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Fill out 1040ez online 7. Fill out 1040ez online   Coverdell Education Savings Account (ESA) Table of Contents Introduction What Is a Coverdell ESAQualified Education Expenses ContributionsContribution Limits Additional Tax on Excess Contributions Rollovers and Other TransfersRollovers Changing the Designated Beneficiary Transfer Because of Divorce DistributionsTax-Free Distributions Taxable Distributions When Assets Must Be Distributed Introduction If your modified adjusted gross income (MAGI) is less than $110,000 ($220,000 if filing a joint return), you may be able to establish a Coverdell ESA to finance the qualified education expenses of a designated beneficiary. Fill out 1040ez online For most taxpayers, MAGI is the adjusted gross income as figured on their federal income tax return. Fill out 1040ez online There is no limit on the number of separate Coverdell ESAs that can be established for a designated beneficiary. Fill out 1040ez online However, total contributions for the beneficiary in any year cannot be more than $2,000, no matter how many accounts have been established. Fill out 1040ez online See Contributions , later. Fill out 1040ez online This benefit applies not only to higher education expenses, but also to elementary and secondary education expenses. Fill out 1040ez online What is the tax benefit of the Coverdell ESA. Fill out 1040ez online   Contributions to a Coverdell ESA are not deductible, but amounts deposited in the account grow tax free until distributed. Fill out 1040ez online   If, for a year, distributions from an account are not more than a designated beneficiary's qualified education expenses at an eligible educational institution, the beneficiary will not owe tax on the distributions. Fill out 1040ez online See Tax-Free Distributions , later. Fill out 1040ez online    Table 7-1 summarizes the main features of the Coverdell ESA. Fill out 1040ez online Table 7-1. Fill out 1040ez online Coverdell ESA at a Glance Do not rely on this table alone. Fill out 1040ez online It provides only general highlights. Fill out 1040ez online See the text for definitions of terms in bold type and for more complete explanations. Fill out 1040ez online Question Answer What is a Coverdell ESA? A savings account that is set up to pay the qualified education expenses of a designated beneficiary. Fill out 1040ez online Where can it be established? It can be opened in the United States at any bank or other IRS-approved entity that offers Coverdell ESAs. Fill out 1040ez online Who can have a Coverdell ESA? Any beneficiary who is under age 18 or is a special needs beneficiary. Fill out 1040ez online Who can contribute to a Coverdell ESA? Generally, any individual (including the beneficiary) whose modified adjusted gross income for the year is less than $110,000 ($220,000 in the case of a joint return). Fill out 1040ez online Are distributions tax free? Yes, if the distributions are not more than the beneficiary's adjusted qualified education expenses for the year. Fill out 1040ez online What Is a Coverdell ESA A Coverdell ESA is a trust or custodial account created or organized in the United States only for the purpose of paying the qualified education expenses of the Designated beneficiary (defined later) of the account. Fill out 1040ez online When the account is established, the designated beneficiary must be under age 18 or a special needs beneficiary. Fill out 1040ez online To be treated as a Coverdell ESA, the account must be designated as a Coverdell ESA when it is created. Fill out 1040ez online The document creating and governing the account must be in writing and must satisfy the following requirements. Fill out 1040ez online The trustee or custodian must be a bank or an entity approved by the IRS. Fill out 1040ez online The document must provide that the trustee or custodian can only accept a contribution that meets all of the following conditions. Fill out 1040ez online The contribution is in cash. Fill out 1040ez online The contribution is made before the beneficiary reaches age 18, unless the beneficiary is a special needs beneficiary. Fill out 1040ez online The contribution would not result in total contributions for the year (not including rollover contributions) being more than $2,000. Fill out 1040ez online Money in the account cannot be invested in life insurance contracts. Fill out 1040ez online Money in the account cannot be combined with other property except in a common trust fund or common investment fund. Fill out 1040ez online The balance in the account generally must be distributed within 30 days after the earlier of the following events. Fill out 1040ez online The beneficiary reaches age 30, unless the beneficiary is a special needs beneficiary. Fill out 1040ez online The beneficiary's death. Fill out 1040ez online Qualified Education Expenses Generally, these are expenses required for the enrollment or attendance of the designated beneficiary at an eligible educational institution. Fill out 1040ez online For purposes of Coverdell ESAs, the expenses can be either qualified higher education expenses or qualified elementary and secondary education expenses. Fill out 1040ez online Designated beneficiary. Fill out 1040ez online   This is the individual named in the document creating the trust or custodial account to receive the benefit of the funds in the account. Fill out 1040ez online Contributions to a qualified tuition program (QTP). Fill out 1040ez online   A contribution to a QTP is a qualified education expense if the contribution is on behalf of the designated beneficiary of the Coverdell ESA. Fill out 1040ez online In the case of a change in beneficiary, this is a qualified expense only if the new beneficiary is a family member of that designated beneficiary. Fill out 1040ez online See chapter 8, Qualified Tuition Program . Fill out 1040ez online Eligible Educational Institution For purposes of Coverdell ESAs, an eligible educational institution can be either an eligible postsecondary school or an eligible elementary or secondary school. Fill out 1040ez online Eligible postsecondary school. Fill out 1040ez online   This is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U. Fill out 1040ez online S. Fill out 1040ez online Department of Education. Fill out 1040ez online It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. Fill out 1040ez online The educational institution should be able to tell you if it is an eligible educational institution. Fill out 1040ez online   Certain educational institutions located outside the United States also participate in the U. Fill out 1040ez online S. Fill out 1040ez online Department of Education's Federal Student Aid (FSA) programs. Fill out 1040ez online Eligible elementary or secondary school. Fill out 1040ez online   This is any public, private, or religious school that provides elementary or secondary education (kindergarten through grade 12), as determined under state law. Fill out 1040ez online Qualified Higher Education Expenses These are expenses related to enrollment or attendance at an eligible postsecondary school. Fill out 1040ez online As shown in the following list, to be qualified, some of the expenses must be required by the school and some must be incurred by students who are enrolled at least half-time. Fill out 1040ez online The following expenses must be required for enrollment or attendance of a designated beneficiary at an eligible postsecondary school. Fill out 1040ez online Tuition and fees. Fill out 1040ez online Books, supplies, and equipment. Fill out 1040ez online Expenses for special needs services needed by a special needs beneficiary must be incurred in connection with enrollment or attendance at an eligible postsecondary school. Fill out 1040ez online Expenses for room and board must be incurred by students who are enrolled at least half-time (defined below). Fill out 1040ez online The expense for room and board qualifies only to the extent that it is not more than the greater of the following two amounts. Fill out 1040ez online The allowance for room and board, as determined by the school, that was included in the cost of attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student. Fill out 1040ez online The actual amount charged if the student is residing in housing owned or operated by the school. Fill out 1040ez online Half-time student. Fill out 1040ez online   A student is enrolled “at least half-time” if he or she is enrolled for at least half the full-time academic work load for the course of study the student is pursuing, as determined under the standards of the school where the student is enrolled. Fill out 1040ez online Qualified Elementary and Secondary Education Expenses These are expenses related to enrollment or attendance at an eligible elementary or secondary school. Fill out 1040ez online As shown in the following list, to be qualified, some of the expenses must be required or provided by the school. Fill out 1040ez online There are special rules for computer-related expenses. Fill out 1040ez online The following expenses must be incurred by a designated beneficiary in connection with enrollment or attendance at an eligible elementary or secondary school. Fill out 1040ez online Tuition and fees. Fill out 1040ez online Books, supplies, and equipment. Fill out 1040ez online Academic tutoring. Fill out 1040ez online Special needs services for a special needs beneficiary. Fill out 1040ez online The following expenses must be required or provided by an eligible elementary or secondary school in connection with attendance or enrollment at the school. Fill out 1040ez online Room and board. Fill out 1040ez online Uniforms. Fill out 1040ez online Transportation. Fill out 1040ez online Supplementary items and services (including extended day programs). Fill out 1040ez online The purchase of computer technology, equipment, or Internet access and related services is a qualified elementary and secondary education expense if it is to be used by the beneficiary and the beneficiary's family during any of the years the beneficiary is in elementary or secondary school. Fill out 1040ez online (This does not include expenses for computer software designed for sports, games, or hobbies unless the software is predominantly educational in nature. Fill out 1040ez online ) Contributions Any individual (including the designated beneficiary) can contribute to a Coverdell ESA if the individual's MAGI (defined later under Contribution Limits ) for the year is less than $110,000. Fill out 1040ez online For individuals filing joint returns, that amount is $220,000. Fill out 1040ez online Organizations, such as corporations and trusts, can also contribute to Coverdell ESAs. Fill out 1040ez online There is no requirement that an organization's income be below a certain level. Fill out 1040ez online Contributions must meet all of the following requirements. Fill out 1040ez online They must be in cash. Fill out 1040ez online They cannot be made after the beneficiary reaches age 18, unless the beneficiary is a special needs beneficiary. Fill out 1040ez online They must be made by the due date of the contributor's tax return (not including extensions). Fill out 1040ez online Contributions can be made to one or several Coverdell ESAs for the same designated beneficiary provided that the total contributions are not more than the contribution limits (defined later) for a year. Fill out 1040ez online Contributions can be made, without penalty, to both a Coverdell ESA and a QTP in the same year for the same beneficiary. Fill out 1040ez online Table 7-2 summarizes many of the features of contributing to a Coverdell ESA. Fill out 1040ez online When contributions considered made. Fill out 1040ez online   Contributions made to a Coverdell ESA for the preceding tax year are considered to have been made on the last day of the preceding year. Fill out 1040ez online They must be made by the due date (not including extensions) for filing your return for the preceding year. Fill out 1040ez online   For example, if you make a contribution to a Coverdell ESA in February 2014, and you designate it as a contribution for 2013, you are considered to have made that contribution on December 31, 2013. Fill out 1040ez online Contribution Limits There are two yearly limits: One on the total amount that can be contributed for each designated beneficiary in any year, and One on the amount that any individual can contribute for any one designated beneficiary for a year. Fill out 1040ez online Limit for each designated beneficiary. Fill out 1040ez online   For 2013, the total of all contributions to all Coverdell ESAs set up for the benefit of any one designated beneficiary cannot be more than $2,000. Fill out 1040ez online This includes contributions (other than rollovers) to all the beneficiary's Coverdell ESAs from all sources. Fill out 1040ez online Rollovers are discussed under Rollovers and Other Transfers , later. Fill out 1040ez online Example. Fill out 1040ez online When Maria Luna was born in 2012, three separate Coverdell ESAs were set up for her, one by her parents, one by her grandfather, and one by her aunt. Fill out 1040ez online In 2013, the total of all contributions to Maria's three Coverdell ESAs cannot be more than $2,000. Fill out 1040ez online For example, if her grandfather contributed $2,000 to one of her Coverdell ESAs, no one else could contribute to any of her three accounts. Fill out 1040ez online Or, if her parents contributed $1,000 and her aunt $600, her grandfather or someone else could contribute no more than $400. Fill out 1040ez online These contributions could be put into any of Maria's Coverdell ESA accounts. Fill out 1040ez online Limit for each contributor. Fill out 1040ez online   Generally, you can contribute up to $2,000 for each designated beneficiary for 2013. Fill out 1040ez online This is the most you can contribute for the benefit of any one beneficiary for the year, regardless of the number of Coverdell ESAs set up for the beneficiary. Fill out 1040ez online Example. Fill out 1040ez online The facts are the same as in the previous example except that Maria Luna's older brother, Edgar, also has a Coverdell ESA. Fill out 1040ez online If their grandfather contributed $2,000 to Maria's Coverdell ESA in 2013, he could also contribute $2,000 to Edgar's Coverdell ESA. Fill out 1040ez online Reduced limit. Fill out 1040ez online   Your contribution limit may be reduced. Fill out 1040ez online If your MAGI (defined on this page) is between $95,000 and $110,000 (between $190,000 and $220,000 if filing a joint return), the $2,000 limit for each designated beneficiary is gradually reduced (see Figuring the limit , later). Fill out 1040ez online If your MAGI is $110,000 or more ($220,000 or more if filing a joint return), you cannot contribute to anyone's Coverdell ESA. Fill out 1040ez online Table 7-2. Fill out 1040ez online Coverdell ESA Contributions at a Glance Do not rely on this table alone. Fill out 1040ez online It provides only general highlights. Fill out 1040ez online See the text for more complete explanations. Fill out 1040ez online Question Answer Are contributions deductible? No. Fill out 1040ez online What is the annual contribution limit per designated beneficiary? $2,000 for each designated beneficiary. Fill out 1040ez online What if more than one Coverdell ESA has been opened for the same designated beneficiary? The annual contribution limit is $2,000 for each beneficiary, no matter how many Coverdell ESAs are set up for that beneficiary. Fill out 1040ez online What if more than one individual makes contributions for the same designated beneficiary? The annual contribution limit is $2,000 per beneficiary, no matter how many individuals contribute. Fill out 1040ez online Can contributions other than cash be made to a Coverdell ESA? No. Fill out 1040ez online When must contributions stop? No contributions can be made to a beneficiary's Coverdell ESA after he or she reaches age 18, unless the beneficiary is a special needs beneficiary. Fill out 1040ez online Modified adjusted gross income (MAGI). Fill out 1040ez online   For most taxpayers, MAGI is adjusted gross income (AGI) as figured on their federal income tax return. Fill out 1040ez online MAGI when using Form 1040A. Fill out 1040ez online   If you file Form 1040A, your MAGI is the AGI on line 22 of that form. Fill out 1040ez online MAGI when using Form 1040. Fill out 1040ez online   If you file Form 1040, your MAGI is the AGI on line 38 of that form, modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, and Exclusion of income by bona fide residents of Puerto Rico. Fill out 1040ez online MAGI when using Form 1040NR. Fill out 1040ez online   If you file Form 1040NR, your MAGI is the AGI on line 36 of that form. Fill out 1040ez online MAGI when using Form 1040NR-EZ. Fill out 1040ez online   If you file Form 1040NR-EZ, your MAGI is the AGI on line 10 of that form. Fill out 1040ez online   If you have any of these adjustments, you can use Worksheet 7-1. Fill out 1040ez online MAGI for a Coverdell ESA , later, to figure your MAGI for Form 1040. Fill out 1040ez online Worksheet 7-1. Fill out 1040ez online MAGI for a Coverdell ESA 1. Fill out 1040ez online Enter your adjusted gross income  (Form 1040, line 38)   1. Fill out 1040ez online   2. Fill out 1040ez online Enter your foreign earned income exclusion and/or housing exclusion (Form 2555, line 45, or Form 2555-EZ, line 18)   2. Fill out 1040ez online       3. Fill out 1040ez online Enter your foreign housing deduction (Form 2555, line 50)   3. Fill out 1040ez online         4. Fill out 1040ez online Enter the amount of income from Puerto Rico you are excluding   4. Fill out 1040ez online       5. Fill out 1040ez online Enter the amount of income from American Samoa you are excluding (Form 4563, line 15)   5. Fill out 1040ez online       6. Fill out 1040ez online Add lines 2, 3, 4, and 5   6. Fill out 1040ez online   7. Fill out 1040ez online Add lines 1 and 6. Fill out 1040ez online This is your  modified adjusted gross income   7. Fill out 1040ez online   Figuring the limit. Fill out 1040ez online    To figure the limit on the amount you can contribute for each designated beneficiary, multiply $2,000 by a fraction. Fill out 1040ez online The numerator (top number) is your MAGI minus $95,000 ($190,000 if filing a joint return). Fill out 1040ez online The denominator (bottom number) is $15,000 ($30,000 if filing a joint return). Fill out 1040ez online Subtract the result from $2,000. Fill out 1040ez online This is the amount you can contribute for each beneficiary. Fill out 1040ez online You can use Worksheet 7-2. Fill out 1040ez online Coverdell ESA Contribution Limit to figure the limit on contributions. Fill out 1040ez online    Worksheet 7-2. Fill out 1040ez online Coverdell ESA Contribution Limit 1. Fill out 1040ez online Maximum contribution   1. Fill out 1040ez online $2,000 2. Fill out 1040ez online Enter your modified adjusted gross income (MAGI) for purposes of figuring the contribution limit to a Coverdell ESA (see definition or Worksheet 7-1, earlier)   2. Fill out 1040ez online   3. Fill out 1040ez online Enter $190,000 if married filing jointly; $95,000 for all other filers   3. Fill out 1040ez online   4. Fill out 1040ez online Subtract line 3 from line 2. Fill out 1040ez online If zero or less, enter -0- on line 4, skip lines 5 through 7, and enter $2,000 on line 8   4. Fill out 1040ez online   5. Fill out 1040ez online Enter $30,000 if married filing jointly; $15,000 for all other filers   5. Fill out 1040ez online     Note. Fill out 1040ez online If the amount on line 4 is greater than or equal to the amount on line 5, stop here. Fill out 1040ez online You are not allowed to contribute to a Coverdell ESA for 2013. Fill out 1040ez online       6. Fill out 1040ez online Divide line 4 by line 5 and enter the result as a decimal (rounded to at least 3 places)   6. Fill out 1040ez online . Fill out 1040ez online 7. Fill out 1040ez online Multiply line 1 by line 6   7. Fill out 1040ez online   8. Fill out 1040ez online Subtract line 7 from line 1   8. Fill out 1040ez online   Note: The total Coverdell ESA contributions from all sources for the designated beneficiary during the tax year may not exceed $2,000. Fill out 1040ez online Example. Fill out 1040ez online Paul, who is single, had a MAGI of $96,500 for 2013. Fill out 1040ez online Paul can contribute up to $1,800 in 2013 for each beneficiary, as shown in the illustrated Worksheet 7-2, Coverdell ESA Contribution Limit–Illustrated. Fill out 1040ez online Worksheet 7-2. Fill out 1040ez online Coverdell ESA Contribution Limit—Illustrated 1. Fill out 1040ez online Maximum contribution   1. Fill out 1040ez online $2,000 2. Fill out 1040ez online Enter your modified adjusted gross  income (MAGI) for purposes of figuring the contribution limit to a Coverdell ESA (see definition or Worksheet 7-1, earlier)   2. Fill out 1040ez online 96,500 3. Fill out 1040ez online Enter $190,000 if married filing jointly; $95,000 for all other filers   3. Fill out 1040ez online 95,000 4. Fill out 1040ez online Subtract line 3 from line 2. Fill out 1040ez online If zero or less, enter -0- on line 4, skip lines 5 through 7, and enter $2,000 on line 8   4. Fill out 1040ez online 1,500 5. Fill out 1040ez online Enter $30,000 if married filing jointly; $15,000 for all other filers   5. Fill out 1040ez online 15,000   Note. Fill out 1040ez online If the amount on line 4 is greater than or equal to the amount on line 5,  stop here. Fill out 1040ez online You are not allowed to  contribute to a Coverdell ESA for 2013. Fill out 1040ez online       6. Fill out 1040ez online Divide line 4 by line 5 and enter the result as a decimal (rounded to at least 3 places)   6. Fill out 1040ez online . Fill out 1040ez online 100 7. Fill out 1040ez online Multiply line 1 by line 6   7. Fill out 1040ez online 200 8. Fill out 1040ez online Subtract line 7 from line 1   8. Fill out 1040ez online 1,800 Note: The total Coverdell ESA contributions from all sources for the designated beneficiary during the tax year may not exceed $2,000. Fill out 1040ez online Additional Tax on Excess Contributions The beneficiary must pay a 6% excise tax each year on excess contributions that are in a Coverdell ESA at the end of the year. Fill out 1040ez online Excess contributions are the total of the following two amounts. Fill out 1040ez online Contributions to any designated beneficiary's Coverdell ESA for the year that are more than $2,000 (or, if less, the total of each contributor's limit for the year, as discussed earlier). Fill out 1040ez online Excess contributions for the preceding year, reduced by the total of the following two amounts: Distributions (other than those rolled over as discussed later) during the year, and The contribution limit for the current year minus the amount contributed for the current year. Fill out 1040ez online Exceptions. Fill out 1040ez online   The excise tax does not apply if excess contributions made during 2013 (and any earnings on them) are distributed before the first day of the sixth month of the following tax year (June 1, 2014, for a calendar year taxpayer). Fill out 1040ez online   However, you must include the distributed earnings in gross income for the year in which the excess contribution was made. Fill out 1040ez online You should receive Form 1099-Q, Payments From Qualified Education Programs, from each institution from which excess contributions were distributed. Fill out 1040ez online Box 2 of that form will show the amount of earnings on your excess contributions. Fill out 1040ez online Code “2” or “3” entered in the blank box below boxes 5 and 6 indicate the year in which the earnings are taxable. Fill out 1040ez online See Instructions for Recipient on the back of copy B of your Form 1099-Q. Fill out 1040ez online Enter the amount of earnings on line 21 of Form 1040 (or Form 1040NR) for the applicable tax year. Fill out 1040ez online For more information, see Taxable Distributions , later. Fill out 1040ez online   The excise tax does not apply to any rollover contribution. Fill out 1040ez online Note. Fill out 1040ez online Contributions made in one year for the preceding tax year are considered to have been made on the last day of the preceding year. Fill out 1040ez online Example. Fill out 1040ez online In 2012, Greta's parents and grandparents contributed a total of $2,300 to Greta's Coverdell ESA— an excess contribution of $300. Fill out 1040ez online Because Greta did not withdraw the excess before June 1, 2013, she had to pay an additional tax of $18 (6% × $300) when she filed her 2012 tax return. Fill out 1040ez online In 2013, excess contributions of $500 were made to Greta's account, however, she withdrew $250 from that account to use for qualified education expenses. Fill out 1040ez online Using the steps shown earlier under Additional Tax on Excess Contributions , Greta figures the excess contribution in her account at the end of 2013 as follows. Fill out 1040ez online (1)   $500 excess contributions made in 2013     + (2)   $300 excess contributions in ESA at end of 2012     − (2a)   $250 distribution during 2013         $550 excess at end of 2013   × 6%=$33           If Greta limits 2014 contributions to $1,450 ($2,000 maximum allowed − $550 excess contributions from 2013), she will not owe any additional tax in 2014 for excess contributions. Fill out 1040ez online Figuring and reporting the additional tax. Fill out 1040ez online   You figure this excise tax in Part V of Form 5329. Fill out 1040ez online Report the additional tax on Form 1040, line 58 (or Form 1040NR, line 56). Fill out 1040ez online Rollovers and Other Transfers Assets can be rolled over from one Coverdell ESA to another or the designated beneficiary can be changed. Fill out 1040ez online The beneficiary's interest can be transferred to a spouse or former spouse because of divorce. Fill out 1040ez online Rollovers Any amount distributed from a Coverdell ESA is not taxable if it is rolled over to another Coverdell ESA for the benefit of the same beneficiary or a member of the beneficiary's family (including the beneficiary's spouse) who is under age 30. Fill out 1040ez online This age limitation does not apply if the new beneficiary is a special needs beneficiary. Fill out 1040ez online An amount is rolled over if it is paid to another Coverdell ESA within 60 days after the date of the distribution. Fill out 1040ez online Do not report qualifying rollovers (those that meet the above criteria) anywhere on Form 1040 or 1040NR. Fill out 1040ez online These are not taxable distributions. Fill out 1040ez online Members of the beneficiary's family. Fill out 1040ez online   For these purposes, the beneficiary's family includes the beneficiary's spouse and the following other relatives of the beneficiary. Fill out 1040ez online Son, daughter, stepchild, foster child, adopted child, or a descendant of any of them. Fill out 1040ez online Brother, sister, stepbrother, or stepsister. Fill out 1040ez online Father or mother or ancestor of either. Fill out 1040ez online Stepfather or stepmother. Fill out 1040ez online Son or daughter of a brother or sister. Fill out 1040ez online Brother or sister of father or mother. Fill out 1040ez online Son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law. Fill out 1040ez online The spouse of any individual listed above. Fill out 1040ez online First cousin. Fill out 1040ez online Example. Fill out 1040ez online When Aaron graduated from college last year he had $5,000 left in his Coverdell ESA. Fill out 1040ez online He wanted to give this money to his younger sister, who was still in high school. Fill out 1040ez online In order to avoid paying tax on the distribution of the amount remaining in his account, Aaron contributed the same amount to his sister's Coverdell ESA within 60 days of the distribution. Fill out 1040ez online Only one rollover per Coverdell ESA is allowed during the 12-month period ending on the date of the payment or distribution. Fill out 1040ez online This rule does not apply to the rollover of a military death gratuity or payment from Servicemembers' Group Life Insurance (SGLI). Fill out 1040ez online Military death gratuity. Fill out 1040ez online   If you received a military death gratuity or a payment from Servicemembers' Group Life Insurance (SGLI), you may roll over all or part of the amount received to one or more Coverdell ESAs for the benefit of members of the beneficiary's family (see Members of the beneficiary's family , earlier). Fill out 1040ez online Such payments are made to an eligible survivor upon the death of a member of the armed forces. Fill out 1040ez online The contribution to a Coverdell ESA from survivor benefits received cannot be made later than 1 year after the date on which you receive the gratuity or SGLI payment. Fill out 1040ez online   This rollover contribution is not subject to (but is in addition to) the contribution limits discussed earlier under Contribution Limits . Fill out 1040ez online The amount you roll over cannot exceed the total survivor benefits you received, reduced by contributions from these benefits to a Roth IRA or other Coverdell ESAs. Fill out 1040ez online   The amount contributed from the survivor benefits is treated as part of your basis (cost) in the Coverdell ESA, and will not be taxed when distributed. Fill out 1040ez online See Distributions , later. Fill out 1040ez online The limit of one rollover per Coverdell ESA during a 12-month period does not apply to a military death gratuity or SGLI payment. Fill out 1040ez online Changing the Designated Beneficiary The designated beneficiary can be changed. Fill out 1040ez online See Members of the beneficiary's family , earlier. Fill out 1040ez online There are no tax consequences if, at the time of the change, the new beneficiary is under age 30 or is a special needs beneficiary. Fill out 1040ez online Example. Fill out 1040ez online Assume the same situation for Aaron as in the last example (see Rollovers , earlier). Fill out 1040ez online Instead of closing his Coverdell ESA and paying the distribution into his sister's Coverdell ESA, Aaron could have instructed the trustee of his account to simply change the name of the beneficiary on his account to that of his sister. Fill out 1040ez online Transfer Because of Divorce If a spouse or former spouse receives a Coverdell ESA under a divorce or separation instrument, it is not a taxable transfer. Fill out 1040ez online After the transfer, the spouse or former spouse treats the Coverdell ESA as his or her own. Fill out 1040ez online Example. Fill out 1040ez online In their divorce settlement, Peg received her ex-husband's Coverdell ESA. Fill out 1040ez online In this process, the account was transferred into her name. Fill out 1040ez online Peg now treats the funds in this Coverdell ESA as if she were the original owner. Fill out 1040ez online Distributions The designated beneficiary of a Coverdell ESA can take a distribution at any time. Fill out 1040ez online Whether the distributions are tax free depends, in part, on whether the distributions are equal to or less than the amount of Adjusted qualified education expenses (defined later) that the beneficiary has in the same tax year. Fill out 1040ez online See Table 7-3, Coverdell ESA Distributions at a Glance, for highlights. Fill out 1040ez online Table 7-3. Fill out 1040ez online Coverdell ESA Distributions at a Glance Do not rely on this table alone. Fill out 1040ez online It provides only general highlights. Fill out 1040ez online See the text for definitions of terms in bold type and for more complete explanations. Fill out 1040ez online Question Answer Is a distribution from a Coverdell ESA to pay for a designated beneficiary's qualified education expenses tax free? Generally, yes, to the extent the amount of the distribution is not more than the designated beneficiary's adjusted qualified education expenses. Fill out 1040ez online After the designated beneficiary completes his or her education at an eligible educational institution, can amounts remaining in the Coverdell ESA be distributed? Yes. Fill out 1040ez online Amounts must be distributed when the designated beneficiary reaches age 30, unless he or she is a special needs beneficiary. Fill out 1040ez online Also, certain transfers to members of the beneficiary's family are permitted. Fill out 1040ez online Does the designated beneficiary need to be enrolled for a minimum number of courses to take a tax-free distribution? No. Fill out 1040ez online Adjusted qualified education expenses. Fill out 1040ez online   To determine if total distributions for the year are more than the amount of qualified education expenses, reduce total qualified education expenses by any tax-free educational assistance. Fill out 1040ez online Tax-free educational assistance includes: The tax-free part of scholarships and fellowships (see Tax-Free Scholarships and Fellowships in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Veterans' educational assistance (see Veterans' Benefits in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Pell grants (see Pell Grants and Other Title IV Need-Based Education Grants in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Employer-provided educational assistance (see chapter 11, Employer-Provided Educational Assistance ), and Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. Fill out 1040ez online The amount you get by subtracting tax-free educational assistance from your total qualified education expenses is your adjusted qualified education expenses. Fill out 1040ez online Tax-Free Distributions Generally, distributions are tax free if they are not more than the beneficiary's adjusted qualified education expenses for the year. Fill out 1040ez online Do not report tax-free distributions (including qualifying rollovers) on your tax return. Fill out 1040ez online Taxable Distributions A portion of the distributions is generally taxable to the beneficiary if the total distributions are more than the beneficiary's adjusted qualified education expenses for the year. Fill out 1040ez online Excess distribution. Fill out 1040ez online   This is the part of the total distribution that is more than the beneficiary's adjusted qualified education expenses for the year. Fill out 1040ez online Earnings and basis. Fill out 1040ez online   You will receive a Form 1099-Q for each of the Coverdell ESAs from which money was distributed in 2013. Fill out 1040ez online The amount of your gross distribution will be shown in box 1. Fill out 1040ez online For 2013, instead of dividing the gross distribution between your earnings (box 2) and your basis (already-taxed amount) (box 3), the payer or trustee may report the fair market value (account balance) of the Coverdell ESA as of December 31, 2013. Fill out 1040ez online This will be shown in the blank box below boxes 5 and 6. Fill out 1040ez online   The amount contributed from survivor benefits (see Military death gratuity , earlier) is treated as part of your basis and will not be taxed when distributed. Fill out 1040ez online Figuring the Taxable Portion of a Distribution The taxable portion is the amount of the excess distribution that represents earnings that have accumulated tax free in the account. Fill out 1040ez online Figure the taxable portion for 2013 as shown in the following steps. Fill out 1040ez online Multiply the total amount distributed by a fraction. Fill out 1040ez online The numerator is the basis (contributions not previously distributed) at the end of 2012 plus total contributions for 2013 and the denominator is the value (balance) of the account at the end of 2013 plus the amount distributed during 2013. Fill out 1040ez online Subtract the amount figured in (1) from the total amount distributed during 2013. Fill out 1040ez online The result is the amount of earnings included in the distribution(s). Fill out 1040ez online Multiply the amount of earnings figured in (2) by a fraction. Fill out 1040ez online The numerator is the adjusted qualified education expenses paid during 2013 and the denominator is the total amount distributed during 2013. Fill out 1040ez online Subtract the amount figured in (3) from the amount figured in (2). Fill out 1040ez online The result is the amount the beneficiary must include in income. Fill out 1040ez online The taxable amount must be reported on Form 1040 or Form 1040NR, line 21. Fill out 1040ez online Example. Fill out 1040ez online You received an $850 distribution from your Coverdell ESA, to which $1,500 had been contributed before 2013. Fill out 1040ez online There were no contributions in 2013. Fill out 1040ez online This is your first distribution from the account, so your basis in the account on December 31, 2012, was $1,500. Fill out 1040ez online The value (balance) of your account on December 31, 2013, was $950. Fill out 1040ez online You had $700 of adjusted qualified education expenses (AQEE) for the year. Fill out 1040ez online Using the steps in Figuring the Taxable Portion of a Distribution , earlier, figure the taxable portion of your distribution as follows. Fill out 1040ez online   1. Fill out 1040ez online $850 (distribution) × $1,500 basis + $0 contributions  $950 value + $850 distribution       =$708 (basis portion of distribution)     2. Fill out 1040ez online $850 (distribution)−$708 (basis portion of distribution)     =$142 (earnings included in distribution)   3. Fill out 1040ez online $142 (earnings) × $700 AQEE  $850 distribution           =$117 (tax-free earnings)     4. Fill out 1040ez online $142 (earnings)−$117 (tax-free earnings)=$25 (taxable earnings)                 You must include $25 in income as distributed earnings not used for qualified education expenses. Fill out 1040ez online Report this amount on Form 1040, line 21, listing the type and amount of income on the dotted line. Fill out 1040ez online Worksheet 7-3, Coverdell ESA–Taxable Distributions and Basis , at the end of this chapter, can help you figure your adjusted qualified education expenses, how much of your distribution must be included in income, and the remaining basis in your Coverdell ESA(s). Fill out 1040ez online Coordination With American Opportunity and Lifetime Learning Credits The American opportunity or lifetime learning credit can be claimed in the same year the beneficiary takes a tax-free distribution from a Coverdell ESA, as long as the same expenses are not used for both benefits. Fill out 1040ez online This means the beneficiary must reduce qualified higher education expenses by tax-free educational assistance, and then further reduce them by any expenses taken into account in determining an American opportunity or lifetime learning credit. Fill out 1040ez online Example. Fill out 1040ez online Derek Green had $5,800 of qualified higher education expenses for 2013, his first year in college. Fill out 1040ez online He paid his college expenses from the following sources. Fill out 1040ez online     Partial tuition scholarship (tax free) $1,500     Coverdell ESA distribution 1,000     Gift from parents 2,100     Earnings from part-time job 1,200           Of his $5,800 of qualified higher education expenses, $4,000 was tuition and related expenses that also qualified for an American opportunity credit. Fill out 1040ez online Derek's parents claimed a $2,500 American opportunity credit (based on $4,000 expenses) on their tax return. Fill out 1040ez online Before Derek can determine the taxable portion of his Coverdell ESA distribution, he must reduce his total qualified higher education expenses. Fill out 1040ez online     Total qualified higher education expenses $5,800     Minus: Tax-free educational assistance −1,500     Minus: Expenses taken into account in  figuring American opportunity credit − 4,000     Equals: Adjusted qualified higher education  expenses (AQHEE) $ 300           Since the adjusted qualified higher education expenses ($300) are less than the Coverdell ESA distribution ($1,000), part of the distribution will be taxable. Fill out 1040ez online The balance in Derek's account was $1,800 on December 31, 2013. Fill out 1040ez online Prior to 2013, $2,100 had been contributed to this account. Fill out 1040ez online Contributions for 2013 totaled $400. Fill out 1040ez online Using the four steps outlined earlier, Derek figures the taxable portion of his distribution as shown below. Fill out 1040ez online   1. Fill out 1040ez online $1,000 (distribution) × $2,100 basis + $400 contributions  $1,800 value + $1,000 distribution           =$893 (basis portion of distribution)     2. Fill out 1040ez online $1,000 (distribution)−$893 (basis portion of distribution)     = $107 (earnings included in distribution)   3. Fill out 1040ez online $107 (earnings) × $300 AQHEE  $1,000 distribution       =$32 (tax-free earnings)     4. Fill out 1040ez online $107 (earnings)−$32 (tax-free earnings)=$75 (taxable earnings)                 Derek must include $75 in income (Form 1040, line 21). Fill out 1040ez online This is the amount of distributed earnings not used for adjusted qualified higher education expenses. Fill out 1040ez online Coordination With Qualified Tuition Program (QTP) Distributions If a designated beneficiary receives distributions from both a Coverdell ESA and a QTP in the same year, and the total distribution is more than the beneficiary's adjusted qualified higher education expenses, those expenses must be allocated between the distribution from the Coverdell ESA and the distribution from the QTP before figuring how much of each distribution is taxable. Fill out 1040ez online The following two examples illustrate possible allocations. Fill out 1040ez online Example 1. Fill out 1040ez online In 2013, Beatrice graduated from high school and began her first semester of college. Fill out 1040ez online That year, she had $1,000 of qualified elementary and secondary education expenses (QESEE) for high school and $3,000 of qualified higher education expenses (QHEE) for college. Fill out 1040ez online To pay these expenses, Beatrice withdrew $800 from her Coverdell ESA and $4,200 from her QTP. Fill out 1040ez online No one claimed Beatrice as a dependent, nor was she eligible for an education credit. Fill out 1040ez online She did not receive any tax-free educational assistance in 2013. Fill out 1040ez online Beatrice must allocate her total qualified education expenses between the two distributions. Fill out 1040ez online Beatrice knows that tax-free treatment will be available if she applies her $800 Coverdell ESA distribution toward her $1,000 of qualified education expenses for high school. Fill out 1040ez online The qualified expenses are greater than the distribution, making the $800 Coverdell ESA distribution tax free. Fill out 1040ez online Next, Beatrice matches her $4,200 QTP distribution to her $3,000 of QHEE, and finds she has an excess QTP distribution of $1,200 ($4,200 QTP − $3,000 QHEE). Fill out 1040ez online She cannot use the extra $200 of high school expenses (from (1) above) against the QTP distribution because those expenses do not qualify a QTP for tax-free treatment. Fill out 1040ez online Finally, Beatrice figures the taxable and tax-free portions of her QTP distribution based on her $3,000 of QHEE. Fill out 1040ez online (See Figuring the Taxable Portion of a Distribution in chapter 8, Qualified Tuition Program for more information. Fill out 1040ez online ) Example 2. Fill out 1040ez online Assume the same facts as in Example 1 , except that Beatrice withdrew $1,800 from her Coverdell ESA and $3,200 from her QTP. Fill out 1040ez online In this case, she allocates her qualified education expenses as follows. Fill out 1040ez online Using the same reasoning as in Example 1, Beatrice matches $1,000 of her Coverdell ESA distribution to her $1,000 of QESEE—she has $800 of her distribution remaining. Fill out 1040ez online Because higher education expenses can also qualify a Coverdell ESA distribution for tax-free treatment, Beatrice allocates her $3,000 of QHEE between the remaining $800 Coverdell ESA and the $3,200 QTP distributions ($4,000 total). Fill out 1040ez online   $3,000 QHEE × $800 ESA distribution  $4,000 total distribution = $600 QHEE (ESA)     $3,000 QHEE × $3,200 QTP distribution  $4,000 total distribution = $2,400 QHEE (QTP)   Beatrice then figures the taxable part of her: Coverdell ESA distribution based on qualified education expenses of $1,600 ($1,000 QESEE + $600 QHEE). Fill out 1040ez online See Figuring the Taxable Portion of a Distribution , earlier, in this chapter. Fill out 1040ez online   QTP distribution based on her $2,400 of QHEE (see Figuring the Taxable Portion of a Distribution in chapter 8, Qualified Tuition Program). Fill out 1040ez online The above examples show two types of allocation between distributions from a Coverdell ESA and a QTP. Fill out 1040ez online However, you do not have to allocate your expenses in the same way. Fill out 1040ez online You can use any reasonable method. Fill out 1040ez online Losses on Coverdell ESA Investments If you have a loss on your investment in a Coverdell ESA, you may be able to deduct the loss on your income tax return. Fill out 1040ez online You can deduct the loss only when all amounts from that account have been distributed and the total distributions are less than your unrecovered basis. Fill out 1040ez online Your basis is the total amount of contributions to that Coverdell ESA. Fill out 1040ez online You claim the loss as a miscellaneous itemized deduction on Schedule A (Form 1040), line 23 (Schedule A (Form 1040NR), line 9), subject to the 2%-of-adjusted-gross-income limit. Fill out 1040ez online If you have distributions from more than one Coverdell ESA account during a year, you must combine the information (amount of distribution, basis, etc. Fill out 1040ez online ) from all such accounts in order to determine your taxable earnings for the year. Fill out 1040ez online By doing this, the loss from one ESA account reduces the distributed earnings (if any) from any other ESA account. Fill out 1040ez online For examples of the calculation, see Losses on QTP Investments in chapter 8, Qualified Tuition Program. Fill out 1040ez online Additional Tax on Taxable Distributions Generally, if you receive a taxable distribution, you also must pay a 10% additional tax on the amount included in income. Fill out 1040ez online Exceptions. Fill out 1040ez online   The 10% additional tax does not apply to distributions: Paid to a beneficiary (or to the estate of the designated beneficiary) on or after the death of the designated beneficiary. Fill out 1040ez online Made because the designated beneficiary is disabled. Fill out 1040ez online A person is considered to be disabled if he or she shows proof that he or she cannot do any substantial gainful activity because of his or her physical or mental condition. Fill out 1040ez online A physician must determine that his or her condition can be expected to result in death or to be of long-continued and indefinite duration. Fill out 1040ez online Included in income because the designated beneficiary received: A tax-free scholarship or fellowship (see Tax-Free Scholarships and Fellowships in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Veterans' educational assistance (see Veterans' Benefits in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Employer-provided educational assistance (see chapter 11, Employer-Provided Educational Assistance ), or Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. Fill out 1040ez online Made on account of the attendance of the designated beneficiary at a U. Fill out 1040ez online S. Fill out 1040ez online military academy (such as the USMA at West Point). Fill out 1040ez online This exception applies only to the extent that the amount of the distribution does not exceed the costs of advanced education (as defined in section 2005(d)(3) of title 10 of the U. Fill out 1040ez online S. Fill out 1040ez online Code) attributable to such attendance. Fill out 1040ez online Included in income only because the qualified education expenses were taken into account in determining the American opportunity or lifetime learning credit (see Coordination With American Opportunity and Lifetime Learning Credits , earlier). Fill out 1040ez online Made before June 1, 2014, of an excess 2013 contribution (and any earnings on it). Fill out 1040ez online The distributed earnings must be included in gross income for the year in which the excess contribution was made. Fill out 1040ez online Exception (3) applies only to the extent the distribution is not more than the scholarship, allowance, or payment. Fill out 1040ez online Figuring the additional tax. Fill out 1040ez online    Use Part II of Form 5329, to figure any additional tax. Fill out 1040ez online Report the amount on Form 1040, line 58, or Form 1040NR, line 56. Fill out 1040ez online When Assets Must Be Distributed Any assets remaining in a Coverdell ESA must be distributed when either one of the following two events occurs. Fill out 1040ez online The designated beneficiary reaches age 30. Fill out 1040ez online In this case, the remaining assets must be distributed within 30 days after the beneficiary reaches age 30. Fill out 1040ez online However, this rule does not apply if the beneficiary is a special needs beneficiary. Fill out 1040ez online The designated beneficiary dies before reaching age 30. Fill out 1040ez online In this case, the remaining assets must generally be distributed within 30 days after the date of death. Fill out 1040ez online Exception for Transfer to Surviving Spouse or Family Member If a Coverdell ESA is transferred to a surviving spouse or other family member as the result of the death of the designated beneficiary, the Coverdell ESA retains its status. Fill out 1040ez online (“Family member” was defined earlier under Rollovers . Fill out 1040ez online ) This means the spouse or other family member can treat the Coverdell ESA as his or her own and does not need to withdraw the assets until he or she reaches age 30. Fill out 1040ez online This age limitation does not apply if the new beneficiary is a special needs beneficiary. Fill out 1040ez online There are no tax consequences as a result of the transfer. Fill out 1040ez online How To Figure the Taxable Earnings When a total distribution is made because the designated beneficiary either reached age 30 or died, the earnings that accumulated tax free in the account must be included in taxable income. Fill out 1040ez online You determine these earnings as shown in the following two steps. Fill out 1040ez online Multiply the amount distributed by a fraction. Fill out 1040ez online The numerator is the basis (contributions not previously distributed) at the end of 2012 plus total contributions for 2013 and the denominator is the balance in the account at the end of 2013 plus the amount distributed during 2013. Fill out 1040ez online Subtract the amount figured in (1) from the total amount distributed during 2013. Fill out 1040ez online The result is the amount of earnings included in the distribution. Fill out 1040ez online For an example, see steps (1) and (2) of the Example under Figuring the Taxable Portion of a Distribution, earlier. Fill out 1040ez online The beneficiary or other person receiving the distribution must report this amount on Form 1040, line 21, or Form 1040NR, line 21, listing the type and amount of income on the dotted line. Fill out 1040ez online Worksheet 7-3 Instructions. Fill out 1040ez online Coverdell ESA—Taxable Distributions and Basis Line G. Fill out 1040ez online Enter the total distributions received from all Coverdell ESAs during 2013. Fill out 1040ez online Do not include amounts rolled over to another ESA within 60 days (only one rollover is allowed during any 12-month period). Fill out 1040ez online Also, do not include excess contributions that were distributed with the related earnings (or less any loss) before the first day of the sixth month of the tax year following the year for which the contributions were made. Fill out 1040ez online Line 2. Fill out 1040ez online Your basis (amount already taxed) in this Coverdell ESA as of December 31, 2012, is the total of:   •All contributions to this Coverdell ESA before 2013 •Minus the tax-free portion of any distributions from this Coverdell ESA before 2013. Fill out 1040ez online   If your last distribution from this Coverdell ESA was before 2013, you must start with the basis in your account as of the end of the last year in which you took a distribution. Fill out 1040ez online For years before 2002, you can find that amount on the last line of the worksheet in the Instructions for Form 8606, Nondeductible IRAs, that you completed for that year. Fill out 1040ez online For years after 2001, you can find that amount by using the ending basis from the worksheet in Publication 970 for that year. Fill out 1040ez online You can determine your basis in this Coverdell ESA as of December 31, 2012, by adding to the basis as of the end of that year any contributions made to that account after the year of the distribution and before 2013. Fill out 1040ez online Line 4. Fill out 1040ez online Enter the total distributions received from this Coverdell ESA in 2013. Fill out 1040ez online Do not include amounts rolled over to another Coverdell ESA within 60 days (only one rollover is allowed during any 12-month period). Fill out 1040ez online   Also, do not include excess contributions that were distributed with the related earnings (or less any loss) before the first day of the sixth month of the tax year following the year of the contributions. Fill out 1040ez online Line 7. Fill out 1040ez online Enter the total value of this Coverdell ESA as of December 31, 2013, plus any outstanding rollovers contributed to the account after 2012, but before the end of the 60-day rollover period. Fill out 1040ez online A statement should be sent to you by January 31, 2014, for this Coverdell ESA showing the value on December 31, 2013. Fill out 1040ez online   A rollover is a tax-free withdrawal from one Coverdell ESA that is contributed to another Coverdell ESA. Fill out 1040ez online An outstanding rollover is any amount withdrawn within 60 days before the end of 2013 (November 2 through December 31) that was rolled over after December 31, 2013, but within the 60-day rollover period. Fill out 1040ez online Worksheet 7-3. Fill out 1040ez online Coverdell ESA—Taxable Distributions and Basis How to complete this worksheet. Fill out 1040ez online • • • Complete Part I, lines A through H, on only one worksheet. Fill out 1040ez online  Complete a separate Part II, lines 1 through 15, for each of your Coverdell ESAs. Fill out 1040ez online  Complete Part III, the Summary (line 16), on only one worksheet. Fill out 1040ez online Part I. Fill out 1040ez online Qualified Education Expenses (Complete for total expenses)       A. Fill out 1040ez online Enter your total qualified education expenses for 2013   A. Fill out 1040ez online   B. Fill out 1040ez online Enter those qualified education expenses paid for with tax-free educational assistance (for example, tax-free scholarships, veterans' educational benefits, Pell grants, employer-provided educational assistance)   B. Fill out 1040ez online         C. Fill out 1040ez online Enter those qualified higher education expenses deducted on Schedule C or C-EZ (Form 1040). Fill out 1040ez online Schedule F (Form 1040), or as a miscellaneous itemized deduction on Schedule A (Form 1040 or 1040NR)   C. Fill out 1040ez online         D. Fill out 1040ez online Enter those qualified higher education expenses on which  an American opportunity or lifetime learning credit was based   D. Fill out 1040ez online         E. Fill out 1040ez online Add lines B, C, and D   D. Fill out 1040ez online   F. Fill out 1040ez online Subtract line E from line A. Fill out 1040ez online This is your adjusted qualified education expense for 2013   E. Fill out 1040ez online   G. Fill out 1040ez online Enter your total distributions from all Coverdell ESAs during 2013. Fill out 1040ez online Do not include rollovers  or the return of excess contributions (see instructions)   F. Fill out 1040ez online   H. Fill out 1040ez online Divide line F by line G. Fill out 1040ez online Enter the result as a decimal (rounded to at least 3 places). Fill out 1040ez online If the  result is 1. Fill out 1040ez online 000 or more, enter 1. Fill out 1040ez online 000   G. Fill out 1040ez online . Fill out 1040ez online Part II. Fill out 1040ez online Taxable Distributions and Basis (Complete separately for each account) 1. Fill out 1040ez online Enter the amount contributed to this Coverdell ESA for 2013, including contributions made for 2013 from January 1, 2014, through April 15, 2014. Fill out 1040ez online Do not include rollovers or the return of excess contributions   1. Fill out 1040ez online   2. Fill out 1040ez online Enter your basis in this Coverdell ESA as of December 31, 2012 (see instructions)   2. Fill out 1040ez online   3. Fill out 1040ez online Add lines 1 and 2   3. Fill out 1040ez online   4. Fill out 1040ez online Enter the total distributions from this Coverdell ESA during 2013. Fill out 1040ez online Do not include rollovers  or the return of excess contributions (see instructions)   4. Fill out 1040ez online   5. Fill out 1040ez online Multiply line 4 by line H. Fill out 1040ez online This is the amount of adjusted qualified  education expense attributable to this Coverdell ESA   5. Fill out 1040ez online         6. Fill out 1040ez online Subtract line 5 from line 4   6. Fill out 1040ez online         7. Fill out 1040ez online Enter the total value of this Coverdell ESA as of December 31, 2013,  plus any outstanding rollovers (see instructions)   7. Fill out 1040ez online         8. Fill out 1040ez online Add lines 4 and 7   8. Fill out 1040ez online         9. Fill out 1040ez online Divide line 3 by line 8. Fill out 1040ez online Enter the result as a decimal (rounded to  at least 3 places). Fill out 1040ez online If the result is 1. Fill out 1040ez online 000 or more, enter 1. Fill out 1040ez online 000   9. Fill out 1040ez online . Fill out 1040ez online       10. Fill out 1040ez online Multiply line 4 by line 9. Fill out 1040ez online This is the amount of basis allocated to your  distributions, and is tax free   10. Fill out 1040ez online     Note. Fill out 1040ez online If line 6 is zero, skip lines 11 through 13, enter -0- on line 14, and go to line 15. Fill out 1040ez online       11. Fill out 1040ez online Subtract line 10 from line 4   11. Fill out 1040ez online   12. Fill out 1040ez online Divide line 5 by line 4. Fill out 1040ez online Enter the result as a decimal (rounded to  at least 3 places). Fill out 1040ez online If the result is 1. Fill out 1040ez online 000 or more, enter 1. Fill out 1040ez online 000   12. Fill out 1040ez online . Fill out 1040ez online       13. Fill out 1040ez online Multiply line 11 by line 12. Fill out 1040ez online This is the amount of qualified education  expenses allocated to your distributions, and is tax free   13. Fill out 1040ez online   14. Fill out 1040ez online Subtract line 13 from line 11. Fill out 1040ez online This is the portion of the distributions from this  Coverdell ESA in 2013 that you must include in income   14. Fill out 1040ez online   15. Fill out 1040ez online Subtract line 10 from line 3. Fill out 1040ez online This is your basis in this Coverdell ESA as of December 31, 2013   15. Fill out 1040ez online   Part III. Fill out 1040ez online Summary (Complete only once)       16. Fill out 1040ez online Taxable amount. Fill out 1040ez online Add together all amounts on line 14 for all your Coverdell ESAs. Fill out 1040ez online Enter here  and include on Form 1040, line 21, or Form 1040NR, line 21, listing the type and amount of income on the dotted line   16. Fill out 1040ez online   Prev  Up  Next   Home   More Online Publications
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Tax Relief for Victims of Flooding in Alaska

AK-2013-10, June 28, 2013

ANCHORAGE — Victims of flooding that began on May 17, 2013 in parts of Alaska may qualify for tax relief from the Internal Revenue Service.

The President has declared the Alaskan Gateway Regional Education Attendance Area (REAA), Lower Yukon REAA, Yukon Flats REAA and Yukon Koyukuk REAA a federal disaster area. Individuals who reside or have a business in these areas may qualify for tax relief.

The declaration permits the IRS to postpone certain deadlines for taxpayers who reside or have a business in the disaster area. For instance, certain deadlines falling on or after May 17, and on or before July 16, have been postponed to July 16, 2013. This includes the June 17 deadline for second quarter estimated tax payments.

In addition, the IRS is waiving the failure-to-deposit penalties for employment and excise tax deposits due on or after May 17, and on or before June 3, as long as the deposits are made by June 3, 2013.

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

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

Covered Disaster Area

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

Affected Taxpayers

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

Grant of Relief

Under section 7508A, the IRS gives affected taxpayers until July 16 to file most tax returns (including individual, corporate, and estate and trust income tax returns; partnership returns, S corporation returns, and trust returns; estate, gift, and generation-skipping transfer tax returns; and employment and certain excise tax returns), or to make tax payments, including estimated tax payments, that have either an original or extended due date occurring on or after May 17 and on or before July 16.

The IRS also gives affected taxpayers until July 16 to perform other time-sensitive actions described in Treas. Reg. § 301.7508A-1(c)(1) and Rev. Proc. 2007-56, 2007-34 I.R.B. 388 (Aug. 20, 2007), that are due to be performed on or after May 17 and on or before July 16.

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

The postponement of time to file and pay does not apply to information returns in the W-2, 1098, 1099 series, or to Forms 1042-S or 8027. Penalties for failure to timely file information returns can be waived under existing procedures for reasonable cause. Likewise, the postponement does not apply to employment and excise tax deposits. The IRS, however, will abate penalties for failure to make timely employment and excise tax deposits due on or after May 17 and on or before June 3 provided the taxpayer makes these deposits by June 3.

Casualty Losses

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

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

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

Other Relief

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

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

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

Related Information

Disaster Assistance and Emergency Relief for Individuals and Businesses

Recent IRS Disaster Relief Announcements

Page Last Reviewed or Updated: 28-Jun-2013

The Fill Out 1040ez Online

Fill out 1040ez online Depreciation Table of Contents Introduction Special Depreciation AllowanceQualified Property Election Not To Claim the Allowance Rules for Returns Filed Before June 1, 2002 Passenger Automobiles New York Liberty Zone BenefitsSpecial Liberty Zone Depreciation Allowance Increased Section 179 Deduction Liberty Zone Leasehold Improvement Property If you depreciate business property that you acquired and placed in service after September 10, 2001, new law contains provisions that may affect your depreciation deduction for that property. Fill out 1040ez online Publication 946, How To Depreciate Property, contains information on depreciation. Fill out 1040ez online However, Publication 946 does not contain the new provisions because it was printed before the law was enacted. Fill out 1040ez online The new provisions are in the Supplement to Publication 946, which is reprinted below. Fill out 1040ez online Supplement to Publication 946 How To Depreciate Property   Introduction After Publication 946 was printed, the Job Creation and Worker Assistance Act of 2002 was signed into law by the President. Fill out 1040ez online The new law made several changes in the tax rules explained in the publication. Fill out 1040ez online Some of the changes apply to property placed in service during 2001. Fill out 1040ez online This supplemental publication describes those changes and explains what you should do if you are affected by them. Fill out 1040ez online The situations and examples in Publication 946 do not reflect any of the changes made by the Job Creation and Worker Assistance Act of 2002. Fill out 1040ez online The new law contains the following provisions. Fill out 1040ez online 30% depreciation deductions (special depreciation allowance and special New York Liberty Zone (Liberty Zone) depreciation allowance) for the year qualified property is placed in service after September 10, 2001. Fill out 1040ez online An increased dollar limit on the section 179 deduction for qualified Liberty Zone property purchased after September 10, 2001. Fill out 1040ez online A shorter recovery period for qualified Liberty Zone leasehold improvement property placed in service after September 10, 2001. Fill out 1040ez online An increase in the maximum depreciation deduction for 2001 for a qualified passenger automobile placed in service after September 10, 2001. Fill out 1040ez online If you believe you qualify for an increased deduction under any of these new rules, you must file the revised 2001 Form 4562 (dated March 2002) for 2001 calendar or fiscal years and 2000 fiscal years ending after September 10, 2001. Fill out 1040ez online If you have already filed a tax return, this supplemental publication explains how to claim these benefits and how to elect not to claim the special depreciation allowance or special Liberty Zone depreciation allowance. Fill out 1040ez online See Table 2 at the end of the supplement for an overview of the rules that apply if you filed your return before June 1, 2002. Fill out 1040ez online Special Depreciation Allowance You can take a special depreciation allowance for qualified property you place in service after September 10, 2001. Fill out 1040ez online The allowance is an additional deduction of 30% of the property's depreciable basis. Fill out 1040ez online To figure the depreciable basis, you must first multiply the property's cost or other basis by the percentage of business/investment use and then reduce that amount by any section 179 deduction and certain other deductions and credits for the property. Fill out 1040ez online See What Is the Basis for Depreciation? on page 23 in Publication 946 for more information on figuring depreciable basis. Fill out 1040ez online The allowance is deductible for both regular tax and alternative minimum tax (AMT) purposes. Fill out 1040ez online There is no AMT adjustment required for any depreciation figured on the remaining basis of the property. Fill out 1040ez online In the year you claim the allowance (generally the year you place the property in service), you must reduce the depreciable basis of the property by the allowance before figuring your regular depreciation deduction. Fill out 1040ez online Example 1. Fill out 1040ez online On November 1, 2001, you bought and placed in service in your business qualified property that cost $100,000. Fill out 1040ez online You did not elect to claim a section 179 deduction. Fill out 1040ez online You can deduct 30% of the cost ($30,000) as a special depreciation allowance for 2001. Fill out 1040ez online You use the remaining $70,000 of cost to figure your regular depreciation deduction for 2001 and later years. Fill out 1040ez online Example 2. Fill out 1040ez online The facts are the same as in Example 1, except that you choose to deduct $24,000 of the property's cost as a section 179 deduction. Fill out 1040ez online You use the remaining $76,000 of cost to figure your special depreciation allowance of $22,800 ($76,000 × 30%). Fill out 1040ez online You use the remaining $53,200 of cost to figure your regular depreciation deduction for 2001 and later years. Fill out 1040ez online Qualified Property To qualify for the special depreciation allowance, your property must meet the following requirements. Fill out 1040ez online It is new property of one of the following types. Fill out 1040ez online Property depreciated under the modified accelerated cost recovery system (MACRS) with a recovery period of 20 years or less. Fill out 1040ez online See Can You Use MACRS To Depreciate Your Property and Which Recovery Period Applies? on pages 7 and 23, respectively, in Publication 946. Fill out 1040ez online Water utility property. Fill out 1040ez online See 25-year property on page 22 in Publication 946. Fill out 1040ez online Computer software that is not a section 197 intangible as described in Computer software on page 5 in Publication 946. Fill out 1040ez online (The cost of some computer software is treated as part of the cost of hardware and is depreciated under MACRS. Fill out 1040ez online ) Qualified leasehold improvement property (defined later). Fill out 1040ez online It meets the following tests (explained later under Tests To Be Met). Fill out 1040ez online Acquisition date test. Fill out 1040ez online Placed in service date test. Fill out 1040ez online Original use test. Fill out 1040ez online It is not excepted property (explained later under Excepted Property). Fill out 1040ez online Qualified leasehold improvement property. Fill out 1040ez online    Generally, this is any improvement to an interior part of a building that is nonresidential real property, provided all of the following requirements are met. Fill out 1040ez online The improvement is made under or pursuant to a lease by the lessee (or any sublessee) or the lessor of that part of the building. Fill out 1040ez online That part of the building is to be occupied exclusively by the lessee (or any sublessee) of that part. Fill out 1040ez online The improvement is placed in service more than 3 years after the date the building was first placed in service. Fill out 1040ez online   However, a qualified leasehold improvement does not include any improvement for which the expenditure is attributable to any of the following. Fill out 1040ez online The enlargement of the building. Fill out 1040ez online Any elevator or escalator. Fill out 1040ez online Any structural component benefiting a common area. Fill out 1040ez online The internal structural framework of the building. Fill out 1040ez online   Generally, a binding commitment to enter into a lease is treated as a lease and the parties to the commitment are treated as the lessor and lessee. Fill out 1040ez online However, a binding commitment between related persons is not treated as a lease. Fill out 1040ez online Related persons. Fill out 1040ez online   For this purpose, the following are related persons. Fill out 1040ez online Members of an affiliated group. Fill out 1040ez online The persons listed in items (1) through (9) under Related persons on page 8 of Publication 946 (except that “80% or more” should be substituted for “more than 10%” each place it appears). Fill out 1040ez online An executor and a beneficiary of the same estate. Fill out 1040ez online Tests To Be Met To qualify for the special depreciation allowance, the property must meet all of the following tests. Fill out 1040ez online Acquisition date test. Fill out 1040ez online    Generally, you must have acquired the property either: After September 10, 2001, and before September 11, 2004, but only if no written binding contract for the acquisition was in effect before September 11, 2001, or Pursuant to a written binding contract entered into after September 10, 2001, and before September 11, 2004. Fill out 1040ez online   Property you manufacture, construct, or produce for your own use meets this test if you began the manufacture, construction, or production of the property after September 10, 2001, and before September 11, 2004. Fill out 1040ez online Placed in service date test. Fill out 1040ez online   Generally, the property must be placed in service for use in your trade or business or for the production of income after September 10, 2001, and before January 1, 2005. Fill out 1040ez online   If you sold property you placed in service after September 10, 2001, and you leased it back within 3 months after the property was originally placed in service, the property is treated as placed in service no earlier than the date it is used under the leaseback. Fill out 1040ez online Original use test. Fill out 1040ez online   The original use of the property must have begun with you after September 10, 2001. Fill out 1040ez online “Original use” means the first use to which the property is put, whether or not by you. Fill out 1040ez online Additional capital expenditures you incurred after September 10, 2001, to recondition or rebuild your property meet the original use test. Fill out 1040ez online Excepted Property The following property does not qualify for the special depreciation allowance. Fill out 1040ez online Property used by any person before September 11, 2001. Fill out 1040ez online Property required to be depreciated using ADS. Fill out 1040ez online This includes listed property used 50% or less in a qualified business use. Fill out 1040ez online Qualified New York Liberty Zone leasehold improvement property (defined next). Fill out 1040ez online Qualified New York Liberty Zone leasehold improvement property. Fill out 1040ez online   This is any qualified leasehold improvement property (as defined earlier) if all of the following requirements are met. Fill out 1040ez online The improvement is to a building located in the New York Liberty Zone (defined later under New York Liberty Zone Benefits). Fill out 1040ez online The improvement is placed in service after September 10, 2001, and before January 1, 2007. Fill out 1040ez online No written binding contract for the improvement was in effect before September 11, 2001. Fill out 1040ez online Election Not To Claim the Allowance You can elect not to claim the special depreciation allowance for qualified property. Fill out 1040ez online If you make this election for any property, it applies to all property in the same property class placed in service during the year. Fill out 1040ez online To make this election, attach a statement to your return indicating you elect not to claim the allowance and the class of property for which you are making the election. Fill out 1040ez online When to make election. Fill out 1040ez online   Generally, you must make the election on a timely filed tax return (including extensions) for the year in which you place the property in service. Fill out 1040ez online   However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the original return (not including extensions). Fill out 1040ez online Attach the election statement to the amended return. Fill out 1040ez online At the top of the election statement, write “Filed pursuant to section 301. Fill out 1040ez online 9100–2. Fill out 1040ez online ” Revoking an election. Fill out 1040ez online   Once you elect not to deduct the special depreciation allowance for a class of property, you cannot revoke the election without IRS consent. Fill out 1040ez online A request to revoke the election is subject to a user fee. Fill out 1040ez online Rules for Returns Filed Before June 1, 2002 The following rules apply if you placed qualified property in service after September 10, 2001, and filed your return before June 1, 2002. Fill out 1040ez online The rules apply to returns for the following years. Fill out 1040ez online 2000 fiscal years that end after September 10, 2001. Fill out 1040ez online 2001 calendar and fiscal years. Fill out 1040ez online Claiming the allowance. Fill out 1040ez online   If you did not claim the allowance on your return and did not make the election not to claim the allowance, you can do either of the following to claim the allowance. Fill out 1040ez online File an amended return by the due date (not including extensions) of your return for the year following the year the property was placed in service. Fill out 1040ez online Write “Filed Pursuant to Rev. Fill out 1040ez online Proc. Fill out 1040ez online 2002–33” at the top of the amended return. Fill out 1040ez online File Form 3115, Application for Change in Accounting Method, with your return for the year following the year the property was placed in service. Fill out 1040ez online Your return must be filed by the due date (including extensions). Fill out 1040ez online Write “Automatic Change Filed Under Rev. Fill out 1040ez online Proc. Fill out 1040ez online 2002–33” on the appropriate line of Form 3115. Fill out 1040ez online You must also file a copy (with signature) of the completed Form 3115 with the IRS National Office no later than when you file the original with your return. Fill out 1040ez online For more information about filing Form 3115, including the address to send it to, see Revenue Procedure 2002–9, Revenue Procedure 2002–19, and Revenue Procedure 2002–33. Fill out 1040ez online Example 1. Fill out 1040ez online You are an individual and you use the calendar year. Fill out 1040ez online You placed qualified property in service for your business in December 2001. Fill out 1040ez online You filed your 2001 income tax return before April 15, 2002. Fill out 1040ez online You did not claim the special depreciation allowance for the property and did not make the election not to claim the allowance. Fill out 1040ez online You can claim the special allowance by filing an amended 2001 return by April 15, 2003, with “Filed Pursuant to Rev. Fill out 1040ez online Proc. Fill out 1040ez online 2002–33” at the top of the amended return. Fill out 1040ez online You must file an amended return by April 15, 2003, even if you get an extension of time to file your 2002 tax return. Fill out 1040ez online Example 2. Fill out 1040ez online The facts concerning your 2001 return are the same as in Example 1. Fill out 1040ez online In addition, you got an automatic 4-month extension of time (to August 15, 2003) to file your 2002 return. Fill out 1040ez online You can claim the special allowance by filing a Form 3115 (with “Filed Pursuant to Rev. Fill out 1040ez online Proc. Fill out 1040ez online 2002–33” on the appropriate line) with your 2002 return by August 15, 2003. Fill out 1040ez online You must also file a copy of this Form 3115 with the IRS National Office no later than when you file your 2002 return. Fill out 1040ez online Electing not to claim the allowance. Fill out 1040ez online   Generally, you have elected not to claim the special depreciation allowance for a class of property if you: Filed your return timely (including extensions) for the year you placed qualified property in service and indicated on a statement with the return that you are not claiming the allowance, or Filed your return timely and filed an amended return within 6 months of the due date of the original return (not including extensions) and indicated on a statement with the amended return that you are not claiming the allowance. Fill out 1040ez online The statement must indicate that you are not deducting the special depreciation allowance and the class of property to which the election applies. Fill out 1040ez online The statement can be either attached to or written on the return. Fill out 1040ez online You can, for example, write “not deducting 30%” on Form 4562. Fill out 1040ez online Deemed election. Fill out 1040ez online   If you have not followed either of the procedures described above to elect not to claim the allowance, you may still be treated as making the election. Fill out 1040ez online You will be treated as making the election if you meet both of the following conditions. Fill out 1040ez online You filed your return for the year you placed the property in service and claimed depreciation, but not the special allowance, for any class of property. Fill out 1040ez online You do not file an amended return or a Form 3115 within the time prescribed for claiming the special allowance. Fill out 1040ez online See Claiming the allowance, earlier. Fill out 1040ez online Passenger Automobiles The limit on your depreciation deduction (including any section 179 deduction) for any passenger automobile that is qualified property (defined earlier) placed in service after September 10, 2001, and for which you claim the special depreciation allowance is increased. Fill out 1040ez online Generally, the limit is increased from $3,060 to $7,660. Fill out 1040ez online However, if the automobile is a qualified electric car, the limit is increased from $9,280 to $23,080 ($22,980 if placed in service in 2002). Fill out 1040ez online Table 1 shows the maximum deduction amounts for 2001. Fill out 1040ez online Table 1. Fill out 1040ez online Maximum Deduction for 2001 Qualified Vehicle Placed in Service Before Sept. Fill out 1040ez online 11 Placed in Service After Sept. Fill out 1040ez online 10 Passenger automobile $3,060 $7,660 Electric car 9,280 23,080 1 1$22,980 if you place an electric car in service in 2002. Fill out 1040ez online Election not to claim the allowance. Fill out 1040ez online   The increased maximum depreciation deduction does not apply if you elected not to claim the special depreciation allowance as explained earlier under Election Not To Claim the Allowance and Rules for Returns Filed Before June 1, 2002. Fill out 1040ez online New York Liberty Zone Benefits Several benefits are available for property you place in service in the New York Liberty Zone (Liberty Zone). Fill out 1040ez online They include a special depreciation allowance for the year you place the property in service, an increased section 179 deduction, and the classification of certain leasehold improvement property as 5-year property. Fill out 1040ez online Area defined. Fill out 1040ez online   The New York Liberty Zone is the area located on or south of Canal Street, East Broadway (east of its intersection with Canal Street), or Grand Street (east of its intersection with East Broadway) in the Borough of Manhattan in the City of New York, New York. Fill out 1040ez online Special Liberty Zone Depreciation Allowance You can take a special depreciation allowance for qualified Liberty Zone property you place in service after September 10, 2001. Fill out 1040ez online The allowance is an additional deduction of 30% of the property's depreciable basis. Fill out 1040ez online To figure the depreciable basis, you must first multiply the property's cost or other basis by the percentage of business/investment use and then reduce that amount by any section 179 deduction and certain other deductions and credits for the property. Fill out 1040ez online See What Is the Basis for Depreciation? on page 23 in Publication 946 for more information on figuring depreciable basis. Fill out 1040ez online The allowance is deductible for both regular tax and alternative minimum tax (AMT) purposes. Fill out 1040ez online There is no AMT adjustment required for any depreciation figured on the remaining basis of the property. Fill out 1040ez online In the year you claim the allowance (generally the year you place the property in service), you must reduce the depreciable basis of the property by the allowance before figuring your regular depreciation deduction. Fill out 1040ez online You cannot claim the special Liberty Zone depreciation allowance for property eligible for the special depreciation allowance explained earlier in Qualified Property under Special Depreciation Allowance. Fill out 1040ez online Qualified property is eligible for only one special depreciation allowance. Fill out 1040ez online Example 1. Fill out 1040ez online On November 1, 2001, you bought and placed in service in your business, which is in the Liberty Zone, qualified Liberty Zone property that cost $200,000. Fill out 1040ez online You did not elect to claim a section 179 deduction. Fill out 1040ez online You can deduct 30% of the cost ($60,000) as a special Liberty Zone depreciation allowance for 2001. Fill out 1040ez online You use the remaining $140,000 of cost to figure your regular depreciation deduction for 2001 and later years. Fill out 1040ez online Example 2. Fill out 1040ez online The facts are the same as in Example 1, except that you choose to deduct $59,000 of the property's cost as a section 179 deduction. Fill out 1040ez online (See Increased Section 179 Deduction, later, for information concerning how this section 179 deduction amount is figured). Fill out 1040ez online You use the remaining $141,000 of cost to figure your special Liberty Zone depreciation allowance of $42,300 ($141,000 × 30%). Fill out 1040ez online You use the remaining $98,700 of cost to figure your regular depreciation deduction for 2001 and later years. Fill out 1040ez online Qualified Liberty Zone Property For a 2001 calendar or fiscal year and a 2000 fiscal year that ends after September 10, 2001, property qualifies for the special Liberty Zone depreciation allowance if it meets the following requirements. Fill out 1040ez online It is one of the following types of property. Fill out 1040ez online Used property depreciated under MACRS with a recovery period of 20 years or less. Fill out 1040ez online See Can You Use MACRS To Depreciate Your Property and Which Recovery Period Applies? on pages 7 and 23, respectively, in Publication 946. Fill out 1040ez online Used water utility property. Fill out 1040ez online See 25-year property on page 22 in Publication 946. Fill out 1040ez online Used computer software that is not a section 197 intangible as described in Computer software on page 5 in Publication 946. Fill out 1040ez online (The cost of some computer software is treated as part of the cost of hardware and is depreciated under MACRS. Fill out 1040ez online ) Certain nonresidential real property and residential rental property (defined later). Fill out 1040ez online It meets the following tests (explained later under Tests to be met). Fill out 1040ez online Acquisition date test. Fill out 1040ez online Placed in service date test. Fill out 1040ez online Substantial use test. Fill out 1040ez online Original use test. Fill out 1040ez online It is not excepted property (explained later under Excepted property). Fill out 1040ez online Nonresidential real property and residential rental property. Fill out 1040ez online   This property is qualifying property only to the extent it rehabilitates real property damaged, or replaces real property destroyed or condemned, as a result of the terrorist attack of September 11, 2001. Fill out 1040ez online Property is treated as replacing destroyed or condemned property if, as part of an integrated plan, such property replaces real property included in a continuous area that includes real property destroyed or condemned. Fill out 1040ez online   For these purposes, real property is considered destroyed (or condemned) only if an entire building or structure was destroyed (or condemned) as a result of the terrorist attack. Fill out 1040ez online Otherwise, the property is considered damaged real property. Fill out 1040ez online For example, if certain structural components of a building (such as walls, floors, or plumbing fixtures) are damaged or destroyed as a result of the terrorist attack, but the building is not destroyed (or condemned), then only costs related to replacing the damaged or destroyed structural components qualify for the special Liberty Zone depreciation allowance. Fill out 1040ez online Tests to be met. Fill out 1040ez online   To qualify for the special Liberty Zone depreciation allowance, your property must meet all of the following tests. Fill out 1040ez online Acquisition date test. Fill out 1040ez online   You must have acquired the property by purchase after September 10, 2001, and there must not have been a binding written contract for the acquisition in effect before September 11, 2001. Fill out 1040ez online   For information on the acquisition of property by purchase, see Property Acquired by Purchase on page 15 of Publication 946. Fill out 1040ez online   Property you manufacture, construct, or produce for your own use meets this test if you began the manufacture, construction, or production of the property after September 10, 2001. Fill out 1040ez online Placed in service date test. Fill out 1040ez online   Generally, the property must be placed in service for use in your trade or business or for the production of income before January 1, 2007 (January 1, 2010, in the case of qualifying nonresidential real property and residential rental property). Fill out 1040ez online   If you sold property you placed in service after September 10, 2001, and you leased it back within 3 months after the property was originally placed in service, the property is treated as placed in service no earlier than the date it is used under the leaseback. Fill out 1040ez online Substantial use test. Fill out 1040ez online   Substantially all use of the property must be in the Liberty Zone and in the active conduct of your trade or business in the Liberty Zone. Fill out 1040ez online Original use test. Fill out 1040ez online   The original use of the property in the Liberty Zone must have begun with you after September 10, 2001. Fill out 1040ez online   Used property can be qualified Liberty Zone property if it has not previously been used within the Liberty Zone. Fill out 1040ez online Also, additional capital expenditures you incurred after September 10, 2001, to recondition or rebuild your property meet the original use test if the original use of the property in the Liberty Zone began with you. Fill out 1040ez online Excepted property. Fill out 1040ez online   The following property does not qualify for the special Liberty Zone depreciation allowance. Fill out 1040ez online Property eligible for the special depreciation allowance explained earlier in Qualified Property under Special Depreciation Allowance. Fill out 1040ez online Property required to be depreciated using ADS. Fill out 1040ez online This includes listed property used 50% or less in a qualified business use. Fill out 1040ez online Qualified New York Liberty Zone leasehold improvement property (defined earlier in Excepted Property under Special Depreciation Allowance). Fill out 1040ez online Example. Fill out 1040ez online In December 2001, you bought and placed in service in your business in the Liberty Zone the following property. Fill out 1040ez online New office furniture with a MACRS recovery period of 7 years. Fill out 1040ez online A used computer with a MACRS recovery period of 5 years. Fill out 1040ez online The computer had not previously been used within the Liberty Zone. Fill out 1040ez online Because the office furniture is new property, it qualifies for the special depreciation allowance, but not the special Liberty Zone depreciation allowance. Fill out 1040ez online Because the computer is used property that had not previously been used in the Liberty Zone, it qualifies for the special Liberty Zone depreciation allowance, but not the special depreciation allowance. Fill out 1040ez online Election Not To Claim the Liberty Zone Allowance You can elect not to claim the special Liberty Zone depreciation allowance for qualified property. Fill out 1040ez online If you make this election for any property, it applies to all property in the same property class placed in service during the year. Fill out 1040ez online To make this election, attach a statement to your return indicating you elect not to claim the allowance and the class of property for which you are making the election. Fill out 1040ez online When to make the election. Fill out 1040ez online   Generally, you must make the election on a timely filed tax return (including extensions) for the year in which you place the property in service. Fill out 1040ez online   However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the original return (not including extensions). Fill out 1040ez online Attach the election statement to the amended return. Fill out 1040ez online At the top of the election statement, write “Filed pursuant to section 301. Fill out 1040ez online 9100–2. Fill out 1040ez online ” Revoking an election. Fill out 1040ez online   Once you elect not to deduct the special Liberty Zone depreciation allowance for a class of property, you cannot revoke the election without IRS consent. Fill out 1040ez online A request to revoke the election is subject to a user fee. Fill out 1040ez online Returns filed before June 1, 2002. Fill out 1040ez online   The rules that apply to the special depreciation allowance discussed earlier in Rules for Returns Filed Before June 1, 2002 under Special Depreciation Allowance also apply to the special Liberty Zone depreciation allowance. Fill out 1040ez online Increased Section 179 Deduction Under section 179 of the Internal Revenue Code, you can choose to recover all or part of the cost of certain qualifying property, up to a limit, by deducting it in the year you place the property in service. Fill out 1040ez online For tax years beginning in 2000, that limit was $20,000. Fill out 1040ez online For tax years beginning in 2001 and 2002, that limit is generally $24,000. Fill out 1040ez online If the cost of qualifying section 179 property placed in service in a year is over $200,000, you must reduce the dollar limit (but not below zero) by the amount of the cost over $200,000. Fill out 1040ez online Increased Dollar Limit The dollar limit on the section 179 deduction is increased for certain property placed in service in the Liberty Zone. Fill out 1040ez online The increase is the smaller of the following amounts. Fill out 1040ez online $35,000. Fill out 1040ez online The cost of section 179 property that is qualified Liberty Zone property placed in service during the year. Fill out 1040ez online If you use the revised 2001 Form 4562 (dated March 2002) for a tax year beginning in 2000, you must reduce the section 179 dollar limit to $20,000 before adding the additional amount for qualified property. Fill out 1040ez online Qualified property. Fill out 1040ez online   To qualify for the increased section 179 deduction, your property must be section 179 property that is either: Qualified Liberty Zone property, or Property that would be qualified Liberty Zone property except that it is eligible for the special depreciation allowance. Fill out 1040ez online Qualified Liberty Zone property is explained earlier in Qualified Liberty Zone Property under Special Liberty Zone Depreciation Allowance. Fill out 1040ez online Property eligible for the special depreciation allowance is explained earlier in Qualified Property under Special Depreciation Allowance. Fill out 1040ez online For information on the requirements that must be met for property to qualify for the section 179 deduction, see What Property Qualifies? on page 14 of Publication 946. Fill out 1040ez online Example 1. Fill out 1040ez online In 2002, you place in service in your business, which is in the Liberty Zone, qualified property (defined earlier) costing $25,000. Fill out 1040ez online Because this cost is less than $35,000, the dollar limit on the section 179 deduction is increased by $25,000 to $49,000 ($24,000 + $25,000). Fill out 1040ez online Example 2. Fill out 1040ez online In 2002, you place in service in your business, which is in the Liberty Zone, qualified property (defined earlier) costing $75,000. Fill out 1040ez online Because $35,000 is less than the cost of the property you place in service, the dollar limit on the section 179 deduction you can claim is increased by $35,000 to $59,000 ($24,000 + $35,000). Fill out 1040ez online Reduced Dollar Limit Generally, you must reduce the dollar limit for a year by the cost of qualifying section 179 property placed in service in the year that is more than $200,000. Fill out 1040ez online However, if the cost of your Liberty Zone property exceeds $200,000, you take into account only 50% (instead of 100%) of the cost of qualified property placed in service in a year. Fill out 1040ez online Example. Fill out 1040ez online In 2002, you place in service in your business, which is in the Liberty Zone, qualified property costing $460,000. Fill out 1040ez online Your increased dollar limit is $59,000 ($35,000 + $24,000). Fill out 1040ez online Because 50% of the cost of the property you place in service ($230,000) is $30,000 more than $200,000, you must reduce your $59,000 dollar limit to $29,000 ($59,000 - $30,000). Fill out 1040ez online Recapture Rules Rules similar to those explained on page 20 of Publication 946 under When Must You Recapture the Deduction? apply with respect to any qualified property you stop using in the Liberty Zone. Fill out 1040ez online Returns Filed Before June 1, 2002 If you filed a return before June 1, 2002, and did not deduct the increased section 179 amount for qualified property placed in service after September 10, 2001, you can deduct the increased amount by filing an amended return by the due date (not including extensions) of the return for the year after the year the property was placed in service. Fill out 1040ez online This rule applies to returns for the following years. Fill out 1040ez online 2000 fiscal years that end after September 10, 2001. Fill out 1040ez online 2001 calendar and fiscal years. Fill out 1040ez online On the amended return, write “Filed Pursuant to Rev. Fill out 1040ez online Proc. Fill out 1040ez online 2002–33. Fill out 1040ez online ” Liberty Zone Leasehold Improvement Property Qualified Liberty Zone leasehold improvement property (described earlier in Qualified Property under Special Depreciation Allowance) is 5-year property. Fill out 1040ez online This means that it is depreciated over a recovery period of 5 years. Fill out 1040ez online For information about recovery periods, see Which Recovery Period Applies? on page 23 of Publication 946. Fill out 1040ez online The straight-line method must be used with respect to qualified Liberty Zone leasehold improvement property. Fill out 1040ez online Under ADS, the recovery period for qualified Liberty Zone leasehold improvement property is 9 years. Fill out 1040ez online Returns Filed Before June 1, 2002 If you filed either of the following returns before June 1, 2002, and did not depreciate qualified Liberty Zone leasehold improvement property placed in service during the tax year as 5-year property using the straight line method, you should file an amended return before you file your return for the year after the year the property was placed in service. Fill out 1040ez online Your 2000 fiscal year return (for a 2000 fiscal year that ends after September 10, 2001). Fill out 1040ez online Your 2001 calendar or fiscal year return. Fill out 1040ez online On the amended return, write “Filed Pursuant to Rev. Fill out 1040ez online Proc. Fill out 1040ez online 2002–33. Fill out 1040ez online ” Table 2. Fill out 1040ez online Rules for Returns Filed Before June 1, 2002 Note:This chart highlights the rules for returns affected by the Job Creation and Worker Assistance Act of 2002 that were filed before June 1, 2002, without accounting for any of the new benefits under the law. Fill out 1040ez online See the text for definitions and examples. Fill out 1040ez online Do not rely on this chart alone. Fill out 1040ez online IF you want to. Fill out 1040ez online . Fill out 1040ez online . Fill out 1040ez online THEN you. Fill out 1040ez online . Fill out 1040ez online . Fill out 1040ez online BY. Fill out 1040ez online . Fill out 1040ez online . Fill out 1040ez online claim the special depreciation allowance or special Liberty Zone depreciation allowance • must file an amended return • the due date (not including extensions) of your return for the year after the year the property was placed in service, or • must file Form 3115, Application for Change in Accounting Method, with your return for the year after the year the property was placed in service • the due date (including extensions) of your return for the year after the year the property was placed in service, and • must file a copy of your completed Form 3115 with the IRS National Office • the date you file the original Form 3115 with your return for the year after the year the property was placed in service. Fill out 1040ez online elect not to claim the special depreciation allowance or the special Liberty Zone depreciation allowance 1 • must have filed your return timely for the year the property was placed in service, and   • must file an amended return stating you are not claiming the allowance • the date that is 6 months after the due date of the original return (not including extensions). Fill out 1040ez online deduct the increased section 179 amount • must file an amended return • the due date (not including extensions) of your return for the year after the year the property was placed in service. Fill out 1040ez online use a 5-year recovery period for depreciating qualified Liberty Zone leasehold improvement property • should file an amended return • the date you file your return for the year after the year the property was placed in service. Fill out 1040ez online 1See also Deemed election under Rules for Returns Filed Before June 1, 2002, earlier. 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