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State Tax Return Online

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State Tax Return Online

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

State tax return online Publication 4681 - Introductory Material Table of Contents Reminder IntroductionOrdering forms and publications. State tax return online Tax questions. State tax return online Useful Items - You may want to see: Common Situations Covered In This Publication Reminder Future Developments. State tax return online  Information about any future developments affecting Publication 4681 (such as legislation enacted after we release it) will be posted at www. State tax return online irs. State tax return online gov/pub4681. State tax return online Photographs of missing children. State tax return online   The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. State tax return online Photographs of missing children selected by the Center may appear in this publication on pages that otherwise would be blank. State tax return online 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. State tax return online Introduction This publication explains the federal tax treatment of canceled debts, foreclosures, repossessions, and abandonments. State tax return online Generally, if you owe a debt to someone else and they cancel or forgive that debt for less than its full amount, you are treated for income tax purposes as having income and may have to pay tax on this income. State tax return online Note. State tax return online This publication generally refers to debt that is canceled, forgiven, or discharged for less than the full amount of the debt as “canceled debt. State tax return online ” Sometimes a debt, or part of a debt, that you do not have to pay is not considered canceled debt. State tax return online These exceptions are discussed later under Exceptions . State tax return online Sometimes a canceled debt may be excluded from your income. State tax return online But if you do exclude canceled debt from income, you may be required to reduce your “tax attributes. State tax return online ” These exclusions and the reduction of tax attributes associated with them are discussed later under Exclusions . State tax return online Foreclosure and repossession are remedies that your lender may exercise if you fail to make payments on your loan and you have previously granted that lender a mortgage or other security interest in some of your property. State tax return online These remedies allow the lender to seize or sell the property securing the loan. State tax return online When your property is foreclosed upon or repossessed and sold, you are treated as having sold the property and you may recognize taxable gain. State tax return online Whether you also recognize income from canceled debt depends in part on whether you are personally liable for the debt and in part on whether the outstanding loan balance is more than the fair market value (FMV) of the property. State tax return online Figuring your gain or loss and income from canceled debt arising from a foreclosure or repossession is discussed later under Foreclosures and Repossessions . State tax return online Generally, you abandon property when you voluntarily and permanently give up possession and use of property you own with the intention of ending your ownership but without passing it on to anyone else. State tax return online Figuring your gain or loss and income from canceled debt arising from an abandonment is discussed later under Abandonments . State tax return online This publication also includes detailed examples with filled-in forms. State tax return online Comments and suggestions. State tax return online    We welcome your comments about this publication and your suggestions for future editions. State tax return online   You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. State tax return online NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. State tax return online Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. State tax return online   You can send your comments from www. State tax return online irs. State tax return online gov/formspubs. State tax return online Click on “More Information” and then on “Comment on Tax Forms and Publications”. State tax return online   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. State tax return online Ordering forms and publications. State tax return online    Visit www. State tax return online irs. State tax return online gov/formspubs to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received. State tax return online Internal Revenue Service 1201 N. State tax return online Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. State tax return online    If you have a tax question, check the information available on IRS. State tax return online gov or call 1-800-829-1040. State tax return online We cannot answer tax questions sent to either of the above addresses. State tax return online Useful Items - You may want to see: Publication 225 Farmer's Tax Guide 334 Tax Guide for Small Business (For Individuals Who Use Schedule C or C-EZ) 523 Selling Your Home 525 Taxable and Nontaxable Income 536 Net Operating Losses (NOLs) for Individuals, Estates, and Trusts 542 Corporations 544 Sales and Other Dispositions of Assets 551 Basis of Assets 908 Bankruptcy Tax Guide Form (and Instructions) 982 Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment) 1099-C Cancellation of Debt 1099-DIV Dividends and Distributions 3800 General Business Credit Common Situations Covered In This Publication The sections of this publication that apply to you depend on the type of debt canceled, the tax attributes you have, and whether or not you continue to own the property that was subject to the debt. State tax return online Some examples of common circumstances are provided in the following paragraphs to help guide you through this publication. State tax return online These examples do not cover every situation but are intended to provide general guidance for the most common situations. State tax return online Nonbusiness credit card debt cancellation. State tax return online    If you had a nonbusiness credit card debt canceled, you may be able to exclude the canceled debt from income if the cancellation occurred in a title 11 bankruptcy case or you were insolvent immediately before the cancellation. State tax return online You should read Bankruptcy or Insolvency under Exclusions in chapter 1 to see if you can exclude the canceled debt from income under one of those provisions. State tax return online If you can exclude part or all of the canceled debt from income, you should also read Bankruptcy and Insolvency under Reduction of Tax Attributes in chapter 1. State tax return online Personal vehicle repossession. State tax return online    If you had a personal vehicle repossessed and disposed of by the lender during the year, you will need to determine your gain or nondeductible loss on the disposition. State tax return online This is explained in chapter 2 . State tax return online If the lender also canceled all or part of the remaining amount of the loan, you may be able to exclude the canceled debt from income if the cancellation occurred in a title 11 bankruptcy case or you were insolvent immediately before the cancellation. State tax return online You should read Bankruptcy or Insolvency under Exclusions in chapter 1 to see if you can exclude the canceled debt from income under one of those provisions. State tax return online If you can exclude part or all of the canceled debt from income, you should also read Bankruptcy and Insolvency under Reduction of Tax Attributes in chapter 1. State tax return online Main home foreclosure or abandonment. State tax return online    If a lender foreclosed on your main home during the year, you will need to determine your gain or loss on the foreclosure. State tax return online Foreclosures are explained in chapter 2 and abandonments are explained in chapter 3. State tax return online If the lender also canceled all or part of the remaining amount on the mortgage loan and you were personally liable for the debt, you should also read Qualified Principal Residence Indebtedness under Exclusions in chapter 1 to see if you can exclude part or all of the canceled debt from income. State tax return online Detailed Example 2 and Example 3 in chapter 4 use filled-in forms to help explain these provisions. State tax return online Main home loan modification (workout agreement). State tax return online    If a lender agrees to a mortgage loan modification (a “workout”) that includes a reduction in the principal balance of the loan, you should read Qualified Principal Residence Indebtedness under Exclusions in chapter 1 to see if you can exclude part or all of the canceled debt from income. State tax return online If you can exclude part or all of the canceled debt from income, you should also read Qualified Principal Residence Indebtedness under Reduction of Tax Attributes in chapter 1. State tax return online Detailed Example 1 in chapter 4 uses filled-in forms to help explain the tax implications of a mortgage workout scenario. State tax return online Prev  Up  Next   Home   More Online Publications