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What Is 1040x

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What Is 1040x

What is 1040x 2. What is 1040x   Source of Income Table of Contents Introduction Topics - This chapter discusses: Resident Aliens Nonresident AliensInterest Income Dividends Guarantee of Indebtedness Personal Services Transportation Income Scholarships, Grants, Prizes, and Awards Pensions and Annuities Rents or Royalties Real Property Personal Property Community Income Introduction After you have determined your alien status, you must determine the source of your income. What is 1040x This chapter will help you determine the source of different types of income you may receive during the tax year. What is 1040x This chapter also discusses special rules for married individuals who are domiciled in a country with community property laws. What is 1040x Topics - This chapter discusses: Income source rules, and Community income. What is 1040x Resident Aliens A resident alien's income is generally subject to tax in the same manner as a U. What is 1040x S. What is 1040x citizen. What is 1040x If you are a resident alien, you must report all interest, dividends, wages, or other compensation for services, income from rental property or royalties, and other types of income on your U. What is 1040x S. What is 1040x tax return. What is 1040x You must report these amounts from sources within and outside the United States. What is 1040x Nonresident Aliens A nonresident alien usually is subject to U. What is 1040x S. What is 1040x income tax only on U. What is 1040x S. What is 1040x source income. What is 1040x Under limited circumstances, certain foreign source income is subject to U. What is 1040x S. What is 1040x tax. What is 1040x See Foreign Income in chapter 4. What is 1040x The general rules for determining U. What is 1040x S. What is 1040x source income that apply to most nonresident aliens are shown in Table 2-1. What is 1040x The following discussions cover the general rules as well as the exceptions to these rules. What is 1040x Not all items of U. What is 1040x S. What is 1040x source income are taxable. What is 1040x See chapter 3. What is 1040x Interest Income Generally, U. What is 1040x S. What is 1040x source interest income includes the following items. What is 1040x Interest on bonds, notes, or other interest-bearing obligations of U. What is 1040x S. What is 1040x residents or domestic corporations. What is 1040x Interest paid by a domestic or foreign partnership or foreign corporation engaged in a U. What is 1040x S. What is 1040x trade or business at any time during the tax year. What is 1040x Original issue discount. What is 1040x Interest from a state, the District of Columbia, or the U. What is 1040x S. What is 1040x Government. What is 1040x The place or manner of payment is immaterial in determining the source of the income. What is 1040x A substitute interest payment made to the transferor of a security in a securities lending transaction or a sale-repurchase transaction is sourced in the same manner as the interest on the transferred security. What is 1040x Exceptions. What is 1040x   U. What is 1040x S. What is 1040x source interest income does not include the following items. What is 1040x Interest paid by a resident alien or a domestic corporation on obligations issued before August 10, 2010, if for the 3-year period ending with the close of the payer's tax year preceding the interest payment, at least 80% of the payer's total gross income: Is from sources outside the United States, and Is attributable to the active conduct of a trade or business by the individual or corporation in a foreign country or a U. What is 1040x S. What is 1040x possession. What is 1040x However, the interest will be considered U. What is 1040x S. What is 1040x source interest income if either of the following apply. What is 1040x The recipient of the interest is related to the resident alien or domestic corporation. What is 1040x See section 954(d)(3) for the definition of related person. What is 1040x The terms of the obligation are significantly modified after August 9, 2010. What is 1040x Any extension of the term of the obligation is considered a significant modification. What is 1040x Interest paid by a foreign branch of a domestic corporation or a domestic partnership on deposits or withdrawable accounts with mutual savings banks, cooperative banks, credit unions, domestic building and loan associations, and other savings institutions chartered and supervised as savings and loan or similar associations under federal or state law if the interest paid or credited can be deducted by the association. What is 1040x Interest on deposits with a foreign branch of a domestic corporation or domestic partnership, but only if the branch is in the commercial banking business. What is 1040x Dividends In most cases, dividend income received from domestic corporations is U. What is 1040x S. What is 1040x source income. What is 1040x Dividend income from foreign corporations is usually foreign source income. What is 1040x Exceptions to both of these rules are discussed below. What is 1040x A substitute dividend payment made to the transferor of a security in a securities lending transaction or a sale-repurchase transaction is sourced in the same manner as a distribution on the transferred security. What is 1040x Dividend equivalent payments. What is 1040x   U. What is 1040x S. What is 1040x source dividends also include all dividend equivalent payments. What is 1040x Dividend equivalent payments include substitute dividends, payments made pursuant to a specified notional principal contract, and all similar payments that, directly or indirectly, are contingent on or determined by reference to, the payment of a dividend from U. What is 1040x S. What is 1040x sources. What is 1040x    The Internal Revenue Service has issued final regulations that would affect the treatment of dividend equivalent payments and specified notional principal contracts. What is 1040x You can view this regulation at www. What is 1040x irs. What is 1040x gov/irb/2013-52_IRB/ar08. What is 1040x html. What is 1040x First exception. What is 1040x   Dividends received from a domestic corporation are not U. What is 1040x S. What is 1040x source income if the corporation elects to take the American Samoa economic development credit. What is 1040x Second exception. What is 1040x   Part of the dividends received from a foreign corporation is U. What is 1040x S. What is 1040x source income if 25% or more of its total gross income for the 3-year period ending with the close of its tax year preceding the declaration of dividends was effectively connected with a trade or business in the United States. What is 1040x If the corporation was formed less than 3 years before the declaration, use its total gross income from the time it was formed. What is 1040x Determine the part that is U. What is 1040x S. What is 1040x source income by multiplying the dividend by the following fraction. What is 1040x   Foreign corporation's gross income connected with a U. What is 1040x S. What is 1040x trade or business for the 3-year period     Foreign corporation's gross income from all sources for that period   Guarantee of Indebtedness Certain amounts received directly or indirectly, for the provision of a guarantee of indebtedness issued after September 27, 2010, are U. What is 1040x S. What is 1040x source income. What is 1040x They must be paid by a noncorporate resident or U. What is 1040x S. What is 1040x corporation or by any foreign person if the amounts are effectively connected with the conduct of a U. What is 1040x S. What is 1040x trade or business. What is 1040x For more information, see Internal Revenue Code sections 861(a)(9) and 862(a)(9). What is 1040x Personal Services All wages and any other compensation for services performed in the United States are considered to be from sources in the United States. What is 1040x The only exceptions to this rule are discussed in chapter 3 under Employees of foreign persons, organizations, or offices, and under Crew members. What is 1040x If you are an employee and receive compensation for labor or personal services performed both inside and outside the United States, special rules apply in determining the source of the compensation. What is 1040x Compensation (other than certain fringe benefits) is sourced on a time basis. What is 1040x Certain fringe benefits (such as housing and education) are sourced on a geographical basis. What is 1040x Or, you may be permitted to use an alternative basis to determine the source of compensation. What is 1040x See Alternative Basis , later. What is 1040x Multi-level marketing. What is 1040x   Certain companies sell products through a multi-level marketing arrangement, such that an upper-tier distributor, who has sponsored a lower-tier distributor, is entitled to a payment from the company based on certain activities of that lower-tier distributor. What is 1040x Generally, depending on the facts, payments from such multi-level marketing companies to independent (non-employee) distributors (upper-tier distributors) that are based on the sales or purchases of persons whom they have sponsored (lower-tier distributors) constitute income for the performance of personal services in recruiting, training, and supporting the lower-tier distributors. What is 1040x The source of such income is generally based on where the services of the upper-tier distributor are performed, and may, depending on the facts, be considered multi-year compensation, with the source of income determined over the period to which such compensation is attributable. What is 1040x Self-employed individuals. What is 1040x   If you are self-employed, you determine the source of compensation for labor or personal services from self-employment on the basis that most correctly reflects the proper source of that income under the facts and circumstances of your particular case. What is 1040x In many cases, the facts and circumstances will call for an apportionment on a time basis as explained next. What is 1040x Time Basis Use a time basis to figure your U. What is 1040x S. What is 1040x source compensation (other than the fringe benefits discussed later). What is 1040x Do this by multiplying your total compensation (other than the fringe benefits discussed later) by the following fraction:   Number of days you performed services in the United States during the year     Total number of days you performed services during the year   You can use a unit of time less than a day in the above fraction, if appropriate. What is 1040x The time period for which the compensation is made does not have to be a year. What is 1040x Instead, you can use another distinct, separate, and continuous time period if you can establish to the satisfaction of the IRS that this other period is more appropriate. What is 1040x Example 1. What is 1040x Christina Brooks, a resident of the Netherlands, worked 240 days for a U. What is 1040x S. What is 1040x company during the tax year. What is 1040x She received $80,000 in compensation. What is 1040x None of it was for fringe benefits. What is 1040x Christina performed services in the United States for 60 days and performed services in the Netherlands for 180 days. What is 1040x Using the time basis for determining the source of compensation, $20,000 ($80,000 × 60/240) is her U. What is 1040x S. What is 1040x source income. What is 1040x Example 2. What is 1040x Rob Waters, a resident of South Africa, is employed by a corporation. What is 1040x His annual salary is $100,000. What is 1040x None of it is for fringe benefits. What is 1040x During the first quarter of the year he worked entirely within the United States. What is 1040x On April 1, Rob was transferred to Singapore for the remainder of the year. What is 1040x Rob is able to establish that the first quarter of the year and the last 3 quarters of the year are two separate, distinct, and continuous periods of time. What is 1040x Accordingly, $25,000 of Rob's annual salary is attributable to the first quarter of the year (. What is 1040x 25 × $100,000). What is 1040x All of it is U. What is 1040x S. What is 1040x source income because he worked entirely within the United States during that quarter. What is 1040x The remaining $75,000 is attributable to the last three quarters of the year. What is 1040x During those quarters, he worked 150 days in Singapore and 30 days in the United States. What is 1040x His periodic performance of services in the United States did not result in distinct, separate, and continuous periods of time. What is 1040x Of this $75,000, $12,500 ($75,000 × 30/180) is U. What is 1040x S. What is 1040x source income. What is 1040x Multi-year compensation. What is 1040x   The source of multi-year compensation is generally determined on a time basis over the period to which the compensation is attributable. What is 1040x Multi-year compensation is compensation that is included in your income in one tax year but that is attributable to a period that includes two or more tax years. What is 1040x   You determine the period to which the compensation is attributable based on the facts and circumstances of your case. What is 1040x For example, an amount of compensation that specifically relates to a period of time that includes several calendar years is attributable to the entire multi-year period. What is 1040x   The amount of compensation treated as from U. What is 1040x S. What is 1040x sources is figured by multiplying the total multi-year compensation by a fraction. What is 1040x The numerator of the fraction is the number of days (or unit of time less than a day, if appropriate) that you performed labor or personal services in the United States in connection with the project. What is 1040x The denominator of the fraction is the total number of days (or unit of time less than a day, if appropriate) that you performed labor or personal services in connection with the project. What is 1040x Geographical Basis Compensation you receive as an employee in the form of the following fringe benefits is sourced on a geographical basis. What is 1040x Housing. What is 1040x Education. What is 1040x Local transportation. What is 1040x Tax reimbursement. What is 1040x Hazardous or hardship duty pay as defined in Regulations section 1. What is 1040x 861-4(b)(2)(ii)(D)(5). What is 1040x Moving expense reimbursement. What is 1040x The amount of fringe benefits must be reasonable and you must substantiate them by adequate records or by sufficient evidence. What is 1040x Principal place of work. What is 1040x   The above fringe benefits, except for tax reimbursement and hazardous or hardship duty pay, are sourced based on your principal place of work. What is 1040x Your principal place of work is usually the place where you spend most of your working time. What is 1040x This could be your office, plant, store, shop, or other location. What is 1040x If there is no one place where you spend most of your working time, your main job location is the place where your work is centered, such as where you report for work or are otherwise required to “base” your work. What is 1040x   If you have more than one job at any time, your main job location depends on the facts in each case. What is 1040x The more important factors to be considered are: The total time you spend at each place, The amount of work you do at each place, and How much money you earn at each place. What is 1040x Housing. What is 1040x   The source of a housing fringe benefit is determined based on the location of your principal place of work. What is 1040x A housing fringe benefit includes payments to you or on your behalf (and your family's if your family resides with you) only for the following. What is 1040x Rent. What is 1040x Utilities (except telephone charges). What is 1040x Real and personal property insurance. What is 1040x Occupancy taxes not deductible under section 164 or 216(a). What is 1040x Nonrefundable fees for securing a leasehold. What is 1040x Rental of furniture and accessories. What is 1040x Household repairs. What is 1040x Residential parking. What is 1040x Fair rental value of housing provided in kind by your employer. What is 1040x   A housing fringe benefit does not include: Deductible interest and taxes (including deductible interest and taxes of a tenant-stockholder in a cooperative housing corporation), The cost of buying property, including principal payments on a mortgage, The cost of domestic labor (maids, gardeners, etc. What is 1040x ), Pay television subscriptions, Improvements and other expenses that increase the value or appreciably prolong the life of property, Purchased furniture or accessories, Depreciation or amortization of property or improvements, The value of meals or lodging that you exclude from gross income, or The value of meals or lodging that you deduct as moving expenses. What is 1040x Education. What is 1040x   The source of an education fringe benefit for the education expenses of your dependents is determined based on the location of your principal place of work. What is 1040x An education fringe benefit includes payments only for the following expenses for education at an elementary or secondary school. What is 1040x Tuition, fees, academic tutoring, special needs services for a special needs student, books, supplies, and other equipment. What is 1040x Room and board and uniforms that are required or provided by the school in connection with enrollment or attendance. What is 1040x Local transportation. What is 1040x   The source of a local transportation fringe benefit is determined based on the location of your principal place of work. What is 1040x Your local transportation fringe benefit is the amount that you receive as compensation for local transportation for you or your spouse or dependents at the location of your principal place of work. What is 1040x The amount treated as a local transportation fringe benefit is limited to actual expenses incurred for local transportation and the fair rental value of any employer-provided vehicle used predominantly by you, your spouse, or your dependents for local transportation. What is 1040x Actual expenses do not include the cost (including interest) of any vehicle purchased by you or on your behalf. What is 1040x Tax reimbursement. What is 1040x   The source of a tax reimbursement fringe benefit is determined based on the location of the jurisdiction that imposed the tax for which you are reimbursed. What is 1040x Moving expense reimbursement. What is 1040x   The source of a moving expense reimbursement is generally based on the location of your new principal place of work. What is 1040x However, the source is determined based on the location of your former principal place of work if you provide sufficient evidence that such determination of source is more appropriate under the facts and circumstances of your case. What is 1040x Sufficient evidence generally requires an agreement between you and your employer, or a written statement of company policy, which is reduced to writing before the move and which is entered into or established to induce you or other employees to move to another country. What is 1040x The written statement or agreement must state that your employer will reimburse you for moving expenses that you incur to return to your former principal place of work regardless of whether you continue to work for your employer after returning to that location. What is 1040x It may contain certain conditions upon which the right to reimbursement is determined as long as those conditions set forth standards that are definitely ascertainable and can only be fulfilled prior to, or through completion of, your return move to your former principal place of work. What is 1040x Alternative Basis If you are an employee, you can determine the source of your compensation under an alternative basis if you establish to the satisfaction of the IRS that, under the facts and circumstances of your case, the alternative basis more properly determines the source of your compensation than the time or geographical basis. What is 1040x If you use an alternative basis, you must keep (and have available for inspection) records to document why the alternative basis more properly determines the source of your compensation. What is 1040x Also, if your total compensation from all sources is $250,000 or more, check “Yes” to both questions on line K on page 5 of Form 1040NR, and attach a written statement to your tax return that sets forth all of the following. What is 1040x Your name and social security number (written across the top of the statement). What is 1040x The specific compensation income, or the specific fringe benefit, for which you are using the alternative basis. What is 1040x For each item in (2), the alternative basis of allocation of source used. What is 1040x For each item in (2), a computation showing how the alternative allocation was computed. What is 1040x A comparison of the dollar amount of the U. What is 1040x S. What is 1040x compensation and foreign compensation sourced under both the alternative basis and the time or geographical basis discussed earlier. What is 1040x Transportation Income Transportation income is income from the use of a vessel or aircraft or for the performance of services directly related to the use of any vessel or aircraft. What is 1040x This is true whether the vessel or aircraft is owned, hired, or leased. What is 1040x The term “vessel or aircraft” includes any container used in connection with a vessel or aircraft. What is 1040x All income from transportation that begins and ends in the United States is treated as derived from sources in the United States. What is 1040x If the transportation begins or ends in the United States, 50% of the transportation income is treated as derived from sources in the United States. What is 1040x For transportation income from personal services, 50% of the income is U. What is 1040x S. What is 1040x source income if the transportation is between the United States and a U. What is 1040x S. What is 1040x possession. What is 1040x For nonresident aliens, this only applies to income derived from, or in connection with, an aircraft. What is 1040x For information on how U. What is 1040x S. What is 1040x source transportation income is taxed, see chapter 4. What is 1040x Scholarships, Grants, Prizes, and Awards Generally, the source of scholarships, fellowship grants, grants, prizes, and awards is the residence of the payer regardless of who actually disburses the funds. What is 1040x However, see Activities to be performed outside the United States , later. What is 1040x For example, payments for research or study in the United States made by the United States, a noncorporate U. What is 1040x S. What is 1040x resident, or a domestic corporation, are from U. What is 1040x S. What is 1040x sources. What is 1040x Similar payments from a foreign government or foreign corporation are foreign source payments even though the funds may be disbursed through a U. What is 1040x S. What is 1040x agent. What is 1040x Payments made by an entity designated as a public international organization under the International Organizations Immunities Act are from foreign sources. What is 1040x Activities to be performed outside the United States. What is 1040x   Scholarships, fellowship grants, targeted grants, and achievement awards received by nonresident aliens for activities performed, or to be performed, outside the United States are not U. What is 1040x S. What is 1040x source income. What is 1040x    These rules do not apply to amounts paid as salary or other compensation for services. What is 1040x See Personal Services, earlier, for the source rules that apply. What is 1040x Pensions and Annuities If you receive a pension from a domestic trust for services performed both in and outside the United States, part of the pension payment is from U. What is 1040x S. What is 1040x sources. What is 1040x That part is the amount attributable to earnings of the pension plan and the employer contributions made for services performed in the United States. What is 1040x This applies whether the distribution is made under a qualified or nonqualified stock bonus, pension, profit-sharing, or annuity plan (whether or not funded). What is 1040x If you performed services as an employee of the United States, you may receive a distribution from the U. What is 1040x S. What is 1040x Government under a plan, such as the Civil Service Retirement System, that is treated as a qualified pension plan. What is 1040x Your U. What is 1040x S. What is 1040x source income is the otherwise taxable amount of the distribution that is attributable to your total U. What is 1040x S. What is 1040x Government basic pay other than tax-exempt pay for services performed outside the United States. What is 1040x Rents or Royalties Your U. What is 1040x S. What is 1040x source income includes rent and royalty income received during the tax year from property located in the United States or from any interest in that property. What is 1040x U. What is 1040x S. What is 1040x source income also includes rents or royalties for the use of, or for the privilege of using, in the United States, intangible property such as patents, copyrights, secret processes and formulas, goodwill, trademarks, franchises, and similar property. What is 1040x Real Property Real property is land and buildings and generally anything built on, growing on, or attached to land. What is 1040x Gross income from sources in the United States includes gains, profits, and income from the sale or other disposition of real property located in the United States. What is 1040x Natural resources. What is 1040x   The income from the sale of products of any farm, mine, oil or gas well, other natural deposit, or timber located in the United States and sold in a foreign country, or located in a foreign country and sold in the United States, is partly from sources in the United States. What is 1040x For information on determining that part, see section 1. What is 1040x 863-1(b) of the regulations. What is 1040x Table 2-1. What is 1040x Summary of Source Rules for Income of Nonresident Aliens Item of income Factor determining source Salaries, wages, other compensation Where services performed Business income:   Personal services Where services performed Sale of inventory—purchased Where sold Sale of inventory—produced Allocation Interest Residence of payer Dividends Whether a U. What is 1040x S. What is 1040x or foreign corporation* Rents Location of property Royalties:   Natural resources Location of property Patents, copyrights, etc. What is 1040x Where property is used Sale of real property Location of property Sale of personal property Seller's tax home (but see Personal Property , later, for exceptions) Pension distributions attributable to contributions Where services were performed that earned the pension Investment earnings on pension contributions Location of pension trust Sale of natural resources Allocation based on fair market value of product at export terminal. What is 1040x For more information, see section 1. What is 1040x 863-1(b) of the regulations. What is 1040x *Exceptions include: a) Dividends paid by a U. What is 1040x S. What is 1040x corporation are foreign source if the corporation elects the  American Samoa economic development credit. What is 1040x  b) Part of a dividend paid by a foreign corporation is U. What is 1040x S. What is 1040x source if at least 25% of the  corporation's gross income is effectively connected with a U. What is 1040x S. What is 1040x trade or business for the  3 tax years before the year in which the dividends are declared. What is 1040x Personal Property Personal property is property, such as machinery, equipment, or furniture, that is not real property. What is 1040x Gain or loss from the sale or exchange of personal property generally has its source in the United States if you have a tax home in the United States. What is 1040x If you do not have a tax home in the United States, the gain or loss generally is considered to be from sources outside the United States. What is 1040x Tax home. What is 1040x   Your tax home is the general area of your main place of business, employment, or post of duty, regardless of where you maintain your family home. What is 1040x Your tax home is the place where you permanently or indefinitely work as an employee or a self-employed individual. What is 1040x If you do not have a regular or main place of business because of the nature of your work, then your tax home is the place where you regularly live. What is 1040x If you do not fit either of these categories, you are considered an itinerant and your tax home is wherever you work. What is 1040x Inventory property. What is 1040x   Inventory property is personal property that is stock in trade or that is held primarily for sale to customers in the ordinary course of your trade or business. What is 1040x Income from the sale of inventory that you purchased is sourced where the property is sold. What is 1040x Generally, this is where title to the property passes to the buyer. What is 1040x For example, income from the sale of inventory in the United States is U. What is 1040x S. What is 1040x source income, whether you purchased it in the United States or in a foreign country. What is 1040x   Income from the sale of inventory property that you produced in the United States and sold outside the United States (or vice versa) is partly from sources in the United States and partly from sources outside the United States. What is 1040x For information on making this allocation, see section 1. What is 1040x 863-3 of the regulations. What is 1040x   These rules apply even if your tax home is not in the United States. What is 1040x Depreciable property. What is 1040x   To determine the source of any gain from the sale of depreciable personal property, you must first figure the part of the gain that is not more than the total depreciation adjustments on the property. What is 1040x You allocate this part of the gain to sources in the United States based on the ratio of U. What is 1040x S. What is 1040x depreciation adjustments to total depreciation adjustments. What is 1040x The rest of this part of the gain is considered to be from sources outside the United States. What is 1040x   For this purpose, “U. What is 1040x S. What is 1040x depreciation adjustments” are the depreciation adjustments to the basis of the property that are allowable in figuring taxable income from U. What is 1040x S. What is 1040x sources. What is 1040x However, if the property is used predominantly in the United States during a tax year, all depreciation deductions allowable for that year are treated as U. What is 1040x S. What is 1040x depreciation adjustments. What is 1040x But there are some exceptions for certain transportation, communications, and other property used internationally. What is 1040x   Gain from the sale of depreciable property that is more than the total depreciation adjustments on the property is sourced as if the property were inventory property, as discussed above. What is 1040x   A loss is sourced in the same way as the depreciation deductions were sourced. What is 1040x However, if the property was used predominantly in the United States, the entire loss reduces U. What is 1040x S. What is 1040x source income. What is 1040x   The basis of property usually means the cost (money plus the fair market value of other property or services) of property you acquire. What is 1040x Depreciation is an amount deducted to recover the cost or other basis of a trade or business asset. What is 1040x The amount you can deduct depends on the property's cost, when you began using the property, how long it will take to recover your cost, and which depreciation method you use. What is 1040x A depreciation deduction is any deduction for depreciation or amortization or any other allowable deduction that treats a capital expenditure as a deductible expense. What is 1040x Intangible property. What is 1040x   Intangible property includes patents, copyrights, secret processes or formulas, goodwill, trademarks, trade names, or other like property. What is 1040x The gain from the sale of amortizable or depreciable intangible property, up to the previously allowable amortization or depreciation deductions, is sourced in the same way as the original deductions were sourced. What is 1040x This is the same as the source rule for gain from the sale of depreciable property. What is 1040x See Depreciable property , earlier, for details on how to apply this rule. What is 1040x   Gain in excess of the amortization or depreciation deductions is sourced in the country where the property is used if the income from the sale is contingent on the productivity, use, or disposition of that property. What is 1040x If the income is not contingent on the productivity, use, or disposition of the property, the income is sourced according to your tax home as discussed earlier. What is 1040x If payments for goodwill do not depend on its productivity, use, or disposition, their source is the country in which the goodwill was generated. What is 1040x Sales through offices or fixed places of business. What is 1040x   Despite any of the earlier rules, if you do not have a tax home in the United States, but you maintain an office or other fixed place of business in the United States, treat the income from any sale of personal property (including inventory property) that is attributable to that office or place of business as U. What is 1040x S. What is 1040x source income. What is 1040x However, this rule does not apply to sales of inventory property for use, disposition, or consumption outside the United States if your office or other fixed place of business outside the United States materially participated in the sale. What is 1040x   If you have a tax home in the United States but maintain an office or other fixed place of business outside the United States, income from sales of personal property, other than inventory, depreciable property, or intangibles, that is attributable to that foreign office or place of business may be treated as U. What is 1040x S. What is 1040x source income. What is 1040x The income is treated as U. What is 1040x S. What is 1040x source income if an income tax of less than 10% of the income from the sale is paid to a foreign country. What is 1040x This rule also applies to losses if the foreign country would have imposed an income tax of less than 10% had the sale resulted in a gain. What is 1040x Community Income If you are married and you or your spouse is subject to the community property laws of a foreign country, a U. What is 1040x S. What is 1040x state, or a U. What is 1040x S. What is 1040x possession, you generally must follow those laws to determine the income of yourself and your spouse for U. What is 1040x S. What is 1040x tax purposes. What is 1040x But you must disregard certain community property laws if: Both you and your spouse are nonresident aliens, or One of you is a nonresident alien and the other is a U. What is 1040x S. What is 1040x citizen or resident and you do not both choose to be treated as U. What is 1040x S. What is 1040x residents as explained in chapter 1. What is 1040x In these cases, you and your spouse must report community income as explained later. What is 1040x Earned income. What is 1040x   Earned income of a spouse, other than trade or business income and a partner's distributive share of partnership income, is treated as the income of the spouse whose services produced the income. What is 1040x That spouse must report all of it on his or her separate return. What is 1040x Trade or business income. What is 1040x   Trade or business income, other than a partner's distributive share of partnership income, is treated as the income of the spouse carrying on the trade or business. What is 1040x That spouse must report all of it on his or her separate return. What is 1040x Partnership income (or loss). What is 1040x   A partner's distributive share of partnership income (or loss) is treated as the income (or loss) of the partner. What is 1040x The partner must report all of it on his or her separate return. What is 1040x Separate property income. What is 1040x   Income derived from the separate property of one spouse (and which is not earned income, trade or business income, or partnership distributive share income) is treated as the income of that spouse. What is 1040x That spouse must report all of it on his or her separate return. What is 1040x Use the appropriate community property law to determine what is separate property. What is 1040x Other community income. What is 1040x   All other community income is treated as provided by the applicable community property laws. What is 1040x Prev  Up  Next   Home   More Online Publications
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What is 1040x 4. What is 1040x   Student Loan Interest Deduction Table of Contents Introduction Student Loan Interest DefinedQualified Student Loan Qualified Education Expenses Include As Interest Do Not Include As Interest When Must Interest Be Paid Can You Claim the DeductionNo Double Benefit Allowed Figuring the DeductionEffect of the Amount of Your Income on the Amount of Your Deduction Which Worksheet To Use Claiming the Deduction Introduction Generally, personal interest you pay, other than certain mortgage interest, is not deductible on your tax return. What is 1040x However, if your modified adjusted gross income (MAGI) is less than $75,000 ($155,000 if filing a joint return) there is a special deduction allowed for paying interest on a student loan (also known as an education loan) used for higher education. What is 1040x For most taxpayers, MAGI is the adjusted gross income as figured on their federal income tax return before subtracting any deduction for student loan interest. What is 1040x This deduction can reduce the amount of your income subject to tax by up to $2,500 in 2013. What is 1040x The student loan interest deduction is taken as an adjustment to income. What is 1040x This means you can claim this deduction even if you do not itemize deductions on Schedule A (Form 1040). What is 1040x This chapter explains: What type of loan interest you can deduct, Whether you can claim the deduction, What expenses you must have paid with the student loan, Who is an eligible student, How to figure the deduction, and How to claim the deduction. What is 1040x Table 4-1. What is 1040x Student Loan Interest Deduction at a Glance This table summarizes the features of the student loan interest deduction. What is 1040x Do not rely on this table alone. What is 1040x Refer to the text for complete details. What is 1040x Feature   Description Maximum benefit   You can reduce your income subject to tax by up to $2,500. What is 1040x Loan qualifications   Your student loan: •must have been taken out solely to pay qualified education expenses, and •cannot be from a related person or made under a qualified employer plan. What is 1040x Student qualifications   The student must be: •you, your spouse, or your dependent, and  •enrolled at least half-time in a degree program. What is 1040x Time limit on deduction   You can deduct interest paid during the remaining period of your student loan. What is 1040x Limit on modified adjusted gross income (MAGI)   $155,000 if married filing a joint return; $75,000 if single, head of household, or qualifying widow(er). What is 1040x Student Loan Interest Defined Student loan interest is interest you paid during the year on a qualified student loan. What is 1040x It includes both required and voluntary interest payments. What is 1040x Qualified Student Loan This is a loan you took out solely to pay qualified education expenses (defined later) that were: For you, your spouse, or a person who was your dependent when you took out the loan, Paid or incurred within a reasonable period of time before or after you took out the loan, and For education provided during an academic period for an eligible student. What is 1040x Loans from the following sources are not qualified student loans. What is 1040x A related person. What is 1040x A qualified employer plan. What is 1040x Your dependent. What is 1040x   Generally, your dependent is someone who is either a: Qualifying child, or Qualifying relative. What is 1040x You can find more information about dependents in Publication 501. What is 1040x Exceptions. What is 1040x   For purposes of the student loan interest deduction, there are the following exceptions to the general rules for dependents. What is 1040x An individual can be your dependent even if you are the dependent of another taxpayer. What is 1040x An individual can be your dependent even if the individual files a joint return with a spouse. What is 1040x An individual can be your dependent even if the individual had gross income for the year that was equal to or more than the exemption amount for the year ($3,900 for 2013). What is 1040x Reasonable period of time. What is 1040x   Qualified education expenses are treated as paid or incurred within a reasonable period of time before or after you take out the loan if they are paid with the proceeds of student loans that are part of a federal postsecondary education loan program. What is 1040x   Even if not paid with the proceeds of that type of loan, the expenses are treated as paid or incurred within a reasonable period of time if both of the following requirements are met. What is 1040x The expenses relate to a specific academic period, and The loan proceeds are disbursed within a period that begins 90 days before the start of that academic period and ends 90 days after the end of that academic period. What is 1040x   If neither of the above situations applies, the reasonable period of time usually is determined based on all the relevant facts and circumstances. What is 1040x Academic period. What is 1040x   An academic period includes a semester, trimester, quarter, or other period of study (such as a summer school session) as reasonably determined by an educational institution. What is 1040x In the case of an educational institution that uses credit hours or clock hours and does not have academic terms, each payment period can be treated as an academic period. What is 1040x Eligible student. What is 1040x   This is a student who was enrolled at least half-time in a program leading to a degree, certificate, or other recognized educational credential. What is 1040x Enrolled at least half-time. What is 1040x   A student was enrolled at least half-time if the student was taking at least half the normal full-time work load for his or her course of study. What is 1040x   The standard for what is half of the normal full-time work load is determined by each eligible educational institution. What is 1040x However, the standard may not be lower than any of those established by the U. What is 1040x S. What is 1040x Department of Education under the Higher Education Act of 1965. What is 1040x Related person. What is 1040x   You cannot deduct interest on a loan you get from a related person. What is 1040x Related persons include: Your spouse, Your brothers and sisters, Your half brothers and half sisters, Your ancestors (parents, grandparents, etc. What is 1040x ), Your lineal descendants (children, grandchildren, etc. What is 1040x ), and Certain corporations, partnerships, trusts, and exempt organizations. What is 1040x Qualified employer plan. What is 1040x   You cannot deduct interest on a loan made under a qualified employer plan or under a contract purchased under such a plan. What is 1040x Qualified Education Expenses For purposes of the student loan interest deduction, these expenses are the total costs of attending an eligible educational institution, including graduate school. What is 1040x They include amounts paid for the following items. What is 1040x Tuition and fees. What is 1040x Room and board. What is 1040x Books, supplies, and equipment. What is 1040x Other necessary expenses (such as transportation). What is 1040x The cost of room and board qualifies only to the extent that it is not more than the greater of: The allowance for room and board, as determined by the eligible educational institution, that was included in the cost of attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student, or The actual amount charged if the student is residing in housing owned or operated by the eligible educational institution. What is 1040x Eligible educational institution. What is 1040x   An eligible educational institution is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U. What is 1040x S. What is 1040x Department of Education. What is 1040x It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. What is 1040x   Certain educational institutions located outside the United States also participate in the U. What is 1040x S. What is 1040x Department of Education's Federal Student Aid (FSA) programs. What is 1040x   For purposes of the student loan interest deduction, an eligible educational institution also includes an institution conducting an internship or residency program leading to a degree or certificate from an institution of higher education, a hospital, or a health care facility that offers postgraduate training. What is 1040x   An educational institution must meet the above criteria only during the academic period(s) for which the student loan was incurred. What is 1040x The deductibility of interest on the loan is not affected by the institution's subsequent loss of eligibility. What is 1040x    The educational institution should be able to tell you if it is an eligible educational institution. What is 1040x Adjustments to Qualified Education Expenses You must reduce your qualified education expenses by the total amount paid for them with the following tax-free items. What is 1040x Employer-provided educational assistance. What is 1040x See chapter 11, Employer-Provided Educational Assistance . What is 1040x Tax-free distribution of earnings from a Coverdell education savings account (ESA). What is 1040x See Tax-Free Distributions in chapter 7, Coverdell Education Savings Account. What is 1040x Tax-free distribution of earnings from a qualified tuition program (QTP). What is 1040x See Figuring the Taxable Portion of a Distribution in chapter 8, Qualified Tuition Program. What is 1040x U. What is 1040x S. What is 1040x savings bond interest that you exclude from income because it is used to pay qualified education expenses. What is 1040x See chapter 10, Education Savings Bond Program . What is 1040x The tax-free part of scholarships and fellowships. What is 1040x See Tax-Free Scholarships and Fellowships in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. What is 1040x Veterans' educational assistance. What is 1040x See Veterans' Benefits in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. What is 1040x Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. What is 1040x Include As Interest In addition to simple interest on the loan, if all other requirements are met, the items discussed below can be student loan interest. What is 1040x Loan origination fee. What is 1040x   In general, this is a one-time fee charged by the lender when a loan is made. What is 1040x To be deductible as interest, a loan origination fee must be for the use of money rather than for property or services (such as commitment fees or processing costs) provided by the lender. What is 1040x A loan origination fee treated as interest accrues over the term of the loan. What is 1040x   Loan origination fees were not required to be reported on Form 1098-E, Student Loan Interest Statement, for loans made before September 1, 2004. What is 1040x If loan origination fees are not included in the amount reported on your Form 1098-E, you can use any reasonable method to allocate the loan origination fees over the term of the loan. What is 1040x The method shown in the example below allocates equal portions of the loan origination fee to each payment required under the terms of the loan. What is 1040x A method that results in the double deduction of the same portion of a loan origination fee would not be reasonable. What is 1040x Example. What is 1040x In August 2004, Bill took out a student loan for $16,000 to pay the tuition for his senior year of college. What is 1040x The lender charged a 3% loan origination fee ($480) that was withheld from the funds Bill received. What is 1040x Bill began making payments on his student loan in 2013. What is 1040x Because the loan origination fee was not included in his 2013 Form 1098-E, Bill can use any reasonable method to allocate that fee over the term of the loan. What is 1040x Bill's loan is payable in 120 equal monthly payments. What is 1040x He allocates the $480 fee equally over the total number of payments ($480 ÷ 120 months = $4 per month). What is 1040x Bill made 7 payments in 2013, so he paid $28 ($4 × 7) of interest attributable to the loan origination fee. What is 1040x To determine his student loan interest deduction, he will add the $28 to the amount of other interest reported to him on Form 1098-E. What is 1040x Capitalized interest. What is 1040x   This is unpaid interest on a student loan that is added by the lender to the outstanding principal balance of the loan. What is 1040x Capitalized interest is treated as interest for tax purposes and is deductible as payments of principal are made on the loan. What is 1040x No deduction for capitalized interest is allowed in a year in which no loan payments were made. What is 1040x Interest on revolving lines of credit. What is 1040x   This interest, which includes interest on credit card debt, is student loan interest if the borrower uses the line of credit (credit card) only to pay qualified education expenses. What is 1040x See Qualified Education Expenses , earlier. What is 1040x Interest on refinanced student loans. What is 1040x   This includes interest on both: Consolidated loans—loans used to refinance more than one student loan of the same borrower, and Collapsed loans—two or more loans of the same borrower that are treated by both the lender and the borrower as one loan. What is 1040x    If you refinance a qualified student loan for more than your original loan and you use the additional amount for any purpose other than qualified education expenses, you cannot deduct any interest paid on the refinanced loan. What is 1040x Voluntary interest payments. What is 1040x   These are payments made on a qualified student loan during a period when interest payments are not required, such as when the borrower has been granted a deferment or the loan has not yet entered repayment status. What is 1040x Example. What is 1040x The payments on Roger's student loan were scheduled to begin in June 2012, 6 months after he graduated from college. What is 1040x He began making payments as required. What is 1040x In September 2013, Roger enrolled in graduate school on a full-time basis. What is 1040x He applied for and was granted deferment of his loan payments while in graduate school. What is 1040x Wanting to pay down his student loan as much as possible, he made loan payments in October and November 2013. What is 1040x Even though these were voluntary (not required) payments, Roger can deduct the interest paid in October and November. What is 1040x Allocating Payments Between Interest and Principal The allocation of payments between interest and principal for tax purposes might not be the same as the allocation shown on the Form 1098-E or other statement you receive from the lender or loan servicer. What is 1040x To make the allocation for tax purposes, a payment generally applies first to stated interest that remains unpaid as of the date the payment is due, second to any loan origination fees allocable to the payment, third to any capitalized interest that remains unpaid as of the date the payment is due, and fourth to the outstanding principal. What is 1040x Example. What is 1040x In August 2012, Peg took out a $10,000 student loan to pay the tuition for her senior year of college. What is 1040x The lender charged a 3% loan origination fee ($300) that was withheld from the funds Peg received. What is 1040x The interest (5% simple) on this loan accrued while she completed her senior year and for 6 months after she graduated. What is 1040x At the end of that period, the lender determined the amount to be repaid by capitalizing all accrued but unpaid interest ($625 interest accrued from August 2012 through October 2013) and adding it to the outstanding principal balance of the loan. What is 1040x The loan is payable over 60 months, with a payment of $200. What is 1040x 51 due on the first of each month, beginning November 2013. What is 1040x Peg did not receive a Form 1098-E for 2013 from her lender because the amount of interest she paid did not require the lender to issue an information return. What is 1040x However, she did receive an account statement from the lender that showed the following 2013 payments on her outstanding loan of $10,625 ($10,000 principal + $625 accrued but unpaid interest). What is 1040x Payment Date   Payment   Stated Interest   Principal November 2013   $200. What is 1040x 51   $44. What is 1040x 27   $156. What is 1040x 24 December 2013   $200. What is 1040x 51   $43. What is 1040x 62   $156. What is 1040x 89 Totals   $401. What is 1040x 02   $87. What is 1040x 89   $313. What is 1040x 13 To determine the amount of interest that could be deducted on the loan for 2013, Peg starts with the total amount of stated interest she paid, $87. What is 1040x 89. What is 1040x Next, she allocates the loan origination fee over the term of the loan ($300 ÷ 60 months = $5 per month). What is 1040x A total of $10 ($5 of each of the two principal payments) should be treated as interest for tax purposes. What is 1040x Peg then applies the unpaid capitalized interest ($625) to the two principal payments in the order in which they were made, and determines that the remaining amount of principal of both payments is treated as interest for tax purposes. What is 1040x Assuming that Peg qualifies to take the student loan interest deduction, she can deduct $401. What is 1040x 02 ($87. What is 1040x 89 + $10 + $303. What is 1040x 13). What is 1040x For 2014, Peg will continue to allocate $5 of the loan origination fee to the principal portion of each monthly payment she makes and treat that amount as interest for tax purposes. What is 1040x She also will apply the remaining amount of capitalized interest ($625 − $303. What is 1040x 13 = $321. What is 1040x 87) to the principal payments in the order in which they are made until the balance is zero, and treat those amounts as interest for tax purposes. What is 1040x Do Not Include As Interest You cannot claim a student loan interest deduction for any of the following items. What is 1040x Interest you paid on a loan if, under the terms of the loan, you are not legally obligated to make interest payments. What is 1040x Loan origination fees that are payments for property or services provided by the lender, such as commitment fees or processing costs. What is 1040x Interest you paid on a loan to the extent payments were made through your participation in the National Health Service Corps Loan Repayment Program (the “NHSC Loan Repayment Program”) or certain other loan repayment assistance programs. What is 1040x For more information, see Student Loan Repayment Assistance in chapter 5, Student Loan Cancellations and Repayment Assistance. What is 1040x When Must Interest Be Paid You can deduct all interest you paid during the year on your student loan, including voluntary payments, until the loan is paid off. What is 1040x Can You Claim the Deduction Generally, you can claim the deduction if all of the following requirements are met. What is 1040x Your filing status is any filing status except married filing separately. What is 1040x No one else is claiming an exemption for you on his or her tax return. What is 1040x You are legally obligated to pay interest on a qualified student loan. What is 1040x You paid interest on a qualified student loan. What is 1040x Claiming an exemption for you. What is 1040x   Another taxpayer is claiming an exemption for you if he or she lists your name and other required information on his or her Form 1040 (or Form 1040A), line 6c, or Form 1040NR, line 7c. What is 1040x Example 1. What is 1040x During 2013, Josh paid $600 interest on his qualified student loan. What is 1040x Only he is legally obligated to make the payments. What is 1040x No one claimed an exemption for Josh for 2013. What is 1040x Assuming all other requirements are met, Josh can deduct the $600 of interest he paid on his 2013 Form 1040 or 1040A. What is 1040x Example 2. What is 1040x During 2013, Jo paid $1,100 interest on her qualified student loan. What is 1040x Only she is legally obligated to make the payments. What is 1040x Jo's parents claimed an exemption for her on their 2013 tax return. What is 1040x In this case, neither Jo nor her parents may deduct the student loan interest Jo paid in 2013. What is 1040x Interest paid by others. What is 1040x   If you are the person legally obligated to make interest payments and someone else makes a payment of interest on your behalf, you are treated as receiving the payments from the other person and, in turn, paying the interest. What is 1040x Example 1. What is 1040x Darla obtained a qualified student loan to attend college. What is 1040x After Darla's graduation from college, she worked as an intern for a nonprofit organization. What is 1040x As part of the internship program, the nonprofit organization made an interest payment on behalf of Darla. What is 1040x This payment was treated as additional compensation and reported in box 1 of her Form W-2. What is 1040x Assuming all other qualifications are met, Darla can deduct this payment of interest on her tax return. What is 1040x Example 2. What is 1040x Ethan obtained a qualified student loan to attend college. What is 1040x After graduating from college, the first monthly payment on his loan was due in December. What is 1040x As a gift, Ethan's mother made this payment for him. What is 1040x No one is claiming a dependency exemption for Ethan on his or her tax return. What is 1040x Assuming all other qualifications are met, Ethan can deduct this payment of interest on his tax return. What is 1040x No Double Benefit Allowed You cannot deduct as interest on a student loan any amount that is an allowable deduction under any other provision of the tax law (for example, as home mortgage interest). What is 1040x Figuring the Deduction Your student loan interest deduction for 2013 is generally the smaller of: $2,500, or The interest you paid in 2013. What is 1040x However, the amount determined above may be gradually reduced (phased out) or eliminated based on your filing status and MAGI as explained below. What is 1040x You can use Worksheet 4-1. What is 1040x Student Loan Interest Deduction Worksheet (at the end of this chapter) to figure both your MAGI and your deduction. What is 1040x Form 1098-E. What is 1040x   To help you figure your student loan interest deduction, you should receive Form 1098-E. What is 1040x Generally, an institution (such as a bank or governmental agency) that received interest payments of $600 or more during 2013 on one or more qualified student loans must send Form 1098-E (or acceptable substitute) to each borrower by January 31, 2014. What is 1040x   For qualified student loans taken out before September 1, 2004, the institution is required to include on Form 1098-E only payments of stated interest. What is 1040x Other interest payments, such as certain loan origination fees and capitalized interest, may not appear on the form you receive. What is 1040x However, if you pay qualifying interest that is not included on Form 1098-E, you can also deduct those amounts. What is 1040x See Allocating Payments Between Interest and Principal , earlier. What is 1040x    The lender may ask for a completed Form W-9S, or similar statement to obtain the borrower's name, address, and taxpayer identification number. What is 1040x The form may also be used by the borrower to certify that the student loan was incurred solely to pay for qualified education expenses. What is 1040x Effect of the Amount of Your Income on the Amount of Your Deduction The amount of your student loan interest deduction is phased out (gradually reduced) if your MAGI is between $60,000 and $75,000 ($125,000 and $155,000 if you file a joint return). What is 1040x You cannot take a student loan interest deduction if your MAGI is $75,000 or more ($155,000 or more if you file a joint return). What is 1040x Modified adjusted gross income (MAGI). What is 1040x   For most taxpayers, MAGI is adjusted gross income (AGI) as figured on their federal income tax return before subtracting any deduction for student loan interest. What is 1040x However, as discussed below, there may be other modifications. What is 1040x Table 4-2 shows how the amount of your MAGI can affect your student loan interest deduction. What is 1040x Table 4-2. What is 1040x Effect of MAGI on Student Loan Interest Deduction IF your filing status is. What is 1040x . What is 1040x . What is 1040x AND your MAGI is. What is 1040x . What is 1040x . What is 1040x THEN your student loan interest deduction is. What is 1040x . What is 1040x . What is 1040x single,  head of household, or qualifying widow(er) not more than $60,000 not affected by the phaseout. What is 1040x more than $60,000  but less than $75,000 reduced because of the phaseout. What is 1040x $75,000 or more eliminated by the phaseout. What is 1040x married filing joint return not more than $125,000 not affected by the phaseout. What is 1040x more than $125,000 but less than $155,000 reduced because of the phaseout. What is 1040x $155,000 or more eliminated by the phaseout. What is 1040x MAGI when using Form 1040A. What is 1040x   If you file Form 1040A, your MAGI is the AGI on line 22 of that form figured without taking into account any amount on line 18 (student loan interest deduction) and line 19 (tuition and fees deduction). What is 1040x MAGI when using Form 1040. What is 1040x   If you file Form 1040, your MAGI is the AGI on line 38 of that form figured without taking into account any amount on line 33 (student loan interest deduction), line 34 (tuition and fees deduction), or line 35 (domestic production activities deduction), and modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, and Exclusion of income by bona fide residents of Puerto Rico. What is 1040x MAGI when using Form 1040NR. What is 1040x   If you file Form 1040NR, your MAGI is the AGI on line 36 of that form figured without taking into account any amount on line 33 (student loan interest deduction) and line 34 (domestic production activities deduction). What is 1040x MAGI when using Form 1040NR-EZ. What is 1040x   If you file Form 1040NR-EZ, your MAGI is the AGI on line 10 of that form figured without taking into account any amount on line 9 (student loan interest deduction). What is 1040x Phaseout. What is 1040x   If your MAGI is within the range of incomes where the credit must be reduced, you must figure your reduced deduction. What is 1040x To figure the phaseout, multiply your interest deduction (before the phaseout) by a fraction. What is 1040x The numerator is your MAGI minus $60,000 ($125,000 in the case of a joint return). What is 1040x The denominator is $15,000 ($30,000 in the case of a joint return). What is 1040x Subtract the result from your deduction (before the phaseout) to give you the amount you can deduct. What is 1040x Example 1. What is 1040x During 2013 you paid $800 interest on a qualified student loan. What is 1040x Your 2013 MAGI is $145,000 and you are filing a joint return. What is 1040x You must reduce your deduction by $533, figured as follows. What is 1040x   $800 × $145,000 − $125,000  $30,000 = $533   Your reduced student loan interest deduction is $267 ($800 − $533). What is 1040x Example 2. What is 1040x The facts are the same as in Example 1 except that you paid $2,750 interest. What is 1040x Your maximum deduction for 2013 is $2,500. What is 1040x You must reduce your maximum deduction by $1,667, figured as follows. What is 1040x   $2,500 × $145,000 − $125,000  $30,000 = $1,667   In this example, your reduced student loan interest deduction is $833 ($2,500 − $1,667). What is 1040x Which Worksheet To Use Generally, you figure the deduction using the Student Loan Interest Deduction Worksheet in the instructions for Form 1040, Form 1040A, or Form 1040NR. What is 1040x However, if you are filing Form 2555, Foreign Earned Income, Form 2555-EZ, Foreign Earned Income Exclusion, or Form 4563, Exclusion of Income for Bona Fide Residents of American Samoa, or you are excluding income from sources within Puerto Rico, you must complete Worksheet 4-1. What is 1040x Student Loan Interest Deduction Worksheet at the end of this chapter. What is 1040x Claiming the Deduction The student loan interest deduction is an adjustment to income. What is 1040x To claim the deduction, enter the allowable amount on line 33 (Form 1040), line 18 (Form 1040A), line 33 (Form 1040NR), or line 9 (Form 1040NR-EZ). What is 1040x Worksheet 4-1. What is 1040x Student Loan Interest Deduction Worksheet Use this worksheet instead of the worksheet in the Form 1040 instructions if you are filing Form 2555, 2555-EZ, or 4563, or you are excluding income from sources within Puerto Rico. What is 1040x Before using this worksheet, you must complete Form 1040, lines 7 through 32, plus any amount to be entered on the dotted line next to line 36. What is 1040x 1. What is 1040x Enter the total interest you paid in 2013 on qualified student loans. What is 1040x Do not enter  more than $2,500 1. What is 1040x   2. What is 1040x Enter the amount from Form 1040, line 22 2. What is 1040x       3. What is 1040x Enter the total of the amounts from Form 1040,  lines 23 through 32 3. What is 1040x           4. What is 1040x Enter the total of any amounts entered on the dotted line next to Form 1040, line 36 4. What is 1040x           5. What is 1040x Add lines 3 and 4 5. What is 1040x       6. What is 1040x Subtract line 5 from line 2 6. What is 1040x       7. What is 1040x Enter any foreign earned income exclusion and/or housing  exclusion (Form 2555, line 45, or Form 2555-EZ, line 18) 7. What is 1040x       8. What is 1040x Enter any foreign housing deduction (Form 2555, line 50) 8. What is 1040x       9. What is 1040x Enter the amount of income from Puerto Rico you are excluding 9. What is 1040x       10. What is 1040x Enter the amount of income from American Samoa  you are excluding (Form 4563, line 15) 10. What is 1040x       11. What is 1040x Add lines 6 through 10. What is 1040x This is your modified adjusted gross income 11. What is 1040x   12. What is 1040x Enter the amount shown below for your filing status 12. What is 1040x     •Single, head of household, or qualifying widow(er)—$60,000       •Married filing jointly—$125,000     13. What is 1040x Is the amount on line 11 more than the amount on line 12?       □ No. What is 1040x Skip lines 13 and 14, enter -0- on line 15, and go to line 16. What is 1040x       □ Yes. What is 1040x Subtract line 12 from line 11 13. What is 1040x   14. What is 1040x Divide line 13 by $15,000 ($30,000 if married filing jointly). What is 1040x Enter the result as a decimal  (rounded to at least three places). What is 1040x If the result is 1. What is 1040x 000 or more, enter 1. What is 1040x 000 14. What is 1040x . What is 1040x 15. What is 1040x Multiply line 1 by line 14 15. What is 1040x   16. What is 1040x Student loan interest deduction. What is 1040x Subtract line 15 from line 1. What is 1040x Enter the result here  and on Form 1040, line 33. What is 1040x Do not include this amount in figuring any other  deduction on your return (such as on Schedule A, C, E, etc. What is 1040x ) 16. What is 1040x   Prev  Up  Next   Home   More Online Publications