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Irs E File 2013

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Irs E File 2013

Irs e file 2013 4. Irs e file 2013   Interest Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Allocation of InterestOrder of funds spent. Irs e file 2013 Payments from checking accounts. Irs e file 2013 Amounts paid within 30 days. Irs e file 2013 Optional method for determining date of reallocation. Irs e file 2013 Interest on a segregated account. Irs e file 2013 How to report. Irs e file 2013 Interest You Can DeductStatement. Irs e file 2013 Expenses paid to obtain a mortgage. Irs e file 2013 Prepayment penalty. Irs e file 2013 De minimis OID. Irs e file 2013 Constant-yield method. Irs e file 2013 Loan or mortgage ends. Irs e file 2013 Interest You Cannot DeductPenalties. Irs e file 2013 Who is a key person? Exceptions for pre-June 1997 contracts. Irs e file 2013 Interest allocated to unborrowed policy cash value. Irs e file 2013 Capitalization of Interest When To Deduct InterestPrepaid interest. Irs e file 2013 Discounted loan. Irs e file 2013 Refunds of interest. Irs e file 2013 Prepaid interest. Irs e file 2013 Discounted loan. Irs e file 2013 Tax deficiency. Irs e file 2013 Related person. Irs e file 2013 Below-Market LoansLimit on forgone interest for gift loans of $100,000 or less. Irs e file 2013 Introduction This chapter discusses the tax treatment of business interest expense. Irs e file 2013 Business interest expense is an amount charged for the use of money you borrowed for business activities. Irs e file 2013 Topics - This chapter discusses: Allocation of interest Interest you can deduct Interest you cannot deduct Capitalization of interest When to deduct interest Below-market loans Useful Items - You may want to see: Publication 537 Installment Sales 550 Investment Income and Expenses 936 Home Mortgage Interest Deduction Form (and Instructions) Sch A (Form 1040) Itemized Deductions Sch E (Form 1040) Supplemental Income and Loss Sch K-1 (Form 1065) Partner's Share of Income, Deductions, Credits, etc. Irs e file 2013 Sch K-1 (Form 1120S) Shareholder's Share of Income, Deductions, Credits, etc. Irs e file 2013 1098 Mortgage Interest Statement 3115 Application for Change in Accounting Method 4952 Investment Interest Expense Deduction 8582 Passive Activity Loss Limitations See chapter 12 for information about getting publications and forms. Irs e file 2013 Allocation of Interest The rules for deducting interest vary, depending on whether the loan proceeds are used for business, personal, or investment activities. Irs e file 2013 If you use the proceeds of a loan for more than one type of expense, you must allocate the interest based on the use of the loan's proceeds. Irs e file 2013 Allocate your interest expense to the following categories. Irs e file 2013 Nonpassive trade or business activity interest Passive trade or business activity interest Investment interest Portfolio interest Personal interest In general, you allocate interest on a loan the same way you allocate the loan proceeds. Irs e file 2013 You allocate loan proceeds by tracing disbursements to specific uses. Irs e file 2013 The easiest way to trace disbursements to specific uses is to keep the proceeds of a particular loan separate from any other funds. Irs e file 2013 Secured loan. Irs e file 2013   The allocation of loan proceeds and the related interest is not generally affected by the use of property that secures the loan. Irs e file 2013 Example. Irs e file 2013 You secure a loan with property used in your business. Irs e file 2013 You use the loan proceeds to buy an automobile for personal use. Irs e file 2013 You must allocate interest expense on the loan to personal use (purchase of the automobile) even though the loan is secured by business property. Irs e file 2013    If the property that secures the loan is your home, you generally do not allocate the loan proceeds or the related interest. Irs e file 2013 The interest is usually deductible as qualified home mortgage interest, regardless of how the loan proceeds are used. Irs e file 2013 For more information, see Publication 936. Irs e file 2013 Allocation period. Irs e file 2013   The period for which a loan is allocated to a particular use begins on the date the proceeds are used and ends on the earlier of the following dates. Irs e file 2013 The date the loan is repaid. Irs e file 2013 The date the loan is reallocated to another use. Irs e file 2013 Proceeds not disbursed to borrower. Irs e file 2013   Even if the lender disburses the loan proceeds to a third party, the allocation of the loan is still based on your use of the funds. Irs e file 2013 This applies whether you pay for property, services, or anything else by incurring a loan, or you take property subject to a debt. Irs e file 2013 Proceeds deposited in borrower's account. Irs e file 2013   Treat loan proceeds deposited in an account as property held for investment. Irs e file 2013 It does not matter whether the account pays interest. Irs e file 2013 Any interest you pay on the loan is investment interest expense. Irs e file 2013 If you withdraw the proceeds of the loan, you must reallocate the loan based on the use of the funds. Irs e file 2013 Example. Irs e file 2013 Celina, a calendar-year taxpayer, borrows $100,000 on January 4 and immediately uses the proceeds to open a checking account. Irs e file 2013 No other amounts are deposited in the account during the year and no part of the loan principal is repaid during the year. Irs e file 2013 On April 2, Celina uses $20,000 from the checking account for a passive activity expenditure. Irs e file 2013 On September 4, Celina uses an additional $40,000 from the account for personal purposes. Irs e file 2013 Under the interest allocation rules, the entire $100,000 loan is treated as property held for investment for the period from January 4 through April 1. Irs e file 2013 From April 2 through September 3, Celina must treat $20,000 of the loan as used in the passive activity and $80,000 of the loan as property held for investment. Irs e file 2013 From September 4 through December 31, she must treat $40,000 of the loan as used for personal purposes, $20,000 as used in the passive activity, and $40,000 as property held for investment. Irs e file 2013 Order of funds spent. Irs e file 2013   Generally, you treat loan proceeds deposited in an account as used (spent) before either of the following amounts. Irs e file 2013 Any unborrowed amounts held in the same account. Irs e file 2013 Any amounts deposited after these loan proceeds. Irs e file 2013 Example. Irs e file 2013 On January 9, Olena opened a checking account, depositing $500 of the proceeds of Loan A and $1,000 of unborrowed funds. Irs e file 2013 The following table shows the transactions in her account during the tax year. Irs e file 2013 Date Transaction January 9 $500 proceeds of Loan A and $1,000 unborrowed funds deposited January 14 $500 proceeds of Loan B  deposited February 19 $800 used for personal purposes February 27 $700 used for passive activity June 19 $1,000 proceeds of Loan C  deposited November 20 $800 used for an investment December 18 $600 used for personal purposes Olena treats the $800 used for personal purposes as made from the $500 proceeds of Loan A and $300 of the proceeds of Loan B. Irs e file 2013 She treats the $700 used for a passive activity as made from the remaining $200 proceeds of Loan B and $500 of unborrowed funds. Irs e file 2013 She treats the $800 used for an investment as made entirely from the proceeds of Loan C. Irs e file 2013 She treats the $600 used for personal purposes as made from the remaining $200 proceeds of Loan C and $400 of unborrowed funds. Irs e file 2013 For the periods during which loan proceeds are held in the account, Olena treats them as property held for investment. Irs e file 2013 Payments from checking accounts. Irs e file 2013   Generally, you treat a payment from a checking or similar account as made at the time the check is written if you mail or deliver it to the payee within a reasonable period after you write it. Irs e file 2013 You can treat checks written on the same day as written in any order. Irs e file 2013 Amounts paid within 30 days. Irs e file 2013   If you receive loan proceeds in cash or if the loan proceeds are deposited in an account, you can treat any payment (up to the amount of the proceeds) made from any account you own, or from cash, as made from those proceeds. Irs e file 2013 This applies to any payment made within 30 days before or after the proceeds are received in cash or deposited in your account. Irs e file 2013   If the loan proceeds are deposited in an account, you can apply this rule even if the rules stated earlier under Order of funds spent would otherwise require you to treat the proceeds as used for other purposes. Irs e file 2013 If you apply this rule to any payments, disregard those payments (and the proceeds from which they are made) when applying the rules stated under Order of funds spent. Irs e file 2013   If you received the loan proceeds in cash, you can treat the payment as made on the date you received the cash instead of the date you actually made the payment. Irs e file 2013 Example. Irs e file 2013 Giovanni gets a loan of $1,000 on August 4 and receives the proceeds in cash. Irs e file 2013 Giovanni deposits $1,500 in an account on August 18 and on August 28 writes a check on the account for a passive activity expense. Irs e file 2013 Also, Giovanni deposits his paycheck, deposits other loan proceeds, and pays his bills during the same period. Irs e file 2013 Regardless of these other transactions, Giovanni can treat $1,000 of the deposit he made on August 18 as being paid on August 4 from the loan proceeds. Irs e file 2013 In addition, Giovanni can treat the passive activity expense he paid on August 28 as made from the $1,000 loan proceeds treated as deposited in the account. Irs e file 2013 Optional method for determining date of reallocation. Irs e file 2013   You can use the following method to determine the date loan proceeds are reallocated to another use. Irs e file 2013 You can treat all payments from loan proceeds in the account during any month as taking place on the later of the following dates. Irs e file 2013 The first day of that month. Irs e file 2013 The date the loan proceeds are deposited in the account. Irs e file 2013 However, you can use this optional method only if you treat all payments from the account during the same calendar month in the same way. Irs e file 2013 Interest on a segregated account. Irs e file 2013   If you have an account that contains only loan proceeds and interest earned on the account, you can treat any payment from that account as being made first from the interest. Irs e file 2013 When the interest earned is used up, any remaining payments are from loan proceeds. Irs e file 2013 Example. Irs e file 2013 You borrowed $20,000 and used the proceeds of this loan to open a new savings account. Irs e file 2013 When the account had earned interest of $867, you withdrew $20,000 for personal purposes. Irs e file 2013 You can treat the withdrawal as coming first from the interest earned on the account, $867, and then from the loan proceeds, $19,133 ($20,000 − $867). Irs e file 2013 All the interest charged on the loan from the time it was deposited in the account until the time of the withdrawal is investment interest expense. Irs e file 2013 The interest charged on the part of the proceeds used for personal purposes ($19,133) from the time you withdrew it until you either repay it or reallocate it to another use is personal interest expense. Irs e file 2013 The interest charged on the loan proceeds you left in the account ($867) continues to be investment interest expense until you either repay it or reallocate it to another use. Irs e file 2013 Loan repayment. Irs e file 2013   When you repay any part of a loan allocated to more than one use, treat it as being repaid in the following order. Irs e file 2013 Personal use. Irs e file 2013 Investments and passive activities (other than those included in (3)). Irs e file 2013 Passive activities in connection with a rental real estate activity in which you actively participate. Irs e file 2013 Former passive activities. Irs e file 2013 Trade or business use and expenses for certain low-income housing projects. Irs e file 2013 Line of credit (continuous borrowings). Irs e file 2013   The following rules apply if you have a line of credit or similar arrangement. Irs e file 2013 Treat all borrowed funds on which interest accrues at the same fixed or variable rate as a single loan. Irs e file 2013 Treat borrowed funds or parts of borrowed funds on which interest accrues at different fixed or variable rates as different loans. Irs e file 2013 Treat these loans as repaid in the order shown on the loan agreement. Irs e file 2013 Loan refinancing. Irs e file 2013   Allocate the replacement loan to the same uses to which the repaid loan was allocated. Irs e file 2013 Make the allocation only to the extent you use the proceeds of the new loan to repay any part of the original loan. Irs e file 2013 Debt-financed distribution. Irs e file 2013   A debt-financed distribution occurs when a partnership or S corporation borrows funds and allocates those funds to distributions made to partners or shareholders. Irs e file 2013 The manner in which you report the interest expense associated with the distributed debt proceeds depends on your use of those proceeds. Irs e file 2013 How to report. Irs e file 2013   If the proceeds were used in a nonpassive trade or business activity, report the interest on Schedule E (Form 1040), line 28; enter “interest expense” and the name of the partnership or S corporation in column (a) and the amount in column (h). Irs e file 2013 If the proceeds were used in a passive activity, follow the Instructions for Form 8582, Passive Activity Loss Limitations, to determine the amount of interest expense that can be reported on Schedule E (Form 1040), line 28; enter “interest expense” and the name of the partnership in column (a) and the amount in column (f). Irs e file 2013 If the proceeds were used in an investment activity, enter the interest on Form 4952. Irs e file 2013 If the proceeds are used for personal purposes, the interest is generally not deductible. Irs e file 2013 Interest You Can Deduct You can generally deduct as a business expense all interest you pay or accrue during the tax year on debts related to your trade or business. Irs e file 2013 Interest relates to your trade or business if you use the proceeds of the loan for a trade or business expense. Irs e file 2013 It does not matter what type of property secures the loan. Irs e file 2013 You can deduct interest on a debt only if you meet all the following requirements. Irs e file 2013 You are legally liable for that debt. Irs e file 2013 Both you and the lender intend that the debt be repaid. Irs e file 2013 You and the lender have a true debtor-creditor relationship. Irs e file 2013 Partial liability. Irs e file 2013   If you are liable for part of a business debt, you can deduct only your share of the total interest paid or accrued. Irs e file 2013 Example. Irs e file 2013 You and your brother borrow money. Irs e file 2013 You are liable for 50% of the note. Irs e file 2013 You use your half of the loan in your business, and you make one-half of the loan payments. Irs e file 2013 You can deduct your half of the total interest payments as a business deduction. Irs e file 2013 Mortgage. Irs e file 2013   Generally, mortgage interest paid or accrued on real estate you own legally or equitably is deductible. Irs e file 2013 However, rather than deducting the interest currently, you may have to add it to the cost basis of the property as explained later under Capitalization of Interest. Irs e file 2013 Statement. Irs e file 2013   If you paid $600 or more of mortgage interest (including certain points) during the year on any one mortgage, you generally will receive a Form 1098 or a similar statement. Irs e file 2013 You will receive the statement if you pay interest to a person (including a financial institution or a cooperative housing corporation) in the course of that person's trade or business. Irs e file 2013 A governmental unit is a person for purposes of furnishing the statement. Irs e file 2013   If you receive a refund of interest you overpaid in an earlier year, this amount will be reported in box 3 of Form 1098. Irs e file 2013 You cannot deduct this amount. Irs e file 2013 For information on how to report this refund, see Refunds of interest, later in this chapter. Irs e file 2013 Expenses paid to obtain a mortgage. Irs e file 2013   Certain expenses you pay to obtain a mortgage cannot be deducted as interest. Irs e file 2013 These expenses, which include mortgage commissions, abstract fees, and recording fees, are capital expenses. Irs e file 2013 If the property mortgaged is business or income-producing property, you can amortize the costs over the life of the mortgage. Irs e file 2013 Prepayment penalty. Irs e file 2013   If you pay off your mortgage early and pay the lender a penalty for doing this, you can deduct the penalty as interest. Irs e file 2013 Interest on employment tax deficiency. Irs e file 2013   Interest charged on employment taxes assessed on your business is deductible. Irs e file 2013 Original issue discount (OID). Irs e file 2013   OID is a form of interest. Irs e file 2013 A loan (mortgage or other debt) generally has OID when its proceeds are less than its principal amount. Irs e file 2013 The OID is the difference between the stated redemption price at maturity and the issue price of the loan. Irs e file 2013   A loan's stated redemption price at maturity is the sum of all amounts (principal and interest) payable on it other than qualified stated interest. Irs e file 2013 Qualified stated interest is stated interest that is unconditionally payable in cash or property (other than another loan of the issuer) at least annually over the term of the loan at a single fixed rate. Irs e file 2013 You generally deduct OID over the term of the loan. Irs e file 2013 Figure the amount to deduct each year using the constant-yield method, unless the OID on the loan is de minimis. Irs e file 2013 De minimis OID. Irs e file 2013   The OID is de minimis if it is less than one-fourth of 1% (. Irs e file 2013 0025) of the stated redemption price of the loan at maturity multiplied by the number of full years from the date of original issue to maturity (the term of the loan). Irs e file 2013   If the OID is de minimis, you can choose one of the following ways to figure the amount you can deduct each year. Irs e file 2013 On a constant-yield basis over the term of the loan. Irs e file 2013 On a straight-line basis over the term of the loan. Irs e file 2013 In proportion to stated interest payments. Irs e file 2013 In its entirety at maturity of the loan. Irs e file 2013 You make this choice by deducting the OID in a manner consistent with the method chosen on your timely filed tax return for the tax year in which the loan is issued. Irs e file 2013 Example. Irs e file 2013 On January 1, 2013, you took out a $100,000 discounted loan and received $98,500 in proceeds. Irs e file 2013 The loan will mature on January 1, 2023 (a 10-year term), and the $100,000 principal is payable on that date. Irs e file 2013 Interest of $10,000 is payable on January 1 of each year, beginning January 1, 2014. Irs e file 2013 The $1,500 OID on the loan is de minimis because it is less than $2,500 ($100,000 × . Irs e file 2013 0025 × 10). Irs e file 2013 You choose to deduct the OID on a straight-line basis over the term of the loan. Irs e file 2013 Beginning in 2013, you can deduct $150 each year for 10 years. Irs e file 2013 Constant-yield method. Irs e file 2013   If the OID is not de minimis, you must use the constant-yield method to figure how much you can deduct each year. Irs e file 2013 You figure your deduction for the first year using the following steps. Irs e file 2013 Determine the issue price of the loan. Irs e file 2013 Generally, this equals the proceeds of the loan. Irs e file 2013 If you paid points on the loan (as discussed later), the issue price generally is the difference between the proceeds and the points. Irs e file 2013 Multiply the result in (1) by the yield to maturity. Irs e file 2013 Subtract any qualified stated interest payments from the result in (2). Irs e file 2013 This is the OID you can deduct in the first year. Irs e file 2013   To figure your deduction in any subsequent year, follow the above steps, except determine the adjusted issue price in step (1). Irs e file 2013 To get the adjusted issue price, add to the issue price any OID previously deducted. Irs e file 2013 Then follow steps (2) and (3) above. Irs e file 2013   The yield to maturity is generally shown in the literature you receive from your lender. Irs e file 2013 If you do not have this information, consult your lender or tax advisor. Irs e file 2013 In general, the yield to maturity is the discount rate that, when used in computing the present value of all principal and interest payments, produces an amount equal to the principal amount of the loan. Irs e file 2013 Example. Irs e file 2013 The facts are the same as in the previous example, except that you deduct the OID on a constant yield basis over the term of the loan. Irs e file 2013 The yield to maturity on your loan is 10. Irs e file 2013 2467%, compounded annually. Irs e file 2013 For 2013, you can deduct $93 [($98,500 × . Irs e file 2013 102467) − $10,000]. Irs e file 2013 For 2014, you can deduct $103 [($98,593 × . Irs e file 2013 102467) − $10,000]. Irs e file 2013 Loan or mortgage ends. Irs e file 2013   If your loan or mortgage ends, you may be able to deduct any remaining OID in the tax year in which the loan or mortgage ends. Irs e file 2013 A loan or mortgage may end due to a refinancing, prepayment, foreclosure, or similar event. Irs e file 2013 If you refinance with the original lender, you generally cannot deduct the remaining OID in the year in which the refinancing occurs, but you may be able to deduct it over the term of the new mortgage or loan. Irs e file 2013 See Interest paid with funds borrowed from original lender under Interest You Cannot Deduct, later. Irs e file 2013 Points. Irs e file 2013   The term “points” is used to describe certain charges paid, or treated as paid, by a borrower to obtain a loan or a mortgage. Irs e file 2013 These charges are also called loan origination fees, maximum loan charges, discount points, or premium charges. Irs e file 2013 If any of these charges (points) are solely for the use of money, they are interest. Irs e file 2013   Because points are prepaid interest, you generally cannot deduct the full amount in the year paid. Irs e file 2013 However, you can choose to fully deduct points in the year paid if you meet certain tests. Irs e file 2013 For exceptions to the general rule, see Publication 936. Irs e file 2013 The points reduce the issue price of the loan and result in original issue discount (OID), deductible as explained in the preceding discussion. Irs e file 2013 Partial payments on a nontax debt. Irs e file 2013   If you make partial payments on a debt (other than a debt owed the IRS), the payments are applied, in general, first to interest and any remainder to principal. Irs e file 2013 You can deduct only the interest. Irs e file 2013 This rule does not apply when it can be inferred that the borrower and lender understood that a different allocation of the payments would be made. Irs e file 2013 Installment purchase. Irs e file 2013   If you make an installment purchase of business property, the contract between you and the seller generally provides for the payment of interest. Irs e file 2013 If no interest or a low rate of interest is charged under the contract, a portion of the stated principal amount payable under the contract may be recharacterized as interest (unstated interest). Irs e file 2013 The amount recharacterized as interest reduces your basis in the property and increases your interest expense. Irs e file 2013 For more information on installment sales and unstated interest, see Publication 537. Irs e file 2013 Interest You Cannot Deduct Certain interest payments cannot be deducted. Irs e file 2013 In addition, certain other expenses that may seem to be interest but are not, cannot be deducted as interest. Irs e file 2013 You cannot currently deduct interest that must be capitalized, and you generally cannot deduct personal interest. Irs e file 2013 Interest paid with funds borrowed from original lender. Irs e file 2013   If you use the cash method of accounting, you cannot deduct interest you pay with funds borrowed from the original lender through a second loan, an advance, or any other arrangement similar to a loan. Irs e file 2013 You can deduct the interest expense once you start making payments on the new loan. Irs e file 2013   When you make a payment on the new loan, you first apply the payment to interest and then to the principal. Irs e file 2013 All amounts you apply to the interest on the first loan are deductible, along with any interest you pay on the second loan, subject to any limits that apply. Irs e file 2013 Capitalized interest. Irs e file 2013   You cannot currently deduct interest you are required to capitalize under the uniform capitalization rules. Irs e file 2013 See Capitalization of Interest, later. Irs e file 2013 In addition, if you buy property and pay interest owed by the seller (for example, by assuming the debt and any interest accrued on the property), you cannot deduct the interest. Irs e file 2013 Add this interest to the basis of the property. Irs e file 2013 Commitment fees or standby charges. Irs e file 2013   Fees you incur to have business funds available on a standby basis, but not for the actual use of the funds, are not deductible as interest payments. Irs e file 2013 You may be able to deduct them as business expenses. Irs e file 2013   If the funds are for inventory or certain property used in your business, the fees are indirect costs and you generally must capitalize them under the uniform capitalization rules. Irs e file 2013 See Capitalization of Interest, later. Irs e file 2013 Interest on income tax. Irs e file 2013   Interest charged on income tax assessed on your individual income tax return is not a business deduction even though the tax due is related to income from your trade or business. Irs e file 2013 Treat this interest as a business deduction only in figuring a net operating loss deduction. Irs e file 2013 Penalties. Irs e file 2013   Penalties on underpaid deficiencies and underpaid estimated tax are not interest. Irs e file 2013 You cannot deduct them. Irs e file 2013 Generally, you cannot deduct any fines or penalties. Irs e file 2013 Interest on loans with respect to life insurance policies. Irs e file 2013   You generally cannot deduct interest on a debt incurred with respect to any life insurance, annuity, or endowment contract that covers any individual unless that individual is a key person. Irs e file 2013   If the policy or contract covers a key person, you can deduct the interest on up to $50,000 of debt for that person. Irs e file 2013 However, the deduction for any month cannot be more than the interest figured using Moody's Composite Yield on Seasoned Corporate Bonds (formerly known as Moody's Corporate Bond Yield Average-Monthly Average Corporates) (Moody's rate) for that month. Irs e file 2013 Who is a key person?   A key person is an officer or 20% owner. Irs e file 2013 However, the number of individuals you can treat as key persons is limited to the greater of the following. Irs e file 2013 Five individuals. Irs e file 2013 The lesser of 5% of the total officers and employees of the company or 20 individuals. Irs e file 2013 Exceptions for pre-June 1997 contracts. Irs e file 2013   You can generally deduct the interest if the contract was issued before June 9, 1997, and the covered individual is someone other than an employee, officer, or someone financially interested in your business. Irs e file 2013 If the contract was purchased before June 21, 1986, you can generally deduct the interest no matter who is covered by the contract. Irs e file 2013 Interest allocated to unborrowed policy cash value. Irs e file 2013   Corporations and partnerships generally cannot deduct any interest expense allocable to unborrowed cash values of life insurance, annuity, or endowment contracts. Irs e file 2013 This rule applies to contracts issued after June 8, 1997, that cover someone other than an officer, director, employee, or 20% owner. Irs e file 2013 For more information, see section 264(f) of the Internal Revenue Code. Irs e file 2013 Capitalization of Interest Under the uniform capitalization rules, you generally must capitalize interest on debt equal to your expenditures to produce real property or certain tangible personal property. Irs e file 2013 The property must be produced by you for use in your trade or business or for sale to customers. Irs e file 2013 You cannot capitalize interest related to property that you acquire in any other manner. Irs e file 2013 Interest you paid or incurred during the production period must be capitalized if the property produced is designated property. Irs e file 2013 Designated property is any of the following. Irs e file 2013 Real property. Irs e file 2013 Tangible personal property with a class life of 20 years or more. Irs e file 2013 Tangible personal property with an estimated production period of more than 2 years. Irs e file 2013 Tangible personal property with an estimated production period of more than 1 year if the estimated cost of production is more than $1 million. Irs e file 2013 Property you produce. Irs e file 2013   You produce property if you construct, build, install, manufacture, develop, improve, create, raise, or grow it. Irs e file 2013 Treat property produced for you under a contract as produced by you up to the amount you pay or incur for the property. Irs e file 2013 Carrying charges. Irs e file 2013   Carrying charges include taxes you pay to carry or develop real estate or to carry, transport, or install personal property. Irs e file 2013 You can choose to capitalize carrying charges not subject to the uniform capitalization rules if they are otherwise deductible. Irs e file 2013 For more information, see chapter 7. Irs e file 2013 Capitalized interest. Irs e file 2013   Treat capitalized interest as a cost of the property produced. Irs e file 2013 You recover your interest when you sell or use the property. Irs e file 2013 If the property is inventory, recover capitalized interest through cost of goods sold. Irs e file 2013 If the property is used in your trade or business, recover capitalized interest through an adjustment to basis, depreciation, amortization, or other method. Irs e file 2013 Partnerships and S corporations. Irs e file 2013   The interest capitalization rules are applied first at the partnership or S corporation level. Irs e file 2013 The rules are then applied at the partners' or shareholders' level to the extent the partnership or S corporation has insufficient debt to support the production or construction costs. Irs e file 2013   If you are a partner or a shareholder, you may have to capitalize interest you incur during the tax year for the production costs of the partnership or S corporation. Irs e file 2013 You may also have to capitalize interest incurred by the partnership or S corporation for your own production costs. Irs e file 2013 To properly capitalize interest under these rules, you must be given the required information in an attachment to the Schedule K-1 you receive from the partnership or S corporation. Irs e file 2013 Additional information. Irs e file 2013   The procedures for applying the uniform capitalization rules are beyond the scope of this publication. Irs e file 2013 For more information, see sections 1. Irs e file 2013 263A-8 through 1. Irs e file 2013 263A-15 of the regulations and Notice 88-99. Irs e file 2013 Notice 88-99 is in Cumulative Bulletin 1988-2. Irs e file 2013 When To Deduct Interest If the uniform capitalization rules, discussed under Capitalization of Interest, earlier, do not apply to you, deduct interest as follows. Irs e file 2013 Cash method. Irs e file 2013   Under the cash method, you can generally deduct only the interest you actually paid during the tax year. Irs e file 2013 You cannot deduct a promissory note you gave as payment because it is a promise to pay and not an actual payment. Irs e file 2013 Prepaid interest. Irs e file 2013   You generally cannot deduct any interest paid before the year it is due. Irs e file 2013 Interest paid in advance can be deducted only in the tax year in which it is due. Irs e file 2013 Discounted loan. Irs e file 2013   If interest or a discount is subtracted from your loan proceeds, it is not a payment of interest and you cannot deduct it when you get the loan. Irs e file 2013 For more information, see Original issue discount (OID) under Interest You Can Deduct, earlier. Irs e file 2013 Refunds of interest. Irs e file 2013   If you pay interest and then receive a refund in the same tax year of any part of the interest, reduce your interest deduction by the refund. Irs e file 2013 If you receive the refund in a later tax year, include the refund in your income to the extent the deduction for the interest reduced your tax. Irs e file 2013 Accrual method. Irs e file 2013   Under an accrual method, you can deduct only interest that has accrued during the tax year. Irs e file 2013 Prepaid interest. Irs e file 2013   See Prepaid interest, earlier. Irs e file 2013 Discounted loan. Irs e file 2013   See Discounted loan, earlier. Irs e file 2013 Tax deficiency. Irs e file 2013   If you contest a federal income tax deficiency, interest does not accrue until the tax year the final determination of liability is made. Irs e file 2013 If you do not contest the deficiency, then the interest accrues in the year the tax was asserted and agreed to by you. Irs e file 2013   However, if you contest but pay the proposed tax deficiency and interest, and you do not designate the payment as a cash bond, then the interest is deductible in the year paid. Irs e file 2013 Related person. Irs e file 2013   If you use an accrual method, you cannot deduct interest owed to a related person who uses the cash method until payment is made and the interest is includible in the gross income of that person. Irs e file 2013 The relationship is determined as of the end of the tax year for which the interest would otherwise be deductible. Irs e file 2013 See section 267 of the Internal Revenue Code for more information. Irs e file 2013 Below-Market Loans If you receive a below-market gift or demand loan and use the proceeds in your trade or business, you may be able to deduct the forgone interest. Irs e file 2013 See Treatment of gift and demand loans, later, in this discussion. Irs e file 2013 A below-market loan is a loan on which no interest is charged or on which interest is charged at a rate below the applicable federal rate. Irs e file 2013 A gift or demand loan that is a below-market loan generally is considered an arm's-length transaction in which you, the borrower, are considered as having received both the following. Irs e file 2013 A loan in exchange for a note that requires the payment of interest at the applicable federal rate. Irs e file 2013 An additional payment in an amount equal to the forgone interest. Irs e file 2013 The additional payment is treated as a gift, dividend, contribution to capital, payment of compensation, or other payment, depending on the substance of the transaction. Irs e file 2013 Forgone interest. Irs e file 2013   For any period, forgone interest is The interest that would be payable for that period if interest accrued on the loan at the applicable federal rate and was payable annually on December 31, minus Any interest actually payable on the loan for the period. Irs e file 2013 Applicable federal rates are published by the IRS each month in the Internal Revenue Bulletin. Irs e file 2013 Internal Revenue Bulletins are available on the IRS web site at www. Irs e file 2013 irs. Irs e file 2013 gov/irb. Irs e file 2013 You can also contact an IRS office to get these rates. Irs e file 2013 Loans subject to the rules. Irs e file 2013   The rules for below-market loans apply to the following. Irs e file 2013 Gift loans (below-market loans where the forgone interest is in the nature of a gift). Irs e file 2013 Compensation-related loans (below-market loans between an employer and an employee or between an independent contractor and a person for whom the contractor provides services). Irs e file 2013 Corporation-shareholder loans. Irs e file 2013 Tax avoidance loans (below-market loans where the avoidance of federal tax is one of the main purposes of the interest arrangement). Irs e file 2013 Loans to qualified continuing care facilities under a continuing care contract (made after October 11, 1985). Irs e file 2013   Except as noted in (5) above, these rules apply to demand loans (loans payable in full at any time upon the lender's demand) outstanding after June 6, 1984, and to term loans (loans that are not demand loans) made after that date. Irs e file 2013 Treatment of gift and demand loans. Irs e file 2013   If you receive a below-market gift loan or demand loan, you are treated as receiving an additional payment (as a gift, dividend, etc. Irs e file 2013 ) equal to the forgone interest on the loan. Irs e file 2013 You are then treated as transferring this amount back to the lender as interest. Irs e file 2013 These transfers are considered to occur annually, generally on December 31. Irs e file 2013 If you use the loan proceeds in your trade or business, you can deduct the forgone interest each year as a business interest expense. Irs e file 2013 The lender must report it as interest income. Irs e file 2013 Limit on forgone interest for gift loans of $100,000 or less. Irs e file 2013   For gift loans between individuals, forgone interest treated as transferred back to the lender is limited to the borrower's net investment income for the year. Irs e file 2013 This limit applies if the outstanding loans between the lender and borrower total $100,000 or less. Irs e file 2013 If the borrower's net investment income is $1,000 or less, it is treated as zero. Irs e file 2013 This limit does not apply to a loan if the avoidance of any federal tax is one of the main purposes of the interest arrangement. Irs e file 2013 Treatment of term loans. Irs e file 2013   If you receive a below-market term loan other than a gift or demand loan, you are treated as receiving an additional cash payment (as a dividend, etc. Irs e file 2013 ) on the date the loan is made. Irs e file 2013 This payment is equal to the loan amount minus the present value, at the applicable federal rate, of all payments due under the loan. Irs e file 2013 The same amount is treated as original issue discount on the loan. Irs e file 2013 See Original issue discount (OID) under Interest You Can Deduct, earlier. Irs e file 2013 Exceptions for loans of $10,000 or less. Irs e file 2013   The rules for below-market loans do not apply to any day on which the total outstanding loans between the borrower and lender is $10,000 or less. Irs e file 2013 This exception applies only to the following. Irs e file 2013 Gift loans between individuals if the loan is not directly used to buy or carry income-producing assets. Irs e file 2013 Compensation-related loans or corporation-shareholder loans if the avoidance of any federal tax is not a principal purpose of the interest arrangement. Irs e file 2013 This exception does not apply to a term loan described in (2) above that was previously subject to the below-market loan rules. Irs e file 2013 Those rules will continue to apply even if the outstanding balance is reduced to $10,000 or less. Irs e file 2013 Exceptions for loans without significant tax effect. Irs e file 2013   The following loans are specifically exempted from the rules for below-market loans because their interest arrangements do not have a significant effect on the federal tax liability of the borrower or the lender. Irs e file 2013 Loans made available by lenders to the general public on the same terms and conditions that are consistent with the lender's customary business practices. Irs e file 2013 Loans subsidized by a federal, state, or municipal government that are made available under a program of general application to the public. Irs e file 2013 Certain employee-relocation loans. Irs e file 2013 Certain loans to or from a foreign person, unless the interest income would be effectively connected with the conduct of a U. Irs e file 2013 S. Irs e file 2013 trade or business and not exempt from U. Irs e file 2013 S. Irs e file 2013 tax under an income tax treaty. Irs e file 2013 Any other loan if the taxpayer can show that the interest arrangement has no significant effect on the federal tax liability of the lender or the borrower. Irs e file 2013 Whether an interest arrangement has a significant effect on the federal tax liability of the lender or the borrower will be determined by all the facts and circumstances. Irs e file 2013 Consider all the following factors. Irs e file 2013 Whether items of income and deduction generated by the loan offset each other. Irs e file 2013 The amount of the items. Irs e file 2013 The cost of complying with the below-market loan provisions if they were to apply. Irs e file 2013 Any reasons, other than taxes, for structuring the transaction as a below-market loan. Irs e file 2013 Exception for loans to qualified continuing care facilities. Irs e file 2013   The below-market interest rules do not apply to a loan owed by a qualified continuing care facility under a continuing care contract if the lender or lender's spouse is age 62 or older by the end of the calendar year. Irs e file 2013 A qualified continuing care facility is one or more facilities (excluding nursing homes) meeting the requirements listed below. Irs e file 2013 Designed to provide services under continuing care contracts (defined below). Irs e file 2013 Includes an independent living unit, and either an assisted living or nursing facility, or both. Irs e file 2013 Substantially all of the independent living unit residents are covered by continuing care contracts. Irs e file 2013 A continuing care contract is a written contract between an individual and a qualified continuing care facility that includes all of the following conditions. Irs e file 2013 The individual or individual's spouse must be entitled to use the facility for the rest of their life or lives. Irs e file 2013 The individual or individual's spouse will be provided with housing, as appropriate for the health of the individual or individual's spouse in an: independent living unit (which has additional available facilities outside the unit for the provision of meals and other personal care), and assisted living or nursing facility available in the continuing care facility. Irs e file 2013 The individual or individual's spouse will be provided with assisted living or nursing care available in the continuing care facility, as required for the health of the individual or the individual's spouse. Irs e file 2013 For more information, see section 7872(h) of the Internal Revenue Code. Irs e file 2013 Sale or exchange of property. Irs e file 2013   Different rules generally apply to a loan connected with the sale or exchange of property. Irs e file 2013 If the loan does not provide adequate stated interest, part of the principal payment may be considered interest. Irs e file 2013 However, there are exceptions that may require you to apply the below-market interest rate rules to these loans. Irs e file 2013 See Unstated Interest and Original Issue Discount (OID) in Publication 537. Irs e file 2013 More information. Irs e file 2013   For more information on below-market loans, see section 7872 of the Internal Revenue Code and section 1. Irs e file 2013 7872-5 of the regulations. Irs e file 2013 Prev  Up  Next   Home   More Online Publications
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The Defense Contract Audit Agency provides all contract audit services for the Department of Defense. This agency also provides accounting and financial advice to all Department of Defense components involved in procurement and contract administration.

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The Irs E File 2013

Irs e file 2013 Publication 551 - Introductory Material Table of Contents What's New Reminder IntroductionOrdering forms and publications. Irs e file 2013 Tax questions. Irs e file 2013 Useful Items - You may want to see: What's New Property acquired from a decedent who died in 2010. Irs e file 2013  Property acquired from a decedent dying in 2010 will no longer have an automatic increase in basis. Irs e file 2013 See Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010, for details. Irs e file 2013 Reminder Photographs of missing children. Irs e file 2013  The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Irs e file 2013 Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. Irs e file 2013 You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. Irs e file 2013 Introduction Basis is the amount of your investment in property for tax purposes. Irs e file 2013 Use the basis of property to figure depreciation, amortization, depletion, and casualty losses. Irs e file 2013 Also use it to figure gain or loss on the sale or other disposition of property. Irs e file 2013 You must keep accurate records of all items that affect the basis of property so you can make these computations. Irs e file 2013 This publication is divided into the following sections. Irs e file 2013 Cost Basis Adjusted Basis Basis Other Than Cost The basis of property you buy is usually its cost. Irs e file 2013 You may also have to capitalize (add to basis) certain other costs related to buying or producing the property. Irs e file 2013 Your original basis in property is adjusted (increased or decreased) by certain events. Irs e file 2013 If you make improvements to the property, increase your basis. Irs e file 2013 If you take deductions for depreciation or casualty losses, reduce your basis. Irs e file 2013 You cannot determine your basis in some assets by cost. Irs e file 2013 This includes property you receive as a gift or inheritance. Irs e file 2013 It also applies to property received in an involuntary conversion and certain other circumstances. Irs e file 2013 Comments and suggestions. Irs e file 2013   We welcome your comments about this publication and your suggestions for future editions. Irs e file 2013   You can write to us at the following address: Internal Revenue Service Business Forms and Publications Branch SE:W:CAR:MP:T:B 1111 Constitution Ave. Irs e file 2013 NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. Irs e file 2013 Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Irs e file 2013   You can email us at taxforms@irs. Irs e file 2013 gov. Irs e file 2013 Please put “Publications Comment” on the subject line. Irs e file 2013 You can also send us comments from www. Irs e file 2013 irs. Irs e file 2013 gov/formspubs/, select “Comment on Tax Forms and Publications” under “Information about. Irs e file 2013 ”   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. Irs e file 2013 Ordering forms and publications. Irs e file 2013   Visit www. Irs e file 2013 irs. Irs e file 2013 gov/formspubs to download forms and publications, call 1-800-829-3676, or write to the address below and receive a response within 10 business days after your request is received. Irs e file 2013  Internal Revenue Service  1201 N. Irs e file 2013 Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. Irs e file 2013   If you have a tax question, visit IRS. Irs e file 2013 gov or call 1-800-829-1040. Irs e file 2013 We cannot answer tax questions sent to either of the above addresses. Irs e file 2013 Useful Items - You may want to see: Publication 463 Travel, Entertainment, Gift, and Car Expenses 523 Selling Your Home 525 Taxable and Nontaxable Income 527 Residential Rental Property 530 Tax Information for First-Time Homeowners 535 Business Expenses 537 Installment Sales 544 Sales and Other Dispositions of Assets 550 Investment Income and Expenses 559 Survivors, Executors, and Administrators 587 Business Use of Your Home 946 How To Depreciate Property Form (and Instructions) 706 United States Estate (and Generation-Skipping Transfer) Tax Return 706-A United States Additional Estate Tax Return 8594 Asset Acquisition Statement See How To Get Tax Help near the end of this publication for information about getting publications and forms. Irs e file 2013 Prev  Up  Next   Home   More Online Publications