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1040 ez Internal Revenue Bulletin:  2013-7  February 11, 2013  Rev. 1040 ez Proc. 1040 ez 2013-16 Table of Contents SECTION 1. 1040 ez PURPOSE SECTION 2. 1040 ez BACKGROUND—HAMP AND THE HAMP PRINCIPAL REDUCTION ALTERNATIVE SECTION 3. 1040 ez BACKGROUND—APPLICABLE PROVISIONS OF LAW SECTION 4. 1040 ez FEDERAL INCOME TAX TREATMENT SECTION 5. 1040 ez INFORMATION-REPORTING OBLIGATIONS SECTION 6. 1040 ez HAMP-PRA BORROWERS’ REPORTING OF DISCHARGES OF INDEBTEDNESS UNDER HAMP-PRA SECTION 7. 1040 ez PENALTY RELIEF FOR 2012 SECTION 8. 1040 ez SCOPE AND EFFECTIVE DATE SECTION 9. 1040 ez DRAFTING INFORMATION SECTION 1. 1040 ez PURPOSE This revenue procedure provides guidance to mortgage loan holders, loan servicers, and borrowers who are participating in the Department of the Treasury’s (Treasury) and Department of Housing and Urban Development’s (HUD) Home Affordable Modification Program® (HAMP®). 1040 ez Under HAMP, a borrower may be eligible for principal reduction of the outstanding balance of a qualifying mortgage pursuant to the program’s Principal Reduction AlternativeSM (PRA). 1040 ez In appropriate cases, HAMP has been offering the PRA as part of a HAMP loan modification since the last quarter of 2010. 1040 ez Current plans call for HAMP to continue accepting new borrowers through the end of 2013. 1040 ez The Internal Revenue Service (Service) is providing this guidance to address the tax consequences for borrowers (HAMP-PRA borrowers) who are participating in the PRA and the reporting obligations for participating mortgage loan holders and servicers. 1040 ez SECTION 2. 1040 ez BACKGROUND—HAMP AND THE HAMP PRINCIPAL REDUCTION ALTERNATIVE . 1040 ez 01 To help distressed borrowers lower their monthly mortgage payments, Treasury and HUD established HAMP for mortgage loans that are not owned or guaranteed by the Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac). 1040 ez A description of the program can be found at www. 1040 ez makinghomeaffordable. 1040 ez gov. 1040 ez . 1040 ez 02 Under HAMP, a participating loan servicer, acting on behalf of the mortgage loan holder, must consider a sequence of modification steps for each eligible borrower’s mortgage loan until the borrower’s monthly payment is reduced to a monthly payment amount determined under the HAMP guidelines. 1040 ez These steps include a reduction in the mortgage loan’s interest rate, an extension of the mortgage loan’s term, and a reduction in the mortgage loan’s principal balance. 1040 ez . 1040 ez 03 In some cases, the unpaid principal balance of the modified mortgage loan is divided into (1) an amount that bears stated interest and that is used to calculate the borrower’s new monthly mortgage payment (the “Non-forbearance Portion”), and (2) a forbearance amount, which does not bear stated interest and on which periodic payments of stated principal are not required. 1040 ez The stated principal of the forbearance amount is due upon the earliest of the borrower’s transfer of the property, payoff of the balance on the Non-forbearance Portion of the mortgage loan, or maturity of the mortgage loan. 1040 ez However, as noted in section 2. 1040 ez 06 of this revenue procedure, a HAMP-PRA borrower sometimes may not have to pay all or a portion of the forbearance amount. 1040 ez (The forbearance amount associated with a HAMP-PRA principal reduction is called the “PRA Forbearance Amount. 1040 ez ”) . 1040 ez 04 If a mortgage loan is being considered for a HAMP modification and the amount owed on the mortgage loan is greater than 115 percent of the value of the property, then the servicer must consider whether principal reduction under PRA should be used as part of the HAMP modification. 1040 ez . 1040 ez 05 The first step toward a HAMP modification is a trial period plan, in which the borrower’s monthly mortgage payment is set at a monthly payment amount determined under the HAMP guidelines. 1040 ez The trial period plan effective date is the due date for the first of the reduced payments that are to be made under the trial period plan. 1040 ez (It is the first day of either the first or the second month after the servicer transmits the trial period notice to the borrower. 1040 ez ) In general, the trial period is three months, and, during this period, the borrower must satisfy certain conditions before the changes to the terms of the mortgage loan become permanent (the “Trial Period Conditions”). 1040 ez Specifically, depending on the borrower’s trial period payment history, the borrower’s compliance with HAMP and servicer guidelines, and his or her satisfaction of all other Trial Period Conditions, the borrower will be offered a permanent modification of the terms of the mortgage loan, including monthly mortgage payments that are lower than those under the old mortgage loan. 1040 ez Until the effective date of a permanent modification, the terms of the existing mortgage loan continue to apply. 1040 ez . 1040 ez 06 After the mortgage loan is permanently modified under HAMP, if the modified mortgage loan is in good standing on the first, second, or third annual anniversary of the trial period plan effective date (the “Three-year Period”), the servicer must reduce the unpaid principal balance of the mortgage loan on the respective anniversary date by one-third of the initial PRA Forbearance Amount. 1040 ez (The servicer allocates the entire reduction to the remaining PRA Forbearance Amount. 1040 ez ) In general, if a HAMP-PRA borrower’s mortgage loan is in good standing and if the HAMP-PRA borrower pays in full the Non-forbearance Portion of the mortgage loan prior to the reduction of the entire PRA Forbearance Amount, the servicer must reduce the remaining outstanding principal balance of the mortgage loan by the remaining PRA Forbearance Amount. 1040 ez . 1040 ez 07 In connection with every HAMP loan modification, the HAMP program administrator (acting on behalf of the federal government) provides incentives to the borrower, the servicer, and the investor (that is, the holder of the mortgage loan). 1040 ez If a HAMP loan modification includes a PRA principal reduction, the HAMP program administrator makes additional incentive payments to the investor. 1040 ez These additional incentives are called “PRA Investor Incentive Payments” and are generally spread over three years. 1040 ez The size of the PRA Investor Incentive Payments depends on the amount of principal reduced, the loan-to-value ratio at the time of the HAMP modification, and the loan’s payment history before the modification. 1040 ez The PRA Investor Incentive Payments range from 18 to 63 percent of the principal amounts reduced. 1040 ez For purposes of this revenue procedure, the excess of the initial PRA Forbearance Amount of a mortgage loan over the aggregate PRA Investor Incentive Payments scheduled to be paid with respect to that loan is called the “PRA Adjusted Forbearance Amount. 1040 ez ” . 1040 ez 08 A PRA Investor Incentive Payment is earned by the investor on each date on which the servicer reduces the unpaid principal balance of the mortgage loan by a portion of the PRA Forbearance Amount (generally, on the first three annual anniversaries of the trial period plan effective date). 1040 ez . 1040 ez 09 If a HAMP-PRA borrower’s early payment in full of the Non-forbearance Portion of the mortgage loan accelerates the reduction of the remaining PRA Forbearance Amount (described above in section 2. 1040 ez 06 of this revenue procedure), the remaining PRA Investor Incentive Payments from the HAMP program administrator are also accelerated. 1040 ez . 1040 ez 10 If, prior to completion of the Three-year Period, a mortgage loan ceases to be in good standing because of the HAMP-PRA borrower’s payment history, then the remaining PRA Forbearance Amount is not further reduced and is due when the HAMP-PRA borrower transfers the property, the HAMP-PRA borrower refinances, or otherwise pays off the Non-forbearance Portion of the mortgage loan, or the mortgage loan matures. 1040 ez SECTION 3. 1040 ez BACKGROUND—APPLICABLE PROVISIONS OF LAW . 1040 ez 01 Under § 61 of the Internal Revenue Code, except as otherwise provided in subtitle A, gross income means all income from whatever source derived, including income from discharge of indebtedness. 1040 ez See § 61(a)(12). 1040 ez . 1040 ez 02 Under § 1. 1040 ez 1001-3 of the Income Tax Regulations, if a debt instrument undergoes a significant modification, then the modification results in an exchange of the original debt instrument for the modified debt instrument. 1040 ez In general, an agreement to change a term of a debt instrument is a modification at the time the borrower and holder enter into the agreement, even if the change in term is not immediately effective. 1040 ez However, if the change is conditioned on reasonable closing conditions, a modification occurs on the closing date of the agreement. 1040 ez See § 1. 1040 ez 1001-3(c)(6). 1040 ez . 1040 ez 03 Under § 108(e)(10), in the case of a debt-for-debt exchange (including a deemed exchange under § 1. 1040 ez 1001-3), the borrower is treated as having satisfied the original debt instrument with an amount of money equal to the issue price of the new debt instrument. 1040 ez If the amount of debt satisfied in this manner exceeds that issue price, the borrower realizes discharge of indebtedness income on the exchange. 1040 ez See also § 1. 1040 ez 61-12(c). 1040 ez . 1040 ez 04 The issue price of a non-publicly traded debt instrument issued for non-publicly traded property generally reflects the amount of principal that the borrower is required to pay to the holder of the instrument. 1040 ez If a borrower has the ability to avoid paying certain amounts (including principal) without violating the terms of the instrument, the payment schedule for the instrument is generally determined based on an assumption that the borrower will avoid any requirement to make those payments. 1040 ez See, e. 1040 ez g. 1040 ez , §§ 1. 1040 ez 1272-1(c)(5) and 1. 1040 ez 1274-2(d). 1040 ez . 1040 ez 05 Under § 108(a), gross income does not include any amount that but for § 108(a) would be includible in gross income by reason of the discharge (in whole or in part) of a taxpayer’s indebtedness if (1) the indebtedness discharged is qualified principal residence indebtedness that is discharged before January 1, 2014, or (2) the discharge occurs when the taxpayer is insolvent. 1040 ez Section 108(a)(1)(E) and 108(a)(1)(B). 1040 ez (Although § 108 contains other exclusions as well, this revenue procedure focuses on these two exclusions because they are the most likely to apply to the greatest number of HAMP-PRA borrowers. 1040 ez ) . 1040 ez 06 Under §§ 108(h) and 163(h)(3)(B), qualified principal residence indebtedness is any indebtedness that is incurred by a borrower to buy, build, or substantially improve the borrower’s principal residence and is secured by that residence. 1040 ez . 1040 ez 07 Qualified principal residence indebtedness also includes a loan secured by the borrower’s principal residence that refinances qualified principal residence indebtedness, but only to the extent of the amount of the refinanced indebtedness. 1040 ez See §§ 108(h) and 163(h)(3)(B)(i). 1040 ez . 1040 ez 08 The maximum amount of discharged indebtedness that a borrower may exclude from gross income under the qualified principal residence indebtedness exclusion is $2,000,000 ($1,000,000 for a married individual filing a separate return). 1040 ez Under § 108(h)(4), if only part of the discharged indebtedness is qualified principal residence indebtedness, then the exclusion applies only to the amount of the discharged indebtedness that exceeds the amount of the loan (determined immediately before the discharge) that is not qualified principal residence indebtedness. 1040 ez . 1040 ez 09 Under § 108(a)(3), the insolvency exclusion applies to the lesser of the amount of the debt discharged or the amount by which the taxpayer is insolvent immediately before the discharge. 1040 ez . 1040 ez 10 Section 108(d)(3) provides that, for purposes of the insolvency exclusion, a taxpayer is insolvent to the extent that the taxpayer’s total liabilities exceed the fair market value of all of the taxpayer’s assets immediately before the discharge of indebtedness. 1040 ez Under § 108(a)(2)(C), the qualified principal residence indebtedness exclusion takes precedence over the insolvency exclusion when both exclusions apply to discharged indebtedness, unless the taxpayer elects to apply the insolvency exclusion. 1040 ez . 1040 ez 11 If an amount is excluded from gross income as a discharge of qualified principal residence indebtedness, the taxpayer must reduce the basis of the taxpayer’s principal residence. 1040 ez See § 108(h)(1). 1040 ez If a discharged amount is excluded from gross income because the taxpayer was insolvent when the discharge occurred, the taxpayer must reduce certain tax attributes (possibly including basis). 1040 ez See § 108(b). 1040 ez For further discussion of income from the discharge of indebtedness, the qualified principal residence indebtedness exclusion, the insolvency exclusion, and other exclusions from gross income that may apply, see Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments (for Individuals). 1040 ez . 1040 ez 12 Taxpayers who exclude any discharged amounts from gross income report both the exclusion and the resulting reduction in basis or other tax attributes on Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment). 1040 ez See Form 982 instructions and Publication 4681. 1040 ez This form is to be filed with the tax return for the taxable year in which the amount is discharged but is excluded from gross income. 1040 ez . 1040 ez 13 Governmental payments made to or on behalf of individuals or other persons are included within the broad definition of gross income under § 61 unless an exception applies. 1040 ez See Notice 2003-18, 2003-1 C. 1040 ez B. 1040 ez 699, and Rev. 1040 ez Rul. 1040 ez 79-356, 1979-2 C. 1040 ez B. 1040 ez 28. 1040 ez However, if disbursements are made by a governmental unit to individuals in the interest of the general welfare (that is, are generally based on individual or family need) and the disbursements do not represent compensation for services, then the amounts disbursed are excluded from the income of the recipient (general welfare exclusion). 1040 ez See Rev. 1040 ez Rul. 1040 ez 2005-46, 2005-2 C. 1040 ez B. 1040 ez 120, and Rev. 1040 ez Rul. 1040 ez 75-246, 1975-1 C. 1040 ez B. 1040 ez 24. 1040 ez . 1040 ez 14 Under § 451 and § 1. 1040 ez 451-1(a), a taxpayer that uses the cash receipts and disbursements method of accounting includes income in gross income when the taxpayer actually or constructively receives the income. 1040 ez . 1040 ez 15 Section 6041 requires every person engaged in a trade or business (including the United States and its agencies) to (1) file an information return (Form 1099-MISC, Miscellaneous Income, is used for this purpose) for each calendar year in which the person makes, in the course of its trade or business, payments to another person of fixed or determinable income aggregating $600 or more, and (2) furnish a copy of the information return to that other person. 1040 ez See § 6041(a) and (d) and § 1. 1040 ez 6041-1(a)(1) and (b). 1040 ez . 1040 ez 16 Section 6050P requires applicable entities (including the United States and its agencies, financial entities, and any organization a significant trade or business of which is the lending of money) to (1) file an information return (Form 1099-C, Cancellation of Debt, is used for this purpose) for each calendar year in which it discharges indebtedness of another person of $600 or more, and (2) furnish a copy of the information return to that other person. 1040 ez See § 6050P(a)-(c) and §§ 1. 1040 ez 6050P-1(a) and 1. 1040 ez 6050P-2(a) and (d). 1040 ez . 1040 ez 17 Section 6721 imposes penalties with respect to information returns required to be filed with the Service. 1040 ez These penalties apply in the case of a failure to timely file an information return, a failure to include all required information on the return, or the inclusion of incorrect information on the return. 1040 ez Section 6724(d)(1) includes Forms 1099-MISC and 1099-C in the term “information return. 1040 ez ” . 1040 ez 18 Section 6722 imposes penalties with respect to payee statements required to be furnished to payees. 1040 ez These penalties apply in the case of a failure to timely furnish a payee statement, a failure to include all required information on the statement, or the inclusion of incorrect information on the payee statement. 1040 ez Section 6724(d)(2) includes in the term “payee statement” copies of Forms 1099-MISC and 1099-C that are required to be furnished to taxpayers. 1040 ez SECTION 4. 1040 ez FEDERAL INCOME TAX TREATMENT . 1040 ez 01 Because a HAMP modification with a PRA principal reduction is a significant modification, it results in a deemed debt-for-debt exchange in which the HAMP-PRA borrower satisfies the old mortgage loan by issuing a new one. 1040 ez See § 1. 1040 ez 1001-3. 1040 ez At the time of the modification, therefore, under § 108 and this revenue procedure, the HAMP-PRA borrower realizes discharge of indebtedness income equal to any excess of the adjusted issue price of the old mortgage loan (which was satisfied in the deemed exchange) over the issue price of the new (post-modification) mortgage loan. 1040 ez See also § 61(a)(12) and § 1. 1040 ez 61-12(c). 1040 ez . 1040 ez 02 A HAMP-PRA borrower has the ability to avoid payment of the PRA Adjusted Forbearance Amount. 1040 ez Because the HAMP-PRA borrower has this ability, that amount should not be taken into account in determining the issue price of the new mortgage loan. 1040 ez Because the issue price of the new mortgage loan does not include the PRA Adjusted Forbearance Amount, the PRA Adjusted Forbearance Amount contributes to the excess of the adjusted issue price of the old mortgage loan (which was satisfied in the deemed exchange) over the issue price of the new mortgage loan. 1040 ez . 1040 ez 03 On the other hand, the investor has not given up its right to receive the remainder of the PRA Forbearance Amount, because the HAMP program administrator is expected to make those payments on the HAMP-PRA borrower’s behalf by making the PRA Investor Incentive Payments. 1040 ez Because the remainder of the PRA Forbearance Amount is payable in this manner, that remainder is included in the issue price of the new mortgage loan. 1040 ez . 1040 ez 04 The Trial Period Conditions are reasonable closing conditions that must be satisfied before the changes to the terms of the mortgage loan become permanent. 1040 ez Therefore, for purposes of § 1. 1040 ez 1001-3, the date of the modification is the date of the permanent modification. 1040 ez . 1040 ez 05 Unless an exclusion applies, the HAMP-PRA borrower includes in gross income the discharge of indebtedness income described in section 4. 1040 ez 01 of this revenue procedure for the taxable year in which the permanent modification occurs. 1040 ez Under certain conditions, however, section 6 of this revenue procedure permits a borrower to report the discharge of indebtedness under HAMP-PRA over the Three-year Period. 1040 ez The qualified principal residence indebtedness exclusion under § 108(a)(1)(E) and the insolvency exclusion under § 108(a)(1)(B) are two exclusions that may apply to the discharge. 1040 ez . 1040 ez 06 The PRA Investor Incentive Payment is treated as a payment on the mortgage loan by the HAMP program administrator on behalf of the HAMP-PRA borrower. 1040 ez . 1040 ez 07 To the extent that the HAMP-PRA borrower uses the property as the HAMP-PRA borrower’s principal residence or the property is occupied by the HAMP-PRA borrower’s legal dependent, parent, or grandparent without rent being charged or collected, the HAMP-PRA borrower excludes from his or her gross income under the general welfare exclusion the PRA Investor Incentive Payments that the HAMP program administrator makes to the investor in the mortgage loan. 1040 ez This is consistent with Rev. 1040 ez Rul. 1040 ez 2009-19, 2009-28 I. 1040 ez R. 1040 ez B. 1040 ez 111, which addressed the treatment of Pay-for-Performance Success Payments. 1040 ez . 1040 ez 08 To the extent that the HAMP-PRA borrower uses the property as a rental property or holds the property vacant and available for rent, the HAMP-PRA borrower includes PRA Investor Incentive Payments in gross income. 1040 ez If the HAMP-PRA borrower uses the cash receipts and disbursements method of accounting, then the HAMP-PRA borrower includes a PRA Investor Incentive Payment in gross income in the taxable year in which it is applied as a payment on the HAMP-PRA borrower’s mortgage loan. 1040 ez . 1040 ez 09 As described in section 2. 1040 ez 09 of this revenue procedure, if a HAMP-PRA borrower pays in full the Non-forbearance Portion of the mortgage loan while the loan is in good standing and prior to completion of the Three-year Period, that payment accelerates both the reduction in the remaining PRA Forbearance Amount and the PRA Investor Incentive Payments from the HAMP program administrator. 1040 ez To the extent that the HAMP-PRA borrower is described in section 4. 1040 ez 07 of this revenue procedure, the HAMP-PRA borrower excludes from his or her gross income under the general welfare exclusion the accelerated PRA Investor Incentive Payments. 1040 ez To the extent that the HAMP-PRA borrower is described in section 4. 1040 ez 08 of this revenue procedure, the HAMP-PRA borrower includes in income in the year of the acceleration the remaining amount of the PRA Investor Incentive Payment. 1040 ez SECTION 5. 1040 ez INFORMATION-REPORTING OBLIGATIONS . 1040 ez 01 Under § 6050P, the investor is required to file a Form 1099-C with respect to a borrower who realizes discharge of indebtedness of $600 or more. 1040 ez A copy of this form is required to be furnished to the borrower. 1040 ez . 1040 ez 02 As stated in sections 4. 1040 ez 01 and 4. 1040 ez 04 of this revenue procedure, the HAMP-PRA discharge of indebtedness is realized at the time of the permanent modification of the mortgage loan. 1040 ez . 1040 ez 03 An investor is an applicable entity that is required under § 1. 1040 ez 6050P-1 and this revenue procedure to issue a Form 1099-C for discharge of indebtedness. 1040 ez Under § 1. 1040 ez 6050P-1(b)(2)(F), the permanent modification of a mortgage loan is an identifiable event. 1040 ez Identifiable events determine when Forms 1099-C have to be issued. 1040 ez Thus, the Form 1099-C is issued for the calendar year in which the permanent mortgage loan modification occurs. 1040 ez This rule under § 1. 1040 ez 6050P-1(b)(2)(F) applies even if, under section 6 of this revenue procedure, the HAMP-PRA borrower chooses to treat the HAMP-PRA discharge as being realized at the times when the unpaid principal balance of the new mortgage loan is reduced. 1040 ez . 1040 ez 04 The investor (or the loan servicer acting on behalf of the investor) reports the full amount of the discharge on the Form 1099-C regardless of whether some or all of the amount is excludible from income under the qualified principal residence indebtedness exclusion, the insolvency exclusion, or any other exclusion that may apply. 1040 ez That discharged amount will generally be the PRA Adjusted Forbearance Amount (which does not include the amounts expected to be satisfied by PRA Investor Incentive Payments). 1040 ez . 1040 ez 05 To the extent that PRA Investor Incentive Payments are made on behalf of a HAMP-PRA borrower who is described in section 4. 1040 ez 07 of this revenue procedure, the PRA Investor Incentive Payments are excluded from the gross income of the HAMP-PRA borrower, and thus they are not fixed or determinable income to the HAMP-PRA borrower. 1040 ez Under § 6041, these payments are not subject to information reporting. 1040 ez See Notice 2011-14, 2011-11 I. 1040 ez R. 1040 ez B. 1040 ez 544, 546. 1040 ez . 1040 ez 06 To the extent that PRA Investor Incentive Payments are made on behalf of a HAMP-PRA borrower who is described in section 4. 1040 ez 08 of this revenue procedure, the PRA Investor Incentive Payments are includible in gross income as fixed or determinable income in the taxable year required by the HAMP-PRA borrower’s method of accounting. 1040 ez The payment is subject to the information reporting requirements of § 6041, as described in section 3. 1040 ez 15 of this revenue procedure. 1040 ez Accordingly, the HAMP program administrator is required to issue a Form 1099-MISC reporting the PRA Investor Incentive Payment. 1040 ez SECTION 6. 1040 ez HAMP-PRA BORROWERS’ REPORTING OF DISCHARGES OF INDEBTEDNESS UNDER HAMP-PRA . 1040 ez 01 In general. 1040 ez The HAMP-PRA program began in the last quarter of 2010, and since that time there has been uncertainty about whether the amount of the discharge of indebtedness should be reported in the year of the permanent modification or over the Three-year Period (when the unpaid principal balance on the new mortgage loan is reduced). 1040 ez As a result, some HAMP-PRA borrowers have been reporting the discharge of indebtedness under HAMP-PRA over the Three-year Period. 1040 ez Given the temporary nature of the program and the issuance of this guidance after participation in the program has begun, in the interests of equitable and sound tax administration, HAMP-PRA borrowers may report discharges of indebtedness under HAMP-PRA under the rules in this section 6. 1040 ez A HAMP-PRA borrower may choose to report discharges of indebtedness under HAMP-PRA pursuant to the rules in this section 6 only if the borrower applies the same borrower option under section 6. 1040 ez 02 of this revenue procedure consistently to the taxable year of the permanent modification and to all subsequent taxable years. 1040 ez Thus, a HAMP-PRA borrower may not choose a borrower option under section 6. 1040 ez 02 of this revenue procedure if a statute of limitations has expired for any of the taxable years that are necessary for consistent application of that option. 1040 ez . 1040 ez 02 HAMP-PRA borrower options. 1040 ez A HAMP-PRA borrower may treat the HAMP-PRA discharge as being realized in either of the following ways— (1) One hundred percent of the PRA Adjusted Forbearance Amount at the time of the permanent modification; or (2) One third of the PRA Adjusted Forbearance Amount on each of the first three annual anniversaries of the trial period plan effective date (described in section 2. 1040 ez 06 of this revenue procedure), when, as required by the terms of the new mortgage loan, the servicer reduces the unpaid principal balance of the new mortgage loan. 1040 ez If some or all of the reduction in the unpaid principal balance is accelerated (as described in section 2. 1040 ez 06 of this revenue procedure) because the HAMP-PRA borrower prepays the Non-forbearance Portion of the mortgage loan, then the HAMP-PRA discharge represented by the amount of the reduction that was accelerated is treated as being realized at the time of the accelerated reduction. 1040 ez . 1040 ez 03 HAMP-PRA borrowers who choose to realize the HAMP-PRA discharge at the time of the permanent modification. 1040 ez (1) If a HAMP-PRA borrower chooses to treat the HAMP-PRA discharge as being realized at the time of the permanent modification, then for the taxable year in which the permanent modification occurs, the HAMP-PRA borrower reports on Form 982 the amount, if any, of the discharge that is excluded from gross income and includes in gross income any remaining discharge. 1040 ez (2) If a HAMP-PRA borrower’s mortgage loan was permanently modified under HAMP in 2010 or 2011, and if the borrower was reporting the discharge of indebtedness using the method described in section 6. 1040 ez 02(2) of this revenue procedure, then the borrower may change to reporting the discharge of indebtedness using the method described in section 6. 1040 ez 02(1) of this revenue procedure by filing a 2012 Form 982 with the borrower’s timely filed (with extensions) 2012 income tax return. 1040 ez This section 6. 1040 ez 03(2) applies only if the change to reporting the discharge using the method described in section 6. 1040 ez 02(1) of this revenue procedure does not change the borrower’s federal income tax liability (including any change in federal income tax liability due to a change in basis or tax attributes (under § 108(h)(1) or § 108(b))) for any taxable year prior to the borrower’s 2012 taxable year. 1040 ez To make this change, the borrower must— (i) Compute the amount of discharge of indebtedness that would be included in income under § 61(a)(12) or excluded from gross income under § 108, basing the computation of the discharge on the facts as of the year of the permanent modification; and (ii) Report on a 2012 Form 982 the reduction in basis or tax attributes (under § 108(h)(1) or § 108(b)) due to the permanent modification that the borrower would have reported on the Form 982 for the taxable year of the permanent modification, minus any reductions due to the permanent modification that the borrower actually reported on Forms 982 for taxable years prior to 2012. 1040 ez (3) Example. 1040 ez The following example illustrates the application of section 6. 1040 ez 03(2) of this revenue procedure. 1040 ez In 2010, B’s basis in B’s principal residence was $330,000. 1040 ez In 2010, B’s mortgage loan on the principal residence is permanently modified under HAMP-PRA. 1040 ez B realized $30,000 of cancellation of indebtedness from the permanent modification, all of which qualifies for the exclusion from income for qualified principal residence indebtedness under § 108(a)(1)(E). 1040 ez The trial period plan effective date also fell in 2010. 1040 ez B’s federal income tax return for 2010 was consistent with B’s reporting this discharge of indebtedness using the method described in section 6. 1040 ez 02(2) of this revenue procedure. 1040 ez That is, B’s 2010 return did not include income from discharge of indebtedness under HAMP-PRA, nor did the return contain a Form 982 reporting exclusion of any such discharge of indebtedness. 1040 ez The next year, B reported on line 10(b) of the 2011 Form 982 that B filed with B’s 2011 federal income tax return a $10,000 reduction in basis in the principal residence. 1040 ez For 2012, B chooses to change to reporting the discharge of indebtedness using the method described in section 6. 1040 ez 02(1) of this revenue procedure. 1040 ez Thus, B files a 2012 Form 982 with B’s timely filed (including extensions) 2012 federal income tax return, and on line 10(b) of that form, B reports a $20,000 basis reduction in the principal residence ($30,000 basis reduction that B would have excluded from income in 2010 using the method described in section 6. 1040 ez 02(1) of this revenue procedure, minus the $10,000 basis reduction that B reported on B’s 2011 Form 982). 1040 ez (4) If a HAMP-PRA borrower reports the entire HAMP-PRA discharge using the method described in section 6. 1040 ez 02(1) of this revenue procedure, and if that HAMP-PRA borrower’s mortgage loan ceases to be in good standing during the Three-year Period as described in section 2. 1040 ez 10 of this revenue procedure, then some or all of the anticipated reductions in the PRA Adjusted Forbearance Amount will not take place. 1040 ez Because the amount of these anticipated reductions was not included in determining the issue price of the new mortgage loan that, pursuant to § 1. 1040 ez 1001-3, the HAMP-PRA borrower is deemed to issue in satisfaction of the old mortgage loan, the issue price of the new mortgage loan was understated. 1040 ez Under these circumstances, the discharge of indebtedness income determined as of the date of the permanent modification will have been overstated. 1040 ez (5) The Service will not challenge a HAMP-PRA borrower who is described in section 6. 1040 ez 03(4) of this revenue procedure and who takes the following corrective measures: (i) If a HAMP-PRA borrower included any of the discharge of indebtedness in gross income, the HAMP-PRA borrower may file an amended return that does not include the amount of the discharge of indebtedness that was previously reported as gross income but that, because of the HAMP-PRA borrower’s failure to keep the new mortgage loan in good standing, was not ultimately discharged. 1040 ez The amended return should be for the taxable year in which the income was included (that is, the year of the permanent modification), provided the applicable statute of limitations remains open for that taxable year. 1040 ez (ii) If the HAMP-PRA borrower did not include any of the discharge of indebtedness in gross income (that is, if the HAMP-PRA borrower excluded all of it), the HAMP-PRA borrower may file a new Form 982 that the Service will treat as superseding the earlier Form 982. 1040 ez The new Form 982 will reflect the revised reduction in basis or in tax attributes (under § 108(h)(1) or § 108(b)). 1040 ez The new Form 982 should be the Form 982 for the year of the permanent modification and should be filed with the return for the taxable year in which the HAMP-PRA borrower’s mortgage loan ceased to be in good standing. 1040 ez . 1040 ez 04 HAMP-PRA borrowers who choose to treat the HAMP-PRA discharge as being realized on the dates on which the unpaid principal balance of the mortgage loan is reduced. 1040 ez (1) If a HAMP-PRA borrower chooses to realize the HAMP-PRA discharge at the times that the unpaid principal balance on the new mortgage loan is reduced, instead of at the time of the permanent modification, then the HAMP-PRA borrower’s federal income tax returns for the taxable year that contains the permanent modification and for the subsequent taxable years must not treat any of the discharge as being realized at the time of the permanent modification and must treat the entire HAMP-PRA discharge as being realized in the amounts—and at the times—of the reductions in the unpaid principal balance. 1040 ez Except as described in the last sentence of this paragraph, therefore, the income tax return for the year of the permanent modification must include no gross income from—nor report on Form 982 an exclusion of—any amount of the HAMP-PRA discharge. 1040 ez Instead, the HAMP-PRA discharge is included in gross income (or is reported on Form 982 as excluded from gross income) in the subsequent years in which the unpaid principal balance is reduced. 1040 ez If the first such reduction occurs in the year of the permanent modification, however, then the amount of any such reduction is reflected as an inclusion or exclusion on the federal income tax return for that year. 1040 ez (2) A HAMP-PRA borrower who has been using the method described in section 6. 1040 ez 02(1) of this revenue procedure may change to the method described in section 6. 1040 ez 02(2) but must comply with the consistency and open-year requirements described in section 6. 1040 ez 01 of this revenue procedure. 1040 ez SECTION 7. 1040 ez PENALTY RELIEF FOR 2012 . 1040 ez 01 The Service will not assert penalties under § 6721 or § 6722 against an investor for failing to timely file and furnish a 2012 Form 1099-C as required by section 5. 1040 ez 03 through 5. 1040 ez 04 and section 8. 1040 ez 02 of this revenue procedure with respect to discharge of indebtedness resulting from HAMP-PRA permanent modifications that take place during calendar year 2012 if the following requirements are satisfied: (1) Not later than February 28, 2013, a statement is sent to the HAMP-PRA borrower containing the following: (a) The HAMP-PRA borrower’s name, address, and taxpayer identification number; and (b) The date and amount of the discharge of indebtedness (as described in sections 4. 1040 ez 01 through 4. 1040 ez 04 of this revenue procedure) that is required to be reported for 2012. 1040 ez (2) Not later than March 28, 2013, a statement is sent to the Service. 1040 ez It must be in the form of a single statement that separately lists for each HAMP-PRA borrower the information specified in section 7. 1040 ez 01(1) of this revenue procedure. 1040 ez The statement should be sent to the Service at the following address: Internal Revenue Service Center Stop 6728AUSC Austin, TX 73301 . 1040 ez 02 The Service will not assert penalties under § 6721 or § 6722 with respect to any Forms 1099-MISC for 2012 that sections 5. 1040 ez 06 and 8. 1040 ez 02 of this revenue procedure require to be filed with the Service and furnished to taxpayers. 1040 ez . 1040 ez 03 Section 8. 1040 ez 03 and 8. 1040 ez 04 of this revenue procedure, below, describes penalty relief regarding Forms 1099-C and 1099-MISC for 2010 and 2011. 1040 ez SECTION 8. 1040 ez SCOPE AND EFFECTIVE DATE . 1040 ez 01 This revenue procedure applies to all borrowers, investors, and servicers who participate, or have participated, in the HAMP-PRA, regardless of when the permanent modification occurs. 1040 ez . 1040 ez 02 Section 5 of this revenue procedure is effective for Forms 1099-C and 1099-MISC due or filed after January 24, 2013. 1040 ez . 1040 ez 03 Because of the effective date in section 8. 1040 ez 02 of this revenue procedure, an investor is not subject to penalties under § 6721 or § 6722 on the grounds that the investor failed to timely file and furnish a 2010 or 2011 Form 1099-C as described in section 5. 1040 ez 03 through 5. 1040 ez 04 of this revenue procedure (or on the grounds that the investor filed or furnished a 2010 or 2011 Form 1099-C that is inconsistent with section 5. 1040 ez 03 through 5. 1040 ez 04 of this revenue procedure), provided that the investor demonstrates a good faith attempt to comply with the requirements of § 6050P and that the failure was not due to willful neglect. 1040 ez . 1040 ez 04 Because of the effective date in section 8. 1040 ez 02 of this revenue procedure, the Service will not assert penalties under § 6721 or § 6722 on the grounds of a failure to timely file and furnish a 2010 or 2011 Form 1099-MISC, as described in section 5. 1040 ez 06 of this revenue procedure. 1040 ez SECTION 9. 1040 ez DRAFTING INFORMATION The principal authors of this revenue procedure are Ronald J. 1040 ez Goldstein of the Office of Chief Counsel (Procedure and Administration); Shareen S. 1040 ez Pflanz and Sheldon A. 1040 ez Iskow of the Office of Chief Counsel (Income Tax and Accounting); and Andrea M. 1040 ez Hoffenson of the Office of Chief Counsel (Financial Institutions and Products). 1040 ez For further information regarding this revenue procedure, contact Procedure and Administration branch 1 at (202) 622-4910, Income Tax and Accounting branch 4 at (202) 622-4920, or Financial Institutions and Products branch 1 at (202) 622-3920 (not toll-free calls). 1040 ez Prev  Up  Next   Home   More Internal Revenue Bulletins
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Understanding Your CP54E Notice

Your tax return shows a different name and/or ID number from the information we have for your account. Please provide the requested information.


What you need to do

  • Review your identifying information shown on this notice and compare it to your most recent social security card or taxpayer ID card.
  • Complete the CP54 response form to explain the discrepancies.
  • Include copies of documents to substantiate your name and identifying number.

You may want to

  • Contact the Social Security Administration (SSA) to update your records if any of the following occurred:
    • you recently married and are using your spouse’s last name and have not already contacted SSA,
    • you legally changed your name without contacting SSA,
    • or your social security number and/or name are different than on your social security card.

 


Answers to Common Questions

Q. I sent you my information. When will I get my refund?

A. Once we receive your response form and verify the information you provided, you should receive your refund in 4 to 6 weeks. If you don’t hear from us after 4 to 6 weeks, call our “Where’s My Refund?” toll free line at 1-800-829-1954 to check on the status of your refund.

 


Tips for next year

Make sure you file using your name and taxpayer ID number as they appear on your social security card or taxpayer ID card. Also, make sure this information is correct on any payments you send to the IRS.
 

Page Last Reviewed or Updated: 22-Jan-2014

Printable samples of this notice (PDF)

 

 

How to get help

  • Call the 1-800 number listed on the top right corner of your notice.
  • Authorize someone (e.g., accountant) to contact the IRS on your behalf using Form 2848.
  • See if you qualify for help from a Low Income Taxpayer Clinic.
     

The 1040 Ez

1040 ez 24. 1040 ez   Contributions Table of Contents Introduction Useful Items - You may want to see: Organizations That Qualify To Receive Deductible ContributionsTypes of Qualified Organizations Contributions You Can DeductContributions From Which You Benefit Expenses Paid for Student Living With You Out-of-Pocket Expenses in Giving Services Contributions You Cannot DeductContributions to Individuals Contributions to Nonqualified Organizations Contributions From Which You Benefit Value of Time or Services Personal Expenses Appraisal Fees Contributions of PropertyException. 1040 ez Household items. 1040 ez Deduction more than $500. 1040 ez Form 1098-C. 1040 ez Filing deadline approaching and still no Form 1098-C. 1040 ez Exception 1—vehicle used or improved by organization. 1040 ez Exception 2—vehicle given or sold to needy individual. 1040 ez Deduction $500 or less. 1040 ez Right to use property. 1040 ez Tangible personal property. 1040 ez Future interest. 1040 ez Determining Fair Market Value Giving Property That Has Decreased in Value Giving Property That Has Increased in Value When To DeductChecks. 1040 ez Text message. 1040 ez Credit card. 1040 ez Pay-by-phone account. 1040 ez Stock certificate. 1040 ez Promissory note. 1040 ez Option. 1040 ez Borrowed funds. 1040 ez Limits on DeductionsCarryovers Records To KeepCash Contributions Noncash Contributions Out-of-Pocket Expenses How To Report Introduction This chapter explains how to claim a deduction for your charitable contributions. 1040 ez It discusses the following topics. 1040 ez The types of organizations to which you can make deductible charitable contributions. 1040 ez The types of contributions you can deduct. 1040 ez How much you can deduct. 1040 ez What records you must keep. 1040 ez How to report your charitable contributions. 1040 ez A charitable contribution is a donation or gift to, or for the use of, a qualified organization. 1040 ez It is voluntary and is made without getting, or expecting to get, anything of equal value. 1040 ez Form 1040 required. 1040 ez    To deduct a charitable contribution, you must file Form 1040 and itemize deductions on Schedule A. 1040 ez The amount of your deduction may be limited if certain rules and limits explained in this chapter apply to you. 1040 ez The limits are explained in detail in Publication 526. 1040 ez Useful Items - You may want to see: Publication 526 Charitable Contributions 561 Determining the Value of Donated Property Form (and Instructions) Schedule A (Form 1040) Itemized Deductions 8283 Noncash Charitable Contributions Organizations That Qualify To Receive Deductible Contributions You can deduct your contributions only if you make them to a qualified organization. 1040 ez Most organizations other than churches and governments must apply to the IRS to become a qualified organization. 1040 ez How to check whether an organization can receive deductible charitable contributions. 1040 ez   You can ask any organization whether it is a qualified organization, and most will be able to tell you. 1040 ez Or go to IRS. 1040 ez gov. 1040 ez Click on “Tools” and then on “Exempt Organizations Select Check” (www. 1040 ez irs. 1040 ez gov/Charities-&-Non-Profits/Exempt-Organizations-Select-Check). 1040 ez This online tool will enable you to search for qualified organizations. 1040 ez You can also call the IRS to find out if an organization is qualified. 1040 ez Call 1-877-829-5500. 1040 ez People who are deaf, hard of hearing, or have a speech disability and who have access to TTY/TDD equipment can call 1-800-829-4059. 1040 ez Deaf or hard of hearing individuals can also contact the IRS through relay services such as the Federal Relay Service at www. 1040 ez gsa. 1040 ez gov/fedrelay. 1040 ez Types of Qualified Organizations Generally, only the following types of organizations can be qualified organizations. 1040 ez A community chest, corporation, trust, fund, or foundation organized or created in or under the laws of the United States, any state, the District of Columbia, or any possession of the United States (including Puerto Rico). 1040 ez It must, however, be organized and operated only for charitable, religious, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals. 1040 ez Certain organizations that foster national or international amateur sports competition also qualify. 1040 ez War veterans' organizations, including posts, auxiliaries, trusts, or foundations, organized in the United States or any of its possessions (including Puerto Rico). 1040 ez Domestic fraternal societies, orders, and associations operating under the lodge system. 1040 ez (Your contribution to this type of organization is deductible only if it is to be used solely for charitable, religious, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals. 1040 ez ) Certain nonprofit cemetery companies or corporations. 1040 ez (Your contribution to this type of organization is not deductible if it can be used for the care of a specific lot or mausoleum crypt. 1040 ez ) The United States or any state, the District of Columbia, a U. 1040 ez S. 1040 ez possession (including Puerto Rico), a political subdivision of a state or U. 1040 ez S. 1040 ez possession, or an Indian tribal government or any of its subdivisions that perform substantial government functions. 1040 ez (Your contribution to this type of organization is only deductible if it is to be used solely for public purposes. 1040 ez ) Examples. 1040 ez    The following list gives some examples of qualified organizations. 1040 ez Churches, a convention or association of churches, temples, synagogues, mosques, and other religious organizations. 1040 ez Most nonprofit charitable organizations such as the American Red Cross and the United Way. 1040 ez Most nonprofit educational organizations, including the Boy Scouts of America, Girl Scouts of America, colleges, and museums. 1040 ez This also includes nonprofit daycare centers that provide childcare to the general public if substantially all the childcare is provided to enable parents and guardians to be gainfully employed. 1040 ez However, if your contribution is a substitute for tuition or other enrollment fee, it is not deductible as a charitable contribution, as explained later under Contributions You Cannot Deduct . 1040 ez Nonprofit hospitals and medical research organizations. 1040 ez Utility company emergency energy programs, if the utility company is an agent for a charitable organization that assists individuals with emergency energy needs. 1040 ez Nonprofit volunteer fire companies. 1040 ez Nonprofit organizations that develop and maintain public parks and recreation facilities. 1040 ez Civil defense organizations. 1040 ez Certain foreign charitable organizations. 1040 ez   Under income tax treaties with Canada, Israel, and Mexico, you may be able to deduct contributions to certain Canadian, Israeli, or Mexican charitable organizations. 1040 ez Generally, you must have income from sources in that country. 1040 ez For additional information on the deduction of contributions to Canadian charities, see Publication 597, Information on the United States–Canada Income Tax Treaty. 1040 ez If you need more information on how to figure your contribution to Mexican and Israeli charities, see Publication 526. 1040 ez Contributions You Can Deduct Generally, you can deduct contributions of money or property you make to, or for the use of, a qualified organization. 1040 ez A contribution is “for the use of” a qualified organization when it is held in a legally enforceable trust for the qualified organization or in a similar legal arrangement. 1040 ez The contributions must be made to a qualified organization and not set aside for use by a specific person. 1040 ez If you give property to a qualified organization, you generally can deduct the fair market value of the property at the time of the contribution. 1040 ez See Contributions of Property , later in this chapter. 1040 ez Your deduction for charitable contributions generally cannot be more than 50% of your adjusted gross income (AGI), but in some cases 20% and 30% limits may apply. 1040 ez See Limits on Deductions , later. 1040 ez In addition, the total of your charitable contribution deduction and certain other itemized deductions may be limited. 1040 ez See chapter 29. 1040 ez Table 24-1 gives examples of contributions you can and cannot deduct. 1040 ez Contributions From Which You Benefit If you receive a benefit as a result of making a contribution to a qualified organization, you can deduct only the amount of your contribution that is more than the value of the benefit you receive. 1040 ez Also see Contributions From Which You Benefit under Contributions You Cannot Deduct, later. 1040 ez If you pay more than fair market value to a qualified organization for goods or services, the excess may be a charitable contribution. 1040 ez For the excess amount to qualify, you must pay it with the intent to make a charitable contribution. 1040 ez Example 1. 1040 ez You pay $65 for a ticket to a dinner-dance at a church. 1040 ez Your entire $65 payment goes to the church. 1040 ez The ticket to the dinner-dance has a fair market value of $25. 1040 ez When you buy your ticket, you know that its value is less than your payment. 1040 ez To figure the amount of your charitable contribution, subtract the value of the benefit you receive ($25) from your total payment ($65). 1040 ez You can deduct $40 as a contribution to the church. 1040 ez Example 2. 1040 ez At a fundraising auction conducted by a charity, you pay $600 for a week's stay at a beach house. 1040 ez The amount you pay is no more than the fair rental value. 1040 ez You have not made a deductible charitable contribution. 1040 ez Athletic events. 1040 ez   If you make a payment to, or for the benefit of, a college or university and, as a result, you receive the right to buy tickets to an athletic event in the athletic stadium of the college or university, you can deduct 80% of the payment as a charitable contribution. 1040 ez   If any part of your payment is for tickets (rather than the right to buy tickets), that part is not deductible. 1040 ez Subtract the price of the tickets from your payment. 1040 ez You can deduct 80% of the remaining amount as a charitable contribution. 1040 ez Example 1. 1040 ez You pay $300 a year for membership in a university's athletic scholarship program. 1040 ez The only benefit of membership is that you have the right to buy one season ticket for a seat in a designated area of the stadium at the university's home football games. 1040 ez You can deduct $240 (80% of $300) as a charitable contribution. 1040 ez Table 24-1. 1040 ez Examples of Charitable Contributions—A Quick Check Use the following lists for a quick check of whether you can deduct a contribution. 1040 ez See the rest of this chapter for more information and additional rules and limits that may apply. 1040 ez Deductible As  Charitable Contributions Not Deductible  As Charitable Contributions Money or property you give to:  Churches, synagogues, temples, mosques, and other religious organizations Federal, state, and local governments, if your contribution is solely for public purposes (for example, a gift to reduce the public debt or maintain a public park) Nonprofit schools and hospitals The Salvation Army, American Red Cross, CARE, Goodwill Industries, United Way, Boy Scouts of America, Girl Scouts of America, Boys and Girls Clubs of America, etc. 1040 ez War veterans groups   Expenses paid for a student living with you, sponsored by a qualified organization  Out-of-pocket expenses when you serve a qualified organization as a volunteer Money or property you give to:  Civic leagues, social and sports clubs, labor unions, and chambers of commerce Foreign organizations (except certain Canadian, Israeli, and Mexican charities) Groups that are run for personal profit Groups whose purpose is to lobby for law changes Homeowners' associations Individuals Political groups or candidates for public office   Cost of raffle, bingo, or lottery tickets  Dues, fees, or bills paid to country clubs, lodges, fraternal orders, or similar groups  Tuition  Value of your time or services  Value of blood given to a blood bank    Example 2. 1040 ez The facts are the same as in Example 1 except your $300 payment includes the purchase of one season ticket for the stated ticket price of $120. 1040 ez You must subtract the usual price of a ticket ($120) from your $300 payment. 1040 ez The result is $180. 1040 ez Your deductible charitable contribution is $144 (80% of $180). 1040 ez Charity benefit events. 1040 ez   If you pay a qualified organization more than fair market value for the right to attend a charity ball, banquet, show, sporting event, or other benefit event, you can deduct only the amount that is more than the value of the privileges or other benefits you receive. 1040 ez   If there is an established charge for the event, that charge is the value of your benefit. 1040 ez If there is no established charge, the reasonable value of the right to attend the event is the value of your benefit. 1040 ez Whether you use the tickets or other privileges has no effect on the amount you can deduct. 1040 ez However, if you return the ticket to the qualified organization for resale, you can deduct the entire amount you paid for the ticket. 1040 ez    Even if the ticket or other evidence of payment indicates that the payment is a “contribution,” this does not mean you can deduct the entire amount. 1040 ez If the ticket shows the price of admission and the amount of the contribution, you can deduct the contribution amount. 1040 ez Example. 1040 ez You pay $40 to see a special showing of a movie for the benefit of a qualified organization. 1040 ez Printed on the ticket is “Contribution—$40. 1040 ez ” If the regular price for the movie is $8, your contribution is $32 ($40 payment − $8 regular price). 1040 ez Membership fees or dues. 1040 ez    You may be able to deduct membership fees or dues you pay to a qualified organization. 1040 ez However, you can deduct only the amount that is more than the value of the benefits you receive. 1040 ez    You cannot deduct dues, fees, or assessments paid to country clubs and other social organizations. 1040 ez They are not qualified organizations. 1040 ez Certain membership benefits can be disregarded. 1040 ez   Both you and the organization can disregard the following membership benefits if you receive them in return for an annual payment of $75 or less. 1040 ez Any rights or privileges, other than those discussed under Athletic events , earlier, that you can use frequently while you are a member, such as: Free or discounted admission to the organization's facilities or events, Free or discounted parking, Preferred access to goods or services, and Discounts on the purchase of goods and services. 1040 ez Admission, while you are a member, to events open only to members of the organization, if the organization reasonably projects that the cost per person (excluding any allocated overhead) is not more than $10. 1040 ez 20. 1040 ez Token items. 1040 ez   You do not have to reduce your contribution by the value of any benefit you receive if both of the following are true. 1040 ez You receive only a small item or other benefit of token value. 1040 ez The qualified organization correctly determines that the value of the item or benefit you received is not substantial and informs you that you can deduct your payment in full. 1040 ez Written statement. 1040 ez   A qualified organization must give you a written statement if you make a payment of more than $75 that is partly a contribution and partly for goods or services. 1040 ez The statement must say that you can deduct only the amount of your payment that is more than the value of the goods or services you received. 1040 ez It must also give you a good faith estimate of the value of those goods or services. 1040 ez   The organization can give you the statement either when it solicits or when it receives the payment from you. 1040 ez Exception. 1040 ez   An organization will not have to give you this statement if one of the following is true. 1040 ez The organization is: A governmental organization described in (5) under Types of Qualified Organizations , earlier, or An organization formed only for religious purposes, and the only benefit you receive is an intangible religious benefit (such as admission to a religious ceremony) that generally is not sold in commercial transactions outside the donative context. 1040 ez You receive only items whose value is not substantial as described under Token items , earlier. 1040 ez You receive only membership benefits that can be disregarded, as described earlier. 1040 ez Expenses Paid for Student Living With You You may be able to deduct some expenses of having a student live with you. 1040 ez You can deduct qualifying expenses for a foreign or American student who: Lives in your home under a written agreement between you and a qualified organization as part of a program of the organization to provide educational opportunities for the student, Is not your relative or dependent, and Is a full-time student in the twelfth or any lower grade at a school in the United States. 1040 ez You can deduct up to $50 a month for each full calendar month the student lives with you. 1040 ez Any month when conditions (1) through (3) are met for 15 days or more counts as a full month. 1040 ez For additional information, see Expenses Paid for Student Living With You in Publication 526. 1040 ez Mutual exchange program. 1040 ez   You cannot deduct the costs of a foreign student living in your home under a mutual exchange program through which your child will live with a family in a foreign country. 1040 ez Table 24-2. 1040 ez Volunteers' Questions and Answers If you volunteer for a qualified organization, the following questions and answers may apply to you. 1040 ez All of the rules explained in this chapter also apply. 1040 ez See, in particular, Out-of-Pocket Expenses in Giving Services . 1040 ez Question Answer I volunteer 6 hours a week in the office of a qualified organization. 1040 ez The receptionist is paid $10 an hour for the same work. 1040 ez Can I deduct $60 a week for my time?    No, you cannot deduct the value of your time or services. 1040 ez The office is 30 miles from my home. 1040 ez Can I deduct any of my car expenses for these trips? Yes, you can deduct the costs of gas and oil that are directly related to getting to and from the place where you volunteer. 1040 ez If you don't want to figure your actual costs, you can deduct 14 cents for each mile. 1040 ez I volunteer as a Red Cross nurse's aide at a hospital. 1040 ez Can I deduct the cost of the uniforms I must wear? Yes, you can deduct the cost of buying and cleaning your uniforms if the hospital is a qualified organization, the uniforms are not suitable for everyday use, and you must wear them when volunteering. 1040 ez I pay a babysitter to watch my children while I volunteer for a qualified organization. 1040 ez Can I deduct these costs? No, you cannot deduct payments for childcare expenses as a charitable contribution, even if you would be unable to volunteer without childcare. 1040 ez (If you have childcare expenses so you can work for pay, see chapter 32. 1040 ez ) Out-of-Pocket Expenses in Giving Services Although you cannot deduct the value of your services given to a qualified organization, you may be able to deduct some amounts you pay in giving services to a qualified organization. 1040 ez The amounts must be: Unreimbursed, Directly connected with the services, Expenses you had only because of the services you gave, and Not personal, living, or family expenses. 1040 ez Table 24-2 contains questions and answers that apply to some individuals who volunteer their services. 1040 ez Conventions. 1040 ez   If a qualified organization selects you to attend a convention as its representative, you can deduct unreimbursed expenses for travel, including reasonable amounts for meals and lodging, while away from home overnight in connection with the convention. 1040 ez However, see Travel , later. 1040 ez   You cannot deduct personal expenses for sightseeing, fishing parties, theater tickets, or nightclubs. 1040 ez You also cannot deduct transportation, meals and lodging, and other expenses for your spouse or children. 1040 ez    You cannot deduct your travel expenses in attending a church convention if you go only as a member of your church rather than as a chosen representative. 1040 ez You can, however, deduct unreimbursed expenses that are directly connected with giving services for your church during the convention. 1040 ez Uniforms. 1040 ez   You can deduct the cost and upkeep of uniforms that are not suitable for everyday use and that you must wear while performing donated services for a charitable organization. 1040 ez Foster parents. 1040 ez   You may be able to deduct as a charitable contribution some of the costs of being a foster parent (foster care provider) if you have no profit motive in providing the foster care and are not, in fact, making a profit. 1040 ez A qualified organization must select the individuals you take into your home for foster care. 1040 ez    You can deduct expenses that meet both of the following requirements. 1040 ez They are unreimbursed out-of-pocket expenses to feed, clothe, and care for the foster child. 1040 ez They are incurred primarily to benefit the qualified organization. 1040 ez   Unreimbursed expenses that you cannot deduct as charitable contributions may be considered support provided by you in determining whether you can claim the foster child as a dependent. 1040 ez For details, see chapter 3. 1040 ez Example. 1040 ez You cared for a foster child because you wanted to adopt her, not to benefit the agency that placed her in your home. 1040 ez Your unreimbursed expenses are not deductible as charitable contributions. 1040 ez Car expenses. 1040 ez   You can deduct as a charitable contribution any unreimbursed out-of-pocket expenses, such as the cost of gas and oil, that are directly related to the use of your car in giving services to a charitable organization. 1040 ez You cannot deduct general repair and maintenance expenses, depreciation, registration fees, or the costs of tires or insurance. 1040 ez    If you do not want to deduct your actual expenses, you can use a standard mileage rate of 14 cents a mile to figure your contribution. 1040 ez   You can deduct parking fees and tolls whether you use your actual expenses or the standard mileage rate. 1040 ez   You must keep reliable written records of your car expenses. 1040 ez For more information, see Car expenses under Records To Keep, later. 1040 ez Travel. 1040 ez   Generally, you can claim a charitable contribution deduction for travel expenses necessarily incurred while you are away from home performing services for a charitable organization only if there is no significant element of personal pleasure, recreation, or vacation in the travel. 1040 ez This applies whether you pay the expenses directly or indirectly. 1040 ez You are paying the expenses indirectly if you make a payment to the charitable organization and the organization pays for your travel expenses. 1040 ez   The deduction for travel expenses will not be denied simply because you enjoy providing services to the charitable organization. 1040 ez Even if you enjoy the trip, you can take a charitable contribution deduction for your travel expenses if you are on duty in a genuine and substantial sense throughout the trip. 1040 ez However, if you have only nominal duties, or if for significant parts of the trip you do not have any duties, you cannot deduct your travel expenses. 1040 ez Example 1. 1040 ez You are a troop leader for a tax-exempt youth group and you take the group on a camping trip. 1040 ez You are responsible for overseeing the setup of the camp and for providing adult supervision for other activities during the entire trip. 1040 ez You participate in the activities of the group and enjoy your time with them. 1040 ez You oversee the breaking of camp and you transport the group home. 1040 ez You can deduct your travel expenses. 1040 ez Example 2. 1040 ez You sail from one island to another and spend 8 hours a day counting whales and other forms of marine life. 1040 ez The project is sponsored by a charitable organization. 1040 ez In most circumstances, you cannot deduct your expenses. 1040 ez Example 3. 1040 ez You work for several hours each morning on an archaeological dig sponsored by a charitable organization. 1040 ez The rest of the day is free for recreation and sightseeing. 1040 ez You cannot take a charitable contribution deduction even though you work very hard during those few hours. 1040 ez Example 4. 1040 ez You spend the entire day attending a charitable organization's regional meeting as a chosen representative. 1040 ez In the evening you go to the theater. 1040 ez You can claim your travel expenses as charitable contributions, but you cannot claim the cost of your evening at the theater. 1040 ez Daily allowance (per diem). 1040 ez   If you provide services for a charitable organization and receive a daily allowance to cover reasonable travel expenses, including meals and lodging while away from home overnight, you must include in income any part of the allowance that is more than your deductible travel expenses. 1040 ez You may be able to deduct any necessary travel expenses that are more than the allowance. 1040 ez Deductible travel expenses. 1040 ez   These include: Air, rail, and bus transportation, Out-of-pocket expenses for your car, Taxi fares or other costs of transportation between the airport or station and your hotel, Lodging costs, and The cost of meals. 1040 ez Because these travel expenses are not business-related, they are not subject to the same limits as business-related expenses. 1040 ez For information on business travel expenses, see Travel Expenses in chapter 26. 1040 ez Contributions You Cannot Deduct There are some contributions you cannot deduct, such as those made to specific individuals and those made to nonqualified organizations. 1040 ez (See Contributions to Individuals and Contributions to Nonqualified Organizations , next. 1040 ez ) There are others you can deduct only part of, as discussed later under Contributions From Which You Benefit . 1040 ez Contributions to Individuals You cannot deduct contributions to specific individuals, including the following. 1040 ez Contributions to fraternal societies made for the purpose of paying medical or burial expenses of deceased members. 1040 ez Contributions to individuals who are needy or worthy. 1040 ez You cannot deduct these contributions even if you make them to a qualified organization for the benefit of a specific person. 1040 ez But you can deduct a contribution to a qualified organization that helps needy or worthy individuals if you do not indicate that your contribution is for a specific person. 1040 ez Example. 1040 ez You can deduct contributions to a qualified organization for flood relief, hurricane relief, or other disaster relief. 1040 ez However, you cannot deduct contributions earmarked for relief of a particular individual or family. 1040 ez Payments to a member of the clergy that can be spent as he or she wishes, such as for personal expenses. 1040 ez Expenses you paid for another person who provided services to a qualified organization. 1040 ez Example. 1040 ez Your son does missionary work. 1040 ez You pay his expenses. 1040 ez You cannot claim a deduction for your son's unreimbursed expenses related to his contribution of services. 1040 ez Payments to a hospital that are for a specific patient's care or for services for a specific patient. 1040 ez You cannot deduct these payments even if the hospital is operated by a city, a state, or other qualified organization. 1040 ez Contributions to Nonqualified Organizations You cannot deduct contributions to organizations that are not qualified to receive tax-deductible contributions, including the following. 1040 ez Certain state bar associations if: The bar is not a political subdivision of a state, The bar has private, as well as public, purposes, such as promoting the professional interests of members, and Your contribution is unrestricted and can be used for private purposes. 1040 ez Chambers of commerce and other business leagues or organizations (but see chapter 28). 1040 ez Civic leagues and associations. 1040 ez Communist organizations. 1040 ez Country clubs and other social clubs. 1040 ez Most foreign organizations (other than certain Canadian, Israeli, or Mexican charitable organizations). 1040 ez For details, see Publication 526. 1040 ez Homeowners' associations. 1040 ez Labor unions (but see chapter 28). 1040 ez Political organizations and candidates. 1040 ez Contributions From Which You Benefit If you receive or expect to receive a financial or economic benefit as a result of making a contribution to a qualified organization, you cannot deduct the part of the contribution that represents the value of the benefit you receive. 1040 ez See Contributions From Which You Benefit under Contributions You Can Deduct, earlier. 1040 ez These contributions include the following. 1040 ez Contributions for lobbying. 1040 ez This includes amounts that you earmark for use in, or in connection with, influencing specific legislation. 1040 ez Contributions to a retirement home for room, board, maintenance, or admittance. 1040 ez Also, if the amount of your contribution depends on the type or size of apartment you will occupy, it is not a charitable contribution. 1040 ez Costs of raffles, bingo, lottery, etc. 1040 ez You cannot deduct as a charitable contribution amounts you pay to buy raffle or lottery tickets or to play bingo or other games of chance. 1040 ez For information on how to report gambling winnings and losses, see Gambling winnings in chapter 12 and Gambling Losses Up to the Amount of Gambling Winnings in chapter 28. 1040 ez Dues to fraternal orders and similar groups. 1040 ez However, see Membership fees or dues , earlier, under Contributions You Can Deduct. 1040 ez Tuition, or amounts you pay instead of tuition. 1040 ez You cannot deduct as a charitable contribution amounts you pay as tuition even if you pay them for children to attend parochial schools or qualifying nonprofit daycare centers. 1040 ez You also cannot deduct any fixed amount you must pay in addition to, or instead of, tuition to enroll in a private school, even if it is designated as a “donation. 1040 ez ” Value of Time or Services You cannot deduct the value of your time or services, including: Blood donations to the American Red Cross or to blood banks, and The value of income lost while you work as an unpaid volunteer for a qualified organization. 1040 ez Personal Expenses You cannot deduct personal, living, or family expenses, such as the following items. 1040 ez The cost of meals you eat while you perform services for a qualified organization unless it is necessary for you to be away from home overnight while performing the services. 1040 ez Adoption expenses, including fees paid to an adoption agency and the costs of keeping a child in your home before adoption is final (but see Adoption Credit in chapter 37, and the instructions for Form 8839, Qualified Adoption Expenses). 1040 ez You also may be able to claim an exemption for the child. 1040 ez See Adopted child in chapter 3. 1040 ez Appraisal Fees You cannot deduct as a charitable contribution any fees you pay to find the fair market value of donated property (but see chapter 28). 1040 ez Contributions of Property If you contribute property to a qualified organization, the amount of your charitable contribution is generally the fair market value of the property at the time of the contribution. 1040 ez However, if the property has increased in value, you may have to make some adjustments to the amount of your deduction. 1040 ez See Giving Property That Has Increased in Value , later. 1040 ez For information about the records you must keep and the information you must furnish with your return if you donate property, see Records To Keep and How To Report , later. 1040 ez Clothing and household items. 1040 ez   You cannot take a deduction for clothing or household items you donate unless the clothing or household items are in good used condition or better. 1040 ez Exception. 1040 ez   You can take a deduction for a contribution of an item of clothing or household item that is not in good used condition or better if you deduct more than $500 for it and include a qualified appraisal of it with your return. 1040 ez Household items. 1040 ez   Household items include: Furniture and furnishings, Electronics, Appliances, Linens, and Other similar items. 1040 ez   Household items do not include: Food, Paintings, antiques, and other objects of art, Jewelry and gems, and Collections. 1040 ez Cars, boats, and airplanes. 1040 ez    The following rules apply to any donation of a qualified vehicle. 1040 ez A qualified vehicle is: A car or any motor vehicle manufactured mainly for use on public streets, roads, and highways, A boat, or An airplane. 1040 ez Deduction more than $500. 1040 ez   If you donate a qualified vehicle with a claimed fair market value of more than $500, you can deduct the smaller of: The gross proceeds from the sale of the vehicle by the organization, or The vehicle's fair market value on the date of the contribution. 1040 ez If the vehicle's fair market value was more than your cost or other basis, you may have to reduce the fair market value to figure the deductible amount, as described under Giving Property That Has Increased in Value , later. 1040 ez Form 1098-C. 1040 ez   You must attach to your return Copy B of the Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes, (or other statement containing the same information as Form 1098-C) you received from the organization. 1040 ez The Form 1098-C (or other statement) will show the gross proceeds from the sale of the vehicle. 1040 ez   If you e-file your return, you must: Attach Copy B of Form 1098-C to Form 8453 and mail the forms to the IRS, or Include Copy B of Form 1098-C as a pdf attachment if your software program allows it. 1040 ez   If you do not attach Form 1098-C (or other statement), you cannot deduct your contribution. 1040 ez    You must get Form 1098-C (or other statement) within 30 days of the sale of the vehicle. 1040 ez But if exception 1 or 2 (described later) applies, you must get Form 1098-C (or other statement) within 30 days of your donation. 1040 ez Filing deadline approaching and still no Form 1098-C. 1040 ez   If the filing deadline is approaching and you still do not have a Form 1098-C, you have two choices. 1040 ez Request an automatic 6-month extension of time to file your return. 1040 ez You can get this extension by filing Form 4868, Application for Automatic Extension of Time to File U. 1040 ez S. 1040 ez Individual Income Tax Return. 1040 ez  For more information, see Automatic Extension in chapter 1. 1040 ez File the return on time without claiming the deduction for the qualified vehicle. 1040 ez After receiving the Form 1098-C, file an amended return, Form 1040X, claiming the deduction. 1040 ez Attach Copy B of Form 1098-C (or other statement) to the amended return. 1040 ez For more information about amended returns, see Amended Returns and Claims for Refund in chapter 1. 1040 ez Exceptions. 1040 ez   There are two exceptions to the rules just described for deductions of more than $500. 1040 ez Exception 1—vehicle used or improved by organization. 1040 ez   If the qualified organization makes a significant intervening use of or material improvement to the vehicle before transferring it, you generally can deduct the vehicle's fair market value at the time of the contribution. 1040 ez But if the vehicle's fair market value was more than your cost or other basis, you may have to reduce the fair market value to get the deductible amount, as described under Giving Property That Has Increased in Value , later. 1040 ez The Form 1098-C (or other statement) will show whether this exception applies. 1040 ez Exception 2—vehicle given or sold to needy individual. 1040 ez   If the qualified organization will give the vehicle, or sell it for a price well below fair market value, to a needy individual to further the organization's charitable purpose, you generally can deduct the vehicle's fair market value at the time of the contribution. 1040 ez But if the vehicle's fair market value was more than your cost or other basis, you may have to reduce the fair market value to get the deductible amount, as described under Giving Property That Has Increased in Value , later. 1040 ez The Form 1098-C (or other statement) will show whether this exception applies. 1040 ez   This exception does not apply if the organization sells the vehicle at auction. 1040 ez In that case, you cannot deduct the vehicle's fair market value. 1040 ez Example. 1040 ez Anita donates a used car to a qualified organization. 1040 ez She bought it 3 years ago for $9,000. 1040 ez A used car guide shows the fair market value for this type of car is $6,000. 1040 ez However, Anita gets a Form 1098-C from the organization showing the car was sold for $2,900. 1040 ez Neither exception 1 nor exception 2 applies. 1040 ez If Anita itemizes her deductions, she can deduct $2,900 for her donation. 1040 ez She must attach Form 1098-C and Form 8283 to her return. 1040 ez Deduction $500 or less. 1040 ez   If the qualified organization sells the vehicle for $500 or less and exceptions 1 and 2 do not apply, you can deduct the smaller of: $500, or The vehicle's fair market value on the date of the contribution. 1040 ez But if the vehicle's fair market value was more than your cost or other basis, you may have to reduce the fair market value to get the deductible amount, as described under Giving Property That Has Increased in Value , later. 1040 ez   If the vehicle's fair market value is at least $250 but not more than $500, you must have a written statement from the qualified organization acknowledging your donation. 1040 ez The statement must contain the information and meet the tests for an acknowledgment described under Deductions of At Least $250 But Not More Than $500 under Records To Keep, later. 1040 ez Partial interest in property. 1040 ez   Generally, you cannot deduct a charitable contribution of less than your entire interest in property. 1040 ez Right to use property. 1040 ez   A contribution of the right to use property is a contribution of less than your entire interest in that property and is not deductible. 1040 ez For exceptions and more information, see Partial Interest in Property Not in Trust in Publication 561. 1040 ez Future interests in tangible personal property. 1040 ez   You cannot deduct the value of a charitable contribution of a future interest in tangible personal property until all intervening interests in and rights to the actual possession or enjoyment of the property have either expired or been turned over to someone other than yourself, a related person, or a related organization. 1040 ez Tangible personal property. 1040 ez   This is any property, other than land or buildings, that can be seen or touched. 1040 ez It includes furniture, books, jewelry, paintings, and cars. 1040 ez Future interest. 1040 ez   This is any interest that is to begin at some future time, regardless of whether it is designated as a future interest under state law. 1040 ez Determining Fair Market Value This section discusses general guidelines for determining the fair market value of various types of donated property. 1040 ez Publication 561 contains a more complete discussion. 1040 ez Fair market value is the price at which property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all the relevant facts. 1040 ez Used clothing and household items. 1040 ez   The fair market value of used clothing and household goods is usually far less than what you paid for them when they were new. 1040 ez   For used clothing, you should claim as the value the price that buyers of used items actually pay in used clothing stores, such as consignment or thrift shops. 1040 ez See Household Goods in Publication 561 for information on the valuation of household goods, such as furniture, appliances, and linens. 1040 ez Example. 1040 ez Dawn Greene donated a coat to a thrift store operated by her church. 1040 ez She paid $300 for the coat 3 years ago. 1040 ez Similar coats in the thrift store sell for $50. 1040 ez The fair market value of the coat is $50. 1040 ez Dawn's donation is limited to $50. 1040 ez Cars, boats, and airplanes. 1040 ez   If you contribute a car, boat, or airplane to a charitable organization, you must determine its fair market value. 1040 ez Certain commercial firms and trade organizations publish used car pricing guides, commonly called “blue books,” containing complete dealer sale prices or dealer average prices for recent model years. 1040 ez The guides may be published monthly or seasonally and for different regions of the country. 1040 ez These guides also provide estimates for adjusting for unusual equipment, unusual mileage, and physical condition. 1040 ez The prices are not “official” and these publications are not considered an appraisal of any specific donated property. 1040 ez But they do provide clues for making an appraisal and suggest relative prices for comparison with current sales and offerings in your area. 1040 ez   You can also find used car pricing information on the Internet. 1040 ez Example. 1040 ez You donate a used car in poor condition to a local high school for use by students studying car repair. 1040 ez A used car guide shows the dealer retail value for this type of car in poor condition is $1,600. 1040 ez However, the guide shows the price for a private party sale of the car is only $750. 1040 ez The fair market value of the car is considered to be $750. 1040 ez Large quantities. 1040 ez   If you contribute a large number of the same item, fair market value is the price at which comparable numbers of the item are being sold. 1040 ez Giving Property That Has Decreased in Value If you contribute property with a fair market value that is less than your basis in it, your deduction is limited to its fair market value. 1040 ez You cannot claim a deduction for the difference between the property's basis and its fair market value. 1040 ez Giving Property That Has Increased in Value If you contribute property with a fair market value that is more than your basis in it, you may have to reduce the fair market value by the amount of appreciation (increase in value) when you figure your deduction. 1040 ez Your basis in property is generally what you paid for it. 1040 ez See chapter 13 if you need more information about basis. 1040 ez Different rules apply to figuring your deduction, depending on whether the property is: Ordinary income property, or Capital gain property. 1040 ez Ordinary income property. 1040 ez   Property is ordinary income property if you would have recognized ordinary income or short-term capital gain had you sold it at fair market value on the date it was contributed. 1040 ez Examples of ordinary income property are inventory, works of art created by the donor, manuscripts prepared by the donor, and capital assets (defined in chapter 14) held 1 year or less. 1040 ez Amount of deduction. 1040 ez   The amount you can deduct for a contribution of ordinary income property is its fair market value minus the amount that would be ordinary income or short-term capital gain if you sold the property for its fair market value. 1040 ez Generally, this rule limits the deduction to your basis in the property. 1040 ez Example. 1040 ez You donate stock you held for 5 months to your church. 1040 ez The fair market value of the stock on the day you donate it is $1,000, but you paid only $800 (your basis). 1040 ez Because the $200 of appreciation would be short-term capital gain if you sold the stock, your deduction is limited to $800 (fair market value minus the appreciation). 1040 ez Capital gain property. 1040 ez   Property is capital gain property if you would have recognized long-term capital gain had you sold it at fair market value on the date of the contribution. 1040 ez It includes capital assets held more than 1 year, as well as certain real property and depreciable property used in your trade or business and, generally, held more than 1 year. 1040 ez Amount of deduction — general rule. 1040 ez   When figuring your deduction for a contribution of capital gain property, you generally can use the fair market value of the property. 1040 ez Exceptions. 1040 ez   In certain situations, you must reduce the fair market value by any amount that would have been long-term capital gain if you had sold the property for its fair market value. 1040 ez Generally, this means reducing the fair market value to the property's cost or other basis. 1040 ez Bargain sales. 1040 ez   A bargain sale of property is a sale or exchange for less than the property's fair market value. 1040 ez A bargain sale to a qualified organization is partly a charitable contribution and partly a sale or exchange. 1040 ez A bargain sale may result in a taxable gain. 1040 ez More information. 1040 ez   For more information on donating appreciated property, see Giving Property That Has Increased in Value in Publication 526. 1040 ez When To Deduct You can deduct your contributions only in the year you actually make them in cash or other property (or in a later carryover year, as explained later under Carryovers ). 1040 ez This applies whether you use the cash or an accrual method of accounting. 1040 ez Time of making contribution. 1040 ez   Usually, you make a contribution at the time of its unconditional delivery. 1040 ez Checks. 1040 ez   A check you mail to a charity is considered delivered on the date you mail it. 1040 ez Text message. 1040 ez   Contributions made by text message are deductible in the year you send the text message if the contribution is charged to your telephone or wireless account. 1040 ez Credit card. 1040 ez    Contributions charged on your credit card are deductible in the year you make the charge. 1040 ez Pay-by-phone account. 1040 ez    Contributions made through a pay-by-phone account are considered delivered on the date the financial institution pays the amount. 1040 ez Stock certificate. 1040 ez   A properly endorsed stock certificate is considered delivered on the date of mailing or other delivery to the charity or to the charity's agent. 1040 ez However, if you give a stock certificate to your agent or to the issuing corporation for transfer to the name of the charity, your contribution is not delivered until the date the stock is transferred on the books of the corporation. 1040 ez Promissory note. 1040 ez   If you issue and deliver a promissory note to a charity as a contribution, it is not a contribution until you make the note payments. 1040 ez Option. 1040 ez    If you grant a charity an option to buy real property at a bargain price, it is not a contribution until the organization exercises the option. 1040 ez Borrowed funds. 1040 ez   If you contribute borrowed funds, you can deduct the contribution in the year you deliver the funds to the charity, regardless of when you repay the loan. 1040 ez Limits on Deductions The amount you can deduct for charitable contributions cannot be more than 50% of your adjusted gross income (AGI). 1040 ez Your deduction may be further limited to 30% or 20% of your AGI, depending on the type of property you give and the type of organization you give it to. 1040 ez If your total contributions for the year are 20% or less of your AGI, these limits do not apply to you. 1040 ez The limits are discussed in detail under Limits on Deductions in Publication 526. 1040 ez A higher limit applies to certain qualified conservation contributions. 1040 ez See Publication 526 for details. 1040 ez Carryovers You can carry over any contributions you cannot deduct in the current year because they exceed your adjusted-gross-income limits. 1040 ez You can deduct the excess in each of the next 5 years until it is used up, but not beyond that time. 1040 ez For more information, see Carryovers in Publication 526. 1040 ez Records To Keep You must keep records to prove the amount of the contributions you make during the year. 1040 ez The kind of records you must keep depends on the amount of your contributions and whether they are: Cash contributions, Noncash contributions, or Out-of-pocket expenses when donating your services. 1040 ez Note. 1040 ez An organization generally must give you a written statement if it receives a payment from you that is more than $75 and is partly a contribution and partly for goods or services. 1040 ez (See Contributions From Which You Benefit under Contributions You Can Deduct, earlier. 1040 ez ) Keep the statement for your records. 1040 ez It may satisfy all or part of the recordkeeping requirements explained in the following discussions. 1040 ez Cash Contributions Cash contributions include those paid by cash, check, electronic funds transfer, debit card, credit card, or payroll deduction. 1040 ez You cannot deduct a cash contribution, regardless of the amount, unless you keep one of the following. 1040 ez A bank record that shows the name of the qualified organization, the date of the contribution, and the amount of the contribution. 1040 ez Bank records may include: A canceled check, A bank or credit union statement, or A credit card statement. 1040 ez A receipt (or a letter or other written communication) from the qualified organization showing the name of the organization, the date of the contribution, and the amount of the contribution. 1040 ez The payroll deduction records described next. 1040 ez Payroll deductions. 1040 ez   If you make a contribution by payroll deduction, you must keep: A pay stub, Form W-2, or other document furnished by your employer that shows the date and amount of the contribution, and A pledge card or other document prepared by or for the qualified organization that shows the name of the organization. 1040 ez If your employer withheld $250 or more from a single paycheck, see Contributions of $250 or More , next. 1040 ez Contributions of $250 or More You can claim a deduction for a contribution of $250 or more only if you have an acknowledgment of your contribution from the qualified organization or certain payroll deduction records. 1040 ez If you made more than one contribution of $250 or more, you must have either a separate acknowledgment for each or one acknowledgment that lists each contribution and the date of each contribution and shows your total contributions. 1040 ez Amount of contribution. 1040 ez   In figuring whether your contribution is $250 or more, do not combine separate contributions. 1040 ez For example, if you gave your church $25 each week, your weekly payments do not have to be combined. 1040 ez Each payment is a separate contribution. 1040 ez   If contributions are made by payroll deduction, the deduction from each paycheck is treated as a separate contribution. 1040 ez   If you made a payment that is partly for goods and services, as described earlier under Contributions From Which You Benefit , your contribution is the amount of the payment that is more than the value of the goods and services. 1040 ez Acknowledgment. 1040 ez   The acknowledgment must meet these tests. 1040 ez It must be written. 1040 ez It must include: The amount of cash you contributed, Whether the qualified organization gave you any goods or services as a result of your contribution (other than certain token items and membership benefits), A description and good faith estimate of the value of any goods or services described in (b) (other than intangible religious benefits), and A statement that the only benefit you received was an intangible religious benefit, if that was the case. 1040 ez The acknowledgment does not need to describe or estimate the value of an intangible religious benefit. 1040 ez An intangible religious benefit is a benefit that generally is not sold in commercial transactions outside a donative (gift) context. 1040 ez An example is admission to a religious ceremony. 1040 ez You must get it on or before the earlier of: The date you file your return for the year you make the contribution, or The due date, including extensions, for filing the return. 1040 ez   If the acknowledgment does not show the date of the contribution, you must also have a bank record or receipt, as described earlier, that does show the date of the contribution. 1040 ez If the acknowledgment shows the date of the contribution and meets the other tests just described, you do not need any other records. 1040 ez Payroll deductions. 1040 ez   If you make a contribution by payroll deduction and your employer withholds $250 or more from a single paycheck, you must keep: A pay stub, Form W-2, or other document furnished by your employer that shows the amount withheld as a contribution, and A pledge card or other document prepared by or for the qualified organization that shows the name of the organization and states the organization does not provide goods or services in return for any contribution made to it by payroll deduction. 1040 ez A single pledge card may be kept for all contributions made by payroll deduction regardless of amount as long as it contains all the required information. 1040 ez   If the pay stub, Form W-2, pledge card, or other document does not show the date of the contribution, you must have another document that does show the date of the contribution. 1040 ez If the pay stub, Form W-2, pledge card, or other document shows the date of the contribution, you do not need any other records except those just described in (1) and (2). 1040 ez Noncash Contributions For a contribution not made in cash, the records you must keep depend on whether your deduction for the contribution is: Less than $250, At least $250 but not more than $500, Over $500 but not more than $5,000, or Over $5,000. 1040 ez Amount of deduction. 1040 ez   In figuring whether your deduction is $500 or more, combine your claimed deductions for all similar items of property donated to any charitable organization during the year. 1040 ez   If you received goods or services in return, as described earlier in Contributions From Which You Benefit , reduce your contribution by the value of those goods or services. 1040 ez If you figure your deduction by reducing the fair market value of the donated property by its appreciation, as described earlier in Giving Property That Has Increased in Value , your contribution is the reduced amount. 1040 ez Deductions of Less Than $250 If you make any noncash contribution, you must get and keep a receipt from the charitable organization showing: The name of the charitable organization, The date and location of the charitable contribution, and A reasonably detailed description of the property. 1040 ez A letter or other written communication from the charitable organization acknowledging receipt of the contribution and containing the information in (1), (2), and (3) will serve as a receipt. 1040 ez You are not required to have a receipt where it is impractical to get one (for example, if you leave property at a charity's unattended drop site). 1040 ez Additional records. 1040 ez   You must also keep reliable written records for each item of contributed property. 1040 ez Your written records must include the following information. 1040 ez The name and address of the organization to which you contributed. 1040 ez The date and location of the contribution. 1040 ez A description of the property in detail reasonable under the circumstances. 1040 ez For a security, keep the name of the issuer, the type of security, and whether it is regularly traded on a stock exchange or in an over-the-counter market. 1040 ez The fair market value of the property at the time of the contribution and how you figured the fair market value. 1040 ez If it was determined by appraisal, keep a signed copy of the appraisal. 1040 ez The cost or other basis of the property, if you must reduce its fair market value by appreciation. 1040 ez Your records should also include the amount of the reduction and how you figured it. 1040 ez The amount you claim as a deduction for the tax year as a result of the contribution, if you contribute less than your entire interest in the property during the tax year. 1040 ez Your records must include the amount you claimed as a deduction in any earlier years for contributions of other interests in this property. 1040 ez They must also include the name and address of each organization to which you contributed the other interests, the place where any such tangible property is located or kept, and the name of any person in possession of the property, other than the organization to which you contributed it. 1040 ez The terms of any conditions attached to the contribution of property. 1040 ez Deductions of At Least $250 But Not More Than $500 If you claim a deduction of at least $250 but not more than $500 for a noncash charitable contribution, you must get and keep an acknowledgment of your contribution from the qualified organization. 1040 ez If you made more than one contribution of $250 or more, you must have either a separate acknowledgment for each or one acknowledgment that shows your total contributions. 1040 ez The acknowledgment must contain the information in items (1) through (3) under Deductions of Less Than $250 , earlier, and your written records must include the information listed in that discussion under Additional records . 1040 ez The acknowledgment must also meet these tests. 1040 ez It must be written. 1040 ez It must include: A description (but not necessarily the value) of any property you contributed, Whether the qualified organization gave you any goods or services as a result of your contribution (other than certain token items and membership benefits), and A description and good faith estimate of the value of any goods or services described in (b). 1040 ez If the only benefit you received was an intangible religious benefit (such as admission to a religious ceremony) that generally is not sold in a commercial transaction outside the donative context, the acknowledgment must say so and does not need to describe or estimate the value of the benefit. 1040 ez You must get it on or before the earlier of: The date you file your return for the year you make the contribution, or The due date, including extensions, for filing the return. 1040 ez Deductions Over $500 You are required to give additional information if you claim a deduction over $500 for noncash charitable contributions. 1040 ez See Records To Keep in Publication 526 for more information. 1040 ez Out-of-Pocket Expenses If you give services to a qualified organization and have unreimbursed out-of-pocket expenses related to those services, the following two rules apply. 1040 ez You must have adequate records to prove the amount of the expenses. 1040 ez If any of your unreimbursed out-of-pocket expenses, considered separately, are $250 or more (for example, you pay $250 or more for an airline ticket to attend a convention of a qualified organization as a chosen representative), you must get an acknowledgment from the qualified organization that contains: A description of the services you provided, A statement of whether or not the organization provided you any goods or services to reimburse you for the expenses you incurred, A description and a good faith estimate of the value of any goods or services (other than intangible religious benefits) provided to reimburse you, and A statement that the only benefit you received was an intangible religious benefit, if that was the case. 1040 ez The acknowledgment does not need to describe or estimate the value of an intangible religious benefit (defined earlier under Acknowledgment ). 1040 ez You must get the acknowledgment on or before the earlier of: The date you file your return for the year you make the contribution, or The due date, including extensions, for filing the return. 1040 ez Car expenses. 1040 ez   If you claim expenses directly related to use of your car in giving services to a qualified organization, you must keep reliable written records of your expenses. 1040 ez Whether your records are considered reliable depends on all the facts and circumstances. 1040 ez Generally, they may be considered reliable if you made them regularly and at or near the time you had the expenses. 1040 ez   For example, your records might show the name of the organization you were serving and the dates you used your car for a charitable purpose. 1040 ez If you use the standard mileage rate of 14 cents a mile, your records must show the miles you drove your car for the charitable purpose. 1040 ez If you deduct your actual expenses, your records must show the costs of operating the car that are directly related to a charitable purpose. 1040 ez   See Car expenses under Out-of-Pocket Expenses in Giving Services, earlier, for the expenses you can deduct. 1040 ez How To Report Report your charitable contributions on Schedule A (Form 1040). 1040 ez If your total deduction for all noncash contributions for the year is over $500, you must also file Form 8283. 1040 ez See How To Report in Publication 526 for more information. 1040 ez Prev  Up  Next   Home   More Online Publications