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Free tax forms 7. Free tax forms   Interest Income Table of Contents Reminder Introduction Useful Items - You may want to see: General InformationSSN for joint account. Free tax forms Custodian account for your child. Free tax forms Penalty for failure to supply SSN. Free tax forms Reporting backup withholding. Free tax forms Savings account with parent as trustee. Free tax forms Interest not reported on Form 1099-INT. Free tax forms Nominees. Free tax forms Incorrect amount. Free tax forms Information reporting requirement. Free tax forms Taxable InterestInterest subject to penalty for early withdrawal. Free tax forms Money borrowed to invest in certificate of deposit. Free tax forms U. Free tax forms S. Free tax forms Savings Bonds Education Savings Bond Program U. Free tax forms S. Free tax forms Treasury Bills, Notes, and Bonds Bonds Sold Between Interest Dates Insurance State or Local Government Obligations Original Issue Discount (OID) When To Report Interest IncomeConstructive receipt. Free tax forms How To Report Interest IncomeSchedule B (Form 1040A or 1040). Free tax forms Reporting tax-exempt interest. Free tax forms U. Free tax forms S. Free tax forms savings bond interest previously reported. Free tax forms Reminder Foreign-source income. Free tax forms  If you are a U. Free tax forms S. Free tax forms citizen with interest income from sources outside the United States (foreign income), you must report that income on your tax return unless it is exempt by U. Free tax forms S. Free tax forms law. Free tax forms This is true whether you reside inside or outside the United States and whether or not you receive a Form 1099 from the foreign payer. Free tax forms Introduction This chapter discusses the following topics. Free tax forms Different types of interest income. Free tax forms What interest is taxable and what interest is nontaxable. Free tax forms When to report interest income. Free tax forms How to report interest income on your tax return. Free tax forms In general, any interest you receive or that is credited to your account and can be withdrawn is taxable income. Free tax forms Exceptions to this rule are discussed later in this chapter. Free tax forms You may be able to deduct expenses you have in earning this income on Schedule A (Form 1040) if you itemize your deductions. Free tax forms See Money borrowed to invest in certificate of deposit , later, and chapter 28. Free tax forms Useful Items - You may want to see: Publication 537 Installment Sales 550 Investment Income and Expenses 1212 Guide to Original Issue Discount (OID) Instruments Form (and Instructions) Schedule B (Form 1040A or 1040) Interest and Ordinary Dividends 8815 Exclusion of Interest From Series EE and I U. Free tax forms S. Free tax forms Savings Bonds Issued After 1989 8818 Optional Form To Record Redemption of Series EE and I U. Free tax forms S. Free tax forms Savings Bonds Issued After 1989 General Information A few items of general interest are covered here. Free tax forms Recordkeeping. Free tax forms You should keep a list showing sources and interest amounts received during the year. Free tax forms Also, keep the forms you receive showing your interest income (Forms 1099-INT, for example) as an important part of your records. Free tax forms Tax on unearned income of certain children. Free tax forms    Part of a child's 2013 unearned income may be taxed at the parent's tax rate. Free tax forms If so, Form 8615, Tax for Certain Children Who Have Unearned Income, must be completed and attached to the child's tax return. Free tax forms If not, Form 8615 is not required and the child's income is taxed at his or her own tax rate. Free tax forms   Some parents can choose to include the child's interest and dividends on the parent's return. Free tax forms If you can, use Form 8814, Parents' Election To Report Child's Interest and Dividends, for this purpose. Free tax forms   For more information about the tax on unearned income of children and the parents' election, see chapter 31. Free tax forms Beneficiary of an estate or trust. Free tax forms   Interest you receive as a beneficiary of an estate or trust is generally taxable income. Free tax forms You should receive a Schedule K-1 (Form 1041), Beneficiary's Share of Income, Deductions, Credits, etc. Free tax forms , from the fiduciary. Free tax forms Your copy of Schedule K-1 (Form 1041) and its instructions will tell you where to report the income on your Form 1040. Free tax forms Social security number (SSN). Free tax forms   You must give your name and SSN or individual tax identification number (ITIN) to any person required by federal tax law to make a return, statement, or other document that relates to you. Free tax forms This includes payers of interest. Free tax forms If you do not give your SSN or ITIN to the payer of interest, you may have to pay a penalty. Free tax forms SSN for joint account. Free tax forms   If the funds in a joint account belong to one person, list that person's name first on the account and give that person's SSN to the payer. Free tax forms (For information on who owns the funds in a joint account, see Joint accounts , later. Free tax forms ) If the joint account contains combined funds, give the SSN of the person whose name is listed first on the account. Free tax forms This is because only one name and SSN can be shown on Form 1099. Free tax forms   These rules apply both to joint ownership by a married couple and to joint ownership by other individuals. Free tax forms For example, if you open a joint savings account with your child using funds belonging to the child, list the child's name first on the account and give the child's SSN. Free tax forms Custodian account for your child. Free tax forms   If your child is the actual owner of an account that is recorded in your name as custodian for the child, give the child's SSN to the payer. Free tax forms For example, you must give your child's SSN to the payer of interest on an account owned by your child, even though the interest is paid to you as custodian. Free tax forms Penalty for failure to supply SSN. Free tax forms   If you do not give your SSN to the payer of interest, you may have to pay a penalty. Free tax forms See Failure to supply SSN under Penalties in chapter 1. Free tax forms Backup withholding also may apply. Free tax forms Backup withholding. Free tax forms   Your interest income is generally not subject to regular withholding. Free tax forms However, it may be subject to backup withholding to ensure that income tax is collected on the income. Free tax forms Under backup withholding, the payer of interest must withhold, as income tax, on the amount you are paid, applying the appropriate withholding rate. Free tax forms   Backup withholding may also be required if the IRS has determined that you underreported your interest or dividend income. Free tax forms For more information, see Backup Withholding in chapter 4. Free tax forms Reporting backup withholding. Free tax forms   If backup withholding is deducted from your interest income, the payer must give you a Form 1099-INT for the year indicating the amount withheld. Free tax forms The Form 1099-INT will show any backup withholding as “Federal income tax withheld. Free tax forms ” Joint accounts. Free tax forms   If two or more persons hold property (such as a savings account or bond) as joint tenants, tenants by the entirety, or tenants in common, each person's share of any interest from the property is determined by local law. Free tax forms Income from property given to a child. Free tax forms   Property you give as a parent to your child under the Model Gifts of Securities to Minors Act, the Uniform Gifts to Minors Act, or any similar law becomes the child's property. Free tax forms   Income from the property is taxable to the child, except that any part used to satisfy a legal obligation to support the child is taxable to the parent or guardian having that legal obligation. Free tax forms Savings account with parent as trustee. Free tax forms   Interest income from a savings account opened for a minor child, but placed in the name and subject to the order of the parents as trustees, is taxable to the child if, under the law of the state in which the child resides, both of the following are true. Free tax forms The savings account legally belongs to the child. Free tax forms The parents are not legally permitted to use any of the funds to support the child. Free tax forms Form 1099-INT. Free tax forms   Interest income is generally reported to you on Form 1099-INT, or a similar statement, by banks, savings and loans, and other payers of interest. Free tax forms This form shows you the interest you received during the year. Free tax forms Keep this form for your records. Free tax forms You do not have to attach it to your tax return. Free tax forms   Report on your tax return the total interest income you receive for the tax year. Free tax forms Interest not reported on Form 1099-INT. Free tax forms   Even if you do not receive Form 1099-INT, you must still report all of your interest income. Free tax forms For example, you may receive distributive shares of interest from partnerships or S corporations. Free tax forms This interest is reported to you on Schedule K-1 (Form 1065), Partner's Share of Income, Deduction, Credits, etc. Free tax forms , or Schedule K-1 (Form 1120S), Shareholder's Share of Income, Deductions, Credits, etc. Free tax forms Nominees. Free tax forms   Generally, if someone receives interest as a nominee for you, that person must give you a Form 1099-INT showing the interest received on your behalf. Free tax forms   If you receive a Form 1099-INT that includes amounts belonging to another person, see the discussion on nominee distributions under How To Report Interest Income in chapter 1 of Publication 550, or Schedule B (Form 1040A or 1040) instructions. Free tax forms Incorrect amount. Free tax forms   If you receive a Form 1099-INT that shows an incorrect amount (or other incorrect information), you should ask the issuer for a corrected form. Free tax forms The new Form 1099-INT you receive will be marked “Corrected. Free tax forms ” Form 1099-OID. Free tax forms   Reportable interest income also may be shown on Form 1099-OID, Original Issue Discount. Free tax forms For more information about amounts shown on this form, see Original Issue Discount (OID) , later in this chapter. Free tax forms Exempt-interest dividends. Free tax forms   Exempt-interest dividends you receive from a mutual fund or other regulated investment company, including those received from a qualified fund of funds in any tax year beginning after December 22, 2010, are not included in your taxable income. Free tax forms (However, see Information reporting requirement , next. Free tax forms ) Exempt-interest dividends should be shown in box 10 of Form 1099-DIV. Free tax forms You do not reduce your basis for distributions that are exempt-interest dividends. Free tax forms Information reporting requirement. Free tax forms   Although exempt-interest dividends are not taxable, you must show them on your tax return if you have to file. Free tax forms This is an information reporting requirement and does not change the exempt-interest dividends into taxable income. Free tax forms Note. Free tax forms Exempt-interest dividends paid from specified private activity bonds may be subject to the alternative minimum tax. Free tax forms See Alternative Minimum Tax (AMT) in chapter 30 for more information. Free tax forms Chapter 1 of Publication 550 contains a discussion on private activity bonds under State or Local Government Obligations. Free tax forms Interest on VA dividends. Free tax forms   Interest on insurance dividends left on deposit with the Department of Veterans Affairs (VA) is not taxable. Free tax forms This includes interest paid on dividends on converted United States Government Life Insurance and on National Service Life Insurance policies. Free tax forms Individual retirement arrangements (IRAs). Free tax forms   Interest on a Roth IRA generally is not taxable. Free tax forms Interest on a traditional IRA is tax deferred. Free tax forms You generally do not include it in your income until you make withdrawals from the IRA. Free tax forms See chapter 17. Free tax forms Taxable Interest Taxable interest includes interest you receive from bank accounts, loans you make to others, and other sources. Free tax forms The following are some sources of taxable interest. Free tax forms Dividends that are actually interest. Free tax forms   Certain distributions commonly called dividends are actually interest. Free tax forms You must report as interest so-called “dividends” on deposits or on share accounts in: Cooperative banks, Credit unions, Domestic building and loan associations, Domestic savings and loan associations, Federal savings and loan associations, and Mutual savings banks. Free tax forms  The “dividends” will be shown as interest income on Form 1099-INT. Free tax forms Money market funds. Free tax forms   Money market funds pay dividends and are offered by nonbank financial institutions, such as mutual funds and stock brokerage houses. Free tax forms Generally, amounts you receive from money market funds should be reported as dividends, not as interest. Free tax forms Certificates of deposit and other deferred interest accounts. Free tax forms   If you open any of these accounts, interest may be paid at fixed intervals of 1 year or less during the term of the account. Free tax forms You generally must include this interest in your income when you actually receive it or are entitled to receive it without paying a substantial penalty. Free tax forms The same is true for accounts that mature in 1 year or less and pay interest in a single payment at maturity. Free tax forms If interest is deferred for more than 1 year, see Original Issue Discount (OID) , later. Free tax forms Interest subject to penalty for early withdrawal. Free tax forms   If you withdraw funds from a deferred interest account before maturity, you may have to pay a penalty. Free tax forms You must report the total amount of interest paid or credited to your account during the year, without subtracting the penalty. Free tax forms See Penalty on early withdrawal of savings in chapter 1 of Publication 550 for more information on how to report the interest and deduct the penalty. Free tax forms Money borrowed to invest in certificate of deposit. Free tax forms   The interest you pay on money borrowed from a bank or savings institution to meet the minimum deposit required for a certificate of deposit from the institution and the interest you earn on the certificate are two separate items. Free tax forms You must report the total interest you earn on the certificate in your income. Free tax forms If you itemize deductions, you can deduct the interest you pay as investment interest, up to the amount of your net investment income. Free tax forms See Interest Expenses in chapter 3 of Publication 550. Free tax forms Example. Free tax forms You deposited $5,000 with a bank and borrowed $5,000 from the bank to make up the $10,000 minimum deposit required to buy a 6-month certificate of deposit. Free tax forms The certificate earned $575 at maturity in 2013, but you received only $265, which represented the $575 you earned minus $310 interest charged on your $5,000 loan. Free tax forms The bank gives you a Form 1099-INT for 2013 showing the $575 interest you earned. Free tax forms The bank also gives you a statement showing that you paid $310 interest for 2013. Free tax forms You must include the $575 in your income. Free tax forms If you itemize your deductions on Schedule A (Form 1040), you can deduct $310, subject to the net investment income limit. Free tax forms Gift for opening account. Free tax forms   If you receive noncash gifts or services for making deposits or for opening an account in a savings institution, you may have to report the value as interest. Free tax forms   For deposits of less than $5,000, gifts or services valued at more than $10 must be reported as interest. Free tax forms For deposits of $5,000 or more, gifts or services valued at more than $20 must be reported as interest. Free tax forms The value is determined by the cost to the financial institution. Free tax forms Example. Free tax forms You open a savings account at your local bank and deposit $800. Free tax forms The account earns $20 interest. Free tax forms You also receive a $15 calculator. Free tax forms If no other interest is credited to your account during the year, the Form 1099-INT you receive will show $35 interest for the year. Free tax forms You must report $35 interest income on your tax return. Free tax forms Interest on insurance dividends. Free tax forms   Interest on insurance dividends left on deposit with an insurance company that can be withdrawn annually is taxable to you in the year it is credited to your account. Free tax forms However, if you can withdraw it only on the anniversary date of the policy (or other specified date), the interest is taxable in the year that date occurs. Free tax forms Prepaid insurance premiums. Free tax forms   Any increase in the value of prepaid insurance premiums, advance premiums, or premium deposit funds is interest if it is applied to the payment of premiums due on insurance policies or made available for you to withdraw. Free tax forms U. Free tax forms S. Free tax forms obligations. Free tax forms   Interest on U. Free tax forms S. Free tax forms obligations, such as U. Free tax forms S. Free tax forms Treasury bills, notes, and bonds, issued by any agency or instrumentality of the United States is taxable for federal income tax purposes. Free tax forms Interest on tax refunds. Free tax forms   Interest you receive on tax refunds is taxable income. Free tax forms Interest on condemnation award. Free tax forms   If the condemning authority pays you interest to compensate you for a delay in payment of an award, the interest is taxable. Free tax forms Installment sale payments. Free tax forms   If a contract for the sale or exchange of property provides for deferred payments, it also usually provides for interest payable with the deferred payments. Free tax forms That interest is taxable when you receive it. Free tax forms If little or no interest is provided for in a deferred payment contract, part of each payment may be treated as interest. Free tax forms See Unstated Interest and Original Issue Discount in Publication 537, Installment Sales. Free tax forms Interest on annuity contract. Free tax forms   Accumulated interest on an annuity contract you sell before its maturity date is taxable. Free tax forms Usurious interest. Free tax forms   Usurious interest is interest charged at an illegal rate. Free tax forms This is taxable as interest unless state law automatically changes it to a payment on the principal. Free tax forms Interest income on frozen deposits. Free tax forms   Exclude from your gross income interest on frozen deposits. Free tax forms A deposit is frozen if, at the end of the year, you cannot withdraw any part of the deposit because: The financial institution is bankrupt or insolvent, or The state where the institution is located has placed limits on withdrawals because other financial institutions in the state are bankrupt or insolvent. Free tax forms   The amount of interest you must exclude is the interest that was credited on the frozen deposits minus the sum of: The net amount you withdrew from these deposits during the year, and The amount you could have withdrawn as of the end of the year (not reduced by any penalty for premature withdrawals of a time deposit). Free tax forms If you receive a Form 1099-INT for interest income on deposits that were frozen at the end of 2013, see Frozen deposits under How To Report Interest Income in chapter 1 of Publication 550, for information about reporting this interest income exclusion on your tax return. Free tax forms   The interest you exclude is treated as credited to your account in the following year. Free tax forms You must include it in income in the year you can withdraw it. Free tax forms Example. Free tax forms $100 of interest was credited on your frozen deposit during the year. Free tax forms You withdrew $80 but could not withdraw any more as of the end of the year. Free tax forms You must include $80 in your income and exclude $20 from your income for the year. Free tax forms You must include the $20 in your income for the year you can withdraw it. Free tax forms Bonds traded flat. Free tax forms   If you buy a bond at a discount when interest has been defaulted or when the interest has accrued but has not been paid, the transaction is described as trading a bond flat. Free tax forms The defaulted or unpaid interest is not income and is not taxable as interest if paid later. Free tax forms When you receive a payment of that interest, it is a return of capital that reduces the remaining cost basis of your bond. Free tax forms Interest that accrues after the date of purchase, however, is taxable interest income for the year it is received or accrued. Free tax forms See Bonds Sold Between Interest Dates , later, for more information. Free tax forms Below-market loans. Free tax forms   In general, a below-market loan is a loan on which no interest is charged or on which interest is charged at a rate below the applicable federal rate. Free tax forms See Below-Market Loans in chapter 1 of Publication 550 for more information. Free tax forms U. Free tax forms S. Free tax forms Savings Bonds This section provides tax information on U. Free tax forms S. Free tax forms savings bonds. Free tax forms It explains how to report the interest income on these bonds and how to treat transfers of these bonds. Free tax forms For other information on U. Free tax forms S. Free tax forms savings bonds, write to:  For series EE and I paper savings bonds: Bureau of the Public Debt Division of Customer Assistance P. Free tax forms O. Free tax forms Box 7012 Parkersburg, WV 26106-7012  For series EE and I electronic bonds: Bureau of the Public Debt Division of Customer Assistance P. Free tax forms O. Free tax forms Box 7015 Parkersburg, WV 26106–7015  For series HH/H: Bureau of the Public Debt Division of Customer Assistance P. Free tax forms O. Free tax forms Box 2186 Parkersburg, WV 26106-2186 Or, on the Internet, visit: www. Free tax forms treasurydirect. Free tax forms gov/indiv/indiv. Free tax forms htm. Free tax forms Accrual method taxpayers. Free tax forms   If you use an accrual method of accounting, you must report interest on U. Free tax forms S. Free tax forms savings bonds each year as it accrues. Free tax forms You cannot postpone reporting interest until you receive it or until the bonds mature. Free tax forms Accrual methods of accounting are explained in chapter 1 under Accounting Methods . Free tax forms Cash method taxpayers. Free tax forms   If you use the cash method of accounting, as most individual taxpayers do, you generally report the interest on U. Free tax forms S. Free tax forms savings bonds when you receive it. Free tax forms The cash method of accounting is explained in chapter 1 under Accounting Methods. Free tax forms But see Reporting options for cash method taxpayers , later. Free tax forms Series HH bonds. Free tax forms    These bonds were issued at face value. Free tax forms Interest is paid twice a year by direct deposit to your bank account. Free tax forms If you are a cash method taxpayer, you must report interest on these bonds as income in the year you receive it. Free tax forms   Series HH bonds were first offered in 1980 and last offered in August 2004. Free tax forms Before 1980, series H bonds were issued. Free tax forms Series H bonds are treated the same as series HH bonds. Free tax forms If you are a cash method taxpayer, you must report the interest when you receive it. Free tax forms   Series H bonds have a maturity period of 30 years. Free tax forms Series HH bonds mature in 20 years. Free tax forms The last series H bonds matured in 2009. Free tax forms Series EE and series I bonds. Free tax forms   Interest on these bonds is payable when you redeem the bonds. Free tax forms The difference between the purchase price and the redemption value is taxable interest. Free tax forms Series EE bonds. Free tax forms   Series EE bonds were first offered in January 1980 and have a maturity period of 30 years. Free tax forms   Before July 1980, series E bonds were issued. Free tax forms The original 10-year maturity period of series E bonds has been extended to 40 years for bonds issued before December 1965 and 30 years for bonds issued after November 1965. Free tax forms Paper series EE and series E bonds are issued at a discount. Free tax forms The face value is payable to you at maturity. Free tax forms Electronic series EE bonds are issued at their face value. Free tax forms The face value plus accrued interest is payable to you at maturity. Free tax forms As of January 1, 2012, paper savings bonds were no longer sold at financial institutions. Free tax forms   Owners of paper series EE bonds can convert them to electronic bonds. Free tax forms These converted bonds do not retain the denomination listed on the paper certificate but are posted at their purchase price (with accrued interest). Free tax forms Series I bonds. Free tax forms   Series I bonds were first offered in 1998. Free tax forms These are inflation-indexed bonds issued at their face amount with a maturity period of 30 years. Free tax forms The face value plus all accrued interest is payable to you at maturity. Free tax forms Reporting options for cash method taxpayers. Free tax forms   If you use the cash method of reporting income, you can report the interest on series EE, series E, and series I bonds in either of the following ways. Free tax forms Method 1. Free tax forms Postpone reporting the interest until the earlier of the year you cash or dispose of the bonds or the year they mature. Free tax forms (However, see Savings bonds traded , later. Free tax forms )  Note. Free tax forms Series EE bonds issued in 1983 matured in 2013. Free tax forms If you have used method 1, you generally must report the interest on these bonds on your 2013 return. Free tax forms The last series E bonds were issued in 1980 and matured in 2010. Free tax forms If you used method 1, you generally should have reported the interest on these bonds on your 2010 return. Free tax forms Method 2. Free tax forms Choose to report the increase in redemption value as interest each year. Free tax forms You must use the same method for all series EE, series E, and series I bonds you own. Free tax forms If you do not choose method 2 by reporting the increase in redemption value as interest each year, you must use method 1. Free tax forms    If you plan to cash your bonds in the same year you will pay for higher education expenses, you may want to use method 1 because you may be able to exclude the interest from your income. Free tax forms To learn how, see Education Savings Bond Program, later. Free tax forms Change from method 1. Free tax forms   If you want to change your method of reporting the interest from method 1 to method 2, you can do so without permission from the IRS. Free tax forms In the year of change you must report all interest accrued to date and not previously reported for all your bonds. Free tax forms   Once you choose to report the interest each year, you must continue to do so for all series EE, series E, and series I bonds you own and for any you get later, unless you request permission to change, as explained next. Free tax forms Change from method 2. Free tax forms   To change from method 2 to method 1, you must request permission from the IRS. Free tax forms Permission for the change is automatically granted if you send the IRS a statement that meets all the following requirements. Free tax forms You have typed or printed the following number at the top: “131. Free tax forms ” It includes your name and social security number under “131. Free tax forms ” It includes the year of change (both the beginning and ending dates). Free tax forms It identifies the savings bonds for which you are requesting this change. Free tax forms It includes your agreement to: Report all interest on any bonds acquired during or after the year of change when the interest is realized upon disposition, redemption, or final maturity, whichever is earliest, and Report all interest on the bonds acquired before the year of change when the interest is realized upon disposition, redemption, or final maturity, whichever is earliest, with the exception of the interest reported in prior tax years. Free tax forms   You must attach this statement to your tax return for the year of change, which you must file by the due date (including extensions). Free tax forms   You can have an automatic extension of 6 months from the due date of your return for the year of change (excluding extensions) to file the statement with an amended return. Free tax forms On the statement, type or print “Filed pursuant to section 301. Free tax forms 9100-2. Free tax forms ” To get this extension, you must have filed your original return for the year of the change by the due date (including extensions). Free tax forms    By the date you file the original statement with your return, you must also send a signed copy to the address below. Free tax forms   Internal Revenue Service Attention: CC:IT&A (Automatic Rulings Branch) P. Free tax forms O. Free tax forms Box 7604 Benjamin Franklin Station Washington, DC 20044   If you use a private delivery service, send the signed copy to the address below. Free tax forms   Internal Revenue Service Attention: CC:IT&A (Automatic Rulings Branch) Room 5336 1111 Constitution Avenue, NW  Washington, DC 20224   Instead of filing this statement, you can request permission to change from method 2 to method 1 by filing Form 3115, Application for Change in Accounting Method. Free tax forms In that case, follow the form instructions for an automatic change. Free tax forms No user fee is required. Free tax forms Co-owners. Free tax forms   If a U. Free tax forms S. Free tax forms savings bond is issued in the names of co-owners, such as you and your child or you and your spouse, interest on the bond is generally taxable to the co-owner who bought the bond. Free tax forms One co-owner's funds used. Free tax forms    If you used your funds to buy the bond, you must pay the tax on the interest. Free tax forms This is true even if you let the other co-owner redeem the bond and keep all the proceeds. Free tax forms Under these circumstances, the co-owner who redeemed the bond will receive a Form 1099-INT at the time of redemption and must provide you with another Form 1099-INT showing the amount of interest from the bond taxable to you. Free tax forms The co-owner who redeemed the bond is a “nominee. Free tax forms ” See Nominee distributions under How To Report Interest Income in chapter 1 of Publication 550 for more information about how a person who is a nominee reports interest income belonging to another person. Free tax forms Both co-owners' funds used. Free tax forms   If you and the other co-owner each contribute part of the bond's purchase price, the interest is generally taxable to each of you, in proportion to the amount each of you paid. Free tax forms Community property. Free tax forms   If you and your spouse live in a community property state and hold bonds as community property, one-half of the interest is considered received by each of you. Free tax forms If you file separate returns, each of you generally must report one-half of the bond interest. Free tax forms For more information about community property, see Publication 555. Free tax forms Table 7-1. Free tax forms   These rules are also shown in Table 7-1. Free tax forms Ownership transferred. Free tax forms   If you bought series E, series EE, or series I bonds entirely with your own funds and had them reissued in your co-owner's name or beneficiary's name alone, you must include in your gross income for the year of reissue all interest that you earned on these bonds and have not previously reported. Free tax forms But, if the bonds were reissued in your name alone, you do not have to report the interest accrued at that time. Free tax forms   This same rule applies when bonds (other than bonds held as community property) are transferred between spouses or incident to divorce. Free tax forms Purchased jointly. Free tax forms   If you and a co-owner each contributed funds to buy series E, series EE, or series I bonds jointly and later have the bonds reissued in the co-owner's name alone, you must include in your gross income for the year of reissue your share of all the interest earned on the bonds that you have not previously reported. Free tax forms The former co-owner does not have to include in gross income at the time of reissue his or her share of the interest earned that was not reported before the transfer. Free tax forms This interest, however, as well as all interest earned after the reissue, is income to the former co-owner. Free tax forms   This income-reporting rule also applies when the bonds are reissued in the name of your former co-owner and a new co-owner. Free tax forms But the new co-owner will report only his or her share of the interest earned after the transfer. Free tax forms   If bonds that you and a co-owner bought jointly are reissued to each of you separately in the same proportion as your contribution to the purchase price, neither you nor your co-owner has to report at that time the interest earned before the bonds were reissued. Free tax forms    Table 7-1. Free tax forms Who Pays the Tax on U. Free tax forms S. Free tax forms Savings Bond Interest IF . Free tax forms . Free tax forms . Free tax forms THEN the interest must be reported by . Free tax forms . Free tax forms . Free tax forms you buy a bond in your name and the name of another person as co-owners, using only your own funds you. Free tax forms you buy a bond in the name of another person, who is the sole owner of the bond the person for whom you bought the bond. Free tax forms you and another person buy a bond as co-owners, each contributing part of the purchase price both you and the other co-owner, in proportion to the amount each paid for the bond. Free tax forms you and your spouse, who live in a community property state, buy a bond that is community property you and your spouse. Free tax forms If you file separate returns, both you and your spouse generally report one-half of the interest. Free tax forms Example 1. Free tax forms You and your spouse each spent an equal amount to buy a $1,000 series EE savings bond. Free tax forms The bond was issued to you and your spouse as co-owners. Free tax forms You both postpone reporting interest on the bond. Free tax forms You later have the bond reissued as two $500 bonds, one in your name and one in your spouse's name. Free tax forms At that time neither you nor your spouse has to report the interest earned to the date of reissue. Free tax forms Example 2. Free tax forms You bought a $1,000 series EE savings bond entirely with your own funds. Free tax forms The bond was issued to you and your spouse as co-owners. Free tax forms You both postpone reporting interest on the bond. Free tax forms You later have the bond reissued as two $500 bonds, one in your name and one in your spouse's name. Free tax forms You must report half the interest earned to the date of reissue. Free tax forms Transfer to a trust. Free tax forms   If you own series E, series EE, or series I bonds and transfer them to a trust, giving up all rights of ownership, you must include in your income for that year the interest earned to the date of transfer if you have not already reported it. Free tax forms However, if you are considered the owner of the trust and if the increase in value both before and after the transfer continues to be taxable to you, you can continue to defer reporting the interest earned each year. Free tax forms You must include the total interest in your income in the year you cash or dispose of the bonds or the year the bonds finally mature, whichever is earlier. Free tax forms   The same rules apply to previously unreported interest on series EE or series E bonds if the transfer to a trust consisted of series HH or series H bonds you acquired in a trade for the series EE or series E bonds. Free tax forms See Savings bonds traded , later. Free tax forms Decedents. Free tax forms   The manner of reporting interest income on series E, series EE, or series I bonds, after the death of the owner (decedent), depends on the accounting and income-reporting methods previously used by the decedent. Free tax forms This is explained in chapter 1 of Publication 550. Free tax forms Savings bonds traded. Free tax forms   If you postponed reporting the interest on your series EE or series E bonds, you did not recognize taxable income when you traded the bonds for series HH or series H bonds, unless you received cash in the trade. Free tax forms (You cannot trade series I bonds for series HH bonds. Free tax forms After August 31, 2004, you cannot trade any other series of bonds for series HH bonds. Free tax forms ) Any cash you received is income up to the amount of the interest earned on the bonds traded. Free tax forms When your series HH or series H bonds mature, or if you dispose of them before maturity, you report as interest the difference between their redemption value and your cost. Free tax forms Your cost is the sum of the amount you paid for the traded series EE or series E bonds plus any amount you had to pay at the time of the trade. Free tax forms Example. Free tax forms You traded series EE bonds (on which you postponed reporting the interest) for $2,500 in series HH bonds and $223 in cash. Free tax forms You reported the $223 as taxable income on your tax return. Free tax forms At the time of the trade, the series EE bonds had accrued interest of $523 and a redemption value of $2,723. Free tax forms You hold the series HH bonds until maturity, when you receive $2,500. Free tax forms You must report $300 as interest income in the year of maturity. Free tax forms This is the difference between their redemption value, $2,500, and your cost, $2,200 (the amount you paid for the series EE bonds). Free tax forms (It is also the difference between the accrued interest of $523 on the series EE bonds and the $223 cash received on the trade. Free tax forms ) Choice to report interest in year of trade. Free tax forms   You could have chosen to treat all of the previously unreported accrued interest on the series EE or series E bonds traded for series HH bonds as income in the year of the trade. Free tax forms If you made this choice, it is treated as a change from method 1. Free tax forms See Change from method 1 under Series EE and series I bonds, earlier. Free tax forms Form 1099-INT for U. Free tax forms S. Free tax forms savings bonds interest. Free tax forms   When you cash a bond, the bank or other payer that redeems it must give you a Form 1099-INT if the interest part of the payment you receive is $10 or more. Free tax forms Box 3 of your Form 1099-INT should show the interest as the difference between the amount you received and the amount paid for the bond. Free tax forms However, your Form 1099-INT may show more interest than you have to include on your income tax return. Free tax forms For example, this may happen if any of the following are true. Free tax forms You chose to report the increase in the redemption value of the bond each year. Free tax forms The interest shown on your Form 1099-INT will not be reduced by amounts previously included in income. Free tax forms You received the bond from a decedent. Free tax forms The interest shown on your Form 1099-INT will not be reduced by any interest reported by the decedent before death, or on the decedent's final return, or by the estate on the estate's income tax return. Free tax forms Ownership of the bond was transferred. Free tax forms The interest shown on your Form 1099-INT will not be reduced by interest that accrued before the transfer. Free tax forms You were named as a co-owner, and the other co-owner contributed funds to buy the bond. Free tax forms The interest shown on your Form 1099-INT will not be reduced by the amount you received as nominee for the other co-owner. Free tax forms (See Co-owners , earlier in this chapter, for more information about the reporting requirements. Free tax forms ) You received the bond in a taxable distribution from a retirement or profit-sharing plan. Free tax forms The interest shown on your Form 1099-INT will not be reduced by the interest portion of the amount taxable as a distribution from the plan and not taxable as interest. Free tax forms (This amount is generally shown on Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. Free tax forms , for the year of distribution. Free tax forms )   For more information on including the correct amount of interest on your return, see How To Report Interest Income , later. Free tax forms Publication 550 includes examples showing how to report these amounts. Free tax forms    Interest on U. Free tax forms S. Free tax forms savings bonds is exempt from state and local taxes. Free tax forms The Form 1099-INT you receive will indicate the amount that is for U. Free tax forms S. Free tax forms savings bond interest in box 3. Free tax forms Education Savings Bond Program You may be able to exclude from income all or part of the interest you receive on the redemption of qualified U. Free tax forms S. Free tax forms savings bonds during the year if you pay qualified higher educational expenses during the same year. Free tax forms This exclusion is known as the Education Savings Bond Program. Free tax forms You do not qualify for this exclusion if your filing status is married filing separately. Free tax forms Form 8815. Free tax forms   Use Form 8815 to figure your exclusion. Free tax forms Attach the form to your Form 1040 or Form 1040A. Free tax forms Qualified U. Free tax forms S. Free tax forms savings bonds. Free tax forms   A qualified U. Free tax forms S. Free tax forms savings bond is a series EE bond issued after 1989 or a series I bond. Free tax forms The bond must be issued either in your name (sole owner) or in your and your spouse's names (co-owners). Free tax forms You must be at least 24 years old before the bond's issue date. Free tax forms For example, a bond bought by a parent and issued in the name of his or her child under age 24 does not qualify for the exclusion by the parent or child. Free tax forms    The issue date of a bond may be earlier than the date the bond is purchased because the issue date assigned to a bond is the first day of the month in which it is purchased. Free tax forms Beneficiary. Free tax forms   You can designate any individual (including a child) as a beneficiary of the bond. Free tax forms Verification by IRS. Free tax forms   If you claim the exclusion, the IRS will check it by using bond redemption information from the Department of the Treasury. Free tax forms Qualified expenses. Free tax forms   Qualified higher educational expenses are tuition and fees required for you, your spouse, or your dependent (for whom you claim an exemption) to attend an eligible educational institution. Free tax forms   Qualified expenses include any contribution you make to a qualified tuition program or to a Coverdell education savings account. Free tax forms   Qualified expenses do not include expenses for room and board or for courses involving sports, games, or hobbies that are not part of a degree or certificate granting program. Free tax forms Eligible educational institutions. Free tax forms   These institutions include most public, private, and nonprofit universities, colleges, and vocational schools that are accredited and eligible to participate in student aid programs run by the U. Free tax forms S. Free tax forms Department of Education. Free tax forms Reduction for certain benefits. Free tax forms   You must reduce your qualified higher educational expenses by all of the following tax-free benefits. Free tax forms Tax-free part of scholarships and fellowships (see Scholarships and fellowships in chapter 12). Free tax forms Expenses used to figure the tax-free portion of distributions from a Coverdell ESA. Free tax forms Expenses used to figure the tax-free portion of distributions from a qualified tuition program. Free tax forms Any tax-free payments (other than gifts or inheritances) received for educational expenses, such as Veterans' educational assistance benefits, Qualified tuition reductions, or Employer-provided educational assistance. Free tax forms Any expense used in figuring the American Opportunity and lifetime learning credits. Free tax forms Amount excludable. Free tax forms   If the total proceeds (interest and principal) from the qualified U. Free tax forms S. Free tax forms savings bonds you redeem during the year are not more than your adjusted qualified higher educational expenses for the year, you may be able to exclude all of the interest. Free tax forms If the proceeds are more than the expenses, you may be able to exclude only part of the interest. Free tax forms   To determine the excludable amount, multiply the interest part of the proceeds by a fraction. Free tax forms The numerator of the fraction is the qualified higher educational expenses you paid during the year. Free tax forms The denominator of the fraction is the total proceeds you received during the year. Free tax forms Example. Free tax forms In February 2013, Mark and Joan, a married couple, cashed a qualified series EE U. Free tax forms S. Free tax forms savings bond they bought in April 1997. Free tax forms They received proceeds of $8,372 representing principal of $5,000 and interest of $3,372. Free tax forms In 2013, they paid $4,000 of their daughter's college tuition. Free tax forms They are not claiming an education credit for that amount, and their daughter does not have any tax-free educational assistance. Free tax forms They can exclude $1,611 ($3,372 × ($4,000 ÷ $8,372)) of interest in 2013. Free tax forms They must pay tax on the remaining $1,761 ($3,372 − $1,611) interest. Free tax forms Modified adjusted gross income limit. Free tax forms   The interest exclusion is limited if your modified adjusted gross income (modified AGI) is: $74,700 to $89,700 for taxpayers filing single or head of household, and $112,050 to $142,050 for married taxpayers filing jointly or for a qualifying widow(er) with dependent child. Free tax forms You do not qualify for the interest exclusion if your modified AGI is equal to or more than the upper limit for your filing status. Free tax forms   Modified AGI, for purposes of this exclusion, is adjusted gross income (Form 1040, line 37, or Form 1040A, line 21) figured before the interest exclusion, and modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion and deduction, Exclusion of income for bona fide residents of American Samoa, Exclusion for income from Puerto Rico, Exclusion for adoption benefits received under an employer's adoption assistance program, Deduction for tuition and fees, Deduction for student loan interest, and Deduction for domestic production activities. Free tax forms   Use the Line 9 Worksheet in the Form 8815 instructions to figure your modified AGI. Free tax forms If you claim any of the exclusion or deduction items listed above (except items 6, 7, and 8), add the amount of the exclusion or deduction (except items 6, 7, and 8) to the amount on line 5 of the worksheet, and enter the total on Form 8815, line 9, as your modified AGI. Free tax forms   If you have investment interest expense incurred to earn royalties and other investment income, see Education Savings Bond Program in chapter 1 of Publication 550. Free tax forms Recordkeeping. Free tax forms If you claim the interest exclusion, you must keep a written record of the qualified U. Free tax forms S. Free tax forms savings bonds you redeem. Free tax forms Your record must include the serial number, issue date, face value, and total redemption proceeds (principal and interest) of each bond. Free tax forms You can use Form 8818 to record this information. Free tax forms You should also keep bills, receipts, canceled checks, or other documentation that shows you paid qualified higher educational expenses during the year. Free tax forms U. Free tax forms S. Free tax forms Treasury Bills, Notes, and Bonds Treasury bills, notes, and bonds are direct debts (obligations) of the U. Free tax forms S. Free tax forms Government. Free tax forms Taxation of interest. Free tax forms   Interest income from Treasury bills, notes, and bonds is subject to federal income tax but is exempt from all state and local income taxes. Free tax forms You should receive Form 1099-INT showing the interest (in box 3) paid to you for the year. Free tax forms   Payments of principal and interest generally will be credited to your designated checking or savings account by direct deposit through the TreasuryDirect® system. Free tax forms Treasury bills. Free tax forms   These bills generally have a 4-week, 13-week, 26-week, or 52-week maturity period. Free tax forms They are generally issued at a discount in the amount of $100 and multiples of $100. Free tax forms The difference between the discounted price you pay for the bills and the face value you receive at maturity is interest income. Free tax forms Generally, you report this interest income when the bill is paid at maturity. Free tax forms If you paid a premium for a bill (more than the face value), you generally report the premium as a section 171 deduction when the bill is paid at maturity. Free tax forms Treasury notes and bonds. Free tax forms   Treasury notes have maturity periods of more than 1 year, ranging up to 10 years. Free tax forms Maturity periods for Treasury bonds are longer than 10 years. Free tax forms Both generally are issued in denominations of $100 to $1 million and generally pay interest every 6 months. Free tax forms Generally, you report this interest for the year paid. Free tax forms For more information, see U. Free tax forms S. Free tax forms Treasury Bills, Notes, and Bonds in chapter 1 of Publication 550. Free tax forms For other information on Treasury notes or bonds, write to:  Bureau of the Public Debt P. Free tax forms O. Free tax forms Box 7015 Parkersburg, WV 26106-7015 Or, on the Internet, visit: www. Free tax forms treasurydirect. Free tax forms gov/indiv/indiv. Free tax forms htm. Free tax forms For information on series EE, series I, and series HH savings bonds, see U. Free tax forms S. Free tax forms Savings Bonds , earlier. Free tax forms Treasury inflation-protected securities (TIPS). Free tax forms   These securities pay interest twice a year at a fixed rate, based on a principal amount adjusted to take into account inflation and deflation. Free tax forms For the tax treatment of these securities, see Inflation-Indexed Debt Instruments under Original Issue Discount (OID), in Publication 550. Free tax forms Bonds Sold Between Interest Dates If you sell a bond between interest payment dates, part of the sales price represents interest accrued to the date of sale. Free tax forms You must report that part of the sales price as interest income for the year of sale. Free tax forms If you buy a bond between interest payment dates, part of the purchase price represents interest accrued before the date of purchase. Free tax forms When that interest is paid to you, treat it as a return of your capital investment, rather than interest income, by reducing your basis in the bond. Free tax forms See Accrued interest on bonds under How To Report Interest Income in chapter 1 of Publication 550 for information on reporting the payment. Free tax forms Insurance Life insurance proceeds paid to you as beneficiary of the insured person are usually not taxable. Free tax forms But if you receive the proceeds in installments, you must usually report a part of each installment payment as interest income. Free tax forms For more information about insurance proceeds received in installments, see Publication 525, Taxable and Nontaxable Income. Free tax forms Annuity. Free tax forms   If you buy an annuity with life insurance proceeds, the annuity payments you receive are taxed as pension and annuity income from a nonqualified plan, not as interest income. Free tax forms See chapter 10 for information on pension and annuity income from nonqualified plans. Free tax forms State or Local Government Obligations Interest on a bond used to finance government operations generally is not taxable if the bond is issued by a state, the District of Columbia, a possession of the United States, or any of their political subdivisions. Free tax forms Bonds issued after 1982 (including tribal economic development bonds issued after February 17, 2009) by an Indian tribal government are treated as issued by a state. Free tax forms Interest on these bonds is generally tax exempt if the bonds are part of an issue of which substantially all proceeds are to be used in the exercise of any essential government function. Free tax forms For information on federally guaranteed bonds, mortgage revenue bonds, arbitrage bonds, private activity bonds, qualified tax credit bonds, and Build America bonds, see State or Local Government Obligations in chapter 1 of Publication 550. Free tax forms Information reporting requirement. Free tax forms   If you must file a tax return, you are required to show any tax-exempt interest you received on your return. Free tax forms This is an information reporting requirement only. Free tax forms It does not change tax-exempt interest to taxable interest. Free tax forms Original Issue Discount (OID) Original issue discount (OID) is a form of interest. Free tax forms You generally include OID in your income as it accrues over the term of the debt instrument, whether or not you receive any payments from the issuer. Free tax forms A debt instrument generally has OID when the instrument is issued for a price that is less than its stated redemption price at maturity. Free tax forms OID is the difference between the stated redemption price at maturity and the issue price. Free tax forms All debt instruments that pay no interest before maturity are presumed to be issued at a discount. Free tax forms Zero coupon bonds are one example of these instruments. Free tax forms The OID accrual rules generally do not apply to short-term obligations (those with a fixed maturity date of 1 year or less from date of issue). Free tax forms See Discount on Short-Term Obligations in chapter 1 of Publication 550. Free tax forms De minimis OID. Free tax forms   You can treat the discount as zero if it is less than one-fourth of 1% (. Free tax forms 0025) of the stated redemption price at maturity multiplied by the number of full years from the date of original issue to maturity. Free tax forms This small discount is known as “de minimis” OID. Free tax forms Example 1. Free tax forms You bought a 10-year bond with a stated redemption price at maturity of $1,000, issued at $980 with OID of $20. Free tax forms One-fourth of 1% of $1,000 (stated redemption price) times 10 (the number of full years from the date of original issue to maturity) equals $25. Free tax forms Because the $20 discount is less than $25, the OID is treated as zero. Free tax forms (If you hold the bond at maturity, you will recognize $20 ($1,000 − $980) of capital gain. Free tax forms ) Example 2. Free tax forms The facts are the same as in Example 1, except that the bond was issued at $950. Free tax forms The OID is $50. Free tax forms Because the $50 discount is more than the $25 figured in Example 1, you must include the OID in income as it accrues over the term of the bond. Free tax forms Debt instrument bought after original issue. Free tax forms   If you buy a debt instrument with de minimis OID at a premium, the discount is not includible in income. Free tax forms If you buy a debt instrument with de minimis OID at a discount, the discount is reported under the market discount rules. Free tax forms See Market Discount Bonds in chapter 1 of Publication 550. Free tax forms Exceptions to reporting OID. Free tax forms   The OID rules discussed in this chapter do not apply to the following debt instruments. Free tax forms Tax-exempt obligations. Free tax forms (However, see Stripped tax-exempt obligations under Stripped Bonds and Coupons in chapter 1 of Publication 550). Free tax forms U. Free tax forms S. Free tax forms savings bonds. Free tax forms Short-term debt instruments (those with a fixed maturity date of not more than 1 year from the date of issue). Free tax forms Obligations issued by an individual before March 2, 1984. Free tax forms Loans between individuals if all the following are true. Free tax forms The lender is not in the business of lending money. Free tax forms The amount of the loan, plus the amount of any outstanding prior loans between the same individuals, is $10,000 or less. Free tax forms Avoiding any federal tax is not one of the principal purposes of the loan. Free tax forms Form 1099-OID. Free tax forms   The issuer of the debt instrument (or your broker if you held the instrument through a broker) should give you Form 1099-OID, or a similar statement, if the total OID for the calendar year is $10 or more. Free tax forms Form 1099-OID will show, in box 1, the amount of OID for the part of the year that you held the bond. Free tax forms It also will show, in box 2, the stated interest you must include in your income. Free tax forms A copy of Form 1099-OID will be sent to the IRS. Free tax forms Do not file your copy with your return. Free tax forms Keep it for your records. Free tax forms   In most cases, you must report the entire amount in boxes 1 and 2 of Form 1099-OID as interest income. Free tax forms But see Refiguring OID shown on Form 1099-OID, later in this discussion, for more information. Free tax forms Form 1099-OID not received. Free tax forms   If you had OID for the year but did not receive a Form 1099-OID, you can find tables on IRS. Free tax forms gov that list total OID on certain debt instruments and have information that will help you figure OID. Free tax forms For the latest OID tables, go to www. Free tax forms irs. Free tax forms gov and enter “OID tables” in the Search box. Free tax forms If your debt instrument is not listed, consult the issuer for further information about the accrued OID for the year. Free tax forms Nominee. Free tax forms   If someone else is the holder of record (the registered owner) of an OID instrument belonging to you and receives a Form 1099-OID on your behalf, that person must give you a Form 1099-OID. Free tax forms Refiguring OID shown on Form 1099-OID. Free tax forms   You must refigure the OID shown in box 1 or box 8 of Form 1099-OID if either of the following apply. Free tax forms You bought the debt instrument after its original issue and paid a premium or an acquisition premium. Free tax forms The debt instrument is a stripped bond or a stripped coupon (including certain zero coupon instruments). Free tax forms For information about figuring the correct amount of OID to include in your income, see Figuring OID on Long-Term Debt Instruments in Publication 1212. Free tax forms Refiguring periodic interest shown on Form 1099-OID. Free tax forms   If you disposed of a debt instrument or acquired it from another holder during the year, see Bonds Sold Between Interest Dates , earlier, for information about the treatment of periodic interest that may be shown in box 2 of Form 1099-OID for that instrument. Free tax forms Certificates of deposit (CDs). Free tax forms   If you buy a CD with a maturity of more than 1 year, you must include in income each year a part of the total interest due and report it in the same manner as other OID. Free tax forms   This also applies to similar deposit arrangements with banks, building and loan associations, etc. Free tax forms , including: Time deposits, Bonus plans, Savings certificates, Deferred income certificates, Bonus savings certificates, and Growth savings certificates. Free tax forms Bearer CDs. Free tax forms   CDs issued after 1982 generally must be in registered form. Free tax forms Bearer CDs are CDs not in registered form. Free tax forms They are not issued in the depositor's name and are transferable from one individual to another. Free tax forms   Banks must provide the IRS and the person redeeming a bearer CD with a Form 1099-INT. Free tax forms More information. Free tax forms   See chapter 1 of Publication 550 for more information about OID and related topics, such as market discount bonds. Free tax forms When To Report Interest Income When to report your interest income depends on whether you use the cash method or an accrual method to report income. Free tax forms Cash method. Free tax forms   Most individual taxpayers use the cash method. Free tax forms If you use this method, you generally report your interest income in the year in which you actually or constructively receive it. Free tax forms However, there are special rules for reporting the discount on certain debt instruments. Free tax forms See U. Free tax forms S. Free tax forms Savings Bonds and Original Issue Discount (OID) , earlier. Free tax forms Example. Free tax forms On September 1, 2011, you loaned another individual $2,000 at 12%, compounded annually. Free tax forms You are not in the business of lending money. Free tax forms The note stated that principal and interest would be due on August 31, 2013. Free tax forms In 2013, you received $2,508. Free tax forms 80 ($2,000 principal and $508. Free tax forms 80 interest). Free tax forms If you use the cash method, you must include in income on your 2013 return the $508. Free tax forms 80 interest you received in that year. Free tax forms Constructive receipt. Free tax forms   You constructively receive income when it is credited to your account or made available to you. Free tax forms You do not need to have physical possession of it. Free tax forms For example, you are considered to receive interest, dividends, or other earnings on any deposit or account in a bank, savings and loan, or similar financial institution, or interest on life insurance policy dividends left to accumulate, when they are credited to your account and subject to your withdrawal. Free tax forms This is true even if they are not yet entered in your passbook. Free tax forms   You constructively receive income on the deposit or account even if you must: Make withdrawals in multiples of even amounts, Give a notice to withdraw before making the withdrawal, Withdraw all or part of the account to withdraw the earnings, or Pay a penalty on early withdrawals, unless the interest you are to receive on an early withdrawal or redemption is substantially less than the interest payable at maturity. Free tax forms Accrual method. Free tax forms   If you use an accrual method, you report your interest income when you earn it, whether or not you have received it. Free tax forms Interest is earned over the term of the debt instrument. Free tax forms Example. Free tax forms If, in the previous example, you use an accrual method, you must include the interest in your income as you earn it. Free tax forms You would report the interest as follows: 2011, $80; 2012, $249. Free tax forms 60; and 2013, $179. Free tax forms 20. Free tax forms Coupon bonds. Free tax forms   Interest on coupon bonds is taxable in the year the coupon becomes due and payable. Free tax forms It does not matter when you mail the coupon for payment. Free tax forms How To Report Interest Income Generally, you report all your taxable interest income on Form 1040, line 8a; Form 1040A, line 8a; or Form 1040EZ, line 2. Free tax forms You cannot use Form 1040EZ if your taxable interest income is more than $1,500. Free tax forms Instead, you must use Form 1040A or Form 1040. Free tax forms Form 1040A. Free tax forms   You must complete Schedule B (Form 1040A or 1040), Part I, if you file Form 1040A and any of the following are true. Free tax forms Your taxable interest income is more than $1,500. Free tax forms You are claiming the interest exclusion under the Education Savings Bond Program (discussed earlier). Free tax forms You received interest from a seller-financed mortgage, and the buyer used the property as a home. Free tax forms You received a Form 1099-INT for U. Free tax forms S. Free tax forms savings bond interest that includes amounts you reported before 2013. Free tax forms You received, as a nominee, interest that actually belongs to someone else. Free tax forms You received a Form 1099-INT for interest on frozen deposits. Free tax forms You are reporting OID in an amount less than the amount shown on Form 1099-OID. Free tax forms You received a Form 1099-INT for interest on a bond you bought between interest payment dates. Free tax forms You acquired taxable bonds after 1987 and choose to reduce interest income from the bonds by any amortizable bond premium (see Bond Premium Amortization in chapter 3 of Publication 550). Free tax forms List each payer's name and the amount of interest income received from each payer on line 1. Free tax forms If you received a Form 1099-INT or Form 1099-OID from a brokerage firm, list the brokerage firm as the payer. Free tax forms   You cannot use Form 1040A if you must use Form 1040, as described next. Free tax forms Form 1040. Free tax forms   You must use Form 1040 instead of Form 1040A or Form 1040EZ if: You forfeited interest income because of the early withdrawal of a time deposit; You acquired taxable bonds after 1987, you choose to reduce interest income from the bonds by any amortizable bond premium, and you are deducting the excess of bond premium amortization for the accrual period over the qualified stated interest for the period (see Bond Premium Amortization in chapter 3 of Publication 550); or You received tax-exempt interest from private activity bonds issued after August 7, 1986. Free tax forms Schedule B (Form 1040A or 1040). Free tax forms   You must complete Schedule B (Form 1040A or 1040), Part I, if you file Form 1040 and any of the following apply. Free tax forms Your taxable interest income is more than $1,500. Free tax forms You are claiming the interest exclusion under the Education Savings Bond Program (discussed earlier). Free tax forms You received interest from a seller-financed mortgage, and the buyer used the property as a home. Free tax forms You received a Form 1099-INT for U. Free tax forms S. Free tax forms savings bond interest that includes amounts you reported before 2013. Free tax forms You received, as a nominee, interest that actually belongs to someone else. Free tax forms You received a Form 1099-INT for interest on frozen deposits. Free tax forms You received a Form 1099-INT for interest on a bond you bought between interest payment dates. Free tax forms You are reporting OID in an amount less than the amount shown on Form 1099-OID. Free tax forms Statement (2) in the preceding list under Form 1040 is true. Free tax forms In Part I, line 1, list each payer's name and the amount received from each. Free tax forms If you received a Form 1099-INT or Form 1099-OID from a brokerage firm, list the brokerage firm as the payer. Free tax forms Reporting tax-exempt interest. Free tax forms   Total your tax-exempt interest (such as interest or accrued OID on certain state and municipal bonds, including tax-exempt interest on zero coupon municipal bonds) and exempt-interest dividends from a mutual fund as shown on Form 1099-INT, box 8, and on Form 1099-DIV, box 10. Free tax forms Add these amounts to any other tax-exempt interest you received. Free tax forms Report the total on line 8b of Form 1040A or 1040. Free tax forms   If you file Form 1040EZ, enter “TEI” and the amount in the space to the left of line 2. Free tax forms Do not add tax-exempt interest in the total on Form 1040EZ, line 2. Free tax forms   Form 1099-INT, box 9, and Form 1099-DIV, box 11, show the tax-exempt interest subject to the alternative minimum tax on Form 6251. Free tax forms These amounts are already included in the amounts on Form 1099-INT, box 8, and Form 1099-DIV, box 10. Free tax forms Do not add the amounts in Form 1099-INT, box 9 and Form 1099-DIV, box 11 to, or subtract them from, the amounts on Form 1099-INT, box 8, and Form 1099-DIV, box 10. Free tax forms    Do not report interest from an individual retirement account (IRA) as tax-exempt interest. Free tax forms Form 1099-INT. Free tax forms   Your taxable interest income, except for interest from U. Free tax forms S. Free tax forms savings bonds and Treasury obligations, is shown in box 1 of Form 1099-INT. Free tax forms Add this amount to any other taxable interest income you received. Free tax forms You must report all of your taxable interest income even if you do not receive a Form 1099-INT. Free tax forms Generally, contact your financial institution if you do not receive a Form 1099-INT by February 15. Free tax forms Your identifying number may be truncated on any paper Form 1099-INT you receive. Free tax forms   If you forfeited interest income because of the early withdrawal of a time deposit, the deductible amount will be shown on Form 1099-INT in box 2. Free tax forms See Penalty on early withdrawal of savings in chapter 1 of Publication 550. Free tax forms   Box 3 of Form 1099-INT shows the interest income you received from U. Free tax forms S. Free tax forms savings bonds, Treasury bills, Treasury notes, and Treasury bonds. Free tax forms Add the amount shown in box 3 to any other taxable interest income you received, unless part of the amount in box 3 was previously included in your interest income. Free tax forms If part of the amount shown in box 3 was previously included in your interest income, see U. Free tax forms S. Free tax forms savings bond interest previously reported , later. Free tax forms   Box 4 of Form 1099-INT will contain an amount if you were subject to backup withholding. Free tax forms Report the amount from box 4 on Form 1040EZ, line 7; on Form 1040A, line 36; or Form 1040, line 62 (federal income tax withheld). Free tax forms   Box 5 of Form 1099-INT shows investment expenses you may be able to deduct as an itemized deduction. Free tax forms See chapter 28 for more information about investment expenses. Free tax forms   If there are entries in boxes 6 and 7 of Form 1099-INT, you must file Form 1040. Free tax forms You may be able to take a credit for the amount shown in box 6 unless you deduct this amount on line 8 of Schedule A (Form 1040). Free tax forms To take the credit, you may have to file Form 1116, Foreign Tax Credit. Free tax forms For more information, see Publication 514, Foreign Tax Credit for Individuals. Free tax forms U. Free tax forms S. Free tax forms savings bond interest previously reported. Free tax forms   If you received a Form 1099-INT for U. Free tax forms S. Free tax forms savings bond interest, the form may show interest you do not have to report. Free tax forms See Form 1099-INT for U. Free tax forms S. Free tax forms savings bonds interest , earlier, under U. Free tax forms S. Free tax forms Savings Bonds. Free tax forms   On Schedule B (Form 1040A or 1040), Part I, line 1, report all the interest shown on your Form 1099-INT. Free tax forms Then follow these steps. Free tax forms Several lines above line 2, enter a subtotal of all interest listed on line 1. Free tax forms Below the subtotal enter “U. Free tax forms S. Free tax forms Savings Bond Interest Previously Reported” and enter amounts previously reported or interest accrued before you received the bond. Free tax forms Subtract these amounts from the subtotal and enter the result on line 2. Free tax forms More information. Free tax forms   For more information about how to report interest income, see chapter 1 of Publication 550 or the instructions for the form you must file. 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Free tax forms 4. Free tax forms   Special Situations Table of Contents Condominiums CooperativesDepreciation Property Changed to Rental UseBasis of Property Changed to Rental Use Figuring the Depreciation Deduction Renting Part of Property Not Rented for ProfitPostponing decision. Free tax forms Example—Property Changed to Rental Use This chapter discusses some rental real estate activities that are subject to additional rules. Free tax forms Condominiums A condominium is most often a dwelling unit in a multi-unit building, but can also take other forms, such as a townhouse or garden apartment. Free tax forms If you own a condominium, you also own a share of the common elements, such as land, lobbies, elevators, and service areas. Free tax forms You and the other condominium owners may pay dues or assessments to a special corporation that is organized to take care of the common elements. Free tax forms Special rules apply if you rent your condominium to others. Free tax forms You can deduct as rental expenses all the expenses discussed in chapters 1 and 2. Free tax forms In addition, you can deduct any dues or assessments paid for maintenance of the common elements. Free tax forms You cannot deduct special assessments you pay to a condominium management corporation for improvements. Free tax forms However, you may be able to recover your share of the cost of any improvement by taking depreciation. Free tax forms Cooperatives If you live in a cooperative, you do not own your apartment. Free tax forms Instead, a corporation owns the apartments and you are a tenant-stockholder in the cooperative housing corporation. Free tax forms If you rent your apartment to others, you usually can deduct, as a rental expense, all the maintenance fees you pay to the cooperative housing corporation. Free tax forms In addition to the maintenance fees paid to the cooperative housing corporation, you can deduct your direct payments for repairs, upkeep, and other rental expenses, including interest paid on a loan used to buy your stock in the corporation. Free tax forms Depreciation You will be depreciating your stock in the corporation rather than the apartment itself. Free tax forms Figure your depreciation deduction as follows. Free tax forms Figure the depreciation for all the depreciable real property owned by the corporation. Free tax forms (Depreciation methods are discussed in chapter 2 of this publication and Publication 946. Free tax forms ) If you bought your cooperative stock after its first offering, figure the depreciable basis of this property as follows. Free tax forms Multiply your cost per share by the total number of outstanding shares. Free tax forms Add to the amount figured in (a) any mortgage debt on the property on the date you bought the stock. Free tax forms Subtract from the amount figured in (b) any mortgage debt that is not for the depreciable real property, such as the part for the land. Free tax forms Subtract from the amount figured in (1) any depreciation for space owned by the corporation that can be rented but cannot be lived in by tenant-stockholders. Free tax forms Divide the number of your shares of stock by the total number of shares outstanding, including any shares held by the corporation. Free tax forms Multiply the result of (2) by the percentage you figured in (3). Free tax forms This is your depreciation on the stock. Free tax forms Your depreciation deduction for the year cannot be more than the part of your adjusted basis (defined in chapter 2) in the stock of the corporation that is allocable to your rental property. Free tax forms Payments added to capital account. Free tax forms   Payments earmarked for a capital asset or improvement, or otherwise charged to the corporation's capital account are added to the basis of your stock in the corporation. Free tax forms For example, you cannot deduct a payment used to pave a community parking lot, install a new roof, or pay the principal of the corporation's mortgage. Free tax forms   Treat as a capital cost the amount you were assessed for capital items. Free tax forms This cannot be more than the amount by which your payments to the corporation exceeded your share of the corporation's mortgage interest and real estate taxes. Free tax forms   Your share of interest and taxes is the amount the corporation elected to allocate to you, if it reasonably reflects those expenses for your apartment. Free tax forms Otherwise, figure your share in the following manner. Free tax forms Divide the number of your shares of stock by the total number of shares outstanding, including any shares held by the corporation. Free tax forms Multiply the corporation's deductible interest by the number you figured in (1). Free tax forms This is your share of the interest. Free tax forms Multiply the corporation's deductible taxes by the number you figured in (1). Free tax forms This is your share of the taxes. Free tax forms Property Changed to Rental Use If you change your home or other property (or a part of it) to rental use at any time other than the beginning of your tax year, you must divide yearly expenses, such as taxes and insurance, between rental use and personal use. Free tax forms You can deduct as rental expenses only the part of the expense that is for the part of the year the property was used or held for rental purposes. Free tax forms You cannot deduct depreciation or insurance for the part of the year the property was held for personal use. Free tax forms However, you can include the home mortgage interest, qualified mortgage insurance premiums, and real estate tax expenses for the part of the year the property was held for personal use as an itemized deduction on Schedule A (Form 1040). Free tax forms Example. Free tax forms Your tax year is the calendar year. Free tax forms You moved from your home in May and started renting it out on June 1. Free tax forms You can deduct as rental expenses seven-twelfths of your yearly expenses, such as taxes and insurance. Free tax forms Starting with June, you can deduct as rental expenses the amounts you pay for items generally billed monthly, such as utilities. Free tax forms When figuring depreciation, treat the property as placed in service on June 1. Free tax forms Basis of Property Changed to Rental Use When you change property you held for personal use to rental use (for example, you rent your former home), the basis for depreciation will be the lesser of fair market value or adjusted basis on the date of conversion. Free tax forms Fair market value. Free tax forms   This is the price at which the property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all the relevant facts. Free tax forms Sales of similar property, on or about the same date, may be helpful in figuring the fair market value of the property. Free tax forms Figuring the basis. Free tax forms   The basis for depreciation is the lesser of: The fair market value of the property on the date you changed it to rental use, or Your adjusted basis on the date of the change—that is, your original cost or other basis of the property, plus the cost of permanent additions or improvements since you acquired it, minus deductions for any casualty or theft losses claimed on earlier years' income tax returns and other decreases to basis. Free tax forms For other increases and decreases to basis, see Adjusted Basis in chapter 2. Free tax forms Example. Free tax forms Several years ago you built your home for $140,000 on a lot that cost you $14,000. Free tax forms Before changing the property to rental use this year, you added $28,000 of permanent improvements to the house and claimed a $3,500 casualty loss deduction for damage to the house. Free tax forms Part of the improvements qualified for a $500 residential energy credit, which you claimed on your 2010 tax return. Free tax forms Because land is not depreciable, you can only include the cost of the house when figuring the basis for depreciation. Free tax forms The adjusted basis of the house at the time of the change in its use was $164,000 ($140,000 + $28,000 − $3,500 − $500). Free tax forms On the date of the change in use, your property had a fair market value of $168,000, of which $21,000 was for the land and $147,000 was for the house. Free tax forms The basis for depreciation on the house is the fair market value on the date of the change ($147,000), because it is less than your adjusted basis ($164,000). Free tax forms Cooperatives If you change your cooperative apartment to rental use, figure your allowable depreciation as explained earlier. Free tax forms (Depreciation methods are discussed in chapter 2 of this publication and Publication 946. Free tax forms ) The basis of all the depreciable real property owned by the cooperative housing corporation is the smaller of the following amounts. Free tax forms The fair market value of the property on the date you change your apartment to rental use. Free tax forms This is considered to be the same as the corporation's adjusted basis minus straight line depreciation, unless this value is unrealistic. Free tax forms The corporation's adjusted basis in the property on that date. Free tax forms Do not subtract depreciation when figuring the corporation's adjusted basis. Free tax forms If you bought the stock after its first offering, the corporation's adjusted basis in the property is the amount figured in (1) under Depreciation (under Cooperatives, near the beginning of this chapter). Free tax forms The fair market value of the property is considered to be the same as the corporation's adjusted basis figured in this way minus straight line depreciation, unless the value is unrealistic. Free tax forms Figuring the Depreciation Deduction To figure the deduction, use the depreciation system in effect when you convert your residence to rental use. Free tax forms Generally, that will be MACRS for any conversion after 1986. Free tax forms Treat the property as placed in service on the conversion date. Free tax forms Example. Free tax forms Your converted residence (see previous example under Figuring the basis) was available for rent on August 1. Free tax forms Using Table 2-2d (see chapter 2), the percentage for Year 1 beginning in August is 1. Free tax forms 364% and the depreciation deduction for Year 1 is $2,005 ($147,000 × . Free tax forms 01364). Free tax forms Renting Part of Property If you rent part of your property, you must divide certain expenses between the part of the property used for rental purposes and the part of the property used for personal purposes, as though you actually had two separate pieces of property. Free tax forms You can deduct the expenses related to the part of the property used for rental purposes, such as home mortgage interest, qualified mortgage insurance premiums, and real estate taxes, as rental expenses on Schedule E (Form 1040). Free tax forms You can also deduct as rental expenses a portion of other expenses that normally are nondeductible personal expenses, such as expenses for electricity, or painting the outside of the house. Free tax forms There is no change in the types of expenses deductible for the personal-use part of your property. Free tax forms Generally, these expenses may be deducted only if you itemize your deductions on Schedule A (Form 1040). Free tax forms You cannot deduct any part of the cost of the first phone line even if your tenants have unlimited use of it. Free tax forms You do not have to divide the expenses that belong only to the rental part of your property. Free tax forms For example, if you paint a room that you rent, or if you pay premiums for liability insurance in connection with renting a room in your home, your entire cost is a rental expense. Free tax forms If you install a second phone line strictly for your tenant's use, all of the cost of the second line is deductible as a rental expense. Free tax forms You can deduct depreciation on the part of the house used for rental purposes as well as on the furniture and equipment you use for rental purposes. Free tax forms How to divide expenses. Free tax forms   If an expense is for both rental use and personal use, such as mortgage interest or heat for the entire house, you must divide the expense between rental use and personal use. Free tax forms You can use any reasonable method for dividing the expense. Free tax forms It may be reasonable to divide the cost of some items (for example, water) based on the number of people using them. Free tax forms The two most common methods for dividing an expense are (1) the number of rooms in your home, and (2) the square footage of your home. Free tax forms Example. Free tax forms You rent a room in your house. Free tax forms The room is 12 × 15 feet, or 180 square feet. Free tax forms Your entire house has 1,800 square feet of floor space. Free tax forms You can deduct as a rental expense 10% of any expense that must be divided between rental use and personal use. Free tax forms If your heating bill for the year for the entire house was $600, $60 ($600 × . Free tax forms 10) is a rental expense. Free tax forms The balance, $540, is a personal expense that you cannot deduct. Free tax forms Duplex. Free tax forms   A common situation is the duplex where you live in one unit and rent out the other. Free tax forms Certain expenses apply to the entire property, such as mortgage interest and real estate taxes, and must be split to determine rental and personal expenses. Free tax forms Example. Free tax forms You own a duplex and live in one half, renting the other half. Free tax forms Both units are approximately the same size. Free tax forms Last year, you paid a total of $10,000 mortgage interest and $2,000 real estate taxes for the entire property. Free tax forms You can deduct $5,000 mortgage interest and $1,000 real estate taxes on Schedule E (Form 1040), and if you itemize your deductions, you can deduct the other $5,000 mortgage interest and $1,000 real estate taxes on Schedule A (Form 1040). Free tax forms Not Rented for Profit If you do not rent your property to make a profit, you can deduct your rental expenses only up to the amount of your rental income. Free tax forms You cannot deduct a loss or carry forward to the next year any rental expenses that are more than your rental income for the year. Free tax forms Where to report. Free tax forms   Report your not-for-profit rental income on Form 1040 or 1040NR, line 21. Free tax forms For example, if you are filing Form 1040, you can include your mortgage interest and any qualified mortgage insurance premiums (if you use the property as your main home or second home), real estate taxes, and casualty losses on the appropriate lines of Schedule A (Form 1040) if you itemize your deductions. Free tax forms   If you itemize your deductions, claim your other rental expenses, subject to the rules explained in chapter 1 of Publication 535, as miscellaneous itemized deductions on Schedule A (Form 1040), line 23, or Schedule A (Form 1040NR), line 9. Free tax forms You can deduct these expenses only if they, together with certain other miscellaneous itemized deductions, total more than 2% of your adjusted gross income. Free tax forms Presumption of profit. Free tax forms   If your rental income is more than your rental expenses for at least 3 years out of a period of 5 consecutive years, you are presumed to be renting your property to make a profit. Free tax forms Postponing decision. Free tax forms   If you are starting your rental activity and do not have 3 years showing a profit, you can elect to have the presumption made after you have the 5 years of experience required by the test. Free tax forms You may choose to postpone the decision of whether the rental is for profit by filing Form 5213. Free tax forms You must file Form 5213 within 3 years after the due date of your return (determined without extensions) for the year in which you first carried on the activity or, if earlier, within 60 days after receiving written notice from the Internal Revenue Service proposing to disallow deductions attributable to the activity. Free tax forms More information. Free tax forms   For more information about the rules for an activity not engaged in for profit, see Not-for-Profit Activities in chapter 1 of Publication 535. Free tax forms Example—Property Changed to Rental Use In January, Eileen Johnson bought a condominium apartment to live in. Free tax forms Instead of selling the house she had been living in, she decided to change it to rental property. Free tax forms Eileen selected a tenant and started renting the house on February 1. Free tax forms Eileen charges $750 a month for rent and collects it herself. Free tax forms Eileen also received a $750 security deposit from her tenant. Free tax forms Because she plans to return it to her tenant at the end of the lease, she does not include it in her income. Free tax forms Her rental expenses for the year are as follows. Free tax forms   Mortgage interest $1,800     Fire insurance (1-year policy) 100     Miscellaneous repairs (after renting) 297     Real estate taxes imposed and paid 1,200   Eileen must divide the real estate taxes, mortgage interest, and fire insurance between the personal use of the property and the rental use of the property. Free tax forms She can deduct eleven-twelfths of these expenses as rental expenses. Free tax forms She can include the balance of the allowable taxes and mortgage interest on Schedule A (Form 1040) if she itemizes. Free tax forms She cannot deduct the balance of the fire insurance because it is a personal expense. Free tax forms Eileen bought this house in 1984 for $35,000. Free tax forms Her property tax was based on assessed values of $10,000 for the land and $25,000 for the house. Free tax forms Before changing it to rental property, Eileen added several improvements to the house. Free tax forms She figures her adjusted basis as follows:   Improvements Cost     House $25,000     Remodeled kitchen 4,200     Recreation room 5,800     New roof 1,600     Patio and deck 2,400     Adjusted basis $39,000   On February 1, when Eileen changed her house to rental property, the property had a fair market value of $152,000. Free tax forms Of this amount, $35,000 was for the land and $117,000 was for the house. Free tax forms Because Eileen's adjusted basis is less than the fair market value on the date of the change, Eileen uses $39,000 as her basis for depreciation. Free tax forms As specified for residential rental property, Eileen must use the straight line method of depreciation over the GDS or ADS recovery period. Free tax forms She chooses the GDS recovery period of 27. Free tax forms 5 years. Free tax forms She uses Table 2-2d to find her depreciation percentage. Free tax forms Since she placed the property in service in February, the percentage is 3. Free tax forms 182%. Free tax forms On April 1, Eileen bought a new dishwasher for the rental property at a cost of $425. Free tax forms The dishwasher is personal property used in a rental real estate activity, which has a 5-year recovery period. Free tax forms She uses Table 2-2a to find the percentage for Year 1 under “Half-year convention” (20%) to figure her depreciation deduction. Free tax forms On May 1, Eileen paid $4,000 to have a furnace installed in the house. Free tax forms The furnace is residential rental property. Free tax forms Because she placed the property in service in May, the percentage from Table 2-2d is 2. Free tax forms 273%. Free tax forms Eileen figures her net rental income or loss for the house as follows: Total rental income received  ($750 × 11) $8,250 Minus: Expenses     Mortgage interest ($1,800 × 11/12) $1,650   Fire insurance ($100 × 11/12) 92   Miscellaneous repairs 297   Real estate taxes ($1,200 × 11/12) 1,100   Total expenses 3,139 Balance $5,111 Minus: Depreciation     House ($39,000 × . Free tax forms 03182) $1,241   Dishwasher ($425 × . Free tax forms 20) 85   Furnace ($4,000 × . Free tax forms 02273) 91   Total depreciation 1,417 Net rental income for house   $3,694       Eileen uses Schedule E, Part I, to report her rental income and expenses. Free tax forms She enters her income, expenses, and depreciation for the house in the column for Property A. Free tax forms Since all property was placed in service this year, Eileen must use Form 4562 to figure the depreciation. Free tax forms See the Instructions for Form 4562 for more information on preparing the form. 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