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Tax Return 2011

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Tax Return 2011

Tax return 2011 4. Tax return 2011   How Income of Aliens Is Taxed Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Resident Aliens Nonresident AliensTrade or Business in the United States Effectively Connected Income The 30% Tax Income From Real Property Transportation Tax Interrupted Period of Residence Expatriation TaxExpatriation Before June 4, 2004 Expatriation After June 3, 2004, and Before June 17, 2008 Expatriation After June 16, 2008 Introduction Resident and nonresident aliens are taxed in different ways. Tax return 2011 Resident aliens are generally taxed in the same way as U. Tax return 2011 S. Tax return 2011 citizens. Tax return 2011 Nonresident aliens are taxed based on the source of their income and whether or not their income is effectively connected with a U. Tax return 2011 S. Tax return 2011 trade or business. Tax return 2011 The following discussions will help you determine if income you receive during the tax year is effectively connected with a U. Tax return 2011 S. Tax return 2011 trade or business and how it is taxed. Tax return 2011 Topics - This chapter discusses: Income that is effectively connected with a U. Tax return 2011 S. Tax return 2011 trade or business. Tax return 2011 Income that is not effectively connected with a U. Tax return 2011 S. Tax return 2011 trade or business. Tax return 2011 Interrupted period of residence. Tax return 2011 Expatriation tax. Tax return 2011 Useful Items - You may want to see: Publication 544 Sales and Other Dispositions of Assets 1212 List of Original Issue Discount Instruments Form (and Instructions) 6251 Alternative Minimum Tax—Individuals Schedule D (Form 1040) Capital Gains and Losses See chapter 12 for information about getting these publications and forms. Tax return 2011 Resident Aliens Resident aliens are generally taxed in the same way as U. Tax return 2011 S. Tax return 2011 citizens. Tax return 2011 This means that their worldwide income is subject to U. Tax return 2011 S. Tax return 2011 tax and must be reported on their U. Tax return 2011 S. Tax return 2011 tax return. Tax return 2011 Income of resident aliens is subject to the graduated tax rates that apply to U. Tax return 2011 S. Tax return 2011 citizens. Tax return 2011 Resident aliens use the Tax Table or Tax Computation Worksheets located in the Form 1040 instructions, which apply to U. Tax return 2011 S. Tax return 2011 citizens. Tax return 2011 Nonresident Aliens A nonresident alien's income that is subject to U. Tax return 2011 S. Tax return 2011 income tax must be divided into two categories: Income that is effectively connected with a trade or business in the United States, and Income that is not effectively connected with a trade or business in the United States (discussed under The 30% Tax, later). Tax return 2011 The difference between these two categories is that effectively connected income, after allowable deductions, is taxed at graduated rates. Tax return 2011 These are the same rates that apply to U. Tax return 2011 S. Tax return 2011 citizens and residents. Tax return 2011 Income that is not effectively connected is taxed at a flat 30% (or lower treaty) rate. Tax return 2011 If you were formerly a U. Tax return 2011 S. Tax return 2011 citizen or resident alien, these rules may not apply. Tax return 2011 See Expatriation Tax, later, in this chapter. Tax return 2011 Trade or Business in the United States Generally, you must be engaged in a trade or business during the tax year to be able to treat income received in that year as effectively connected with that trade or business. Tax return 2011 Whether you are engaged in a trade or business in the United States depends on the nature of your activities. Tax return 2011 The discussions that follow will help you determine whether you are engaged in a trade or business in the United States. Tax return 2011 Personal Services If you perform personal services in the United States at any time during the tax year, you usually are considered engaged in a trade or business in the United States. Tax return 2011 Certain compensation paid to a nonresident alien by a foreign employer is not included in gross income. Tax return 2011 For more information, see Services Performed for Foreign Employer in chapter 3. Tax return 2011 Other Trade or Business Activities Other examples of being engaged in a trade or business in the United States follow. Tax return 2011 Students and trainees. Tax return 2011   You are considered engaged in a trade or business in the United States if you are temporarily present in the United States as a nonimmigrant under an “F,” “J,” “M,” or “Q” visa. Tax return 2011 A nonresident alien temporarily present in the United States under a “J” visa includes a nonresident alien individual admitted to the United States as an exchange visitor under the Mutual Educational and Cultural Exchange Act of 1961. Tax return 2011 The taxable part of any scholarship or fellowship grant that is U. Tax return 2011 S. Tax return 2011 source income is treated as effectively connected with a trade or business in the United States. Tax return 2011 Business operations. Tax return 2011   If you own and operate a business in the United States selling services, products, or merchandise, you are, with certain exceptions, engaged in a trade or business in the United States. Tax return 2011 Partnerships. Tax return 2011   If you are a member of a partnership that at any time during the tax year is engaged in a trade or business in the United States, you are considered to be engaged in a trade or business in the United States. Tax return 2011 Beneficiary of an estate or trust. Tax return 2011   If you are the beneficiary of an estate or trust that is engaged in a trade or business in the United States, you are treated as being engaged in the same trade or business. Tax return 2011 Trading in stocks, securities, and commodities. Tax return 2011   If your only U. Tax return 2011 S. Tax return 2011 business activity is trading in stocks, securities, or commodities (including hedging transactions) through a U. Tax return 2011 S. Tax return 2011 resident broker or other agent, you are not engaged in a trade or business in the United States. Tax return 2011   For transactions in stocks or securities, this applies to any nonresident alien, including a dealer or broker in stocks and securities. Tax return 2011   For transactions in commodities, this applies to commodities that are usually traded on an organized commodity exchange and to transactions that are usually carried out at such an exchange. Tax return 2011   This discussion does not apply if you have a U. Tax return 2011 S. Tax return 2011 office or other fixed place of business at any time during the tax year through which, or by the direction of which, you carry out your transactions in stocks, securities, or commodities. Tax return 2011 Trading for a nonresident alien's own account. Tax return 2011   You are not engaged in a trade or business in the United States if trading for your own account in stocks, securities, or commodities is your only U. Tax return 2011 S. Tax return 2011 business activity. Tax return 2011 This applies even if the trading takes place while you are present in the United States or is done by your employee or your broker or other agent. Tax return 2011   This does not apply to trading for your own account if you are a dealer in stocks, securities, or commodities. Tax return 2011 This does not necessarily mean, however, that as a dealer you are considered to be engaged in a trade or business in the United States. Tax return 2011 Determine that based on the facts and circumstances in each case or under the rules given above in Trading in stocks, securities, and commodities . Tax return 2011 Effectively Connected Income If you are engaged in a U. Tax return 2011 S. Tax return 2011 trade or business, all income, gain, or loss for the tax year that you get from sources within the United States (other than certain investment income) is treated as effectively connected income. Tax return 2011 This applies whether or not there is any connection between the income and the trade or business being carried on in the United States during the tax year. Tax return 2011 Two tests, described next under Investment Income, determine whether certain items of investment income (such as interest, dividends, and royalties) are treated as effectively connected with that business. Tax return 2011 In limited circumstances, some kinds of foreign source income may be treated as effectively connected with a trade or business in the United States. Tax return 2011 For a discussion of these rules, see Foreign Income , later. Tax return 2011 Investment Income Investment income from U. Tax return 2011 S. Tax return 2011 sources that may or may not be treated as effectively connected with a U. Tax return 2011 S. Tax return 2011 trade or business generally falls into the following three categories. Tax return 2011 Fixed or determinable income (interest, dividends, rents, royalties, premiums, annuities, etc. Tax return 2011 ). Tax return 2011 Gains (some of which are considered capital gains) from the sale or exchange of the following types of property. Tax return 2011 Timber, coal, or domestic iron ore with a retained economic interest. Tax return 2011 Patents, copyrights, and similar property on which you receive contingent payments after October 4, 1966. Tax return 2011 Patents transferred before October 5, 1966. Tax return 2011 Original issue discount obligations. Tax return 2011 Capital gains (and losses). Tax return 2011 Use the two tests, described next, to determine whether an item of U. Tax return 2011 S. Tax return 2011 source income falling in one of the three categories above and received during the tax year is effectively connected with your U. Tax return 2011 S. Tax return 2011 trade or business. Tax return 2011 If the tests indicate that the item of income is effectively connected, you must include it with your other effectively connected income. Tax return 2011 If the item of income is not effectively connected, include it with all other income discussed under The 30% Tax later, in this chapter. Tax return 2011 Asset-use test. Tax return 2011   This test usually applies to income that is not directly produced by trade or business activities. Tax return 2011 Under this test, if an item of income is from assets (property) used in, or held for use in, the trade or business in the United States, it is considered effectively connected. Tax return 2011   An asset is used in, or held for use in, the trade or business in the United States if the asset is: Held for the principal purpose of promoting the conduct of a trade or business in the United States, Acquired and held in the ordinary course of the trade or business conducted in the United States (for example, an account receivable or note receivable arising from that trade or business), or Otherwise held to meet the present needs of the trade or business in the United States and not its anticipated future needs. Tax return 2011 Generally, stock of a corporation is not treated as an asset used in, or held for use in, a trade or business in the United States. Tax return 2011 Business-activities test. Tax return 2011   This test usually applies when income, gain, or loss comes directly from the active conduct of the trade or business. Tax return 2011 The business-activities test is most important when: Dividends or interest are received by a dealer in stocks or securities, Royalties are received in the trade or business of licensing patents or similar property, or Service fees are earned by a servicing business. Tax return 2011 Under this test, if the conduct of the U. Tax return 2011 S. Tax return 2011 trade or business was a material factor in producing the income, the income is considered effectively connected. Tax return 2011 Personal Service Income You usually are engaged in a U. Tax return 2011 S. Tax return 2011 trade or business when you perform personal services in the United States. Tax return 2011 Personal service income you receive in a tax year in which you are engaged in a U. Tax return 2011 S. Tax return 2011 trade or business is effectively connected with a U. Tax return 2011 S. Tax return 2011 trade or business. Tax return 2011 Income received in a year other than the year you performed the services is also effectively connected if it would have been effectively connected if received in the year you performed the services. Tax return 2011 Personal service income includes wages, salaries, commissions, fees, per diem allowances, and employee allowances and bonuses. Tax return 2011 The income may be paid to you in the form of cash, services, or property. Tax return 2011 If you are engaged in a U. Tax return 2011 S. Tax return 2011 trade or business only because you perform personal services in the United States during the tax year, income and gains from assets, and gains and losses from the sale or exchange of capital assets are generally not effectively connected with your trade or business. Tax return 2011 However, if there is a direct economic relationship between your holding of the asset and your trade or business of performing personal services, the income, gain, or loss is effectively connected. Tax return 2011 Pensions. Tax return 2011   If you were a nonresident alien engaged in a U. Tax return 2011 S. Tax return 2011 trade or business after 1986 because you performed personal services in the United States, and you later receive a pension or retirement pay attributable to these services, such payments are effectively connected income in each year you receive them. Tax return 2011 This is true whether or not you are engaged in a U. Tax return 2011 S. Tax return 2011 trade or business in the year you receive the retirement pay. Tax return 2011 Transportation Income Transportation income (defined in chapter 2) is effectively connected if you meet both of the following conditions. Tax return 2011 You had a fixed place of business in the United States involved in earning the income. Tax return 2011 At least 90% of your U. Tax return 2011 S. Tax return 2011 source transportation income is attributable to regularly scheduled transportation. Tax return 2011 “Fixed place of business” generally means a place, site, structure, or other similar facility through which you engage in a trade or business. Tax return 2011 “Regularly scheduled transportation” means that a ship or aircraft follows a published schedule with repeated sailings or flights at regular intervals between the same points for voyages or flights that begin or end in the United States. Tax return 2011 This definition applies to both scheduled and chartered air transportation. Tax return 2011 If you do not meet the two conditions above, the income is not effectively connected and is taxed at a 4% rate. Tax return 2011 See Transportation Tax, later, in this chapter. Tax return 2011 Business Profits and Losses and Sales Transactions All profits or losses from U. Tax return 2011 S. Tax return 2011 sources that are from the operation of a business in the United States are effectively connected with a trade or business in the United States. Tax return 2011 For example, profit from the sale in the United States of inventory property purchased either in this country or in a foreign country is effectively connected trade or business income. Tax return 2011 A share of U. Tax return 2011 S. Tax return 2011 source profits or losses of a partnership that is engaged in a trade or business in the United States is also effectively connected with a trade or business in the United States. Tax return 2011 Real Property Gain or Loss Gains and losses from the sale or exchange of U. Tax return 2011 S. Tax return 2011 real property interests (whether or not they are capital assets) are taxed as if you are engaged in a trade or business in the United States. Tax return 2011 You must treat the gain or loss as effectively connected with that trade or business. Tax return 2011 U. Tax return 2011 S. Tax return 2011 real property interest. Tax return 2011   This is any interest in real property located in the United States or the U. Tax return 2011 S. Tax return 2011 Virgin Islands or any interest (other than as a creditor) in a domestic corporation that is a U. Tax return 2011 S. Tax return 2011 real property holding corporation. Tax return 2011 Real property includes the following. Tax return 2011 Land and unsevered natural products of the land, such as growing crops and timber, and mines, wells, and other natural deposits. Tax return 2011 Improvements on land, including buildings, other permanent structures, and their structural components. Tax return 2011 Personal property associated with the use of real property, such as equipment used in farming, mining, forestry, or construction or property used in lodging facilities or rented office space, unless the personal property is: Disposed of more than one year before or after the disposition of the real property, or Separately sold to persons unrelated either to the seller or to the buyer of the real property. Tax return 2011 U. Tax return 2011 S. Tax return 2011 real property holding corporation. Tax return 2011   A corporation is a U. Tax return 2011 S. Tax return 2011 real property holding corporation if the fair market value of the corporation's U. Tax return 2011 S. Tax return 2011 real property interests are at least 50% of the total fair market value of: The corporation's U. Tax return 2011 S. Tax return 2011 real property interests, plus The corporation's interests in real property located outside the United States, plus The corporation's other assets that are used in, or held for use in, a trade or business. Tax return 2011   Gain or loss on the sale of the stock in any domestic corporation is taxed as if you are engaged in a U. Tax return 2011 S. Tax return 2011 trade or business unless you establish that the corporation is not a U. Tax return 2011 S. Tax return 2011 real property holding corporation. Tax return 2011   A U. Tax return 2011 S. Tax return 2011 real property interest does not include a class of stock of a corporation that is regularly traded on an established securities market, unless you hold more than 5% of the fair market value of that class of stock. Tax return 2011 An interest in a foreign corporation owning U. Tax return 2011 S. Tax return 2011 real property generally is not a U. Tax return 2011 S. Tax return 2011 real property interest unless the corporation chooses to be treated as a domestic corporation. Tax return 2011 Qualified investment entities. Tax return 2011   Special rules apply to qualified investment entities (QIEs). Tax return 2011 A QIE is any real estate investment trust (REIT) or any regulated investment company (RIC) that is a U. Tax return 2011 S. Tax return 2011 real property holding corporation. Tax return 2011    Generally, any distribution from a QIE to a shareholder that is attributable to gain from the sale or exchange of a U. Tax return 2011 S. Tax return 2011 real property interest is treated as a U. Tax return 2011 S. Tax return 2011 real property gain by the shareholder receiving the distribution. Tax return 2011 A distribution by a QIE on stock regularly traded on an established securities market in the United States is not treated as gain from the sale or exchange of a U. Tax return 2011 S. Tax return 2011 real property interest if you did not own more than 5% of that stock at any time during the 1-year period ending on the date of the distribution. Tax return 2011 A distribution that you do not treat as gain from the sale or exchange of a U. Tax return 2011 S. Tax return 2011 real property interest is included in your gross income as a regular dividend. Tax return 2011 Note. Tax return 2011 Beginning January 1, 2014 (unless extended by legislation), a RIC that is a U. Tax return 2011 S. Tax return 2011 real property holding corporation will only be treated as a QIE for certain distributions from the RIC that are directly or indirectly attributable to distributions received by the RIC from a REIT. Tax return 2011 Domestically controlled QIE. Tax return 2011   The sale of an interest in a domestically controlled QIE is not the sale of a U. Tax return 2011 S. Tax return 2011 real property interest. Tax return 2011 The entity is domestically controlled if at all times during the testing period less than 50% in value of its stock was held, directly or indirectly, by foreign persons. Tax return 2011 The testing period is the shorter of (a) the 5-year period ending on the date of disposition, or (b) the period during which the entity was in existence. Tax return 2011 Wash sale. Tax return 2011    If you dispose of an interest in a domestically controlled QIE in an applicable wash sale transaction, special rules apply. Tax return 2011 An applicable wash sale transaction is one in which you: Dispose of an interest in the domestically controlled QIE during the 30-day period before the ex-dividend date of a distribution that you would (but for the disposition) have treated as gain from the sale or exchange of a U. Tax return 2011 S. Tax return 2011 real property interest, and Acquire, or enter into a contract or option to acquire, a substantially identical interest in that entity during the 61-day period that began on the first day of the 30-day period. Tax return 2011 If this occurs, you are treated as having gain from the sale or exchange of a U. Tax return 2011 S. Tax return 2011 real property interest in an amount equal to the distribution made after June 15, 2006, that would have been treated as such gain. Tax return 2011 This also applies to any substitute dividend payment. Tax return 2011   A transaction is not treated as an applicable wash sale transaction if: You actually receive the distribution from the domestically controlled QIE related to the interest disposed of, or acquired, in the transaction, or You dispose of any class of stock in a QIE that is regularly traded on an established securities market in the United States but only if you did not own more than 5% of that class of stock at any time during the 1-year period ending on the date of the distribution. Tax return 2011 Alternative minimum tax. Tax return 2011   There may be a minimum tax on your net gain from the disposition of U. Tax return 2011 S. Tax return 2011 real property interests. Tax return 2011 Figure the amount of this tax, if any, on Form 6251. Tax return 2011 Withholding of tax. Tax return 2011   If you dispose of a U. Tax return 2011 S. Tax return 2011 real property interest, the buyer may have to withhold tax. Tax return 2011 See the discussion of Tax Withheld on Real Property Sales in chapter 8. Tax return 2011 Foreign Income You must treat three kinds of foreign source income as effectively connected with a trade or business in the United States if: You have an office or other fixed place of business in the United States to which the income can be attributed, That office or place of business is a material factor in producing the income, and The income is produced in the ordinary course of the trade or business carried on through that office or other fixed place of business. Tax return 2011 An office or other fixed place of business is a material factor if it significantly contributes to, and is an essential economic element in, the earning of the income. Tax return 2011 The three kinds of foreign source income are listed below. Tax return 2011 Rents and royalties for the use of, or for the privilege of using, intangible personal property located outside the United States or from any interest in such property. Tax return 2011 Included are rents or royalties for the use, or for the privilege of using, outside the United States, patents, copyrights, secret processes and formulas, goodwill, trademarks, trade brands, franchises, and similar properties if the rents or royalties are from the active conduct of a trade or business in the United States. Tax return 2011 Dividends, interest, or amounts received for the provision of a guarantee of indebtedness issued after September 27, 2010, from the active conduct of a banking, financing, or similar business in the United States. Tax return 2011 A substitute dividend or interest payment received under a securities lending transaction or a sale-repurchase transaction is treated the same as the amounts received on the transferred security. Tax return 2011 Income, gain, or loss from the sale outside the United States, through the U. Tax return 2011 S. Tax return 2011 office or other fixed place of business, of: Stock in trade, Property that would be included in inventory if on hand at the end of the tax year, or Property held primarily for sale to customers in the ordinary course of business. Tax return 2011 Item (3) will not apply if you sold the property for use, consumption, or disposition outside the United States and an office or other fixed place of business in a foreign country was a material factor in the sale. Tax return 2011 Any foreign source income that is equivalent to any item of income described above is treated as effectively connected with a U. Tax return 2011 S. Tax return 2011 trade or business. Tax return 2011 For example, foreign source interest and dividend equivalents are treated as U. Tax return 2011 S. Tax return 2011 effectively connected income if the income is derived by a foreign person in the active conduct of a banking, financing, or similar business within the United States. Tax return 2011 Tax on Effectively Connected Income Income you receive during the tax year that is effectively connected with your trade or business in the United States is, after allowable deductions, taxed at the rates that apply to U. Tax return 2011 S. Tax return 2011 citizens and residents. Tax return 2011 Generally, you can receive effectively connected income only if you are a nonresident alien engaged in trade or business in the United States during the tax year. Tax return 2011 However, income you receive from the sale or exchange of property, the performance of services, or any other transaction in another tax year is treated as effectively connected in that year if it would have been effectively connected in the year the transaction took place or you performed the services. Tax return 2011 Example. Tax return 2011 Ted Richards, a nonresident alien, entered the United States in August 2012, to perform personal services in the U. Tax return 2011 S. Tax return 2011 office of his overseas employer. Tax return 2011 He worked in the U. Tax return 2011 S. Tax return 2011 office until December 25, 2012, but did not leave this country until January 11, 2013. Tax return 2011 On January 8, 2013, he received his final paycheck for services performed in the United States during 2012. Tax return 2011 All of Ted's income during his stay here is U. Tax return 2011 S. Tax return 2011 source income. Tax return 2011 During 2012, Ted was engaged in the trade or business of performing personal services in the United States. Tax return 2011 Therefore, all amounts paid to him in 2012 for services performed in the United States during 2012 are effectively connected with that trade or business during 2012. Tax return 2011 The salary payment Ted received in January 2013 is U. Tax return 2011 S. Tax return 2011 source income to him in 2013. Tax return 2011 It is effectively connected with a trade or business in the United States because he was engaged in a trade or business in the United States during 2012 when he performed the services that earned the income. Tax return 2011 Real property income. Tax return 2011   You may be able to choose to treat all income from real property as effectively connected. Tax return 2011 See Income From Real Property , later, in this chapter. Tax return 2011 The 30% Tax Tax at a 30% (or lower treaty) rate applies to certain items of income or gains from U. Tax return 2011 S. Tax return 2011 sources but only if the items are not effectively connected with your U. Tax return 2011 S. Tax return 2011 trade or business. Tax return 2011 Fixed or Determinable Income The 30% (or lower treaty) rate applies to the gross amount of U. Tax return 2011 S. Tax return 2011 source fixed or determinable annual or periodic gains, profits, or income. Tax return 2011 Income is fixed when it is paid in amounts known ahead of time. Tax return 2011 Income is determinable whenever there is a basis for figuring the amount to be paid. Tax return 2011 Income can be periodic if it is paid from time to time. Tax return 2011 It does not have to be paid annually or at regular intervals. Tax return 2011 Income can be determinable or periodic even if the length of time during which the payments are made is increased or decreased. Tax return 2011 Items specifically included as fixed or determinable income are interest (other than original issue discount), dividends, dividend equivalent payments (defined in chapter 2), rents, premiums, annuities, salaries, wages, and other compensation. Tax return 2011 A substitute dividend or interest payment received under a securities lending transaction or a sale-repurchase transaction is treated the same as the amounts received on the transferred security. Tax return 2011 Other items of income, such as royalties, also may be subject to the 30% tax. Tax return 2011 Some fixed or determinable income may be exempt from U. Tax return 2011 S. Tax return 2011 tax. Tax return 2011 See chapter 3 if you are not sure whether the income is taxable. Tax return 2011 Original issue discount (OID). Tax return 2011   If you sold, exchanged, or received a payment on a bond or other debt instrument that was issued at a discount after March 31, 1972, all or part of the original issue discount (OID) (other than portfolio interest) may be subject to the 30% tax. Tax return 2011 The amount of OID is the difference between the stated redemption price at maturity and the issue price of the debt instrument. Tax return 2011 The 30% tax applies in the following circumstances. Tax return 2011 You received a payment on a debt instrument. Tax return 2011 In this case, the amount of OID subject to tax is the OID that accrued while you held the debt instrument minus the OID previously taken into account. Tax return 2011 But the tax on the OID cannot be more than the payment minus the tax on the interest payment on the debt instrument. Tax return 2011 You sold or exchanged the debt instrument. Tax return 2011 The amount of OID subject to tax is the OID that accrued while you held the debt instrument minus the amount already taxed in (1) above. Tax return 2011   Report on your return the amount of OID shown on Form 1042-S, Foreign Person's U. Tax return 2011 S. Tax return 2011 Source Income Subject to Withholding, if you bought the debt instrument at original issue. Tax return 2011 However, you must recompute your proper share of OID shown on Form 1042-S if any of the following apply. Tax return 2011 You bought the debt instrument at a premium or paid an acquisition premium. Tax return 2011 The debt instrument is a stripped bond or a stripped coupon (including zero coupon instruments backed by U. Tax return 2011 S. Tax return 2011 Treasury securities). Tax return 2011 The debt instrument is a contingent payment or inflation-indexed debt instrument. Tax return 2011 For the definition of premium and acquisition premium and instructions on how to recompute OID, get Publication 1212. Tax return 2011   If you held a bond or other debt instrument that was issued at a discount before April 1, 1972, contact the IRS for further information. Tax return 2011 See chapter 12. Tax return 2011 Gambling Winnings In general, nonresident aliens are subject to the 30% tax on the gross proceeds from gambling won in the United States if that income is not effectively connected with a U. Tax return 2011 S. Tax return 2011 trade or business and is not exempted by treaty. Tax return 2011 However, no tax is imposed on nonbusiness gambling income a nonresident alien wins playing blackjack, baccarat, craps, roulette, or big-6 wheel in the United States. Tax return 2011 Nonresident aliens are taxed at graduated rates on net gambling income won in the United States that is effectively connected with a U. Tax return 2011 S. Tax return 2011 trade or business. Tax return 2011 Social Security Benefits A nonresident alien must include 85% of any U. Tax return 2011 S. Tax return 2011 social security benefit (and the social security equivalent part of a tier 1 railroad retirement benefit) in U. Tax return 2011 S. Tax return 2011 source fixed or determinable annual or periodic income. Tax return 2011 Social security benefits include monthly retirement, survivor, and disability benefits. Tax return 2011 This income is exempt under some tax treaties. Tax return 2011 See Table 1 in Publication 901, U. Tax return 2011 S. Tax return 2011 Tax Treaties, for a list of tax treaties that exempt U. Tax return 2011 S. Tax return 2011 social security benefits from U. Tax return 2011 S. Tax return 2011 tax. Tax return 2011 Sales or Exchanges of Capital Assets These rules apply only to those capital gains and losses from sources in the United States that are not effectively connected with a trade or business in the United States. Tax return 2011 They apply even if you are engaged in a trade or business in the United States. Tax return 2011 These rules do not apply to the sale or exchange of a U. Tax return 2011 S. Tax return 2011 real property interest or to the sale of any property that is effectively connected with a trade or business in the United States. Tax return 2011 See Real Property Gain or Loss , earlier, under Effectively Connected Income. Tax return 2011 A capital asset is everything you own except: Inventory. Tax return 2011 Business accounts or notes receivable. Tax return 2011 Depreciable property used in a trade or business. Tax return 2011 Real property used in a trade or business. Tax return 2011 Supplies regularly used in a trade or business. Tax return 2011 Certain copyrights, literary or musical or artistic compositions, letters or memoranda, or similar property. Tax return 2011 Certain U. Tax return 2011 S. Tax return 2011 government publications. Tax return 2011 Certain commodities derivative financial instruments held by a commodities derivatives dealer. Tax return 2011 Hedging transactions. Tax return 2011 A capital gain is a gain on the sale or exchange of a capital asset. Tax return 2011 A capital loss is a loss on the sale or exchange of a capital asset. Tax return 2011 If the sale is in foreign currency, for the purpose of determining gain, the cost and selling price of the property should be expressed in U. Tax return 2011 S. Tax return 2011 currency at the rate of exchange prevailing as of the date of the purchase and date of the sale, respectively. Tax return 2011 You may want to read Publication 544. Tax return 2011 However, use Publication 544 only to determine what is a sale or exchange of a capital asset, or what is treated as such. Tax return 2011 Specific tax treatment that applies to U. Tax return 2011 S. Tax return 2011 citizens or residents generally does not apply to you. Tax return 2011 The following gains are subject to the 30% (or lower treaty) rate without regard to the 183-day rule, discussed later. Tax return 2011 Gains on the disposal of timber, coal, or domestic iron ore with a retained economic interest. Tax return 2011 Gains on contingent payments received from the sale or exchange of patents, copyrights, and similar property after October 4, 1966. Tax return 2011 Gains on certain transfers of all substantial rights to, or an undivided interest in, patents if the transfers were made before October 5, 1966. Tax return 2011 Gains on the sale or exchange of original issue discount obligations. Tax return 2011 Gains in (1) are not subject to the 30% (or lower treaty) rate if you choose to treat the gains as effectively connected with a U. Tax return 2011 S. Tax return 2011 trade or business. Tax return 2011 See Income From Real Property , later. Tax return 2011 183-day rule. Tax return 2011   If you were in the United States for 183 days or more during the tax year, your net gain from sales or exchanges of capital assets is taxed at a 30% (or lower treaty) rate. Tax return 2011 For purposes of the 30% (or lower treaty) rate, net gain is the excess of your capital gains from U. Tax return 2011 S. Tax return 2011 sources over your capital losses from U. Tax return 2011 S. Tax return 2011 sources. Tax return 2011 This rule applies even if any of the transactions occurred while you were not in the United States. Tax return 2011   To determine your net gain, consider the amount of your gains and losses that would be recognized and taken into account only if, and to the extent that, they would be recognized and taken into account if you were in a U. Tax return 2011 S. Tax return 2011 trade or business during the year and the gains and losses were effectively connected with that trade or business during the tax year. Tax return 2011   In arriving at your net gain, do not take the following into consideration. Tax return 2011 The four types of gains listed earlier. Tax return 2011 The deduction for a capital loss carryover. Tax return 2011 Capital losses in excess of capital gains. Tax return 2011 Exclusion for gain from the sale or exchange of qualified small business stock (section 1202 exclusion). Tax return 2011 Losses from the sale or exchange of property held for personal use. Tax return 2011 However, losses resulting from casualties or thefts may be deductible on Schedule A (Form 1040NR). Tax return 2011 See Itemized Deductions in chapter 5. Tax return 2011   If you are not engaged in a trade or business in the United States and have not established a tax year for a prior period, your tax year will be the calendar year for purposes of the 183-day rule. Tax return 2011 Also, you must file your tax return on a calendar-year basis. Tax return 2011   If you were in the United States for less than 183 days during the tax year, capital gains (other than gains listed earlier) are tax exempt unless they are effectively connected with a trade or business in the United States during your tax year. Tax return 2011 Reporting. Tax return 2011   Report your gains and losses from the sales or exchanges of capital assets that are not effectively connected with a trade or business in the United States on page 4 of Form 1040NR. Tax return 2011 Report gains and losses from sales or exchanges of capital assets (including real property) that are effectively connected with a trade or business in the United States on a separate Schedule D (Form 1040), Form 4797, or both. Tax return 2011 Attach them to Form 1040NR. Tax return 2011 Income From Real Property If you have income from real property located in the United States that you own or have an interest in and hold for the production of income, you can choose to treat all income from that property as income effectively connected with a trade or business in the United States. Tax return 2011 The choice applies to all income from real property located in the United States and held for the production of income and to all income from any interest in such property. Tax return 2011 This includes income from rents, royalties from mines, oil or gas wells, or other natural resources. Tax return 2011 It also includes gains from the sale or exchange of timber, coal, or domestic iron ore with a retained economic interest. Tax return 2011 You can make this choice only for real property income that is not otherwise effectively connected with your U. Tax return 2011 S. Tax return 2011 trade or business. Tax return 2011 If you make the choice, you can claim deductions attributable to the real property income and only your net income from real property is taxed. Tax return 2011 This choice does not treat a nonresident alien, who is not otherwise engaged in a U. Tax return 2011 S. Tax return 2011 trade or business, as being engaged in a trade or business in the United States during the year. Tax return 2011 Example. Tax return 2011 You are a nonresident alien and are not engaged in a U. Tax return 2011 S. Tax return 2011 trade or business. Tax return 2011 You own a single-family house in the United States that you rent out. Tax return 2011 Your rental income for the year is $10,000. Tax return 2011 This is your only U. Tax return 2011 S. Tax return 2011 source income. Tax return 2011 As discussed earlier under The 30% Tax, the rental income is subject to a tax at a 30% (or lower treaty) rate. Tax return 2011 You received a Form 1042-S showing that your tenants properly withheld this tax from the rental income. Tax return 2011 You do not have to file a U. Tax return 2011 S. Tax return 2011 tax return (Form 1040NR) because your U. Tax return 2011 S. Tax return 2011 tax liability is satisfied by the withholding of tax. Tax return 2011 If you make the choice discussed earlier, you can offset the $10,000 income by certain rental expenses. Tax return 2011 (See Publication 527, Residential Rental Property, for information on rental expenses. Tax return 2011 ) Any resulting net income is taxed at graduated rates. Tax return 2011 If you make this choice, report the rental income and expenses on Schedule E (Form 1040) and attach the schedule to Form 1040NR. Tax return 2011 For the first year you make the choice, also attach the statement discussed next. Tax return 2011 Making the choice. Tax return 2011   Make the initial choice by attaching a statement to your return, or amended return, for the year of the choice. Tax return 2011 Include the following in your statement. Tax return 2011 That you are making the choice. Tax return 2011 Whether the choice is under Internal Revenue Code section 871(d) (explained earlier) or a tax treaty. Tax return 2011 A complete list of all your real property, or any interest in real property, located in the United States. Tax return 2011 Give the legal identification of U. Tax return 2011 S. Tax return 2011 timber, coal, or iron ore in which you have an interest. Tax return 2011 The extent of your ownership in the property. Tax return 2011 The location of the property. Tax return 2011 A description of any major improvements to the property. Tax return 2011 The dates you owned the property. Tax return 2011 Your income from the property. Tax return 2011 Details of any previous choices and revocations of the real property income choice. Tax return 2011   This choice stays in effect for all later tax years unless you revoke it. Tax return 2011 Revoking the choice. Tax return 2011   You can revoke the choice without IRS approval by filing Form 1040X, Amended U. Tax return 2011 S. Tax return 2011 Individual Income Tax Return, for the year you made the choice and for later tax years. Tax return 2011 You must file Form 1040X within 3 years from the date your return was filed or 2 years from the time the tax was paid, whichever is later. Tax return 2011 If this time period has expired for the year of choice, you cannot revoke the choice for that year. Tax return 2011 However, you may revoke the choice for later tax years only if you have IRS approval. Tax return 2011 For information on how to get IRS approval, see Regulation section 1. Tax return 2011 871-10(d)(2). Tax return 2011 Transportation Tax A 4% tax rate applies to transportation income that is not effectively connected because it does not meet the two conditions listed earlier under Transportation Income . Tax return 2011 If you receive transportation income subject to the 4% tax, you should figure the tax and show it on line 57 of Form 1040NR. Tax return 2011 Attach a statement to your return that includes the following information (if applicable). Tax return 2011 Your name, taxpayer identification number, and tax year. Tax return 2011 A description of the types of services performed (whether on or off board). Tax return 2011 Names of vessels or registration numbers of aircraft on which you performed the services. Tax return 2011 Amount of U. Tax return 2011 S. Tax return 2011 source transportation income derived from each type of service for each vessel or aircraft for the calendar year. Tax return 2011 Total amount of U. Tax return 2011 S. Tax return 2011 source transportation income derived from all types of services for the calendar year. Tax return 2011 This 4% tax applies to your U. Tax return 2011 S. Tax return 2011 source gross transportation income. Tax return 2011 This only includes transportation income that is treated as derived from sources in the United States if the transportation begins or ends in the United States. Tax return 2011 For transportation income from personal services, the transportation must be between the United States and a U. Tax return 2011 S. Tax return 2011 possession. Tax return 2011 For personal services of a nonresident alien, this only applies to income derived from, or in connection with, an aircraft. Tax return 2011 Interrupted Period of Residence You are subject to tax under a special rule if you interrupt your period of U. Tax return 2011 S. Tax return 2011 residence with a period of nonresidence. Tax return 2011 The special rule applies if you meet all of the following conditions. Tax return 2011 You were a U. Tax return 2011 S. Tax return 2011 resident for a period that includes at least 3 consecutive calendar years. Tax return 2011 You were a U. Tax return 2011 S. Tax return 2011 resident for at least 183 days in each of those years. Tax return 2011 You ceased to be treated as a U. Tax return 2011 S. Tax return 2011 resident. Tax return 2011 You then again became a U. Tax return 2011 S. Tax return 2011 resident before the end of the third calendar year after the end of the period described in (1) above. Tax return 2011 Under this special rule, you are subject to tax on your U. Tax return 2011 S. Tax return 2011 source gross income and gains on a net basis at the graduated rates applicable to individuals (with allowable deductions) for the period you were a nonresident alien, unless you would be subject to a higher tax under the 30% tax (discussed earlier) on income not connected with a U. Tax return 2011 S. Tax return 2011 trade or business. Tax return 2011 For information on how to figure the special tax, see How To Figure the Expatriation Tax (If You Expatriated Before June 17, 2008) under Expatriation Tax , below. Tax return 2011 Example. Tax return 2011 John Willow, a citizen of New Zealand, entered the United States on April 1, 2008, as a lawful permanent resident. Tax return 2011 On August 1, 2010, John ceased to be a lawful permanent resident and returned to New Zealand. Tax return 2011 During his period of residence, he was present in the United States for at least 183 days in each of three consecutive years (2008, 2009, and 2010). Tax return 2011 He returned to the United States on October 5, 2013, as a lawful permanent resident. Tax return 2011 He became a resident before the close of the third calendar year (2013) beginning after the end of his first period of residence (August 1, 2010). Tax return 2011 Therefore, he is subject to tax under the special rule for the period of nonresidence (August 2, 2010, through October 4, 2013) if it is more than the tax that would normally apply to him as a nonresident alien. Tax return 2011 Reporting requirements. Tax return 2011   If you are subject to this tax for any year in the period you were a nonresident alien, you must file Form 1040NR for that year. Tax return 2011 The return is due by the due date (including extensions) for filing your U. Tax return 2011 S. Tax return 2011 income tax return for the year that you again become a U. Tax return 2011 S. Tax return 2011 resident. Tax return 2011 If you already filed returns for that period, you must file amended returns. Tax return 2011 You must attach a statement to your return that identifies the source of all of your U. Tax return 2011 S. Tax return 2011 and foreign gross income and the items of income subject to this special rule. Tax return 2011 Expatriation Tax The expatriation tax provisions apply to U. Tax return 2011 S. Tax return 2011 citizens who have renounced their citizenship and long-term residents who have ended their residency. Tax return 2011 The rules that apply are based on the dates of expatriation, which are described in the following sections. Tax return 2011 Expatriation Before June 4, 2004. Tax return 2011 Expatriation After June 3, 2004, and Before June 17, 2008. Tax return 2011 Expatriation After June 16, 2008. Tax return 2011 Long-term resident defined. Tax return 2011   You are a long-term resident if you were a lawful permanent resident of the United States in at least 8 of the last 15 tax years ending with the year your residency ends. Tax return 2011 In determining if you meet the 8-year requirement, do not count any year that you are treated as a resident of a foreign country under a tax treaty and do not waive treaty benefits. Tax return 2011 Expatriation Before June 4, 2004 If you expatriated before June 4, 2004, the expatriation rules apply if one of the principal purposes of the action is the avoidance of U. Tax return 2011 S. Tax return 2011 taxes. Tax return 2011 Unless you received a ruling from the IRS that you did not expatriate to avoid U. Tax return 2011 S. Tax return 2011 taxes, you are presumed to have tax avoidance as a principal purpose if: Your average annual net income tax for the last 5 tax years ending before the date of your action to relinquish your citizenship or terminate your residency was more than $100,000, or Your net worth on the date of your action was $500,000 or more. Tax return 2011 The amounts above are adjusted for inflation if your expatriation action is after 1997 (see Table 4-1). Tax return 2011 Table 4-1. Tax return 2011 Inflation-Adjusted Amounts for Expatriation Actions Before June 4, 2004 IF you expatriated during . Tax return 2011 . Tax return 2011 . Tax return 2011   THEN the rules outlined on this page apply if . Tax return 2011 . Tax return 2011 . Tax return 2011     Your 5-year average annual net income tax was more than . Tax return 2011 . Tax return 2011 . Tax return 2011 OR Your net worth equaled or exceeded . Tax return 2011 . Tax return 2011 . Tax return 2011 1999   110,000   552,000 2000   112,000   562,000 2001   116,000   580,000 2002   120,000   599,000 2003   122,000   608,000 2004 (before June 4)*   124,000   622,000 *If you expatriated after June 3, 2004, see Expatriation After June 3, 2004, and Before June 17, 2008 or Expatriation After June 16, 2008. Tax return 2011 Reporting requirements. Tax return 2011   If you lost your U. Tax return 2011 S. Tax return 2011 citizenship, you should have filed Form 8854 with a consular office or a federal court at the time of loss of citizenship. Tax return 2011 If you ended your long-term residency, you should have filed Form 8854 with the Internal Revenue Service when you filed your dual-status tax return for the year your residency ended. Tax return 2011   Your U. Tax return 2011 S. Tax return 2011 residency is considered to have ended when you ceased to be a lawful permanent resident or you began to be treated as a resident of another country under a tax treaty and do not waive treaty benefits. Tax return 2011 Penalties. Tax return 2011   If you failed to file Form 8854, you may have to pay a penalty equal to the greater of 5% of the expatriation tax or $1,000. Tax return 2011 The penalty will be assessed for each year of the 10-year period beginning on the date of expatriation during which your failure to file continues. Tax return 2011 The penalty will not be imposed if you can show that the failure is due to reasonable cause and not willful neglect. Tax return 2011 Expatriation tax. Tax return 2011   The expatriation tax applies to the 10-year period following the date of expatriation or termination of residency. Tax return 2011 It is figured in the same way as for those expatriating after June 3, 2004, and before June 17, 2008. Tax return 2011 See How To Figure the Expatriation Tax (If You Expatriated Before June 17, 2008) in the next section. Tax return 2011 Expatriation After June 3, 2004, and Before June 17, 2008 If you expatriated after June 3, 2004, and before June 17, 2008, the expatriation rules apply to you if any of the following statements apply. Tax return 2011 Your average annual net income tax for the 5 tax years ending before the date of expatriation or termination of residency is more than: $124,000 if you expatriated or terminated residency in 2004. Tax return 2011 $127,000 if you expatriated or terminated residency in 2005. Tax return 2011 $131,000 if you expatriated or terminated residency in 2006. Tax return 2011 $136,000 if you expatriated or terminated residency in 2007. Tax return 2011 $139,000 if you expatriated or terminated residency in 2008. Tax return 2011 Your net worth is $2 million or more on the date of your expatriation or termination of residency. Tax return 2011 You fail to certify on Form 8854 that you have complied with all U. Tax return 2011 S. Tax return 2011 federal tax obligations for the 5 tax years preceding the date of your expatriation or termination of residency. Tax return 2011 Exception for dual-citizens and certain minors. Tax return 2011   Certain dual-citizens and certain minors (defined next) are not subject to the expatriation tax even if they meet (1) or (2) earlier. Tax return 2011 However, they still must provide the certification required in (3). Tax return 2011 Certain dual-citizens. Tax return 2011   You may qualify for the exception described above if all of the following apply. Tax return 2011 You became at birth a U. Tax return 2011 S. Tax return 2011 citizen and a citizen of another country and you continue to be a citizen of that other country. Tax return 2011 You were never a resident alien of the United States (as defined in chapter 1). Tax return 2011 You never held a U. Tax return 2011 S. Tax return 2011 passport. Tax return 2011 You were present in the United States for no more than 30 days during any calendar year that is 1 of the 10 calendar years preceding your loss of U. Tax return 2011 S. Tax return 2011 citizenship. Tax return 2011 Certain minors. Tax return 2011   You may qualify for the exception described above if you meet all of the following requirements. Tax return 2011 You became a U. Tax return 2011 S. Tax return 2011 citizen at birth. Tax return 2011 Neither of your parents was a U. Tax return 2011 S. Tax return 2011 citizen at the time of your birth. Tax return 2011 You expatriated before you were 18½. Tax return 2011 You were present in the United States for not more than 30 days during any calendar year that is 1 of the 10 calendar years preceding your expatriation. Tax return 2011 Tax consequences of presence in the United States. Tax return 2011   The following rules apply if you do not meet the exception above for dual-citizens and certain minors and the expatriation rules would otherwise apply to you. Tax return 2011   The expatriation tax does not apply to any tax year during the 10-year period if you are physically present in the United States for more than 30 days during the calendar year ending in that year. Tax return 2011 Instead, you are treated as a U. Tax return 2011 S. Tax return 2011 citizen or resident and taxed on your worldwide income for that tax year. Tax return 2011 You must file Form 1040, 1040A, or 1040EZ and figure your tax as prescribed in the instructions for those forms. Tax return 2011   When counting the number of days of presence during a calendar year, count any day you were physically present in the United States at any time during the day. Tax return 2011 However, do not count any days (up to a limit of 30 days) on which you performed personal services in the United States for an employer who is not related to you if either of the following apply. Tax return 2011 You have ties with other countries. Tax return 2011 You have ties with other countries if: You became (within a reasonable period after your expatriation or termination of residency) a citizen or resident of the country in which you, your spouse, or either of your parents were born, and You became fully liable for income tax in that country. Tax return 2011 You were physically present in the United States for 30 days or less during each year in the 10-year period ending on the date of expatriation or termination of residency. Tax return 2011 Do not count any day you were an exempt individual or were unable to leave the United States because of a medical condition that arose while you were in the United States. Tax return 2011 See Exempt individual and Medical condition in chapter 1 under Substantial Presence Test, but disregard the information about Form 8843. Tax return 2011 Related employer. Tax return 2011   If your employer in the United States is any of the following, then your employer is related to you. Tax return 2011 You must count any days you performed services in the United States for that employer as days of presence in the United States. Tax return 2011 Members of your family. Tax return 2011 This includes only your brothers and sisters, half-brothers and half-sisters, spouse, ancestors (parents, grandparents, etc. Tax return 2011 ), and lineal descendants (children, grandchildren, etc. Tax return 2011 ). Tax return 2011 A partnership in which you directly or indirectly own more than 50% of the capital interest or the profits interest. Tax return 2011 A corporation in which you directly or indirectly own more than 50% in value of the outstanding stock. Tax return 2011 (See Publication 550, chapter 4, Constructive ownership of stock, for how to determine whether you directly or indirectly own outstanding stock. Tax return 2011 ) A tax-exempt charitable or educational organization that is directly or indirectly controlled, in any manner or by any method, by you or by a member of your family, whether or not this control is legally enforceable. Tax return 2011 Date of tax expatriation. Tax return 2011   For purposes of U. Tax return 2011 S. Tax return 2011 tax rules, the date of your expatriation or termination of residency is the later of the dates on which you perform the following actions. Tax return 2011 You notify either the Department of State or the Department of Homeland Security (whichever is appropriate) of your expatriating act or termination of residency. Tax return 2011 You file Form 8854 in accordance with the form instructions. Tax return 2011 Annual return. Tax return 2011   If the expatriation tax applies to you, you must file Form 8854 each year during the 10-year period following the date of expatriation. Tax return 2011 You must file this form even if you owe no U. Tax return 2011 S. Tax return 2011 tax. Tax return 2011 Penalty. Tax return 2011   If you fail to file Form 8854 for any tax year, fail to include all information required to be shown on the form, or include incorrect information, you may have to pay a penalty of $10,000. Tax return 2011 You will not have to pay a penalty if you show that the failure is due to reasonable cause and not to willful neglect. Tax return 2011 How To Figure the Expatriation Tax (If You Expatriated Before June 17, 2008) If the expatriation tax applies to you, you are generally subject to tax on your U. Tax return 2011 S. Tax return 2011 source gross income and gains on a net basis at the graduated rates applicable to individuals (with allowable deductions) unless you would be subject to a higher tax under the 30% tax (discussed earlier) on income not connected with a U. Tax return 2011 S. Tax return 2011 trade or business. Tax return 2011 For this purpose, U. Tax return 2011 S. Tax return 2011 source gross income (defined in chapter 2) includes gains from the sale or exchange of: Property (other than stock or debt obligations) located in the United States, Stock issued by a U. Tax return 2011 S. Tax return 2011 domestic corporation, and Debt obligations of U. Tax return 2011 S. Tax return 2011 persons or of the United States, a state or political subdivision thereof, or the District of Columbia. Tax return 2011 U. Tax return 2011 S. Tax return 2011 source income also includes any income or gain derived from stock in certain controlled foreign corporations if you owned, or were considered to own, at any time during the 2-year period ending on the date of expatriation, more than 50% of: The total combined voting power of all classes of that corporation's stock, or The total value of the stock. Tax return 2011 The income or gain is considered U. Tax return 2011 S. Tax return 2011 source income only to the extent of your share of earnings and profits earned or accumulated before the date of expatriation and during the periods you met the ownership requirements discussed above. Tax return 2011 Any exchange of property is treated as a sale of the property at its fair market value on the date of the exchange and any gain is treated as U. Tax return 2011 S. Tax return 2011 source gross income in the tax year of the exchange unless you enter into a gain recognition agreement under Notice 97-19. Tax return 2011 Other information. Tax return 2011   For more information on the expatriation tax provisions, including exceptions to the tax and special U. Tax return 2011 S. Tax return 2011 source rules, see section 877 of the Internal Revenue Code. Tax return 2011 Expatriation Tax Return If you expatriated or terminated your U. Tax return 2011 S. Tax return 2011 residency, or you are subject to the expatriation tax, you must file Form 8854, Initial and Annual Expatriation Statement. Tax return 2011 Attach it to Form 1040NR if you are required to file that form. Tax return 2011 If you are present in the United States following your expatriation and are subject to tax as a U. Tax return 2011 S. Tax return 2011 citizen or resident, file Form 8854 with Form 1040. Tax return 2011 Expatriation After June 16, 2008 If you expatriated after June 16, 2008, the expatriation rules apply to you if you meet any of the following conditions. Tax return 2011 Your average annual net income tax for the 5 years ending before the date of expatriation or termination of residency is more than: $139,000 if you expatriated or terminated residency in 2008. Tax return 2011 $145,000 if you expatriated or terminated residency in 2009 or 2010. Tax return 2011 $147,000 if you expatriated or terminated residency in 2011. Tax return 2011 $151,000 if you expatriated or terminated residency in 2012. Tax return 2011 $155,000 if you expatriated or terminated residency in 2013. Tax return 2011 Your net worth is $2 million or more on the date of your expatriation or termination of residency. Tax return 2011 You fail to certify on Form 8854 that you have complied with all U. Tax return 2011 S. Tax return 2011 federal tax obligations for the 5 years preceding the date of your expatriation or termination of residency. Tax return 2011 Exception for dual-citizens and certain minors. Tax return 2011   Certain dual-citizens and certain minors (defined next) are not subject to the expatriation tax even if they meet (1) or (2) above. Tax return 2011 However, they still must provide the certification required in (3) above. Tax return 2011 Certain dual-citizens. Tax return 2011   You may qualify for the exception described above if both of the following apply. Tax return 2011 You became at birth a U. Tax return 2011 S. Tax return 2011 citizen and a citizen of another country and you continue to be a citizen of, and are taxed as a resident of, that other country. Tax return 2011 You have been a resident of the United States for not more than 10 years during the 15-year tax period ending with the tax year during which the expatriation occurs. Tax return 2011 For the purpose of determining U. Tax return 2011 S. Tax return 2011 residency, use the substantial presence test described in chapter 1. Tax return 2011 Certain minors. Tax return 2011   You may qualify for the exception described earlier if you meet both of the following requirements. Tax return 2011 You expatriated before you were 18½. Tax return 2011 You have been a resident of the United States for not more than 10 tax years before the expatriation occurs. Tax return 2011 For the purpose of determining U. Tax return 2011 S. Tax return 2011 residency, use the substantial presence test described in chapter 1. Tax return 2011 Expatriation date. Tax return 2011   Your expatriation date is the date you relinquish U. Tax return 2011 S. Tax return 2011 citizenship (in the case of a former citizen) or terminate your long-term residency (in the case of a former U. Tax return 2011 S. Tax return 2011 resident). Tax return 2011 Former U. Tax return 2011 S. Tax return 2011 citizen. Tax return 2011   You are considered to have relinquished your U. Tax return 2011 S. Tax return 2011 citizenship on the earliest of the following dates. Tax return 2011 The date you renounced U. Tax return 2011 S. Tax return 2011 citizenship before a diplomatic or consular officer of the United States (provided that the voluntary renouncement was later confirmed by the issuance of a certificate of loss of nationality). Tax return 2011 The date you furnished to the State Department a signed statement of voluntary relinquishment of U. Tax return 2011 S. Tax return 2011 nationality confirming the performance of an expatriating act (provided that the voluntary relinquishment was later confirmed by the issuance of a certificate of loss of nationality). Tax return 2011 The date the State Department issued a certificate of loss of nationality. Tax return 2011 The date that a U. Tax return 2011 S. Tax return 2011 court canceled your certificate of naturalization. Tax return 2011 Former long-term resident. Tax return 2011   You are considered to have terminated your long-term residency on the earliest of the following dates. Tax return 2011 The date you voluntarily relinquished your lawful permanent resident status by filing Department of Homeland Security Form I-407 with a U. Tax return 2011 S. Tax return 2011 consular or immigration officer, and the Department of Homeland Security determined that you have, in fact, abandoned your lawful permanent resident status. Tax return 2011 The date you became subject to a final administrative order for your removal from the United States under the Immigration and Nationality Act and you actually left the United States as a result of that order. Tax return 2011 If you were a dual resident of the United States and a country with which the United States has an income tax treaty, the date you began to be treated as a resident of that country and you determined that, for purposes of the treaty, you are a resident of the treaty country and notify the IRS of that treatment on Forms 8833 and 8854. Tax return 2011 See Effect of Tax Treaties in chapter 1 for more information about dual residents. Tax return 2011 How To Figure the Expatriation Tax (If You Expatriate After June 16, 2008) In the year you expatriate, you are subject to income tax on the net unrealized gain (or loss) in your property as if the property had been sold for its fair market value on the day before your expatriation date (“mark-to-market tax”). Tax return 2011 This applies to most types of property interests you held on the date of relinquishment of citizenship or termination of residency. Tax return 2011 But see Exceptions , later. Tax return 2011 Gains arising from deemed sales must be taken into account for the tax year of the deemed sale without regard to other U. Tax return 2011 S. Tax return 2011 internal revenue laws. Tax return 2011 Losses from deemed sales must be taken into account to the extent otherwise provided under U. Tax return 2011 S. Tax return 2011 internal revenue laws. Tax return 2011 However, Internal Revenue Code section 1091 (relating to the disallowance of losses on wash sales of stock and securities) does not apply. Tax return 2011 The net gain that you otherwise must include in your income is reduced (but not below zero) by: $600,000 if you expatriated or terminated residency before January 1, 2009. Tax return 2011 $626,000 if you expatriated or terminated residency in 2009. Tax return 2011 $627,000 if you expatriated or terminated residency in 2010. Tax return 2011 $636,000 if you expatriated or terminated residency in 2011. Tax return 2011 $651,000 if you expatriated or terminated residency in 2012. Tax return 2011 $668,000 if you expatriated or terminated residency in 2013. Tax return 2011 Exceptions. Tax return 2011   The mark-to-market tax does not apply to the following. Tax return 2011 Eligible deferred compensation items. Tax return 2011 Ineligible deferred compensation items. Tax return 2011 Interests in nongrantor trusts. Tax return 2011 Specified tax deferred accounts. Tax return 2011 Instead, items (1) and (3) may be subject to withholding at source. Tax return 2011 In the case of item (2), you are treated as receiving the present value of your accrued benefit as of the day before the expatriation date. Tax return 2011 In the case of item (4), you are treated as receiving a distribution of your entire interest in the account on the day before your expatriation date. Tax return 2011 See paragraphs (d), (e), and (f) of section 877A for more information. Tax return 2011 Expatriation Tax Return If you expatriated or terminated your U. Tax return 2011 S. Tax return 2011 residency, or you are subject to the expatriation rules (as discussed earlier in the first paragraph under Expatriation After June 16, 2008), you must file Form 8854. Tax return 2011 Attach it to Form 1040 or Form 1040NR if you are required to file either of those forms. Tax return 2011 Deferral of payment of mark-to-market tax. Tax return 2011   You can make an irrevocable election to defer payment of the mark-to-market tax imposed on the deemed sale of property. Tax return 2011 If you make this election, the following rules apply. Tax return 2011 You can make the election on a property-by-property basis. Tax return 2011 The deferred tax attributable to a particular property is due on the return for the tax year in which you dispose of the property. Tax return 2011 Interest is charged for the period the tax is deferred. Tax return 2011 The due date for the payment of the deferred tax cannot be extended beyond the earlier of the following dates. Tax return 2011 The due date of the return required for the year of death. Tax return 2011 The time that the security provided for the property fails to be adequate. Tax return 2011 See item (6) below. Tax return 2011 You make the election on Form 8854. Tax return 2011 You must provide adequate security (such as a bond). Tax return 2011 You must make an irrevocable waiver of any right under any treaty of the United States which would preclude assessment or collection of the mark-to-market tax. Tax return 2011   For more information about the deferral of payment, see the Instructions for Form 8854. Tax return 2011 Prev  Up  Next   Home   More Online Publications
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Tax Relief for Victims of Hurricane Irene in Vermont

E-file to Remain Open through Oct. 31 for Irene Victims

Updated 9/16/11 to add a link to Notice 2011-74.
Updated 9/15/11 to add Franklin, Lamoille and Orleans counties.
Updated 9/7/11 to add Caledonia county.
Updated 9/6/11 to add Addison, Bennington, Orange and Windham counties.

VT-2011-34, Sept. 2, 2011

BOSTON — Victims of Hurricane Irene that began on Aug. 29, 2011 in parts of Vermont may qualify for tax relief from the Internal Revenue Service.

The President has declared the following counties a federal disaster area: Addison, Bennington, Caledonia, Chittenden, Franklin, Lamoille, Orleans, Orange, Rutland, Washington, Windham and Windsor. Individuals who reside or have a business in these counties may qualify for tax relief.

The declaration permits the IRS to postpone certain deadlines for taxpayers who reside or have a business in the disaster area. For instance, certain deadlines falling on or after Aug. 29, and on or before Oct. 31, have been postponed to Oct. 31, 2011. This includes corporations and other businesses that previously obtained an extension until Sept. 15 to file their 2010 returns, and individuals and businesses that received a similar extension until Oct. 17. It also includes the estimated tax payment for the third quarter, normally due Sept. 15.  

In addition, the IRS is waiving the failure-to-deposit penalties for employment and excise tax deposits due on or after Aug. 29, and on or before Sept. 13, as long as the deposits are made by Sept. 13, 2011.

If an affected taxpayer receives a penalty notice from the IRS, the taxpayer should call the telephone number on the notice to have the IRS abate any interest and any late filing or late payment penalties that would otherwise apply. Penalties or interest will be abated only for taxpayers who have an original or extended filing, payment or deposit due date, including an extended filing or payment due date, that falls within the postponement period.

The IRS automatically identifies taxpayers located in the covered disaster area and applies automatic filing and payment relief. But affected taxpayers who reside or have a business located outside the covered disaster area must call the IRS disaster hotline at 1-866-562-5227 to request this tax relief.

Covered Disaster Area

The counties listed above constitute a covered disaster area for purposes of Treas. Reg. § 301.7508A-1(d)(2) and are entitled to the relief detailed below.

Affected Taxpayers

Taxpayers considered to be affected taxpayers eligible for the postponement of time to file returns, pay taxes and perform other time-sensitive acts are those taxpayers listed in Treas. Reg. § 301.7508A-1(d)(1), and include individuals who live, and businesses whose principal place of business is located, in the covered disaster area. Taxpayers not in the covered disaster area, but whose records necessary to meet a deadline listed in Treas. Reg. § 301.7508A-1(c) are in the covered disaster area, are also entitled to relief. In addition, all relief workers affiliated with a recognized government or philanthropic organization assisting in the relief activities in the covered disaster area and any individual visiting the covered disaster area who was killed or injured as a result of the disaster are entitled to relief.

Grant of Relief

Under section 7508A, the IRS gives affected taxpayers until Oct. 31 to file most tax returns (including individual, corporate, and estate and trust income tax returns; partnership returns, S corporation returns, and trust returns; estate, gift, and generation-skipping transfer tax returns; and employment and certain excise tax returns), or to make tax payments, including estimated tax payments, that have either an original or extended due date occurring on or after Aug. 29 and on or before Oct. 31.

The IRS also gives affected taxpayers until Oct. 31 to perform other time-sensitive actions described in Treas. Reg. § 301.7508A-1(c)(1) and Rev. Proc. 2007-56, 2007-34 I.R.B. 388 (Aug. 20, 2007), that are due to be performed on or after Aug. 29 and on or before Oct. 31.

This relief also includes the filing of Form 5500 series returns, in the manner described in section 8 of Rev. Proc. 2007-56. The relief described in section 17 of Rev. Proc. 2007-56, pertaining to like-kind exchanges of property, also applies to certain taxpayers who are not otherwise affected taxpayers and may include acts required to be performed before or after the period above.

The postponement of time to file and pay does not apply to information returns in the W-2, 1098, 1099 series, or to Forms 1042-S or 8027. Penalties for failure to timely file information returns can be waived under existing procedures for reasonable cause. Likewise, the postponement does not apply to employment and excise tax deposits. The IRS, however, will abate penalties for failure to make timely employment and excise tax deposits due on or after Aug. 29 and on or before Sept. 13 provided the taxpayer makes these deposits by Sept. 13.

Casualty Losses

Affected taxpayers in a federally declared disaster area have the option of claiming disaster-related casualty losses on their federal income tax return for either this year or last year. Claiming the loss on an original or amended return for last year will get the taxpayer an earlier refund, but waiting to claim the loss on this year’s return could result in a greater tax saving, depending on other income factors.

Individuals may deduct personal property losses that are not covered by insurance or other reimbursements. For details, see Form 4684 and its instructions.

Affected taxpayers claiming the disaster loss on last year’s return should put the Disaster Designation “Vermont /Hurricane Irene” at the top of the form so that the IRS can expedite the processing of the refund.

Other Relief

The IRS will waive the usual fees and expedite requests for copies of previously filed tax returns for affected taxpayers. Taxpayers should put the assigned Disaster Designation in red ink at the top of Form 4506, Request for Copy of Tax Return, or Form 4506-T, Request for Transcript of Tax Return, as appropriate, and submit it to the IRS.

Affected taxpayers who are contacted by the IRS on a collection or examination matter should explain how the disaster impacts them so that the IRS can provide appropriate consideration to their case.

Taxpayers may download forms and publications from the official IRS website, irs.gov, or order them by calling 1-800-TAX-FORM (1-800-829-3676). The IRS toll-free number for general tax questions is 1-800-829-1040.

Related Information

Page Last Reviewed or Updated: 24-Mar-2014

The Tax Return 2011

Tax return 2011 6. Tax return 2011   Tuition and Fees Deduction Table of Contents IntroductionWhat is the tax benefit of the tuition and fees deduction. Tax return 2011 Can You Claim the DeductionWho Can Claim the Deduction Who Cannot Claim the Deduction What Expenses QualifyQualified Education Expenses No Double Benefit Allowed Expenses That Do Not Qualify Who Is an Eligible Student Who Can Claim a Dependent's Expenses Figuring the DeductionEffect of the Amount of Your Income on the Amount of Your Deduction Claiming the Deduction Illustrated Example Introduction You may be able to deduct qualified education expenses paid during the year for yourself, your spouse, or your dependent(s). Tax return 2011 You cannot claim this deduction if your filing status is married filing separately or if another person can claim an exemption for you as a dependent on his or her tax return. Tax return 2011 The qualified expenses must be for higher education, as explained later under Qualified Education Expenses . Tax return 2011 What is the tax benefit of the tuition and fees deduction. Tax return 2011   The tuition and fees deduction can reduce the amount of your income subject to tax by up to $4,000. Tax return 2011   This deduction is taken as an adjustment to income. Tax return 2011 This means you can claim this deduction even if you do not itemize deductions on Schedule A (Form 1040). Tax return 2011 This deduction may be beneficial to you if you do not qualify for the American opportunity or lifetime learning credits. Tax return 2011 You can choose the education benefit that will give you the lowest tax. Tax return 2011 You may want to compare the tuition and fees deduction to the education credits. Tax return 2011 See chapter 2, American Opportunity Credit and chapter 3, Lifetime Learning Credit for more information on the education credits. Tax return 2011 Table 6-1. Tax return 2011 Tuition and Fees Deduction at a Glance summarizes the features of the tuition and fees deduction. Tax return 2011 Can You Claim the Deduction The following rules will help you determine if you can claim the tuition and fees deduction. Tax return 2011 Who Can Claim the Deduction Generally, you can claim the tuition and fees deduction if all three of the following requirements are met. Tax return 2011 You pay qualified education expenses of higher education. Tax return 2011 You pay the education expenses for an eligible student. Tax return 2011 The eligible student is yourself, your spouse, or your dependent for whom you claim an exemption on your tax return. Tax return 2011 The term “qualified education expenses” is defined later under Qualified Education Expenses . Tax return 2011 “Eligible student” is defined later under Who Is an Eligible Student . Tax return 2011 For more information on claiming the deduction for a dependent, see Who Can Claim a Dependent's Expenses , later. Tax return 2011 Table 6-1. Tax return 2011 Tuition and Fees Deduction at a Glance Do not rely on this table alone. Tax return 2011 Refer to the text for complete details. Tax return 2011 Question Answer What is the maximum benefit? You can reduce your income subject to tax by up to $4,000. Tax return 2011 What is the limit on modified adjusted gross income (MAGI)? $160,000 if married filing a joint return; $80,000 if single, head of household, or qualifying widow(er). Tax return 2011 Where is the deduction taken? As an adjustment to income on  Form 1040 or Form 1040A. Tax return 2011 For whom must the expenses be paid? A student enrolled in an eligible educational institution who is either: •you,  •your spouse, or  •your dependent for whom you claim an exemption. Tax return 2011 What tuition and fees are deductible? Tuition and fees required for enrollment or attendance at an eligible postsecondary educational institution, but not including personal, living, or family expenses, such as room and board. Tax return 2011 Who Cannot Claim the Deduction You cannot claim the tuition and fees deduction if any of the following apply. Tax return 2011 Your filing status is married filing separately. Tax return 2011 Another person can claim an exemption for you as a dependent on his or her tax return. Tax return 2011 You cannot take the deduction even if the other person does not actually claim that exemption. Tax return 2011 Your modified adjusted gross income (MAGI) is more than $80,000 ($160,000 if filing a joint return). Tax return 2011 You (or your spouse) were a nonresident alien for any part of 2013 and the nonresident alien did not elect to be treated as a resident alien for tax purposes. Tax return 2011 More information on nonresident aliens can be found in Publication 519. Tax return 2011 What Expenses Qualify The tuition and fees deduction is based on qualified education expenses you pay for yourself, your spouse, or a dependent for whom you claim an exemption on your tax return. Tax return 2011 Generally, the deduction is allowed for qualified education expenses paid in 2013 in connection with enrollment at an institution of higher education during 2013 or for an academic period beginning in 2013 or in the first 3 months of 2014. Tax return 2011 For example, if you paid $1,500 in December 2013 for qualified tuition for the spring 2014 semester beginning in January 2014, you may be able to use that $1,500 in figuring your 2013 deduction. Tax return 2011 Academic period. Tax return 2011   An academic period includes a semester, trimester, quarter, or other period of study (such as a summer school session) as reasonably determined by an educational institution. Tax return 2011 In the case of an educational institution that uses credit hours or clock hours and does not have academic terms, each payment period can be treated as an academic period. Tax return 2011 Paid with borrowed funds. Tax return 2011   You can claim a tuition and fees deduction for qualified education expenses paid with the proceeds of a loan. Tax return 2011 Use the expenses to figure the deduction for the year in which the expenses are paid, not the year in which the loan is repaid. Tax return 2011 Treat loan disbursements sent directly to the educational institution as paid on the date the institution credits the student's account. Tax return 2011 Student withdraws from class(es). Tax return 2011   You can claim a tuition and fees deduction for qualified education expenses not refunded when a student withdraws. Tax return 2011 Qualified Education Expenses For purposes of the tuition and fees deduction, qualified education expenses are tuition and certain related expenses required for enrollment or attendance at an eligible educational institution. Tax return 2011 Eligible educational institution. Tax return 2011   An eligible educational institution is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U. Tax return 2011 S. Tax return 2011 Department of Education. Tax return 2011 It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. Tax return 2011 The educational institution should be able to tell you if it is an eligible educational institution. Tax return 2011   Certain educational institutions located outside the United States also participate in the U. Tax return 2011 S. Tax return 2011 Department of Education's Federal Student Aid (FSA) programs. Tax return 2011 Related expenses. Tax return 2011   Student-activity fees and expenses for course-related books, supplies, and equipment are included in qualified education expenses only if the fees and expenses must be paid to the institution as a condition of enrollment or attendance. Tax return 2011 Prepaid expenses. Tax return 2011   Qualified education expenses paid in 2013 for an academic period that begins in the first three months of 2014 can be used in figuring an education credit for 2013 only. Tax return 2011 See Academic period , earlier. Tax return 2011 For example, you pay $2,000 in December 2013 for qualified tuition for the 2014 winter quarter that begins in January 2014, you can use that $2,000 in figuring an education credit for 2013 only (if you meet all the other requirements). Tax return 2011 You cannot use any amount you paid in 2012 or 2014 to figure the qualified education expenses you use to figure your 2013 education credit(s). Tax return 2011 In the following examples, assume that each student is an eligible student and each college or university an eligible educational institution. Tax return 2011 Example 1. Tax return 2011 Jackson is a sophomore in University V's degree program in dentistry. Tax return 2011 This year, in addition to tuition, he is required to pay a fee to the university for the rental of the dental equipment he will use in this program. Tax return 2011 Because the equipment rental fee must be paid to University V for enrollment and attendance, Jackson's equipment rental fee is a qualified education expense. Tax return 2011 Example 2. Tax return 2011 Donna and Charles, both first-year students at College W, are required to have certain books and other reading materials to use in their mandatory first-year classes. Tax return 2011 The college has no policy about how students should obtain these materials, but any student who purchases them from College W's bookstore will receive a bill directly from the college. Tax return 2011 Charles bought his books from a friend, so what he paid for them is not a qualified education expense. Tax return 2011 Donna bought hers at College W's bookstore. Tax return 2011 Although Donna paid College W directly for her first-year books and materials, her payment is not a qualified education expense because the books and materials are not required to be purchased from College W for enrollment or attendance at the institution. Tax return 2011 Example 3. Tax return 2011 When Marci enrolled at College X for her freshman year, she had to pay a separate student activity fee in addition to her tuition. Tax return 2011 This activity fee is required of all students, and is used solely to fund on-campus organizations and activities run by students, such as the student newspaper and the student government. Tax return 2011 No portion of the fee covers personal expenses. Tax return 2011 Although labeled as a student activity fee, the fee is required for Marci's enrollment and attendance at College X. Tax return 2011 Therefore, it is a qualified expense. Tax return 2011 No Double Benefit Allowed You cannot do any of the following. Tax return 2011 Deduct qualified education expenses you deduct under any other provision of the law, for example, as a business expense. Tax return 2011 Deduct qualified education expenses for a student on your income tax return if you or anyone else claims an American opportunity or lifetime learning credit for that same student in the same year. Tax return 2011 Deduct qualified education expenses that have been used to figure the tax-free portion of a distribution from a Coverdell education savings account (ESA) or a qualified tuition program (QTP). Tax return 2011 For a QTP, this applies only to the amount of tax-free earnings that were distributed, not to the recovery of contributions to the program. Tax return 2011 See Coordination With Tuition and Fees Deduction in chapter 8, Qualified Tuition Program, later. Tax return 2011 Deduct qualified education expenses that have been paid with tax-free interest on U. Tax return 2011 S. Tax return 2011 savings bonds (Form 8815). Tax return 2011 See Figuring the Tax-Free Amount in chapter 10, Education Savings Bond Program, later. Tax return 2011 Deduct qualified education expenses that have been paid with tax-free educational assistance, such as a scholarship, grant, or assistance provided by an employer. Tax return 2011 See the following section on Adjustments to Qualified Education Expenses. Tax return 2011 Adjustments to Qualified Education Expenses For each student, reduce the qualified education expenses paid by or on behalf of that student under the following rules. Tax return 2011 The result is the amount of adjusted qualified education expenses for each student. Tax return 2011 You must also reduce qualified education expenses by the other amounts referred to in No Double Benefit Allowed , earlier. Tax return 2011 Tax-free educational assistance. Tax return 2011   For tax-free educational assistance received in 2013, reduce the qualified educational expenses for each academic period by the amount of tax-free educational assistance allocable to that academic period. Tax return 2011 See Academic period , earlier. Tax return 2011   Some tax-free educational assistance received after 2013 may be treated as a refund of qualified education expenses paid in 2013. Tax return 2011 This tax-free educational assistance is any tax-free educational assistance received by you or anyone else after 2013 for qualified education expenses paid on behalf of a student in 2013 (or attributable to enrollment at an eligible educational institution during 2013). Tax return 2011   If this tax-free educational assistance is received after 2013 but before you file your 2013 income tax return, see Refunds received after 2013 but before your income tax return is filed , later. Tax return 2011 If this tax-free educational assistance is received after 2013 and after you file your 2013 income tax return, see Refunds received after 2013 and after your income tax return is filed , later. Tax return 2011   This tax-free education assistance includes: The tax-free part of scholarships and fellowships (see Tax-Free Scholarships and Fellowships in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Pell grants (see Pell Grants and Other Title IV Need-Based Education Grants in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Employer-provided educational assistance (see chapter 11, Employer-Provided Educational Assistance ), Veterans' educational assistance (see Veterans' Benefits in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), and Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. Tax return 2011 Generally, any scholarship or fellowship is treated as tax free. Tax return 2011 However, a scholarship or fellowship is not treated as tax free to the extent the student includes it in gross income (if the student is required to file a tax return for the year the scholarship or fellowship is received) and either of the following is true. Tax return 2011 The scholarship or fellowship (or any part of it) must be applied (by its terms) to expenses (such as room and board) other than qualified education expenses as defined in Qualified education expenses in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. Tax return 2011 The scholarship or fellowship (or any part of it) may be applied (by its terms) to expenses (such as room and board) other than qualified education expenses as defined in Qualified education expenses in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. Tax return 2011 You may be able to increase the combined value of an education credit and certain educational assistance if the student includes some or all of the educational assistance in income in the year it is received. Tax return 2011 For details, see Adjustments to Qualified Education Expenses in chapters 2 and 3. Tax return 2011 Refunds. Tax return 2011   A refund of qualified education expenses may reduce adjusted qualified education expenses for the tax year or require repayment (recapture) of a credit claimed in an earlier year. Tax return 2011 Some tax-free educational assistance received after 2013 may be treated as a refund. Tax return 2011 See Tax-free educational assistance , earlier. Tax return 2011 Refunds received in 2013. Tax return 2011   For each student, figure the adjusted qualified education expenses for 2013 by adding all the qualified education expenses for 2013 and subtracting any refunds of those expenses received from the eligible educational institution during 2013. Tax return 2011 Refunds received after 2013 but before your income tax return is filed. Tax return 2011   If anyone receives a refund after 2013 of qualified education expenses paid on behalf of a student in 2013 and the refund is paid before you file an income tax return for 2013, the amount of qualified education expenses for 2013 is reduced by the amount of the refund. Tax return 2011 Refunds received after 2013 and after your income tax return is filed. Tax return 2011   If anyone receives a refund after 2013 of qualified education expenses paid on behalf of a student in 2013 and the refund is paid after you file an income tax return for 2013, you may need to repay some or all of the credit. Tax return 2011 See Credit recapture , later. Tax return 2011 Coordination with Coverdell education savings accounts and qualified tuition programs. Tax return 2011   Reduce your qualified education expenses by any qualified education expenses used to figure the exclusion from gross income of (a) interest received under an education savings bond program, or (b) any distribution from a Coverdell education savings account or qualified tuition program (QTP). Tax return 2011 For a QTP, this applies only to the amount of tax-free earnings that were distributed, not to the recovery of contributions to the program. Tax return 2011 Credit recapture. Tax return 2011    If any tax-free educational assistance for the qualified education expenses paid in 2013 or any refund of your qualified education expenses paid in 2013 is received after you file your 2013 income tax return, you must recapture (repay) any excess credit. Tax return 2011 You do this by refiguring the amount of your adjusted qualified education expenses for 2013 by reducing that amount by the amount of the refund or tax-free educational assistance. Tax return 2011 You then refigure your education credit(s) for 2013 and figure the amount by which your 2013 tax liability would have increased if you had claimed the refigured credit(s). Tax return 2011 Include that amount as an additional tax for the year the refund or tax-free assistance was received. Tax return 2011 Example. Tax return 2011   You paid $3,500 of qualified education expenses in December 2013, and your child began college in January 2014. Tax return 2011 You claimed $3,500 as the tuition and fees deduction on your 2013 income tax return. Tax return 2011 The reduction reduced your taxable income by $3,500. Tax return 2011 Also, you claimed no tax credits in 2013. Tax return 2011 Your child withdrew from two classes and you received a refund of $2,000 in 2014 after you filed your 2013 tax return. Tax return 2011 Refigure your 2013 tuition and fees deduction using $1,500 of qualified education expense instead of the $3,500. Tax return 2011 The refigured tuition and fees deduction is $1,500. Tax return 2011 Do not file an amended 2013 tax return to account for this adjustment. Tax return 2011 Instead, include the difference of $2,000 (but only to the extent this difference would have increased your 2013 tax) on the “Other income” line of your 2014 Form 1040. Tax return 2011 You cannot file Form 1040A for 2014. Tax return 2011 Amounts that do not reduce qualified education expenses. Tax return 2011   Do not reduce qualified education expenses by amounts paid with funds the student receives as: Payment for services, such as wages, A loan, A gift, An inheritance, or A withdrawal from the student's personal savings. Tax return 2011   Do not reduce the qualified education expenses by any scholarship or fellowship reported as income on the student's tax return in the following situations. Tax return 2011 The use of the money is restricted, by the terms of the scholarship or fellowship, to costs of attendance (such as room and board) other than qualified education expenses as defined in Qualified education expenses in chapter 1, Scholarships, Fellowships, Grants, and Tuition Restrictions. Tax return 2011 The use of the money is not restricted. Tax return 2011 Example 1. Tax return 2011 In 2013, Jackie paid $3,000 for tuition and $5,000 for room and board at University X. Tax return 2011 The university did not require her to pay any fees in addition to her tuition in order to enroll in or attend classes. Tax return 2011 To help pay these costs, she was awarded a $2,000 scholarship and a $4,000 student loan. Tax return 2011 The terms of the scholarship state that it can be used to pay any of Jackie's college expenses. Tax return 2011 University X applies the $2,000 scholarship against Jackie's $8,000 total bill, and Jackie pays the $6,000 balance of her bill from University X with a combination of her student loan and her savings. Tax return 2011 Jackie does not report any portion of the scholarship as income on her tax return. Tax return 2011 In figuring the tuition and fees deduction, Jackie must reduce her qualified education expenses by the amount of the scholarship ($2,000) because she excluded the entire scholarship from her income. Tax return 2011 The student loan is not tax-free educational assistance, so she does not need to reduce her qualified expenses by any part of the loan proceeds. Tax return 2011 Jackie is treated as having paid $1,000 in qualified education expenses ($3,000 tuition – $2,000 scholarship) in 2013. Tax return 2011 Example 2. Tax return 2011 The facts are the same as in Example 1, except that Jackie reports her entire scholarship as income on her tax return. Tax return 2011 Because Jackie reported the entire $2,000 scholarship in her income, she does not need to reduce her qualified education expenses. Tax return 2011 Jackie is treated as having paid $3,000 in qualified education expenses. Tax return 2011 Expenses That Do Not Qualify Qualified education expenses do not include amounts paid for: Insurance, Medical expenses (including student health fees), Room and board, Transportation, or Similar personal, living, or family expenses. Tax return 2011 This is true even if the amount must be paid to the institution as a condition of enrollment or attendance. Tax return 2011 Sports, games, hobbies, and noncredit courses. Tax return 2011   Qualified education expenses generally do not include expenses that relate to any course of instruction or other education that involves sports, games or hobbies, or any noncredit course. Tax return 2011 However, if the course of instruction or other education is part of the student's degree program, these expenses can qualify. Tax return 2011 Comprehensive or bundled fees. Tax return 2011   Some eligible educational institutions combine all of their fees for an academic period into one amount. Tax return 2011 If you do not receive, or do not have access to, an allocation showing how much you paid for qualified education expenses and how much you paid for personal expenses, such as those listed above, contact the institution. Tax return 2011 The institution is required to make this allocation and provide you with the amount you paid (or were billed) for qualified education expenses on Form 1098-T. Tax return 2011 See Figuring the Deduction , later, for more information about Form 1098-T. Tax return 2011 Who Is an Eligible Student For purposes of the tuition and fees deduction, an eligible student is a student who is enrolled in one or more courses at an eligible educational institution (as defined under Qualified Education Expenses , earlier). Tax return 2011 Who Can Claim a Dependent's Expenses Generally, in order to claim the tuition and fees deduction for qualified education expenses for a dependent, you must: Have paid the expenses, and Claim an exemption for the student as a dependent. Tax return 2011 For you to be able to deduct qualified education expenses for your dependent, you must claim an exemption for that individual. Tax return 2011 You do this by listing your dependent's name and other required information on Form 1040 (or Form 1040A), line 6c. Tax return 2011 IF your dependent is an eligible student and you. Tax return 2011 . Tax return 2011 . Tax return 2011 AND. Tax return 2011 . Tax return 2011 . Tax return 2011 THEN. Tax return 2011 . Tax return 2011 . Tax return 2011 claim an exemption for your dependent you paid all qualified education expenses for your dependent only you can deduct the qualified education expenses that you paid. Tax return 2011 Your dependent cannot take a deduction. Tax return 2011 claim an exemption for your dependent your dependent paid all qualified education expenses no one is allowed to take a deduction. Tax return 2011 do not claim an exemption for your dependent you paid all qualified education expenses no one is allowed to take a deduction. Tax return 2011 do not claim an exemption for your dependent your dependent paid all qualified education expenses no one is allowed to take a deduction. Tax return 2011 Expenses paid by dependent. Tax return 2011   If your dependent pays qualified education expenses, no one can take a tuition and fees deduction for those expenses. Tax return 2011 Neither you nor your dependent can deduct the expenses. Tax return 2011 For purposes of the tuition and fees deduction, you are not treated as paying any expenses actually paid by a dependent for whom you or anyone other than the dependent can claim an exemption. Tax return 2011 This rule applies even if you do not claim an exemption for your dependent on your tax return. Tax return 2011 Expenses paid by you. Tax return 2011   If you claim an exemption for a dependent who is an eligible student, only you can include any expenses you paid when figuring your tuition and fees deduction. Tax return 2011 Expenses paid under divorce decree. Tax return 2011   Qualified education expenses paid directly to an eligible educational institution for a student under a court-approved divorce decree are treated as paid by the student. Tax return 2011 Only the student would be eligible to take a tuition and fees deduction for that payment, and then only if no one else could claim an exemption for the student. Tax return 2011 Expenses paid by others. Tax return 2011   Someone other than you, your spouse, or your dependent (such as a relative or former spouse) may make a payment directly to an eligible educational institution to pay for an eligible student's qualified education expenses. Tax return 2011 In this case, the student is treated as receiving the payment from the other person and, in turn, paying the institution. Tax return 2011 If you claim, or can claim, an exemption on your tax return for the student, you are not considered to have paid the expenses and you cannot deduct them. Tax return 2011 If the student is not a dependent, only the student can deduct payments made directly to the institution for his or her expenses. Tax return 2011 If the student is your dependent, no one can deduct the payments. Tax return 2011 Example. Tax return 2011 In 2013, Ms. Tax return 2011 Baker makes a payment directly to an eligible educational institution for her grandson Dan's qualified education expenses. Tax return 2011 For purposes of deducting tuition and fees, Dan is treated as receiving the money from his grandmother and, in turn, paying his own qualified education expenses. Tax return 2011 If an exemption cannot be claimed for Dan on anyone else's tax return, only Dan can claim a tuition and fees deduction for his grandmother's payment. Tax return 2011 If someone else can claim an exemption for Dan, no one will be allowed a deduction for Ms. Tax return 2011 Baker's payment. Tax return 2011 Tuition reduction. Tax return 2011   When an eligible educational institution provides a reduction in tuition to an employee of the institution (or spouse or dependent child of an employee), the amount of the reduction may or may not be taxable. Tax return 2011 If it is taxable, the employee is treated as receiving a payment of that amount and, in turn, paying it to the educational institution on behalf of the student. Tax return 2011 For more information on tuition reductions, see Qualified Tuition Reduction , in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. Tax return 2011 Figuring the Deduction The maximum tuition and fees deduction in 2013 is $4,000, $2,000, or $0, depending on the amount of your MAGI. Tax return 2011 See Effect of the Amount of Your Income on the Amount of Your Deduction , later. Tax return 2011 Form 1098-T. Tax return 2011   To help you figure your tuition and fees deduction, the student should receive Form 1098-T (see Appendix A for a completed example of Form 1098-T). Tax return 2011 Generally, an eligible educational institution (such as a college or university) must send Form 1098-T (or acceptable substitute) to each enrolled student by January 31, 2014. Tax return 2011 An institution may choose to report either payments received (box 1), or amounts billed (box 2), for qualified education expenses. Tax return 2011 However, the amount in boxes 1 and 2 of Form 1098-T might be different than what you paid. Tax return 2011 When figuring the deduction, use only the amounts you paid in 2013 for qualified education expenses. Tax return 2011   In addition, Form 1098-T should give other information for that institution, such as adjustments made for prior years, the amount of scholarships or grants, reimbursements or refunds, and whether the student was enrolled at least half-time or was a graduate student. Tax return 2011    The eligible educational institution may ask for a completed Form W-9S or similar statement to obtain the student's name, address, and taxpayer identification number. Tax return 2011 Effect of the Amount of Your Income on the Amount of Your Deduction If your MAGI is not more than $65,000 ($130,000 if you are married filing jointly), your maximum tuition and fees deduction is $4,000. Tax return 2011 If your MAGI is larger than $65,000 ($130,000 if you are married filing jointly), but is not more than $80,000 ($160,000 if you are married filing jointly), your maximum deduction is $2,000. Tax return 2011 No tuition and fees deduction is allowed if your MAGI is larger than $80,000 ($160,000 if you are married filing jointly). Tax return 2011 Modified adjusted gross income (MAGI). Tax return 2011   For most taxpayers, MAGI is adjusted gross income (AGI) as figured on their federal income tax return before subtracting any deduction for tuition and fees. Tax return 2011 However, as discussed below, there may be other modifications. Tax return 2011 MAGI when using Form 1040A. Tax return 2011   If you file Form 1040A, your MAGI is the AGI on line 22 of that form, figured without taking into account any amount on line 19 (tuition and fees deduction). Tax return 2011 MAGI when using Form 1040. Tax return 2011   If you file Form 1040, your MAGI is the AGI on line 38 of that form, figured without taking into account any amount on line 34 (tuition and fees deduction) or line 35 (domestic production activities deduction), and modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, and Exclusion of income by bona fide residents of Puerto Rico. Tax return 2011   Table 6-2 shows how the amount of your MAGI can affect your tuition and fees deduction. Tax return 2011   You can use Worksheet 6-1. Tax return 2011 MAGI for the Tuition and Fees Deduction , later, to figure your MAGI. Tax return 2011 Table 6-2. Tax return 2011 Effect of MAGI on Maximum Tuition and Fees Deduction IF your filing status is. Tax return 2011 . Tax return 2011 . Tax return 2011 AND your MAGI is. Tax return 2011 . Tax return 2011 . Tax return 2011 THEN your maximum tuition and fees deduction is. Tax return 2011 . Tax return 2011 . Tax return 2011 single,  head of household, or qualifying widow(er) not more than $65,000 $4,000. Tax return 2011 more than $65,000  but not more than $80,000 $2,000. Tax return 2011 more than $80,000 $0. Tax return 2011 married filing joint return not more than $130,000 $4,000. Tax return 2011 more than $130,000 but not more than $160,000 $2,000. Tax return 2011 more than $160,000 $0. Tax return 2011 Claiming the Deduction You claim a tuition and fees deduction by completing Form 8917 and submitting it with your Form 1040 or Form 1040A. Tax return 2011 Enter the deduction on Form 1040, line 34, or Form 1040A, line 19. Tax return 2011 A filled-in Form 8917 is shown at the end of this chapter. Tax return 2011 Illustrated Example Tim Pfister, a single taxpayer, enrolled full-time at a local college to earn a degree in engineering. Tax return 2011 This is the first year of his postsecondary education. Tax return 2011 During 2013, he paid $3,600 for his qualified 2013 tuition expense. Tax return 2011 Both he and the college meet all of the requirements for the tuition and fees deduction. Tax return 2011 Tim's total income (Form 1040, line 22) and MAGI are $26,000. Tax return 2011 He figures his deduction of $3,600 as shown on Form 8917, later. Tax return 2011 Worksheet 6-1. Tax return 2011 MAGI for the Tuition and Fees Deduction Use this worksheet if you are filing Form 2555, 2555-EZ, or 4563, or you are excluding income from sources within Puerto Rico. Tax return 2011 Before using this worksheet, you must complete Form 1040, lines 7 through 33, and figure any amount to be entered on the dotted line next to line 36. Tax return 2011 1. Tax return 2011 Enter the amount from Form 1040, line 22   1. Tax return 2011         2. Tax return 2011 Enter the total from Form 1040, lines 23 through 33   2. Tax return 2011               3. Tax return 2011 Enter the total of any amounts entered on the dotted line next to Form 1040, line 36   3. Tax return 2011               4. Tax return 2011 Add lines 2 and 3   4. Tax return 2011         5. Tax return 2011 Subtract line 4 from line 1   5. Tax return 2011         6. Tax return 2011 Enter your foreign earned income exclusion and/or housing  exclusion (Form 2555, line 45, or Form 2555-EZ, line 18)   6. Tax return 2011         7. Tax return 2011 Enter your foreign housing deduction (Form 2555, line 50)   7. Tax return 2011         8. Tax return 2011 Enter the amount of income from Puerto Rico you are excluding   8. Tax return 2011         9. Tax return 2011 Enter the amount of income from American Samoa you are  excluding (Form 4563, line 15)   9. Tax return 2011         10. Tax return 2011 Add lines 5 through 9. Tax return 2011 This is your modified adjusted gross income   10. Tax return 2011     Note. Tax return 2011 If the amount on line 10 is more than $80,000 ($160,000 if married filing jointly),  you cannot take the deduction for tuition and fees. Tax return 2011       This image is too large to be displayed in the current screen. Tax return 2011 Please click the link to view the image. Tax return 2011 Form 8917 for Tim Pfister Prev  Up  Next   Home   More Online Publications