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H And R Block Tax

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H And R Block Tax

H and r block tax Publication 501 - Main Content Table of Contents Who Must FileSelf-employed persons. H and r block tax Filing Requirements for Most Taxpayers Dependents Other Situations Who Should File Filing StatusMarital Status Single Married Filing Jointly Married Filing Separately Head of Household Qualifying Widow(er) With Dependent Child ExemptionsForm 1040EZ filers. H and r block tax Form 1040A filers. H and r block tax Form 1040 filers. H and r block tax More information. H and r block tax Personal Exemptions Exemptions for Dependents Qualifying Child Qualifying Relative Phaseout of Exemptions Social Security Numbers for DependentsBorn and died in 2013. H and r block tax Taxpayer identification numbers for aliens. H and r block tax Taxpayer identification numbers for adoptees. H and r block tax Standard DeductionStandard Deduction Amount Standard Deduction for Dependents Who Should Itemize How To Get Tax HelpLow Income Taxpayer Clinics Who Must File If you are a U. H and r block tax S. H and r block tax citizen or resident alien, whether you must file a federal income tax return depends on your gross income, your filing status, your age, and whether you are a dependent. H and r block tax For details, see Table 1 and Table 2. H and r block tax You also must file if one of the situations described in Table 3 applies. H and r block tax The filing requirements apply even if you owe no tax. H and r block tax Table 1. H and r block tax 2013 Filing Requirements Chart for Most Taxpayers IF your filing status is. H and r block tax . H and r block tax . H and r block tax AND at the end of 2013 you were. H and r block tax . H and r block tax . H and r block tax * THEN file a return if your gross income was at least. H and r block tax . H and r block tax . H and r block tax ** single under 65  $10,000 65 or older $11,500 head of household under 65 $12,850 65 or older $14,350 married, filing jointly*** under 65 (both spouses) $20,000 65 or older (one spouse) $21,200 65 or older (both spouses) $22,400 married, filing separately any age  $3,900 qualifying widow(er) with dependent child under 65 $16,100 65 or older $17,300 * If you were born before January 2, 1949, you are considered to be 65 or older at the end of 2013. H and r block tax ** Gross income means all income you receive in the form of money, goods, property, and services that is not exempt from tax, including any income from sources outside the United States or from the sale of your main home (even if you can exclude part or all of it). H and r block tax Do not include any social security benefits unless (a) you are married filing a separate return and you lived with your spouse at any time during 2013 or (b) one-half of your social security benefits plus your other gross income and any tax-exempt interest is more than $25,000 ($32,000 if married filing jointly). H and r block tax If (a) or (b) applies, see the Form 1040 instructions to figure the taxable part of social security benefits you must include in gross income. H and r block tax Gross income includes gains, but not losses, reported on Form 8949 or Schedule D. H and r block tax Gross income from a business means, for example, the amount on Schedule C, line 7, or Schedule F, line 9. H and r block tax But in figuring gross income, do not reduce your income by any losses, including any loss on Schedule C, line 7, or Schedule F, line 9. H and r block tax *** If you did not live with your spouse at the end of 2013 (or on the date your spouse died) and your gross income was at least $3,900, you must file a return regardless of your age. H and r block tax You may have to pay a penalty if you are required to file a return but fail to do so. H and r block tax If you willfully fail to file a return, you may be subject to criminal prosecution. H and r block tax For information on what form to use — Form 1040EZ, Form 1040A, or Form 1040 — see the instructions for your tax return. H and r block tax Gross income. H and r block tax    Gross income is all income you receive in the form of money, goods, property, and services that is not exempt from tax. H and r block tax If you are married and live with your spouse in a community property state, half of any income defined by state law as community income may be considered yours. H and r block tax For a list of community property states, see Community property states under Married Filing Separately, later. H and r block tax Self-employed persons. H and r block tax    If you are self-employed in a business that provides services (where products are not a factor), your gross income from that business is the gross receipts. H and r block tax If you are self-employed in a business involving manufacturing, merchandising, or mining, your gross income from that business is the total sales minus the cost of goods sold. H and r block tax In either case, you must add any income from investments and from incidental or outside operations or sources. H and r block tax    You must file Form 1040 if you owe any self-employment tax. H and r block tax Filing status. H and r block tax    Your filing status generally depends on whether you are single or married. H and r block tax Whether you are single or married is determined at the end of your tax year, which is December 31 for most taxpayers. H and r block tax Filing status is discussed in detail later in this publication. H and r block tax Age. H and r block tax    Age is a factor in determining if you must file a return only if you are 65 or older at the end of your tax year. H and r block tax For 2013, you are 65 or older if you were born before January 2, 1949. H and r block tax Filing Requirements for Most Taxpayers You must file a return if your gross income for the year was at least the amount shown on the appropriate line in Table 1. H and r block tax Dependents should see Table 2 instead. H and r block tax Deceased Persons You must file an income tax return for a decedent (a person who died) if both of the following are true. H and r block tax You are the surviving spouse, executor, administrator, or legal representative. H and r block tax The decedent met the filing requirements described in this publication at the time of his or her death. H and r block tax For more information, see Final Income Tax Return for Decedent — Form 1040 in Publication 559. H and r block tax Table 2. H and r block tax 2013 Filing Requirements for Dependents See Exemptions for Dependents to find out if you are a dependent. H and r block tax If your parent (or someone else) can claim you as a dependent, use this table to see if you must file a return. H and r block tax  In this table, unearned income includes taxable interest, ordinary dividends, and capital gain distributions. H and r block tax It also includes unemployment compensation, taxable social security benefits, pensions, annuities, and distributions of unearned income from a trust. H and r block tax Earned income includes salaries, wages, tips, professional fees, and taxable scholarship and fellowship grants. H and r block tax Gross income is the total of your unearned and earned income. H and r block tax If your gross income was $3,900 or more, you usually cannot be claimed as a dependent unless you are a qualifying child. H and r block tax For details, see Exemptions for Dependents. H and r block tax Single dependents—Were you either age 65 or older or blind? □ No. H and r block tax You must file a return if any of the following apply. H and r block tax Your unearned income was more than $1,000. H and r block tax Your earned income was more than $6,100. H and r block tax Your gross income was more than the larger of— $1,000, or Your earned income (up to $5,750) plus $350. H and r block tax     □ Yes. H and r block tax You must file a return if any of the following apply. H and r block tax Your unearned income was more than $2,500 ($4,000 if 65 or older and blind). H and r block tax Your earned income was more than $7,600 ($9,100 if 65 or older and blind). H and r block tax Your gross income was more than the larger of—  $2,500 ($4,000 if 65 or older and blind), or Your earned income (up to $5,750) plus $1,850 ($3,350 if 65 or older and blind). H and r block tax     Married dependents—Were you either age 65 or older or blind? □ No. H and r block tax You must file a return if any of the following apply. H and r block tax Your gross income was at least $5 and your spouse files a separate return and itemizes deductions. H and r block tax Your unearned income was more than $1,000. H and r block tax Your earned income was more than $6,100. H and r block tax Your gross income was more than the larger of— $1,000, or Your earned income (up to $5,750 plus $350. H and r block tax     □ Yes. H and r block tax You must file a return if any of the following apply. H and r block tax Your gross income was at least $5 and your spouse files a separate return and itemizes deductions. H and r block tax Your unearned income was more than $2,200 ($3,400 if 65 or older and blind). H and r block tax Your earned income was more than $7,300 ($8,500 if 65 or older and blind). H and r block tax Your gross income was more than the larger of— $2,200 ($3,400 if 65 or older and blind), or Your earned income (up to $5,750) plus $1,550 ($2,750 if 65 or older and blind). H and r block tax     U. H and r block tax S. H and r block tax Citizens or Resident Aliens Living Abroad To determine whether you must file a return, include in your gross income any income you earned or received abroad, including any income you can exclude under the foreign earned income exclusion. H and r block tax For more information on special tax rules that may apply to you, see Publication 54, Tax Guide for U. H and r block tax S. H and r block tax Citizens and Resident Aliens Abroad. H and r block tax Residents of Puerto Rico If you are a U. H and r block tax S. H and r block tax citizen and also a bona fide resident of Puerto Rico, you generally must file a U. H and r block tax S. H and r block tax income tax return for any year in which you meet the income requirements. H and r block tax This is in addition to any legal requirement you may have to file an income tax return with Puerto Rico. H and r block tax If you are a bona fide resident of Puerto Rico for the whole year, your U. H and r block tax S. H and r block tax gross income does not include income from sources within Puerto Rico. H and r block tax It does, however, include any income you received for your services as an employee of the United States or any U. H and r block tax S. H and r block tax agency. H and r block tax If you receive income from Puerto Rican sources that is not subject to U. H and r block tax S. H and r block tax tax, you must reduce your standard deduction, which reduces the amount of income you can have before you must file a U. H and r block tax S. H and r block tax income tax return. H and r block tax For more information, see Publication 570, Tax Guide for Individuals With Income From U. H and r block tax S. H and r block tax Possessions. H and r block tax Individuals With Income From U. H and r block tax S. H and r block tax Possessions If you had income from Guam, the Commonwealth of the Northern Mariana Islands, American Samoa, or the U. H and r block tax S. H and r block tax Virgin Islands, special rules may apply when determining whether you must file a U. H and r block tax S. H and r block tax federal income tax return. H and r block tax In addition, you may have to file a return with the individual possession government. H and r block tax See Publication 570 for more information. H and r block tax Dependents A person who is a dependent may still have to file a return. H and r block tax It depends on his or her earned income, unearned income, and gross income. H and r block tax For details, see Table 2. H and r block tax A dependent must also file if one of the situations described in Table 3 applies. H and r block tax Responsibility of parent. H and r block tax    If a dependent child must file an income tax return but cannot file due to age or any other reason, a parent, guardian, or other legally responsible person must file it for the child. H and r block tax If the child cannot sign the return, the parent or guardian must sign the child's name followed by the words “By (your signature), parent for minor child. H and r block tax ” Earned income. H and r block tax    Earned income includes salaries, wages, professional fees, and other amounts received as pay for work you actually perform. H and r block tax Earned income (only for purposes of filing requirements and the standard deduction) also includes any part of a scholarship that you must include in your gross income. H and r block tax See chapter 1 of Publication 970, Tax Benefits for Education, for more information on taxable and nontaxable scholarships. H and r block tax Child's earnings. H and r block tax    Amounts a child earns by performing services are included in his or her gross income and not the gross income of the parent. H and r block tax This is true even if under local law the child's parent has the right to the earnings and may actually have received them. H and r block tax But if the child does not pay the tax due on this income, the parent is liable for the tax. H and r block tax Unearned income. H and r block tax    Unearned income includes income such as interest, dividends, and capital gains. H and r block tax Trust distributions of interest, dividends, capital gains, and survivor annuities are also considered unearned income. H and r block tax Election to report child's unearned income on parent's return. H and r block tax    You may be able to include your child's interest and dividend income on your tax return. H and r block tax If you do this, your child will not have to file a return. H and r block tax To make this election, all of the following conditions must be met. H and r block tax Your child was under age 19 (or under age 24 if a student) at the end of 2013. H and r block tax (A child born on January 1, 1995, is considered to be age 19 at the end of 2013; you cannot make the election for this child unless the child was a student. H and r block tax Similarly, a child born on January 1, 1990, is considered to be age 24 at the end of 2013; you cannot make the election for this child. H and r block tax ) Your child had gross income only from interest and dividends (including capital gain distributions and Alaska Permanent Fund dividends). H and r block tax The interest and dividend income was less than $10,000. H and r block tax Your child is required to file a return for 2013 unless you make this election. H and r block tax Your child does not file a joint return for 2013. H and r block tax No estimated tax payment was made for 2013 and no 2012 overpayment was applied to 2013 under your child's name and social security number. H and r block tax No federal income tax was withheld from your child's income under the backup withholding rules. H and r block tax You are the parent whose return must be used when making the election to report your child's unearned income. H and r block tax   For more information, see Form 8814 and Parent's Election To Report Child's Interest and Dividends in Publication 929. H and r block tax Other Situations You may have to file a tax return even if your gross income is less than the amount shown in Table 1 or Table 2 for your filing status. H and r block tax See Table 3 for those other situations when you must file. H and r block tax Table 3. H and r block tax Other Situations When You Must File a 2013 Return If any of the four conditions listed below applied to you for 2013, you must file a return. H and r block tax 1. H and r block tax You owe any special taxes, including any of the following. H and r block tax   a. H and r block tax Alternative minimum tax. H and r block tax (See Form 6251. H and r block tax )   b. H and r block tax Additional tax on a qualified plan, including an individual retirement arrangement (IRA), or other tax-favored account. H and r block tax (See Publication 590, Individual Retirement Arrangements (IRAs), and Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans. H and r block tax ) But if you are filing a return only because you owe this tax, you can file Form 5329 by itself. H and r block tax   c. H and r block tax Social security or Medicare tax on tips you did not report to your employer (see Publication 531, Reporting Tip Income) or on wages you received from an employer who did not withhold these taxes (see Form 8919). H and r block tax   d. H and r block tax Write-in taxes, including uncollected social security, Medicare, or railroad retirement tax on tips you reported to your employer or on group-term life insurance and additional tax on health savings accounts. H and r block tax (See Publication 531, Publication 969, and the Form 1040 instructions for line 60. H and r block tax )   e. H and r block tax Household employment taxes. H and r block tax But if you are filing a return only because you owe these taxes, you can file Schedule H (Form 1040) by itself. H and r block tax   f. H and r block tax Recapture taxes. H and r block tax (See the Form 1040 instructions for lines 44, 59b, and 60. H and r block tax ) 2. H and r block tax You (or your spouse if filing jointly) received Archer MSA, Medicare Advantage MSA, or health savings account distributions. H and r block tax 3. H and r block tax You had net earnings from self-employment of at least $400. H and r block tax (See Schedule SE (Form 1040) and its instructions. H and r block tax ) 4. H and r block tax You had wages of $108. H and r block tax 28 or more from a church or qualified church-controlled organization that is exempt from employer social security and Medicare taxes. H and r block tax (See Schedule SE (Form 1040) and its instructions. H and r block tax ) Who Should File Even if you do not have to file, you should file a tax return if you can get money back. H and r block tax For example, you should file if one of the following applies. H and r block tax You had income tax withheld from your pay. H and r block tax You made estimated tax payments for the year or had any of your overpayment for last year applied to this year's estimated tax. H and r block tax You qualify for the earned income credit. H and r block tax See Publication 596, Earned Income Credit (EIC), for more information. H and r block tax You qualify for the additional child tax credit. H and r block tax See the instructions for the tax form you file (Form 1040 or 1040A) for more information. H and r block tax You qualify for the refundable American opportunity education credit. H and r block tax See Form 8863, Education Credits. H and r block tax You qualify for the health coverage tax credit. H and r block tax For information about this credit, see Form 8885, Health Coverage Tax Credit. H and r block tax You qualify for the credit for federal tax on fuels. H and r block tax See Form 4136, Credit for Federal Tax Paid on Fuels. H and r block tax Form 1099-B received. H and r block tax    Even if you are not required to file a return, you should consider filing if all of the following apply. H and r block tax You received a Form 1099-B, Proceeds From Broker and Barter Exchange Transactions (or substitute statement). H and r block tax The amount in box 2a of Form 1099-B (or substitute statement), when added to your other gross income, means you have to file a tax return because of the filing requirement in Table 1 or Table 2 that applies to you. H and r block tax Box 3 of Form 1099-B (or substitute statement) is blank. H and r block tax In this case, filing a return may keep you from getting a notice from the IRS. H and r block tax Filing Status You must determine your filing status before you can determine whether you must file a tax return, your standard deduction (discussed later), and your tax. H and r block tax You also use your filing status to determine whether you are eligible to claim certain other deductions and credits. H and r block tax There are five filing statuses: Single, Married Filing Jointly, Married Filing Separately, Head of Household, and Qualifying Widow(er) With Dependent Child. H and r block tax If more than one filing status applies to you, choose the one that will give you the lowest tax. H and r block tax Marital Status In general, your filing status depends on whether you are considered unmarried or married. H and r block tax Unmarried persons. H and r block tax    You are considered unmarried for the whole year if, on the last day of your tax year, you are unmarried or legally separated from your spouse under a divorce or separate maintenance decree. H and r block tax   State law governs whether you are married or legally separated under a divorce or separate maintenance decree. H and r block tax Divorced persons. H and r block tax    If you are divorced under a final decree by the last day of the year, you are considered unmarried for the whole year. H and r block tax Divorce and remarriage. H and r block tax    If you obtain a divorce for the sole purpose of filing tax returns as unmarried individuals, and at the time of divorce you intend to and do, in fact, remarry each other in the next tax year, you and your spouse must file as married individuals in both years. H and r block tax Annulled marriages. H and r block tax    If you obtain a court decree of annulment, which holds that no valid marriage ever existed, you are considered unmarried even if you filed joint returns for earlier years. H and r block tax You must file amended returns (Form 1040X) claiming single or head of household status for all tax years that are affected by the annulment and not closed by the statute of limitations for filing a tax return. H and r block tax Generally, for a credit or refund, you must file Form 1040X within 3 years (including extensions) after the date you filed your original return or within 2 years after the date you paid the tax, whichever is later. H and r block tax If you filed your original tax return early (for example, March 1), your return is considered filed on the due date (generally April 15). H and r block tax However, if you had an extension to file (for example, until October 15) but you filed earlier and we received it on July 1, your return is considered filed on July 1. H and r block tax Head of household or qualifying widow(er) with dependent child. H and r block tax    If you are considered unmarried, you may be able to file as a head of household or as a qualifying widow(er) with a dependent child. H and r block tax See Head of Household and Qualifying Widow(er) With Dependent Child to see if you qualify. H and r block tax Married persons. H and r block tax    If you are considered married, you and your spouse can file a joint return or separate returns. H and r block tax Considered married. H and r block tax    You are considered married for the whole year if, on the last day of your tax year, you and your spouse meet any one of the following tests. H and r block tax You are married and living together. H and r block tax You are living together in a common law marriage recognized in the state where you now live or in the state where the common law marriage began. H and r block tax You are married and living apart but not legally separated under a decree of divorce or separate maintenance. H and r block tax You are separated under an interlocutory (not final) decree of divorce. H and r block tax Same-sex marriage. H and r block tax    For federal tax purposes, individuals of the same sex are married if they were lawfully married in a state (or foreign country) whose laws authorize the marriage of two individuals of the same sex, even if the state (or foreign country) in which they now live does not recognize same-sex marriage. H and r block tax The term "spouse" includes an individual married to a person of the same sex if the couple is lawfully married under state (or foreign) law. H and r block tax However, individuals who have entered into a registered domestic partnership, civil union, or other similar relationship that is not called a marriage under state (or foreign) law are not married for federal tax purposes. H and r block tax   The word “state” as used here includes the District of Columbia, Puerto Rico, and U. H and r block tax S. H and r block tax territories and possessions. H and r block tax It means any domestic jurisdiction that has the legal authority to sanction marriages. H and r block tax The term “foreign country” means any foreign jurisdiction that has the legal authority to sanction marriages. H and r block tax   If individuals of the same sex are married, they generally must use the married filing jointly or married filing separately filing status. H and r block tax However, if they did not live together during the last 6 months of the year, one or both of them may be able to use the head of household filing status, as explained later. H and r block tax   For more details, see Answers to Frequently Asked Questions For Individuals of the Same Sex Who Are Married Under State Law on IRS. H and r block tax gov. H and r block tax Spouse died during the year. H and r block tax    If your spouse died during the year, you are considered married for the whole year for filing status purposes. H and r block tax   If you did not remarry before the end of the tax year, you can file a joint return for yourself and your deceased spouse. H and r block tax For the next 2 years, you may be entitled to the special benefits described later under Qualifying Widow(er) With Dependent Child . H and r block tax   If you remarried before the end of the tax year, you can file a joint return with your new spouse. H and r block tax Your deceased spouse's filing status is married filing separately for that year. H and r block tax Married persons living apart. H and r block tax    If you live apart from your spouse and meet certain tests, you may be able to file as head of household even if you are not divorced or legally separated. H and r block tax If you qualify to file as head of household instead of as married filing separately, your standard deduction will be higher. H and r block tax Also, your tax may be lower, and you may be able to claim the earned income credit. H and r block tax See Head of Household , later. H and r block tax Single Your filing status is single if you are considered unmarried and you do not qualify for another filing status. H and r block tax To determine your marital status, see Marital Status , earlier. H and r block tax Widow(er). H and r block tax    Your filing status may be single if you were widowed before January 1, 2013, and did not remarry before the end of 2013. H and r block tax You may, however, be able to use another filing status that will give you a lower tax. H and r block tax See Head of Household and Qualifying Widow(er) With Dependent Child , later, to see if you qualify. H and r block tax How to file. H and r block tax    You can file Form 1040. H and r block tax If you have taxable income of less than $100,000, you may be able to file Form 1040A. H and r block tax If, in addition, you have no dependents, are under 65 and not blind, and meet other requirements, you can file Form 1040EZ. H and r block tax If you file Form 1040A or Form 1040, show your filing status as single by checking the box on line 1. H and r block tax Use the Single column of the Tax Table, or Section A of the Tax Computation Worksheet, to figure your tax. H and r block tax Married Filing Jointly You can choose married filing jointly as your filing status if you are considered married and both you and your spouse agree to file a joint return. H and r block tax On a joint return, you and your spouse report your combined income and deduct your combined allowable expenses. H and r block tax You can file a joint return even if one of you had no income or deductions. H and r block tax If you and your spouse decide to file a joint return, your tax may be lower than your combined tax for the other filing statuses. H and r block tax Also, your standard deduction (if you do not itemize deductions) may be higher, and you may qualify for tax benefits that do not apply to other filing statuses. H and r block tax If you and your spouse each have income, you may want to figure your tax both on a joint return and on separate returns (using the filing status of married filing separately). H and r block tax You can choose the method that gives the two of you the lower combined tax. H and r block tax How to file. H and r block tax    If you file as married filing jointly, you can use Form 1040. H and r block tax If you and your spouse have taxable income of less than $100,000, you may be able to file Form 1040A. H and r block tax If, in addition, you and your spouse have no dependents, are both under 65 and not blind, and meet other requirements, you can file Form 1040EZ. H and r block tax If you file Form 1040 or Form 1040A, show this filing status by checking the box on line 2. H and r block tax Use the Married filing jointly column of the Tax Table, or Section B of the Tax Computation Worksheet, to figure your tax. H and r block tax Spouse died. H and r block tax    If your spouse died during the year, you are considered married for the whole year and can choose married filing jointly as your filing status. H and r block tax See Spouse died during the year , under Married persons, earlier. H and r block tax   If your spouse died in 2014 before filing a 2013 return, you can choose married filing jointly as your filing status on your 2013 return. H and r block tax Divorced persons. H and r block tax    If you are divorced under a final decree by the last day of the year, you are considered unmarried for the whole year and you cannot choose married filing jointly as your filing status. H and r block tax Filing a Joint Return Both you and your spouse must include all of your income, exemptions, and deductions on your joint return. H and r block tax Accounting period. H and r block tax    Both of you must use the same accounting period, but you can use different accounting methods. H and r block tax Joint responsibility. H and r block tax    Both of you may be held responsible, jointly and individually, for the tax and any interest or penalty due on your joint return. H and r block tax This means that if one spouse does not pay the tax due, the other may have to. H and r block tax Or, if one spouse does not report the correct tax, both spouses may be responsible for any additional taxes assessed by the IRS. H and r block tax One spouse may be held responsible for all the tax due even if all the income was earned by the other spouse. H and r block tax   You may want to file separately if: You believe your spouse is not reporting all of his or her income, or You do not want to be responsible for any taxes due if your spouse does not have enough tax withheld or does not pay enough estimated tax. H and r block tax Divorced taxpayer. H and r block tax    You may be held jointly and individually responsible for any tax, interest, and penalties due on a joint return filed before your divorce. H and r block tax This responsibility may apply even if your divorce decree states that your former spouse will be responsible for any amounts due on previously filed joint returns. H and r block tax Relief from joint responsibility. H and r block tax    In some cases, one spouse may be relieved of joint responsibility for tax, interest, and penalties on a joint return for items of the other spouse that were incorrectly reported on the joint return. H and r block tax You can ask for relief no matter how small the liability. H and r block tax   There are three types of relief available. H and r block tax Innocent spouse relief. H and r block tax Separation of liability (available only to joint filers who are divorced, widowed, legally separated, or who have not lived together for the 12 months ending on the date the election for this relief is filed). H and r block tax Equitable relief. H and r block tax    You must file Form 8857, Request for Innocent Spouse Relief, to request relief from joint responsibility. H and r block tax Publication 971, Innocent Spouse Relief, explains the kinds of relief and who may qualify for them. H and r block tax Signing a joint return. H and r block tax    For a return to be considered a joint return, both spouses generally must sign the return. H and r block tax Spouse died before signing. H and r block tax    If your spouse died before signing the return, the executor or administrator must sign the return for your spouse. H and r block tax If neither you nor anyone else has been appointed as executor or administrator, you can sign the return for your spouse and enter “Filing as surviving spouse” in the area where you sign the return. H and r block tax Spouse away from home. H and r block tax    If your spouse is away from home, you should prepare the return, sign it, and send it to your spouse to sign so it can be filed on time. H and r block tax Injury or disease prevents signing. H and r block tax    If your spouse cannot sign because of injury or disease and tells you to sign for him or her, you can sign your spouse's name in the proper space on the return followed by the words “By (your name), Husband (or Wife). H and r block tax ” Be sure to also sign in the space provided for your signature. H and r block tax Attach a dated statement, signed by you, to the return. H and r block tax The statement should include the form number of the return you are filing, the tax year, and the reason your spouse cannot sign, and should state that your spouse has agreed to your signing for him or her. H and r block tax Signing as guardian of spouse. H and r block tax    If you are the guardian of your spouse who is mentally incompetent, you can sign the return for your spouse as guardian. H and r block tax Spouse in combat zone. H and r block tax    You can sign a joint return for your spouse if your spouse cannot sign because he or she is serving in a combat zone (such as the Persian Gulf area, Serbia, Montenegro, Albania, or Afghanistan), even if you do not have a power of attorney or other statement. H and r block tax Attach a signed statement to your return explaining that your spouse is serving in a combat zone. H and r block tax For more information on special tax rules for persons who are serving in a combat zone, or who are in missing status as a result of serving in a combat zone, see Publication 3, Armed Forces' Tax Guide. H and r block tax Other reasons spouse cannot sign. H and r block tax    If your spouse cannot sign the joint return for any other reason, you can sign for your spouse only if you are given a valid power of attorney (a legal document giving you permission to act for your spouse). H and r block tax Attach the power of attorney (or a copy of it) to your tax return. H and r block tax You can use Form 2848. H and r block tax Nonresident alien or dual-status alien. H and r block tax    Generally, a married couple cannot file a joint return if either one is a nonresident alien at any time during the tax year. H and r block tax However, if one spouse was a nonresident alien or dual-status alien who was married to a U. H and r block tax S. H and r block tax citizen or resident alien at the end of the year, the spouses can choose to file a joint return. H and r block tax If you do file a joint return, you and your spouse are both treated as U. H and r block tax S. H and r block tax residents for the entire tax year. H and r block tax See chapter 1 of Publication 519. H and r block tax Married Filing Separately You can choose married filing separately as your filing status if you are married. H and r block tax This filing status may benefit you if you want to be responsible only for your own tax or if it results in less tax than filing a joint return. H and r block tax If you and your spouse do not agree to file a joint return, you must use this filing status unless you qualify for head of household status, discussed later. H and r block tax You may be able to choose head of household filing status if you are considered unmarried because you live apart from your spouse and meet certain tests (explained later, under Head of Household ). H and r block tax This can apply to you even if you are not divorced or legally separated. H and r block tax If you qualify to file as head of household, instead of as married filing separately, your tax may be lower, you may be able to claim the earned income credit and certain other credits, and your standard deduction will be higher. H and r block tax The head of household filing status allows you to choose the standard deduction even if your spouse chooses to itemize deductions. H and r block tax See Head of Household , later, for more information. H and r block tax You will generally pay more combined tax on separate returns than you would on a joint return for the reasons listed under Special Rules, later. H and r block tax However, unless you are required to file separately, you should figure your tax both ways (on a joint return and on separate returns). H and r block tax This way you can make sure you are using the filing status that results in the lowest combined tax. H and r block tax When figuring the combined tax of a married couple, you may want to consider state taxes as well as federal taxes. H and r block tax How to file. H and r block tax    If you file a separate return, you generally report only your own income, exemptions, credits, and deductions. H and r block tax You can claim an exemption for your spouse only if your spouse had no gross income, is not filing a return, and was not the dependent of another person. H and r block tax   You can file Form 1040. H and r block tax If your taxable income is less than $100,000, you may be able to file Form 1040A. H and r block tax Select this filing status by checking the box on line 3 of either form. H and r block tax Enter your spouse's full name and SSN or ITIN in the spaces provided. H and r block tax If your spouse does not have and is not required to have an SSN or ITIN, enter “NRA” in the space for your spouse's SSN. H and r block tax Use the Married filing separately column of the Tax Table or Section C of the Tax Computation Worksheet to figure your tax. H and r block tax Special Rules If you choose married filing separately as your filing status, the following special rules apply. H and r block tax Because of these special rules, you usually pay more tax on a separate return than if you use another filing status you qualify for. H and r block tax Your tax rate generally is higher than on a joint return. H and r block tax Your exemption amount for figuring the alternative minimum tax is half that allowed on a joint return. H and r block tax You cannot take the credit for child and dependent care expenses in most cases, and the amount you can exclude from income under an employer's dependent care assistance program is limited to $2,500 (instead of $5,000 on a joint return). H and r block tax If you are legally separated or living apart from your spouse, you may be able to file a separate return and still take the credit. H and r block tax See Joint Return Test in Publication 503, Child and Dependent Care Expenses, for more information. H and r block tax You cannot take the earned income credit. H and r block tax You cannot take the exclusion or credit for adoption expenses in most cases. H and r block tax You cannot take the education credits (the American opportunity credit and lifetime learning credit), the deduction for student loan interest, or the tuition and fees deduction. H and r block tax You cannot exclude any interest income from qualified U. H and r block tax S. H and r block tax savings bonds you used for higher education expenses. H and r block tax If you lived with your spouse at any time during the tax year: You cannot claim the credit for the elderly or the disabled, and You must include in income a greater percentage (up to 85%) of any social security or equivalent railroad retirement benefits you received. H and r block tax The following credits and deductions are reduced at income levels half those for a joint return: The child tax credit, The retirement savings contributions credit, The deduction for personal exemptions, and Itemized deductions. H and r block tax Your capital loss deduction limit is $1,500 (instead of $3,000 on a joint return). H and r block tax If your spouse itemizes deductions, you cannot claim the standard deduction. H and r block tax If you can claim the standard deduction, your basic standard deduction is half the amount allowed on a joint return. H and r block tax Adjusted gross income (AGI) limits. H and r block tax    If your AGI on a separate return is lower than it would have been on a joint return, you may be able to deduct a larger amount for certain deductions that are limited by AGI, such as medical expenses. H and r block tax Individual retirement arrangements (IRAs). H and r block tax    You may not be able to deduct all or part of your contributions to a traditional IRA if you or your spouse were covered by an employee retirement plan at work during the year. H and r block tax Your deduction is reduced or eliminated if your income is more than a certain amount. H and r block tax This amount is much lower for married individuals who file separately and lived together at any time during the year. H and r block tax For more information, see How Much Can You Deduct? in chapter 1 of Publication 590. H and r block tax Rental activity losses. H and r block tax    If you actively participated in a passive rental real estate activity that produced a loss, you generally can deduct the loss from your nonpassive income up to $25,000. H and r block tax This is called a special allowance. H and r block tax However, married persons filing separate returns who lived together at any time during the year cannot claim this special allowance. H and r block tax Married persons filing separate returns who lived apart at all times during the year are each allowed a $12,500 maximum special allowance for losses from passive real estate activities. H and r block tax See Rental Activities in Publication 925, Passive Activity and At-Risk Rules. H and r block tax Community property states. H and r block tax    If you live in Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin and file separately, your income may be considered separate income or community income for income tax purposes. H and r block tax See Publication 555, Community Property. H and r block tax Joint Return After Separate Returns You can change your filing status from a separate return to a joint return by filing an amended return using Form 1040X. H and r block tax You generally can change to a joint return any time within 3 years from the due date of the separate return or returns. H and r block tax This does not include any extensions. H and r block tax A separate return includes a return filed by you or your spouse claiming married filing separately, single, or head of household filing status. H and r block tax Separate Returns After Joint Return Once you file a joint return, you cannot choose to file separate returns for that year after the due date of the return. H and r block tax Exception. H and r block tax    A personal representative for a decedent can change from a joint return elected by the surviving spouse to a separate return for the decedent. H and r block tax The personal representative has 1 year from the due date (including extensions) of the return to make the change. H and r block tax See Publication 559 for more information on filing income tax returns for a decedent. H and r block tax Head of Household You may be able to file as head of household if you meet all the following requirements. H and r block tax You are unmarried or considered unmarried on the last day of the year. H and r block tax See Marital Status , earlier, and Considered Unmarried , later. H and r block tax You paid more than half the cost of keeping up a home for the year. H and r block tax A qualifying person lived with you in the home for more than half the year (except for temporary absences, such as school). H and r block tax However, if the qualifying person is your dependent parent, he or she does not have to live with you. H and r block tax See Special rule for parent , later, under Qualifying Person. H and r block tax If you qualify to file as head of household, your tax rate usually will be lower than the rates for single or married filing separately. H and r block tax You will also receive a higher standard deduction than if you file as single or married filing separately. H and r block tax How to file. H and r block tax    If you file as head of household, you can use Form 1040. H and r block tax If you have taxable income of less than $100,000 and meet certain other conditions, you may be able to file Form 1040A. H and r block tax Indicate your choice of this filing status by checking the box on line 4 of either form. H and r block tax Use the Head of a household column of the Tax Table or Section D of the Tax Computation Worksheet to figure your tax. H and r block tax Considered Unmarried To qualify for head of household status, you must be either unmarried or considered unmarried on the last day of the year. H and r block tax You are considered unmarried on the last day of the tax year if you meet all the following tests. H and r block tax You file a separate return (defined earlier under Joint Return After Separate Returns ). H and r block tax You paid more than half the cost of keeping up your home for the tax year. H and r block tax Your spouse did not live in your home during the last 6 months of the tax year. H and r block tax Your spouse is considered to live in your home even if he or she is temporarily absent due to special circumstances. H and r block tax See Temporary absences , later. H and r block tax Your home was the main home of your child, stepchild, or foster child for more than half the year. H and r block tax (See Home of qualifying person , later, for rules applying to a child's birth, death, or temporary absence during the year. H and r block tax ) You must be able to claim an exemption for the child. H and r block tax However, you meet this test if you cannot claim the exemption only because the noncustodial parent can claim the child using the rules described later in Children of divorced or separated parents (or parents who live apart) under Qualifying Child or in Support Test for Children of Divorced or Separated Parents (or Parents Who Live Apart) under Qualifying Relative. H and r block tax The general rules for claiming an exemption for a dependent are explained later under Exemptions for Dependents . H and r block tax If you were considered married for part of the year and lived in a community property state (listed earlier under Married Filing Separately), special rules may apply in determining your income and expenses. H and r block tax See Publication 555 for more information. H and r block tax Nonresident alien spouse. H and r block tax    You are considered unmarried for head of household purposes if your spouse was a nonresident alien at any time during the year and you do not choose to treat your nonresident spouse as a resident alien. H and r block tax However, your spouse is not a qualifying person for head of household purposes. H and r block tax You must have another qualifying person and meet the other tests to be eligible to file as a head of household. H and r block tax Choice to treat spouse as resident. H and r block tax    You are considered married if you choose to treat your spouse as a resident alien. H and r block tax See chapter 1 of Publication 519. H and r block tax Keeping Up a Home To qualify for head of household status, you must pay more than half of the cost of keeping up a home for the year. H and r block tax You can determine whether you paid more than half of the cost of keeping up a home by using Worksheet 1. H and r block tax Worksheet 1. H and r block tax Cost of Keeping Up a Home         Amount You  Paid Total  Cost Property taxes $ $ Mortgage interest expense     Rent     Utility charges     Repairs/maintenance     Property insurance     Food consumed on the premises     Other household expenses     Totals $ $       Minus total amount you paid   ()       Amount others paid   $       If the total amount you paid is more than the amount others paid, you meet the requirement of paying more than half the cost of keeping up the home. H and r block tax Costs you include. H and r block tax    Include in the cost of keeping up a home expenses such as rent, mortgage interest, real estate taxes, insurance on the home, repairs, utilities, and food eaten in the home. H and r block tax   If you used payments you received under Temporary Assistance for Needy Families (TANF) or other public assistance programs to pay part of the cost of keeping up your home, you cannot count them as money you paid. H and r block tax However, you must include them in the total cost of keeping up your home to figure if you paid over half the cost. H and r block tax Costs you do not include. H and r block tax    Do not include the cost of clothing, education, medical treatment, vacations, life insurance, or transportation. H and r block tax Also, do not include the rental value of a home you own or the value of your services or those of a member of your household. H and r block tax Qualifying Person See Table 4 to see who is a qualifying person. H and r block tax Any person not described in Table 4 is not a qualifying person. H and r block tax Example 1—child. H and r block tax Your unmarried son lived with you all year and was 18 years old at the end of the year. H and r block tax He did not provide more than half of his own support and does not meet the tests to be a qualifying child of anyone else. H and r block tax As a result, he is your qualifying child (see Qualifying Child , later) and, because he is single, your qualifying person for head of household purposes. H and r block tax Example 2—child who is not qualifying person. H and r block tax The facts are the same as in Example 1 except your son was 25 years old at the end of the year and his gross income was $5,000. H and r block tax Because he does not meet the age test (explained later under Qualifying Child), your son is not your qualifying child. H and r block tax Because he does not meet the gross income test (explained later under Qualifying Relative), he is not your qualifying relative. H and r block tax As a result, he is not your qualifying person for head of household purposes. H and r block tax Example 3—girlfriend. H and r block tax Your girlfriend lived with you all year. H and r block tax Even though she may be your qualifying relative if the gross income and support tests (explained later) are met, she is not your qualifying person for head of household purposes because she is not related to you in one of the ways listed under Relatives who do not have to live with you . H and r block tax See Table 4. H and r block tax Example 4—girlfriend's child. H and r block tax The facts are the same as in Example 3 except your girlfriend's 10-year-old son also lived with you all year. H and r block tax He is not your qualifying child and, because he is your girlfriend's qualifying child, he is not your qualifying relative (see Not a Qualifying Child Test , later). H and r block tax As a result, he is not your qualifying person for head of household purposes. H and r block tax Home of qualifying person. H and r block tax    Generally, the qualifying person must live with you for more than half of the year. H and r block tax Special rule for parent. H and r block tax    If your qualifying person is your father or mother, you may be eligible to file as head of household even if your father or mother does not live with you. H and r block tax However, you must be able to claim an exemption for your father or mother. H and r block tax Also, you must pay more than half the cost of keeping up a home that was the main home for the entire year for your father or mother. H and r block tax   You are keeping up a main home for your father or mother if you pay more than half the cost of keeping your parent in a rest home or home for the elderly. H and r block tax Death or birth. H and r block tax    You may be eligible to file as head of household even if the qualifying person who qualifies you for this filing status is born or dies during the year. H and r block tax To qualify you for head of household filing status, the qualifying person (as defined in Table 4) must be one of the following. H and r block tax Your qualifying child or qualifying relative who lived with you for more than half the part of the year he or she was alive. H and r block tax Your parent for whom you paid, for the entire part of the year he or she was alive, more than half the cost of keeping up the home he or she lived in. H and r block tax Example. H and r block tax You are unmarried. H and r block tax Your mother, for whom you can claim an exemption, lived in an apartment by herself. H and r block tax She died on September 2. H and r block tax The cost of the upkeep of her apartment for the year until her death was $6,000. H and r block tax You paid $4,000 and your brother paid $2,000. H and r block tax Your brother made no other payments towards your mother's support. H and r block tax Your mother had no income. H and r block tax Because you paid more than half of the cost of keeping up your mother's apartment from January 1 until her death, and you can claim an exemption for her, you can file as a head of household. H and r block tax Temporary absences. H and r block tax    You and your qualifying person are considered to live together even if one or both of you are temporarily absent from your home due to special circumstances such as illness, education, business, vacation, or military service. H and r block tax It must be reasonable to assume the absent person will return to the home after the temporary absence. H and r block tax You must continue to keep up the home during the absence. H and r block tax Kidnapped child. H and r block tax    You may be eligible to file as head of household even if the child who is your qualifying person has been kidnapped. H and r block tax You can claim head of household filing status if all the following statements are true. H and r block tax The child is presumed by law enforcement authorities to have been kidnapped by someone who is not a member of your family or the child's family. H and r block tax In the year of the kidnapping, the child lived with you for more than half the part of the year before the kidnapping. H and r block tax You would have qualified for head of household filing status if the child had not been kidnapped. H and r block tax   This treatment applies for all years until the earliest of: The year the child is returned, The year there is a determination that the child is dead, or The year the child would have reached age 18. H and r block tax Qualifying Widow(er) With Dependent Child If your spouse died in 2013, you can use married filing jointly as your filing status for 2013 if you otherwise qualify to use that status. H and r block tax The year of death is the last year for which you can file jointly with your deceased spouse. H and r block tax See Married Filing Jointly , earlier. H and r block tax You may be eligible to use qualifying widow(er) with dependent child as your filing status for 2 years following the year your spouse died. H and r block tax For example, if your spouse died in 2012 and you have not remarried, you may be able to use this filing status for 2013 and 2014. H and r block tax The rules for using this filing status are explained in detail here. H and r block tax This filing status entitles you to use joint return tax rates and the highest standard deduction amount (if you do not itemize deductions). H and r block tax It does not entitle you to file a joint return. H and r block tax How to file. H and r block tax    If you file as a qualifying widow(er) with dependent child, you can use Form 1040. H and r block tax If you also have taxable income of less than $100,000 and meet certain other conditions, you may be able to file Form 1040A. H and r block tax Check the box on line 5 of either form. H and r block tax Use the Married filing jointly column of the Tax Table or Section B of the Tax Computation Worksheet to figure your tax. H and r block tax Table 4. H and r block tax Who Is a Qualifying Person Qualifying You To File as Head of Household?1 See the text of this publication for the other requirements you must meet to claim head of household filing status. H and r block tax IF the person is your . H and r block tax . H and r block tax . H and r block tax   AND . H and r block tax . H and r block tax . H and r block tax   THEN that person is . H and r block tax . H and r block tax . H and r block tax qualifying child (such as a son, daughter, or grandchild who lived with you more than half the year and meets certain other tests)2   he or she is single   a qualifying person, whether or not you can claim an exemption for the person. H and r block tax   he or she is married and you can claim an exemption for him or her   a qualifying person. H and r block tax   he or she is married and you cannot claim an exemption for him or her   not a qualifying person. H and r block tax 3 qualifying relative4 who is your father or mother   you can claim an exemption for him or her5   a qualifying person. H and r block tax 6   you cannot claim an exemption for him or her   not a qualifying person. H and r block tax qualifying relative4 other than your father or mother (such as a grandparent, brother, or sister who meets certain tests). H and r block tax   he or she lived with you more than half the year, and he or she is related to you in one of the ways listed under Relatives who do not have to live with you , later, and you can claim an exemption for him or her5   a qualifying person. H and r block tax   he or she did not live with you more than half the year   not a qualifying person. H and r block tax   he or she is not related to you in one of the ways listed under Relatives who do not have to live with you , later, and is your qualifying relative only because he or she lived with you all year as a member of your household   not a qualifying person. H and r block tax   you cannot claim an exemption for him or her   not a qualifying person. H and r block tax 1 A person cannot qualify more than one taxpayer to use the head of household filing status for the year. H and r block tax 2 The term “qualifying child” is defined under Exemptions for Dependents, later. H and r block tax Note: If you are a noncustodial parent, the term “qualifying child” for head of household filing status does not include a child who is your qualifying child for exemption purposes only because of the rules described under Children of divorced or separated parents (or parents who live apart) under Qualifying Child, later. H and r block tax If you are the custodial parent and those rules apply, the child generally is your qualifying child for head of household filing status even though the child is not a qualifying child for whom you can claim an exemption. H and r block tax 3 This person is a qualifying person if the only reason you cannot claim the exemption is that you can be claimed as a dependent on someone else's return. H and r block tax 4 The term “qualifying relative” is defined under Exemptions for Dependents, later. H and r block tax 5 If you can claim an exemption for a person only because of a multiple support agreement, that person is not a qualifying person. H and r block tax See Multiple Support Agreement . H and r block tax 6 See Special rule for parent . H and r block tax Eligibility rules. H and r block tax    You are eligible to file your 2013 return as a qualifying widow(er) with dependent child if you meet all the following tests. H and r block tax You were entitled to file a joint return with your spouse for the year your spouse died. H and r block tax It does not matter whether you actually filed a joint return. H and r block tax Your spouse died in 2011 or 2012 and you did not remarry before the end of 2013. H and r block tax You have a child or stepchild for whom you can claim an exemption. H and r block tax This does not include a foster child. H and r block tax This child lived in your home all year, except for temporary absences. H and r block tax See Temporary absences , earlier, under Head of Household. H and r block tax There are also exceptions, described later, for a child who was born or died during the year and for a kidnapped child. H and r block tax You paid more than half the cost of keeping up a home for the year. H and r block tax See Keeping Up a Home , earlier, under Head of Household. H and r block tax Example. H and r block tax John's wife died in 2011. H and r block tax John has not remarried. H and r block tax He has continued during 2012 and 2013 to keep up a home for himself and his child, who lives with him and for whom he can claim an exemption. H and r block tax For 2011 he was entitled to file a joint return for himself and his deceased wife. H and r block tax For 2012 and 2013, he can file as a qualifying widower with a dependent child. H and r block tax After 2013, he can file as head of household if he qualifies. H and r block tax Death or birth. H and r block tax    You may be eligible to file as a qualifying widow(er) with dependent child if the child who qualifies you for this filing status is born or dies during the year. H and r block tax You must have provided more than half of the cost of keeping up a home that was the child's main home during the entire part of the year he or she was alive. H and r block tax Kidnapped child. H and r block tax    You may be eligible to file as a qualifying widow(er) with dependent child even if the child who qualifies you for this filing status has been kidnapped. H and r block tax You can claim qualifying widow(er) with dependent child filing status if all the following statements are true. H and r block tax The child is presumed by law enforcement authorities to have been kidnapped by someone who is not a member of your family or the child's family. H and r block tax In the year of the kidnapping, the child lived with you for more than half the part of the year before the kidnapping. H and r block tax You would have qualified for qualifying widow(er) with dependent child filing status if the child had not been kidnapped. H and r block tax As mentioned earlier, this filing status is available for only 2 years following the year your spouse died. H and r block tax Exemptions Exemptions reduce your taxable income. H and r block tax You can deduct $3,900 for each exemption you claim in 2013. H and r block tax If you are entitled to two exemptions for 2013, you can deduct $7,800 ($3,900 × 2). H and r block tax But you may lose the benefit of part or all of your exemptions if your adjusted gross income is above a certain amount. H and r block tax See Phaseout of Exemptions , later. H and r block tax Types of exemptions. H and r block tax    There are two types of exemptions you may be able to take: Personal exemptions for yourself and your spouse, and Exemptions for dependents (dependency exemptions). H and r block tax While each is worth the same amount ($3,900 for 2013), different rules, discussed later, apply to each type. H and r block tax Dependent cannot claim a personal exemption. H and r block tax    If you are entitled to claim an exemption for a dependent (such as your child), that dependent cannot claim a personal exemption on his or her own tax return. H and r block tax How to claim exemptions. H and r block tax    How you claim an exemption on your tax return depends on which form you file. H and r block tax Form 1040EZ filers. H and r block tax    If you file Form 1040EZ, the exemption amount is combined with the standard deduction and entered on line 5. H and r block tax Form 1040A filers. H and r block tax    If you file Form 1040A, complete lines 6a through 6d. H and r block tax The total number of exemptions you can claim is the total in the box on line 6d. H and r block tax Also complete line 26. H and r block tax Form 1040 filers. H and r block tax    If you file Form 1040, complete lines 6a through 6d. H and r block tax The total number of exemptions you can claim is the total in the box on line 6d. H and r block tax Also complete line 42. H and r block tax If your adjusted gross income is more than $150,000, see Phaseout of Exemptions , later. H and r block tax U. H and r block tax S. H and r block tax citizen or resident alien. H and r block tax    If you are a U. H and r block tax S. H and r block tax citizen, U. H and r block tax S. H and r block tax resident alien, U. H and r block tax S. H and r block tax national (defined later) or a resident of Canada or Mexico, you may qualify for any of the exemptions discussed here. H and r block tax Nonresident aliens. H and r block tax    Generally, if you are a nonresident alien (other than a resident of Canada or Mexico, or certain residents of India or Korea), you can qualify for only one personal exemption for yourself. H and r block tax You cannot claim exemptions for a spouse or dependents. H and r block tax   These restrictions do not apply if you are a nonresident alien married to a U. H and r block tax S. H and r block tax citizen or resident alien and have chosen to be treated as a resident of the United States. H and r block tax More information. H and r block tax    For more information on exemptions if you are a nonresident alien, see chapter 5 in Publication 519. H and r block tax Dual-status taxpayers. H and r block tax    If you have been both a nonresident alien and a resident alien in the same tax year, you should see Publication 519 for information on determining your exemptions. H and r block tax Personal Exemptions You are generally allowed one exemption for yourself. H and r block tax If you are married, you may be allowed one exemption for your spouse. H and r block tax These are called personal exemptions. H and r block tax Your Own Exemption You can take one exemption for yourself unless you can be claimed as a dependent by another taxpayer. H and r block tax If another taxpayer is entitled to claim you as a dependent, you cannot take an exemption for yourself even if the other taxpayer does not actually claim you as a dependent. H and r block tax Your Spouse's Exemption Your spouse is never considered your dependent. H and r block tax Joint return. H and r block tax    On a joint return, you can claim one exemption for yourself and one for your spouse. H and r block tax Separate return. H and r block tax    If you file a separate return, you can claim an exemption for your spouse only if your spouse had no gross income, is not filing a return, and was not the dependent of another taxpayer. H and r block tax This is true even if the other taxpayer does not actually claim your spouse as a dependent. H and r block tax You can claim an exemption for your spouse even if he or she is a nonresident alien; in that case, your spouse must have no gross income for U. H and r block tax S. H and r block tax tax purposes and satisfy the other conditions listed above. H and r block tax Head of household. H and r block tax    If you qualify for head of household filing status because you are considered unmarried, you can claim an exemption for your spouse if the conditions described in the preceding paragraph are satisfied. H and r block tax   To claim the exemption for your spouse, check the box on line 6b of Form 1040 or Form 1040A and enter the name of your spouse in the space to the right of the box. H and r block tax Enter the SSN or ITIN of your spouse in the space provided at the top of Form 1040 or Form 1040A. H and r block tax Death of spouse. H and r block tax    If your spouse died during the year and you file a joint return for yourself and your deceased spouse, you generally can claim your spouse's exemption under the rules just explained in Joint return . H and r block tax If you file a separate return for the year, you may be able to claim your spouse's exemption under the rules just described in Separate return . H and r block tax   If you remarried during the year, you cannot take an exemption for your deceased spouse. H and r block tax   If you are a surviving spouse without gross income and you remarry in the year your spouse died, you can be claimed as an exemption on both the final separate return of your deceased spouse and the separate return of your new spouse for that year. H and r block tax If you file a joint return with your new spouse, you can be claimed as an exemption only on that return. H and r block tax Divorced or separated spouse. H and r block tax    If you obtained a final decree of divorce or separate maintenance during the year, you cannot take your former spouse's exemption. H and r block tax This rule applies even if you provided all of your former spouse's support. H and r block tax Exemptions for Dependents You are allowed one exemption for each person you can claim as a dependent. H and r block tax You can claim an exemption for a dependent even if your dependent files a return. H and r block tax The term “dependent” means: A qualifying child, or A qualifying relative. H and r block tax The terms “ qualifying child ” and “ qualifying relative ” are defined later. H and r block tax You can claim an exemption for a qualifying child or qualifying relative only if these three tests are met. H and r block tax Dependent taxpayer test. H and r block tax Joint return test. H and r block tax Citizen or resident test. H and r block tax These three tests are explained in detail later. H and r block tax All the requirements for claiming an exemption for a dependent are summarized in Table 5. H and r block tax Table 5. H and r block tax Overview of the Rules for Claiming an Exemption for a Dependent This table is only an overview of the rules. H and r block tax For details, see the rest of this publication. H and r block tax You cannot claim any dependents if you, or your spouse if filing jointly, could be claimed as a dependent by another taxpayer. H and r block tax   You cannot claim a married person who files a joint return as a dependent unless that joint return is filed only to claim a refund of withheld income tax or estimated tax paid. H and r block tax   You cannot claim a person as a dependent unless that person is a U. H and r block tax S. H and r block tax citizen, U. H and r block tax S. H and r block tax resident alien, U. H and r block tax S. H and r block tax national, or a resident of Canada or Mexico. H and r block tax 1  You cannot claim a person as a dependent unless that person is your qualifying child or qualifying relative. H and r block tax   Tests To Be a Qualifying Child Tests To Be a Qualifying Relative The child must be your son, daughter, stepchild, foster child, brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant of any of them. H and r block tax   The child must be (a) under age 19 at the end of the year and younger than you (or your spouse if filing jointly), (b) under age 24 at the end of the year, a student, and younger than you (or your spouse if filing jointly), or (c) any age if permanently and totally disabled. H and r block tax   The child must have lived with you for more than half of the year. H and r block tax 2  The child must not have provided more than half of his or her own support for the year. H and r block tax   The child is not filing a joint return for the year (unless that joint return is filed only to claim a refund of withheld income tax or estimated tax paid). H and r block tax  If the child meets the rules to be a qualifying child of more than one person, only one person can actually treat the child as a qualifying child. H and r block tax See the Special Rule for Qualifying Child of More Than One Person described later to find out which person is the person entitled to claim the child as a qualifying child. H and r block tax The person cannot be your qualifying child or the qualifying child of any other taxpayer. H and r block tax   The person either (a) must be related to you in one of the ways listed under Relatives who do not have to live with you , or (b) must live with you all year as a member of your household2 (and your relationship must not violate local law). H and r block tax   The person's gross income for the year must be less than $3,900. H and r block tax 3  You must provide more than half of the person's total support for the year. H and r block tax 4  1 There is an exception for certain adopted children. H and r block tax 2 There are exceptions for temporary absences, children who were born or died during the year, children of divorced or separated parents (or parents who live apart), and kidnapped children. H and r block tax 3 There is an exception if the person is disabled and has income from a sheltered workshop. H and r block tax 4 There are exceptions for multiple support agreements, children of divorced or separated parents (or parents who live apart), and kidnapped children. H and r block tax Dependent not allowed a personal exemption. H and r block tax If you can claim an exemption for your dependent, the dependent cannot claim his or her own personal exemption on his or her own tax return. H and r block tax This is true even if you do not claim the dependent's exemption on your return. H and r block tax It is also true if the dependent's exemption on your return is reduced or eliminated under the phaseout rule described under Phaseout of Exemptions, later. H and r block tax Housekeepers, maids, or servants. H and r block tax    If these people work for you, you cannot claim exemptions for them. H and r block tax Child tax credit. H and r block tax    You may be entitled to a child tax credit for each qualifying child who was under age 17 at the end of the year if you claimed an exemption for that child. H and r block tax For more information, see the instructions for the tax form you file (Form 1040 or 1040A). H and r block tax Dependent Taxpayer Test If you can be claimed as a dependent by another person, you cannot claim anyone else as a dependent. H and r block tax Even if you have a qualifying child or qualifying relative, you cannot claim that person as a dependent. H and r block tax If you are filing a joint return and your spouse can be claimed as a dependent by someone else, you and your spouse cannot claim any dependents on your joint return. H and r block tax Joint Return Test You generally cannot claim a married person as a dependent if he or she files a joint return. H and r block tax Exception. H and r block tax    You can claim an exemption for a person who files a joint return if that person and his or her spouse file the joint return only to claim a refund of income tax withheld or estimated tax paid. H and r block tax Example 1—child files joint return. H and r block tax You supported your 18-year-old daughter, and she lived with you all year while her husband was in the Armed Forces. H and r block tax He earned $25,000 for the year. H and r block tax The couple files a joint return. H and r block tax You cannot take an exemption for your daughter. H and r block tax Example 2—child files joint return only as claim for refund of withheld tax. H and r block tax Your 18-year-old son and his 17-year-old wife had $800 of wages from part-time jobs and no other income. H and r block tax Neither is required to file a tax return. H and r block tax They do not have a child. H and r block tax Taxes were taken out of their pay so they file a joint return only to get a refund of the withheld taxes. H and r block tax The exception to the joint return test applies, so you are not disqualified from claiming an exemption for each of them just because they file a joint return. H and r block tax You can claim exemptions for each of them if all the other tests to do so are met. H and r block tax Example 3—child files joint return to claim American opportunity credit. H and r block tax The facts are the same as in Example 2 except no taxes were taken out of your son's pay. H and r block tax He and his wife are not required to file a tax return. H and r block tax However, they file a joint return to claim an American opportunity credit of $124 and get a refund of that amount. H and r block tax Because claiming the American opportunity credit is their reason for filing the return, they are not filing it only to get a refund of income
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The H And R Block Tax

H and r block tax 4. H and r block tax   Sales and Trades of Investment Property Table of Contents IntroductionNominees. H and r block tax Topics - This chapter discusses: Useful Items - You may want to see: What Is a Sale or Trade?Dividend versus sale or trade. H and r block tax Worthless Securities Constructive Sales of Appreciated Financial Positions Section 1256 Contracts Marked to Market Basis of Investment PropertyCost Basis Basis Other Than Cost Adjusted Basis Stocks and Bonds How To Figure Gain or LossFair market value. H and r block tax Debt paid off. H and r block tax Payment of cash. H and r block tax Special Rules for Mutual Funds Nontaxable TradesLike-Kind Exchanges Corporate Stocks Exchange of Shares In One Mutual Fund For Shares In Another Mutual Fund Insurance Policies and Annuities U. H and r block tax S. H and r block tax Treasury Notes or Bonds Transfers Between Spouses Related Party TransactionsGain on Sale or Trade of Depreciable Property Capital Gains and LossesCapital or Ordinary Gain or Loss Holding Period Nonbusiness Bad Debts Short Sales Wash Sales Options Straddles Sales of Stock to ESOPs or Certain Cooperatives Rollover of Gain From Publicly Traded Securities Gains on Qualified Small Business Stock Exclusion of Gain From DC Zone Assets Reporting Capital Gains and LossesException 1. H and r block tax Exception 2. H and r block tax Section 1256 contracts and straddles. H and r block tax Market discount bonds. H and r block tax File Form 1099-B or Form 1099-S with the IRS. H and r block tax Capital Losses Capital Gain Tax Rates Special Rules for Traders in SecuritiesHow To Report Introduction This chapter explains the tax treatment of sales and trades of investment property. H and r block tax Investment property. H and r block tax   This is property that produces investment income. H and r block tax Examples include stocks, bonds, and Treasury bills and notes. H and r block tax Property used in a trade or business is not investment property. H and r block tax Form 1099-B. H and r block tax   If you sold property such as stocks, bonds, mutual funds, or certain commodities through a broker during the year, you should receive, for each sale, a Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, or substitute statement, from the broker. H and r block tax You should receive the statement by February 15 of the next year. H and r block tax It will show the gross proceeds from the sale. H and r block tax The IRS will also get a copy of Form 1099-B from the broker. H and r block tax   Use Form 1099-B (or substitute statement received from your broker) to complete Form 8949. H and r block tax If you sold a covered security in 2013, your broker will send you a Form 1099-B (or substitute statement) that shows your basis. H and r block tax This will help you complete Form 8949. H and r block tax Generally, a covered security is a security you acquired after 2010, with certain exceptions explained in the Instructions for Form 8949. H and r block tax    For more information on Form 8949 and Schedule D (Form 1040), see Reporting Capital Gains and Losses in this chapter. H and r block tax Also see the Instructions for Form 8949 and the Instructions for Schedule D (Form 1040). H and r block tax Nominees. H and r block tax   If someone receives gross proceeds as a nominee for you, that person will give you a Form 1099-B, which will show gross proceeds received on your behalf. H and r block tax   If you receive a Form 1099-B that includes gross proceeds belonging to another person, see Nominees , later under Reporting Capital Gains and Losses for more information. H and r block tax Other property transactions. H and r block tax   Certain transfers of property are discussed in other IRS publications. H and r block tax These include: Sale of your main home, discussed in Publication 523, Selling Your Home; Installment sales, covered in Publication 537; Various types of transactions involving business property, discussed in Publication 544, Sales and Other Dispositions of Assets; Transfers of property at death, covered in Publication 559; and Disposition of an interest in a passive activity, discussed in Publication 925. H and r block tax Topics - This chapter discusses: What Is a Sale or Trade? , Basis of Investment Property , Adjusted Basis , How To Figure Gain or Loss , Nontaxable trades , Transfers Between Spouses , Related Party Transactions , Capital Gains and Losses , Reporting Capital Gains and Losses , and Special Rules for Traders in Securities . H and r block tax Useful Items - You may want to see: Publication 551 Basis of Assets Form (and Instructions) Schedule D (Form 1040) Capital Gains and Losses 6781 Gains and Losses From Section 1256 Contracts and Straddles 8582 Passive Activity Loss Limitations 8824 Like-Kind Exchanges 8949 Sales and Other Dispositions of Capital Assets See chapter 5, How To Get Tax Help , for information about getting these publications and forms. H and r block tax What Is a Sale or Trade? This section explains what is a sale or trade. H and r block tax It also explains certain transactions and events that are treated as sales or trades. H and r block tax A sale is generally a transfer of property for money or a mortgage, note, or other promise to pay money. H and r block tax A trade is a transfer of property for other property or services, and may be taxed in the same way as a sale. H and r block tax Sale and purchase. H and r block tax   Ordinarily, a transaction is not a trade when you voluntarily sell property for cash and immediately buy similar property to replace it. H and r block tax The sale and purchase are two separate transactions. H and r block tax But see Like-Kind Exchanges under Nontaxable Trades, later. H and r block tax Redemption of stock. H and r block tax   A redemption of stock is treated as a sale or trade and is subject to the capital gain or loss provisions unless the redemption is a dividend or other distribution on stock. H and r block tax Dividend versus sale or trade. H and r block tax   Whether a redemption is treated as a sale, trade, dividend, or other distribution depends on the circumstances in each case. H and r block tax Both direct and indirect ownership of stock will be considered. H and r block tax The redemption is treated as a sale or trade of stock if: The redemption is not essentially equivalent to a dividend — see Dividends and Other Distributions in chapter 1, There is a substantially disproportionate redemption of stock, There is a complete redemption of all the stock of the corporation owned by the shareholder, or The redemption is a distribution in partial liquidation of a corporation. H and r block tax Redemption or retirement of bonds. H and r block tax   A redemption or retirement of bonds or notes at their maturity generally is treated as a sale or trade. H and r block tax See Stocks, stock rights, and bonds and Discounted Debt Instruments under Capital or Ordinary Gain or Loss, later. H and r block tax   In addition, a significant modification of a bond is treated as a trade of the original bond for a new bond. H and r block tax For details, see Regulations section 1. H and r block tax 1001-3. H and r block tax Surrender of stock. H and r block tax   A surrender of stock by a dominant shareholder who retains ownership of more than half of the corporation's voting shares is treated as a contribution to capital rather than as an immediate loss deductible from taxable income. H and r block tax The surrendering shareholder must reallocate his or her basis in the surrendered shares to the shares he or she retains. H and r block tax Trade of investment property for an annuity. H and r block tax   The transfer of investment property to a corporation, trust, fund, foundation, or other organization, in exchange for a fixed annuity contract that will make guaranteed annual payments to you for life, is a taxable trade. H and r block tax If the present value of the annuity is more than your basis in the property traded, you have a taxable gain in the year of the trade. H and r block tax Figure the present value of the annuity according to factors used by commercial insurance companies issuing annuities. H and r block tax Transfer by inheritance. H and r block tax   The transfer of property of a decedent to the executor or administrator of the estate, or to the heirs or beneficiaries, is not a sale or other disposition. H and r block tax No taxable gain or deductible loss results from the transfer. H and r block tax Termination of certain rights and obligations. H and r block tax   The cancellation, lapse, expiration, or other termination of a right or obligation (other than a securities futures contract) with respect to property that is a capital asset (or that would be a capital asset if you acquired it) is treated as a sale. H and r block tax Any gain or loss is treated as a capital gain or loss. H and r block tax   This rule does not apply to the retirement of a debt instrument. H and r block tax See Redemption or retirement of bonds , earlier. H and r block tax Worthless Securities Stocks, stock rights, and bonds (other than those held for sale by a securities dealer) that became completely worthless during the tax year are treated as though they were sold on the last day of the tax year. H and r block tax This affects whether your capital loss is long term or short term. H and r block tax See Holding Period , later. H and r block tax Worthless securities also include securities that you abandon after March 12, 2008. H and r block tax To abandon a security, you must permanently surrender and relinquish all rights in the security and receive no consideration in exchange for it. H and r block tax All the facts and circumstances determine whether the transaction is properly characterized as an abandonment or other type of transaction, such as an actual sale or exchange, contribution to capital, dividend, or gift. H and r block tax If you are a cash basis taxpayer and make payments on a negotiable promissory note that you issued for stock that became worthless, you can deduct these payments as losses in the years you actually make the payments. H and r block tax Do not deduct them in the year the stock became worthless. H and r block tax How to report loss. H and r block tax   Report worthless securities in Form 8949, Part I or Part II, whichever applies. H and r block tax    Report your worthless securities transactions on Form 8949 with the correct box checked for these transactions. H and r block tax See Form 8949 and the Instructions for Form 8949. H and r block tax Filing a claim for refund. H and r block tax   If you do not claim a loss for a worthless security on your original return for the year it becomes worthless, you can file a claim for a credit or refund due to the loss. H and r block tax You must use Form 1040X, Amended U. H and r block tax S. H and r block tax Individual Income Tax Return, to amend your return for the year the security became worthless. H and r block tax You must file it within 7 years from the date your original return for that year had to be filed, or 2 years from the date you paid the tax, whichever is later. H and r block tax (Claims not due to worthless securities or bad debts generally must be filed within 3 years from the date a return is filed, or 2 years from the date the tax is paid, whichever is later. H and r block tax ) For more information about filing a claim, see Publication 556. H and r block tax Constructive Sales of Appreciated Financial Positions You are treated as having made a constructive sale when you enter into certain transactions involving an appreciated financial position (defined later) in stock, a partnership interest, or certain debt instruments. H and r block tax You must recognize gain as if the position were disposed of at its fair market value on the date of the constructive sale. H and r block tax This gives you a new holding period for the position that begins on the date of the constructive sale. H and r block tax Then, when you close the transaction, you reduce your gain (or increase your loss) by the gain recognized on the constructive sale. H and r block tax Constructive sale. H and r block tax   You are treated as having made a constructive sale of an appreciated financial position if you: Enter into a short sale of the same or substantially identical property, Enter into an offsetting notional principal contract relating to the same or substantially identical property, Enter into a futures or forward contract to deliver the same or substantially identical property (including a forward contract that provides for cash settlement), or Acquire the same or substantially identical property (if the appreciated financial position is a short sale, an offsetting notional principal contract, or a futures or forward contract). H and r block tax   You are also treated as having made a constructive sale of an appreciated financial position if a person related to you enters into a transaction described above with a view toward avoiding the constructive sale treatment. H and r block tax For this purpose, a related person is any related party described under Related Party Transactions , later in this chapter. H and r block tax Exception for nonmarketable securities. H and r block tax   You are not treated as having made a constructive sale solely because you entered into a contract for sale of any stock, debt instrument, or partnership interest that is not a marketable security if it settles within 1 year of the date you enter into it. H and r block tax Exception for certain closed transactions. H and r block tax   Do not treat a transaction as a constructive sale if all of the following are true. H and r block tax You closed the transaction on or before the 30th day after the end of your tax year. H and r block tax You held the appreciated financial position throughout the 60-day period beginning on the date you closed the transaction. H and r block tax Your risk of loss was not reduced at any time during that 60-day period by holding certain other positions. H and r block tax   If a closed transaction is reestablished in a substantially similar position during the 60-day period beginning on the date the first transaction was closed, this exception still applies if the reestablished position is closed before the 30th day after the end of your tax year in which the first transaction was closed and, after that closing, (2) and (3) above are true. H and r block tax   This exception also applies to successive short sales of an entire appreciated financial position. H and r block tax For more information, see Revenue Ruling 2003-1 in Internal Revenue Bulletin 2003-3. H and r block tax This bulletin is available at www. H and r block tax irs. H and r block tax gov/pub/irs-irbs/irb03-03. H and r block tax pdf. H and r block tax Appreciated financial position. H and r block tax   This is any interest in stock, a partnership interest, or a debt instrument (including a futures or forward contract, a short sale, or an option) if disposing of the interest would result in a gain. H and r block tax Exceptions. H and r block tax   An appreciated financial position does not include the following. H and r block tax Any position from which all of the appreciation is accounted for under marked-to-market rules, including section 1256 contracts (described later under Section 1256 Contracts Marked to Market ). H and r block tax Any position in a debt instrument if: The position unconditionally entitles the holder to receive a specified principal amount, The interest payments (or other similar amounts) with respect to the position are payable at a fixed rate or a variable rate described in Regulations section 1. H and r block tax 860G-1(a)(3), and The position is not convertible, either directly or indirectly, into stock of the issuer (or any related person). H and r block tax Any hedge with respect to a position described in (2). H and r block tax Certain trust instruments treated as stock. H and r block tax   For the constructive sale rules, an interest in an actively traded trust is treated as stock unless substantially all of the value of the property held by the trust is debt that qualifies for the exception to the definition of an appreciated financial position (explained in (2) above). H and r block tax Sale of appreciated financial position. H and r block tax   A transaction treated as a constructive sale of an appreciated financial position is not treated as a constructive sale of any other appreciated financial position, as long as you continue to hold the original position. H and r block tax However, if you hold another appreciated financial position and dispose of the original position before closing the transaction that resulted in the constructive sale, you are treated as if, at the same time, you constructively sold the other appreciated financial position. H and r block tax Section 1256 Contracts Marked to Market If you hold a section 1256 contract at the end of the tax year, you generally must treat it as sold at its fair market value on the last business day of the tax year. H and r block tax Section 1256 Contract A section 1256 contract is any: Regulated futures contract, Foreign currency contract, Nonequity option, Dealer equity option, or Dealer securities futures contract. H and r block tax Exceptions. H and r block tax   A section 1256 contract does not include: Interest rate swaps, Currency swaps, Basis swaps, Interest rate caps, Interest rate floors, Commodity swaps, Equity swaps, Equity index swaps, Credit default swaps, or Similar agreements. H and r block tax For more details, including definitions of these terms, see section 1256. H and r block tax Regulated futures contract. H and r block tax   This is a contract that: Provides that amounts which must be deposited to, or can be withdrawn from, your margin account depend on daily market conditions (a system of marking to market), and Is traded on, or subject to the rules of, a qualified board of exchange. H and r block tax A qualified board of exchange is a domestic board of trade designated as a contract market by the Commodity Futures Trading Commission, any board of trade or exchange approved by the Secretary of the Treasury, or a national securities exchange registered with the Securities and Exchange Commission. H and r block tax Foreign currency contract. H and r block tax   This is a contract that: Requires delivery of a foreign currency that has positions traded through regulated futures contracts (or settlement of which depends on the value of that type of foreign currency), Is traded in the interbank market, and Is entered into at arm's length at a price determined by reference to the price in the interbank market. H and r block tax   Bank forward contracts with maturity dates longer than the maturities ordinarily available for regulated futures contracts are considered to meet the definition of a foreign currency contract if the above three conditions are satisfied. H and r block tax   Special rules apply to certain foreign currency transactions. H and r block tax These transactions may result in ordinary gain or loss treatment. H and r block tax For details, see Internal Revenue Code section 988 and Regulations sections 1. H and r block tax 988-1(a)(7) and 1. H and r block tax 988-3. H and r block tax Nonequity option. H and r block tax   This is any listed option (defined later) that is not an equity option. H and r block tax Nonequity options include debt options, commodity futures options, currency options, and broad-based stock index options. H and r block tax A broad-based stock index is based on the value of a group of diversified stocks or securities (such as the Standard and Poor's 500 index). H and r block tax Warrants based on a stock index that are economically, substantially identical in all material respects to options based on a stock index are treated as options based on a stock index. H and r block tax Cash-settled options. H and r block tax   Cash-settled options based on a stock index and either traded on or subject to the rules of a qualified board of exchange are nonequity options if the Securities and Exchange Commission (SEC) determines that the stock index is broad based. H and r block tax   This rule does not apply to options established before the SEC determines that the stock index is broad based. H and r block tax Listed option. H and r block tax   This is any option traded on, or subject to the rules of, a qualified board or exchange (as discussed earlier under Regulated futures contract). H and r block tax A listed option, however, does not include an option that is a right to acquire stock from the issuer. H and r block tax Dealer equity option. H and r block tax   This is any listed option that, for an options dealer: Is an equity option, Is bought or granted by that dealer in the normal course of the dealer's business activity of dealing in options, and Is listed on the qualified board of exchange where that dealer is registered. H and r block tax   An “options dealer” is any person registered with an appropriate national securities exchange as a market maker or specialist in listed options. H and r block tax Equity option. H and r block tax   This is any option: To buy or sell stock, or That is valued directly or indirectly by reference to any stock or narrow-based security index. H and r block tax  Equity options include options on a group of stocks only if the group is a narrow-based stock index. H and r block tax Dealer securities futures contract. H and r block tax   For any dealer in securities futures contracts or options on those contracts, this is a securities futures contract (or option on such a contract) that: Is entered into by the dealer (or, in the case of an option, is purchased or granted by the dealer) in the normal course of the dealer's activity of dealing in this type of contract (or option), and Is traded on a qualified board or exchange (as defined under Regulated futures contract , earlier). H and r block tax A securities futures contract that is not a dealer securities futures contract is treated as described later under Securities Futures Contracts . H and r block tax Marked-to-Market Rules A section 1256 contract that you hold at the end of the tax year will generally be treated as sold at its fair market value on the last business day of the tax year, and you must recognize any gain or loss that results. H and r block tax That gain or loss is taken into account in figuring your gain or loss when you later dispose of the contract, as shown in the example under 60/40 rule, below. H and r block tax Hedging exception. H and r block tax   The marked-to-market rules do not apply to hedging transactions. H and r block tax See Hedging Transactions , later. H and r block tax 60/40 rule. H and r block tax   Under the marked-to-market system, 60% of your capital gain or loss will be treated as a long-term capital gain or loss, and 40% will be treated as a short-term capital gain or loss. H and r block tax This is true regardless of how long you actually held the property. H and r block tax Example. H and r block tax On June 22, 2012, you bought a regulated futures contract for $50,000. H and r block tax On December 31, 2012 (the last business day of your tax year), the fair market value of the contract was $57,000. H and r block tax You recognized a $7,000 gain on your 2012 tax return, treated as 60% long-term and 40% short-term capital gain. H and r block tax On February 1, 2013, you sold the contract for $56,000. H and r block tax Because you recognized a $7,000 gain on your 2012 return, you recognize a $1,000 loss ($57,000 − $56,000) on your 2013 tax return, treated as 60% long-term and 40% short-term capital loss. H and r block tax Limited partners or entrepreneurs. H and r block tax   The 60/40 rule does not apply to dealer equity options or dealer securities futures contracts that result in capital gain or loss allocable to limited partners or limited entrepreneurs (defined later under Hedging Transactions ). H and r block tax Instead, these gains or losses are treated as short term. H and r block tax Terminations and transfers. H and r block tax   The marked-to-market rules also apply if your obligation or rights under section 1256 contracts are terminated or transferred during the tax year. H and r block tax In this case, use the fair market value of each section 1256 contract at the time of termination or transfer to determine the gain or loss. H and r block tax Terminations or transfers may result from any offsetting, delivery, exercise, assignment, or lapse of your obligation or rights under section 1256 contracts. H and r block tax Loss carryback election. H and r block tax   An individual having a net section 1256 contracts loss (defined later), generally can elect to carry this loss back 3 years instead of carrying it over to the next year. H and r block tax See How To Report , later, for information about reporting this election on your return. H and r block tax   The loss carried back to any year under this election cannot be more than the net section 1256 contracts gain in that year. H and r block tax In addition, the amount of loss carried back to an earlier tax year cannot increase or produce a net operating loss for that year. H and r block tax   The loss is carried to the earliest carryback year first, and any unabsorbed loss amount can then be carried to each of the next 2 tax years. H and r block tax In each carryback year, treat 60% of the carryback amount as a long-term capital loss and 40% as a short-term capital loss from section 1256 contracts. H and r block tax   If only a portion of the net section 1256 contracts loss is absorbed by carrying the loss back, the unabsorbed portion can be carried forward, under the capital loss carryover rules, to the year following the loss. H and r block tax (See Capital Losses under Reporting Capital Gains and Losses, later. H and r block tax ) Figure your capital loss carryover as if, for the loss year, you had an additional short-term capital gain of 40% of the amount of net section 1256 contracts loss absorbed in the carryback years and an additional long-term capital gain of 60% of the absorbed loss. H and r block tax In the carryover year, treat any capital loss carryover from losses on section 1256 contracts as if it were a loss from section 1256 contracts for that year. H and r block tax Net section 1256 contracts loss. H and r block tax   This loss is the lesser of: The net capital loss for your tax year determined by taking into account only the gains and losses from section 1256 contracts, or The capital loss carryover to the next tax year determined without this election. H and r block tax Net section 1256 contracts gain. H and r block tax   This gain is the lesser of: The capital gain net income for the carryback year determined by taking into account only gains and losses from section 1256 contracts, or The capital gain net income for that year. H and r block tax  Figure your net section 1256 contracts gain for any carryback year without regard to the net section 1256 contracts loss for the loss year or any later tax year. H and r block tax Traders in section 1256 contracts. H and r block tax   Gain or loss from the trading of section 1256 contracts is capital gain or loss subject to the marked-to-market rules. H and r block tax However, this does not apply to contracts held for purposes of hedging property if any loss from the property would be an ordinary loss. H and r block tax Treatment of underlying property. H and r block tax   The determination of whether an individual's gain or loss from any property is ordinary or capital gain or loss is made without regard to the fact that the individual is actively engaged in dealing in or trading section 1256 contracts related to that property. H and r block tax How To Report If you disposed of regulated futures or foreign currency contracts in 2013 (or had unrealized profit or loss on these contracts that were open at the end of 2012 or 2013), you should receive Form 1099-B, or substitute statement, from your broker. H and r block tax Form 6781. H and r block tax   Use Part I of Form 6781 to report your gains and losses from all section 1256 contracts that are open at the end of the year or that were closed out during the year. H and r block tax This includes the amount shown in box 10 of Form 1099-B. H and r block tax Then enter the net amount of these gains and losses on Schedule D (Form 1040), line 4 or line 11, as appropriate. H and r block tax Include a copy of Form 6781 with your income tax return. H and r block tax   If the Form 1099-B you receive includes a straddle or hedging transaction, defined later, it may be necessary to show certain adjustments on Form 6781. H and r block tax Follow the Form 6781 instructions for completing Part I. H and r block tax Loss carryback election. H and r block tax   To carry back your loss under the election procedures described earlier, file Form 1040X or Form 1045, Application for Tentative Refund, for the year to which you are carrying the loss with an amended Form 6781 and an amended Schedule D (Form 1040) attached. H and r block tax Follow the instructions for completing Form 6781 for the loss year to make this election. H and r block tax Hedging Transactions The marked-to-market rules, described earlier, do not apply to hedging transactions. H and r block tax A transaction is a hedging transaction if both of the following conditions are met. H and r block tax You entered into the transaction in the normal course of your trade or business primarily to manage the risk of: Price changes or currency fluctuations on ordinary property you hold (or will hold), or Interest rate or price changes, or currency fluctuations, on your current or future borrowings or ordinary obligations. H and r block tax You clearly identified the transaction as being a hedging transaction before the close of the day on which you entered into it. H and r block tax This hedging transaction exception does not apply to transactions entered into by or for any syndicate. H and r block tax A syndicate is a partnership, S corporation, or other entity (other than a regular corporation) that allocates more than 35% of its losses to limited partners or limited entrepreneurs. H and r block tax A limited entrepreneur is a person who has an interest in an enterprise (but not as a limited partner) and who does not actively participate in its management. H and r block tax However, an interest is not considered held by a limited partner or entrepreneur if the interest holder actively participates (or did so for at least 5 full years) in the management of the entity, or is the spouse, child (including a legally adopted child), grandchild, or parent of an individual who actively participates in the management of the entity. H and r block tax Hedging loss limit. H and r block tax   If you are a limited partner or entrepreneur in a syndicate, the amount of a hedging loss you can claim is limited. H and r block tax A “hedging loss” is the amount by which the allowable deductions in a tax year that resulted from a hedging transaction (determined without regard to the limit) are more than the income received or accrued during the tax year from this transaction. H and r block tax   Any hedging loss allocated to you for the tax year is limited to your taxable income for that year from the trade or business in which the hedging transaction occurred. H and r block tax Ignore any hedging transaction items in determining this taxable income. H and r block tax If you have a hedging loss that is disallowed because of this limit, you can carry it over to the next tax year as a deduction resulting from a hedging transaction. H and r block tax   If the hedging transaction relates to property other than stock or securities, the limit on hedging losses applies if the limited partner or entrepreneur is an individual. H and r block tax   The limit on hedging losses does not apply to any hedging loss to the extent that it is more than all your unrecognized gains from hedging transactions at the end of the tax year that are from the trade or business in which the hedging transaction occurred. H and r block tax The term “unrecognized gain” has the same meaning as defined under Loss Deferral Rules in Straddles, later. H and r block tax Sale of property used in a hedge. H and r block tax   Once you identify personal property as being part of a hedging transaction, you must treat gain from its sale or exchange as ordinary income, not capital gain. H and r block tax Self-Employment Income Gains and losses derived in the ordinary course of a commodity or option dealer's trading in section 1256 contracts and property related to these contracts are included in net earnings from self-employment. H and r block tax See the Instructions for Schedule SE (Form 1040). H and r block tax In addition, the rules relating to contributions to self-employment retirement plans apply. H and r block tax For information on retirement plan contributions, see Publication 560 and Publication 590. H and r block tax Basis of Investment Property Basis is a way of measuring your investment in property for tax purposes. H and r block tax You must know the basis of your property to determine whether you have a gain or loss on its sale or other disposition. H and r block tax Investment property you buy normally has an original basis equal to its cost. H and r block tax If you get property in some way other than buying it, such as by gift or inheritance, its fair market value may be important in figuring the basis. H and r block tax Cost Basis The basis of property you buy is usually its cost. H and r block tax The cost is the amount you pay in cash, debt obligations, or other property or services. H and r block tax Unstated interest. H and r block tax   If you buy property on a time-payment plan that charges little or no interest, the basis of your property is your stated purchase price, minus the amount considered to be unstated interest. H and r block tax You generally have unstated interest if your interest rate is less than the applicable federal rate. H and r block tax For more information, see Unstated Interest and Original Issue Discount (OID) in Publication 537. H and r block tax Basis Other Than Cost There are times when you must use a basis other than cost. H and r block tax In these cases, you may need to know the property's fair market value or the adjusted basis of the previous owner. H and r block tax Fair market value. H and r block tax   This is the price at which the property would change hands between a buyer and a seller, neither being forced to buy or sell and both having reasonable knowledge of all the relevant facts. H and r block tax Sales of similar property, around the same date, may be helpful in figuring fair market value. H and r block tax Property Received for Services If you receive investment property for services, you must include the property's fair market value in income. H and r block tax The amount you include in income then becomes your basis in the property. H and r block tax If the services were performed for a price that was agreed to beforehand, this price will be accepted as the fair market value of the property if there is no evidence to the contrary. H and r block tax Restricted property. H and r block tax   If you receive, as payment for services, property that is subject to certain restrictions, your basis in the property generally is its fair market value when it becomes substantially vested. H and r block tax Property becomes substantially vested when it is transferable or is no longer subject to substantial risk of forfeiture, whichever happens first. H and r block tax See Restricted Property in Publication 525 for more information. H and r block tax Bargain purchases. H and r block tax   If you buy investment property at less than fair market value, as payment for services, you must include the difference in income. H and r block tax Your basis in the property is the price you pay plus the amount you include in income. H and r block tax Property Received in Taxable Trades If you received investment property in trade for other property, the basis of the new property is its fair market value at the time of the trade unless you received the property in a nontaxable trade. H and r block tax Example. H and r block tax You trade A Company stock for B Company stock having a fair market value of $1,200. H and r block tax If the adjusted basis of the A Company stock is less than $1,200, you have a taxable gain on the trade. H and r block tax If the adjusted basis of the A Company stock is more than $1,200, you have a deductible loss on the trade. H and r block tax The basis of your B Company stock is $1,200. H and r block tax If you later sell the B Company stock for $1,300, you will have a gain of $100. H and r block tax Property Received in Nontaxable Trades If you have a nontaxable trade, you do not recognize gain or loss until you dispose of the property you received in the trade. H and r block tax See Nontaxable Trades , later. H and r block tax The basis of property you received in a nontaxable or partly nontaxable trade is generally the same as the adjusted basis of the property you gave up. H and r block tax Increase this amount by any cash you paid, additional costs you had, and any gain recognized. H and r block tax Reduce this amount by any cash or unlike property you received, any loss recognized, and any liability of yours that was assumed or treated as assumed. H and r block tax Property Received From Your Spouse If property is transferred to you from your spouse (or former spouse, if the transfer is incident to your divorce), your basis is the same as your spouse's or former spouse's adjusted basis just before the transfer. H and r block tax See Transfers Between Spouses , later. H and r block tax Recordkeeping. H and r block tax The transferor must give you the records necessary to determine the adjusted basis and holding period of the property as of the date of the transfer. H and r block tax Property Received as a Gift To figure your basis in property that you received as a gift, you must know its adjusted basis to the donor just before it was given to you, its fair market value at the time it was given to you, the amount of any gift tax paid on it, and the date it was given to you. H and r block tax Fair market value less than donor's adjusted basis. H and r block tax   If the fair market value of the property at the time of the gift was less than the donor's adjusted basis just before the gift, your basis for gain on its sale or other disposition is the same as the donor's adjusted basis plus or minus any required adjustments to basis during the period you hold the property. H and r block tax Your basis for loss is its fair market value at the time of the gift plus or minus any required adjustments to basis during the period you hold the property. H and r block tax No gain or loss. H and r block tax   If you use the basis for figuring a gain and the result is a loss, and then use the basis for figuring a loss and the result is a gain, you will have neither a gain nor a loss. H and r block tax Example. H and r block tax You receive a gift of investment property having an adjusted basis of $10,000 at the time of the gift. H and r block tax The fair market value at the time of the gift is $9,000. H and r block tax You later sell the property for $9,500. H and r block tax You have neither gain nor loss. H and r block tax Your basis for figuring gain is $10,000, and $9,500 minus $10,000 results in a $500 loss. H and r block tax Your basis for figuring loss is $9,000, and $9,500 minus $9,000 results in a $500 gain. H and r block tax Fair market value equal to or more than donor's adjusted basis. H and r block tax   If the fair market value of the property at the time of the gift was equal to or more than the donor's adjusted basis just before the gift, your basis for gain or loss on its sale or other disposition is the donor's adjusted basis plus or minus any required adjustments to basis during the period you hold the property. H and r block tax Also, you may be allowed to add to the donor's adjusted basis all or part of any gift tax paid, depending on the date of the gift. H and r block tax Gift received before 1977. H and r block tax   If you received property as a gift before 1977, your basis in the property is the donor's adjusted basis increased by the total gift tax paid on the gift. H and r block tax However, your basis cannot be more than the fair market value of the gift at the time it was given to you. H and r block tax Example 1. H and r block tax You were given XYZ Company stock in 1976. H and r block tax At the time of the gift, the stock had a fair market value of $21,000. H and r block tax The donor's adjusted basis was $20,000. H and r block tax The donor paid a gift tax of $500 on the gift. H and r block tax Your basis for gain or loss is $20,500, the donor's adjusted basis plus the amount of gift tax paid. H and r block tax Example 2. H and r block tax The facts are the same as in Example 1 except that the gift tax paid was $1,500. H and r block tax Your basis is $21,000, the donor's adjusted basis plus the gift tax paid, but limited to the fair market value of the stock at the time of the gift. H and r block tax Gift received after 1976. H and r block tax   If you received property as a gift after 1976, your basis is the donor's adjusted basis increased by the part of the gift tax paid that was for the net increase in value of the gift. H and r block tax You figure this part by multiplying the gift tax paid on the gift by a fraction. H and r block tax The numerator (top part) is the net increase in value of the gift and the denominator (bottom part) is the amount of the gift. H and r block tax   The net increase in value of the gift is the fair market value of the gift minus the donor's adjusted basis. H and r block tax The amount of the gift is its value for gift tax purposes after reduction by any annual exclusion and marital or charitable deduction that applies to the gift. H and r block tax Example. H and r block tax In 2013, you received a gift of property from your mother. H and r block tax At the time of the gift, the property had a fair market value of $101,000 and an adjusted basis to her of $40,000. H and r block tax The amount of the gift for gift tax purposes was $87,000 ($101,000 minus the $14,000 annual exclusion), and your mother paid a gift tax of $21,000. H and r block tax You figure your basis in the following way: Fair market value $101,000 Minus: Adjusted basis 40,000 Net increase in value of gift $61,000 Gift tax paid $21,000 Multiplied by . H and r block tax 701 ($61,000 ÷ $87,000) . H and r block tax 701 Gift tax due to net increase in value $14,721 Plus: Adjusted basis of property to  your mother 40,000 Your basis in the property $54,721 Part sale, part gift. H and r block tax   If you get property in a transfer that is partly a sale and partly a gift, your basis is the larger of the amount you paid for the property or the transferor's adjusted basis in the property at the time of the transfer. H and r block tax Add to that amount the amount of any gift tax paid on the gift, as described in the preceding discussion. H and r block tax For figuring loss, your basis is limited to the property's fair market value at the time of the transfer. H and r block tax Gift tax information. H and r block tax   For information on gift tax, see Publication 950, Introduction to Estate and Gift Taxes. H and r block tax For information on figuring the amount of gift tax to add to your basis, see Property Received as a Gift in Publication 551. H and r block tax Property Received as Inheritance Before or after 2010. H and r block tax   If you inherited property from a decedent who died before or after 2010, or who died in 2010 and the executor of the decedent's estate elected not to file Form 8939, Allocation of Increase in Basis for Property Acquired From a Decedent, your basis in that property generally is its fair market value (its appraised value on Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return) on: The date of the decedent's death, or The later alternate valuation date if the estate qualifies for, and elects to use, alternate valuation. H and r block tax If no Form 706 was filed, use the appraised value on the date of death for state inheritance or transmission taxes. H and r block tax For stocks and bonds, if no Form 706 was filed and there are no state inheritance or transmission taxes, see the Form 706 instructions for figuring the fair market value of the stocks and bonds on the date of the decedent's death. H and r block tax Appreciated property you gave the decedent. H and r block tax   Your basis in certain appreciated property that you inherited is the decedent's adjusted basis in the property immediately before death rather than its fair market value. H and r block tax This applies to appreciated property that you or your spouse gave the decedent as a gift during the 1-year period ending on the date of death. H and r block tax Appreciated property is any property whose fair market value on the day you gave it to the decedent was more than its adjusted basis. H and r block tax More information. H and r block tax   See Publication 551 for more information on the basis of inherited property, including community property, property held by a surviving tenant in a joint tenancy or tenancy by the entirety, a qualified joint interest, and a farm or closely held business. H and r block tax Inherited in 2010 and executor elected to file Form 8939. H and r block tax   If you inherited property from a decedent who died in 2010 and the executor made the election to file Form 8939, see Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010, to figure your basis. H and r block tax Adjusted Basis Before you can figure any gain or loss on a sale, exchange, or other disposition of property or figure allowable depreciation, depletion, or amortization, you usually must make certain adjustments (increases and decreases) to the basis of the property. H and r block tax The result of these adjustments to the basis is the adjusted basis. H and r block tax Adjustments to the basis of stocks and bonds are explained in the following discussion. H and r block tax For information about other adjustments to basis, see Publication 551. H and r block tax Stocks and Bonds The basis of stocks or bonds you own generally is the purchase price plus the costs of purchase, such as commissions and recording or transfer fees. H and r block tax If you acquired stock or bonds other than by purchase, your basis is usually determined by fair market value or the previous owner's adjusted basis as discussed earlier under Basis Other Than Cost . H and r block tax The basis of stock must be adjusted for certain events that occur after purchase. H and r block tax For example, if you receive more stock from nontaxable stock dividends or stock splits, you must reduce the basis of your original stock. H and r block tax You must also reduce your basis when you receive nondividend distributions (discussed in chapter 1). H and r block tax These distributions, up to the amount of your basis, are a nontaxable return of capital. H and r block tax The IRS partners with companies that offer Form 8949 and Schedule D (Form 1040) software that can import trades from many brokerage firms and accounting software to help you keep track of your adjusted basis in securities. H and r block tax To find out more, go to www. H and r block tax irs. H and r block tax gov/Filing/Filing-Options. H and r block tax Identifying stock or bonds sold. H and r block tax   If you can adequately identify the shares of stock or the bonds you sold, their basis is the cost or other basis of the particular shares of stock or bonds. H and r block tax Adequate identification. H and r block tax   You will make an adequate identification if you show that certificates representing shares of stock from a lot that you bought on a certain date or for a certain price were delivered to your broker or other agent. H and r block tax Broker holds stock. H and r block tax   If you have left the stock certificates with your broker or other agent, you will make an adequate identification if you: Tell your broker or other agent the particular stock to be sold or transferred at the time of the sale or transfer, and Receive a written confirmation of this from your broker or other agent within a reasonable time. H and r block tax  Stock identified this way is the stock sold or transferred even if stock certificates from a different lot are delivered to the broker or other agent. H and r block tax Single stock certificate. H and r block tax   If you bought stock in different lots at different times and you hold a single stock certificate for this stock, you will make an adequate identification if you: Tell your broker or other agent the particular stock to be sold or transferred when you deliver the certificate to your broker or other agent, and Receive a written confirmation of this from your broker or other agent within a reasonable time. H and r block tax   If you sell part of the stock represented by a single certificate directly to the buyer instead of through a broker, you will make an adequate identification if you keep a written record of the particular stock that you intend to sell. H and r block tax Bonds. H and r block tax   These methods of identification also apply to bonds sold or transferred. H and r block tax Identification not possible. H and r block tax   If you buy and sell securities at various times in varying quantities and you cannot adequately identify the shares you sell, the basis of the securities you sell is the basis of the securities you acquired first. H and r block tax Except for certain mutual fund shares, discussed later, you cannot use the average price per share to figure gain or loss on the sale of the shares. H and r block tax Example. H and r block tax You bought 100 shares of stock of XYZ Corporation in 1998 for $10 a share. H and r block tax In January 1999 you bought another 200 shares for $11 a share. H and r block tax In July 1999 you gave your son 50 shares. H and r block tax In December 2001 you bought 100 shares for $9 a share. H and r block tax In April 2013 you sold 130 shares. H and r block tax You cannot identify the shares you disposed of, so you must use the stock you acquired first to figure the basis. H and r block tax The shares of stock you gave your son had a basis of $500 (50 × $10). H and r block tax You figure the basis of the 130 shares of stock you sold in 2013 as follows: 50 shares (50 × $10) balance of stock bought in 1998 $ 500 80 shares (80 × $11) stock bought in January 1999 880 Total basis of stock sold in 2013 $1,380 Shares in a mutual fund or REIT. H and r block tax    The basis of shares in a mutual fund (or other regulated investment company) or a real estate investment trust (REIT) is generally figured in the same way as the basis of other stock and usually includes any commissions or load charges paid for the purchase. H and r block tax Example. H and r block tax You bought 100 shares of Fund A for $10 a share. H and r block tax You paid a $50 commission to the broker for the purchase. H and r block tax Your cost basis for each share is $10. H and r block tax 50 ($1,050 ÷ 100). H and r block tax Commissions and load charges. H and r block tax   The fees and charges you pay to acquire or redeem shares of a mutual fund are not deductible. H and r block tax You can usually add acquisition fees and charges to your cost of the shares and thereby increase your basis. H and r block tax A fee paid to redeem the shares is usually a reduction in the redemption price (sales price). H and r block tax   You cannot add your entire acquisition fee or load charge to the cost of the mutual fund shares acquired if all of the following conditions apply. H and r block tax You get a reinvestment right because of the purchase of the shares or the payment of the fee or charge. H and r block tax You dispose of the shares within 90 days of the purchase date. H and r block tax You acquire new shares in the same mutual fund or another mutual fund, for which the fee or charge is reduced or waived because of the reinvestment right you got when you acquired the original shares. H and r block tax   The amount of the original fee or charge in excess of the reduction in (3) is added to the cost of the original shares. H and r block tax The rest of the original fee or charge is added to the cost basis of the new shares (unless all three conditions above also apply to the purchase of the new shares). H and r block tax Choosing average basis for mutual fund shares. H and r block tax   You can choose to use the average basis of mutual fund shares if you acquired the identical shares at various times and prices, or you acquired the shares after 2010 in connection with a dividend reinvestment plan, and left them on deposit in an account kept by a custodian or agent. H and r block tax The methods you can use to figure average basis are explained later. H and r block tax Undistributed capital gains. H and r block tax   If you had to include in your income any undistributed capital gains of the mutual fund or REIT, increase your basis in the stock by the difference between the amount you included and the amount of tax paid for you by the fund or REIT. H and r block tax See Undistributed capital gains of mutual funds and REITs under Capital Gain Distributions in chapter 1. H and r block tax Reinvestment right. H and r block tax   This is the right to acquire mutual fund shares in the same or another mutual fund without paying a fee or load charge, or by paying a reduced fee or load charge. H and r block tax      The original cost basis of mutual fund shares you acquire by reinvesting your distributions is the amount of the distributions used to purchase each full or fractional share. H and r block tax This rule applies even if the distribution is an exempt-interest dividend that you do not report as income. H and r block tax Table 4-1. H and r block tax This is a worksheet you can use to keep track of the adjusted basis of your mutual fund shares. H and r block tax Enter the cost per share when you acquire new shares and any adjustments to their basis when the adjustment occurs. H and r block tax This worksheet will help you figure the adjusted basis when you sell or redeem shares. H and r block tax Table 4-1. H and r block tax Mutual Fund Record Mutual Fund Acquired1 Adjustment to Basis Per Share Adjusted2 Basis Per Share Sold or redeemed Date Number of Shares Cost Per Share Date Number of Shares                                                                                                                                                                                                                                                                         1 Include share received from reinvestment of distributions. H and r block tax 2 Cost plus or minus adjustments. H and r block tax Automatic investment service. H and r block tax   If you participate in an automatic investment service, your basis for each share of stock, including fractional shares, bought by the bank or other agent is the purchase price plus a share of the broker's commission. H and r block tax Dividend reinvestment plans. H and r block tax   If you participate in a dividend reinvestment plan and receive stock from the corporation at a discount, your basis is the full fair market value of the stock on the dividend payment date. H and r block tax You must include the amount of the discount in your income. H and r block tax Public utilities. H and r block tax   If, before 1986, you excluded from income the value of stock you had received under a qualified public utility reinvestment plan, your basis in that stock is zero. H and r block tax Stock dividends. H and r block tax   Stock dividends are distributions made by a corporation of its own stock. H and r block tax Generally, stock dividends are not taxable to you. H and r block tax However, see Distributions of Stock and Stock Rights under Dividends and Other Distributions in chapter 1 for some exceptions. H and r block tax If the stock dividends are not taxable, you must divide your basis for the old stock between the old and new stock. H and r block tax New and old stock identical. H and r block tax   If the new stock you received as a nontaxable dividend is identical to the old stock on which the dividend was declared, divide the adjusted basis of the old stock by the number of shares of old and new stock. H and r block tax The result is your basis for each share of stock. H and r block tax Example 1. H and r block tax You owned one share of common stock that you bought for $45. H and r block tax The corporation distributed two new shares of common stock for each share held. H and r block tax You then had three shares of common stock. H and r block tax Your basis in each share is $15 ($45 ÷ 3). H and r block tax Example 2. H and r block tax You owned two shares of common stock. H and r block tax You bought one for $30 and the other for $45. H and r block tax The corporation distributed two new shares of common stock for each share held. H and r block tax You had six shares after the distribution—three with a basis of $10 each ($30 ÷ 3) and three with a basis of $15 each ($45 ÷ 3). H and r block tax New and old stock not identical. H and r block tax   If the new stock you received as a nontaxable dividend is not identical to the old stock on which it was declared, the basis of the new stock is calculated differently. H and r block tax Divide the adjusted basis of the old stock between the old and the new stock in the ratio of the fair market value of each lot of stock to the total fair market value of both lots on the date of distribution of the new stock. H and r block tax Example. H and r block tax You bought a share of common stock for $100. H and r block tax Later, the corporation distributed a share of preferred stock for each share of common stock held. H and r block tax At the date of distribution, your common stock had a fair market value of $150 and the preferred stock had a fair market value of $50. H and r block tax You figure the basis of the old and new stock by dividing your $100 basis between them. H and r block tax The basis of your common stock is $75 (($150 ÷ $200) × $100), and the basis of the new preferred stock is $25 (($50 ÷ $200) × $100). H and r block tax Stock bought at various times. H and r block tax   Figure the basis of stock dividends received on stock you bought at various times and at different prices by allocating to each lot of stock the share of the stock dividends due to it. H and r block tax Taxable stock dividends. H and r block tax   If your stock dividend is taxable when you receive it, the basis of your new stock is its fair market value on the date of distribution. H and r block tax The basis of your old stock does not change. H and r block tax Stock splits. H and r block tax   Figure the basis of stock splits in the same way as stock dividends if identical stock is distributed on the stock held. H and r block tax Stock rights. H and r block tax   A stock right is a right to acquire a corporation's stock. H and r block tax It may be exercised, it may be sold if it has a market value, or it may expire. H and r block tax Stock rights are rarely taxable when you receive them. H and r block tax See Distributions of Stock and Stock Rights under Dividends and Other Distributions in chapter 1. H and r block tax Taxable stock rights. H and r block tax   If you receive stock rights that are taxable, the basis of the rights is their fair market value at the time of distribution. H and r block tax The basis of the old stock does not change. H and r block tax Nontaxable stock rights. H and r block tax   If you receive nontaxable stock rights and allow them to expire, they have no basis. H and r block tax   If you exercise or sell the nontaxable stock rights and if, at the time of distribution, the stock rights had a fair market value of 15% or more of the fair market value of the old stock, you must divide the adjusted basis of the old stock between the old stock and the stock rights. H and r block tax Use a ratio of the fair market value of each to the total fair market value of both at the time of distribution. H and r block tax   If the fair market value of the stock rights was less than 15%, their basis is zero. H and r block tax However, you can choose to divide the basis of the old stock between the old stock and the stock rights. H and r block tax To make the choice, attach a statement to your return for the year in which you received the rights, stating that you choose to divide the basis of the stock. H and r block tax Basis of new stock. H and r block tax   If you exercise the stock rights, the basis of the new stock is its cost plus the basis of the stock rights exercised. H and r block tax Example. H and r block tax You own 100 shares of ABC Company stock, which cost you $22 per share. H and r block tax The ABC Company gave you 10 nontaxable stock rights that would allow you to buy 10 more shares at $26 per share. H and r block tax At the time the stock rights were distributed, the stock had a market value of $30, not including the stock rights. H and r block tax Each stock right had a market value of $3. H and r block tax The market value of the stock rights was less than 15% of the market value of the stock, but you chose to divide the basis of your stock between the stock and the rights. H and r block tax You figure the basis of the rights and the basis of the old stock as follows: 100 shares × $22 = $2,200, basis of old stock   100 shares × $30 = $3,000, market value of old stock   10 rights × $3 = $30, market value of rights   ($3,000 ÷ $3,030) × $2,200 = $2,178. H and r block tax 22, new basis of old stock   ($30 ÷ $3,030) × $2,200 = $21. H and r block tax 78, basis of rights   If you sell the rights, the basis for figuring gain or loss is $2. H and r block tax 18 ($21. H and r block tax 78 ÷ 10) per right. H and r block tax If you exercise the rights, the basis of the stock you acquire is the price you pay ($26) plus the basis of the right exercised ($2. H and r block tax 18), or $28. H and r block tax 18 per share. H and r block tax The remaining basis of the old stock is $21. H and r block tax 78 per share. H and r block tax Investment property received in liquidation. H and r block tax   In general, if you receive investment property as a distribution in partial or complete liquidation of a corporation and if you recognize gain or loss when you acquire the property, your basis in the property is its fair market value at the time of the distribution. H and r block tax S corporation stock. H and r block tax   You must increase your basis in stock of an S corporation by your pro rata share of the following items. H and r block tax All income items of the S corporation, including tax-exempt income, that are separately stated and passed through to you as a shareholder. H and r block tax The nonseparately stated income of the S corporation. H and r block tax The amount of the deduction for depletion (other than oil and gas depletion) that is more than the basis of the property being depleted. H and r block tax   You must decrease your basis in stock of an S corporation by your pro rata share of the following items. H and r block tax Distributions by the S corporation that were not included in your income. H and r block tax All loss and deduction items of the S corporation that are separately stated and passed through to you. H and r block tax Any nonseparately stated loss of the S corporation. H and r block tax Any expense of the S corporation that is not deductible in figuring its taxable income and not properly chargeable to a capital account. H and r block tax The amount of your deduction for depletion of oil and gas wells to the extent the deduction is not more than your share of the adjusted basis of the wells. H and r block tax However, your basis in the stock cannot be reduced below zero. H and r block tax Specialized small business investment company stock or partnership interest. H and r block tax   If you bought this stock or interest as replacement property for publicly traded securities you sold at a gain, you must reduce the basis of the stock or interest by the amount of any postponed gain on that sale. H and r block tax See Rollover of Gain From Publicly Traded Securities , later. H and r block tax Qualified small business stock. H and r block tax   If you bought this stock as replacement property for other qualified small business stock you sold at a gain, you must reduce the basis of this replacement stock by the amount of any postponed gain on the earlier sale. H and r block tax See Gains on Qualified Small Business Stock , later. H and r block tax Short sales. H and r block tax   If you cannot deduct payments you make to a lender in lieu of dividends on stock used in a short sale, the amount you pay to the lender is a capital expense, and you must add it to the basis of the stock used to close the short sale. H and r block tax   See Payments in lieu of dividends , later, for information about deducting payments in lieu of dividends. H and r block tax Premiums on bonds. H and r block tax   If you buy a bond at a premium, the premium is treated as part of your basis in the bond. H and r block tax If you choose to amortize the premium paid on a taxable bond, you must reduce the basis of the bond by the amortized part of the premium each year over the life of the bond. H and r block tax   Although you cannot deduct the premium on a tax-exempt bond, you must amortize it to determine your adjusted basis in the bond. H and r block tax You must reduce the basis of the bond by the premium you amortized for the period you held the bond. H and r block tax   See Bond Premium Amortization in chapter 3 for more information. H and r block tax Market discount on bonds. H and r block tax   If you include market discount on a bond in income currently, increase the basis of your bond by the amount of market discount you include in your income. H and r block tax See Market Discount Bonds in chapter 1 for more information. H and r block tax Bonds purchased at par value. H and r block tax   A bond purchased at par value (face amount) has no premium or discount. H and r block tax When you sell or otherwise dispose of the bond, you figure the gain or loss by comparing the bond proceeds to the purchase price of the bond. H and r block tax Example. H and r block tax You purchased a bond several years ago for its par value of $10,000. H and r block tax You sold the bond this year for $10,100. H and r block tax You have a gain of $100. H and r block tax However, if you had sold the bond for $9,900, you would have a loss of $100. H and r block tax Acquisition discount on short-term obligations. H and r block tax   If you include acquisition discount on a short-term obligation in your income currently, increase the basis of the obligation by the amount of acquisition discount you include in your income. H and r block tax See Discount on Short-Term Obligations in chapter 1 for more information. H and r block tax Original issue discount (OID) on debt instruments. H and r block tax   Increase the basis of a debt instrument by the OID you include in your income. H and r block tax See Original Issue Discount (OID) in chapter 1. H and r block tax Discounted tax-exempt obligations. H and r block tax   OID on tax-exempt obligations is generally not taxable. H and r block tax However, when you dispose of a tax-exempt obligation issued after September 3, 1982, that you acquired after March 1, 1984, you must accrue OID on the obligation to determine its adjusted basis. H and r block tax The accrued OID is added to the basis of the obligation to determine your gain or loss. H and r block tax   For information on determining OID on a long-term obligation, see Debt Instruments Issued After July 1, 1982, and Before 1985 or Debt Instruments Issued After 1984, whichever applies, in Publication 1212 under Figuring OID on Long-Term Debt Instruments. H and r block tax   If the tax-exempt obligation has a maturity of 1 year or less, accrue OID under the rules for acquisition discount on short-term obligations. H and r block tax See Discount on Short-Term Obligations in chapter 1. H and r block tax Stripped tax-exempt obligation. H and r block tax   If you acquired a stripped tax-exempt bond or coupon after October 22, 1986, you must accrue OID on it to determine its adjusted basis when you dispose of it. H and r block tax For stripped tax-exempt bonds or coupons acquired after June 10, 1987, part of this OID may be taxable. H and r block tax You accrue the OID on these obligations in the manner described in chapter 1 under Stripped Bonds and Coupons . H and r block tax   Increase your basis in the stripped tax-exempt bond or coupon by the taxable and nontaxable accrued OID. H and r block tax Also increase your basis by the interest that accrued (but was not paid and was not previously reflected in your basis) before the date you sold the bond or coupon. H and r block tax In addition, for bonds acquired after June 10, 1987, add to your basis any accrued market discount not previously reflected in basis. H and r block tax How To Figure Gain or Loss You figure gain or loss on a sale or trade of property by comparing the amount you realize with the adjusted basis of the property. H and r block tax Gain. H and r block tax   If the amount you realize from a sale or trade is more than the adjusted basis of the property you transfer, the difference is a gain. H and r block tax Loss. H and r block tax   If the adjusted basis of the property you transfer is more than the amount you realize, the difference is a loss. H and r block tax Amount realized. H and r block tax   The amount you realize from a sale or trade of property is everything you receive for the property minus your expenses of sale (such as redemption fees, sales commissions, sales charges, or exit fees). H and r block tax Amount realized includes the money you receive plus the fair market value of any property or services you receive. H and r block tax   If you finance the buyer's purchase of your property and the debt instrument does not provide for adequate stated interest, the unstated interest that you must report as ordinary income will reduce the amount realized from the sale. H and r block tax For more information, see Publication 537. H and r block tax   If a buyer of property issues a debt instrument to the seller of the property, the amount realized is determined by reference to the issue price of the debt instrument, which may or may not be the fair market value of the debt instrument. H and r block tax See Regulations section 1. H and r block tax 1001-1(g). H and r block tax However, if the debt instrument was previously issued by a third party (one not part of the sale transaction), the fair market value of the debt instrument is used to determine the amount realized. H and r block tax Fair market value. H and r block tax   Fair market value is the price at which property would change hands between a buyer and a seller, neither being forced to buy or sell and both having reasonable knowledge of all the relevant facts. H and r block tax Example. H and r block tax You trade A Company stock with an adjusted basis of $7,000 for B Company stock with a fair market value of $10,000, which is your amount realized. H and r block tax Your gain is $3,000 ($10,000 – $7,000). H and r block tax If you also receive a note for $6,000 that has an issue price of $6,000, your gain is $9,000 ($10,000 + $6,000 – $7,000). H and r block tax Debt paid off. H and r block tax   A debt against the property, or against you, that is paid off as a part of the transaction or that is assumed by the buyer must be included in the amount realized. H and r block tax This is true even if neither you nor the buyer is personally liable for the debt. H and r block tax For example, if you sell or trade property that is subject to a nonrecourse loan, the amount you realize generally includes the full amount of the note assumed by the buyer even if the amount of the note is more than the fair market value of the property. H and r block tax Example. H and r block tax You sell stock that you had pledged as security for a bank loan of $8,000. H and r block tax Your basis in the stock is $6,000. H and r block tax The buyer pays off your bank loan and pays you $20,000 in cash. H and r block tax The amount realized is $28,000 ($20,000 + $8,000). H and r block tax Your gain is $22,000 ($28,000 – $6,000). H and r block tax Payment of cash. H and r block tax   If you trade property and cash for other property, the amount you realize is the fair market value of the property you receive. H and r block tax Determine your gain or loss by subtracting the cash you pay and the adjusted basis of the property you trade in from the amount you realize. H and r block tax If the result is a positive number, it is a gain. H and r block tax If the result is a negative number, it is a loss. H and r block tax No gain or loss. H and r block tax   You may have to use a basis for figuring gain that is different from the basis used for figuring loss. H and r block tax In this case, you may have neither a gain nor a loss. H and r block tax See No gain or loss in the discussion on the basis of property you received as a gift under Basis Other Than Cost, earlier. H and r block tax Special Rules for Mutual Funds To figure your gain or loss when you dispose of mutual fund shares, you need to determine which shares were sold and the basis of those shares. H and r block tax If your shares in a mutual fund were acquired all on the same day and for the same price, figuring their basis is not difficu