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Amendment Return

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Amendment Return

Amendment return 3. Amendment return   Investment Expenses Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: Limits on DeductionsPassive activity. Amendment return Other income (nonpassive income). Amendment return Expenses. Amendment return Additional information. Amendment return Interest ExpensesInvestment Interest Limit on Deduction Bond Premium AmortizationSpecial rules to determine amounts payable on a bond. Amendment return Basis. Amendment return How To Figure Amortization Choosing To Amortize How To Report Amortization Expenses of Producing IncomeFees to buy or sell. Amendment return Including mutual fund or REMIC expenses in income. Amendment return Nondeductible ExpensesUsed as collateral. Amendment return Short-sale expenses. Amendment return Expenses for both tax-exempt and taxable income. Amendment return State income taxes. Amendment return Nondeductible amount. Amendment return Basis adjustment. Amendment return How To Report Investment Expenses When To Report Investment Expenses Topics - This chapter discusses: Limits on Deductions , Interest Expenses , Bond Premium Amortization , Expenses of Producing Income , Nondeductible Expenses , How To Report Investment Expenses , and When To Report Investment Expenses . Amendment return Useful Items - You may want to see: Publication 535 Business Expenses 925 Passive Activity and At-Risk Rules 929 Tax Rules for Children and Dependents Form (and Instructions) Schedule A (Form 1040) Itemized Deductions 4952 Investment Interest Expense Deduction See chapter 5, How To Get Tax Help , for information about getting these publications and forms. Amendment return Limits on Deductions Your deductions for investment expenses may be limited by: The at-risk rules, The passive activity loss limits, The limit on investment interest, or The 2% limit on certain miscellaneous itemized deductions. Amendment return The at-risk rules and passive activity rules are explained briefly in this section. Amendment return The limit on investment interest is explained later in this chapter under Interest Expenses . Amendment return The 2% limit is explained later in this chapter under Expenses of Producing Income . Amendment return At-risk rules. Amendment return   Special at-risk rules apply to most income-producing activities. Amendment return These rules limit the amount of loss you can deduct to the amount you risk losing in the activity. Amendment return Generally, this is the cash and the adjusted basis of property you contribute to the activity. Amendment return It also includes money you borrow for use in the activity if you are personally liable for repayment or if you use property not used in the activity as security for the loan. Amendment return For more information, see Publication 925. Amendment return Passive activity losses and credits. Amendment return   The amount of losses and tax credits you can claim from passive activities is limited. Amendment return Generally, you are allowed to deduct passive activity losses only up to the amount of your passive activity income. Amendment return Also, you can use credits from passive activities only against tax on the income from passive activities. Amendment return There are exceptions for certain activities, such as rental real estate activities. Amendment return Passive activity. Amendment return   A passive activity generally is any activity involving the conduct of any trade or business in which you do not materially participate and any rental activity. Amendment return However, if you are involved in renting real estate, the activity is not a passive activity if both of the following are true. Amendment return More than one-half of the personal services you perform during the year in all trades or businesses are performed in real property trades or businesses in which you materially participate. Amendment return You perform more than 750 hours of services during the year in real property trades or businesses in which you materially participate. Amendment return  The term “trade or business” generally means any activity that involves the conduct of a trade or business, is conducted in anticipation of starting a trade or business, or involves certain research or experimental expenditures. Amendment return However, it does not include rental activities or certain activities treated as incidental to holding property for investment. Amendment return   You are considered to materially participate in an activity if you are involved on a regular, continuous, and substantial basis in the operations of the activity. Amendment return Other income (nonpassive income). Amendment return    Generally, you can use losses from passive activities only to offset income from passive activities. Amendment return You cannot use passive activity losses to offset your other income, such as your wages or your portfolio income. Amendment return Portfolio income includes gross income from interest, dividends, annuities, or royalties that is not derived in the ordinary course of a trade or business. Amendment return It also includes gains or losses (not derived in the ordinary course of a trade or business) from the sale or trade of property (other than an interest in a passive activity) producing portfolio income or held for investment. Amendment return This includes capital gain distributions from mutual funds (and other regulated investment companies) and real estate investment trusts. Amendment return   You cannot use passive activity losses to offset Alaska Permanent Fund dividends. Amendment return Expenses. Amendment return   Do not include in the computation of your passive activity income or loss: Expenses (other than interest) that are clearly and directly allocable to your portfolio income, or Interest expense properly allocable to portfolio income. Amendment return However, this interest and other expenses may be subject to other limits. Amendment return These limits are explained in the rest of this chapter. Amendment return Additional information. Amendment return   For more information about determining and reporting income and losses from passive activities, see Publication 925. Amendment return Interest Expenses This section discusses interest expenses you may be able to deduct as an investor. Amendment return For information on business interest, see chapter 4 of Publication 535. Amendment return You cannot deduct personal interest expenses other than qualified home mortgage interest, as explained in Publication 936, Home Mortgage Interest Deduction, and interest on certain student loans, as explained in Publication 970. Amendment return Investment Interest If you borrow money to buy property you hold for investment, the interest you pay is investment interest. Amendment return You can deduct investment interest subject to the limit discussed later. Amendment return However, you cannot deduct interest you incurred to produce tax-exempt income. Amendment return See Tax-exempt income under Nondeductible Expenses, later. Amendment return You also cannot deduct interest expenses on straddles discussed under Interest expense and carrying charges on straddles , later. Amendment return Investment interest does not include any qualified home mortgage interest or any interest taken into account in computing income or loss from a passive activity. Amendment return Investment property. Amendment return   Property held for investment includes property that produces interest, dividends, annuities, or royalties not derived in the ordinary course of a trade or business. Amendment return It also includes property that produces gain or loss (not derived in the ordinary course of a trade or business) from the sale or trade of property producing these types of income or held for investment (other than an interest in a passive activity). Amendment return Investment property also includes an interest in a trade or business activity in which you did not materially participate (other than a passive activity). Amendment return Partners, shareholders, and beneficiaries. Amendment return   To determine your investment interest, combine your share of investment interest from a partnership, S corporation, estate, or trust with your other investment interest. Amendment return Allocation of Interest Expense If you borrow money for business or personal purposes as well as for investment, you must allocate the debt among those purposes. Amendment return Only the interest expense on the part of the debt used for investment purposes is treated as investment interest. Amendment return The allocation is not affected by the use of property that secures the debt. Amendment return Example 1. Amendment return You borrow $10,000 and use $8,000 to buy stock. Amendment return You use the other $2,000 to buy items for your home. Amendment return Since 80% of the debt is used for, and allocated to, investment purposes, 80% of the interest on that debt is investment interest. Amendment return The other 20% is nondeductible personal interest. Amendment return Debt proceeds received in cash. Amendment return   If you receive debt proceeds in cash, the proceeds are generally not treated as investment property. Amendment return Debt proceeds deposited in account. Amendment return   If you deposit debt proceeds in an account, that deposit is treated as investment property, regardless of whether the account bears interest. Amendment return But, if you withdraw the funds and use them for another purpose, you must reallocate the debt to determine the amount considered to be for investment purposes. Amendment return Example 2. Amendment return Assume in Example 1 that you borrowed the money on March 1 and immediately bought the stock for $8,000. Amendment return You did not buy the household items until June 1. Amendment return You had deposited the $2,000 in the bank. Amendment return You had no other transactions on the bank account until June. Amendment return You did not sell the stock, and you made no principal payments on the debt. Amendment return You paid interest from another account. Amendment return The $8,000 is treated as being used for an investment purpose. Amendment return The $2,000 is treated as being used for an investment purpose for the 3-month period. Amendment return Your total interest expense for 3 months on this debt is investment interest. Amendment return In June, when you spend the $2,000 for household items, you must begin to allocate 80% of the debt and the interest expense to investment purposes and 20% to personal purposes. Amendment return Amounts paid within 30 days. Amendment return   If you receive loan proceeds in cash or if the loan proceeds are deposited in an account, you can treat any payment (up to the amount of the proceeds) made from any account you own, or from cash, as made from those proceeds. Amendment return This applies to any payment made within 30 days before or after the proceeds are received in cash or deposited in your account. Amendment return   If you received the loan proceeds in cash, you can treat the payment as made on the date you received the cash instead of the date you actually made the payment. Amendment return Payments on debt may require new allocation. Amendment return   As you repay a debt used for more than one purpose, you must reallocate the balance. Amendment return You must first reduce the amount allocated to personal purposes by the repayment. Amendment return You then reallocate the rest of the debt to find what part is for investment purposes. Amendment return Example 3. Amendment return If, in Example 2 , you repay $500 on November 1, the entire repayment is applied against the amount allocated to personal purposes. Amendment return The debt balance is now allocated as $8,000 for investment purposes and $1,500 for personal purposes. Amendment return Until the next reallocation is necessary, 84% ($8,000 ÷ $9,500) of the debt and the interest expense is allocated to investment. Amendment return Pass-through entities. Amendment return   If you use borrowed funds to buy an interest in a partnership or S corporation, then the interest on those funds must be allocated based on the assets of the entity. Amendment return If you contribute to the capital of the entity, you can make the allocation using any reasonable method. Amendment return Additional allocation rules. Amendment return   For more information about allocating interest expense, see chapter 4 of Publication 535. Amendment return When To Deduct Investment Interest If you use the cash method of accounting, you must pay the interest before you can deduct it. Amendment return If you use an accrual method of accounting, you can deduct interest over the period it accrues, regardless of when you pay it. Amendment return For an exception, see Unpaid expenses owed to related party under When To Report Investment Expenses, later in this chapter. Amendment return Example. Amendment return You borrowed $1,000 on August 26, 2013, payable in 90 days at 12% interest. Amendment return On November 26, 2013, you paid this with a new note for $1,030, due on February 26, 2014. Amendment return If you use the cash method of accounting, you cannot deduct any part of the $30 interest on your return for 2013 because you did not actually pay it. Amendment return If you use an accrual method, you may be able to deduct a portion of the interest on the loans through December 31, 2013, on your return for 2013. Amendment return Interest paid in advance. Amendment return   Generally, if you pay interest in advance for a period that goes beyond the end of the tax year, you must spread the interest over the tax years to which it belongs under the OID rules discussed in chapter 1. Amendment return You can deduct in each year only the interest for that year. Amendment return Interest on margin accounts. Amendment return   If you are a cash method taxpayer, you can deduct interest on margin accounts to buy taxable securities as investment interest in the year you paid it. Amendment return You are considered to have paid interest on these accounts only when you actually pay the broker or when payment becomes available to the broker through your account. Amendment return Payment may become available to the broker through your account when the broker collects dividends or interest for your account, or sells securities held for you or received from you. Amendment return   You cannot deduct any interest on money borrowed for personal reasons. Amendment return Limit on interest deduction for market discount bonds. Amendment return   The amount you can deduct for interest expense you paid or accrued during the year to buy or carry a market discount bond may be limited. Amendment return This limit does not apply if you accrue the market discount and include it in your income currently. Amendment return   Under this limit, the interest is deductible only to the extent it is more than: The total interest and OID includible in gross income for the bond for the year, plus The market discount for the number of days you held the bond during the year. Amendment return Figure the amount in (2) above using the rules for figuring accrued market discount in chapter 1 under Market Discount Bonds . Amendment return Interest not deducted due to limit. Amendment return   In the year you dispose of the bond, you can deduct any interest expense you were not allowed to deduct in earlier years because of the limit. Amendment return Choosing to deduct disallowed interest expense before the year of disposition. Amendment return   You can choose to deduct disallowed interest expense in any year before the year you dispose of the bond, up to your net interest income from the bond during the year. Amendment return The rest of the disallowed interest expense remains deductible in the year you dispose of the bond. Amendment return Net interest income. Amendment return   This is the interest income (including OID) from the bond that you include in income for the year, minus the interest expense paid or accrued during the year to purchase or carry the bond. Amendment return Limit on interest deduction for short-term obligations. Amendment return   If the current income inclusion rules discussed in chapter 1 under Discount on Short-Term Obligations do not apply to you, the amount you can deduct for interest expense you paid or accrued during the year to buy or carry a short-term obligation is limited. Amendment return   The interest is deductible only to the extent it is more than: The amount of acquisition discount or OID on the obligation for the tax year, plus The amount of any interest payable on the obligation for the year that is not included in income because of your accounting method (other than interest taken into account in determining the amount of acquisition discount or OID). Amendment return The method of determining acquisition discount and OID for short-term obligations is discussed in chapter 1 under Discount on Short-Term Obligations . Amendment return Interest not deducted due to limit. Amendment return   In the year you dispose of the obligation, or, if you choose, in another year in which you have net interest income from the obligation, you can deduct any interest expense you were not allowed to deduct for an earlier year because of the limit. Amendment return Follow the same rules provided in the earlier discussion under Limit on interest deduction for market discount bonds , earlier. Amendment return Limit on Deduction Generally, your deduction for investment interest expense is limited to your net investment income. Amendment return You can carry over the amount of investment interest you could not deduct because of this limit to the next tax year. Amendment return The interest carried over is treated as investment interest paid or accrued in that next year. Amendment return You can carry over disallowed investment interest to the next tax year even if it is more than your taxable income in the year the interest was paid or accrued. Amendment return Net Investment Income Determine the amount of your net investment income by subtracting your investment expenses (other than interest expense) from your investment income. Amendment return Investment income. Amendment return   This generally includes your gross income from property held for investment (such as interest, dividends, annuities, and royalties). Amendment return Investment income does not include Alaska Permanent Fund dividends. Amendment return It also does not include qualified dividends or net capital gain unless you choose to include them. Amendment return Choosing to include qualified dividends. Amendment return   Investment income generally does not include qualified dividends, discussed in chapter 1. Amendment return However, you can choose to include all or part of your qualified dividends in investment income. Amendment return   You make this choice by completing Form 4952, line 4g, according to its instructions. Amendment return   If you choose to include any of your qualified dividends in investment income, you must reduce your qualified dividends that are eligible for the lower capital gains tax rates by the same amount. Amendment return Choosing to include net capital gain. Amendment return    Investment income generally does not include net capital gain from disposing of investment property (including capital gain distributions from mutual funds). Amendment return However, you can choose to include all or part of your net capital gain in investment income. Amendment return   You make this choice by completing Form 4952, line 4g, according to its instructions. Amendment return   If you choose to include any of your net capital gain in investment income, you must reduce your net capital gain that is eligible for the lower capital gains tax rates by the same amount. Amendment return   For more information about the capital gains rates, see Capital Gain Tax Rates in chapter 4. Amendment return    Before making either choice, consider the overall effect on your tax liability. Amendment return Compare your tax if you make one or both of these choices with your tax if you do not. Amendment return Investment income of child reported on parent's return. Amendment return   Investment income includes the part of your child's interest and dividend income you choose to report on your return. Amendment return If the child does not have qualified dividends, Alaska Permanent Fund dividends, or capital gain distributions, this is the amount on line 6 of Form 8814. Amendment return Include it on line 4a of Form 4952. Amendment return Example. Amendment return Your 8-year-old son has interest income of $2,200, which you choose to report on your own return. Amendment return You enter $2,200 on Form 8814, lines 1a and 4, and $200 on lines 6 and 12 and complete Part II. Amendment return Also enter $200 on Form 1040, line 21. Amendment return Your investment income includes this $200. Amendment return Child's qualified dividends. Amendment return   If part of the amount you report is your child's qualified dividends, that part (which is reported on Form 1040, line 9b) generally does not count as investment income. Amendment return However, you can choose to include all or part of it in investment income, as explained under Choosing to include qualified dividends , earlier. Amendment return   Your investment income also includes the amount on Form 8814, line 12 (or, if applicable, the reduced amount figured next under Child's Alaska Permanent Fund dividends). Amendment return Child's Alaska Permanent Fund dividends. Amendment return   If part of the amount you report is your child's Alaska Permanent Fund dividends, that part does not count as investment income. Amendment return To figure the amount of your child's income that you can consider your investment income, start with the amount on Form 8814, line 6. Amendment return Multiply that amount by a percentage that is equal to the Alaska Permanent Fund dividends divided by the total amount on Form 8814, line 4. Amendment return Subtract the result from the amount on Form 8814, line 12. Amendment return Example. Amendment return Your 10-year-old child has taxable interest income of $4,000 and Alaska Permanent Fund dividends of $2,000. Amendment return You choose to report this on your return. Amendment return You enter $4,000 on Form 8814, line 1a, $2,000 on line 2a, and $6,000 on line 4. Amendment return You then enter $4,000 on Form 8814, lines 6 and 12, and Form 1040, line 21. Amendment return You figure the amount of your child's income that you can consider your investment income as follows: $4,000 − ($4,000 × ($2,000 ÷ $6,000)) = $2,667 You include the result, $2,667, on Form 4952, line 4a. Amendment return Child's capital gain distributions. Amendment return   If part of the amount you report is your child's capital gain distributions, that part (which is reported on Schedule D (Form 1040), line 13, or Form 1040, line 13) generally does not count as investment income. Amendment return However, you can choose to include all or part of it in investment income, as explained in Choosing to include net capital gain , earlier. Amendment return   Your investment income also includes the amount on Form 8814, line 12 (or, if applicable, the reduced amount figured under Child's Alaska Permanent Fund dividends , earlier). Amendment return Investment expenses. Amendment return   Investment expenses are your allowed deductions (other than interest expense) directly connected with the production of investment income. Amendment return Investment expenses that are included as a miscellaneous itemized deduction on Schedule A (Form 1040) are allowable deductions after applying the 2% limit that applies to miscellaneous itemized deductions. Amendment return Use the smaller of: The investment expenses included on Schedule A (Form 1040), line 23, or The amount on Schedule A (Form 1040), line 27. Amendment return See Expenses of Producing Income , later, for a discussion of the 2% limit. Amendment return Losses from passive activities. Amendment return   Income or expenses that you used in computing income or loss from a passive activity are not included in determining your investment income or investment expenses (including investment interest expense). Amendment return See Publication 925 for information about passive activities. Amendment return Example. Amendment return Ted is a partner in a partnership that operates a business. Amendment return However, he does not materially participate in the partnership's business. Amendment return Ted's interest in the partnership is considered a passive activity. Amendment return Ted's investment income from interest and dividends (other than qualified dividends) is $10,000. Amendment return His investment expenses (other than interest) are $3,200 after taking into account the 2% limit on miscellaneous itemized deductions. Amendment return His investment interest expense is $8,000. Amendment return Ted also has income from the partnership of $2,000. Amendment return Ted figures his net investment income and the limit on his investment interest expense deduction in the following way: Total investment income $10,000 Minus: Investment expenses (other than interest) 3,200 Net investment income $6,800 Deductible investment interest expense for the year $6,800 The $2,000 of income from the passive activity is not used in determining Ted's net investment income. Amendment return His investment interest deduction for the year is limited to $6,800, the amount of his net investment income. Amendment return Form 4952 Use Form 4952 to figure your deduction for investment interest. Amendment return See Form 4952 for more information. Amendment return Exception to use of Form 4952. Amendment return   You do not have to complete Form 4952 or attach it to your return if you meet all of the following tests. Amendment return Your investment interest expense is not more than your investment income from interest and ordinary dividends minus any qualified dividends. Amendment return You do not have any other deductible investment expenses. Amendment return You have no carryover of investment interest expense from 2012. Amendment return   If you meet all of these tests, you can deduct all of your investment interest. Amendment return    Bond Premium Amortization If you pay a premium to buy a bond, the premium is part of your basis in the bond. Amendment return If the bond yields taxable interest, you can choose to amortize the premium. Amendment return This generally means that each year, over the life of the bond, you use a part of the premium to reduce the amount of interest includible in your income. Amendment return If you make this choice, you must reduce your basis in the bond by the amortization for the year. Amendment return If the bond yields tax-exempt interest, you must amortize the premium. Amendment return This amortized amount is not deductible in determining taxable income. Amendment return However, each year you must reduce your basis in the bond (and tax-exempt interest otherwise reportable on Form 1040, line 8b) by the amortization for the year. Amendment return Bond premium. Amendment return   Bond premium is the amount by which your basis in the bond right after you get it is more than the total of all amounts payable on the bond after you get it (other than payments of qualified stated interest). Amendment return For example, a bond with a maturity value of $1,000 generally would have a $50 premium if you buy it for $1,050. Amendment return Special rules to determine amounts payable on a bond. Amendment return   For special rules that apply to determine the amounts payable on a variable rate bond, an inflation-indexed debt instrument, a bond that provides for certain alternative payment schedules (for example, a bond callable prior to the stated maturity date of the bond), or a bond that provides for remote or incidental contingencies, see Regulations section 1. Amendment return 171-3. Amendment return Basis. Amendment return   In general, your basis for figuring bond premium amortization is the same as your basis for figuring any loss on the sale of the bond. Amendment return However, you may need to use a different basis for: Convertible bonds, Bonds you got in a trade, and Bonds whose basis has to be determined using the basis of the person who transferred the bond to you. Amendment return See Regulations section 1. Amendment return 171-1(e). Amendment return Dealers. Amendment return   A dealer in taxable bonds (or anyone who holds them mainly for sale to customers in the ordinary course of a trade or business or who would properly include bonds in inventory at the close of the tax year) cannot claim a deduction for amortizable bond premium. Amendment return   See section 75 of the Internal Revenue Code for the treatment of bond premium by a dealer in tax-exempt bonds. Amendment return How To Figure Amortization For bonds issued after September 27, 1985, you must amortize bond premium using a constant yield method on the basis of the bond's yield to maturity, determined by using the bond's basis and compounding at the close of each accrual period. Amendment return Constant yield method. Amendment return   Figure the bond premium amortization for each accrual period as follows. Amendment return Step 1: Determine your yield. Amendment return   Your yield is the discount rate that, when used in figuring the present value of all remaining payments to be made on the bond (including payments of qualified stated interest), produces an amount equal to your basis in the bond. Amendment return Figure the yield as of the date you got the bond. Amendment return It must be constant over the term of the bond and must be figured to at least two decimal places when expressed as a percentage. Amendment return   If you do not know the yield, consult your broker or tax advisor. Amendment return Databases available to them are likely to show the yield at the date of purchase. Amendment return Step 2: Determine the accrual periods. Amendment return   You can choose the accrual periods to use. Amendment return They may be of any length and may vary in length over the term of the bond, but each accrual period can be no longer than 1 year and each scheduled payment of principal or interest must occur either on the first or the final day of an accrual period. Amendment return The computation is simplest if accrual periods are the same as the intervals between interest payment dates. Amendment return Step 3: Determine the bond premium for the accrual period. Amendment return   To do this, multiply your adjusted acquisition price at the beginning of the accrual period by your yield. Amendment return Then subtract the result from the qualified stated interest for the period. Amendment return   Your adjusted acquisition price at the beginning of the first accrual period is the same as your basis. Amendment return After that, it is your basis decreased by the amount of bond premium amortized for earlier periods and the amount of any payment previously made on the bond other than a payment of qualified stated interest. Amendment return Example. Amendment return On February 1, 2012, you bought a taxable bond for $110,000. Amendment return The bond has a stated principal amount of $100,000, payable at maturity on February 1, 2019, making your premium $10,000 ($110,000 − $100,000). Amendment return The bond pays qualified stated interest of $10,000 on February 1 of each year. Amendment return Your yield is 8. Amendment return 07439% compounded annually. Amendment return You choose to use annual accrual periods ending on February 1 of each year. Amendment return To find your bond premium amortization for the accrual period ending on February 1, 2013, you multiply the adjusted acquisition price at the beginning of the period ($110,000) by your yield. Amendment return When you subtract the result ($8,881. Amendment return 83) from the qualified stated interest for the period ($10,000), you find that your bond premium amortization for the period is $1,118. Amendment return 17. Amendment return Special rules to figure amortization. Amendment return   For special rules to figure the bond premium amortization on a variable rate bond, an inflation-indexed debt instrument, a bond that provides for certain alternative payment schedules (for example, a bond callable prior to the stated maturity date of the bond), or a bond that provides for remote or incidental contingencies, see Regulations section 1. Amendment return 171-3. Amendment return Bonds Issued Before September 28, 1985 For these bonds, you can amortize bond premium using any reasonable method. Amendment return Reasonable methods include: The straight-line method, and The Revenue Ruling 82-10 method. Amendment return Straight-line method. Amendment return   Under this method, the amount of your bond premium amortization is the same each month. Amendment return Divide the number of months you held the bond during the year by the number of months from the beginning of the tax year (or, if later, the date of acquisition) to the date of maturity or earlier call date. Amendment return Then multiply the result by the bond premium (reduced by any bond premium amortization claimed in earlier years). Amendment return This gives you your bond premium amortization for the year. Amendment return Revenue Ruling 82-10 method. Amendment return   Under this method, the amount of your bond premium amortization increases each month over the life of the bond. Amendment return This method is explained in Revenue Ruling 82-10, 1982-1 C. Amendment return B. Amendment return 46. Amendment return Choosing To Amortize You choose to amortize the premium on taxable bonds by reporting the amortization for the year on your income tax return for the first tax year you want the choice to apply. Amendment return You should attach a statement to your return that you are making this choice under section 171. Amendment return See How To Report Amortization, next. Amendment return This choice is binding for the year you make it and for later tax years. Amendment return It applies to all taxable bonds you own in the year you make the choice and also to those you acquire in later years. Amendment return You can change your decision to amortize bond premium only with the written approval of the IRS. Amendment return To request approval, use Form 3115. Amendment return For more information on requesting approval, see section 5 of the Appendix to Revenue Procedure 2011-14 in Internal Revenue Bulletin 2011-4. Amendment return You can find Revenue Procedure 2011-14 at www. Amendment return irs. Amendment return gov/irb/2011-04_IRB/ar08. Amendment return html. Amendment return How To Report Amortization Subtract the bond premium amortization from your interest income from these bonds. Amendment return Report the bond's interest on Schedule B (Form 1040A or 1040), line 1. Amendment return Under your last entry on line 1, put a subtotal of all interest listed on line 1. Amendment return Below this subtotal, print “ABP Adjustment,” and the total interest you received. Amendment return Subtract this amount from the subtotal, and enter the result on line 2. Amendment return Bond premium amortization more than interest. Amendment return   If the amount of your bond premium amortization for an accrual period is more than the qualified stated interest for the period, you can deduct the difference as a miscellaneous itemized deduction on Schedule A (Form 1040), line 28. Amendment return    But your deduction is limited to the amount by which your total interest inclusions on the bond in prior accrual periods is more than your total bond premium deductions on the bond in prior periods. Amendment return Any amount you cannot deduct because of this limit can be carried forward to the next accrual period. Amendment return Pre-1998 election to amortize bond premium. Amendment return   Generally, if you first elected to amortize bond premium before 1998, the above treatment of the premium does not apply to bonds you acquired before 1988. Amendment return Bonds acquired before October 23, 1986. Amendment return   The amortization of the premium on these bonds is a miscellaneous itemized deduction not subject to the 2%-of-adjusted-gross-income limit. Amendment return Bonds acquired after October 22, 1986, but before 1988. Amendment return    The amortization of the premium on these bonds is investment interest expense subject to the investment interest limit, unless you choose to treat it as an offset to interest income on the bond. Amendment return Expenses of Producing Income You deduct investment expenses (other than interest expenses) as miscellaneous itemized deductions on Schedule A (Form 1040). Amendment return To be deductible, these expenses must be ordinary and necessary expenses paid or incurred: To produce or collect income, or To manage property held for producing income. Amendment return The expenses must be directly related to the income or income-producing property, and the income must be taxable to you. Amendment return The deduction for most income-producing expenses is subject to a 2% limit that also applies to certain other miscellaneous itemized deductions. Amendment return The amount deductible is limited to the total of these miscellaneous deductions that is more than 2% of your adjusted gross income. Amendment return For information on how to report expenses of producing income, see How To Report Investment Expenses , later. Amendment return Attorney or accounting fees. Amendment return   You can deduct attorney or accounting fees that are necessary to produce or collect taxable income. Amendment return However, in some cases, attorney or accounting fees are part of the basis of property. Amendment return See Basis of Investment Property in chapter 4. Amendment return Automatic investment service and dividend reinvestment plans. Amendment return   A bank may offer its checking account customers an automatic investment service so that, for a charge, each customer can choose to invest a part of the checking account each month in common stock. Amendment return Or a bank that is a dividend disbursing agent for a number of publicly-owned corporations may set up an automatic dividend reinvestment service. Amendment return Through that service, cash dividends are reinvested in more shares of stock after the bank deducts a service charge. Amendment return   A corporation in which you own stock also may have a dividend reinvestment plan. Amendment return This plan lets you choose to use your dividends to buy more shares of stock in the corporation instead of receiving the dividends in cash. Amendment return   You can deduct the monthly service charge you pay to a bank to participate in an automatic investment service. Amendment return If you participate in a dividend reinvestment plan, you can deduct any service charge subtracted from your cash dividends before the dividends are used to buy more shares of stock. Amendment return Deduct the charges in the year you pay them. Amendment return Clerical help and office rent. Amendment return   You can deduct office expenses, such as rent and clerical help, you incurred in connection with your investments and collecting the taxable income on your investments. Amendment return Cost of replacing missing securities. Amendment return   To replace your taxable securities that are mislaid, lost, stolen, or destroyed, you may have to post an indemnity bond. Amendment return You can deduct the premium you pay to buy the indemnity bond and the related incidental expenses. Amendment return   You may, however, get a refund of part of the bond premium if the missing securities are recovered within a specified time. Amendment return Under certain types of insurance policies, you can recover some of the expenses. Amendment return   If you receive the refund in the tax year you pay the amounts, you can deduct only the difference between the expenses paid and the amount refunded. Amendment return If the refund is made in a later tax year, you must include the refund in income in the year you received it, but only to the extent that the expenses decreased your tax in the year you deducted them. Amendment return Fees to collect income. Amendment return   You can deduct fees you pay to a broker, bank, trustee, or similar agent to collect investment income, such as your taxable bond or mortgage interest, or your dividends on shares of stock. Amendment return Fees to buy or sell. Amendment return   You cannot deduct a fee you pay to a broker to acquire investment property, such as stocks or bonds. Amendment return You must add the fee to the cost of the property. Amendment return See Basis of Investment Property in chapter 4. Amendment return    You cannot deduct any broker's fees, commissions, or option premiums you pay (or that were netted out) in connection with the sale of investment property. Amendment return They can be used only to figure gain or loss from the sale. Amendment return See Reporting Capital Gains and Losses , in chapter 4, for more information about the treatment of these sale expenses. Amendment return Investment counsel and advice. Amendment return   You can deduct fees you pay for counsel and advice about investments that produce taxable income. Amendment return This includes amounts you pay for investment advisory services. Amendment return Safe deposit box rent. Amendment return   You can deduct rent you pay for a safe deposit box if you use the box to store taxable income-producing stocks, bonds, or other investment-related papers and documents. Amendment return If you also use the box to store tax-exempt securities or personal items, you can deduct only part of the rent. Amendment return See Tax-exempt income under Nondeductible Expenses, later, to figure what part you can deduct. Amendment return State and local transfer taxes. Amendment return   You cannot deduct the state and local transfer taxes you pay when you buy or sell securities. Amendment return If you pay these transfer taxes when you buy securities, you must treat them as part of the cost of the property. Amendment return If you pay these transfer taxes when you sell securities, you must treat them as a reduction in the amount realized. Amendment return Trustee's commissions for revocable trust. Amendment return   If you set up a revocable trust and have its income distributed to you, you can deduct the commission you pay the trustee for managing the trust to the extent it is to produce or collect taxable income or to manage property. Amendment return However, you cannot deduct any part of the commission used for producing or collecting tax-exempt income or for managing property that produces tax-exempt income. Amendment return   If you are a cash-basis taxpayer and pay the commissions for several years in advance, you must deduct a part of the commission each year. Amendment return You cannot deduct the entire amount in the year you pay it. Amendment return Investment expenses from pass-through entities. Amendment return   If you hold an interest in a partnership, S corporation, real estate mortgage investment conduit (REMIC), or a nonpublicly offered mutual fund, you can deduct your share of that entity's investment expenses. Amendment return A partnership or S corporation will show your share of these expenses on your Schedule K-1 (Form 1065) or Schedule K-1 (Form 1120S). Amendment return A nonpublicly offered mutual fund will indicate your share of these expenses in box 5 of Form 1099-DIV (or substitute statement). Amendment return Publicly-offered mutual funds are discussed later. Amendment return   If you hold an interest in a REMIC, any expenses relating to your residual interest investment will be shown on Schedule Q (Form 1066), line 3b. Amendment return Any expenses relating to your regular interest investment will appear in box 5 of Form 1099-INT (or substitute statement) or box 9 of Form 1099-OID (or substitute statement). Amendment return   Report your share of these investment expenses on Schedule A (Form 1040), subject to the 2% limit, in the same manner as your other investment expenses. Amendment return Including mutual fund or REMIC expenses in income. Amendment return   Your share of the investment expenses of a REMIC or a nonpublicly offered mutual fund, as described above, are considered to be indirect deductions through that pass-through entity. Amendment return You must include in your gross income an amount equal to the expenses allocated to you, whether or not you are able to claim a deduction for those expenses. Amendment return If you are a shareholder in a nonpublicly offered mutual fund, you must include on your return the full amount of ordinary dividends or other distributions of stock, as shown in box 1a of Form 1099-DIV (or substitute statement). Amendment return If you are a residual interest holder in a REMIC, you must report as ordinary income on Schedule E (Form 1040) the total amounts shown on Schedule Q (Form 1066), lines 1b and 3b. Amendment return If you are a REMIC regular interest holder, you must include the amount of any expense allocation you received on Form 1040, line 8a. Amendment return Publicly-offered mutual funds. Amendment return   Most mutual funds are publicly offered. Amendment return These mutual funds, generally, are traded on an established securities exchange. Amendment return These funds do not pass investment expenses through to you. Amendment return Instead, the dividend income they report to you in box 1a of Form 1099-DIV (or substitute statement) is already reduced by your share of investment expenses. Amendment return As a result, you cannot deduct the expenses on your return. Amendment return   Include the amount from box 1a of Form 1099-DIV (or substitute statement) in your income. Amendment return    A publicly offered mutual fund is one that: Is continuously offered pursuant to a public offering, Is regularly traded on an established securities market, and Is held by or for no fewer than 500 persons at any time during the year. Amendment return Contact your mutual fund if you are not sure whether it is publicly offered. Amendment return Nondeductible Expenses Some expenses that you incur as an investor are not deductible. Amendment return Stockholders' meetings. Amendment return   You cannot deduct transportation and other expenses you pay to attend stockholders' meetings of companies in which you have no interest other than owning stock. Amendment return This is true even if your purpose in attending is to get information that would be useful in making further investments. Amendment return Investment-related seminar. Amendment return   You cannot deduct expenses for attending a convention, seminar, or similar meeting for investment purposes. Amendment return Single-premium life insurance, endowment, and annuity contracts. Amendment return   You cannot deduct interest on money you borrow to buy or carry a single-premium life insurance, endowment, or annuity contract. Amendment return Used as collateral. Amendment return   If you use a single premium annuity contract as collateral to obtain or continue a mortgage loan, you cannot deduct any interest on the loan that is collateralized by the annuity contract. Amendment return Figure the amount of interest expense disallowed by multiplying the current interest rate on the mortgage loan by the lesser of the amount of the annuity contract used as collateral or the amount of the loan. Amendment return Borrowing on insurance. Amendment return   Generally, you cannot deduct interest on money you borrow to buy or carry a life insurance, endowment, or annuity contract if you plan to systematically borrow part or all of the increases in the cash value of the contract. Amendment return This rule applies to the interest on the total amount borrowed to buy or carry the contract, not just the interest on the borrowed increases in the cash value. Amendment return Tax-exempt income. Amendment return   You cannot deduct expenses you incur to produce tax-exempt income. Amendment return Nor can you deduct interest on money you borrow to buy tax-exempt securities or shares in a mutual fund or other regulated investment company that distributes only exempt-interest dividends. Amendment return Short-sale expenses. Amendment return   The rule disallowing a deduction for interest expenses on tax-exempt securities applies to amounts you pay in connection with personal property used in a short sale or amounts paid by others for the use of any collateral in connection with the short sale. Amendment return However, it does not apply to the expenses you incur if you deposit cash as collateral for the property used in the short sale and the cash does not earn a material return during the period of the sale. Amendment return Short sales are discussed in Short Sales in chapter 4. Amendment return Expenses for both tax-exempt and taxable income. Amendment return   You may have expenses that are for both tax-exempt and taxable income. Amendment return If you cannot specifically identify what part of the expenses is for each type of income, you can divide the expenses, using reasonable proportions based on facts and circumstances. Amendment return You must attach a statement to your return showing how you divided the expenses and stating that each deduction claimed is not based on tax-exempt income. Amendment return   One accepted method for dividing expenses is to do it in the same proportion that each type of income is to the total income. Amendment return If the expenses relate in part to capital gains and losses, include the gains, but not the losses, in figuring this proportion. Amendment return To find the part of the expenses that is for the tax-exempt income, divide your tax-exempt income by the total income and multiply your expenses by the result. Amendment return Example. Amendment return You received $6,000 interest; $4,800 was tax-exempt and $1,200 was taxable. Amendment return In earning this income, you had $500 of expenses. Amendment return You cannot specifically identify the amount of each expense item that is for each income item, so you must divide your expenses. Amendment return 80% ($4,800 tax-exempt interest divided by $6,000 total interest) of your expenses is for the tax-exempt income. Amendment return You cannot deduct $400 (80% of $500) of the expenses. Amendment return You can deduct $100 (the rest of the expenses) because they are for the taxable interest. Amendment return State income taxes. Amendment return   If you itemize your deductions, you can deduct, as taxes, state income taxes on interest income that is exempt from federal income tax. Amendment return But you cannot deduct, as either taxes or investment expenses, state income taxes on other exempt income. Amendment return Interest expense and carrying charges on straddles. Amendment return   You cannot deduct interest and carrying charges allocable to personal property that is part of a straddle. Amendment return The nondeductible interest and carrying charges are added to the basis of the straddle property. Amendment return However, this treatment does not apply if: All the offsetting positions making up the straddle either consist of one or more qualified covered call options and the optioned stock, or consist of section 1256 contracts (and the straddle is not part of a larger straddle); or The straddle is a hedging transaction. Amendment return  For information about straddles, including definitions of the terms used in this discussion, see Straddles in chapter 4. Amendment return   Interest includes any amount you pay or incur in connection with personal property used in a short sale. Amendment return However, you must first apply the rules discussed in Payments in lieu of dividends under Short Sales in chapter 4. Amendment return   To determine the interest on market discount bonds and short-term obligations that are part of a straddle, you must first apply the rules discussed under Limit on interest deduction for market discount bonds and Limit on interest deduction for short-term obligations (both under Interest Expenses, earlier). Amendment return Nondeductible amount. Amendment return   Figure the nondeductible interest and carrying charges on straddle property as follows. Amendment return Add: Interest on indebtedness incurred or continued to buy or carry the personal property, and All other amounts (including charges to insure, store, or transport the personal property) paid or incurred to carry the personal property. Amendment return Subtract from the amount in (1): Interest (including OID) includible in gross income for the year on the personal property, Any income from the personal property treated as ordinary income on the disposition of short-term government obligations or as ordinary income under the market discount and short-term bond provisions — see Discount on Debt Instruments in chapter 1, The dividends includible in gross income for the year from the personal property, and Any payment on a loan of the personal property for use in a short sale that is includible in gross income. Amendment return Basis adjustment. Amendment return   Add the nondeductible amount to the basis of your straddle property. Amendment return How To Report Investment Expenses To deduct your investment expenses, you must itemize deductions on Schedule A (Form 1040). Amendment return Enter your deductible investment interest expense on Schedule A (Form1040), line 14. Amendment return Include any deductible short sale expenses. Amendment return (See Short Sales in chapter 4 for information on these expenses. Amendment return ) Also attach a completed Form 4952 if you used that form to figure your investment interest expense. Amendment return Enter the total amount of your other investment expenses (other than interest expenses) on Schedule A (Form 1040), line 23. Amendment return List the type and amount of each expense on the dotted lines next to line 23. Amendment return (If necessary, you can show the required information on an attached statement. Amendment return ) For information on how to report amortizable bond premium, see Bond Premium Amortization , earlier in this chapter. Amendment return When To Report Investment Expenses If you use the cash method to report income and expenses, you generally deduct your expenses, except for certain prepaid interest, in the year you pay them. Amendment return If you use an accrual method, you generally deduct your expenses when you incur a liability for them, rather than when you pay them. Amendment return Also see When To Deduct Investment Interest , earlier in this chapter. Amendment return Unpaid expenses owed to related party. Amendment return   If you use an accrual method, you cannot deduct interest and other expenses owed to a related cash-basis person until payment is made and the amount is includible in the gross income of that person. Amendment return The relationship, for purposes of this rule, is determined as of the end of the tax year for which the interest or expense would otherwise be deductible. Amendment return If a deduction is denied under this rule, this rule will continue to apply even if your relationship with the person ceases to exist before the amount is includible in the gross income of that person. Amendment return   This rule generally applies to those relationships listed in chapter 4 under Related Party Transactions . Amendment return It also applies to accruals by partnerships to partners, partners to partnerships, shareholders to S corporations, and S corporations to shareholders. Amendment return   The postponement of deductions for unpaid expenses and interest under the related party rule does not apply to OID, regardless of when payment is made. Amendment return This rule also does not apply to loans with below-market interest rates or to certain payments for the use of property and services when the lender or recipient has to include payments periodically in income, even if a payment has not been made. Amendment return Prev  Up  Next   Home   More Online Publications
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The Amendment Return

Amendment return 9. Amendment return   Tax Treaty Benefits Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Treaty Income Some Typical Tax Treaty BenefitsPersonal Services Teachers, Professors, and Researchers Employees of Foreign Governments Students, Apprentices, and Trainees Capital Gains Resident Aliens Reporting Treaty Benefits Claimed Introduction A nonresident alien (and certain resident aliens) from a country with which the United States has an income tax treaty may qualify for certain benefits. Amendment return Most treaties require that the nonresident alien be a resident of the treaty country to qualify. Amendment return However, some treaties require that the nonresident alien be a national or a citizen of the treaty country. Amendment return See Table 9-1 for a list of tax treaty countries. Amendment return You can generally arrange to have withholding tax reduced or eliminated on wages and other income that are eligible for tax treaty benefits. Amendment return See Income Entitled to Tax Treaty Benefits in chapter 8. Amendment return Topics - This chapter discusses: Typical tax treaty benefits, How to obtain copies of tax treaties, and How to claim tax treaty benefits on your tax return. Amendment return Useful Items - You may want to see: Publication 901 U. Amendment return S. Amendment return Tax Treaties Form (and Instructions) 1040NR U. Amendment return S. Amendment return Nonresident Alien Income Tax Return 1040NR-EZ U. Amendment return S. Amendment return Income Tax Return for Certain Nonresident Aliens With No Dependents 8833 Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b) See chapter 12 for information about getting these publications and forms. Amendment return Treaty Income A nonresident alien's treaty income is the gross income on which the tax is limited by a tax treaty. Amendment return Treaty income includes, for example, dividends from sources in the United States that are subject to tax at a tax treaty rate not to exceed 15%. Amendment return Nontreaty income is the gross income of a nonresident alien on which the tax is not limited by a tax treaty. Amendment return Figure the tax on treaty income on each separate item of income at the reduced rate that applies to that item under the treaty. Amendment return To determine tax on nontreaty income, figure the tax at either the flat 30% rate or the graduated rate, depending upon whether or not the income is effectively connected with your trade or business in the United States. Amendment return Your tax liability is the sum of the tax on treaty income plus the tax on nontreaty income, but cannot be more than the tax liability figured as if the tax treaty had not come into effect. Amendment return Example. Amendment return Arthur Banks is a nonresident alien who is single and a resident of a foreign country that has a tax treaty with the United States. Amendment return He received gross income of $25,850 during the tax year from sources within the United States, consisting of the following items: Dividends on which the tax is limited to a 15% rate by the tax treaty $1,400 Compensation for personal services on which the tax is not limited by the tax treaty 24,450 Total gross income $25,850 Arthur was engaged in business in the United States during the tax year. Amendment return His dividends are not effectively connected with that business. Amendment return He has no deductions other than his own personal exemption. Amendment return His tax liability, figured as though the tax treaty had not come into effect, is $3,060 determined as follows: Total compensation $24,450 Less: Personal exemption 3,900 Taxable income $20,550 Tax determined by graduated rate (Tax Table column for single taxpayers) $2,640 Plus: Tax on gross dividends ($1,400 × 30%) 420 Tax determined as though treaty had not come into effect $3,060 Arthur's tax liability, figured by taking into account the reduced rate on dividend income as provided by the tax treaty, is $2,850 determined as follows: Tax determined by graduated rate (same as figured above) $2,640 Plus: Tax on gross dividends ($1,400 × 15%) 210 Tax on compensation and dividends $2,850 His tax liability, therefore, is limited to $2,850, the tax liability figured using the tax treaty rate on the dividends. Amendment return Some Typical Tax Treaty Benefits The following paragraphs briefly explain the exemptions that are available under tax treaties for personal services income, remittances, scholarships, fellowships, and capital gain income. Amendment return The conditions for claiming the exemptions vary under each tax treaty. Amendment return For more information about the conditions under a particular tax treaty, see Publication 901. Amendment return Or, you may download the complete text of most U. Amendment return S. Amendment return tax treaties at IRS. Amendment return gov. Amendment return Technical explanations for many of those treaties are also available at that site. Amendment return Tax treaty benefits also cover income such as dividends, interest, rentals, royalties, pensions, and annuities. Amendment return These types of income may be exempt from U. Amendment return S. Amendment return tax or may be subject to a reduced rate of tax. Amendment return For more information, see Publication 901 or the applicable tax treaty. Amendment return Personal Services Nonresident aliens from treaty countries who are in the United States for a short stay and also meet certain other requirements may be exempt from tax on their compensation received for personal services performed in the United States. Amendment return Many tax treaties require that the nonresident alien claiming this exemption be present in the United States for a total of not more than 183 days during the tax year. Amendment return Other tax treaties specify different periods of maximum presence in the United States, such as 180 days or 90 days. Amendment return Spending part of a day in the United States counts as a day of presence. Amendment return Tax treaties may also require that: The compensation cannot be more than a specific amount (frequently $3,000), and The individual have a foreign employer; that is, an individual, corporation, or entity of a foreign country. Amendment return Note. Amendment return Under most treaties, income received as an employee (generally designated as dependent personal services) and income received as a self-employed person (generally designated as independent personal services or business income) are treated differently. Amendment return Teachers, Professors, and Researchers Under many income tax treaties, nonresident alien teachers or professors who temporarily visit the United States for the primary purpose of teaching at a university or other accredited educational institution are not subject to U. Amendment return S. Amendment return income tax on compensation received for teaching for the first 2 or 3 years after their arrival in the United States. Amendment return Many treaties also provide an exemption for engaging in research. Amendment return Generally, the teacher or professor must be in the United States primarily to teach, lecture, instruct, or engage in research. Amendment return A substantial part of that person's time must be devoted to those duties. Amendment return The normal duties of a teacher or professor include not only formal classroom work involving regularly scheduled lectures, demonstrations, or other student-participation activities, but also the less formal method of presenting ideas in seminars or other informal groups and in joint efforts in the laboratory. Amendment return If you entered the United States as a nonresident alien, but are now a resident alien, the treaty exemption may still apply. Amendment return See Students, Apprentices, Trainees, Teachers, Professors, and Researchers Who Became Resident Aliens later under Resident Aliens. Amendment return Employees of Foreign Governments All treaties have provisions for the exemption of income earned by certain employees of foreign governments. Amendment return However, a difference exists among treaties as to who qualifies for this benefit. Amendment return Under many treaties, aliens admitted to the United States for permanent residence do not qualify. Amendment return Under most treaties, aliens who are not nationals or subjects of the foreign country do not qualify. Amendment return Employees of foreign governments should read the pertinent treaty carefully to determine whether they qualify for benefits. Amendment return Chapter 10 of this publication also has information for employees of foreign governments. Amendment return Students, Apprentices, and Trainees Under some income tax treaties, students, apprentices, and trainees are exempt from tax on remittances received from abroad for study and maintenance. Amendment return Also, under some treaties, scholarship and fellowship grants, and a limited amount of compensation received by students, apprentices, and trainees may be exempt from tax. Amendment return If you entered the United States as a nonresident alien, but are now a resident alien, the treaty exemption may still apply. Amendment return See Students, Apprentices, Trainees, Teachers, Professors, and Researchers Who Became Resident Aliens , later, under Resident Aliens. Amendment return Capital Gains Most treaties provide for the exemption of gains from the sale or exchange of personal property. Amendment return Generally, gains from the sale or exchange of real property located in the United States are taxable. Amendment return Resident Aliens Resident aliens may qualify for tax treaty benefits in the situations discussed below. Amendment return U. Amendment return S. Amendment return Residency Under Tax Treaty “Tie-Breaker” Rule In certain circumstances, individuals who are treated as residents of the United States under an income tax treaty (after application of the so-called “tie-breaker” rule) will be entitled to treaty benefits. Amendment return (The “tie-breaker” rule is explained in chapter 1 under Effect of Tax Treaties. Amendment return ) If this applies to you, you generally will not need to file a Form 8833 for the income for which treaty benefits are claimed. Amendment return This is because the income will typically be of a category for which disclosure on a Form 8833 is waived. Amendment return See Reporting Treaty Benefits Claimed . Amendment return In most cases, you also will not need to report the income on your Form 1040 because the income will be exempt from U. Amendment return S. Amendment return tax under the treaty. Amendment return However, if the income has been reported as taxable income on a Form W-2, Form 1042-S, Form 1099, or other information return, you should report it on the appropriate line of Form 1040 (for example, line 7 in the case of wages or salaries). Amendment return Enter the amount for which treaty benefits are claimed in parentheses on Form 1040, line 21. Amendment return Next to the amount write “Exempt income,” the name of the treaty country, and the treaty article that provides the exemption. Amendment return On Form 1040, subtract this amount from your income to arrive at total income on Form 1040, line 22. Amendment return Also follow the above procedure for income that is subject to a reduced rate of tax, instead of an exemption, under the treaty. Amendment return Attach a statement to Form 1040 showing a computation of the tax at the reduced rate, the name of the treaty country, and the treaty article that provides for the reduced tax rate. Amendment return Include this tax on Form 1040, line 61. Amendment return On the dotted line next to line 61, write “Tax from attached statement” and the amount of the tax. Amendment return Example. Amendment return Jacques Dubois, who is a resident of the United States under Article 4 of the U. Amendment return S. Amendment return -France income tax treaty, receives French social security benefits. Amendment return Under Article 18(1) of the treaty, French social security benefits are not taxable by the United States. Amendment return Mr. Amendment return Dubois is not required to file a Form 8833 for his French social security benefits or report the benefits on Form 1040. Amendment return Special Rule for Canadian and German Social Security Benefits Under income tax treaties with Canada and Germany, if a U. Amendment return S. Amendment return resident receives social security benefits from Canada or Germany, those benefits are treated for U. Amendment return S. Amendment return income tax purposes as if they were received under the social security legislation of the United States. Amendment return If you receive social security benefits from Canada or Germany, include them on line 1 of your Social Security Benefits Worksheet for purposes of determining the taxable amount to be reported on Form 1040, line 20b or Form 1040A, line 14b. Amendment return You are not required to file a Form 8833 for those benefits. Amendment return Students, Apprentices, Trainees, Teachers, Professors, and Researchers Who Became Resident Aliens Generally, you must be a nonresident alien student, apprentice, trainee, teacher, professor, or researcher in order to claim a tax treaty exemption for remittances from abroad for study and maintenance in the United States, for scholarship, fellowship, and research grants, and for wages or other personal service compensation. Amendment return Once you become a resident alien, you generally can no longer claim a tax treaty exemption for this income. Amendment return However, if you entered the United States as a nonresident alien, but you are now a resident alien for U. Amendment return S. Amendment return tax purposes, the treaty exemption will continue to apply if the tax treaty's saving clause (explained later) provides an exception for it and you otherwise meet the requirements for the treaty exemption (including any time limit, explained later). Amendment return This is true even if you are a nonresident alien electing to file a joint return as explained in chapter 1. Amendment return Some exceptions to the saving clause apply to all resident aliens (for example, under the U. Amendment return S. Amendment return -People's Republic of China treaty); others apply only to resident aliens who are not lawful permanent residents of the United States (green card holders). Amendment return If you qualify under an exception to the treaty's saving clause, you can avoid income tax withholding by giving the payor a Form W-9 with the statement required by the Form W-9 instructions. Amendment return Saving clause. Amendment return   Most tax treaties have a saving clause. Amendment return A saving clause preserves or “saves” the right of each country to tax its own residents as if no tax treaty were in effect. Amendment return Thus, once you become a resident alien of the United States, you generally lose any tax treaty benefits that relate to your income. Amendment return However, many tax treaties have exceptions to the saving clause, which may allow you to continue to claim certain treaty benefits when you become a resident alien. Amendment return Read the treaty to find out if it has a saving clause and an exception to it. Amendment return Time limit for claiming treaty exemptions. Amendment return   Many treaties limit the number of years you can claim a treaty exemption. Amendment return For students, apprentices, and trainees, the limit is usually 4–5 years; for teachers, professors, and researchers, the limit is usually 2–3 years. Amendment return Once you reach this limit, you can no longer claim the treaty exemption. Amendment return See the treaty or Publication 901 for the time limits that apply. Amendment return How to report income on your tax return. Amendment return   In most cases, you also will not need to report the income on your Form 1040 because the income will be exempt from U. Amendment return S. Amendment return tax under the treaty. Amendment return However, if the income has been reported as taxable income on a Form W-2, Form 1042-S, Form 1099, or other information return, you should report it on the appropriate line of Form 1040 (for example, line 7 in the case of wages, salaries, scholarships, or fellowships). Amendment return Enter the amount for which treaty benefits are claimed in parentheses on Form 1040, line 21. Amendment return Next to the amount write “Exempt income,” the name of the treaty country, and the treaty article that provides the exemption. Amendment return On Form 1040, subtract this amount from your income to arrive at total income on Form 1040, line 22. Amendment return Example. Amendment return Mr. Amendment return Yu, a citizen of the People's Republic of China, entered the United States as a nonresident alien student on January 1, 2009. Amendment return He remained a nonresident alien through 2013 and was able to exclude his scholarship from U. Amendment return S. Amendment return tax in those years under Article 20 of the U. Amendment return S. Amendment return -People's Republic of China income tax treaty. Amendment return On January 1, 2014, he became a resident alien under the substantial presence test because his stay in the United States exceeded 5 years. Amendment return Even though Mr. Amendment return Yu is now a resident alien, the provisions of Article 20 still apply because of the exception to the saving clause in paragraph 2 of the Protocol to the U. Amendment return S. Amendment return -People's Republic of China treaty dated April 30, 1984. Amendment return Mr. Amendment return Yu should submit Form W-9 and the required statement to the payor. Amendment return Reporting Treaty Benefits Claimed If you claim treaty benefits that override or modify any provision of the Internal Revenue Code, and by claiming these benefits your tax is, or might be, reduced, you must attach a fully completed Form 8833 to your tax return. Amendment return See below, for the situations where you are not required to file Form 8833. Amendment return You must file a U. Amendment return S. Amendment return tax return and Form 8833 if you claim the following treaty benefits. Amendment return You claim a reduction or modification in the taxation of gain or loss from the disposition of a U. Amendment return S. Amendment return real property interest based on a treaty. Amendment return You claim a credit for a specific foreign tax for which foreign tax credit would not be allowed by the Internal Revenue Code. Amendment return You receive payments or income items totaling more than $100,000 and you determine your country of residence under a treaty and not under the rules for residency discussed in chapter 1. Amendment return These are the more common situations for which Form 8833 is required. Amendment return Exceptions. Amendment return   You do not have to file Form 8833 for any of the following situations. Amendment return You claim a reduced rate of withholding tax under a treaty on interest, dividends, rent, royalties, or other fixed or determinable annual or periodic income ordinarily subject to the 30% rate. Amendment return You claim a treaty reduces or modifies the taxation of income from dependent personal services, pensions, annuities, social security and other public pensions, or income of artists, athletes, students, trainees, or teachers. Amendment return This includes taxable scholarship and fellowship grants. Amendment return You claim a reduction or modification of taxation of income under an International Social Security Agreement or a Diplomatic or Consular Agreement. Amendment return You are a partner in a partnership or a beneficiary of an estate or trust and the partnership, estate, or trust reports the required information on its return. Amendment return The payments or items of income that are otherwise required to be disclosed total no more than $10,000. Amendment return You are claiming treaty benefits for amounts that are: Reported to you on Form 1042-S and Received by you: As a related party from a reporting corporation within the meaning of Internal Revenue Code section 6038A (relating to information returns on Form 5472 filed by U. Amendment return S. Amendment return corporations that are 25-percent owned by a foreign person), or As a beneficial owner that is a direct account holder of a U. Amendment return S. Amendment return financial institution or qualified intermediary, or a direct partner, beneficiary, or owner of a withholding foreign partnership or trust, from that U. Amendment return S. Amendment return financial institution, qualified intermediary, or withholding foreign partnership or trust. Amendment return The exception described in (6) above does not apply to any amounts for which a treaty-based return disclosure is specifically required by the Form 8833 instructions. Amendment return Penalty for failure to provide required information on Form 8833. Amendment return   If you are required to report the treaty benefits but do not, you may be subject to a penalty of $1,000 for each failure. Amendment return Additional information. Amendment return   For additional information, see section 301. Amendment return 6114-1(c) of the Income Tax Regulations. Amendment return Table 9-1. Amendment return Table of Tax Treaties (Updated through December 31, 2013) Country Official Text  Symbol1 General  Effective Date Citation Applicable Treasury Explanations  or Treasury Decision (T. Amendment return D. Amendment return ) Australia TIAS 10773 Dec. Amendment return 1, 1983 1986-2 C. Amendment return B. Amendment return 220 1986-2 C. Amendment return B. Amendment return 246 Protocol TIAS Jan. Amendment return 1, 2004     Austria TIAS Jan. Amendment return 1, 1999     Bangladesh TIAS Jan. Amendment return 1, 2007     Barbados TIAS 11090 Jan. Amendment return 1, 1984 1991-2 C. Amendment return B. Amendment return 436 1991-2 C. Amendment return B. Amendment return 466 Protocol TIAS Jan. Amendment return 1, 1994     Protocol TIAS Jan. Amendment return 1, 2005     Belgium TIAS Jan. Amendment return 1, 2008     Bulgaria TIAS Jan. Amendment return 1, 2009     Canada2 TIAS 11087 Jan. Amendment return 1, 1985 1986-2 C. Amendment return B. Amendment return 258 1987-2 C. Amendment return B. Amendment return 298 Protocol TIAS Jan. Amendment return 1, 1996     Protocol TIAS Dec. Amendment return 16, 1997     Protocol TIAS Jan. Amendment return 1, 2009     China, People's Republic of TIAS 12065 Jan. Amendment return 1, 1987 1988-1 C. Amendment return B. Amendment return 414 1988-1 C. Amendment return B. Amendment return 447 Commonwealth of Independent States3 TIAS 8225 Jan. Amendment return 1, 1976 1976-2 C. Amendment return B. Amendment return 463 1976-2 C. Amendment return B. Amendment return 475 Cyprus TIAS 10965 Jan. Amendment return 1, 1986 1989-2 C. Amendment return B. Amendment return 280 1989-2 C. Amendment return B. Amendment return 314 Czech Republic TIAS Jan. Amendment return 1, 1993     Denmark TIAS Jan. Amendment return 1, 2001     Protocol TIAS Jan. Amendment return 1, 2008     Egypt TIAS 10149 Jan. Amendment return 1, 1982 1982-1 C. Amendment return B. Amendment return 219 1982-1 C. Amendment return B. Amendment return 243 Estonia TIAS Jan. Amendment return 1, 2000     Finland TIAS 12101 Jan. Amendment return 1, 1991     Protocol TIAS Jan. Amendment return 1, 2008     France TIAS Jan. Amendment return 1, 1996     Protocol TIAS Jan. Amendment return 1, 2007     Protocol TIAS Jan. Amendment return 1, 2010     Germany TIAS Jan. Amendment return 1, 1990     Protocol TIAS Jan. Amendment return 1, 2008     Greece TIAS 2902 Jan. Amendment return 1, 1953 1958-2 C. Amendment return B. Amendment return 1054 T. Amendment return D. Amendment return 6109, 1954-2 C. Amendment return B. Amendment return 638 Hungary TIAS 9560 Jan. Amendment return 1, 1980 1980-1 C. Amendment return B. Amendment return 333 1980-1 C. Amendment return B. Amendment return 354 Iceland TIAS Jan. Amendment return 1, 2009     India TIAS Jan. Amendment return 1, 1991     Indonesia TIAS 11593 Jan. Amendment return 1, 1990     Ireland TIAS Jan. Amendment return 1, 1998     Israel TIAS Jan. Amendment return 1, 1995     Italy TIAS Jan. Amendment return 1, 2010     Jamaica TIAS 10207 Jan. Amendment return 1, 1982 1982-1 C. Amendment return B. Amendment return 257 1982-1 C. Amendment return B. Amendment return 291 Japan TIAS Jan. Amendment return 1, 2005     Kazakhstan TIAS Jan. Amendment return 1, 1996     Korea, South TIAS 9506 Jan. Amendment return 1, 1980 1979-2 C. Amendment return B. Amendment return 435 1979-2 C. Amendment return B. Amendment return 458 Latvia TIAS Jan. Amendment return 1, 2000     Lithuania TIAS Jan. Amendment return 1, 2000     Luxembourg TIAS Jan. Amendment return 1, 2001     Malta TIAS Jan. Amendment return 1, 2011     Mexico TIAS Jan. Amendment return 1, 1994 1994-2 C. Amendment return B. Amendment return 424 1994-2 C. Amendment return B. Amendment return 489 Protocol TIAS Oct. Amendment return 26, 1995     Protocol TIAS Jan. Amendment return 1, 2004     Morocco TIAS 10195 Jan. Amendment return 1, 1981 1982-2 C. Amendment return B. Amendment return 405 1982-2 C. Amendment return B. Amendment return 427 Netherlands TIAS Jan. Amendment return 1, 1994     Protocol TIAS Jan. Amendment return 1, 2005     New Zealand TIAS 10772 Nov. Amendment return 2, 1983 1990-2 C. Amendment return B. Amendment return 274 1990-2 C. Amendment return B. Amendment return 303 Protocol TIAS Jan. Amendment return 1, 2011     Norway TIAS 7474 Jan. Amendment return 1, 1971 1973-1 C. Amendment return B. Amendment return 669 1973-1 C. Amendment return B. Amendment return 693 Protocol TIAS 10205 Jan. Amendment return 1, 1982 1982-2 C. Amendment return B. Amendment return 440 1982-2 C. Amendment return B. Amendment return 454 Pakistan TIAS 4232 Jan. Amendment return 1, 1959 1960-2 C. Amendment return B. Amendment return 646 T. Amendment return D. Amendment return 6431, 1960-1 C. Amendment return B. Amendment return 755 Philippines TIAS 10417 Jan. Amendment return 1, 1983 1984-2 C. Amendment return B. Amendment return 384 1984-2 C. Amendment return B. Amendment return 412 Poland TIAS 8486 Jan. Amendment return 1, 1974 1977-1 C. Amendment return B. Amendment return 416 1977-1 C. Amendment return B. Amendment return 427 Portugal TIAS Jan. Amendment return 1, 1996     Romania TIAS 8228 Jan. Amendment return 1, 1974 1976-2 C. Amendment return B. Amendment return 492 1976-2 C. Amendment return B. Amendment return 504 Russia TIAS Jan. Amendment return 1, 1994     Slovak Republic TIAS Jan. Amendment return 1, 1993     Slovenia TIAS Jan. Amendment return 1, 2002     South Africa TIAS Jan. Amendment return 1, 1998     Spain TIAS Jan. Amendment return 1, 1991     Sri Lanka TIAS Jan. Amendment return 1, 2004     Sweden TIAS Jan. Amendment return 1, 1996     Protocol TIAS Jan. Amendment return 1, 2007     Switzerland TIAS Jan. Amendment return 1, 1998     Thailand TIAS Jan. Amendment return 1, 1998     Trinidad and Tobago TIAS 7047 Jan. Amendment return 1, 1970 1971-2 C. Amendment return B. Amendment return 479   Tunisia TIAS Jan. Amendment return 1, 1990     Turkey TIAS Jan. Amendment return 1, 1998     Ukraine TIAS Jan. Amendment return 1, 2001     United Kingdom TIAS Jan. Amendment return 1, 2004     Venezuela TIAS Jan. Amendment return 1, 2000     1(TIAS) Treaties and Other International Act Series 2Information on the treaty can be found in Publication 597, Information on the United States-Canada Income Tax Treaty. Amendment return 3The U. Amendment return S. Amendment return -U. Amendment return S. Amendment return S. Amendment return R. Amendment return income tax treaty applies to the countries of Armenia, Azerbaijan, Belarus, Georgia, Kyrgyzstan, Moldova, Tajikistan, Turkmenistan, and Uzbekistan. Amendment return Prev  Up  Next   Home   More Online Publications