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Income Tax 1040ez

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Income Tax 1040ez

Income tax 1040ez 4. Income tax 1040ez   Sales and Trades of Investment Property Table of Contents IntroductionNominees. Income tax 1040ez Topics - This chapter discusses: Useful Items - You may want to see: What Is a Sale or Trade?Dividend versus sale or trade. Income tax 1040ez Worthless Securities Constructive Sales of Appreciated Financial Positions Section 1256 Contracts Marked to Market Basis of Investment PropertyCost Basis Basis Other Than Cost Adjusted Basis Stocks and Bonds How To Figure Gain or LossFair market value. Income tax 1040ez Debt paid off. Income tax 1040ez Payment of cash. Income tax 1040ez Special Rules for Mutual Funds Nontaxable TradesLike-Kind Exchanges Corporate Stocks Exchange of Shares In One Mutual Fund For Shares In Another Mutual Fund Insurance Policies and Annuities U. Income tax 1040ez S. Income tax 1040ez Treasury Notes or Bonds Transfers Between Spouses Related Party TransactionsGain on Sale or Trade of Depreciable Property Capital Gains and LossesCapital or Ordinary Gain or Loss Holding Period Nonbusiness Bad Debts Short Sales Wash Sales Options Straddles Sales of Stock to ESOPs or Certain Cooperatives Rollover of Gain From Publicly Traded Securities Gains on Qualified Small Business Stock Exclusion of Gain From DC Zone Assets Reporting Capital Gains and LossesException 1. Income tax 1040ez Exception 2. Income tax 1040ez Section 1256 contracts and straddles. Income tax 1040ez Market discount bonds. Income tax 1040ez File Form 1099-B or Form 1099-S with the IRS. Income tax 1040ez Capital Losses Capital Gain Tax Rates Special Rules for Traders in SecuritiesHow To Report Introduction This chapter explains the tax treatment of sales and trades of investment property. Income tax 1040ez Investment property. Income tax 1040ez   This is property that produces investment income. Income tax 1040ez Examples include stocks, bonds, and Treasury bills and notes. Income tax 1040ez Property used in a trade or business is not investment property. Income tax 1040ez Form 1099-B. Income tax 1040ez   If you sold property such as stocks, bonds, mutual funds, or certain commodities through a broker during the year, you should receive, for each sale, a Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, or substitute statement, from the broker. Income tax 1040ez You should receive the statement by February 15 of the next year. Income tax 1040ez It will show the gross proceeds from the sale. Income tax 1040ez The IRS will also get a copy of Form 1099-B from the broker. Income tax 1040ez   Use Form 1099-B (or substitute statement received from your broker) to complete Form 8949. Income tax 1040ez If you sold a covered security in 2013, your broker will send you a Form 1099-B (or substitute statement) that shows your basis. Income tax 1040ez This will help you complete Form 8949. Income tax 1040ez Generally, a covered security is a security you acquired after 2010, with certain exceptions explained in the Instructions for Form 8949. Income tax 1040ez    For more information on Form 8949 and Schedule D (Form 1040), see Reporting Capital Gains and Losses in this chapter. Income tax 1040ez Also see the Instructions for Form 8949 and the Instructions for Schedule D (Form 1040). Income tax 1040ez Nominees. Income tax 1040ez   If someone receives gross proceeds as a nominee for you, that person will give you a Form 1099-B, which will show gross proceeds received on your behalf. Income tax 1040ez   If you receive a Form 1099-B that includes gross proceeds belonging to another person, see Nominees , later under Reporting Capital Gains and Losses for more information. Income tax 1040ez Other property transactions. Income tax 1040ez   Certain transfers of property are discussed in other IRS publications. Income tax 1040ez These include: Sale of your main home, discussed in Publication 523, Selling Your Home; Installment sales, covered in Publication 537; Various types of transactions involving business property, discussed in Publication 544, Sales and Other Dispositions of Assets; Transfers of property at death, covered in Publication 559; and Disposition of an interest in a passive activity, discussed in Publication 925. Income tax 1040ez Topics - This chapter discusses: What Is a Sale or Trade? , Basis of Investment Property , Adjusted Basis , How To Figure Gain or Loss , Nontaxable trades , Transfers Between Spouses , Related Party Transactions , Capital Gains and Losses , Reporting Capital Gains and Losses , and Special Rules for Traders in Securities . Income tax 1040ez Useful Items - You may want to see: Publication 551 Basis of Assets Form (and Instructions) Schedule D (Form 1040) Capital Gains and Losses 6781 Gains and Losses From Section 1256 Contracts and Straddles 8582 Passive Activity Loss Limitations 8824 Like-Kind Exchanges 8949 Sales and Other Dispositions of Capital Assets See chapter 5, How To Get Tax Help , for information about getting these publications and forms. Income tax 1040ez What Is a Sale or Trade? This section explains what is a sale or trade. Income tax 1040ez It also explains certain transactions and events that are treated as sales or trades. Income tax 1040ez A sale is generally a transfer of property for money or a mortgage, note, or other promise to pay money. Income tax 1040ez A trade is a transfer of property for other property or services, and may be taxed in the same way as a sale. Income tax 1040ez Sale and purchase. Income tax 1040ez   Ordinarily, a transaction is not a trade when you voluntarily sell property for cash and immediately buy similar property to replace it. Income tax 1040ez The sale and purchase are two separate transactions. Income tax 1040ez But see Like-Kind Exchanges under Nontaxable Trades, later. Income tax 1040ez Redemption of stock. Income tax 1040ez   A redemption of stock is treated as a sale or trade and is subject to the capital gain or loss provisions unless the redemption is a dividend or other distribution on stock. Income tax 1040ez Dividend versus sale or trade. Income tax 1040ez   Whether a redemption is treated as a sale, trade, dividend, or other distribution depends on the circumstances in each case. Income tax 1040ez Both direct and indirect ownership of stock will be considered. Income tax 1040ez The redemption is treated as a sale or trade of stock if: The redemption is not essentially equivalent to a dividend — see Dividends and Other Distributions in chapter 1, There is a substantially disproportionate redemption of stock, There is a complete redemption of all the stock of the corporation owned by the shareholder, or The redemption is a distribution in partial liquidation of a corporation. Income tax 1040ez Redemption or retirement of bonds. Income tax 1040ez   A redemption or retirement of bonds or notes at their maturity generally is treated as a sale or trade. Income tax 1040ez See Stocks, stock rights, and bonds and Discounted Debt Instruments under Capital or Ordinary Gain or Loss, later. Income tax 1040ez   In addition, a significant modification of a bond is treated as a trade of the original bond for a new bond. Income tax 1040ez For details, see Regulations section 1. Income tax 1040ez 1001-3. Income tax 1040ez Surrender of stock. Income tax 1040ez   A surrender of stock by a dominant shareholder who retains ownership of more than half of the corporation's voting shares is treated as a contribution to capital rather than as an immediate loss deductible from taxable income. Income tax 1040ez The surrendering shareholder must reallocate his or her basis in the surrendered shares to the shares he or she retains. Income tax 1040ez Trade of investment property for an annuity. Income tax 1040ez   The transfer of investment property to a corporation, trust, fund, foundation, or other organization, in exchange for a fixed annuity contract that will make guaranteed annual payments to you for life, is a taxable trade. Income tax 1040ez If the present value of the annuity is more than your basis in the property traded, you have a taxable gain in the year of the trade. Income tax 1040ez Figure the present value of the annuity according to factors used by commercial insurance companies issuing annuities. Income tax 1040ez Transfer by inheritance. Income tax 1040ez   The transfer of property of a decedent to the executor or administrator of the estate, or to the heirs or beneficiaries, is not a sale or other disposition. Income tax 1040ez No taxable gain or deductible loss results from the transfer. Income tax 1040ez Termination of certain rights and obligations. Income tax 1040ez   The cancellation, lapse, expiration, or other termination of a right or obligation (other than a securities futures contract) with respect to property that is a capital asset (or that would be a capital asset if you acquired it) is treated as a sale. Income tax 1040ez Any gain or loss is treated as a capital gain or loss. Income tax 1040ez   This rule does not apply to the retirement of a debt instrument. Income tax 1040ez See Redemption or retirement of bonds , earlier. Income tax 1040ez Worthless Securities Stocks, stock rights, and bonds (other than those held for sale by a securities dealer) that became completely worthless during the tax year are treated as though they were sold on the last day of the tax year. Income tax 1040ez This affects whether your capital loss is long term or short term. Income tax 1040ez See Holding Period , later. Income tax 1040ez Worthless securities also include securities that you abandon after March 12, 2008. Income tax 1040ez To abandon a security, you must permanently surrender and relinquish all rights in the security and receive no consideration in exchange for it. Income tax 1040ez All the facts and circumstances determine whether the transaction is properly characterized as an abandonment or other type of transaction, such as an actual sale or exchange, contribution to capital, dividend, or gift. Income tax 1040ez If you are a cash basis taxpayer and make payments on a negotiable promissory note that you issued for stock that became worthless, you can deduct these payments as losses in the years you actually make the payments. Income tax 1040ez Do not deduct them in the year the stock became worthless. Income tax 1040ez How to report loss. Income tax 1040ez   Report worthless securities in Form 8949, Part I or Part II, whichever applies. Income tax 1040ez    Report your worthless securities transactions on Form 8949 with the correct box checked for these transactions. Income tax 1040ez See Form 8949 and the Instructions for Form 8949. Income tax 1040ez Filing a claim for refund. Income tax 1040ez   If you do not claim a loss for a worthless security on your original return for the year it becomes worthless, you can file a claim for a credit or refund due to the loss. Income tax 1040ez You must use Form 1040X, Amended U. Income tax 1040ez S. Income tax 1040ez Individual Income Tax Return, to amend your return for the year the security became worthless. Income tax 1040ez You must file it within 7 years from the date your original return for that year had to be filed, or 2 years from the date you paid the tax, whichever is later. Income tax 1040ez (Claims not due to worthless securities or bad debts generally must be filed within 3 years from the date a return is filed, or 2 years from the date the tax is paid, whichever is later. Income tax 1040ez ) For more information about filing a claim, see Publication 556. Income tax 1040ez Constructive Sales of Appreciated Financial Positions You are treated as having made a constructive sale when you enter into certain transactions involving an appreciated financial position (defined later) in stock, a partnership interest, or certain debt instruments. Income tax 1040ez You must recognize gain as if the position were disposed of at its fair market value on the date of the constructive sale. Income tax 1040ez This gives you a new holding period for the position that begins on the date of the constructive sale. Income tax 1040ez Then, when you close the transaction, you reduce your gain (or increase your loss) by the gain recognized on the constructive sale. Income tax 1040ez Constructive sale. Income tax 1040ez   You are treated as having made a constructive sale of an appreciated financial position if you: Enter into a short sale of the same or substantially identical property, Enter into an offsetting notional principal contract relating to the same or substantially identical property, Enter into a futures or forward contract to deliver the same or substantially identical property (including a forward contract that provides for cash settlement), or Acquire the same or substantially identical property (if the appreciated financial position is a short sale, an offsetting notional principal contract, or a futures or forward contract). Income tax 1040ez   You are also treated as having made a constructive sale of an appreciated financial position if a person related to you enters into a transaction described above with a view toward avoiding the constructive sale treatment. Income tax 1040ez For this purpose, a related person is any related party described under Related Party Transactions , later in this chapter. Income tax 1040ez Exception for nonmarketable securities. Income tax 1040ez   You are not treated as having made a constructive sale solely because you entered into a contract for sale of any stock, debt instrument, or partnership interest that is not a marketable security if it settles within 1 year of the date you enter into it. Income tax 1040ez Exception for certain closed transactions. Income tax 1040ez   Do not treat a transaction as a constructive sale if all of the following are true. Income tax 1040ez You closed the transaction on or before the 30th day after the end of your tax year. Income tax 1040ez You held the appreciated financial position throughout the 60-day period beginning on the date you closed the transaction. Income tax 1040ez Your risk of loss was not reduced at any time during that 60-day period by holding certain other positions. Income tax 1040ez   If a closed transaction is reestablished in a substantially similar position during the 60-day period beginning on the date the first transaction was closed, this exception still applies if the reestablished position is closed before the 30th day after the end of your tax year in which the first transaction was closed and, after that closing, (2) and (3) above are true. Income tax 1040ez   This exception also applies to successive short sales of an entire appreciated financial position. Income tax 1040ez For more information, see Revenue Ruling 2003-1 in Internal Revenue Bulletin 2003-3. Income tax 1040ez This bulletin is available at www. Income tax 1040ez irs. Income tax 1040ez gov/pub/irs-irbs/irb03-03. Income tax 1040ez pdf. Income tax 1040ez Appreciated financial position. Income tax 1040ez   This is any interest in stock, a partnership interest, or a debt instrument (including a futures or forward contract, a short sale, or an option) if disposing of the interest would result in a gain. Income tax 1040ez Exceptions. Income tax 1040ez   An appreciated financial position does not include the following. Income tax 1040ez Any position from which all of the appreciation is accounted for under marked-to-market rules, including section 1256 contracts (described later under Section 1256 Contracts Marked to Market ). Income tax 1040ez Any position in a debt instrument if: The position unconditionally entitles the holder to receive a specified principal amount, The interest payments (or other similar amounts) with respect to the position are payable at a fixed rate or a variable rate described in Regulations section 1. Income tax 1040ez 860G-1(a)(3), and The position is not convertible, either directly or indirectly, into stock of the issuer (or any related person). Income tax 1040ez Any hedge with respect to a position described in (2). Income tax 1040ez Certain trust instruments treated as stock. Income tax 1040ez   For the constructive sale rules, an interest in an actively traded trust is treated as stock unless substantially all of the value of the property held by the trust is debt that qualifies for the exception to the definition of an appreciated financial position (explained in (2) above). Income tax 1040ez Sale of appreciated financial position. Income tax 1040ez   A transaction treated as a constructive sale of an appreciated financial position is not treated as a constructive sale of any other appreciated financial position, as long as you continue to hold the original position. Income tax 1040ez However, if you hold another appreciated financial position and dispose of the original position before closing the transaction that resulted in the constructive sale, you are treated as if, at the same time, you constructively sold the other appreciated financial position. Income tax 1040ez Section 1256 Contracts Marked to Market If you hold a section 1256 contract at the end of the tax year, you generally must treat it as sold at its fair market value on the last business day of the tax year. Income tax 1040ez Section 1256 Contract A section 1256 contract is any: Regulated futures contract, Foreign currency contract, Nonequity option, Dealer equity option, or Dealer securities futures contract. Income tax 1040ez Exceptions. Income tax 1040ez   A section 1256 contract does not include: Interest rate swaps, Currency swaps, Basis swaps, Interest rate caps, Interest rate floors, Commodity swaps, Equity swaps, Equity index swaps, Credit default swaps, or Similar agreements. Income tax 1040ez For more details, including definitions of these terms, see section 1256. Income tax 1040ez Regulated futures contract. Income tax 1040ez   This is a contract that: Provides that amounts which must be deposited to, or can be withdrawn from, your margin account depend on daily market conditions (a system of marking to market), and Is traded on, or subject to the rules of, a qualified board of exchange. Income tax 1040ez A qualified board of exchange is a domestic board of trade designated as a contract market by the Commodity Futures Trading Commission, any board of trade or exchange approved by the Secretary of the Treasury, or a national securities exchange registered with the Securities and Exchange Commission. Income tax 1040ez Foreign currency contract. Income tax 1040ez   This is a contract that: Requires delivery of a foreign currency that has positions traded through regulated futures contracts (or settlement of which depends on the value of that type of foreign currency), Is traded in the interbank market, and Is entered into at arm's length at a price determined by reference to the price in the interbank market. Income tax 1040ez   Bank forward contracts with maturity dates longer than the maturities ordinarily available for regulated futures contracts are considered to meet the definition of a foreign currency contract if the above three conditions are satisfied. Income tax 1040ez   Special rules apply to certain foreign currency transactions. Income tax 1040ez These transactions may result in ordinary gain or loss treatment. Income tax 1040ez For details, see Internal Revenue Code section 988 and Regulations sections 1. Income tax 1040ez 988-1(a)(7) and 1. Income tax 1040ez 988-3. Income tax 1040ez Nonequity option. Income tax 1040ez   This is any listed option (defined later) that is not an equity option. Income tax 1040ez Nonequity options include debt options, commodity futures options, currency options, and broad-based stock index options. Income tax 1040ez A broad-based stock index is based on the value of a group of diversified stocks or securities (such as the Standard and Poor's 500 index). Income tax 1040ez Warrants based on a stock index that are economically, substantially identical in all material respects to options based on a stock index are treated as options based on a stock index. Income tax 1040ez Cash-settled options. Income tax 1040ez   Cash-settled options based on a stock index and either traded on or subject to the rules of a qualified board of exchange are nonequity options if the Securities and Exchange Commission (SEC) determines that the stock index is broad based. Income tax 1040ez   This rule does not apply to options established before the SEC determines that the stock index is broad based. Income tax 1040ez Listed option. Income tax 1040ez   This is any option traded on, or subject to the rules of, a qualified board or exchange (as discussed earlier under Regulated futures contract). Income tax 1040ez A listed option, however, does not include an option that is a right to acquire stock from the issuer. Income tax 1040ez Dealer equity option. Income tax 1040ez   This is any listed option that, for an options dealer: Is an equity option, Is bought or granted by that dealer in the normal course of the dealer's business activity of dealing in options, and Is listed on the qualified board of exchange where that dealer is registered. Income tax 1040ez   An “options dealer” is any person registered with an appropriate national securities exchange as a market maker or specialist in listed options. Income tax 1040ez Equity option. Income tax 1040ez   This is any option: To buy or sell stock, or That is valued directly or indirectly by reference to any stock or narrow-based security index. Income tax 1040ez  Equity options include options on a group of stocks only if the group is a narrow-based stock index. Income tax 1040ez Dealer securities futures contract. Income tax 1040ez   For any dealer in securities futures contracts or options on those contracts, this is a securities futures contract (or option on such a contract) that: Is entered into by the dealer (or, in the case of an option, is purchased or granted by the dealer) in the normal course of the dealer's activity of dealing in this type of contract (or option), and Is traded on a qualified board or exchange (as defined under Regulated futures contract , earlier). Income tax 1040ez A securities futures contract that is not a dealer securities futures contract is treated as described later under Securities Futures Contracts . Income tax 1040ez Marked-to-Market Rules A section 1256 contract that you hold at the end of the tax year will generally be treated as sold at its fair market value on the last business day of the tax year, and you must recognize any gain or loss that results. Income tax 1040ez That gain or loss is taken into account in figuring your gain or loss when you later dispose of the contract, as shown in the example under 60/40 rule, below. Income tax 1040ez Hedging exception. Income tax 1040ez   The marked-to-market rules do not apply to hedging transactions. Income tax 1040ez See Hedging Transactions , later. Income tax 1040ez 60/40 rule. Income tax 1040ez   Under the marked-to-market system, 60% of your capital gain or loss will be treated as a long-term capital gain or loss, and 40% will be treated as a short-term capital gain or loss. Income tax 1040ez This is true regardless of how long you actually held the property. Income tax 1040ez Example. Income tax 1040ez On June 22, 2012, you bought a regulated futures contract for $50,000. Income tax 1040ez On December 31, 2012 (the last business day of your tax year), the fair market value of the contract was $57,000. Income tax 1040ez You recognized a $7,000 gain on your 2012 tax return, treated as 60% long-term and 40% short-term capital gain. Income tax 1040ez On February 1, 2013, you sold the contract for $56,000. Income tax 1040ez Because you recognized a $7,000 gain on your 2012 return, you recognize a $1,000 loss ($57,000 − $56,000) on your 2013 tax return, treated as 60% long-term and 40% short-term capital loss. Income tax 1040ez Limited partners or entrepreneurs. Income tax 1040ez   The 60/40 rule does not apply to dealer equity options or dealer securities futures contracts that result in capital gain or loss allocable to limited partners or limited entrepreneurs (defined later under Hedging Transactions ). Income tax 1040ez Instead, these gains or losses are treated as short term. Income tax 1040ez Terminations and transfers. Income tax 1040ez   The marked-to-market rules also apply if your obligation or rights under section 1256 contracts are terminated or transferred during the tax year. Income tax 1040ez In this case, use the fair market value of each section 1256 contract at the time of termination or transfer to determine the gain or loss. Income tax 1040ez Terminations or transfers may result from any offsetting, delivery, exercise, assignment, or lapse of your obligation or rights under section 1256 contracts. Income tax 1040ez Loss carryback election. Income tax 1040ez   An individual having a net section 1256 contracts loss (defined later), generally can elect to carry this loss back 3 years instead of carrying it over to the next year. Income tax 1040ez See How To Report , later, for information about reporting this election on your return. Income tax 1040ez   The loss carried back to any year under this election cannot be more than the net section 1256 contracts gain in that year. Income tax 1040ez In addition, the amount of loss carried back to an earlier tax year cannot increase or produce a net operating loss for that year. Income tax 1040ez   The loss is carried to the earliest carryback year first, and any unabsorbed loss amount can then be carried to each of the next 2 tax years. Income tax 1040ez In each carryback year, treat 60% of the carryback amount as a long-term capital loss and 40% as a short-term capital loss from section 1256 contracts. Income tax 1040ez   If only a portion of the net section 1256 contracts loss is absorbed by carrying the loss back, the unabsorbed portion can be carried forward, under the capital loss carryover rules, to the year following the loss. Income tax 1040ez (See Capital Losses under Reporting Capital Gains and Losses, later. Income tax 1040ez ) Figure your capital loss carryover as if, for the loss year, you had an additional short-term capital gain of 40% of the amount of net section 1256 contracts loss absorbed in the carryback years and an additional long-term capital gain of 60% of the absorbed loss. Income tax 1040ez In the carryover year, treat any capital loss carryover from losses on section 1256 contracts as if it were a loss from section 1256 contracts for that year. Income tax 1040ez Net section 1256 contracts loss. Income tax 1040ez   This loss is the lesser of: The net capital loss for your tax year determined by taking into account only the gains and losses from section 1256 contracts, or The capital loss carryover to the next tax year determined without this election. Income tax 1040ez Net section 1256 contracts gain. Income tax 1040ez   This gain is the lesser of: The capital gain net income for the carryback year determined by taking into account only gains and losses from section 1256 contracts, or The capital gain net income for that year. Income tax 1040ez  Figure your net section 1256 contracts gain for any carryback year without regard to the net section 1256 contracts loss for the loss year or any later tax year. Income tax 1040ez Traders in section 1256 contracts. Income tax 1040ez   Gain or loss from the trading of section 1256 contracts is capital gain or loss subject to the marked-to-market rules. Income tax 1040ez However, this does not apply to contracts held for purposes of hedging property if any loss from the property would be an ordinary loss. Income tax 1040ez Treatment of underlying property. Income tax 1040ez   The determination of whether an individual's gain or loss from any property is ordinary or capital gain or loss is made without regard to the fact that the individual is actively engaged in dealing in or trading section 1256 contracts related to that property. Income tax 1040ez How To Report If you disposed of regulated futures or foreign currency contracts in 2013 (or had unrealized profit or loss on these contracts that were open at the end of 2012 or 2013), you should receive Form 1099-B, or substitute statement, from your broker. Income tax 1040ez Form 6781. Income tax 1040ez   Use Part I of Form 6781 to report your gains and losses from all section 1256 contracts that are open at the end of the year or that were closed out during the year. Income tax 1040ez This includes the amount shown in box 10 of Form 1099-B. Income tax 1040ez Then enter the net amount of these gains and losses on Schedule D (Form 1040), line 4 or line 11, as appropriate. Income tax 1040ez Include a copy of Form 6781 with your income tax return. Income tax 1040ez   If the Form 1099-B you receive includes a straddle or hedging transaction, defined later, it may be necessary to show certain adjustments on Form 6781. Income tax 1040ez Follow the Form 6781 instructions for completing Part I. Income tax 1040ez Loss carryback election. Income tax 1040ez   To carry back your loss under the election procedures described earlier, file Form 1040X or Form 1045, Application for Tentative Refund, for the year to which you are carrying the loss with an amended Form 6781 and an amended Schedule D (Form 1040) attached. Income tax 1040ez Follow the instructions for completing Form 6781 for the loss year to make this election. Income tax 1040ez Hedging Transactions The marked-to-market rules, described earlier, do not apply to hedging transactions. Income tax 1040ez A transaction is a hedging transaction if both of the following conditions are met. Income tax 1040ez You entered into the transaction in the normal course of your trade or business primarily to manage the risk of: Price changes or currency fluctuations on ordinary property you hold (or will hold), or Interest rate or price changes, or currency fluctuations, on your current or future borrowings or ordinary obligations. Income tax 1040ez You clearly identified the transaction as being a hedging transaction before the close of the day on which you entered into it. Income tax 1040ez This hedging transaction exception does not apply to transactions entered into by or for any syndicate. Income tax 1040ez A syndicate is a partnership, S corporation, or other entity (other than a regular corporation) that allocates more than 35% of its losses to limited partners or limited entrepreneurs. Income tax 1040ez A limited entrepreneur is a person who has an interest in an enterprise (but not as a limited partner) and who does not actively participate in its management. Income tax 1040ez However, an interest is not considered held by a limited partner or entrepreneur if the interest holder actively participates (or did so for at least 5 full years) in the management of the entity, or is the spouse, child (including a legally adopted child), grandchild, or parent of an individual who actively participates in the management of the entity. Income tax 1040ez Hedging loss limit. Income tax 1040ez   If you are a limited partner or entrepreneur in a syndicate, the amount of a hedging loss you can claim is limited. Income tax 1040ez A “hedging loss” is the amount by which the allowable deductions in a tax year that resulted from a hedging transaction (determined without regard to the limit) are more than the income received or accrued during the tax year from this transaction. Income tax 1040ez   Any hedging loss allocated to you for the tax year is limited to your taxable income for that year from the trade or business in which the hedging transaction occurred. Income tax 1040ez Ignore any hedging transaction items in determining this taxable income. Income tax 1040ez If you have a hedging loss that is disallowed because of this limit, you can carry it over to the next tax year as a deduction resulting from a hedging transaction. Income tax 1040ez   If the hedging transaction relates to property other than stock or securities, the limit on hedging losses applies if the limited partner or entrepreneur is an individual. Income tax 1040ez   The limit on hedging losses does not apply to any hedging loss to the extent that it is more than all your unrecognized gains from hedging transactions at the end of the tax year that are from the trade or business in which the hedging transaction occurred. Income tax 1040ez The term “unrecognized gain” has the same meaning as defined under Loss Deferral Rules in Straddles, later. Income tax 1040ez Sale of property used in a hedge. Income tax 1040ez   Once you identify personal property as being part of a hedging transaction, you must treat gain from its sale or exchange as ordinary income, not capital gain. Income tax 1040ez Self-Employment Income Gains and losses derived in the ordinary course of a commodity or option dealer's trading in section 1256 contracts and property related to these contracts are included in net earnings from self-employment. Income tax 1040ez See the Instructions for Schedule SE (Form 1040). Income tax 1040ez In addition, the rules relating to contributions to self-employment retirement plans apply. Income tax 1040ez For information on retirement plan contributions, see Publication 560 and Publication 590. Income tax 1040ez Basis of Investment Property Basis is a way of measuring your investment in property for tax purposes. Income tax 1040ez You must know the basis of your property to determine whether you have a gain or loss on its sale or other disposition. Income tax 1040ez Investment property you buy normally has an original basis equal to its cost. Income tax 1040ez If you get property in some way other than buying it, such as by gift or inheritance, its fair market value may be important in figuring the basis. Income tax 1040ez Cost Basis The basis of property you buy is usually its cost. Income tax 1040ez The cost is the amount you pay in cash, debt obligations, or other property or services. Income tax 1040ez Unstated interest. Income tax 1040ez   If you buy property on a time-payment plan that charges little or no interest, the basis of your property is your stated purchase price, minus the amount considered to be unstated interest. Income tax 1040ez You generally have unstated interest if your interest rate is less than the applicable federal rate. Income tax 1040ez For more information, see Unstated Interest and Original Issue Discount (OID) in Publication 537. Income tax 1040ez Basis Other Than Cost There are times when you must use a basis other than cost. Income tax 1040ez In these cases, you may need to know the property's fair market value or the adjusted basis of the previous owner. Income tax 1040ez Fair market value. Income tax 1040ez   This is the price at which the property would change hands between a buyer and a seller, neither being forced to buy or sell and both having reasonable knowledge of all the relevant facts. Income tax 1040ez Sales of similar property, around the same date, may be helpful in figuring fair market value. Income tax 1040ez Property Received for Services If you receive investment property for services, you must include the property's fair market value in income. Income tax 1040ez The amount you include in income then becomes your basis in the property. Income tax 1040ez If the services were performed for a price that was agreed to beforehand, this price will be accepted as the fair market value of the property if there is no evidence to the contrary. Income tax 1040ez Restricted property. Income tax 1040ez   If you receive, as payment for services, property that is subject to certain restrictions, your basis in the property generally is its fair market value when it becomes substantially vested. Income tax 1040ez Property becomes substantially vested when it is transferable or is no longer subject to substantial risk of forfeiture, whichever happens first. Income tax 1040ez See Restricted Property in Publication 525 for more information. Income tax 1040ez Bargain purchases. Income tax 1040ez   If you buy investment property at less than fair market value, as payment for services, you must include the difference in income. Income tax 1040ez Your basis in the property is the price you pay plus the amount you include in income. Income tax 1040ez Property Received in Taxable Trades If you received investment property in trade for other property, the basis of the new property is its fair market value at the time of the trade unless you received the property in a nontaxable trade. Income tax 1040ez Example. Income tax 1040ez You trade A Company stock for B Company stock having a fair market value of $1,200. Income tax 1040ez If the adjusted basis of the A Company stock is less than $1,200, you have a taxable gain on the trade. Income tax 1040ez If the adjusted basis of the A Company stock is more than $1,200, you have a deductible loss on the trade. Income tax 1040ez The basis of your B Company stock is $1,200. Income tax 1040ez If you later sell the B Company stock for $1,300, you will have a gain of $100. Income tax 1040ez Property Received in Nontaxable Trades If you have a nontaxable trade, you do not recognize gain or loss until you dispose of the property you received in the trade. Income tax 1040ez See Nontaxable Trades , later. Income tax 1040ez The basis of property you received in a nontaxable or partly nontaxable trade is generally the same as the adjusted basis of the property you gave up. Income tax 1040ez Increase this amount by any cash you paid, additional costs you had, and any gain recognized. Income tax 1040ez Reduce this amount by any cash or unlike property you received, any loss recognized, and any liability of yours that was assumed or treated as assumed. Income tax 1040ez Property Received From Your Spouse If property is transferred to you from your spouse (or former spouse, if the transfer is incident to your divorce), your basis is the same as your spouse's or former spouse's adjusted basis just before the transfer. Income tax 1040ez See Transfers Between Spouses , later. Income tax 1040ez Recordkeeping. Income tax 1040ez The transferor must give you the records necessary to determine the adjusted basis and holding period of the property as of the date of the transfer. Income tax 1040ez Property Received as a Gift To figure your basis in property that you received as a gift, you must know its adjusted basis to the donor just before it was given to you, its fair market value at the time it was given to you, the amount of any gift tax paid on it, and the date it was given to you. Income tax 1040ez Fair market value less than donor's adjusted basis. Income tax 1040ez   If the fair market value of the property at the time of the gift was less than the donor's adjusted basis just before the gift, your basis for gain on its sale or other disposition is the same as the donor's adjusted basis plus or minus any required adjustments to basis during the period you hold the property. Income tax 1040ez Your basis for loss is its fair market value at the time of the gift plus or minus any required adjustments to basis during the period you hold the property. Income tax 1040ez No gain or loss. Income tax 1040ez   If you use the basis for figuring a gain and the result is a loss, and then use the basis for figuring a loss and the result is a gain, you will have neither a gain nor a loss. Income tax 1040ez Example. Income tax 1040ez You receive a gift of investment property having an adjusted basis of $10,000 at the time of the gift. Income tax 1040ez The fair market value at the time of the gift is $9,000. Income tax 1040ez You later sell the property for $9,500. Income tax 1040ez You have neither gain nor loss. Income tax 1040ez Your basis for figuring gain is $10,000, and $9,500 minus $10,000 results in a $500 loss. Income tax 1040ez Your basis for figuring loss is $9,000, and $9,500 minus $9,000 results in a $500 gain. Income tax 1040ez Fair market value equal to or more than donor's adjusted basis. Income tax 1040ez   If the fair market value of the property at the time of the gift was equal to or more than the donor's adjusted basis just before the gift, your basis for gain or loss on its sale or other disposition is the donor's adjusted basis plus or minus any required adjustments to basis during the period you hold the property. Income tax 1040ez Also, you may be allowed to add to the donor's adjusted basis all or part of any gift tax paid, depending on the date of the gift. Income tax 1040ez Gift received before 1977. Income tax 1040ez   If you received property as a gift before 1977, your basis in the property is the donor's adjusted basis increased by the total gift tax paid on the gift. Income tax 1040ez However, your basis cannot be more than the fair market value of the gift at the time it was given to you. Income tax 1040ez Example 1. Income tax 1040ez You were given XYZ Company stock in 1976. Income tax 1040ez At the time of the gift, the stock had a fair market value of $21,000. Income tax 1040ez The donor's adjusted basis was $20,000. Income tax 1040ez The donor paid a gift tax of $500 on the gift. Income tax 1040ez Your basis for gain or loss is $20,500, the donor's adjusted basis plus the amount of gift tax paid. Income tax 1040ez Example 2. Income tax 1040ez The facts are the same as in Example 1 except that the gift tax paid was $1,500. Income tax 1040ez Your basis is $21,000, the donor's adjusted basis plus the gift tax paid, but limited to the fair market value of the stock at the time of the gift. Income tax 1040ez Gift received after 1976. Income tax 1040ez   If you received property as a gift after 1976, your basis is the donor's adjusted basis increased by the part of the gift tax paid that was for the net increase in value of the gift. Income tax 1040ez You figure this part by multiplying the gift tax paid on the gift by a fraction. Income tax 1040ez The numerator (top part) is the net increase in value of the gift and the denominator (bottom part) is the amount of the gift. Income tax 1040ez   The net increase in value of the gift is the fair market value of the gift minus the donor's adjusted basis. Income tax 1040ez The amount of the gift is its value for gift tax purposes after reduction by any annual exclusion and marital or charitable deduction that applies to the gift. Income tax 1040ez Example. Income tax 1040ez In 2013, you received a gift of property from your mother. Income tax 1040ez At the time of the gift, the property had a fair market value of $101,000 and an adjusted basis to her of $40,000. Income tax 1040ez The amount of the gift for gift tax purposes was $87,000 ($101,000 minus the $14,000 annual exclusion), and your mother paid a gift tax of $21,000. Income tax 1040ez You figure your basis in the following way: Fair market value $101,000 Minus: Adjusted basis 40,000 Net increase in value of gift $61,000 Gift tax paid $21,000 Multiplied by . Income tax 1040ez 701 ($61,000 ÷ $87,000) . Income tax 1040ez 701 Gift tax due to net increase in value $14,721 Plus: Adjusted basis of property to  your mother 40,000 Your basis in the property $54,721 Part sale, part gift. Income tax 1040ez   If you get property in a transfer that is partly a sale and partly a gift, your basis is the larger of the amount you paid for the property or the transferor's adjusted basis in the property at the time of the transfer. Income tax 1040ez Add to that amount the amount of any gift tax paid on the gift, as described in the preceding discussion. Income tax 1040ez For figuring loss, your basis is limited to the property's fair market value at the time of the transfer. Income tax 1040ez Gift tax information. Income tax 1040ez   For information on gift tax, see Publication 950, Introduction to Estate and Gift Taxes. Income tax 1040ez For information on figuring the amount of gift tax to add to your basis, see Property Received as a Gift in Publication 551. Income tax 1040ez Property Received as Inheritance Before or after 2010. Income tax 1040ez   If you inherited property from a decedent who died before or after 2010, or who died in 2010 and the executor of the decedent's estate elected not to file Form 8939, Allocation of Increase in Basis for Property Acquired From a Decedent, your basis in that property generally is its fair market value (its appraised value on Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return) on: The date of the decedent's death, or The later alternate valuation date if the estate qualifies for, and elects to use, alternate valuation. Income tax 1040ez If no Form 706 was filed, use the appraised value on the date of death for state inheritance or transmission taxes. Income tax 1040ez For stocks and bonds, if no Form 706 was filed and there are no state inheritance or transmission taxes, see the Form 706 instructions for figuring the fair market value of the stocks and bonds on the date of the decedent's death. Income tax 1040ez Appreciated property you gave the decedent. Income tax 1040ez   Your basis in certain appreciated property that you inherited is the decedent's adjusted basis in the property immediately before death rather than its fair market value. Income tax 1040ez This applies to appreciated property that you or your spouse gave the decedent as a gift during the 1-year period ending on the date of death. Income tax 1040ez Appreciated property is any property whose fair market value on the day you gave it to the decedent was more than its adjusted basis. Income tax 1040ez More information. Income tax 1040ez   See Publication 551 for more information on the basis of inherited property, including community property, property held by a surviving tenant in a joint tenancy or tenancy by the entirety, a qualified joint interest, and a farm or closely held business. Income tax 1040ez Inherited in 2010 and executor elected to file Form 8939. Income tax 1040ez   If you inherited property from a decedent who died in 2010 and the executor made the election to file Form 8939, see Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010, to figure your basis. Income tax 1040ez Adjusted Basis Before you can figure any gain or loss on a sale, exchange, or other disposition of property or figure allowable depreciation, depletion, or amortization, you usually must make certain adjustments (increases and decreases) to the basis of the property. Income tax 1040ez The result of these adjustments to the basis is the adjusted basis. Income tax 1040ez Adjustments to the basis of stocks and bonds are explained in the following discussion. Income tax 1040ez For information about other adjustments to basis, see Publication 551. Income tax 1040ez Stocks and Bonds The basis of stocks or bonds you own generally is the purchase price plus the costs of purchase, such as commissions and recording or transfer fees. Income tax 1040ez If you acquired stock or bonds other than by purchase, your basis is usually determined by fair market value or the previous owner's adjusted basis as discussed earlier under Basis Other Than Cost . Income tax 1040ez The basis of stock must be adjusted for certain events that occur after purchase. Income tax 1040ez For example, if you receive more stock from nontaxable stock dividends or stock splits, you must reduce the basis of your original stock. Income tax 1040ez You must also reduce your basis when you receive nondividend distributions (discussed in chapter 1). Income tax 1040ez These distributions, up to the amount of your basis, are a nontaxable return of capital. Income tax 1040ez The IRS partners with companies that offer Form 8949 and Schedule D (Form 1040) software that can import trades from many brokerage firms and accounting software to help you keep track of your adjusted basis in securities. Income tax 1040ez To find out more, go to www. Income tax 1040ez irs. Income tax 1040ez gov/Filing/Filing-Options. Income tax 1040ez Identifying stock or bonds sold. Income tax 1040ez   If you can adequately identify the shares of stock or the bonds you sold, their basis is the cost or other basis of the particular shares of stock or bonds. Income tax 1040ez Adequate identification. Income tax 1040ez   You will make an adequate identification if you show that certificates representing shares of stock from a lot that you bought on a certain date or for a certain price were delivered to your broker or other agent. Income tax 1040ez Broker holds stock. Income tax 1040ez   If you have left the stock certificates with your broker or other agent, you will make an adequate identification if you: Tell your broker or other agent the particular stock to be sold or transferred at the time of the sale or transfer, and Receive a written confirmation of this from your broker or other agent within a reasonable time. Income tax 1040ez  Stock identified this way is the stock sold or transferred even if stock certificates from a different lot are delivered to the broker or other agent. Income tax 1040ez Single stock certificate. Income tax 1040ez   If you bought stock in different lots at different times and you hold a single stock certificate for this stock, you will make an adequate identification if you: Tell your broker or other agent the particular stock to be sold or transferred when you deliver the certificate to your broker or other agent, and Receive a written confirmation of this from your broker or other agent within a reasonable time. Income tax 1040ez   If you sell part of the stock represented by a single certificate directly to the buyer instead of through a broker, you will make an adequate identification if you keep a written record of the particular stock that you intend to sell. Income tax 1040ez Bonds. Income tax 1040ez   These methods of identification also apply to bonds sold or transferred. Income tax 1040ez Identification not possible. Income tax 1040ez   If you buy and sell securities at various times in varying quantities and you cannot adequately identify the shares you sell, the basis of the securities you sell is the basis of the securities you acquired first. Income tax 1040ez Except for certain mutual fund shares, discussed later, you cannot use the average price per share to figure gain or loss on the sale of the shares. Income tax 1040ez Example. Income tax 1040ez You bought 100 shares of stock of XYZ Corporation in 1998 for $10 a share. Income tax 1040ez In January 1999 you bought another 200 shares for $11 a share. Income tax 1040ez In July 1999 you gave your son 50 shares. Income tax 1040ez In December 2001 you bought 100 shares for $9 a share. Income tax 1040ez In April 2013 you sold 130 shares. Income tax 1040ez You cannot identify the shares you disposed of, so you must use the stock you acquired first to figure the basis. Income tax 1040ez The shares of stock you gave your son had a basis of $500 (50 × $10). Income tax 1040ez You figure the basis of the 130 shares of stock you sold in 2013 as follows: 50 shares (50 × $10) balance of stock bought in 1998 $ 500 80 shares (80 × $11) stock bought in January 1999 880 Total basis of stock sold in 2013 $1,380 Shares in a mutual fund or REIT. Income tax 1040ez    The basis of shares in a mutual fund (or other regulated investment company) or a real estate investment trust (REIT) is generally figured in the same way as the basis of other stock and usually includes any commissions or load charges paid for the purchase. Income tax 1040ez Example. Income tax 1040ez You bought 100 shares of Fund A for $10 a share. Income tax 1040ez You paid a $50 commission to the broker for the purchase. Income tax 1040ez Your cost basis for each share is $10. Income tax 1040ez 50 ($1,050 ÷ 100). Income tax 1040ez Commissions and load charges. Income tax 1040ez   The fees and charges you pay to acquire or redeem shares of a mutual fund are not deductible. Income tax 1040ez You can usually add acquisition fees and charges to your cost of the shares and thereby increase your basis. Income tax 1040ez A fee paid to redeem the shares is usually a reduction in the redemption price (sales price). Income tax 1040ez   You cannot add your entire acquisition fee or load charge to the cost of the mutual fund shares acquired if all of the following conditions apply. Income tax 1040ez You get a reinvestment right because of the purchase of the shares or the payment of the fee or charge. Income tax 1040ez You dispose of the shares within 90 days of the purchase date. Income tax 1040ez You acquire new shares in the same mutual fund or another mutual fund, for which the fee or charge is reduced or waived because of the reinvestment right you got when you acquired the original shares. Income tax 1040ez   The amount of the original fee or charge in excess of the reduction in (3) is added to the cost of the original shares. Income tax 1040ez The rest of the original fee or charge is added to the cost basis of the new shares (unless all three conditions above also apply to the purchase of the new shares). Income tax 1040ez Choosing average basis for mutual fund shares. Income tax 1040ez   You can choose to use the average basis of mutual fund shares if you acquired the identical shares at various times and prices, or you acquired the shares after 2010 in connection with a dividend reinvestment plan, and left them on deposit in an account kept by a custodian or agent. Income tax 1040ez The methods you can use to figure average basis are explained later. Income tax 1040ez Undistributed capital gains. Income tax 1040ez   If you had to include in your income any undistributed capital gains of the mutual fund or REIT, increase your basis in the stock by the difference between the amount you included and the amount of tax paid for you by the fund or REIT. Income tax 1040ez See Undistributed capital gains of mutual funds and REITs under Capital Gain Distributions in chapter 1. Income tax 1040ez Reinvestment right. Income tax 1040ez   This is the right to acquire mutual fund shares in the same or another mutual fund without paying a fee or load charge, or by paying a reduced fee or load charge. Income tax 1040ez      The original cost basis of mutual fund shares you acquire by reinvesting your distributions is the amount of the distributions used to purchase each full or fractional share. Income tax 1040ez This rule applies even if the distribution is an exempt-interest dividend that you do not report as income. Income tax 1040ez Table 4-1. Income tax 1040ez This is a worksheet you can use to keep track of the adjusted basis of your mutual fund shares. Income tax 1040ez Enter the cost per share when you acquire new shares and any adjustments to their basis when the adjustment occurs. Income tax 1040ez This worksheet will help you figure the adjusted basis when you sell or redeem shares. Income tax 1040ez Table 4-1. Income tax 1040ez Mutual Fund Record Mutual Fund Acquired1 Adjustment to Basis Per Share Adjusted2 Basis Per Share Sold or redeemed Date Number of Shares Cost Per Share Date Number of Shares                                                                                                                                                                                                                                                                         1 Include share received from reinvestment of distributions. Income tax 1040ez 2 Cost plus or minus adjustments. Income tax 1040ez Automatic investment service. Income tax 1040ez   If you participate in an automatic investment service, your basis for each share of stock, including fractional shares, bought by the bank or other agent is the purchase price plus a share of the broker's commission. Income tax 1040ez Dividend reinvestment plans. Income tax 1040ez   If you participate in a dividend reinvestment plan and receive stock from the corporation at a discount, your basis is the full fair market value of the stock on the dividend payment date. Income tax 1040ez You must include the amount of the discount in your income. Income tax 1040ez Public utilities. Income tax 1040ez   If, before 1986, you excluded from income the value of stock you had received under a qualified public utility reinvestment plan, your basis in that stock is zero. Income tax 1040ez Stock dividends. Income tax 1040ez   Stock dividends are distributions made by a corporation of its own stock. Income tax 1040ez Generally, stock dividends are not taxable to you. Income tax 1040ez However, see Distributions of Stock and Stock Rights under Dividends and Other Distributions in chapter 1 for some exceptions. Income tax 1040ez If the stock dividends are not taxable, you must divide your basis for the old stock between the old and new stock. Income tax 1040ez New and old stock identical. Income tax 1040ez   If the new stock you received as a nontaxable dividend is identical to the old stock on which the dividend was declared, divide the adjusted basis of the old stock by the number of shares of old and new stock. Income tax 1040ez The result is your basis for each share of stock. Income tax 1040ez Example 1. Income tax 1040ez You owned one share of common stock that you bought for $45. Income tax 1040ez The corporation distributed two new shares of common stock for each share held. Income tax 1040ez You then had three shares of common stock. Income tax 1040ez Your basis in each share is $15 ($45 ÷ 3). Income tax 1040ez Example 2. Income tax 1040ez You owned two shares of common stock. Income tax 1040ez You bought one for $30 and the other for $45. Income tax 1040ez The corporation distributed two new shares of common stock for each share held. Income tax 1040ez You had six shares after the distribution—three with a basis of $10 each ($30 ÷ 3) and three with a basis of $15 each ($45 ÷ 3). Income tax 1040ez New and old stock not identical. Income tax 1040ez   If the new stock you received as a nontaxable dividend is not identical to the old stock on which it was declared, the basis of the new stock is calculated differently. Income tax 1040ez Divide the adjusted basis of the old stock between the old and the new stock in the ratio of the fair market value of each lot of stock to the total fair market value of both lots on the date of distribution of the new stock. Income tax 1040ez Example. Income tax 1040ez You bought a share of common stock for $100. Income tax 1040ez Later, the corporation distributed a share of preferred stock for each share of common stock held. Income tax 1040ez At the date of distribution, your common stock had a fair market value of $150 and the preferred stock had a fair market value of $50. Income tax 1040ez You figure the basis of the old and new stock by dividing your $100 basis between them. Income tax 1040ez The basis of your common stock is $75 (($150 ÷ $200) × $100), and the basis of the new preferred stock is $25 (($50 ÷ $200) × $100). Income tax 1040ez Stock bought at various times. Income tax 1040ez   Figure the basis of stock dividends received on stock you bought at various times and at different prices by allocating to each lot of stock the share of the stock dividends due to it. Income tax 1040ez Taxable stock dividends. Income tax 1040ez   If your stock dividend is taxable when you receive it, the basis of your new stock is its fair market value on the date of distribution. Income tax 1040ez The basis of your old stock does not change. Income tax 1040ez Stock splits. Income tax 1040ez   Figure the basis of stock splits in the same way as stock dividends if identical stock is distributed on the stock held. Income tax 1040ez Stock rights. Income tax 1040ez   A stock right is a right to acquire a corporation's stock. Income tax 1040ez It may be exercised, it may be sold if it has a market value, or it may expire. Income tax 1040ez Stock rights are rarely taxable when you receive them. Income tax 1040ez See Distributions of Stock and Stock Rights under Dividends and Other Distributions in chapter 1. Income tax 1040ez Taxable stock rights. Income tax 1040ez   If you receive stock rights that are taxable, the basis of the rights is their fair market value at the time of distribution. Income tax 1040ez The basis of the old stock does not change. Income tax 1040ez Nontaxable stock rights. Income tax 1040ez   If you receive nontaxable stock rights and allow them to expire, they have no basis. Income tax 1040ez   If you exercise or sell the nontaxable stock rights and if, at the time of distribution, the stock rights had a fair market value of 15% or more of the fair market value of the old stock, you must divide the adjusted basis of the old stock between the old stock and the stock rights. Income tax 1040ez Use a ratio of the fair market value of each to the total fair market value of both at the time of distribution. Income tax 1040ez   If the fair market value of the stock rights was less than 15%, their basis is zero. Income tax 1040ez However, you can choose to divide the basis of the old stock between the old stock and the stock rights. Income tax 1040ez To make the choice, attach a statement to your return for the year in which you received the rights, stating that you choose to divide the basis of the stock. Income tax 1040ez Basis of new stock. Income tax 1040ez   If you exercise the stock rights, the basis of the new stock is its cost plus the basis of the stock rights exercised. Income tax 1040ez Example. Income tax 1040ez You own 100 shares of ABC Company stock, which cost you $22 per share. Income tax 1040ez The ABC Company gave you 10 nontaxable stock rights that would allow you to buy 10 more shares at $26 per share. Income tax 1040ez At the time the stock rights were distributed, the stock had a market value of $30, not including the stock rights. Income tax 1040ez Each stock right had a market value of $3. Income tax 1040ez The market value of the stock rights was less than 15% of the market value of the stock, but you chose to divide the basis of your stock between the stock and the rights. Income tax 1040ez You figure the basis of the rights and the basis of the old stock as follows: 100 shares × $22 = $2,200, basis of old stock   100 shares × $30 = $3,000, market value of old stock   10 rights × $3 = $30, market value of rights   ($3,000 ÷ $3,030) × $2,200 = $2,178. Income tax 1040ez 22, new basis of old stock   ($30 ÷ $3,030) × $2,200 = $21. Income tax 1040ez 78, basis of rights   If you sell the rights, the basis for figuring gain or loss is $2. Income tax 1040ez 18 ($21. Income tax 1040ez 78 ÷ 10) per right. Income tax 1040ez If you exercise the rights, the basis of the stock you acquire is the price you pay ($26) plus the basis of the right exercised ($2. Income tax 1040ez 18), or $28. Income tax 1040ez 18 per share. Income tax 1040ez The remaining basis of the old stock is $21. Income tax 1040ez 78 per share. Income tax 1040ez Investment property received in liquidation. Income tax 1040ez   In general, if you receive investment property as a distribution in partial or complete liquidation of a corporation and if you recognize gain or loss when you acquire the property, your basis in the property is its fair market value at the time of the distribution. Income tax 1040ez S corporation stock. Income tax 1040ez   You must increase your basis in stock of an S corporation by your pro rata share of the following items. Income tax 1040ez All income items of the S corporation, including tax-exempt income, that are separately stated and passed through to you as a shareholder. Income tax 1040ez The nonseparately stated income of the S corporation. Income tax 1040ez The amount of the deduction for depletion (other than oil and gas depletion) that is more than the basis of the property being depleted. Income tax 1040ez   You must decrease your basis in stock of an S corporation by your pro rata share of the following items. Income tax 1040ez Distributions by the S corporation that were not included in your income. Income tax 1040ez All loss and deduction items of the S corporation that are separately stated and passed through to you. Income tax 1040ez Any nonseparately stated loss of the S corporation. Income tax 1040ez Any expense of the S corporation that is not deductible in figuring its taxable income and not properly chargeable to a capital account. Income tax 1040ez The amount of your deduction for depletion of oil and gas wells to the extent the deduction is not more than your share of the adjusted basis of the wells. Income tax 1040ez However, your basis in the stock cannot be reduced below zero. Income tax 1040ez Specialized small business investment company stock or partnership interest. Income tax 1040ez   If you bought this stock or interest as replacement property for publicly traded securities you sold at a gain, you must reduce the basis of the stock or interest by the amount of any postponed gain on that sale. Income tax 1040ez See Rollover of Gain From Publicly Traded Securities , later. Income tax 1040ez Qualified small business stock. Income tax 1040ez   If you bought this stock as replacement property for other qualified small business stock you sold at a gain, you must reduce the basis of this replacement stock by the amount of any postponed gain on the earlier sale. Income tax 1040ez See Gains on Qualified Small Business Stock , later. Income tax 1040ez Short sales. Income tax 1040ez   If you cannot deduct payments you make to a lender in lieu of dividends on stock used in a short sale, the amount you pay to the lender is a capital expense, and you must add it to the basis of the stock used to close the short sale. Income tax 1040ez   See Payments in lieu of dividends , later, for information about deducting payments in lieu of dividends. Income tax 1040ez Premiums on bonds. Income tax 1040ez   If you buy a bond at a premium, the premium is treated as part of your basis in the bond. Income tax 1040ez If you choose to amortize the premium paid on a taxable bond, you must reduce the basis of the bond by the amortized part of the premium each year over the life of the bond. Income tax 1040ez   Although you cannot deduct the premium on a tax-exempt bond, you must amortize it to determine your adjusted basis in the bond. Income tax 1040ez You must reduce the basis of the bond by the premium you amortized for the period you held the bond. Income tax 1040ez   See Bond Premium Amortization in chapter 3 for more information. Income tax 1040ez Market discount on bonds. Income tax 1040ez   If you include market discount on a bond in income currently, increase the basis of your bond by the amount of market discount you include in your income. Income tax 1040ez See Market Discount Bonds in chapter 1 for more information. Income tax 1040ez Bonds purchased at par value. Income tax 1040ez   A bond purchased at par value (face amount) has no premium or discount. Income tax 1040ez When you sell or otherwise dispose of the bond, you figure the gain or loss by comparing the bond proceeds to the purchase price of the bond. Income tax 1040ez Example. Income tax 1040ez You purchased a bond several years ago for its par value of $10,000. Income tax 1040ez You sold the bond this year for $10,100. Income tax 1040ez You have a gain of $100. Income tax 1040ez However, if you had sold the bond for $9,900, you would have a loss of $100. Income tax 1040ez Acquisition discount on short-term obligations. Income tax 1040ez   If you include acquisition discount on a short-term obligation in your income currently, increase the basis of the obligation by the amount of acquisition discount you include in your income. Income tax 1040ez See Discount on Short-Term Obligations in chapter 1 for more information. Income tax 1040ez Original issue discount (OID) on debt instruments. Income tax 1040ez   Increase the basis of a debt instrument by the OID you include in your income. Income tax 1040ez See Original Issue Discount (OID) in chapter 1. Income tax 1040ez Discounted tax-exempt obligations. Income tax 1040ez   OID on tax-exempt obligations is generally not taxable. Income tax 1040ez However, when you dispose of a tax-exempt obligation issued after September 3, 1982, that you acquired after March 1, 1984, you must accrue OID on the obligation to determine its adjusted basis. Income tax 1040ez The accrued OID is added to the basis of the obligation to determine your gain or loss. Income tax 1040ez   For information on determining OID on a long-term obligation, see Debt Instruments Issued After July 1, 1982, and Before 1985 or Debt Instruments Issued After 1984, whichever applies, in Publication 1212 under Figuring OID on Long-Term Debt Instruments. Income tax 1040ez   If the tax-exempt obligation has a maturity of 1 year or less, accrue OID under the rules for acquisition discount on short-term obligations. Income tax 1040ez See Discount on Short-Term Obligations in chapter 1. Income tax 1040ez Stripped tax-exempt obligation. Income tax 1040ez   If you acquired a stripped tax-exempt bond or coupon after October 22, 1986, you must accrue OID on it to determine its adjusted basis when you dispose of it. Income tax 1040ez For stripped tax-exempt bonds or coupons acquired after June 10, 1987, part of this OID may be taxable. Income tax 1040ez You accrue the OID on these obligations in the manner described in chapter 1 under Stripped Bonds and Coupons . Income tax 1040ez   Increase your basis in the stripped tax-exempt bond or coupon by the taxable and nontaxable accrued OID. Income tax 1040ez Also increase your basis by the interest that accrued (but was not paid and was not previously reflected in your basis) before the date you sold the bond or coupon. Income tax 1040ez In addition, for bonds acquired after June 10, 1987, add to your basis any accrued market discount not previously reflected in basis. Income tax 1040ez How To Figure Gain or Loss You figure gain or loss on a sale or trade of property by comparing the amount you realize with the adjusted basis of the property. Income tax 1040ez Gain. Income tax 1040ez   If the amount you realize from a sale or trade is more than the adjusted basis of the property you transfer, the difference is a gain. Income tax 1040ez Loss. Income tax 1040ez   If the adjusted basis of the property you transfer is more than the amount you realize, the difference is a loss. Income tax 1040ez Amount realized. Income tax 1040ez   The amount you realize from a sale or trade of property is everything you receive for the property minus your expenses of sale (such as redemption fees, sales commissions, sales charges, or exit fees). Income tax 1040ez Amount realized includes the money you receive plus the fair market value of any property or services you receive. Income tax 1040ez   If you finance the buyer's purchase of your property and the debt instrument does not provide for adequate stated interest, the unstated interest that you must report as ordinary income will reduce the amount realized from the sale. Income tax 1040ez For more information, see Publication 537. Income tax 1040ez   If a buyer of property issues a debt instrument to the seller of the property, the amount realized is determined by reference to the issue price of the debt instrument, which may or may not be the fair market value of the debt instrument. Income tax 1040ez See Regulations section 1. Income tax 1040ez 1001-1(g). Income tax 1040ez However, if the debt instrument was previously issued by a third party (one not part of the sale transaction), the fair market value of the debt instrument is used to determine the amount realized. Income tax 1040ez Fair market value. Income tax 1040ez   Fair market value is the price at which property would change hands between a buyer and a seller, neither being forced to buy or sell and both having reasonable knowledge of all the relevant facts. Income tax 1040ez Example. Income tax 1040ez You trade A Company stock with an adjusted basis of $7,000 for B Company stock with a fair market value of $10,000, which is your amount realized. Income tax 1040ez Your gain is $3,000 ($10,000 – $7,000). Income tax 1040ez If you also receive a note for $6,000 that has an issue price of $6,000, your gain is $9,000 ($10,000 + $6,000 – $7,000). Income tax 1040ez Debt paid off. Income tax 1040ez   A debt against the property, or against you, that is paid off as a part of the transaction or that is assumed by the buyer must be included in the amount realized. Income tax 1040ez This is true even if neither you nor the buyer is personally liable for the debt. Income tax 1040ez For example, if you sell or trade property that is subject to a nonrecourse loan, the amount you realize generally includes the full amount of the note assumed by the buyer even if the amount of the note is more than the fair market value of the property. Income tax 1040ez Example. Income tax 1040ez You sell stock that you had pledged as security for a bank loan of $8,000. Income tax 1040ez Your basis in the stock is $6,000. Income tax 1040ez The buyer pays off your bank loan and pays you $20,000 in cash. Income tax 1040ez The amount realized is $28,000 ($20,000 + $8,000). Income tax 1040ez Your gain is $22,000 ($28,000 – $6,000). Income tax 1040ez Payment of cash. Income tax 1040ez   If you trade property and cash for other property, the amount you realize is the fair market value of the property you receive. Income tax 1040ez Determine your gain or loss by subtracting the cash you pay and the adjusted basis of the property you trade in from the amount you realize. Income tax 1040ez If the result is a positive number, it is a gain. Income tax 1040ez If the result is a negative number, it is a loss. Income tax 1040ez No gain or loss. Income tax 1040ez   You may have to use a basis for figuring gain that is different from the basis used for figuring loss. Income tax 1040ez In this case, you may have neither a gain nor a loss. Income tax 1040ez See No gain or loss in the discussion on the basis of property you received as a gift under Basis Other Than Cost, earlier. Income tax 1040ez Special Rules for Mutual Funds To figure your gain or loss when you dispose of mutual fund shares, you need to determine which shares were sold and the basis of those shares. Income tax 1040ez If your shares in a mutual fund were acquired all on the same day and for the same price, figuring their basis is not difficu
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The Income Tax 1040ez

Income tax 1040ez Publication 502 - Main Content Table of Contents What Are Medical Expenses? What Expenses Can You Include This Year?Community property states. Income tax 1040ez How Much of the Expenses Can You Deduct? Whose Medical Expenses Can You Include?Spouse Dependent Decedent What Medical Expenses Are Includible?Abortion Acupuncture Alcoholism Ambulance Annual Physical Examination Artificial Limb Artificial Teeth Bandages Birth Control Pills Body Scan Braille Books and Magazines Breast Pumps and Supplies Breast Reconstruction Surgery Capital Expenses Car Chiropractor Christian Science Practitioner Contact Lenses Crutches Dental Treatment Diagnostic Devices Disabled Dependent Care Expenses Drug Addiction Drugs Eye Exam Eyeglasses Eye Surgery Fertility Enhancement Founder's Fee Guide Dog or Other Service Animal Health Institute Health Maintenance Organization (HMO) Hearing Aids Home Care Home Improvements Hospital Services Insurance Premiums Intellectually and Developmentally Disabled, Special Home for Laboratory Fees Lactation Expenses Lead-Based Paint Removal Learning Disability Legal Fees Lifetime Care—Advance Payments Lodging Long-Term Care Meals Medical Conferences Medical Information Plan Medicines Nursing Home Nursing Services Operations Optometrist Organ Donors Osteopath Oxygen Physical Examination Pregnancy Test Kit Prosthesis Psychiatric Care Psychoanalysis Psychologist Special Education Sterilization Stop-Smoking Programs Surgery Telephone Television Therapy Transplants Transportation Trips Tuition Vasectomy Vision Correction Surgery Weight-Loss Program Wheelchair Wig X-ray What Expenses Are Not Includible?Baby Sitting, Childcare, and Nursing Services for a Normal, Healthy Baby Controlled Substances Cosmetic Surgery Dancing Lessons Diaper Service Electrolysis or Hair Removal Flexible Spending Account Funeral Expenses Future Medical Care Hair Transplant Health Club Dues Health Coverage Tax Credit Health Savings Accounts Household Help Illegal Operations and Treatments Insurance Premiums Maternity Clothes Medical Savings Account (MSA) Medicines and Drugs From Other Countries Nonprescription Drugs and Medicines Nutritional Supplements Personal Use Items Swimming Lessons Teeth Whitening Veterinary Fees Weight-Loss Program How Do You Treat Reimbursements?Insurance Reimbursement How Do You Figure and Report the Deduction on Your Tax Return?What Tax Form Do You Use? Sale of Medical Equipment or Property Damages for Personal Injuries Impairment-Related Work Expenses Health Insurance Costs for Self-Employed Persons COBRA Premium Assistance Health Coverage Tax CreditWho Can Take This Credit? Qualifying Family Member Qualified Health Insurance Nonqualified Health Insurance Eligible Coverage Month How To Take the Credit How To Get Tax HelpLow Income Taxpayer Clinics What Are Medical Expenses? Medical expenses are the costs of diagnosis, cure, mitigation, treatment, or prevention of disease, and the costs for treatments affecting any part or function of the body. Income tax 1040ez These expenses include payments for legal medical services rendered by physicians, surgeons, dentists, and other medical practitioners. Income tax 1040ez They include the costs of equipment, supplies, and diagnostic devices needed for these purposes. Income tax 1040ez Medical care expenses must be primarily to alleviate or prevent a physical or mental defect or illness. Income tax 1040ez They do not include expenses that are merely beneficial to general health, such as vitamins or a vacation. Income tax 1040ez Medical expenses include the premiums you pay for insurance that covers the expenses of medical care, and the amounts you pay for transportation to get medical care. Income tax 1040ez Medical expenses also include amounts paid for qualified long-term care services and limited amounts paid for any qualified long-term care insurance contract. Income tax 1040ez What Expenses Can You Include This Year? You can include only the medical and dental expenses you paid this year, regardless of when the services were provided. Income tax 1040ez (But see Decedent under Whose Medical Expenses Can You Include, for an exception. Income tax 1040ez ) If you pay medical expenses by check, the day you mail or deliver the check generally is the date of payment. Income tax 1040ez If you use a “pay-by-phone” or “online” account to pay your medical expenses, the date reported on the statement of the financial institution showing when payment was made is the date of payment. Income tax 1040ez If you use a credit card, include medical expenses you charge to your credit card in the year the charge is made, not when you actually pay the amount charged. Income tax 1040ez If you did not claim a medical or dental expense that would have been deductible in an earlier year, you can file Form 1040X, Amended U. Income tax 1040ez S. Income tax 1040ez Individual Income Tax Return, for the year in which you overlooked the expense. Income tax 1040ez Do not claim the expense on this year's return. Income tax 1040ez Generally, an amended return must be filed within 3 years from the date the original return was filed or within 2 years from the time the tax was paid, whichever is later. Income tax 1040ez You cannot include medical expenses that were paid by insurance companies or other sources. Income tax 1040ez This is true whether the payments were made directly to you, to the patient, or to the provider of the medical services. Income tax 1040ez Separate returns. Income tax 1040ez   If you and your spouse live in a noncommunity property state and file separate returns, each of you can include only the medical expenses each actually paid. Income tax 1040ez Any medical expenses paid out of a joint checking account in which you and your spouse have the same interest are considered to have been paid equally by each of you, unless you can show otherwise. Income tax 1040ez Community property states. Income tax 1040ez   If you and your spouse live in a community property state and file separate returns or are registered domestic partners in Nevada, Washington, or California, any medical expenses paid out of community funds are divided equally. Income tax 1040ez Generally, each of you should include half the expenses. Income tax 1040ez If medical expenses are paid out of the separate funds of one individual, only the individual who paid the medical expenses can include them. Income tax 1040ez If you live in a community property state and are not filing a joint return, see Publication 555, Community Property. Income tax 1040ez How Much of the Expenses Can You Deduct? Generally, you can deduct on Schedule A (Form 1040) only the amount of your medical and dental expenses that is more than 10% of your AGI. Income tax 1040ez But if either you or your spouse was born before January 2, 1949, you can deduct the amount of your medical and dental expenses that is more than 7. Income tax 1040ez 5% of your AGI. Income tax 1040ez Example. Income tax 1040ez You are unmarried and were born after January 2, 1949, and your AGI is $40,000, 10% of which is $4,000. Income tax 1040ez You paid medical expenses of $2,500. Income tax 1040ez You cannot deduct any of your medical expenses because they are not more than 10% of your AGI. Income tax 1040ez Whose Medical Expenses Can You Include? You can generally include medical expenses you pay for yourself, as well as those you pay for someone who was your spouse or your dependent either when the services were provided or when you paid for them. Income tax 1040ez There are different rules for decedents and for individuals who are the subject of multiple support agreements. Income tax 1040ez See Support claimed under a multiple support agreement , later under Qualifying Relative. Income tax 1040ez Spouse You can include medical expenses you paid for your spouse. Income tax 1040ez To include these expenses, you must have been married either at the time your spouse received the medical services or at the time you paid the medical expenses. Income tax 1040ez Example 1. Income tax 1040ez Mary received medical treatment before she married Bill. Income tax 1040ez Bill paid for the treatment after they married. Income tax 1040ez Bill can include these expenses in figuring his medical expense deduction even if Bill and Mary file separate returns. Income tax 1040ez If Mary had paid the expenses, Bill could not include Mary's expenses in his separate return. Income tax 1040ez Mary would include the amounts she paid during the year in her separate return. Income tax 1040ez If they filed a joint return, the medical expenses both paid during the year would be used to figure their medical expense deduction. Income tax 1040ez Example 2. Income tax 1040ez This year, John paid medical expenses for his wife Louise, who died last year. Income tax 1040ez John married Belle this year and they file a joint return. Income tax 1040ez Because John was married to Louise when she received the medical services, he can include those expenses in figuring his medical expense deduction for this year. Income tax 1040ez Dependent You can include medical expenses you paid for your dependent. Income tax 1040ez For you to include these expenses, the person must have been your dependent either at the time the medical services were provided or at the time you paid the expenses. Income tax 1040ez A person generally qualifies as your dependent for purposes of the medical expense deduction if both of the following requirements are met. Income tax 1040ez The person was a qualifying child (defined later) or a qualifying relative (defined later), and The person was a U. Income tax 1040ez S. Income tax 1040ez citizen or national or a resident of the United States, Canada, or Mexico. Income tax 1040ez If your qualifying child was adopted, see Exception for adopted child , later. Income tax 1040ez You can include medical expenses you paid for an individual that would have been your dependent except that: He or she received gross income of $3,900 or more in 2013, He or she filed a joint return for 2013, or You, or your spouse if filing jointly, could be claimed as a dependent on someone else's 2013 return. Income tax 1040ez Exception for adopted child. Income tax 1040ez   If you are a U. Income tax 1040ez S. Income tax 1040ez citizen or national and your adopted child lived with you as a member of your household for 2013, that child does not have to be a U. Income tax 1040ez S. Income tax 1040ez citizen or national, or a resident of the United States, Canada, or Mexico. Income tax 1040ez Qualifying Child A qualifying child is a child who: Is your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, half brother, half sister, or a descendant of any of them (for example, your grandchild, niece, or nephew), Was: Under age 19 at the end of 2013 and younger than you (or your spouse, if filing jointly), Under age 24 at the end of 2013, a full-time student, and younger than you (or your spouse, if filing jointly), or Any age and permanently and totally disabled, Lived with you for more than half of 2013, Did not provide over half of his or her own support for 2013, and Did not file a joint return, other than to claim a refund. Income tax 1040ez Adopted child. Income tax 1040ez   A legally adopted child is treated as your own child. Income tax 1040ez This child includes a child lawfully placed with you for legal adoption. Income tax 1040ez   You can include medical expenses that you paid for a child before adoption if the child qualified as your dependent when the medical services were provided or when the expenses were paid. Income tax 1040ez   If you pay back an adoption agency or other persons for medical expenses they paid under an agreement with you, you are treated as having paid those expenses provided you clearly substantiate that the payment is directly attributable to the medical care of the child. Income tax 1040ez   But if you pay the agency or other person for medical care that was provided and paid for before adoption negotiations began, you cannot include them as medical expenses. Income tax 1040ez    You may be able to take a credit for other expenses related to an adoption. Income tax 1040ez See the Instructions for Form 8839, Qualified Adoption Expenses, for more information. Income tax 1040ez Child of divorced or separated parents. Income tax 1040ez   For purposes of the medical and dental expenses deduction, a child of divorced or separated parents can be treated as a dependent of both parents. Income tax 1040ez Each parent can include the medical expenses he or she pays for the child, even if the other parent claims the child's dependency exemption, if: The child is in the custody of one or both parents for more than half the year, The child receives over half of his or her support during the year from his or her parents, and The child's parents: Are divorced or legally separated under a decree of divorce or separate maintenance, Are separated under a written separation agreement, or Live apart at all times during the last 6 months of the year. Income tax 1040ez This does not apply if the child's exemption is being claimed under a multiple support agreement (discussed later). Income tax 1040ez Qualifying Relative A qualifying relative is a person: Who is your: Son, daughter, stepchild, or foster child, or a descendant of any of them (for example, your grandchild), Brother, sister, half brother, half sister, or a son or daughter of any of them, Father, mother, or an ancestor or sibling of either of them (for example, your grandmother, grandfather, aunt, or uncle), Stepbrother, stepsister, stepfather, stepmother, son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law, or Any other person (other than your spouse) who lived with you all year as a member of your household if your relationship did not violate local law, Who was not a qualifying child (see Qualifying Child, earlier) of any taxpayer for 2013, and For whom you provided over half of the support in 2013. Income tax 1040ez But see Child of divorced or separated parents , earlier, Support claimed under a multiple support agreement, next, and Kidnapped child under Qualifying Relative in Publication 501. Income tax 1040ez Support claimed under a multiple support agreement. Income tax 1040ez   If you are considered to have provided more than half of a qualifying relative's support under a multiple support agreement, you can include medical expenses you pay for that person. Income tax 1040ez A multiple support agreement is used when two or more people provide more than half of a person's support, but no one alone provides more than half. Income tax 1040ez   Any medical expenses paid by others who joined you in the agreement cannot be included as medical expenses by anyone. Income tax 1040ez However, you can include the entire unreimbursed amount you paid for medical expenses. Income tax 1040ez Example. Income tax 1040ez You and your three brothers each provide one-fourth of your mother's total support. Income tax 1040ez Under a multiple support agreement, you treat your mother as your dependent. Income tax 1040ez You paid all of her medical expenses. Income tax 1040ez Your brothers repaid you for three-fourths of these expenses. Income tax 1040ez In figuring your medical expense deduction, you can include only one-fourth of your mother's medical expenses. Income tax 1040ez Your brothers cannot include any part of the expenses. Income tax 1040ez However, if you and your brothers share the nonmedical support items and you separately pay all of your mother's medical expenses, you can include the unreimbursed amount you paid for her medical expenses in your medical expenses. Income tax 1040ez Decedent Medical expenses paid before death by the decedent are included in figuring any deduction for medical and dental expenses on the decedent's final income tax return. Income tax 1040ez This includes expenses for the decedent's spouse and dependents as well as for the decedent. Income tax 1040ez The survivor or personal representative of a decedent can choose to treat certain expenses paid by the decedent's estate for the decedent's medical care as paid by the decedent at the time the medical services were provided. Income tax 1040ez The expenses must be paid within the 1-year period beginning with the day after the date of death. Income tax 1040ez If you are the survivor or personal representative making this choice, you must attach a statement to the decedent's Form 1040 (or the decedent's amended return, Form 1040X) saying that the expenses have not been and will not be claimed on the estate tax return. Income tax 1040ez Qualified medical expenses paid before death by the decedent are not deductible if paid with a tax-free distribution from any Archer MSA, Medicare Advantage MSA, or health savings account. Income tax 1040ez What if the decedent's return had been filed and the medical expenses were not included?   Form 1040X can be filed for the year or years the expenses are treated as paid, unless the period for filing an amended return for that year has passed. Income tax 1040ez Generally, an amended return must be filed within 3 years of the date the original return was filed, or within 2 years from the time the tax was paid, whichever date is later. Income tax 1040ez Example. Income tax 1040ez John properly filed his 2012 income tax return. Income tax 1040ez He died in 2013 with unpaid medical expenses of $1,500 from 2012 and $1,800 in 2013. Income tax 1040ez If the expenses are paid within the 1-year period, his survivor or personal representative can file an amended return for 2012 claiming a deduction based on the $1,500 medical expenses. Income tax 1040ez The $1,800 of medical expenses from 2013 can be included on the decedent's final return for 2013. Income tax 1040ez What if you pay medical expenses of a deceased spouse or dependent?   If you paid medical expenses for your deceased spouse or dependent, include them as medical expenses on your Form 1040 in the year paid, whether they are paid before or after the decedent's death. Income tax 1040ez The expenses can be included if the person was your spouse or dependent either at the time the medical services were provided or at the time you paid the expenses. Income tax 1040ez What Medical Expenses Are Includible? Following is a list of items that you can include in figuring your medical expense deduction. Income tax 1040ez The items are listed in alphabetical order. Income tax 1040ez This list does not include all possible medical expenses. Income tax 1040ez To determine if an expense not listed can be included in figuring your medical expense deduction, see What Are Medical Expenses , earlier. Income tax 1040ez Abortion You can include in medical expenses the amount you pay for a legal abortion. Income tax 1040ez Acupuncture You can include in medical expenses the amount you pay for acupuncture. Income tax 1040ez Alcoholism You can include in medical expenses amounts you pay for an inpatient's treatment at a therapeutic center for alcohol addiction. Income tax 1040ez This includes meals and lodging provided by the center during treatment. Income tax 1040ez You can also include in medical expenses amounts you pay for transportation to and from Alcoholics Anonymous meetings in your community if the attendance is pursuant to medical advice that membership in Alcoholics Anonymous is necessary for the treatment of a disease involving the excessive use of alcoholic liquors. Income tax 1040ez Ambulance You can include in medical expenses amounts you pay for ambulance service. Income tax 1040ez Annual Physical Examination See Physical Examination , later. Income tax 1040ez Artificial Limb You can include in medical expenses the amount you pay for an artificial limb. Income tax 1040ez Artificial Teeth You can include in medical expenses the amount you pay for artificial teeth. Income tax 1040ez Bandages You can include in medical expenses the cost of medical supplies such as bandages. Income tax 1040ez Birth Control Pills You can include in medical expenses the amount you pay for birth control pills prescribed by a doctor. Income tax 1040ez Body Scan You can include in medical expenses the cost of an electronic body scan. Income tax 1040ez Braille Books and Magazines You can include in medical expenses the part of the cost of Braille books and magazines for use by a visually impaired person that is more than the cost of regular printed editions. Income tax 1040ez Breast Pumps and Supplies You can include in medical expenses the cost of breast pumps and supplies that assist lactation. Income tax 1040ez Breast Reconstruction Surgery You can include in medical expenses the amounts you pay for breast reconstruction surgery, as well as breast prosthesis, following a mastectomy for cancer. Income tax 1040ez See Cosmetic Surgery , later. Income tax 1040ez Capital Expenses You can include in medical expenses amounts you pay for special equipment installed in a home, or for improvements, if their main purpose is medical care for you, your spouse, or your dependent. Income tax 1040ez The cost of permanent improvements that increase the value of your property may be partly included as a medical expense. Income tax 1040ez The cost of the improvement is reduced by the increase in the value of your property. Income tax 1040ez The difference is a medical expense. Income tax 1040ez If the value of your property is not increased by the improvement, the entire cost is included as a medical expense. Income tax 1040ez Certain improvements made to accommodate a home to your disabled condition, or that of your spouse or your dependents who live with you, do not usually increase the value of the home and the cost can be included in full as medical expenses. Income tax 1040ez These improvements include, but are not limited to, the following items. Income tax 1040ez Constructing entrance or exit ramps for your home. Income tax 1040ez Widening doorways at entrances or exits to your home. Income tax 1040ez Widening or otherwise modifying hallways and interior doorways. Income tax 1040ez Installing railings, support bars, or other modifications to bathrooms. Income tax 1040ez Lowering or modifying kitchen cabinets and equipment. Income tax 1040ez Moving or modifying electrical outlets and fixtures. Income tax 1040ez Installing porch lifts and other forms of lifts (but elevators generally add value to the house). Income tax 1040ez Modifying fire alarms, smoke detectors, and other warning systems. Income tax 1040ez Modifying stairways. Income tax 1040ez Adding handrails or grab bars anywhere (whether or not in bathrooms). Income tax 1040ez Modifying hardware on doors. Income tax 1040ez Modifying areas in front of entrance and exit doorways. Income tax 1040ez Grading the ground to provide access to the residence. Income tax 1040ez Only reasonable costs to accommodate a home to a disabled condition are considered medical care. Income tax 1040ez Additional costs for personal motives, such as for architectural or aesthetic reasons, are not medical expenses. Income tax 1040ez Capital expense worksheet. Income tax 1040ez   Use Worksheet A to figure the amount of your capital expense to include in your medical expenses. Income tax 1040ez Worksheet A. Income tax 1040ez Capital Expense Worksheet Instructions: Use this worksheet to figure the amount, if any, of your medical expenses due to a home improvement. Income tax 1040ez 1. Income tax 1040ez Enter the amount you paid for the home improvement 1. Income tax 1040ez   2. Income tax 1040ez Enter the value of your home immediately after the improvement 2. Income tax 1040ez       3. Income tax 1040ez Enter the value of your home immediately before the improvement 3. Income tax 1040ez       4. Income tax 1040ez Subtract line 3 from line 2. Income tax 1040ez This is the increase in the value of your home due to the improvement 4. Income tax 1040ez     • If line 4 is more than or equal to line 1, you have no medical expenses due to the home improvement; stop here. Income tax 1040ez       • If line 4 is less than line 1, go to line 5. Income tax 1040ez     5. Income tax 1040ez Subtract line 4 from line 1. Income tax 1040ez These are your medical expenses due to the home improvement 5. Income tax 1040ez   Operation and upkeep. Income tax 1040ez   Amounts you pay for operation and upkeep of a capital asset qualify as medical expenses, as long as the main reason for them is medical care. Income tax 1040ez This rule applies even if none or only part of the original cost of the capital asset qualified as a medical care expense. Income tax 1040ez Improvements to property rented by a person with a disability. Income tax 1040ez   Amounts paid to buy and install special plumbing fixtures for a person with a disability, mainly for medical reasons, in a rented house are medical expenses. Income tax 1040ez Example. Income tax 1040ez John has arthritis and a heart condition. Income tax 1040ez He cannot climb stairs or get into a bathtub. Income tax 1040ez On his doctor's advice, he installs a bathroom with a shower stall on the first floor of his two-story rented house. Income tax 1040ez The landlord did not pay any of the cost of buying and installing the special plumbing and did not lower the rent. Income tax 1040ez John can include in medical expenses the entire amount he paid. Income tax 1040ez Car You can include in medical expenses the cost of special hand controls and other special equipment installed in a car for the use of a person with a disability. Income tax 1040ez Special design. Income tax 1040ez   You can include in medical expenses the difference between the cost of a regular car and a car specially designed to hold a wheelchair. Income tax 1040ez Cost of operation. Income tax 1040ez   The includible costs of using a car for medical reasons are explained under Transportation , later. Income tax 1040ez Chiropractor You can include in medical expenses fees you pay to a chiropractor for medical care. Income tax 1040ez Christian Science Practitioner You can include in medical expenses fees you pay to Christian Science practitioners for medical care. Income tax 1040ez Contact Lenses You can include in medical expenses amounts you pay for contact lenses needed for medical reasons. Income tax 1040ez You can also include the cost of equipment and materials required for using contact lenses, such as saline solution and enzyme cleaner. Income tax 1040ez See Eyeglasses and Eye Surgery , later. Income tax 1040ez Crutches You can include in medical expenses the amount you pay to buy or rent crutches. Income tax 1040ez Dental Treatment You can include in medical expenses the amounts you pay for the prevention and alleviation of dental disease. Income tax 1040ez Preventive treatment includes the services of a dental hygienist or dentist for such procedures as teeth cleaning, the application of sealants, and fluoride treatments to prevent tooth decay. Income tax 1040ez Treatment to alleviate dental disease include services of a dentist for procedures such as X-rays, fillings, braces, extractions, dentures, and other dental ailments. Income tax 1040ez But see Teeth Whitening under What Expenses Are Not Includible, later. Income tax 1040ez Diagnostic Devices You can include in medical expenses the cost of devices used in diagnosing and treating illness and disease. Income tax 1040ez Example. Income tax 1040ez You have diabetes and use a blood sugar test kit to monitor your blood sugar level. Income tax 1040ez You can include the cost of the blood sugar test kit in your medical expenses. Income tax 1040ez Disabled Dependent Care Expenses Some disabled dependent care expenses may qualify as either: Medical expenses, or Work-related expenses for purposes of taking a credit for dependent care. Income tax 1040ez (See Publication 503, Child and Dependent Care Expenses. Income tax 1040ez ) You can choose to apply them either way as long as you do not use the same expenses to claim both a credit and a medical expense deduction. Income tax 1040ez Drug Addiction You can include in medical expenses amounts you pay for an inpatient's treatment at a therapeutic center for drug addiction. Income tax 1040ez This includes meals and lodging at the center during treatment. Income tax 1040ez Drugs See Medicines , later. Income tax 1040ez Eye Exam You can include in medical expenses the amount you pay for eye examinations. Income tax 1040ez Eyeglasses You can include in medical expenses amounts you pay for eyeglasses and contact lenses needed for medical reasons. Income tax 1040ez See Contact Lenses , earlier, for more information. Income tax 1040ez Eye Surgery You can include in medical expenses the amount you pay for eye surgery to treat defective vision, such as laser eye surgery or radial keratotomy. Income tax 1040ez Fertility Enhancement You can include in medical expenses the cost of the following procedures to overcome an inability to have children. Income tax 1040ez Procedures such as in vitro fertilization (including temporary storage of eggs or sperm). Income tax 1040ez Surgery, including an operation to reverse prior surgery that prevented the person operated on from having children. Income tax 1040ez Founder's Fee See Lifetime Care—Advance Payments , later. Income tax 1040ez Guide Dog or Other Service Animal You can include in medical expenses the costs of buying, training, and maintaining a guide dog or other service animal to assist a visually impaired or hearing disabled person, or a person with other physical disabilities. Income tax 1040ez In general, this includes any costs, such as food, grooming, and veterinary care, incurred in maintaining the health and vitality of the service animal so that it may perform its duties. Income tax 1040ez Health Institute You can include in medical expenses fees you pay for treatment at a health institute only if the treatment is prescribed by a physician and the physician issues a statement that the treatment is necessary to alleviate a physical or mental defect or illness of the individual receiving the treatment. Income tax 1040ez Health Maintenance Organization (HMO) You can include in medical expenses amounts you pay to entitle you, your spouse, or a dependent to receive medical care from an HMO. Income tax 1040ez These amounts are treated as medical insurance premiums. Income tax 1040ez See Insurance Premiums , later. Income tax 1040ez Hearing Aids You can include in medical expenses the cost of a hearing aid and batteries, repairs, and maintenance needed to operate it. Income tax 1040ez Home Care See Nursing Services , later. Income tax 1040ez Home Improvements See Capital Expenses , earlier. Income tax 1040ez Hospital Services You can include in medical expenses amounts you pay for the cost of inpatient care at a hospital or similar institution if a principal reason for being there is to receive medical care. Income tax 1040ez This includes amounts paid for meals and lodging. Income tax 1040ez Also see Lodging , later. Income tax 1040ez Insurance Premiums You can include in medical expenses insurance premiums you pay for policies that cover medical care. Income tax 1040ez Medical care policies can provide payment for treatment that includes: Hospitalization, surgical services, X-rays, Prescription drugs and insulin, Dental care, Replacement of lost or damaged contact lenses, and Long-term care (subject to additional limitations). Income tax 1040ez See Qualified Long-Term Care Insurance Contracts under Long-Term Care, later. Income tax 1040ez If you have a policy that provides payments for other than medical care, you can include the premiums for the medical care part of the policy if the charge for the medical part is reasonable. Income tax 1040ez The cost of the medical part must be separately stated in the insurance contract or given to you in a separate statement. Income tax 1040ez Health coverage tax credit. Income tax 1040ez   If, during 2013, you were an eligible trade adjustment assistance (TAA) recipient, alternative TAA (ATAA) recipient, reemployment TAA (RTAA) recipient, or Pension Benefit Guaranty Corporation (PBGC) pension recipient, you must complete Form 8885 before completing Schedule A. Income tax 1040ez When figuring the amount of insurance premiums you can deduct on Schedule A, do not include: Any amounts you included on Form 8885, Any qualified health insurance premiums you paid to “U. Income tax 1040ez S. Income tax 1040ez Treasury–HCTC,” or Any health coverage tax credit advance payments shown on Form 1099-H, Health Coverage Tax Credit (HCTC) Advance Payments. Income tax 1040ez Employer-Sponsored Health Insurance Plan Do not include in your medical and dental expenses any insurance premiums paid by an employer-sponsored health insurance plan unless the premiums are included on your Form W-2, Wage and Tax Statement. Income tax 1040ez Also, do not include any other medical and dental expenses paid by the plan unless the amount paid is included on your Form W-2. Income tax 1040ez Example. Income tax 1040ez You are a federal employee participating in the premium conversion plan of the Federal Employee Health Benefits (FEHB) program. Income tax 1040ez Your share of the FEHB premium is paid by making a pre-tax reduction in your salary. Income tax 1040ez Because you are an employee whose insurance premiums are paid with money that is never included in your gross income, you cannot deduct the premiums paid with that money. Income tax 1040ez Long-term care services. Income tax 1040ez   Contributions made by your employer to provide coverage for qualified long-term care services under a flexible spending or similar arrangement must be included in your income. Income tax 1040ez This amount will be reported as wages on your Form W-2. Income tax 1040ez Retired public safety officers. Income tax 1040ez   If you are a retired public safety officer, do not include as medical expenses any health or long-term care insurance premiums that you elected to have paid with tax-free distributions from a retirement plan. Income tax 1040ez This applies only to distributions that would otherwise be included in income. Income tax 1040ez Health reimbursement arrangement (HRA). Income tax 1040ez   If you have medical expenses that are reimbursed by a health reimbursement arrangement, you cannot include those expenses in your medical expenses. Income tax 1040ez This is because an HRA is funded solely by the employer. Income tax 1040ez Medicare A If you are covered under social security (or if you are a government employee who paid Medicare tax), you are enrolled in Medicare A. Income tax 1040ez The payroll tax paid for Medicare A is not a medical expense. Income tax 1040ez If you are not covered under social security (or were not a government employee who paid Medicare tax), you can voluntarily enroll in Medicare A. Income tax 1040ez In this situation you can include the premiums you paid for Medicare A as a medical expense. Income tax 1040ez Medicare B Medicare B is a supplemental medical insurance. Income tax 1040ez Premiums you pay for Medicare B are a medical expense. Income tax 1040ez Check the information you received from the Social Security Administration to find out your premium. Income tax 1040ez Medicare D Medicare D is a voluntary prescription drug insurance program for persons with Medicare A or B. Income tax 1040ez You can include as a medical expense premiums you pay for Medicare D. Income tax 1040ez Prepaid Insurance Premiums Premiums you pay before you are age 65 for insurance for medical care for yourself, your spouse, or your dependents after you reach age 65 are medical care expenses in the year paid if they are: Payable in equal yearly installments or more often, and Payable for at least 10 years, or until you reach age 65 (but not for less than 5 years). Income tax 1040ez Unused Sick Leave Used To Pay Premiums You must include in gross income cash payments you receive at the time of retirement for unused sick leave. Income tax 1040ez You also must include in gross income the value of unused sick leave that, at your option, your employer applies to the cost of your continuing participation in your employer's health plan after you retire. Income tax 1040ez You can include this cost of continuing participation in the health plan as a medical expense. Income tax 1040ez If you participate in a health plan where your employer automatically applies the value of unused sick leave to the cost of your continuing participation in the health plan (and you do not have the option to receive cash), do not include the value of the unused sick leave in gross income. Income tax 1040ez You cannot include this cost of continuing participation in that health plan as a medical expense. Income tax 1040ez Insurance Premiums You Cannot Include You cannot include premiums you pay for: Life insurance policies, Policies providing payment for loss of earnings, Policies for loss of life, limb, sight, etc. Income tax 1040ez , Policies that pay you a guaranteed amount each week for a stated number of weeks if you are hospitalized for sickness or injury, The part of your car insurance that provides medical insurance coverage for all persons injured in or by your car because the part of the premium providing insurance for you, your spouse, and your dependents is not stated separately from the part of the premium providing insurance for medical care for others, or Health or long-term care insurance if you elected to pay these premiums with tax-free distributions from a retirement plan made directly to the insurance provider and these distributions would otherwise have been included in income. Income tax 1040ez Taxes imposed by any governmental unit, such as Medicare taxes, are not insurance premiums. Income tax 1040ez Coverage for nondependents. Income tax 1040ez   Generally, you cannot deduct any additional premium you pay as the result of including on your policy someone who is not your spouse or dependent, even if that person is your child under age 27. Income tax 1040ez However, you can deduct the additional premium if that person is: Your child whom you do not claim as a dependent because of the rules for children of divorced or separated parents, Any person you could have claimed as a dependent on your return except that person received $3,900 or more of gross income or filed a joint return, or Any person you could have claimed as a dependent except that you, or your spouse if filing jointly, can be claimed as a dependent on someone else's 2013 return. Income tax 1040ez  Also, if you had family coverage when you added this individual to your policy and your premiums did not increase, you can enter on Schedule A (Form 1040) the full amount of your medical and dental insurance premiums. Income tax 1040ez Intellectually and Developmentally Disabled, Special Home for You can include in medical expenses the cost of keeping a person who is intellectually and developmentally disabled in a special home, not the home of a relative, on the recommendation of a psychiatrist to help the person adjust from life in a mental hospital to community living. Income tax 1040ez Laboratory Fees You can include in medical expenses the amounts you pay for laboratory fees that are part of medical care. Income tax 1040ez Lactation Expenses See Breast Pumps and Supplies , earlier. Income tax 1040ez Lead-Based Paint Removal You can include in medical expenses the cost of removing lead-based paints from surfaces in your home to prevent a child who has or had lead poisoning from eating the paint. Income tax 1040ez These surfaces must be in poor repair (peeling or cracking) or within the child's reach. Income tax 1040ez The cost of repainting the scraped area is not a medical expense. Income tax 1040ez If, instead of removing the paint, you cover the area with wallboard or paneling, treat these items as capital expenses. Income tax 1040ez See Capital Expenses , earlier. Income tax 1040ez Do not include the cost of painting the wallboard as a medical expense. Income tax 1040ez Learning Disability See Special Education , later. Income tax 1040ez Legal Fees You can include in medical expenses legal fees you paid that are necessary to authorize treatment for mental illness. Income tax 1040ez However, you cannot include in medical expenses fees for the management of a guardianship estate, fees for conducting the affairs of the person being treated, or other fees that are not necessary for medical care. Income tax 1040ez Lifetime Care—Advance Payments You can include in medical expenses a part of a life-care fee or “founder's fee” you pay either monthly or as a lump sum under an agreement with a retirement home. Income tax 1040ez The part of the payment you include is the amount properly allocable to medical care. Income tax 1040ez The agreement must require that you pay a specific fee as a condition for the home's promise to provide lifetime care that includes medical care. Income tax 1040ez You can use a statement from the retirement home to prove the amount properly allocable to medical care. Income tax 1040ez The statement must be based either on the home's prior experience or on information from a comparable home. Income tax 1040ez Dependents with disabilities. Income tax 1040ez   You can include in medical expenses advance payments to a private institution for lifetime care, treatment, and training of your physically or mentally impaired child upon your death or when you become unable to provide care. Income tax 1040ez The payments must be a condition for the institution's future acceptance of your child and must not be refundable. Income tax 1040ez Payments for future medical care. Income tax 1040ez   Generally, you cannot include in medical expenses current payments for medical care (including medical insurance) to be provided substantially beyond the end of the year. Income tax 1040ez This rule does not apply in situations where the future care is purchased in connection with obtaining lifetime care of the type described earlier. Income tax 1040ez Lodging You can include in medical expenses the cost of meals and lodging at a hospital or similar institution if a principal reason for being there is to receive medical care. Income tax 1040ez See Nursing Home , later. Income tax 1040ez You may be able to include in medical expenses the cost of lodging not provided in a hospital or similar institution. Income tax 1040ez You can include the cost of such lodging while away from home if all of the following requirements are met. Income tax 1040ez The lodging is primarily for and essential to medical care. Income tax 1040ez The medical care is provided by a doctor in a licensed hospital or in a medical care facility related to, or the equivalent of, a licensed hospital. Income tax 1040ez The lodging is not lavish or extravagant under the circumstances. Income tax 1040ez There is no significant element of personal pleasure, recreation, or vacation in the travel away from home. Income tax 1040ez The amount you include in medical expenses for lodging cannot be more than $50 for each night for each person. Income tax 1040ez You can include lodging for a person traveling with the person receiving the medical care. Income tax 1040ez For example, if a parent is traveling with a sick child, up to $100 per night can be included as a medical expense for lodging. Income tax 1040ez Meals are not included. Income tax 1040ez Do not include the cost of lodging while away from home for medical treatment if that treatment is not received from a doctor in a licensed hospital or in a medical care facility related to, or the equivalent of, a licensed hospital or if that lodging is not primarily for or essential to the medical care received. Income tax 1040ez Long-Term Care You can include in medical expenses amounts paid for qualified long-term care services and premiums paid for qualified long-term care insurance contracts. Income tax 1040ez Qualified Long-Term Care Services Qualified long-term care services are necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, rehabilitative services, and maintenance and personal care services (defined later) that are: Required by a chronically ill individual, and Provided pursuant to a plan of care prescribed by a licensed health care practitioner. Income tax 1040ez Chronically ill individual. Income tax 1040ez   An individual is chronically ill if, within the previous 12 months, a licensed health care practitioner has certified that the individual meets either of the following descriptions. Income tax 1040ez He or she is unable to perform at least two activities of daily living without substantial assistance from another individual for at least 90 days, due to a loss of functional capacity. Income tax 1040ez Activities of daily living are eating, toileting, transferring, bathing, dressing, and continence. Income tax 1040ez He or she requires substantial supervision to be protected from threats to health and safety due to severe cognitive impairment. Income tax 1040ez Maintenance and personal care services. Income tax 1040ez    Maintenance or personal care services is care which has as its primary purpose the providing of a chronically ill individual with needed assistance with his or her disabilities (including protection from threats to health and safety due to severe cognitive impairment). Income tax 1040ez Qualified Long-Term Care Insurance Contracts A qualified long-term care insurance contract is an insurance contract that provides only coverage of qualified long-term care services. Income tax 1040ez The contract must: Be guaranteed renewable, Not provide for a cash surrender value or other money that can be paid, assigned, pledged, or borrowed, Provide that refunds, other than refunds on the death of the insured or complete surrender or cancellation of the contract, and dividends under the contract must be used only to reduce future premiums or increase future benefits, and Generally not pay or reimburse expenses incurred for services or items that would be reimbursed under Medicare, except where Medicare is a secondary payer, or the contract makes per diem or other periodic payments without regard to expenses. Income tax 1040ez The amount of qualified long-term care premiums you can include is limited. Income tax 1040ez You can include the following as medical expenses on Schedule A (Form 1040). Income tax 1040ez Qualified long-term care premiums up to the following amounts. Income tax 1040ez Age 40 or under – $360. Income tax 1040ez Age 41 to 50 – $680. Income tax 1040ez Age 51 to 60 – $1,360. Income tax 1040ez Age 61 to 70 – $3,640. Income tax 1040ez Age 71 or over – $4,550. Income tax 1040ez Unreimbursed expenses for qualified long-term care services. Income tax 1040ez Note. Income tax 1040ez The limit on premiums is for each person. Income tax 1040ez Also, if you are an eligible retired public safety officer, you cannot include premiums for long-term care insurance if you elected to pay these premiums with tax-free distributions from a qualified retirement plan made directly to the insurance provider and these distributions would otherwise have been included in your income. Income tax 1040ez Meals You can include in medical expenses the cost of meals at a hospital or similar institution if a principal reason for being there is to get medical care. Income tax 1040ez You cannot include in medical expenses the cost of meals that are not part of inpatient care. Income tax 1040ez Also see Weight-Loss Program and Nutritional Supplements , later. Income tax 1040ez Medical Conferences You can include in medical expenses amounts paid for admission and transportation to a medical conference if the medical conference concerns the chronic illness of yourself, your spouse, or your dependent. Income tax 1040ez The costs of the medical conference must be primarily for and necessary to the medical care of you, your spouse, or your dependent. Income tax 1040ez The majority of the time spent at the conference must be spent attending sessions on medical information. Income tax 1040ez The cost of meals and lodging while attending the conference is not deductible as a medical expense. Income tax 1040ez Medical Information Plan You can include in medical expenses amounts paid to a plan that keeps medical information in a computer data bank and retrieves and furnishes the information upon request to an attending physician. Income tax 1040ez Medicines You can include in medical expenses amounts you pay for prescribed medicines and drugs. Income tax 1040ez A prescribed drug is one that requires a prescription by a doctor for its use by an individual. Income tax 1040ez You can also include amounts you pay for insulin. Income tax 1040ez Except for insulin, you cannot include in medical expenses amounts you pay for a drug that is not prescribed. Income tax 1040ez Imported medicines and drugs. Income tax 1040ez   If you imported medicines or drugs from other countries, see Medicines and Drugs From Other Countries , under What Expenses Are Not Includible, later. Income tax 1040ez Nursing Home You can include in medical expenses the cost of medical care in a nursing home, home for the aged, or similar institution, for yourself, your spouse, or your dependents. Income tax 1040ez This includes the cost of meals and lodging in the home if a principal reason for being there is to get medical care. Income tax 1040ez Do not include the cost of meals and lodging if the reason for being in the home is personal. Income tax 1040ez You can, however, include in medical expenses the part of the cost that is for medical or nursing care. Income tax 1040ez Nursing Services You can include in medical expenses wages and other amounts you pay for nursing services. Income tax 1040ez The services need not be performed by a nurse as long as the services are of a kind generally performed by a nurse. Income tax 1040ez This includes services connected with caring for the patient's condition, such as giving medication or changing dressings, as well as bathing and grooming the patient. Income tax 1040ez These services can be provided in your home or another care facility. Income tax 1040ez Generally, only the amount spent for nursing services is a medical expense. Income tax 1040ez If the attendant also provides personal and household services, amounts paid to the attendant must be divided between the time spent performing household and personal services and the time spent for nursing services. Income tax 1040ez For example, because of your medical condition you pay a visiting nurse $300 per week for medical and household services. Income tax 1040ez She spends 10% of her time doing household services such as washing dishes and laundry. Income tax 1040ez You can include only $270 per week as medical expenses. Income tax 1040ez The $30 (10% × $300) allocated to household services cannot be included. Income tax 1040ez However, certain maintenance or personal care services provided for qualified long-term care can be included in medical expenses. Income tax 1040ez See Maintenance and personal care services under Long-Term Care, earlier. Income tax 1040ez Additionally, certain expenses for household services or for the care of a qualifying individual incurred to allow you to work may qualify for the child and dependent care credit. Income tax 1040ez See Publication 503. Income tax 1040ez You can also include in medical expenses part of the amount you pay for that attendant's meals. Income tax 1040ez Divide the food expense among the household members to find the cost of the attendant's food. Income tax 1040ez Then divide that cost in the same manner as in the preceding paragraph. Income tax 1040ez If you had to pay additional amounts for household upkeep because of the attendant, you can include the extra amounts with your medical expenses. Income tax 1040ez This includes extra rent or utilities you pay because you moved to a larger apartment to provide space for the attendant. Income tax 1040ez Employment taxes. Income tax 1040ez   You can include as a medical expense social security tax, FUTA, Medicare tax, and state employment taxes you pay for an attendant who provides medical care. Income tax 1040ez If the attendant also provides personal and household services, you can include as a medical expense only the amount of employment taxes paid for medical services as explained earlier. Income tax 1040ez For information on employment tax responsibilities of household employers, see Publication 926, Household Employer's Tax Guide. Income tax 1040ez Operations You can include in medical expenses amounts you pay for legal operations that are not for unnecessary cosmetic surgery. Income tax 1040ez See Cosmetic Surgery under What Expenses Are Not Includible, later. Income tax 1040ez Optometrist See Eyeglasses , earlier. Income tax 1040ez Organ Donors See Transplants , later. Income tax 1040ez Osteopath You can include in medical expenses amounts you pay to an osteopath for medical care. Income tax 1040ez Oxygen You can include in medical expenses amounts you pay for oxygen and oxygen equipment to relieve breathing problems caused by a medical condition. Income tax 1040ez Physical Examination You can include in medical expenses the amount you pay for an annual physical examination and diagnostic tests by a physician. Income tax 1040ez You do not have to be ill at the time of the examination. Income tax 1040ez Pregnancy Test Kit You can include in medical expenses the amount you pay to purchase a pregnancy test kit to determine if you are pregnant. Income tax 1040ez Prosthesis See Artificial Limb and Breast Reconstruction Surgery , earlier. Income tax 1040ez Psychiatric Care You can include in medical expenses amounts you pay for psychiatric care. Income tax 1040ez This includes the cost of supporting a mentally ill dependent at a specially equipped medical center where the dependent receives medical care. Income tax 1040ez See Psychoanalysis, next, and Transportation , later. Income tax 1040ez Psychoanalysis You can include in medical expenses payments for psychoanalysis. Income tax 1040ez However, you cannot include payments for psychoanalysis that is part of required training to be a psychoanalyst. Income tax 1040ez Psychologist You can include in medical expenses amounts you pay to a psychologist for medical care. Income tax 1040ez Special Education You can include in medical expenses fees you pay on a doctor's recommendation for a child's tutoring by a teacher who is specially trained and qualified to work with children who have learning disabilities caused by mental or physical impairments, including nervous system disorders. Income tax 1040ez You can include in medical expenses the cost (tuition, meals, and lodging) of attending a school that furnishes special education to help a child to overcome learning disabilities. Income tax 1040ez A doctor must recommend that the child attend the school. Income tax 1040ez Overcoming the learning disabilities must be a principal reason for attending the school, and any ordinary education received must be incidental to the special education provided. Income tax 1040ez Special education includes: Teaching Braille to a visually impaired person, Teaching lip reading to a hearing disabled person, or Giving remedial language training to correct a condition caused by a birth defect. Income tax 1040ez Sterilization You can include in medical expenses the cost of a legal sterilization (a legally performed operation to make a person unable to have children). Income tax 1040ez Also see Vasectomy , later. Income tax 1040ez Stop-Smoking Programs You can include in medical expenses amounts you pay for a program to stop smoking. Income tax 1040ez However, you cannot include in medical expenses amounts you pay for drugs that do not require a prescription, such as nicotine gum or patches, that are designed to help stop smoking. Income tax 1040ez Surgery See Operations , earlier. Income tax 1040ez Telephone You can include in medical expenses the cost of special telephone equipment that lets a person who is deaf, hard of hearing or has a speech disability communicate over a regular telephone. Income tax 1040ez This includes teletypewriter (TTY) and telecommunications device for the deaf (TDD) equipment. Income tax 1040ez You can also include the cost of repairing the equipment. Income tax 1040ez Television You can include in medical expenses the cost of equipment that displays the audio part of television programs as subtitles for persons with a hearing disability. Income tax 1040ez This may be the cost of an adapter that attaches to a regular set. Income tax 1040ez It also may be the part of the cost of a specially equipped television that exceeds the cost of the same model regular television set. Income tax 1040ez Therapy You can include in medical expenses amounts you pay for therapy received as medical treatment. Income tax 1040ez Transplants You can include in medical expenses amounts paid for medical care you receive because you are a donor or a possible donor of a kidney or other organ. Income tax 1040ez This includes transportation. Income tax 1040ez You can include any expenses you pay for the medical care of a donor in connection with the donating of an organ. Income tax 1040ez This includes transportation. Income tax 1040ez Transportation You can include in medical expenses amounts paid for transportation primarily for, and essential to, medical care. Income tax 1040ez You can include:    Bus, taxi, train, or plane fares or ambulance service, Transportation expenses of a parent who must go with a child who needs medical care, Transportation expenses of a nurse or other person who can give injections, medications, or other treatment required by a patient who is traveling to get medical care and is unable to travel alone, and Transportation expenses for regular visits to see a mentally ill dependent, if these visits are recommended as a part of treatment. Income tax 1040ez Car expenses. Income tax 1040ez   You can include out-of-pocket expenses, such as the cost of gas and oil, when you use a car for medical reasons. Income tax 1040ez You cannot include depreciation, insurance, general repair, or maintenance expenses. Income tax 1040ez   If you do not want to use your actual expenses for 2013, you can use the standard medical mileage rate of 24 cents a mile. Income tax 1040ez    You can also include parking fees and tolls. Income tax 1040ez You can add these fees and tolls to your medical expenses whether you use actual expenses or the standard mileage rate. Income tax 1040ez Example. Income tax 1040ez In 2013, Bill Jones drove 2,800 miles for medical reasons. Income tax 1040ez He spent $500 for gas, $30 for oil, and $100 for tolls and parking. Income tax 1040ez He wants to figure the amount he can include in medical expenses both ways to see which gives him the greater deduction. Income tax 1040ez He figures the actual expenses first. Income tax 1040ez He adds the $500 for gas, the $30 for oil, and the $100 for tolls and parking for a total of $630. Income tax 1040ez He then figures the standard mileage amount. Income tax 1040ez He multiplies 2,800 miles by 24 cents a mile for a total of $672. Income tax 1040ez He then adds the $100 tolls and parking for a total of $772. Income tax 1040ez Bill includes the $772 of car expenses with his other medical expenses for the year because the $772 is more than the $630 he figured using actual expenses. Income tax 1040ez Transportation expenses you cannot include. Income tax 1040ez    You cannot include in medical expenses the cost of transportation in the following situations. Income tax 1040ez Going to and from work, even if your condition requires an unusual means of transportation. Income tax 1040ez Travel for purely personal reasons to another city for an operation or other medical care. Income tax 1040ez Travel that is merely for the general improvement of one's health. Income tax 1040ez The costs of operating a specially equipped car for other than medical reasons. Income tax 1040ez Trips You can include in medical expenses amounts you pay for transportation to another city if the trip is primarily for, and essential to, receiving medical services. Income tax 1040ez You may be able to include up to $50 for each night for each person. Income tax 1040ez You can include lodging for a person traveling with the person receiving the medical care. Income tax 1040ez For example, if a parent is traveling with a sick child, up to $100 per night can be included as a medical expense for lodging. Income tax 1040ez Meals are not included. Income tax 1040ez See Lodging , earlier. Income tax 1040ez You cannot include in medical expenses a trip or vacation taken merely for a change in environment, improvement of morale, or general improvement of health, even if the trip is made on the advice of a doctor. Income tax 1040ez However, see Medical Conferences , earlier. Income tax 1040ez Tuition Under special circumstances, you can include charges for tuition in medical expenses. Income tax 1040ez See Special Education , earlier. Income tax 1040ez You can include charges for a health plan included in a lump-sum tuition fee if the charges are separately stated or can easily be obtained from the school. Income tax 1040ez Vasectomy You can include in medical expenses the amount you pay for a vasectomy. Income tax 1040ez Vision Correction Surgery See Eye Surgery , earlier. Income tax 1040ez Weight-Loss Program You can include in medical expenses amounts you pay to lose weight if it is a treatment for a specific disease diagnosed by a physician (such as obesity, hypertension, or heart disease). Income tax 1040ez This includes fees you pay for membership in a weight reduction group as well as fees for attendance at periodic meetings. Income tax 1040ez You cannot include membership dues in a gym, health club, or spa as medical expenses, but you can include separate fees charged there for weight loss activities. Income tax 1040ez You cannot include the cost of diet food or beverages in medical expenses because the diet food and beverages substitute for what is normally consumed to satisfy nutritional needs. Income tax 1040ez You can include the cost of special food in medical expenses only if: The food does not satisfy normal nutritional needs, The food alleviates or treats an illness, and The need for the food is substantiated by a physician. Income tax 1040ez The amount you can include in medical expenses is limited to the amount by which the cost of the special food exceeds the cost of a normal diet. Income tax 1040ez See also Weight-Loss Program under What Expenses Are Not Includible, later. Income tax 1040ez Wheelchair You can include in medical expenses amounts you pay for a wheelchair used mainly for the relief of sickness or disability, and not just to provide transportation to and from work. Income tax 1040ez The cost of operating and maintaining the wheelchair is also a medical expense. Income tax 1040ez Wig You can include in medical expenses the cost of a wig purchased upon the advice of a physician for the mental health of a patient who has lost all of his or her hair from disease. Income tax 1040ez X-ray You can include in medical expenses amounts you pay for X-rays for medical reasons. Income tax 1040ez What Expenses Are Not Includible? Following is a list of some items that you cannot include in figuring your medical expense deduction. Income tax 1040ez The items are listed in alphabetical order. Income tax 1040ez Baby Sitting, Childcare, and Nursing Services for a Normal, Healthy Baby You cannot include in medical expenses amounts you pay for the care of children, even if the expenses enable you, your spouse, or your dependent to get medical or dental treatment. Income tax 1040ez Also, any expense allowed as a childcare credit cannot be treated as an expense paid for medical care. Income tax 1040ez Controlled Substances You cannot include in medical expenses amounts you pay for controlled substances (such as marijuana, laetrile, etc. Income tax 1040ez ), even if such substances are legalized by state law. Income tax 1040ez Such substances are not legal under federal law and cannot be included in medical expenses. Income tax 1040ez Cosmetic Surgery Generally, you cannot include in medical expenses the amount you pay for unnecessary cosmetic surgery. Income tax 1040ez This includes any procedure that is directed at improving the patient's appearance and does not meaningfully promote the proper function of the body or prevent or treat illness or disease. Income tax 1040ez You generally cannot include in medical expenses the amount you pay for procedures such as face lifts, hair transplants, hair removal (electrolysis), and liposuction. Income tax 1040ez You can include in medical expenses the amount you pay for cosmetic surgery if it is necessary to improve a deformity arising from, or directly related to, a congenital abnormality, a personal injury resulting from an accident or trauma, or a disfiguring disease. Income tax 1040ez Example. Income tax 1040ez An individual undergoes surgery that removes a breast as part of treatment for cancer. Income tax 1040ez She pays a surgeon to reconstruct the breast. Income tax 1040ez The surgery to reconstruct the breast corrects a deformity directly related to the disease. Income tax 1040ez The cost of the surgery is includible in her medical expenses. Income tax 1040ez Dancing Lessons You cannot include in medical expenses the cost of dancing lessons, swimming lessons, etc. Income tax 1040ez , even if they are recommended by a doctor, if they are only for the improvement of general health. Income tax 1040ez Diaper Service You cannot include in medical expenses the amount you pay for diapers or diaper services, unless they are needed to relieve the effects of a particular disease. Income tax 1040ez Electrolysis or Hair Removal See Cosmetic Surgery , earlier. Income tax 1040ez Flexible Spending Account You cannot include in medical expenses amounts for which you are fully reimbursed by your flexible spending account if you contribute a part of your income on a pre-tax basis to pay for the qualified benefit. Income tax 1040ez Funeral Expenses You cannot include in medical expenses amounts you pay for funerals. Income tax 1040ez Future Medical Care Generally, you cannot include in medical expenses current payments for medical care (including medical insurance) to be provided substantially beyond the end of the year. Income tax 1040ez This rule does not apply in situations where the future care is purchased in connection with obtaining lifetime care or long-term care of the type described at Lifetime Care—Advance Payments or Long-Term Care, earlier under What Medical Expenses Are Includible. Income tax 1040ez Hair Transplant See Cosmetic Surgery , earlier. Income tax 1040ez Health Club Dues You cannot include in medical expenses health club dues or amounts paid to improve one's general health or to relieve physical or mental discomfort not related to a particular medical condition. Income tax 1040ez You cannot include in medical expenses the cost of membership in any club organized for business, pleasure, recreation, or other social purpose. Income tax 1040ez Health Coverage Tax Credit You cannot include in medical expenses amounts you pay for health insurance that you use in figuring your health coverage tax credit. Income tax 1040ez For more information, see Health Coverage Tax Credit , later. Income tax 1040ez Health Savings Accounts You cannot include in medical expenses any payment or distribution for medical expenses out of a health savings account. Income tax 1040ez Contributions to health savings accounts are deducted separately. Income tax 1040ez See Publication 969. Income tax 1040ez Household Help You cannot include in medical expenses the cost of household help, even if such help is recommended by a doctor. Income tax 1040ez This is a personal expense that is not deductible. Income tax 1040ez However, you may be able to include certain expenses paid to a person providing nursing-type services. Income tax 1040ez For more information, see Nursing Services , earlier under What Medical Expenses Are Includible. Income tax 1040ez Also, certain maintenance or personal care services provided for qualified long-term care can be included in medical expenses. Income tax 1040ez For more information, see Long-Term Care , earlier under What Medical Expenses Are Includible. Income tax 1040ez Illegal Operations and Treatments You cannot include in medical expenses amounts you pay for illegal operations, treatments, or controlled substances whether rendered or prescribed by licensed or unlicensed practitioners. Income tax 1040ez Insurance Premiums See Insurance Premiums under What Medical Expenses Are Includible, earlier. Income tax 1040ez Maternity Clothes You cannot include in medical expenses amounts you pay for maternity clothes. Income tax 1040ez Medical Savings Account (MSA) You cannot include in medical expenses amounts you contribute to an Archer MSA. Income tax 1040ez You cannot include expenses you pay for with a tax-free distribution from your Archer MSA. Income tax 1040ez You also cannot use other funds equal to the amount of the distribution and include the expenses. Income tax 1040ez For more information on Archer MSAs, see Publication 969. Income tax 1040ez Medicines and Drugs From Other Countries In general, you cannot include in your medical expenses the cost of a prescribed drug brought in (or ordered shipped) from another country. Income tax 1040ez You can only include the cost of a drug that was imported legally. Income tax 1040ez For example, you can include the cost of a prescribed drug the Food and Drug Administration announces can be legally imported by individuals. Income tax 1040ez You can include the cost of a prescribed drug you purchase and consume in another country if the drug is legal in both the other country and the United States. Income tax 1040ez Nonprescription Drugs and Medicines Except for insulin, you cannot include in medical expenses amounts you pay for a drug that is not prescribed. Income tax 1040ez Example. Income tax 1040ez Your doctor recommends that you take aspirin. Income tax 1040ez Because aspirin is a drug that does not require a physician's prescription, you cannot include its cost in your medical expenses. Income tax 1040ez Nutritional Supplements You cannot include in medical expenses the cost of nutritional supplements, vitamins, herbal supplements, “natural medicines,” etc. Income tax 1040ez unless they are recommended by a medical practitioner as treatment for a specific medical condition diagnosed by a physician. Income tax 1040ez Otherwise, these items are taken to maintain your ordinary good health, and are not for medical care. Income tax 1040ez Personal Use Items You cannot include in medical expenses the cost of an item ordinarily used for personal, living, or family purposes unless it is used primarily to prevent or alleviate a physical or mental defect or illness. Income tax 1040ez For example, the cost of a toothbrush and toothpaste is a nondeductible personal expense. Income tax 1040ez In order to accommodate an individual with a physical defect, you may have to purchase an item ordinarily used as a personal, living, or family item in a special form. Income tax 1040ez You can include the excess of the cost of the item in a special form over the cost of the item in normal form as a medical expense. Income tax 1040ez (See Braille Books and Magazines under What Medical Expenses Are Includible, earlier. Income tax 1040ez ) Swimming Lessons See Dancing Lessons , earlier. Income tax 1040ez Teeth Whitening You cannot include in medical expenses amounts paid to whiten teeth. Income tax 1040ez See Cosmetic Surgery , earlier. Income tax 1040ez Veterinary Fees You generally cannot include veterinary fees in your medical expenses, but see Guide Dog or Other Service Animal under What Medical Expenses Are Includible, earlier. Income tax 1040ez Weight-Loss Program You cannot include in medical expenses the cost of a weight-loss program if the purpose of the weight loss is the improvement of appearance, general health, or sense of well-being. Income tax 1040ez You cannot include amounts you pay to lose weight unless the weight loss is a treatment for a specific disease diagnosed by a physician (such as obesity, hypertension, or heart disease). Income tax 1040ez If the weight-loss treatment is not for a specific disease diagnosed by a physician, you cannot include either the fees you pay for membership in a weight reduction group or fees for attendance at periodic meetings. Income tax 1040ez Also, you cannot include membership dues in a gym, health club, or spa. Income tax 1040ez You cannot include the cost of diet food or beverages in medical expenses because the diet food and beverages substitute for what is normally consumed to satisfy nutritional needs. Income tax 1040ez See Weight-Loss Program under What Medical Expenses Are Includible, earlier. Income tax 1040ez How Do You Treat Reimbursements? You can include in medical expenses only those amounts paid during the tax year for which you received no insurance or other reimbursement. Income tax 1040ez Insurance Reimbursement You must reduce your total medical expenses for the year by all reimbursements for medical expenses that you receive from insurance or other sources during the year. Income tax 1040ez This includes payments from Medicare. Income tax 1040ez Even if a policy provides reimbursement only for certain specific medical expenses, you must use amounts you receive from that policy to reduce your total medical expenses, including those it does not reimburse. Income tax 1040ez Example. Income tax 1040ez You have insurance policies that cover your hospital and doctors' bills but not your nursing bills. Income tax 1040ez The insurance you receive for the hospital and doctors' bills is more than their charges. Income tax 1040ez In figuring your medical deduction, you must reduce the total amount you spent for medical care by the total amount of insurance you received, even if the policies do not cover some of your medical expenses. Income tax 1040ez Health reimbursement arrange