Where To Get A 1040x Form
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Where to get a 1040x form 5. Where to get a 1040x form Business Income Table of Contents Introduction Kinds of IncomeBartering for Property or Services Real Estate Rents Personal Property Rents Interest and Dividend Income Canceled Debt Other Income Items That Are Not IncomeAmount you can exclude. Where to get a 1040x form Short-term lease. Where to get a 1040x form Retail space. Where to get a 1040x form Qualified long-term real property. Where to get a 1040x form Guidelines for Selected Occupations Accounting for Your Income Introduction This chapter primarily explains business income and how to account for it on your tax return, what items are not considered income, and gives guidelines for selected occupations. Where to get a 1040x form If there is a connection between any income you receive and your business, the income is business income. Where to get a 1040x form A connection exists if it is clear that the payment of income would not have been made if you did not have the business. Where to get a 1040x form You can have business income even if you are not involved in the activity on a regular full-time basis. Where to get a 1040x form Income from work you do on the side in addition to your regular job can be business income. Where to get a 1040x form You report most business income, such as income from selling your products or services, on Schedule C or C-EZ. Where to get a 1040x form But you report the income from the sale of business assets, such as land and office buildings, on other forms instead of Schedule C or C-EZ. Where to get a 1040x form For information on selling business assets, see chapter 3. Where to get a 1040x form Nonemployee compensation. Where to get a 1040x form Business income includes amounts you received in your business that were properly shown on Forms 1099-MISC. Where to get a 1040x form This includes amounts reported as nonemployee compensation in box 7 of the form. Where to get a 1040x form You can find more information in the instructions on the back of the Form 1099-MISC you received. Where to get a 1040x form Kinds of Income You must report on your tax return all income you receive from your business unless it is excluded by law. Where to get a 1040x form In most cases, your business income will be in the form of cash, checks, and credit card charges. Where to get a 1040x form But business income can be in other forms, such as property or services. Where to get a 1040x form These and other types of income are explained next. Where to get a 1040x form If you are a U. Where to get a 1040x form S. Where to get a 1040x form citizen who has business income from sources outside the United States (foreign income), you must report that income on your tax return unless it is exempt from tax under U. Where to get a 1040x form S. Where to get a 1040x form law. Where to get a 1040x form If you live outside the United States, you may be able to exclude part or all of your foreign-source business income. Where to get a 1040x form For details, see Publication 54, Tax Guide for U. Where to get a 1040x form S. Where to get a 1040x form Citizens and Resident Aliens Abroad. Where to get a 1040x form Bartering for Property or Services Bartering is an exchange of property or services. Where to get a 1040x form You must include in your gross receipts, at the time received, the fair market value of property or services you receive in exchange for something else. Where to get a 1040x form If you exchange services with another person and you both have agreed ahead of time on the value of the services, that value will be accepted as the fair market value unless the value can be shown to be otherwise. Where to get a 1040x form Example 1. Where to get a 1040x form You are a self-employed lawyer. Where to get a 1040x form You perform legal services for a client, a small corporation. Where to get a 1040x form In payment for your services, you receive shares of stock in the corporation. Where to get a 1040x form You must include the fair market value of the shares in income. Where to get a 1040x form Example 2. Where to get a 1040x form You are an artist and create a work of art to compensate your landlord for the rent-free use of your apartment. Where to get a 1040x form You must include the fair rental value of the apartment in your gross receipts. Where to get a 1040x form Your landlord must include the fair market value of the work of art in his or her rental income. Where to get a 1040x form Example 3. Where to get a 1040x form You are a self-employed accountant. Where to get a 1040x form Both you and a house painter are members of a barter club, an organization that each year gives its members a directory of members and the services each member provides. Where to get a 1040x form Members get in touch with other members directly and bargain for the value of the services to be performed. Where to get a 1040x form In return for accounting services you provided for the house painter's business, the house painter painted your home. Where to get a 1040x form You must include in gross receipts the fair market value of the services you received from the house painter. Where to get a 1040x form The house painter must include the fair market value of your accounting services in his or her gross receipts. Where to get a 1040x form Example 4. Where to get a 1040x form You are a member of a barter club that uses credit units to credit or debit members' accounts for goods or services provided or received. Where to get a 1040x form As soon as units are credited to your account, you can use them to buy goods or services or sell or transfer the units to other members. Where to get a 1040x form You must include the value of credit units you received in your gross receipts for the tax year in which the units are credited to your account. Where to get a 1040x form The dollar value of units received for services by an employee of the club, who can use the units in the same manner as other members, must be included in the employee's gross income for the tax year in which received. Where to get a 1040x form It is wages subject to social security and Medicare taxes (FICA), federal unemployment taxes (FUTA), and income tax withholding. Where to get a 1040x form See Publication 15 (Circular E), Employer's Tax Guide. Where to get a 1040x form Example 5. Where to get a 1040x form You operate a plumbing business and use the cash method of accounting. Where to get a 1040x form You join a barter club and agree to provide plumbing services to any member for a specified number of hours. Where to get a 1040x form Each member has access to a directory that lists the members of the club and the services available. Where to get a 1040x form Members contact each other directly and request services to be performed. Where to get a 1040x form You are not required to provide services unless requested by another member, but you can use as many of the offered services as you wish without paying a fee. Where to get a 1040x form You must include the fair market value of any services you receive from club members in your gross receipts when you receive them even if you have not provided any services to club members. Where to get a 1040x form Information returns. Where to get a 1040x form If you are involved in a bartering transaction, you may have to file either of the following forms. Where to get a 1040x form Form 1099-B, Proceeds From Broker and Barter Exchange Transactions. Where to get a 1040x form Form 1099-MISC, Miscellaneous Income. Where to get a 1040x form For information about these forms, see the General Instructions for Certain Information Returns. Where to get a 1040x form Real Estate Rents If you are a real estate dealer who receives income from renting real property or an owner of a hotel, motel, etc. Where to get a 1040x form , who provides services (maid services, etc. Where to get a 1040x form ) for guests, report the rental income and expenses on Schedule C or C-EZ. Where to get a 1040x form If you are not a real estate dealer or the kind of owner described in the preceding sentence, report the rental income and expenses on Schedule E. Where to get a 1040x form For more information, see Publication 527, Residential Rental Property (Including Rental of Vacation Homes). Where to get a 1040x form Real estate dealer. Where to get a 1040x form You are a real estate dealer if you are engaged in the business of selling real estate to customers with the purpose of making a profit from those sales. Where to get a 1040x form Rent you receive from real estate held for sale to customers is subject to SE tax. Where to get a 1040x form However, rent you receive from real estate held for speculation or investment is not subject to SE tax. Where to get a 1040x form Trailer park owner. Where to get a 1040x form Rental income from a trailer park is subject to SE tax if you are a self-employed trailer park owner who provides trailer lots and facilities and substantial services for the convenience of your tenants. Where to get a 1040x form You generally are considered to provide substantial services for tenants if they are primarily for the tenants' convenience and normally are not provided to maintain the lots in a condition for occupancy. Where to get a 1040x form Services are substantial if the compensation for the services makes up a material part of the tenants' rental payments. Where to get a 1040x form Examples of services that are not normally provided for the tenants' convenience include supervising and maintaining a recreational hall provided by the park, distributing a monthly newsletter to tenants, operating a laundry facility, and helping tenants buy or sell their trailers. Where to get a 1040x form Examples of services that are normally provided to maintain the lots in a condition for tenant occupancy include city sewerage, electrical connections, and roadways. Where to get a 1040x form Hotels, boarding houses, and apartments. Where to get a 1040x form Rental income you receive for the use or occupancy of hotels, boarding houses, or apartment houses is subject to SE tax if you provide services for the occupants. Where to get a 1040x form Generally, you are considered to provide services for the occupants if the services are primarily for their convenience and are not services normally provided with the rental of rooms for occupancy only. Where to get a 1040x form An example of a service that is not normally provided for the convenience of the occupants is maid service. Where to get a 1040x form However, providing heat and light, cleaning stairways and lobbies, and collecting trash are services normally provided for the occupants' convenience. Where to get a 1040x form Prepaid rent. Where to get a 1040x form Advance payments received under a lease that does not put any restriction on their use or enjoyment are income in the year you receive them. Where to get a 1040x form This is true no matter what accounting method or period you use. Where to get a 1040x form Lease bonus. Where to get a 1040x form A bonus you receive from a lessee for granting a lease is an addition to the rent. Where to get a 1040x form Include it in your gross receipts in the year received. Where to get a 1040x form Lease cancellation payments. Where to get a 1040x form Report payments you receive from your lessee for canceling a lease in your gross receipts in the year received. Where to get a 1040x form Payments to third parties. Where to get a 1040x form If your lessee makes payments to someone else under an agreement to pay your debts or obligations, include the payments in your gross receipts when the lessee makes the payments. Where to get a 1040x form A common example of this kind of income is a lessee's payment of your property taxes on leased real property. Where to get a 1040x form Settlement payments. Where to get a 1040x form Payments you receive in settlement of a lessee's obligation to restore the leased property to its original condition are income in the amount that the payments exceed the adjusted basis of the leasehold improvements destroyed, damaged, removed, or disconnected by the lessee. Where to get a 1040x form Personal Property Rents If you are in the business of renting personal property (equipment, vehicles, formal wear, etc. Where to get a 1040x form ), include the rental amount you receive in your gross receipts on Schedule C or C-EZ. Where to get a 1040x form Prepaid rent and other payments described in the preceding Real Estate Rents discussion can also be received for renting personal property. Where to get a 1040x form If you receive any of those payments, include them in your gross receipts as explained in that discussion. Where to get a 1040x form Interest and Dividend Income Interest and dividends may be considered business income. Where to get a 1040x form Interest. Where to get a 1040x form Interest received on notes receivable that you have accepted in the ordinary course of business is business income. Where to get a 1040x form Interest received on loans is business income if you are in the business of lending money. Where to get a 1040x form Uncollectible loans. Where to get a 1040x form If a loan payable to you becomes uncollectible during the tax year and you use an accrual method of accounting, you must include in gross income interest accrued up to the time the loan became uncollectible. Where to get a 1040x form If the accrued interest later becomes uncollectible, you may be able to take a bad debt deduction. Where to get a 1040x form See Bad Debts in chapter 8. Where to get a 1040x form Unstated interest. Where to get a 1040x form If little or no interest is charged on an installment sale, you may have to treat a part of each payment as unstated interest. Where to get a 1040x form See Unstated Interest and Original Issue Discount (OID) in Publication 537, Installment Sales. Where to get a 1040x form Dividends. Where to get a 1040x form Generally, dividends are business income to dealers in securities. Where to get a 1040x form For most sole proprietors and statutory employees, however, dividends are nonbusiness income. Where to get a 1040x form If you hold stock as a personal investment separately from your business activity, the dividends from the stock are nonbusiness income. Where to get a 1040x form If you receive dividends from business insurance premiums you deducted in an earlier year, you must report all or part of the dividend as business income on your return. Where to get a 1040x form To find out how much you have to report, see Recovery of items previously deducted under Other Income, later. Where to get a 1040x form Canceled Debt The following explains the general rule for including canceled debt in income and the exceptions to the general rule. Where to get a 1040x form General Rule Generally, if your debt is canceled or forgiven, other than as a gift or bequest to you, you must include the canceled amount in your gross income for tax purposes. Where to get a 1040x form Report the canceled amount on line 6 of Schedule C if you incurred the debt in your business. Where to get a 1040x form If the debt is a nonbusiness debt, report the canceled amount on line 21 of Form 1040. Where to get a 1040x form Exceptions The following discussion covers some exceptions to the general rule for canceled debt. Where to get a 1040x form Price reduced after purchase. Where to get a 1040x form If you owe a debt to the seller for property you bought and the seller reduces the amount you owe, you generally do not have income from the reduction. Where to get a 1040x form Unless you are bankrupt or insolvent, treat the amount of the reduction as a purchase price adjustment and reduce your basis in the property. Where to get a 1040x form Deductible debt. Where to get a 1040x form You do not realize income from a canceled debt to the extent the payment of the debt would have led to a deduction. Where to get a 1040x form Example. Where to get a 1040x form You get accounting services for your business on credit. Where to get a 1040x form Later, you have trouble paying your business debts, but you are not bankrupt or insolvent. Where to get a 1040x form Your accountant forgives part of the amount you owe for the accounting services. Where to get a 1040x form How you treat the canceled debt depends on your method of accounting. Where to get a 1040x form Cash method — You do not include the canceled debt in income because payment of the debt would have been deductible as a business expense. Where to get a 1040x form Accrual method — You include the canceled debt in income because the expense was deductible when you incurred the debt. Where to get a 1040x form For information on the cash and accrual methods of accounting, see chapter 2. Where to get a 1040x form Exclusions Do not include canceled debt in income in the following situations. Where to get a 1040x form However, you may be required to file Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness. Where to get a 1040x form For more information, see Form 982. Where to get a 1040x form The cancellation takes place in a bankruptcy case under title 11 of the U. Where to get a 1040x form S. Where to get a 1040x form Code (relating to bankruptcy). Where to get a 1040x form See Publication 908, Bankruptcy Tax Guide. Where to get a 1040x form The cancellation takes place when you are insolvent. Where to get a 1040x form You can exclude the canceled debt to the extent you are insolvent. Where to get a 1040x form See Publication 908. Where to get a 1040x form The canceled debt is a qualified farm debt owed to a qualified person. Where to get a 1040x form See chapter 3 in Publication 225, Farmer's Tax Guide. Where to get a 1040x form The canceled debt is a qualified real property business debt. Where to get a 1040x form This situation is explained later. Where to get a 1040x form The canceled debt is qualified principal residence indebtedness which is discharged after 2006. Where to get a 1040x form See Form 982. Where to get a 1040x form If a canceled debt is excluded from income because it takes place in a bankruptcy case, the exclusions in situations 2 through 5 do not apply. Where to get a 1040x form If it takes place when you are insolvent, the exclusions in situations 3 and 4 do not apply to the extent you are insolvent. Where to get a 1040x form Debt. Where to get a 1040x form For purposes of this discussion, debt includes any debt for which you are liable or which attaches to property you hold. Where to get a 1040x form Qualified real property business debt. Where to get a 1040x form You can elect to exclude (up to certain limits) the cancellation of qualified real property business debt. Where to get a 1040x form If you make the election, you must reduce the basis of your depreciable real property by the amount excluded. Where to get a 1040x form Make this reduction at the beginning of your tax year following the tax year in which the cancellation occurs. Where to get a 1040x form However, if you dispose of the property before that time, you must reduce its basis immediately before the disposition. Where to get a 1040x form Cancellation of qualified real property business debt. Where to get a 1040x form Qualified real property business debt is debt (other than qualified farm debt) that meets all the following conditions. Where to get a 1040x form It was incurred or assumed in connection with real property used in a trade or business. Where to get a 1040x form It was secured by such real property. Where to get a 1040x form It was incurred or assumed at either of the following times. Where to get a 1040x form Before January 1, 1993. Where to get a 1040x form After December 31, 1992, if incurred or assumed to acquire, construct, or substantially improve the real property. Where to get a 1040x form It is debt to which you choose to apply these rules. Where to get a 1040x form Qualified real property business debt includes refinancing of debt described in (3) earlier, but only to the extent it does not exceed the debt being refinanced. Where to get a 1040x form You cannot exclude more than either of the following amounts. Where to get a 1040x form The excess (if any) of: The outstanding principal of qualified real property business debt (immediately before the cancellation), over The fair market value (immediately before the cancellation) of the business real property that is security for the debt, reduced by the outstanding principal amount of any other qualified real property business debt secured by this property immediately before the cancellation. Where to get a 1040x form The total adjusted bases of depreciable real property held by you immediately before the cancellation. Where to get a 1040x form These adjusted bases are determined after any basis reduction due to a cancellation in bankruptcy, insolvency, or of qualified farm debt. Where to get a 1040x form Do not take into account depreciable real property acquired in contemplation of the cancellation. Where to get a 1040x form Election. Where to get a 1040x form To make this election, complete Form 982 and attach it to your income tax return for the tax year in which the cancellation occurs. Where to get a 1040x form You must file your return by the due date (including extensions). Where to get a 1040x form If you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Where to get a 1040x form For more information, see When To File in the form instructions. Where to get a 1040x form Other Income The following discussion explains how to treat other types of business income you may receive. Where to get a 1040x form Restricted property. Where to get a 1040x form Restricted property is property that has certain restrictions that affect its value. Where to get a 1040x form If you receive restricted stock or other property for services performed, the fair market value of the property in excess of your cost is included in your income on Schedule C or C-EZ when the restriction is lifted. Where to get a 1040x form However, you can choose to be taxed in the year you receive the property. Where to get a 1040x form For more information on including restricted property in income, see Publication 525, Taxable and Nontaxable Income. Where to get a 1040x form Gains and losses. Where to get a 1040x form Do not report on Schedule C or C-EZ a gain or loss from the disposition of property that is neither stock in trade nor held primarily for sale to customers. Where to get a 1040x form Instead, you must report these gains and losses on other forms. Where to get a 1040x form For more information, see chapter 3. Where to get a 1040x form Promissory notes. Where to get a 1040x form Report promissory notes and other evidences of debt issued to you in a sale or exchange of property that is stock in trade or held primarily for sale to customers on Schedule C or C-EZ. Where to get a 1040x form In general, you report them at their stated principal amount (minus any unstated interest) when you receive them. Where to get a 1040x form Lost income payments. Where to get a 1040x form If you reduce or stop your business activities, report on Schedule C or C-EZ any payment you receive for the lost income of your business from insurance or other sources. Where to get a 1040x form Report it on Schedule C or C-EZ even if your business is inactive when you receive the payment. Where to get a 1040x form Damages. Where to get a 1040x form You must include in gross income compensation you receive during the tax year as a result of any of the following injuries connected with your business. Where to get a 1040x form Patent infringement. Where to get a 1040x form Breach of contract or fiduciary duty. Where to get a 1040x form Antitrust injury. Where to get a 1040x form Economic injury. Where to get a 1040x form You may be entitled to a deduction against the income if it compensates you for actual economic injury. Where to get a 1040x form Your deduction is the smaller of the following amounts. Where to get a 1040x form The amount you receive or accrue for damages in the tax year reduced by the amount you pay or incur in the tax year to recover that amount. Where to get a 1040x form Your loss from the injury that you have not yet deducted. Where to get a 1040x form Punitive damages. Where to get a 1040x form You must also include punitive damages in income. Where to get a 1040x form Kickbacks. Where to get a 1040x form If you receive any kickbacks, include them in your income on Schedule C or C-EZ. Where to get a 1040x form However, do not include them if you properly treat them as a reduction of a related expense item, a capital expenditure, or cost of goods sold. Where to get a 1040x form Recovery of items previously deducted. Where to get a 1040x form If you recover a bad debt or any other item deducted in a previous year, include the recovery in income on Schedule C or C-EZ. Where to get a 1040x form However, if all or part of the deduction in earlier years did not reduce your tax, you can exclude the part that did not reduce your tax. Where to get a 1040x form If you exclude part of the recovery from income, you must include with your return a computation showing how you figured the exclusion. Where to get a 1040x form Example. Where to get a 1040x form Joe Smith, a sole proprietor, had gross income of $8,000, a bad debt deduction of $300, and other allowable deductions of $7,700. Where to get a 1040x form He also had 2 personal exemptions for a total of $7,800. Where to get a 1040x form He would not pay income tax even if he did not deduct the bad debt. Where to get a 1040x form Therefore, he will not report as income any part of the $300 he may recover in any future year. Where to get a 1040x form Exception for depreciation. Where to get a 1040x form This rule does not apply to depreciation. Where to get a 1040x form You recover depreciation using the rules explained next. Where to get a 1040x form Recapture of depreciation. Where to get a 1040x form In the following situations, you have to recapture the depreciation deduction. Where to get a 1040x form This means you include in income part or all of the depreciation you deducted in previous years. Where to get a 1040x form Listed property. Where to get a 1040x form If your business use of listed property (explained in chapter 8 under Depreciation ) falls to 50% or less in a tax year after the tax year you placed the property in service, you may have to recapture part of the depreciation deduction. Where to get a 1040x form You do this by including in income on Schedule C part of the depreciation you deducted in previous years. Where to get a 1040x form Use Part IV of Form 4797, Sales of Business Property, to figure the amount to include on Schedule C. Where to get a 1040x form For more information, see What is the Business-Use Requirement? in chapter 5 of Publication 946, How To Depreciate Property. Where to get a 1040x form That chapter explains how to determine whether property is used more than 50% in your business. Where to get a 1040x form Section 179 property. Where to get a 1040x form If you take a section 179 deduction (explained in chapter 8 under Depreciation ) for an asset and before the end of the asset's recovery period the percentage of business use drops to 50% or less, you must recapture part of the section 179 deduction. Where to get a 1040x form You do this by including in income on Schedule C part of the deduction you took. Where to get a 1040x form Use Part IV of Form 4797 to figure the amount to include on Schedule C. Where to get a 1040x form See chapter 2 in Publication 946 to find out when you recapture the deduction. Where to get a 1040x form Sale or exchange of depreciable property. Where to get a 1040x form If you sell or exchange depreciable property at a gain, you may have to treat all or part of the gain due to depreciation as ordinary income. Where to get a 1040x form You figure the income due to depreciation recapture in Part III of Form 4797. Where to get a 1040x form For more information, see chapter 4 in Publication 544, Sales and Other Dispositions of Assets. Where to get a 1040x form Items That Are Not Income In some cases the property or money you receive is not income. Where to get a 1040x form Appreciation. Where to get a 1040x form Increases in value of your property are not income until you realize the increases through a sale or other taxable disposition. Where to get a 1040x form Consignments. Where to get a 1040x form Consignments of merchandise to others to sell for you are not sales. Where to get a 1040x form The title of merchandise remains with you, the consignor, even after the consignee possesses the merchandise. Where to get a 1040x form Therefore, if you ship goods on consignment, you have no profit or loss until the consignee sells the merchandise. Where to get a 1040x form Merchandise you have shipped out on consignment is included in your inventory until it is sold. 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Where to get a 1040x form You can exclude the construction allowance to the extent it does not exceed the amount you spent for construction or improvements. Where to get a 1040x form Short-term lease. Where to get a 1040x form A short-term lease is a lease (or other agreement for occupancy or use) of retail space for 15 years or less. Where to get a 1040x form The following rules apply in determining whether the lease is for 15 years or less. Where to get a 1040x form Take into account options to renew when figuring whether the lease is for 15 years or less. Where to get a 1040x form But do not take into account any option to renew at fair market value determined at the time of renewal. Where to get a 1040x form Two or more successive leases that are part of the same transaction (or a series of related transactions) for the same or substantially similar retail space are treated as one lease. Where to get a 1040x form Retail space. Where to get a 1040x form Retail space is real property leased, occupied, or otherwise used by you as a tenant in your business of selling tangible personal property or services to the general public. Where to get a 1040x form Qualified long-term real property. Where to get a 1040x form Qualified long-term real property is nonresidential real property that is part of, or otherwise present at, your retail space and that reverts to the landlord when the lease ends. Where to get a 1040x form Exchange of like-kind property. Where to get a 1040x form If you exchange your business property or property you hold for investment solely for property of a like kind to be used in your business or to be held for investment, no gain or loss is recognized. Where to get a 1040x form This means that the gain is not taxable and the loss is not deductible. Where to get a 1040x form A common type of nontaxable exchange is the trade-in of a business automobile for another business automobile. Where to get a 1040x form For more information, see Form 8824. Where to get a 1040x form Leasehold improvements. Where to get a 1040x form If a tenant erects buildings or makes improvements to your property, the increase in the value of the property due to the improvements is not income to you. Where to get a 1040x form However, if the facts indicate that the improvements are a payment of rent to you, then the increase in value would be income. Where to get a 1040x form Loans. Where to get a 1040x form Money borrowed through a bona fide loan is not income. Where to get a 1040x form Sales tax. Where to get a 1040x form State and local sales taxes imposed on the buyer, which you were required to collect and pay over to state or local governments, are not income. Where to get a 1040x form Guidelines for Selected Occupations This section provides information to determine whether your earnings should be reported on Schedule C (Form 1040) or C-EZ (Form 1040). Where to get a 1040x form Direct seller. Where to get a 1040x form You must report all income you receive as a direct seller on Schedule C or C-EZ. Where to get a 1040x form This includes any of the following. Where to get a 1040x form Income from sales—payments you receive from customers for products they buy from you. Where to get a 1040x form Commissions, bonuses, or percentages you receive for sales and the sales of others who work under you. Where to get a 1040x form Prizes, awards, and gifts you receive from your selling business. Where to get a 1040x form You must report this income regardless of whether it is reported to you on an information return. Where to get a 1040x form You are a direct seller if you meet all the following conditions. Where to get a 1040x form You are engaged in one of the following trades or businesses. Where to get a 1040x form Selling or soliciting the sale of consumer products either in a home or other place that is not a permanent retail establishment, or to any buyer on a buy-sell basis or a deposit-commission basis for resale in a home or other place of business that is not a permanent retail establishment. Where to get a 1040x form Delivering or distributing newspapers or shopping news (including any services directly related to that trade or business). Where to get a 1040x form Substantially all your pay (whether paid in cash or not) for services described above is directly related to sales or other output (including performance of services) rather than to the number of hours worked. Where to get a 1040x form Your services are performed under a written contract between you and the person for whom you perform the services, and the contract provides that you will not be treated as an employee for federal tax purposes. Where to get a 1040x form Executor or administrator. Where to get a 1040x form If you administer a deceased person's estate, your fees are reported on Schedule C or C-EZ if you are one of the following: A professional fiduciary. Where to get a 1040x form A nonprofessional fiduciary (personal representative) and both of the following apply. Where to get a 1040x form The estate includes an active trade or business in which you actively participate. Where to get a 1040x form Your fees are related to the operation of that trade or business. Where to get a 1040x form A nonprofessional fiduciary of a single estate that requires extensive managerial activities on your part for a long period of time, provided these activities are enough to be considered a trade or business. Where to get a 1040x form If the fees do not meet the above requirements, report them on line 21 of Form 1040. Where to get a 1040x form Fishing crew member. Where to get a 1040x form If you are a member of the crew that catches fish or other water life, your earnings are reported on Schedule C or C-EZ if you meet all the requirements shown in chapter 10 under Fishing crew member . Where to get a 1040x form Insurance agent, former. Where to get a 1040x form Termination payments you receive as a former self-employed insurance agent from an insurance company because of services you performed for that company are not reported on Schedule C or C-EZ if all the following conditions are met. Where to get a 1040x form You received payments after your agreement to perform services for the company ended. Where to get a 1040x form You did not perform any services for the company after your service agreement ended and before the end of the year in which you received the payment. Where to get a 1040x form You entered into a covenant not to compete against the company for at least a 1-year period beginning on the date your service agreement ended. Where to get a 1040x form The amount of the payments depended primarily on policies sold by you or credited to your account during the last year of your service agreement or the extent to which those policies remain in force for some period after your service agreement ended, or both. Where to get a 1040x form The amount of the payment did not depend to any extent on length of service or overall earnings from services performed for the company (regardless of whether eligibility for the payments depended on length of service). Where to get a 1040x form Insurance agent, retired. Where to get a 1040x form Income paid by an insurance company to a retired self-employed insurance agent based on a percentage of commissions received before retirement is reported on Schedule C or C-EZ. Where to get a 1040x form Also, renewal commissions and deferred commissions for sales made before retirement are generally reported on Schedule C or C-EZ. Where to get a 1040x form However, renewal commissions paid to the survivor of an insurance agent are not reported on Schedule C or C-EZ. Where to get a 1040x form Newspaper carrier or distributor. Where to get a 1040x form You are a direct seller and your earnings are reported on Schedule C or C-EZ if all the following conditions apply. Where to get a 1040x form You are in the business of delivering or distributing newspapers or shopping news (including directly related services such as soliciting customers and collecting receipts). Where to get a 1040x form Substantially all your pay for these services directly relates to your sales or other output rather than to the number of hours you work. Where to get a 1040x form You perform the services under a written contract that says you will not be treated as an employee for federal tax purposes. Where to get a 1040x form This rule applies whether or not you hire others to help you make deliveries. Where to get a 1040x form It also applies whether you buy the papers from the publisher or are paid based on the number of papers you deliver. Where to get a 1040x form Newspaper or magazine vendor. Where to get a 1040x form If you are 18 or older and you sell newspapers or magazines, your earnings are reported on Schedule C or C-EZ if all the following conditions apply. Where to get a 1040x form You sell newspapers or magazines to ultimate consumers. Where to get a 1040x form You sell them at a fixed price. Where to get a 1040x form Your earnings are based on the difference between the sales price and your cost of goods sold. Where to get a 1040x form This rule applies whether or not you are guaranteed a minimum amount of earnings. Where to get a 1040x form It also applies whether or not you receive credit for unsold newspapers or magazines you return to your supplier. Where to get a 1040x form Notary public. Where to get a 1040x form Fees you receive for services you perform as a notary public are reported on Schedule C or C-EZ. Where to get a 1040x form These payments are not subject to self-employment tax (see the instructions for Schedule SE (Form 1040)). Where to get a 1040x form Public official. Where to get a 1040x form Public officials generally do not report what they earn for serving in public office on Schedule C or C-EZ. Where to get a 1040x form This rule applies to payments received by an elected tax collector from state funds on the basis of a fixed percentage of the taxes collected. Where to get a 1040x form Public office includes any elective or appointive office of the United States or its possessions, the District of Columbia, a state or its political subdivisions, or a wholly owned instrumentality of any of these. Where to get a 1040x form Public officials of state or local governments report their fees on Schedule C or C-EZ if they are paid solely on a fee basis and if their services are eligible for, but not covered by, social security under a federal-state agreement. Where to get a 1040x form Real estate agent or direct seller. Where to get a 1040x form If you are a licensed real estate agent or a direct seller, your earnings are reported on Schedule C or C-EZ if both the following apply. Where to get a 1040x form Substantially all your pay for services as a real estate agent or direct seller directly relates to your sales or other output rather than to the number of hours you work. Where to get a 1040x form You perform the services under a written contract that says you will not be treated as an employee for federal tax purposes. Where to get a 1040x form Securities dealer. Where to get a 1040x form If you are a dealer in options or commodities, your gains and losses from dealing or trading in section 1256 contracts (regulated futures contracts, foreign currency contracts, nonequity options, dealer equity options, and dealer securities futures contracts) or property related to those contracts (such as stock used to hedge options) are reported on Schedule C or C-EZ. Where to get a 1040x form For more information, see sections 1256 and 1402(i). Where to get a 1040x form Securities trader. Where to get a 1040x form You are a trader in securities if you are engaged in the business of buying and selling securities for your own account. Where to get a 1040x form As a trader in securities, your gain or loss from the disposition of securities is not reported on Schedule C or C-EZ. Where to get a 1040x form However, see Securities dealer , earlier, for an exception that applies to section 1256 contracts. Where to get a 1040x form For more information about securities traders, see Publication 550, Investment Income and Expenses. Where to get a 1040x form Accounting for Your Income Accounting for your income for income tax purposes differs at times from accounting for financial purposes. Where to get a 1040x form This section discusses some of the more common differences that may affect business transactions. Where to get a 1040x form Figure your business income on the basis of a tax year and according to your regular method of accounting (see chapter 2). Where to get a 1040x form If the sale of a product is an income-producing factor in your business, you usually have to use inventories to clearly show your income. Where to get a 1040x form Dealers in real estate are not allowed to use inventories. Where to get a 1040x form For more information on inventories, see chapter 2. Where to get a 1040x form Income paid to a third party. Where to get a 1040x form All income you earn is taxable to you. Where to get a 1040x form You cannot avoid tax by having the income paid to a third party. Where to get a 1040x form Example. Where to get a 1040x form You rent out your property and the rental agreement directs the lessee to pay the rent to your son. Where to get a 1040x form The amount paid to your son is gross income to you. Where to get a 1040x form Cash discounts. Where to get a 1040x form These are amounts the seller permits you to deduct from the invoice price for prompt payment. Where to get a 1040x form For income tax purposes, you can use either of the following two methods to account for cash discounts. Where to get a 1040x form Deduct the cash discount from purchases (see Line 36, Purchases Less Cost of Items Withdrawn for Personal Use in chapter 6). Where to get a 1040x form Credit the cash discount to a discount income account. Where to get a 1040x form You must use the chosen method every year for all your purchase discounts. Where to get a 1040x form If you use the second method, the credit balance in the account at the end of your tax year is business income. Where to get a 1040x form Under this method, you do not reduce the cost of goods sold by the cash discounts you received. Where to get a 1040x form When valuing your closing inventory, you cannot reduce the invoice price of merchandise on hand at the close of the tax year by the average or estimated discounts received on the merchandise. Where to get a 1040x form Trade discounts. Where to get a 1040x form These are reductions from list or catalog prices and usually are not written into the invoice or charged to the customer. Where to get a 1040x form Do not enter these discounts on your books of account. Where to get a 1040x form Instead, use only the net amount as the cost of the merchandise purchased. Where to get a 1040x form For more information, see Trade discounts in chapter 6. Where to get a 1040x form Payment placed in escrow. Where to get a 1040x form If the buyer of your property places part or all of the purchase price in escrow, you do not include any part of it in gross sales until you actually or constructively receive it. Where to get a 1040x form However, upon completion of the terms of the contract and the escrow agreement, you will have taxable income, even if you do not accept the money until the next year. Where to get a 1040x form Sales returns and allowances. Where to get a 1040x form Credits you allow customers for returned merchandise and any other allowances you make on sales are deductions from gross sales in figuring net sales. Where to get a 1040x form Advance payments. Where to get a 1040x form Special rules dealing with an accrual method of accounting for payments received in advance are discussed in chapter 2 under Accrual Method. Where to get a 1040x form Insurance proceeds. Where to get a 1040x form If you receive insurance or another type of reimbursement for a casualty or theft loss, you must subtract it from the loss when you figure your deduction. Where to get a 1040x form You cannot deduct the reimbursed part of a casualty or theft loss. Where to get a 1040x form For information on casualty or theft losses, see Publication 547, Casualties, Disasters, and Thefts. Where to get a 1040x form Prev Up Next Home More Online Publications
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The Where To Get A 1040x Form
Where to get a 1040x form Publication 936 - Main Content Table of Contents Part I. Where to get a 1040x form Home Mortgage InterestSecured Debt Qualified Home Special Situations Points Mortgage Insurance Premiums Form 1098, Mortgage Interest Statement How To Report Special Rule for Tenant-Stockholders in Cooperative Housing Corporations Part II. Where to get a 1040x form Limits on Home Mortgage Interest DeductionHome Acquisition Debt Home Equity Debt Grandfathered Debt Table 1 Instructions How To Get Tax HelpLow Income Taxpayer Clinics Part I. Where to get a 1040x form Home Mortgage Interest This part explains what you can deduct as home mortgage interest. Where to get a 1040x form It includes discussions on points, mortgage insurance premiums, and how to report deductible interest on your tax return. Where to get a 1040x form Generally, home mortgage interest is any interest you pay on a loan secured by your home (main home or a second home). Where to get a 1040x form The loan may be a mortgage to buy your home, a second mortgage, a line of credit, or a home equity loan. Where to get a 1040x form You can deduct home mortgage interest if all the following conditions are met. Where to get a 1040x form You file Form 1040 and itemize deductions on Schedule A (Form 1040). Where to get a 1040x form The mortgage is a secured debt on a qualified home in which you have an ownership interest. Where to get a 1040x form Secured Debt and Qualified Home are explained later. Where to get a 1040x form Both you and the lender must intend that the loan be repaid. Where to get a 1040x form Fully deductible interest. Where to get a 1040x form In most cases, you can deduct all of your home mortgage interest. Where to get a 1040x form How much you can deduct depends on the date of the mortgage, the amount of the mortgage, and how you use the mortgage proceeds. Where to get a 1040x form If all of your mortgages fit into one or more of the following three categories at all times during the year, you can deduct all of the interest on those mortgages. Where to get a 1040x form (If any one mortgage fits into more than one category, add the debt that fits in each category to your other debt in the same category. Where to get a 1040x form ) If one or more of your mortgages does not fit into any of these categories, use Part II of this publication to figure the amount of interest you can deduct. Where to get a 1040x form The three categories are as follows. Where to get a 1040x form Mortgages you took out on or before October 13, 1987 (called grandfathered debt). Where to get a 1040x form Mortgages you took out after October 13, 1987, to buy, build, or improve your home (called home acquisition debt), but only if throughout 2013 these mortgages plus any grandfathered debt totaled $1 million or less ($500,000 or less if married filing separately). Where to get a 1040x form Mortgages you took out after October 13, 1987, other than to buy, build, or improve your home (called home equity debt), but only if throughout 2013 these mortgages totaled $100,000 or less ($50,000 or less if married filing separately) and totaled no more than the fair market value of your home reduced by (1) and (2). Where to get a 1040x form The dollar limits for the second and third categories apply to the combined mortgages on your main home and second home. Where to get a 1040x form See Part II for more detailed definitions of grandfathered, home acquisition, and home equity debt. Where to get a 1040x form You can use Figure A to check whether your home mortgage interest is fully deductible. Where to get a 1040x form This image is too large to be displayed in the current screen. Where to get a 1040x form Please click the link to view the image. Where to get a 1040x form Figure A. Where to get a 1040x form Is My Home Mortgage Interest Fully Deductible? Secured Debt You can deduct your home mortgage interest only if your mortgage is a secured debt. Where to get a 1040x form A secured debt is one in which you sign an instrument (such as a mortgage, deed of trust, or land contract) that: Makes your ownership in a qualified home security for payment of the debt, Provides, in case of default, that your home could satisfy the debt, and Is recorded or is otherwise perfected under any state or local law that applies. Where to get a 1040x form In other words, your mortgage is a secured debt if you put your home up as collateral to protect the interests of the lender. Where to get a 1040x form If you cannot pay the debt, your home can then serve as payment to the lender to satisfy (pay) the debt. Where to get a 1040x form In this publication, mortgage will refer to secured debt. Where to get a 1040x form Debt not secured by home. Where to get a 1040x form A debt is not secured by your home if it is secured solely because of a lien on your general assets or if it is a security interest that attaches to the property without your consent (such as a mechanic's lien or judgment lien). Where to get a 1040x form A debt is not secured by your home if it once was, but is no longer secured by your home. Where to get a 1040x form Wraparound mortgage. Where to get a 1040x form This is not a secured debt unless it is recorded or otherwise perfected under state law. Where to get a 1040x form Example. Where to get a 1040x form Beth owns a home subject to a mortgage of $40,000. Where to get a 1040x form She sells the home for $100,000 to John, who takes it subject to the $40,000 mortgage. Where to get a 1040x form Beth continues to make the payments on the $40,000 note. Where to get a 1040x form John pays $10,000 down and gives Beth a $90,000 note secured by a wraparound mortgage on the home. Where to get a 1040x form Beth does not record or otherwise perfect the $90,000 mortgage under the state law that applies. Where to get a 1040x form Therefore, the mortgage is not a secured debt and John cannot deduct any of the interest he pays on it as home mortgage interest. Where to get a 1040x form Choice to treat the debt as not secured by your home. Where to get a 1040x form You can choose to treat any debt secured by your qualified home as not secured by the home. Where to get a 1040x form This treatment begins with the tax year for which you make the choice and continues for all later tax years. Where to get a 1040x form You can revoke your choice only with the consent of the Internal Revenue Service (IRS). Where to get a 1040x form You may want to treat a debt as not secured by your home if the interest on that debt is fully deductible (for example, as a business expense) whether or not it qualifies as home mortgage interest. Where to get a 1040x form This may allow you, if the limits in Part II apply, more of a deduction for interest on other debts that are deductible only as home mortgage interest. Where to get a 1040x form Cooperative apartment owner. Where to get a 1040x form If you own stock in a cooperative housing corporation, see the Special Rule for Tenant-Stockholders in Cooperative Housing Corporations , near the end of this Part I. Where to get a 1040x form Qualified Home For you to take a home mortgage interest deduction, your debt must be secured by a qualified home. Where to get a 1040x form This means your main home or your second home. Where to get a 1040x form A home includes a house, condominium, cooperative, mobile home, house trailer, boat, or similar property that has sleeping, cooking, and toilet facilities. Where to get a 1040x form The interest you pay on a mortgage on a home other than your main or second home may be deductible if the proceeds of the loan were used for business, investment, or other deductible purposes. Where to get a 1040x form Otherwise, it is considered personal interest and is not deductible. Where to get a 1040x form Main home. Where to get a 1040x form You can have only one main home at any one time. Where to get a 1040x form This is the home where you ordinarily live most of the time. Where to get a 1040x form Second home. Where to get a 1040x form A second home is a home that you choose to treat as your second home. Where to get a 1040x form Second home not rented out. Where to get a 1040x form If you have a second home that you do not hold out for rent or resale to others at any time during the year, you can treat it as a qualified home. Where to get a 1040x form You do not have to use the home during the year. Where to get a 1040x form Second home rented out. Where to get a 1040x form If you have a second home and rent it out part of the year, you also must use it as a home during the year for it to be a qualified home. Where to get a 1040x form You must use this home more than 14 days or more than 10% of the number of days during the year that the home is rented at a fair rental, whichever is longer. Where to get a 1040x form If you do not use the home long enough, it is considered rental property and not a second home. Where to get a 1040x form For information on residential rental property, see Publication 527. Where to get a 1040x form More than one second home. Where to get a 1040x form If you have more than one second home, you can treat only one as the qualified second home during any year. Where to get a 1040x form However, you can change the home you treat as a second home during the year in the following situations. Where to get a 1040x form If you get a new home during the year, you can choose to treat the new home as your second home as of the day you buy it. Where to get a 1040x form If your main home no longer qualifies as your main home, you can choose to treat it as your second home as of the day you stop using it as your main home. Where to get a 1040x form If your second home is sold during the year or becomes your main home, you can choose a new second home as of the day you sell the old one or begin using it as your main home. Where to get a 1040x form Divided use of your home. Where to get a 1040x form The only part of your home that is considered a qualified home is the part you use for residential living. Where to get a 1040x form If you use part of your home for other than residential living, such as a home office, you must allocate the use of your home. Where to get a 1040x form You must then divide both the cost and fair market value of your home between the part that is a qualified home and the part that is not. Where to get a 1040x form Dividing the cost may affect the amount of your home acquisition debt, which is limited to the cost of your home plus the cost of any improvements. Where to get a 1040x form (See Home Acquisition Debt in Part II. Where to get a 1040x form ) Dividing the fair market value may affect your home equity debt limit, also explained in Part II . Where to get a 1040x form Renting out part of home. Where to get a 1040x form If you rent out part of a qualified home to another person (tenant), you can treat the rented part as being used by you for residential living only if all of the following conditions apply. Where to get a 1040x form The rented part of your home is used by the tenant primarily for residential living. Where to get a 1040x form The rented part of your home is not a self-contained residential unit having separate sleeping, cooking, and toilet facilities. Where to get a 1040x form You do not rent (directly or by sublease) the same or different parts of your home to more than two tenants at any time during the tax year. Where to get a 1040x form If two persons (and dependents of either) share the same sleeping quarters, they are treated as one tenant. Where to get a 1040x form Office in home. Where to get a 1040x form If you have an office in your home that you use in your business, see Publication 587, Business Use of Your Home. Where to get a 1040x form It explains how to figure your deduction for the business use of your home, which includes the business part of your home mortgage interest. Where to get a 1040x form Home under construction. Where to get a 1040x form You can treat a home under construction as a qualified home for a period of up to 24 months, but only if it becomes your qualified home at the time it is ready for occupancy. Where to get a 1040x form The 24-month period can start any time on or after the day construction begins. Where to get a 1040x form Home destroyed. Where to get a 1040x form You may be able to continue treating your home as a qualified home even after it is destroyed in a fire, storm, tornado, earthquake, or other casualty. Where to get a 1040x form This means you can continue to deduct the interest you pay on your home mortgage, subject to the limits described in this publication. Where to get a 1040x form You can continue treating a destroyed home as a qualified home if, within a reasonable period of time after the home is destroyed, you: Rebuild the destroyed home and move into it, or Sell the land on which the home was located. Where to get a 1040x form This rule applies to your main home and to a second home that you treat as a qualified home. Where to get a 1040x form Time-sharing arrangements. Where to get a 1040x form You can treat a home you own under a time-sharing plan as a qualified home if it meets all the requirements. Where to get a 1040x form A time-sharing plan is an arrangement between two or more people that limits each person's interest in the home or right to use it to a certain part of the year. Where to get a 1040x form Rental of time-share. Where to get a 1040x form If you rent out your time-share, it qualifies as a second home only if you also use it as a home during the year. Where to get a 1040x form See Second home rented out , earlier, for the use requirement. Where to get a 1040x form To know whether you meet that requirement, count your days of use and rental of the home only during the time you have a right to use it or to receive any benefits from the rental of it. Where to get a 1040x form Married taxpayers. Where to get a 1040x form If you are married and file a joint return, your qualified home(s) can be owned either jointly or by only one spouse. Where to get a 1040x form Separate returns. Where to get a 1040x form If you are married filing separately and you and your spouse own more than one home, you can each take into account only one home as a qualified home. Where to get a 1040x form However, if you both consent in writing, then one spouse can take both the main home and a second home into account. Where to get a 1040x form Special Situations This section describes certain items that can be included as home mortgage interest and others that cannot. Where to get a 1040x form It also describes certain special situations that may affect your deduction. Where to get a 1040x form Late payment charge on mortgage payment. Where to get a 1040x form You can deduct as home mortgage interest a late payment charge if it was not for a specific service performed in connection with your mortgage loan. Where to get a 1040x form Mortgage prepayment penalty. Where to get a 1040x form If you pay off your home mortgage early, you may have to pay a penalty. Where to get a 1040x form You can deduct that penalty as home mortgage interest provided the penalty is not for a specific service performed or cost incurred in connection with your mortgage loan. Where to get a 1040x form Sale of home. Where to get a 1040x form If you sell your home, you can deduct your home mortgage interest (subject to any limits that apply) paid up to, but not including, the date of the sale. Where to get a 1040x form Example. Where to get a 1040x form John and Peggy Harris sold their home on May 7. Where to get a 1040x form Through April 30, they made home mortgage interest payments of $1,220. Where to get a 1040x form The settlement sheet for the sale of the home showed $50 interest for the 6-day period in May up to, but not including, the date of sale. Where to get a 1040x form Their mortgage interest deduction is $1,270 ($1,220 + $50). Where to get a 1040x form Prepaid interest. Where to get a 1040x form If you pay interest in advance for a period that goes beyond the end of the tax year, you must spread this interest over the tax years to which it applies. Where to get a 1040x form You can deduct in each year only the interest that qualifies as home mortgage interest for that year. Where to get a 1040x form However, there is an exception that applies to points, discussed later. Where to get a 1040x form Mortgage interest credit. Where to get a 1040x form You may be able to claim a mortgage interest credit if you were issued a mortgage credit certificate (MCC) by a state or local government. Where to get a 1040x form Figure the credit on Form 8396, Mortgage Interest Credit. Where to get a 1040x form If you take this credit, you must reduce your mortgage interest deduction by the amount of the credit. Where to get a 1040x form See Form 8396 and Publication 530 for more information on the mortgage interest credit. Where to get a 1040x form Ministers' and military housing allowance. Where to get a 1040x form If you are a minister or a member of the uniformed services and receive a housing allowance that is not taxable, you can still deduct your home mortgage interest. Where to get a 1040x form Hardest Hit Fund and Emergency Homeowners' Loan Programs. Where to get a 1040x form You can use a special method to compute your deduction for mortgage interest and real estate taxes on your main home if you meet the following two conditions. Where to get a 1040x form You received assistance under: A State Housing Finance Agency (State HFA) Hardest Hit Fund program in which program payments could be used to pay mortgage interest, or An Emergency Homeowners' Loan Program administered by the Department of Housing and Urban Development (HUD) or a state. Where to get a 1040x form You meet the rules to deduct all of the mortgage interest on your loan and all of the real estate taxes on your main home. Where to get a 1040x form If you meet these tests, then you can deduct all of the payments you actually made during the year to your mortgage servicer, the State HFA, or HUD on the home mortgage (including the amount shown on box 3 of Form 1098–MA, Mortgage Assistance Payments), but not more than the sum of the amounts shown on Form 1098, Mortgage Interest Statement, in box 1 (mortgage interest received from payer(s) / borrower(s)), box 4 (mortgage insurance premiums), and box 5 (other information including real property taxes paid). Where to get a 1040x form However, you are not required to use this special method to compute your deduction for mortgage interest and real estate taxes on your main home. Where to get a 1040x form Mortgage assistance payments under section 235 of the National Housing Act. Where to get a 1040x form If you qualify for mortgage assistance payments for lower-income families under section 235 of the National Housing Act, part or all of the interest on your mortgage may be paid for you. Where to get a 1040x form You cannot deduct the interest that is paid for you. Where to get a 1040x form No other effect on taxes. Where to get a 1040x form Do not include these mortgage assistance payments in your income. Where to get a 1040x form Also, do not use these payments to reduce other deductions, such as real estate taxes. Where to get a 1040x form Divorced or separated individuals. Where to get a 1040x form If a divorce or separation agreement requires you or your spouse or former spouse to pay home mortgage interest on a home owned by both of you, the payment of interest may be alimony. Where to get a 1040x form See the discussion of Payments for jointly-owned home under Alimony in Publication 504, Divorced or Separated Individuals. Where to get a 1040x form Redeemable ground rents. Where to get a 1040x form In some states (such as Maryland), you can buy your home subject to a ground rent. Where to get a 1040x form A ground rent is an obligation you assume to pay a fixed amount per year on the property. Where to get a 1040x form Under this arrangement, you are leasing (rather than buying) the land on which your home is located. Where to get a 1040x form If you make annual or periodic rental payments on a redeemable ground rent, you can deduct them as mortgage interest. Where to get a 1040x form A ground rent is a redeemable ground rent if all of the following are true. Where to get a 1040x form Your lease, including renewal periods, is for more than 15 years. Where to get a 1040x form You can freely assign the lease. Where to get a 1040x form You have a present or future right (under state or local law) to end the lease and buy the lessor's entire interest in the land by paying a specific amount. Where to get a 1040x form The lessor's interest in the land is primarily a security interest to protect the rental payments to which he or she is entitled. Where to get a 1040x form Payments made to end the lease and to buy the lessor's entire interest in the land are not deductible as mortgage interest. Where to get a 1040x form Nonredeemable ground rents. Where to get a 1040x form Payments on a nonredeemable ground rent are not mortgage interest. Where to get a 1040x form You can deduct them as rent if they are a business expense or if they are for rental property. Where to get a 1040x form Reverse mortgages. Where to get a 1040x form A reverse mortgage is a loan where the lender pays you (in a lump sum, a monthly advance, a line of credit, or a combination of all three) while you continue to live in your home. Where to get a 1040x form With a reverse mortgage, you retain title to your home. Where to get a 1040x form Depending on the plan, your reverse mortgage becomes due with interest when you move, sell your home, reach the end of a pre-selected loan period, or die. Where to get a 1040x form Because reverse mortgages are considered loan advances and not income, the amount you receive is not taxable. Where to get a 1040x form Any interest (including original issue discount) accrued on a reverse mortgage is not deductible until you actually pay it, which is usually when you pay off the loan in full. Where to get a 1040x form Your deduction may be limited because a reverse mortgage loan generally is subject to the limit on Home Equity Debt discussed in Part II. Where to get a 1040x form Rental payments. Where to get a 1040x form If you live in a house before final settlement on the purchase, any payments you make for that period are rent and not interest. Where to get a 1040x form This is true even if the settlement papers call them interest. Where to get a 1040x form You cannot deduct these payments as home mortgage interest. Where to get a 1040x form Mortgage proceeds invested in tax-exempt securities. Where to get a 1040x form You cannot deduct the home mortgage interest on grandfathered debt or home equity debt if you used the proceeds of the mortgage to buy securities or certificates that produce tax-free income. Where to get a 1040x form “Grandfathered debt” and “home equity debt” are defined in Part II of this publication. Where to get a 1040x form Refunds of interest. Where to get a 1040x form If you receive a refund of interest in the same tax year you paid it, you must reduce your interest expense by the amount refunded to you. Where to get a 1040x form If you receive a refund of interest you deducted in an earlier year, you generally must include the refund in income in the year you receive it. Where to get a 1040x form However, you need to include it only up to the amount of the deduction that reduced your tax in the earlier year. Where to get a 1040x form This is true whether the interest overcharge was refunded to you or was used to reduce the outstanding principal on your mortgage. Where to get a 1040x form If you need to include the refund in income, report it on Form 1040, line 21. Where to get a 1040x form If you received a refund of interest you overpaid in an earlier year, you generally will receive a Form 1098, Mortgage Interest Statement, showing the refund in box 3. Where to get a 1040x form For information about Form 1098, see Form 1098, Mortgage Interest Statement , later. Where to get a 1040x form For more information on how to treat refunds of interest deducted in earlier years, see Recoveries in Publication 525, Taxable and Nontaxable Income. Where to get a 1040x form Cooperative apartment owner. Where to get a 1040x form If you own a cooperative apartment, you must reduce your home mortgage interest deduction by your share of any cash portion of a patronage dividend that the cooperative receives. Where to get a 1040x form The patronage dividend is a partial refund to the cooperative housing corporation of mortgage interest it paid in a prior year. Where to get a 1040x form If you receive a Form 1098 from the cooperative housing corporation, the form should show only the amount you can deduct. Where to get a 1040x form Points The term “points” is used to describe certain charges paid, or treated as paid, by a borrower to obtain a home mortgage. Where to get a 1040x form Points may also be called loan origination fees, maximum loan charges, loan discount, or discount points. Where to get a 1040x form This image is too large to be displayed in the current screen. Where to get a 1040x form Please click the link to view the image. Where to get a 1040x form Figure B. Where to get a 1040x form Are My Points Fully Deductible This Year? A borrower is treated as paying any points that a home seller pays for the borrower's mortgage. Where to get a 1040x form See Points paid by the seller , later. Where to get a 1040x form General Rule You generally cannot deduct the full amount of points in the year paid. Where to get a 1040x form Because they are prepaid interest, you generally deduct them ratably over the life (term) of the mortgage. Where to get a 1040x form See Deduction Allowed Ratably , next. Where to get a 1040x form For exceptions to the general rule, see Deduction Allowed in Year Paid , later. Where to get a 1040x form Deduction Allowed Ratably If you do not meet the tests listed under Deduction Allowed in Year Paid , later, the loan is not a home improvement loan, or you choose not to deduct your points in full in the year paid, you can deduct the points ratably (equally) over the life of the loan if you meet all the following tests. Where to get a 1040x form You use the cash method of accounting. Where to get a 1040x form This means you report income in the year you receive it and deduct expenses in the year you pay them. Where to get a 1040x form Most individuals use this method. Where to get a 1040x form Your loan is secured by a home. Where to get a 1040x form (The home does not need to be your main home. Where to get a 1040x form ) Your loan period is not more than 30 years. Where to get a 1040x form If your loan period is more than 10 years, the terms of your loan are the same as other loans offered in your area for the same or longer period. Where to get a 1040x form Either your loan amount is $250,000 or less, or the number of points is not more than: 4, if your loan period is 15 years or less, or 6, if your loan period is more than 15 years. Where to get a 1040x form Example. Where to get a 1040x form You use the cash method of accounting. Where to get a 1040x form In 2013, you took out a $100,000 loan payable over 20 years. Where to get a 1040x form The terms of the loan are the same as for other 20-year loans offered in your area. Where to get a 1040x form You paid $4,800 in points. Where to get a 1040x form You made 3 monthly payments on the loan in 2013. Where to get a 1040x form You can deduct $60 [($4,800 ÷ 240 months) x 3 payments] in 2013. Where to get a 1040x form In 2014, if you make all twelve payments, you will be able to deduct $240 ($20 x 12). Where to get a 1040x form Deduction Allowed in Year Paid You can fully deduct points in the year paid if you meet all the following tests. Where to get a 1040x form (You can use Figure B as a quick guide to see whether your points are fully deductible in the year paid. Where to get a 1040x form ) Your loan is secured by your main home. Where to get a 1040x form (Your main home is the one you ordinarily live in most of the time. Where to get a 1040x form ) Paying points is an established business practice in the area where the loan was made. Where to get a 1040x form The points paid were not more than the points generally charged in that area. Where to get a 1040x form You use the cash method of accounting. Where to get a 1040x form This means you report income in the year you receive it and deduct expenses in the year you pay them. Where to get a 1040x form Most individuals use this method. Where to get a 1040x form The points were not paid in place of amounts that ordinarily are stated separately on the settlement statement, such as appraisal fees, inspection fees, title fees, attorney fees, and property taxes. Where to get a 1040x form The funds you provided at or before closing, plus any points the seller paid, were at least as much as the points charged. Where to get a 1040x form The funds you provided are not required to have been applied to the points. Where to get a 1040x form They can include a down payment, an escrow deposit, earnest money, and other funds you paid at or before closing for any purpose. Where to get a 1040x form You cannot have borrowed these funds from your lender or mortgage broker. Where to get a 1040x form You use your loan to buy or build your main home. Where to get a 1040x form The points were computed as a percentage of the principal amount of the mortgage. Where to get a 1040x form The amount is clearly shown on the settlement statement (such as the Settlement Statement, Form HUD-1) as points charged for the mortgage. Where to get a 1040x form The points may be shown as paid from either your funds or the seller's. Where to get a 1040x form Note. Where to get a 1040x form If you meet all of these tests, you can choose to either fully deduct the points in the year paid, or deduct them over the life of the loan. Where to get a 1040x form Home improvement loan. Where to get a 1040x form You can also fully deduct in the year paid points paid on a loan to improve your main home, if tests (1) through (6) are met. Where to get a 1040x form Second home. Where to get a 1040x form You cannot fully deduct in the year paid points you pay on loans secured by your second home. Where to get a 1040x form You can deduct these points only over the life of the loan. Where to get a 1040x form Refinancing. Where to get a 1040x form Generally, points you pay to refinance a mortgage are not deductible in full in the year you pay them. Where to get a 1040x form This is true even if the new mortgage is secured by your main home. Where to get a 1040x form However, if you use part of the refinanced mortgage proceeds to improve your main home and you meet the first 6 tests listed under Deduction Allowed in Year Paid , you can fully deduct the part of the points related to the improvement in the year you paid them with your own funds. Where to get a 1040x form You can deduct the rest of the points over the life of the loan. Where to get a 1040x form Example 1. Where to get a 1040x form In 1998, Bill Fields got a mortgage to buy a home. Where to get a 1040x form In 2013, Bill refinanced that mortgage with a 15-year $100,000 mortgage loan. Where to get a 1040x form The mortgage is secured by his home. Where to get a 1040x form To get the new loan, he had to pay three points ($3,000). Where to get a 1040x form Two points ($2,000) were for prepaid interest, and one point ($1,000) was charged for services, in place of amounts that ordinarily are stated separately on the settlement statement. Where to get a 1040x form Bill paid the points out of his private funds, rather than out of the proceeds of the new loan. Where to get a 1040x form The payment of points is an established practice in the area, and the points charged are not more than the amount generally charged there. Where to get a 1040x form Bill's first payment on the new loan was due July 1. Where to get a 1040x form He made six payments on the loan in 2013 and is a cash basis taxpayer. Where to get a 1040x form Bill used the funds from the new mortgage to repay his existing mortgage. Where to get a 1040x form Although the new mortgage loan was for Bill's continued ownership of his main home, it was not for the purchase or improvement of that home. Where to get a 1040x form He cannot deduct all of the points in 2013. Where to get a 1040x form He can deduct two points ($2,000) ratably over the life of the loan. Where to get a 1040x form He deducts $67 [($2,000 ÷ 180 months) × 6 payments] of the points in 2013. Where to get a 1040x form The other point ($1,000) was a fee for services and is not deductible. Where to get a 1040x form Example 2. Where to get a 1040x form The facts are the same as in Example 1, except that Bill used $25,000 of the loan proceeds to improve his home and $75,000 to repay his existing mortgage. Where to get a 1040x form Bill deducts 25% ($25,000 ÷ $100,000) of the points ($2,000) in 2013. Where to get a 1040x form His deduction is $500 ($2,000 × 25%). Where to get a 1040x form Bill also deducts the ratable part of the remaining $1,500 ($2,000 − $500) that must be spread over the life of the loan. Where to get a 1040x form This is $50 [($1,500 ÷ 180 months) × 6 payments] in 2013. Where to get a 1040x form The total amount Bill deducts in 2013 is $550 ($500 + $50). Where to get a 1040x form Special Situations This section describes certain special situations that may affect your deduction of points. Where to get a 1040x form Original issue discount. Where to get a 1040x form If you do not qualify to either deduct the points in the year paid or deduct them ratably over the life of the loan, or if you choose not to use either of these methods, the points reduce the issue price of the loan. Where to get a 1040x form This reduction results in original issue discount, which is discussed in chapter 4 of Publication 535. Where to get a 1040x form Amounts charged for services. Where to get a 1040x form Amounts charged by the lender for specific services connected to the loan are not interest. Where to get a 1040x form Examples of these charges are: Appraisal fees, Notary fees, and Preparation costs for the mortgage note or deed of trust. Where to get a 1040x form You cannot deduct these amounts as points either in the year paid or over the life of the mortgage. Where to get a 1040x form Points paid by the seller. Where to get a 1040x form The term “points” includes loan placement fees that the seller pays to the lender to arrange financing for the buyer. Where to get a 1040x form Treatment by seller. Where to get a 1040x form The seller cannot deduct these fees as interest. Where to get a 1040x form But they are a selling expense that reduces the amount realized by the seller. Where to get a 1040x form See Publication 523 for information on selling your home. Where to get a 1040x form Treatment by buyer. Where to get a 1040x form The buyer reduces the basis of the home by the amount of the seller-paid points and treats the points as if he or she had paid them. Where to get a 1040x form If all the tests under Deduction Allowed in Year Paid , earlier, are met, the buyer can deduct the points in the year paid. Where to get a 1040x form If any of those tests are not met, the buyer deducts the points over the life of the loan. Where to get a 1040x form If you need information about the basis of your home, see Publication 523 or Publication 530. Where to get a 1040x form Funds provided are less than points. Where to get a 1040x form If you meet all the tests in Deduction Allowed in Year Paid , earlier, except that the funds you provided were less than the points charged to you (test (6)), you can deduct the points in the year paid, up to the amount of funds you provided. Where to get a 1040x form In addition, you can deduct any points paid by the seller. Where to get a 1040x form Example 1. Where to get a 1040x form When you took out a $100,000 mortgage loan to buy your home in December, you were charged one point ($1,000). Where to get a 1040x form You meet all the tests for deducting points in the year paid, except the only funds you provided were a $750 down payment. Where to get a 1040x form Of the $1,000 charged for points, you can deduct $750 in the year paid. Where to get a 1040x form You spread the remaining $250 over the life of the mortgage. Where to get a 1040x form Example 2. Where to get a 1040x form The facts are the same as in Example 1, except that the person who sold you your home also paid one point ($1,000) to help you get your mortgage. Where to get a 1040x form In the year paid, you can deduct $1,750 ($750 of the amount you were charged plus the $1,000 paid by the seller). Where to get a 1040x form You spread the remaining $250 over the life of the mortgage. Where to get a 1040x form You must reduce the basis of your home by the $1,000 paid by the seller. Where to get a 1040x form Excess points. Where to get a 1040x form If you meet all the tests in Deduction Allowed in Year Paid , earlier, except that the points paid were more than generally paid in your area (test (3)), you deduct in the year paid only the points that are generally charged. Where to get a 1040x form You must spread any additional points over the life of the mortgage. Where to get a 1040x form Mortgage ending early. Where to get a 1040x form If you spread your deduction for points over the life of the mortgage, you can deduct any remaining balance in the year the mortgage ends. Where to get a 1040x form However, if you refinance the mortgage with the same lender, you cannot deduct any remaining balance of spread points. Where to get a 1040x form Instead, deduct the remaining balance over the term of the new loan. Where to get a 1040x form A mortgage may end early due to a prepayment, refinancing, foreclosure, or similar event. Where to get a 1040x form Example. Where to get a 1040x form Dan paid $3,000 in points in 2002 that he had to spread out over the 15-year life of the mortgage. Where to get a 1040x form He deducts $200 points per year. Where to get a 1040x form Through 2012, Dan has deducted $2,200 of the points. Where to get a 1040x form Dan prepaid his mortgage in full in 2013. Where to get a 1040x form He can deduct the remaining $800 of points in 2013. Where to get a 1040x form Limits on deduction. Where to get a 1040x form You cannot fully deduct points paid on a mortgage that exceeds the limits discussed in Part II . Where to get a 1040x form See the Table 1 Instructions for line 10. Where to get a 1040x form Form 1098. Where to get a 1040x form The mortgage interest statement you receive should show not only the total interest paid during the year, but also your deductible points paid during the year. Where to get a 1040x form See Form 1098, Mortgage Interest Statement , later. Where to get a 1040x form Mortgage Insurance Premiums You can treat amounts you paid during 2013 for qualified mortgage insurance as home mortgage interest. Where to get a 1040x form The insurance must be in connection with home acquisition debt, and the insurance contract must have been issued after 2006. Where to get a 1040x form Qualified mortgage insurance. Where to get a 1040x form Qualified mortgage insurance is mortgage insurance provided by the Department of Veterans Affairs, the Federal Housing Administration, or the Rural Housing Service, and private mortgage insurance (as defined in section 2 of the Homeowners Protection Act of 1998 as in effect on December 20, 2006). Where to get a 1040x form Mortgage insurance provided by the Department of Veterans Affairs is commonly known as a funding fee. Where to get a 1040x form If provided by the Rural Housing Service, it is commonly known as a guarantee fee. Where to get a 1040x form The funding fee and guarantee fee can either be included in the amount of the loan or paid in full at the time of closing. Where to get a 1040x form These fees can be deducted fully in 2013 if the mortgage insurance contract was issued in 2013. Where to get a 1040x form Contact the mortgage insurance issuer to determine the deductible amount if it is not reported in box 4 of Form 1098. Where to get a 1040x form Special rules for prepaid mortgage insurance. Where to get a 1040x form Generally, if you paid premiums for qualified mortgage insurance that are properly allocable to periods after the close of the tax year, such premiums are treated as paid in the period to which they are allocated. Where to get a 1040x form You must allocate the premiums over the shorter of the stated term of the mortgage or 84 months, beginning with the month the insurance was obtained. Where to get a 1040x form No deduction is allowed for the unamortized balance if the mortgage is satisfied before its term. Where to get a 1040x form This paragraph does not apply to qualified mortgage insurance provided by the Department of Veterans Affairs or the Rural Housing Service. Where to get a 1040x form Example. Where to get a 1040x form Ryan purchased a home in May of 2012 and financed the home with a 15-year mortgage. Where to get a 1040x form Ryan also prepaid all of the $9,240 in private mortgage insurance required at the time of closing in May. Where to get a 1040x form Since the $9,240 in private mortgage insurance is allocable to periods after 2012, Ryan must allocate the $9,240 over the shorter of the life of the mortgage or 84 months. Where to get a 1040x form Ryan's adjusted gross income (AGI) for 2012 is $76,000. Where to get a 1040x form Ryan can deduct $880 ($9,240 ÷ 84 x 8 months) for qualified mortgage insurance premiums in 2012. Where to get a 1040x form For 2013, Ryan can deduct $1,320 ($9,240 ÷ 84 x 12 months) if his AGI is $100,000 or less. Where to get a 1040x form In this example, the mortgage insurance premiums are allocated over 84 months, which is shorter than the life of the mortgage of 15 years (180 months). Where to get a 1040x form Limit on deduction. Where to get a 1040x form If your adjusted gross income on Form 1040, line 38, is more than $100,000 ($50,000 if your filing status is married filing separately), the amount of your mortgage insurance premiums that are otherwise deductible is reduced and may be eliminated. Where to get a 1040x form See Line 13 in the instructions for Schedule A (Form 1040) and complete the Mortgage Insurance Premiums Deduction Worksheet to figure the amount you can deduct. Where to get a 1040x form If your adjusted gross income is more than $109,000 ($54,500 if married filing separately), you cannot deduct your mortgage insurance premiums. Where to get a 1040x form Form 1098. Where to get a 1040x form The mortgage interest statement you receive should show not only the total interest paid during the year, but also your mortgage insurance premiums paid during the year, which may qualify to be treated as deductible mortgage interest. Where to get a 1040x form See Form 1098, Mortgage Interest Statement, next. Where to get a 1040x form Form 1098, Mortgage Interest Statement If you paid $600 or more of mortgage interest (including certain points and mortgage insurance premiums) during the year on any one mortgage, you generally will receive a Form 1098 or a similar statement from the mortgage holder. Where to get a 1040x form You will receive the statement if you pay interest to a person (including a financial institution or cooperative housing corporation) in the course of that person's trade or business. Where to get a 1040x form A governmental unit is a person for purposes of furnishing the statement. Where to get a 1040x form The statement for each year should be sent to you by January 31 of the following year. Where to get a 1040x form A copy of this form will also be sent to the IRS. Where to get a 1040x form The statement will show the total interest you paid during the year, any mortgage insurance premiums you paid, and if you purchased a main home during the year, it also will show the deductible points paid during the year, including seller-paid points. Where to get a 1040x form However, it should not show any interest that was paid for you by a government agency. Where to get a 1040x form As a general rule, Form 1098 will include only points that you can fully deduct in the year paid. Where to get a 1040x form However, certain points not included on Form 1098 also may be deductible, either in the year paid or over the life of the loan. Where to get a 1040x form See the earlier discussion of Points to determine whether you can deduct points not shown on Form 1098. Where to get a 1040x form Prepaid interest on Form 1098. Where to get a 1040x form If you prepaid interest in 2013 that accrued in full by January 15, 2014, this prepaid interest may be included in box 1 of Form 1098. Where to get a 1040x form However, you cannot deduct the prepaid amount for January 2014 in 2013. Where to get a 1040x form (See Prepaid interest , earlier. Where to get a 1040x form ) You will have to figure the interest that accrued for 2014 and subtract it from the amount in box 1. Where to get a 1040x form You will include the interest for January 2014 with other interest you pay for 2014. Where to get a 1040x form Refunded interest. Where to get a 1040x form If you received a refund of mortgage interest you overpaid in an earlier year, you generally will receive a Form 1098 showing the refund in box 3. Where to get a 1040x form See Refunds of interest , earlier. Where to get a 1040x form Mortgage insurance premiums. Where to get a 1040x form The amount of mortgage insurance premiums you paid during 2013 may be shown in Box 4 of Form 1098. Where to get a 1040x form See Mortgage Insurance Premiums , earlier. Where to get a 1040x form How To Report Deduct the home mortgage interest and points reported to you on Form 1098 on Schedule A (Form 1040), line 10. Where to get a 1040x form If you paid more deductible interest to the financial institution than the amount shown on Form 1098, show the larger deductible amount on line 10. Where to get a 1040x form Attach a statement explaining the difference and print “See attached” next to line 10. Where to get a 1040x form Deduct home mortgage interest that was not reported to you on Form 1098 on Schedule A (Form 1040), line 11. Where to get a 1040x form If you paid home mortgage interest to the person from whom you bought your home, show that person's name, address, and taxpayer identification number (TIN) on the dotted lines next to line 11. Where to get a 1040x form The seller must give you this number and you must give the seller your TIN. Where to get a 1040x form A Form W-9, Request for Taxpayer Identification Number and Certification, can be used for this purpose. Where to get a 1040x form Failure to meet any of these requirements may result in a $50 penalty for each failure. Where to get a 1040x form The TIN can be either a social security number, an individual taxpayer identification number (issued by the Internal Revenue Service), or an employer identification number. Where to get a 1040x form If you can take a deduction for points that were not reported to you on Form 1098, deduct those points on Schedule A (Form 1040), line 12. Where to get a 1040x form Deduct mortgage insurance premiums on Schedule A (Form 1040), line 13. Where to get a 1040x form More than one borrower. Where to get a 1040x form If you and at least one other person (other than your spouse if you file a joint return) were liable for and paid interest on a mortgage that was for your home, and the other person received a Form 1098 showing the interest that was paid during the year, attach a statement to your return explaining this. Where to get a 1040x form Show how much of the interest each of you paid, and give the name and address of the person who received the form. Where to get a 1040x form Deduct your share of the interest on Schedule A (Form 1040), line 11, and print “See attached” next to the line. Where to get a 1040x form Also, deduct your share of any qualified mortgage insurance premiums on Schedule A (Form 1040), line 13. Where to get a 1040x form Similarly, if you are the payer of record on a mortgage on which there are other borrowers entitled to a deduction for the interest shown on the Form 1098 you received, deduct only your share of the interest on Schedule A (Form 1040), line 10. Where to get a 1040x form Let each of the other borrowers know what his or her share is. Where to get a 1040x form Mortgage proceeds used for business or investment. Where to get a 1040x form If your home mortgage interest deduction is limited under the rules explained in Part II , but all or part of the mortgage proceeds were used for business, investment, or other deductible activities, see Table 2 near the end of this publication. Where to get a 1040x form It shows where to deduct the part of your excess interest that is for those activities. Where to get a 1040x form The Table 1 Instructions for line 13 in Part II explain how to divide the excess interest among the activities for which the mortgage proceeds were used. Where to get a 1040x form Special Rule for Tenant-Stockholders in Cooperative Housing Corporations A qualified home includes stock in a cooperative housing corporation owned by a tenant-stockholder. Where to get a 1040x form This applies only if the tenant-stockholder is entitled to live in the house or apartment because of owning stock in the cooperative. Where to get a 1040x form Cooperative housing corporation. Where to get a 1040x form This is a corporation that meets all of the following conditions. Where to get a 1040x form Has only one class of stock outstanding, Has no stockholders other than those who own the stock that can live in a house, apartment, or house trailer owned or leased by the corporation, Has no stockholders who can receive any distribution out of capital other than on a liquidation of the corporation, and Meets at least one of the following requirements. Where to get a 1040x form Receives at least 80% of its gross income for the year in which the mortgage interest is paid or incurred from tenant-stockholders. Where to get a 1040x form For this purpose, gross income is all income received during the entire year, including amounts received before the corporation changed to cooperative ownership. Where to get a 1040x form At all times during the year, at least 80% of the total square footage of the corporation's property is used or available for use by the tenant-stockholders for residential or residential-related use. Where to get a 1040x form At least 90% of the corporation's expenditures paid or incurred during the year are for the acquisition, construction, management, maintenance, or care of corporate property for the benefit of the tenant-stockholders. Where to get a 1040x form Stock used to secure debt. Where to get a 1040x form In some cases, you cannot use your cooperative housing stock to secure a debt because of either: Restrictions under local or state law, or Restrictions in the cooperative agreement (other than restrictions in which the main purpose is to permit the tenant- stockholder to treat unsecured debt as secured debt). Where to get a 1040x form However, you can treat a debt as secured by the stock to the extent that the proceeds are used to buy the stock under the allocation of interest rules. Where to get a 1040x form See chapter 4 of Publication 535 for details on these rules. Where to get a 1040x form Figuring deductible home mortgage interest. Where to get a 1040x form Generally, if you are a tenant-stockholder, you can deduct payments you make for your share of the interest paid or incurred by the cooperative. Where to get a 1040x form The interest must be on a debt to buy, build, change, improve, or maintain the cooperative's housing, or on a debt to buy the land. Where to get a 1040x form Figure your share of this interest by multiplying the total by the following fraction. Where to get a 1040x form Your shares of stock in the cooperative The total shares of stock in the cooperative Limits on deduction. Where to get a 1040x form To figure how the limits discussed in Part II apply to you, treat your share of the cooperative's debt as debt incurred by you. Where to get a 1040x form The cooperative should determine your share of its grandfathered debt, its home acquisition debt, and its home equity debt. Where to get a 1040x form (Your share of each of these types of debt is equal to the average balance of each debt multiplied by the fraction just given. Where to get a 1040x form ) After your share of the average balance of each type of debt is determined, you include it with the average balance of that type of debt secured by your stock. Where to get a 1040x form Form 1098. Where to get a 1040x form The cooperative should give you a Form 1098 showing your share of the interest. Where to get a 1040x form Use the rules in this publication to determine your deductible mortgage interest. Where to get a 1040x form Part II. Where to get a 1040x form Limits on Home Mortgage Interest Deduction This part of the publication discusses the limits on deductible home mortgage interest. Where to get a 1040x form These limits apply to your home mortgage interest expense if you have a home mortgage that does not fit into any of the three categories listed at the beginning of Part I under Fully deductible interest . Where to get a 1040x form Your home mortgage interest deduction is limited to the interest on the part of your home mortgage debt that is not more than your qualified loan limit. Where to get a 1040x form This is the part of your home mortgage debt that is grandfathered debt or that is not more than the limits for home acquisition debt and home equity debt. Where to get a 1040x form Table 1 can help you figure your qualified loan limit and your deductible home mortgage interest. Where to get a 1040x form Home Acquisition Debt Home acquisition debt is a mortgage you took out after October 13, 1987, to buy, build, or substantially improve a qualified home (your main or second home). Where to get a 1040x form It also must be secured by that home. Where to get a 1040x form If the amount of your mortgage is more than the cost of the home plus the cost of any substantial improvements, only the debt that is not more than the cost of the home plus improvements qualifies as home acquisition debt. Where to get a 1040x form The additional debt may qualify as home equity debt (discussed later). Where to get a 1040x form Home acquisition debt limit. Where to get a 1040x form The total amount you can treat as home acquisition debt at any time on your main home and second home cannot be more than $1 million ($500,000 if married filing separately). Where to get a 1040x form This limit is reduced (but not below zero) by the amount of your grandfathered debt (discussed later). Where to get a 1040x form Debt over this limit may qualify as home equity debt (also discussed later). Where to get a 1040x form Refinanced home acquisition debt. Where to get a 1040x form Any secured debt you use to refinance home acquisition debt is treated as home acquisition debt. Where to get a 1040x form However, the new debt will qualify as home acquisition debt only up to the amount of the balance of the old mortgage principal just before the refinancing. Where to get a 1040x form Any additional debt not used to buy, build, or substantially improve a qualified home is not home acquisition debt, but may qualify as home equity debt (discussed later). Where to get a 1040x form Mortgage that qualifies later. Where to get a 1040x form A mortgage that does not qualify as home acquisition debt because it does not meet all the requirements may qualify at a later time. Where to get a 1040x form For example, a debt that you use to buy your home may not qualify as home acquisition debt because it is not secured by the home. Where to get a 1040x form However, if the debt is later secured by the home, it may qualify as home acquisition debt after that time. Where to get a 1040x form Similarly, a debt that you use to buy property may not qualify because the property is not a qualified home. Where to get a 1040x form However, if the property later becomes a qualified home, the debt may qualify after that time. Where to get a 1040x form Mortgage treated as used to buy, build, or improve home. Where to get a 1040x form A mortgage secured by a qualified home may be treated as home acquisition debt, even if you do not actually use the proceeds to buy, build, or substantially improve the home. Where to get a 1040x form This applies in the following situations. Where to get a 1040x form You buy your home within 90 days before or after the date you take out the mortgage. Where to get a 1040x form The home acquisition debt is limited to the home's cost, plus the cost of any substantial improvements within the limit described below in (2) or (3). Where to get a 1040x form (See Example 1 later. Where to get a 1040x form ) You build or improve your home and take out the mortgage before the work is completed. Where to get a 1040x form The home acquisition debt is limited to the amount of the expenses incurred within 24 months before the date of the mortgage. Where to get a 1040x form You build or improve your home and take out the mortgage within 90 days after the work is completed. Where to get a 1040x form The home acquisition debt is limited to the amount of the expenses incurred within the period beginning 24 months before the work is completed and ending on the date of the mortgage. Where to get a 1040x form (See Example 2 later. Where to get a 1040x form ) Example 1. Where to get a 1040x form You bought your main home on June 3 for $175,000. Where to get a 1040x form You paid for the home with cash you got from the sale of your old home. Where to get a 1040x form On July 15, you took out a mortgage of $150,000 secured by your main home. Where to get a 1040x form You used the $150,000 to invest in stocks. Where to get a 1040x form You can treat the mortgage as taken out to buy your home because you bought the home within 90 days before you took out the mortgage. Where to get a 1040x form The entire mortgage qualifies as home acquisition debt because it was not more than the home's cost. Where to get a 1040x form Example 2. Where to get a 1040x form On January 31, John began building a home on the lot that he owned. Where to get a 1040x form He used $45,000 of his personal funds to build the home. Where to get a 1040x form The home was completed on October 31. Where to get a 1040x form On November 21, John took out a $36,000 mortgage that was secured by the home. Where to get a 1040x form The mortgage can be treated as used to build the home because it was taken out within 90 days after the home was completed. Where to get a 1040x form The entire mortgage qualifies as home acquisition debt because it was not more than the expenses incurred within the period beginning 24 months before the home was completed. Where to get a 1040x form This is illustrated by Figure C. Where to get a 1040x form Please click here for the text description of the image. Where to get a 1040x form Figure C. Where to get a 1040x form John's example Date of the mortgage. Where to get a 1040x form The date you take out your mortgage is the day the loan proceeds are disbursed. Where to get a 1040x form This is generally the closing date. Where to get a 1040x form You can treat the day you apply in writing for your mortgage as the date you take it out. Where to get a 1040x form However, this applies only if you receive the loan proceeds within a reasonable time (such as within 30 days) after your application is approved. Where to get a 1040x form If a timely application you make is rejected, a reasonable additional time will be allowed to make a new application. Where to get a 1040x form Cost of home or improvements. Where to get a 1040x form To determine your cost, include amounts paid to acquire any interest in a qualified home or to substantially improve the home. Where to get a 1040x form The cost of building or substantially improving a qualified home includes the costs to acquire real property and building materials, fees for architects and design plans, and required building permits. Where to get a 1040x form Substantial improvement. Where to get a 1040x form An improvement is substantial if it: Adds to the value of your home, Prolongs your home's useful life, or Adapts your home to new uses. Where to get a 1040x form Repairs that maintain your home in good condition, such as repainting your home, are not substantial improvements. Where to get a 1040x form However, if you paint your home as part of a renovation that substantially improves your qualified home, you can include the painting costs in the cost of the improvements. Where to get a 1040x form Acquiring an interest in a home because of a divorce. Where to get a 1040x form If you incur debt to acquire the interest of a spouse or former spouse in a home, because of a divorce or legal separation, you can treat that debt as home acquisition debt. Where to get a 1040x form Part of home not a qualified home. Where to get a 1040x form To figure your home acquisition debt, you must divide the cost of your home and improvements between the part of your home that is a qualified home and any part that is not a qualified home. Where to get a 1040x form See Divided use of your home under Qualified Home in Part I. Where to get a 1040x form Home Equity Debt If you took out a loan for reasons other than to buy, build, or substantially improve your home, it may qualify as home equity debt. Where to get a 1040x form In addition, debt you incurred to buy, build, or substantially improve your home, to the extent it is more than the home acquisition debt limit (discussed earlier), may qualify as home equity debt. Where to get a 1040x form Home equity debt is a mortgage you took out after October 13, 1987, that: Does not qualify as home acquisition debt or as grandfathered debt, and Is secured by your qualified home. Where to get a 1040x form Example. Where to get a 1040x form You bought your home for cash 10 years ago. Where to get a 1040x form You did not have a mortgage on your home until last year, when you took out a $50,000 loan, secured by your home, to pay for your daughter's college tuition and your father's medical bills. Where to get a 1040x form This loan is home equity debt. Where to get a 1040x form Home equity debt limit. Where to get a 1040x form There is a limit on the amount of debt that can be treated as home equity debt. Where to get a 1040x form The total home equity debt on your main home and second home is limited to the smaller of: $100,000 ($50,000 if married filing separately), or The total of each home's fair market value (FMV) reduced (but not below zero) by the amount of its home acquisition debt and grandfathered debt. Where to get a 1040x form Determine the FMV and the outstanding home acquisition and grandfathered debt for each home on the date that the last debt was secured by the home. Where to get a 1040x form Example. Where to get a 1040x form You own one home that you bought in 2000. Where to get a 1040x form Its FMV now is $110,000, and the current balance on your original mortgage (home acquisition debt) is $95,000. Where to get a 1040x form Bank M offers you a home mortgage loan of 125% of the FMV of the home less any outstanding mortgages or other liens. Where to get a 1040x form To consolidate some of your other debts, you take out a $42,500 home mortgage loan [(125% × $110,000) − $95,000] with Bank M. Where to get a 1040x form Your home equity debt is limited to $15,000. Where to get a 1040x form This is the smaller of: $100,000, the maximum limit, or $15,000, the amount that the FMV of $110,000 exceeds the amount of home acquisition debt of $95,000. Where to get a 1040x form Debt higher than limit. Where to get a 1040x form Interest on amounts over the home equity debt limit (such as the interest on $27,500 [$42,500 − $15,000] in the preceding example) generally is treated as personal interest and is not deductible. Where to get a 1040x form But if the proceeds of the loan were used for investment, business, or other deductible purposes, the interest may be deductible. Where to get a 1040x form If it is, see the Table 1 Instructions for line 13 for an explanation of how to allocate the excess interest. Where to get a 1040x form Part of home not a qualified home. Where to get a 1040x form To figure the limit on your home equity debt, you must divide the FMV of your home between the part that is a qualified home and any part that is not a qualified home. Where to get a 1040x form See Divided use of your home under Qualified Home in Part I. Where to get a 1040x form Fair market value (FMV). Where to get a 1040x form This is the price at which the home would change hands between you and a buyer, neither having to sell or buy, and both having reasonable knowledge of all relevant facts. Where to get a 1040x form Sales of similar homes in your area, on about the same date your last debt was secured by the home, may be helpful in figuring the FMV. Where to get a 1040x form Grandfathered Debt If you took out a mortgage on your home before October 14, 1987, or you refinanced such a mortgage, it may qualify as grandfathered debt. Where to get a 1040x form To qualify, it must have been secured by your qualified home on October 13, 1987, and at all times after that date. Where to get a 1040x form How you used the proceeds does not matter. Where to get a 1040x form Grandfathered debt is not limited. Where to get a 1040x form All of the interest you paid on grandfathered debt is fully deductible home mortgage interest. Where to get a 1040x form However, the amount of your grandfathered debt reduces the $1 million limit for home acquisition debt and the limit based on your home's fair market value for home equity debt. Where to get a 1040x form Refinanced grandfathered debt. Where to get a 1040x form If you refinanced grandfathered debt after October 13, 1987, for an amount that was not more than the mortgage principal left on the debt, then you still treat it as grandfathered debt. Where to get a 1040x form To the extent the new debt is more than that mortgage principal, it is treated as home acquisition or home equity debt, and the mortgage is a mixed-use mortgage (discussed later under Average Mortgage Balance in the Table 1 instructions). Where to get a 1040x form The debt must be secured by the qualified home. Where to get a 1040x form You treat grandfathered debt that was refinanced after October 13, 1987, as grandfathered debt only for the term left on the debt that was refinanced. Where to get a 1040x form After that, you treat it as home acquisition debt or home equity debt, depending on how you used the proceeds. Where to get a 1040x form Exception. Where to get a 1040x form If the debt before refinancing was like a balloon note (the principal on the debt was not amortized over the term of the debt), then you treat the refinanced debt as grandfathered debt for the term of the first refinancing. Where to get a 1040x form This term cannot be more than 30 years. Where to get a 1040x form Example. Where to get a 1040x form Chester took out a $200,000 first mortgage on his home in 1986. Where to get a 1040x form The mortgage was a five-year balloon note and the entire balance on the note was due in 1991. Where to get a 1040x form Chester refinanced the debt in 1991 with a new 20-year mortgage. Where to get a 1040x form The refinanced debt is treated as grandfathered debt for its entire term (20 years). Where to get a 1040x form Line-of-credit mortgage. Where to get a 1040x form If you had a line-of-credit mortgage on October 13, 1987, and borrowed additional amounts against it after that date, then the additional amounts are either home acquisition debt or home equity debt depending on how you used the proceeds. Where to get a 1040x form The balance on the mortgage before you borrowed the additional amounts is grandfathered debt. Where to get a 1040x form The newly borrowed amounts are not grandfathered debt because the funds were borrowed after October 13, 1987. Where to get a 1040x form See Average Mortgage Balance in the Table 1 Instructions that follow. Where to get a 1040x form Table 1 Instructions Unless you are subject to the overall limit on itemized deductions, you can deduct all of the interest you paid during the year on mortgages secured by your main home or second home in either of the following two situations. Where to get a 1040x form All the mortgages are grandfathered debt. Where to get a 1040x form The total of the mortgage balances for the entire year is within the limits discussed earlier under Home Acquisition Debt and Home Equity Debt . Where to get a 1040x form In either of those cases, you do not need Table 1. Where to get a 1040x form Otherwise, you can use Table 1 to determine your qualified loan limit and deductible home mortgage interest. Where to get a 1040x form Fill out only one Table 1 for both your main and second home regardless of how many mortgages you have. Where to get a 1040x form Table 1. Where to get a 1040x form Worksheet To Figure Your Qualified Loan Limit and Deductible Home Mortgage Interest For the Current Year See the Table 1 Instructions. Where to get a 1040x form Part I Qualified Loan Limit 1. Where to get a 1040x form Enter the average balance of all your grandfathered debt. Where to get a 1040x form See line 1 instructions 1. Where to get a 1040x form 2. Where to get a 1040x form Enter the average balance of all your home acquisition debt. Where to get a 1040x form See line 2 instructions 2. Where to get a 1040x form 3. Where to get a 1040x form Enter $1,000,000 ($500,000 if married filing separately) 3. Where to get a 1040x form 4. Where to get a 1040x form Enter the larger of the amount on line 1 or the amount on line 3 4. Where to get a 1040x form 5. Where to get a 1040x form Add the amounts on lines 1 and 2. Where to get a 1040x form Enter the total here 5. Where to get a 1040x form 6. Where to get a 1040x form Enter the smaller of the amount on line 4 or the amount on line 5 6. Where to get a 1040x form 7. Where to get a 1040x form If you have home equity debt, enter the smaller of $100,000 ($50,000 if married filing separately) or your limited amount. Where to get a 1040x form See the line 7 instructions for the limit which may apply to you. Where to get a 1040x form 7. Where to get a 1040x form 8. Where to get a 1040x form Add the amounts on lines 6 and 7. Where to get a 1040x form Enter the total. Where to get a 1040x form This is your qualified loan limit. Where to get a 1040x form 8. Where to get a 1040x form Part II Deductible Home Mortgage Interest 9. Where to get a 1040x form Enter the total of the average balances of all mortgages on all qualified homes. Where to get a 1040x form See line 9 instructions 9. Where to get a 1040x form If line 8 is less than line 9, go on to line 10. Where to get a 1040x form If line 8 is equal to or more than line 9, stop here. Where to get a 1040x form All of your interest on all the mortgages included on line 9 is deductible as home mortgage interest on Schedule A (Form 1040). Where to get a 1040x form 10. Where to get a 1040x form Enter the total amount of interest that you paid. Where to get a 1040x form See line 10 instructions 10. Where to get a 1040x form 11. Where to get a 1040x form Divide the amount on line 8 by the amount on line 9. Where to get a 1040x form Enter the result as a decimal amount (rounded to three places) 11. Where to get a 1040x form × . Where to get a 1040x form 12. Where to get a 1040x form Multiply the amount on line 10 by the decimal amount on line 11. Where to get a 1040x form Enter the result. Where to get a 1040x form This is your deductible home mortgage interest. Where to get a 1040x form Enter this amount on Schedule A (Form 1040) 12. Where to get a 1040x form 13. Where to get a 1040x form Subtract the amount on line 12 from the amount on line 10. Where to get a 1040x form Enter the result. Where to get a 1040x form This is not home mortgage interest. Where to get a 1040x form See line 13 instructions 13. Where to get a 1040x form Home equity debt only. Where to get a 1040x form If all of your mortgages are home equity debt, do not fill in lines 1 through 5. Where to get a 1040x form Enter zero on line 6 and complete the rest of Table 1. Where to get a 1040x form Average Mortgage Balance You have to figure the average balance of each mortgage to determine your qualified loan limit. Where to get a 1040x form You need these amounts to complete lines 1, 2, and 9 of Table 1. Where to get a 1040x form You can use the highest mortgage balances during the year, but you may benefit most by using the average balances. Where to get a 1040x form The following are methods you can use to figure your average mortgage balances. Where to get a 1040x form However, if a mortgage has more than one category of debt, see Mixed-use mortgages , later, in this section. Where to get a 1040x form Average of first and last balance method. Where to get a 1040x form You can use this method if all the following apply. Where to get a 1040x form You did not borrow any new amounts on the mortgage during the year. Where to get a 1040x form (This does not include borrowing the original mortgage amount. Where to get a 1040x form ) You did not prepay more than one month's principal during the year. Where to get a 1040x form (This includes prepayment by refinancing your home or by applying proceeds from its sale. Where to get a 1040x form ) You had to make level payments at fixed equal intervals on at least a semi-annual basis. Where to get a 1040x form You treat your payments as level even if they were adjusted from time to time because of changes in the interest rate. Where to get a 1040x form To figure your average balance, complete the following worksheet. Where to get a 1040x form 1. Where to get a 1040x form Enter the balance as of the first day of the year that the mortgage was secured by your qualified home during the year (generally January 1) 2. Where to get a 1040x form Enter the balance as of the last day of the year that the mortgage was secured by your qualified home during the year (generally December 31) 3. Where to get a 1040x form Add amounts on lines 1 and 2 4. Where to get a 1040x form Divide the amount on line 3 by 2. Where to get a 1040x form Enter the result Interest paid divided by interest rate method. Where to get a 1040x form You can use this method if at all times in 2013 the mortgage was secured by your qualified home and the interest was paid at least monthly. Where to get a 1040x form Complete the following worksheet to figure your average balance. Where to get a 1040x form 1. Where to get a 1040x form Enter the interest paid in 2013. Where to get a 1040x form Do not include points, mortgage insurance premiums, or any interest paid in 2013 that is for a year after 2013. Where to get a 1040x form However, do include interest that is for 2013 but was paid in an earlier year 2. Where to get a 1040x form Enter the annual interest rate on the mortgage. Where to get a 1040x form If the interest rate varied in 2013, use the lowest rate for the year 3. Where to get a 1040x form Divide the amount on line 1 by the amount on line 2. Where to get a 1040x form Enter the result Example. Where to get a 1040x form Mr. Where to get a 1040x form Blue had a line of credit secured by his main home all year. Where to get a 1040x form He paid interest of $2,500 on this loan. Where to get a 1040x form The interest rate on the loan was 9% (. Where to get a 1040x form 09) all year. Where to get a 1040x form His average balance using this method is $27,778, figured as follows. Where to get a 1040x form 1. Where to get a 1040x form Enter the interest paid in 2013. Where to get a 1040x form Do not include points, mortgage insurance premiums, or any interest paid in 2013 that is for a year after 2013. Where to get a 1040x form However, do include interest that is for 2013 but was paid in an earlier year $2,500 2. Where to get a 1040x form Enter the annual interest rate on the mortgage. Where to get a 1040x form If the interest rate varied in 2013, use the lowest rate for the year . Where to get a 1040x form 09 3. Where to get a 1040x form Divide the amount on line 1 by the amount on line 2. Where to get a 1040x form Enter the result $27,778 Statements provided by your lender. Where to get a 1040x form If you receive monthly statements showing the closing balance or the average balance for the month, you can use either to figure your average balance for the year. Where to get a 1040x form You can treat the balance as zero for any month the mortgage was not secured by your qualified home. Where to get a 1040x form For each mortgage, figure your average balance by adding your monthly closing or average balances and dividing that total by the number of months the home secured by that mortgage was a qualified home during the year. Where to get a 1040x form If your lender can give you your average balance for the year, you can use that amount. Where to get a 1040x form Example. Where to get a 1040x form Ms. Where to get a 1040x form Brown had a home equity loan secured by her main home all year. Where to get a 1040x form She received monthly statements showing her average balance for each month. Where to get a 1040x form She can figure her average balance for the year by adding her monthly average balances and dividing the total by 12. Where to get a 1040x form Mixed-use mortgages. Where to get a 1040x form A mixed-use mortgage is a loan that consists of more than one of the three categories of debt (grandfathered debt, home acquisition debt, and home equity debt). Where to get a 1040x form For example, a mortgage you took out during the year is a mixed-use mortgage if you used its proceeds partly to refinance a mortgage that you took out in an earlier year to buy your home (home acquisition debt) and partly to buy a car (home equity debt). Where to get a 1040x form Complete lines 1 and 2 of Table 1 by including the separate average balances of any grandfathered debt and home acquisition debt in your mixed-use mortgage. Where to get a 1040x form Do not use the methods described earlier in this section to figure the average balance of either category. Where to get a 1040x form Instead, for each category, use the following method. Where to get a 1040x form Figure the balance of that category of debt for each month. Where to get a 1040x form This is the amount of the loan proceeds allocated to that category, reduced by your principal payments on the mortgage previously applied to that category. Where to get a 1040x form Principal payments on a mixed-use mortgage are applied in full to each category of debt, until its balance is zero, in the following order: First, any home equity debt, Next, any grandfathered debt, and Finally, any home acquisition debt. Where to get a 1040x form Add together the monthly balances figured in (1). Where to get a 1040x form Divide the result in (2) by 12. Where to get a 1040x form Complete line 9 of Table 1 by including the average balance of the entire mixed-use mortgage, figured under one of the methods described earlier in this section. Where to get a 1040x form Example 1. Where to get a 1040x form In 1986, Sharon took out a $1,400,000 mortgage to buy her main home (grandfathered debt). Where to get a 1040x form On March 2, 2013, when the home had a fair market value of $1,700,000 and she owed $1,100,000 on the mortgage, Sharon took out a second mortgage for $200,000. Where to get a 1040x form She used $180,000 of the proceeds to make substantial improvements to her home (home acquisition debt) and the remaining $20,000 to buy a car (home equity debt). Where to get a 1040x form Under the loan agreement, Sharon must make principal payments of $1,000 at the end of each month. Where to get a 1040x form During 2013, her principal payments on the second mortgage totaled $10,000. Where to get a 1040x form To complete Table 1, line 2, Sharon must figure a separate average balance for the part of her second mortgage that is home acquisition debt. Where to get a 1040x form The January and February balances were zero. Where to get a 1040x form The March through December balances were all $180,000, because none of her principal payments are applied to the home acquisition debt. Where to get a 1040x form (They are all applied to the home equity debt, reducing it to $10,000 [$20,000 − $10,000]. Where to get a 1040x form ) The monthly balances of the home acquisition debt total $1,800,000 ($180,000 × 10). Where to get a 1040x form Therefore, the average balance of the home acquisition debt for 2013 was $150,000 ($1,800,000 ÷ 12). Where to get a 1040x form Example 2. Where to get a 1040x form The facts are the same as in Example 1. Where to get a 1040x form In 2014, Sharon's January through October principal payments on her second mortgage are applied to the home equity debt, reducing it to zero. Where to get a 1040x form The balance of the home acquisition debt remains $180,000 for each of those months. Where to get a 1040x form Because her November and December principal payments are applied to the home acquisition debt, the November balance is $179,000 ($180,000 − $1,000) and the December balance is $178,000 ($180,000 − $2,000). Where to get a 1040x form The monthly balances total $2,157,000 [($180,000 × 10) + $179,000 + $178,000]. Where to get a 1040x form Therefore, the average balance of the home acquisition debt for 2014 is $179,750 ($2,157,000 ÷ 12). Where to get a 1040x form L