up  Next   Home   More Online Publications