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Nd State Income Tax

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Nd State Income Tax

Nd state income tax 2. Nd state income tax   Depreciation of Rental Property Table of Contents The BasicsWhat Rental Property Can Be Depreciated? When Does Depreciation Begin and End? Depreciation Methods Basis of Depreciable Property Claiming the Special Depreciation Allowance MACRS DepreciationDepreciation Systems Property Classes Under GDS Recovery Periods Under GDS Conventions Figuring Your Depreciation Deduction Figuring MACRS Depreciation Under ADS Claiming the Correct Amount of Depreciation You recover the cost of income producing property through yearly tax deductions. Nd state income tax You do this by depreciating the property; that is, by deducting some of the cost each year on your tax return. Nd state income tax Three factors determine how much depreciation you can deduct each year: (1) your basis in the property, (2) the recovery period for the property, and (3) the depreciation method used. Nd state income tax You cannot simply deduct your mortgage or principal payments, or the cost of furniture, fixtures and equipment, as an expense. Nd state income tax You can deduct depreciation only on the part of your property used for rental purposes. Nd state income tax Depreciation reduces your basis for figuring gain or loss on a later sale or exchange. Nd state income tax You may have to use Form 4562 to figure and report your depreciation. Nd state income tax See Which Forms To Use in chapter 3. Nd state income tax Also see Publication 946. Nd state income tax Section 179 deduction. Nd state income tax   The section 179 deduction is a means of recovering part or all of the cost of certain qualifying property in the year you place the property in service. Nd state income tax This deduction is not allowed for property used in connection with residential rental property. Nd state income tax See chapter 2 of Publication 946. Nd state income tax Alternative minimum tax (AMT). Nd state income tax   If you use accelerated depreciation, you may be subject to the AMT. Nd state income tax Accelerated depreciation allows you to deduct more depreciation earlier in the recovery period than you could deduct using a straight line method (same deduction each year). Nd state income tax   The prescribed depreciation methods for rental real estate are not accelerated, so the depreciation deduction is not adjusted for the AMT. Nd state income tax However, accelerated methods are generally used for other property connected with rental activities (for example, appliances and wall-to-wall carpeting). Nd state income tax   To find out if you are subject to the AMT, see the Instructions for Form 6251. Nd state income tax The Basics The following section discusses the information you will need to have about the rental property and the decisions to be made before figuring your depreciation deduction. Nd state income tax What Rental Property Can Be Depreciated? You can depreciate your property if it meets all the following requirements. Nd state income tax You own the property. Nd state income tax You use the property in your business or income-producing activity (such as rental property). Nd state income tax The property has a determinable useful life. Nd state income tax The property is expected to last more than one year. Nd state income tax Property you own. Nd state income tax   To claim depreciation, you usually must be the owner of the property. Nd state income tax You are considered as owning property even if it is subject to a debt. Nd state income tax Rented property. Nd state income tax   Generally, if you pay rent for property, you cannot depreciate that property. Nd state income tax Usually, only the owner can depreciate it. Nd state income tax However, if you make permanent improvements to leased property, you may be able to depreciate the improvements. Nd state income tax See Additions or improvements to property , later in this chapter, under Recovery Periods Under GDS. Nd state income tax Cooperative apartments. Nd state income tax   If you are a tenant-stockholder in a cooperative housing corporation and rent your cooperative apartment to others, you can deduct depreciation on your stock in the corporation. Nd state income tax See chapter 4, Special Situations. Nd state income tax Property having a determinable useful life. Nd state income tax   To be depreciable, your property must have a determinable useful life. Nd state income tax This means that it must be something that wears out, decays, gets used up, becomes obsolete, or loses its value from natural causes. Nd state income tax What Rental Property Cannot Be Depreciated? Certain property cannot be depreciated. Nd state income tax This includes land and certain excepted property. Nd state income tax Land. Nd state income tax   You cannot depreciate the cost of land because land generally does not wear out, become obsolete, or get used up. Nd state income tax But if it does, the loss is accounted for upon disposition. Nd state income tax The costs of clearing, grading, planting, and landscaping are usually all part of the cost of land and cannot be depreciated. Nd state income tax   Although you cannot depreciate land, you can depreciate certain land preparation costs, such as landscaping costs, incurred in preparing land for business use. Nd state income tax These costs must be so closely associated with other depreciable property that you can determine a life for them along with the life of the associated property. Nd state income tax Example. Nd state income tax You built a new house to use as a rental and paid for grading, clearing, seeding, and planting bushes and trees. Nd state income tax Some of the bushes and trees were planted right next to the house, while others were planted around the outer border of the lot. Nd state income tax If you replace the house, you would have to destroy the bushes and trees right next to it. Nd state income tax These bushes and trees are closely associated with the house, so they have a determinable useful life. Nd state income tax Therefore, you can depreciate them. Nd state income tax Add your other land preparation costs to the basis of your land because they have no determinable life and you cannot depreciate them. Nd state income tax Excepted property. Nd state income tax   Even if the property meets all the requirements listed earlier under What Rental Property Can Be Depreciated , you cannot depreciate the following property. Nd state income tax Property placed in service and disposed of (or taken out of business use) in the same year. Nd state income tax Equipment used to build capital improvements. Nd state income tax You must add otherwise allowable depreciation on the equipment during the period of construction to the basis of your improvements. Nd state income tax For more information, see chapter 1 of Publication 946. Nd state income tax When Does Depreciation Begin and End? You begin to depreciate your rental property when you place it in service for the production of income. Nd state income tax You stop depreciating it either when you have fully recovered your cost or other basis, or when you retire it from service, whichever happens first. Nd state income tax Placed in Service You place property in service in a rental activity when it is ready and available for a specific use in that activity. Nd state income tax Even if you are not using the property, it is in service when it is ready and available for its specific use. Nd state income tax Example 1. Nd state income tax On November 22 of last year, you purchased a dishwasher for your rental property. Nd state income tax The appliance was delivered on December 7, but was not installed and ready for use until January 3 of this year. Nd state income tax Because the dishwasher was not ready for use last year, it is not considered placed in service until this year. Nd state income tax If the appliance had been installed and ready for use when it was delivered in December of last year, it would have been considered placed in service in December, even if it was not actually used until this year. Nd state income tax Example 2. Nd state income tax On April 6, you purchased a house to use as residential rental property. Nd state income tax You made extensive repairs to the house and had it ready for rent on July 5. Nd state income tax You began to advertise the house for rent in July and actually rented it beginning September 1. Nd state income tax The house is considered placed in service in July when it was ready and available for rent. Nd state income tax You can begin to depreciate the house in July. Nd state income tax Example 3. Nd state income tax You moved from your home in July. Nd state income tax During August and September you made several repairs to the house. Nd state income tax On October 1, you listed the property for rent with a real estate company, which rented it on December 1. Nd state income tax The property is considered placed in service on October 1, the date when it was available for rent. Nd state income tax Conversion to business use. Nd state income tax   If you place property in service in a personal activity, you cannot claim depreciation. Nd state income tax However, if you change the property's use to business or the production of income, you can begin to depreciate it at the time of the change. Nd state income tax You place the property in service for business or income-producing use on the date of the change. Nd state income tax Example. Nd state income tax You bought a house and used it as your personal home several years before you converted it to rental property. Nd state income tax Although its specific use was personal and no depreciation was allowable, you placed the home in service when you began using it as your home. Nd state income tax You can begin to claim depreciation in the year you converted it to rental property because at that time its use changed to the production of income. Nd state income tax Idle Property Continue to claim a deduction for depreciation on property used in your rental activity even if it is temporarily idle (not in use). Nd state income tax For example, if you must make repairs after a tenant moves out, you still depreciate the rental property during the time it is not available for rent. Nd state income tax Cost or Other Basis Fully Recovered You must stop depreciating property when the total of your yearly depreciation deductions equals your cost or other basis of your property. Nd state income tax For this purpose, your yearly depreciation deductions include any depreciation that you were allowed to claim, even if you did not claim it. Nd state income tax See Basis of Depreciable Property , later. Nd state income tax Retired From Service You stop depreciating property when you retire it from service, even if you have not fully recovered its cost or other basis. Nd state income tax You retire property from service when you permanently withdraw it from use in a trade or business or from use in the production of income because of any of the following events. Nd state income tax You sell or exchange the property. Nd state income tax You convert the property to personal use. Nd state income tax You abandon the property. Nd state income tax The property is destroyed. Nd state income tax Depreciation Methods Generally, you must use the Modified Accelerated Cost Recovery System (MACRS) to depreciate residential rental property placed in service after 1986. Nd state income tax If you placed rental property in service before 1987, you are using one of the following methods. Nd state income tax ACRS (Accelerated Cost Recovery System) for property placed in service after 1980 but before 1987. Nd state income tax Straight line or declining balance method over the useful life of property placed in service before 1981. Nd state income tax See MACRS Depreciation , later, for more information. Nd state income tax Rental property placed in service before 2013. Nd state income tax   Continue to use the same method of figuring depreciation that you used in the past. Nd state income tax Use of real property changed. Nd state income tax   Generally, you must use MACRS to depreciate real property that you acquired for personal use before 1987 and changed to business or income-producing use after 1986. Nd state income tax This includes your residence that you changed to rental use. Nd state income tax See Property Owned or Used in 1986 in Publication 946, chapter 1, for those situations in which MACRS is not allowed. Nd state income tax Improvements made after 1986. Nd state income tax   Treat an improvement made after 1986 to property you placed in service before 1987 as separate depreciable property. Nd state income tax As a result, you can depreciate that improvement as separate property under MACRS if it is the type of property that otherwise qualifies for MACRS depreciation. Nd state income tax For more information about improvements, see Additions or improvements to property , later in this chapter under Recovery Periods Under GDS. Nd state income tax This publication discusses MACRS depreciation only. Nd state income tax If you need information about depreciating property placed in service before 1987, see Publication 534. Nd state income tax Basis of Depreciable Property The basis of property used in a rental activity is generally its adjusted basis when you place it in service in that activity. Nd state income tax This is its cost or other basis when you acquired it, adjusted for certain items occurring before you place it in service in the rental activity. Nd state income tax If you depreciate your property under MACRS, you may also have to reduce your basis by certain deductions and credits with respect to the property. Nd state income tax Basis and adjusted basis are explained in the following discussions. Nd state income tax If you used the property for personal purposes before changing it to rental use, its basis for depreciation is the lesser of its adjusted basis or its fair market value when you change it to rental use. Nd state income tax See Basis of Property Changed to Rental Use in chapter 4. Nd state income tax Cost Basis The basis of property you buy is usually its cost. Nd state income tax The cost is the amount you pay for it in cash, in debt obligation, in other property, or in services. Nd state income tax Your cost also includes amounts you pay for: Sales tax charged on the purchase (but see Exception next), Freight charges to obtain the property, and Installation and testing charges. Nd state income tax Exception. Nd state income tax   If you deducted state and local general sales taxes as an itemized deduction on Schedule A (Form 1040), do not include those sales taxes as part of your cost basis. Nd state income tax Such taxes were deductible before 1987 and after 2003. Nd state income tax Loans with low or no interest. Nd state income tax   If you buy property on any time-payment plan that charges little or no interest, the basis of your property is your stated purchase price, less the amount considered to be unstated interest. Nd state income tax See Unstated Interest and Original Issue Discount (OID) in Publication 537, Installment Sales. Nd state income tax Real property. Nd state income tax   If you buy real property, such as a building and land, certain fees and other expenses you pay are part of your cost basis in the property. Nd state income tax Real estate taxes. Nd state income tax   If you buy real property and agree to pay real estate taxes on it that were owed by the seller and the seller does not reimburse you, the taxes you pay are treated as part of your basis in the property. Nd state income tax You cannot deduct them as taxes paid. Nd state income tax   If you reimburse the seller for real estate taxes the seller paid for you, you can usually deduct that amount. Nd state income tax Do not include that amount in your basis in the property. Nd state income tax Settlement fees and other costs. Nd state income tax   The following settlement fees and closing costs for buying the property are part of your basis in the property. Nd state income tax Abstract fees. Nd state income tax Charges for installing utility services. Nd state income tax Legal fees. Nd state income tax Recording fees. Nd state income tax Surveys. Nd state income tax Transfer taxes. Nd state income tax Title insurance. Nd state income tax Any amounts the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, charges for improvements or repairs, and sales commissions. Nd state income tax   The following are settlement fees and closing costs you cannot include in your basis in the property. Nd state income tax Fire insurance premiums. Nd state income tax Rent or other charges relating to occupancy of the property before closing. Nd state income tax Charges connected with getting or refinancing a loan, such as: Points (discount points, loan origination fees), Mortgage insurance premiums, Loan assumption fees, Cost of a credit report, and Fees for an appraisal required by a lender. Nd state income tax   Also, do not include amounts placed in escrow for the future payment of items such as taxes and insurance. Nd state income tax Assumption of a mortgage. Nd state income tax   If you buy property and become liable for an existing mortgage on the property, your basis is the amount you pay for the property plus the amount remaining to be paid on the mortgage. Nd state income tax Example. Nd state income tax You buy a building for $60,000 cash and assume a mortgage of $240,000 on it. Nd state income tax Your basis is $300,000. Nd state income tax Separating cost of land and buildings. Nd state income tax   If you buy buildings and your cost includes the cost of the land on which they stand, you must divide the cost between the land and the buildings to figure the basis for depreciation of the buildings. Nd state income tax The part of the cost that you allocate to each asset is the ratio of the fair market value of that asset to the fair market value of the whole property at the time you buy it. Nd state income tax   If you are not certain of the fair market values of the land and the buildings, you can divide the cost between them based on their assessed values for real estate tax purposes. Nd state income tax Example. Nd state income tax You buy a house and land for $200,000. Nd state income tax The purchase contract does not specify how much of the purchase price is for the house and how much is for the land. Nd state income tax The latest real estate tax assessment on the property was based on an assessed value of $160,000, of which $136,000 was for the house and $24,000 was for the land. Nd state income tax You can allocate 85% ($136,000 ÷ $160,000) of the purchase price to the house and 15% ($24,000 ÷ $160,000) of the purchase price to the land. Nd state income tax Your basis in the house is $170,000 (85% of $200,000) and your basis in the land is $30,000 (15% of $200,000). Nd state income tax Basis Other Than Cost You cannot use cost as a basis for property that you received: In return for services you performed; In an exchange for other property; As a gift; From your spouse, or from your former spouse as the result of a divorce; or As an inheritance. Nd state income tax If you received property in one of these ways, see Publication 551 for information on how to figure your basis. Nd state income tax Adjusted Basis To figure your property's basis for depreciation, you may have to make certain adjustments (increases and decreases) to the basis of the property for events occurring between the time you acquired the property and the time you placed it in service for business or the production of income. Nd state income tax The result of these adjustments to the basis is the adjusted basis. Nd state income tax Increases to basis. Nd state income tax   You must increase the basis of any property by the cost of all items properly added to a capital account. Nd state income tax These include the following. Nd state income tax The cost of any additions or improvements made before placing your property into service as a rental that have a useful life of more than 1 year. Nd state income tax Amounts spent after a casualty to restore the damaged property. Nd state income tax The cost of extending utility service lines to the property. Nd state income tax Legal fees, such as the cost of defending and perfecting title, or settling zoning issues. Nd state income tax Additions or improvements. Nd state income tax   Add to the basis of your property the amount an addition or improvement actually cost you, including any amount you borrowed to make the addition or improvement. Nd state income tax This includes all direct costs, such as material and labor, but does not include your own labor. Nd state income tax It also includes all expenses related to the addition or improvement. Nd state income tax   For example, if you had an architect draw up plans for remodeling your property, the architect's fee is a part of the cost of the remodeling. Nd state income tax Or, if you had your lot surveyed to put up a fence, the cost of the survey is a part of the cost of the fence. Nd state income tax   Keep separate accounts for depreciable additions or improvements made after you place the property in service in your rental activity. Nd state income tax For information on depreciating additions or improvements, see Additions or improvements to property , later in this chapter, under Recovery Periods Under GDS. Nd state income tax    The cost of landscaping improvements is usually treated as an addition to the basis of the land, which is not depreciable. Nd state income tax However, see What Rental Property Cannot Be Depreciated, earlier. Nd state income tax Assessments for local improvements. Nd state income tax   Assessments for items which tend to increase the value of property, such as streets and sidewalks, must be added to the basis of the property. Nd state income tax For example, if your city installs curbing on the street in front of your house, and assesses you and your neighbors for its cost, you must add the assessment to the basis of your property. Nd state income tax Also add the cost of legal fees paid to obtain a decrease in an assessment levied against property to pay for local improvements. Nd state income tax You cannot deduct these items as taxes or depreciate them. Nd state income tax    However, you can deduct as taxes, charges or assessments for maintenance, repairs, or interest charges related to the improvements. Nd state income tax Do not add them to your basis in the property. Nd state income tax Deducting vs. Nd state income tax capitalizing costs. Nd state income tax   Do not add to your basis costs you can deduct as current expenses. Nd state income tax However, there are certain costs you can choose either to deduct or to capitalize. Nd state income tax If you capitalize these costs, include them in your basis. Nd state income tax If you deduct them, do not include them in your basis. Nd state income tax   The costs you may choose to deduct or capitalize include carrying charges, such as interest and taxes, that you must pay to own property. Nd state income tax   For more information about deducting or capitalizing costs and how to make the election, see Carrying Charges in Publication 535, chapter 7. Nd state income tax Decreases to basis. Nd state income tax   You must decrease the basis of your property by any items that represent a return of your cost. Nd state income tax These include the following. Nd state income tax Insurance or other payment you receive as the result of a casualty or theft loss. Nd state income tax Casualty loss not covered by insurance for which you took a deduction. Nd state income tax Amount(s) you receive for granting an easement. Nd state income tax Residential energy credits you were allowed before 1986, or after 2005, if you added the cost of the energy items to the basis of your home. Nd state income tax Exclusion from income of subsidies for energy conservation measures. Nd state income tax Special depreciation allowance claimed on qualified property. Nd state income tax Depreciation you deducted, or could have deducted, on your tax returns under the method of depreciation you chose. Nd state income tax If you did not deduct enough or deducted too much in any year, see Depreciation under Decreases to Basis in Publication 551. Nd state income tax   If your rental property was previously used as your main home, you must also decrease the basis by the following. Nd state income tax Gain you postponed from the sale of your main home before May 7, 1997, if the replacement home was converted to your rental property. Nd state income tax District of Columbia first-time homebuyer credit allowed on the purchase of your main home after August 4, 1997 and before January 1, 2012. Nd state income tax Amount of qualified principal residence indebtedness discharged on or after January 1, 2007. Nd state income tax Claiming the Special Depreciation Allowance For 2013, your residential rental property may qualify for a special depreciation allowance. Nd state income tax This allowance is figured before you figure your regular depreciation deduction. Nd state income tax See Publication 946, chapter 3, for details. Nd state income tax Also see the Instructions for Form 4562, Line 14. Nd state income tax If you qualify for, but choose not to take, a special depreciation allowance, you must attach a statement to your return. Nd state income tax The details of this election are in Publication 946, chapter 3, and the Instructions for Form 4562, Line 14. Nd state income tax MACRS Depreciation Most business and investment property placed in service after 1986 is depreciated using MACRS. Nd state income tax This section explains how to determine which MACRS depreciation system applies to your property. Nd state income tax It also discusses other information you need to know before you can figure depreciation under MACRS. Nd state income tax This information includes the property's: Recovery class, Applicable recovery period, Convention, Placed-in-service date, Basis for depreciation, and Depreciation method. Nd state income tax Depreciation Systems MACRS consists of two systems that determine how you depreciate your property—the General Depreciation System (GDS) and the Alternative Depreciation System (ADS). Nd state income tax You must use GDS unless you are specifically required by law to use ADS or you elect to use ADS. Nd state income tax Excluded Property You cannot use MACRS for certain personal property (such as furniture or appliances) placed in service in your rental property in 2013 if it had been previously placed in service before 1987 when MACRS became effective. Nd state income tax In most cases, personal property is excluded from MACRS if you (or a person related to you) owned or used it in 1986 or if your tenant is a person (or someone related to the person) who owned or used it in 1986. Nd state income tax However, the property is not excluded if your 2013 deduction under MACRS (using a half-year convention) is less than the deduction you would have under ACRS. Nd state income tax For more information, see What Method Can You Use To Depreciate Your Property? in Publication 946, chapter 1. Nd state income tax Electing ADS If you choose, you can use the ADS method for most property. Nd state income tax Under ADS, you use the straight line method of depreciation. Nd state income tax The election of ADS for one item in a class of property generally applies to all property in that class that is placed in service during the tax year of the election. Nd state income tax However, the election applies on a property-by-property basis for residential rental property and nonresidential real property. Nd state income tax If you choose to use ADS for your residential rental property, the election must be made in the first year the property is placed in service. Nd state income tax Once you make this election, you can never revoke it. Nd state income tax For property placed in service during 2013, you make the election to use ADS by entering the depreciation on Form 4562, Part III, Section C, line 20c. Nd state income tax Property Classes Under GDS Each item of property that can be depreciated under MACRS is assigned to a property class, determined by its class life. Nd state income tax The property class generally determines the depreciation method, recovery period, and convention. Nd state income tax The property classes under GDS are: 3-year property, 5-year property, 7-year property, 10-year property, 15-year property, 20-year property, Nonresidential real property, and Residential rental property. Nd state income tax Under MACRS, property that you placed in service during 2013 in your rental activities generally falls into one of the following classes. Nd state income tax 5-year property. Nd state income tax This class includes computers and peripheral equipment, office machinery (typewriters, calculators, copiers, etc. Nd state income tax ), automobiles, and light trucks. Nd state income tax This class also includes appliances, carpeting, furniture, etc. Nd state income tax , used in a residential rental real estate activity. Nd state income tax Depreciation on automobiles, other property used for transportation, computers and related peripheral equipment, and property of a type generally used for entertainment, recreation, or amusement is limited. Nd state income tax See chapter 5 of Publication 946. Nd state income tax 7-year property. Nd state income tax This class includes office furniture and equipment (desks, file cabinets, etc. Nd state income tax ). Nd state income tax This class also includes any property that does not have a class life and that has not been designated by law as being in any other class. Nd state income tax 15-year property. Nd state income tax This class includes roads, fences, and shrubbery (if depreciable). Nd state income tax Residential rental property. Nd state income tax This class includes any real property that is a rental building or structure (including a mobile home) for which 80% or more of the gross rental income for the tax year is from dwelling units. Nd state income tax It does not include a unit in a hotel, motel, inn, or other establishment where more than half of the units are used on a transient basis. Nd state income tax If you live in any part of the building or structure, the gross rental income includes the fair rental value of the part you live in. Nd state income tax The other property classes do not generally apply to property used in rental activities. Nd state income tax These classes are not discussed in this publication. Nd state income tax See Publication 946 for more information. Nd state income tax Recovery Periods Under GDS The recovery period of property is the number of years over which you recover its cost or other basis. Nd state income tax The recovery periods are generally longer under ADS than GDS. Nd state income tax The recovery period of property depends on its property class. Nd state income tax Under GDS, the recovery period of an asset is generally the same as its property class. Nd state income tax Class lives and recovery periods for most assets are listed in Appendix B of Publication 946. Nd state income tax See Table 2-1 for recovery periods of property commonly used in residential rental activities. Nd state income tax Qualified Indian reservation property. Nd state income tax   Shorter recovery periods are provided under MACRS for qualified Indian reservation property placed in service on Indian reservations. Nd state income tax For more information, see chapter 4 of Publication 946. Nd state income tax Additions or improvements to property. Nd state income tax   Treat additions or improvements you make to your depreciable rental property as separate property items for depreciation purposes. Nd state income tax   The property class and recovery period of the addition or improvement is the one that would apply to the original property if you had placed it in service at the same time as the addition or improvement. Nd state income tax   The recovery period for an addition or improvement to property begins on the later of: The date the addition or improvement is placed in service, or The date the property to which the addition or improvement was made is placed in service. Nd state income tax Example. Nd state income tax You own a residential rental house that you have been renting since 1986 and depreciating under ACRS. Nd state income tax You built an addition onto the house and placed it in service in 2013. Nd state income tax You must use MACRS for the addition. Nd state income tax Under GDS, the addition is depreciated as residential rental property over 27. Nd state income tax 5 years. Nd state income tax Table 2-1. Nd state income tax MACRS Recovery Periods for Property Used in Rental Activities   MACRS Recovery Period   Type of Property General Depreciation System Alternative Depreciation System   Computers and their peripheral equipment 5 years 5 years   Office machinery, such as: Typewriters Calculators Copiers 5 years 6 years   Automobiles 5 years 5 years   Light trucks 5 years 5 years   Appliances, such as: Stoves Refrigerators 5 years 9 years   Carpets 5 years 9 years   Furniture used in rental property 5 years 9 years   Office furniture and equipment, such as: Desks Files 7 years 10 years   Any property that does not have a class life and that has not been designated by law as being in any other class 7 years 12 years   Roads 15 years 20 years   Shrubbery 15 years 20 years   Fences 15 years 20 years   Residential rental property (buildings or structures) and structural components such as furnaces, waterpipes, venting, etc. Nd state income tax 27. Nd state income tax 5 years 40 years   Additions and improvements, such as a new roof The same recovery period as that of the property to which the addition or improvement is made, determined as if the property were placed in service at the same time as the addition or improvement. Nd state income tax   Conventions A convention is a method established under MACRS to set the beginning and end of the recovery period. Nd state income tax The convention you use determines the number of months for which you can claim depreciation in the year you place property in service and in the year you dispose of the property. Nd state income tax Mid-month convention. Nd state income tax    A mid-month convention is used for all residential rental property and nonresidential real property. Nd state income tax Under this convention, you treat all property placed in service, or disposed of, during any month as placed in service, or disposed of, at the midpoint of that month. Nd state income tax Mid-quarter convention. Nd state income tax   A mid-quarter convention must be used if the mid-month convention does not apply and the total depreciable basis of MACRS property placed in service in the last 3 months of a tax year (excluding nonresidential real property, residential rental property, and property placed in service and disposed of in the same year) is more than 40% of the total basis of all such property you place in service during the year. Nd state income tax   Under this convention, you treat all property placed in service, or disposed of, during any quarter of a tax year as placed in service, or disposed of, at the midpoint of the quarter. Nd state income tax Example. Nd state income tax During the tax year, Tom Martin purchased the following items to use in his rental property. Nd state income tax He elects not to claim the special depreciation allowance discussed earlier. Nd state income tax A dishwasher for $400 that he placed in service in January. Nd state income tax Used furniture for $100 that he placed in service in September. Nd state income tax A refrigerator for $800 that he placed in service in October. Nd state income tax Tom uses the calendar year as his tax year. Nd state income tax The total basis of all property placed in service that year is $1,300. Nd state income tax The $800 basis of the refrigerator placed in service during the last 3 months of his tax year exceeds $520 (40% × $1,300). Nd state income tax Tom must use the mid-quarter convention instead of the half-year convention for all three items. Nd state income tax Half-year convention. Nd state income tax    The half-year convention is used if neither the mid-quarter convention nor the mid-month convention applies. Nd state income tax Under this convention, you treat all property placed in service, or disposed of, during a tax year as placed in service, or disposed of, at the midpoint of that tax year. Nd state income tax   If this convention applies, you deduct a half year of depreciation for the first year and the last year that you depreciate the property. Nd state income tax You deduct a full year of depreciation for any other year during the recovery period. Nd state income tax Figuring Your Depreciation Deduction You can figure your MACRS depreciation deduction in one of two ways. Nd state income tax The deduction is substantially the same both ways. Nd state income tax You can either: Actually compute the deduction using the depreciation method and convention that apply over the recovery period of the property, or Use the percentage from the MACRS percentage tables. Nd state income tax In this publication we will use the percentage tables. Nd state income tax For instructions on how to compute the deduction, see chapter 4 of Publication 946. Nd state income tax Residential rental property. Nd state income tax   You must use the straight line method and a mid-month convention for residential rental property. Nd state income tax In the first year that you claim depreciation for residential rental property, you can claim depreciation only for the number of months the property is in use, and you must use the mid-month convention (explained under Conventions , earlier). Nd state income tax 5-, 7-, or 15-year property. Nd state income tax   For property in the 5- or 7-year class, use the 200% declining balance method and a half-year convention. Nd state income tax However, in limited cases you must use the mid-quarter convention, if it applies. Nd state income tax For property in the 15-year class, use the 150% declining balance method and a half-year convention. Nd state income tax   You can also choose to use the 150% declining balance method for property in the 5- or 7-year class. Nd state income tax The choice to use the 150% method for one item in a class of property applies to all property in that class that is placed in service during the tax year of the election. Nd state income tax You make this election on Form 4562. Nd state income tax In Part III, column (f), enter “150 DB. Nd state income tax ” Once you make this election, you cannot change to another method. Nd state income tax   If you use either the 200% or 150% declining balance method, you figure your deduction using the straight line method in the first tax year that the straight line method gives you an equal or larger deduction. Nd state income tax   You can also choose to use the straight line method with a half-year or mid-quarter convention for 5-, 7-, or 15-year property. Nd state income tax The choice to use the straight line method for one item in a class of property applies to all property in that class that is placed in service during the tax year of the election. Nd state income tax You elect the straight line method on Form 4562. Nd state income tax In Part III, column (f), enter “S/L. Nd state income tax ” Once you make this election, you cannot change to another method. Nd state income tax MACRS Percentage Tables You can use the percentages in Table 2-2, earlier, to compute annual depreciation under MACRS. Nd state income tax The tables show the percentages for the first few years or until the change to the straight line method is made. Nd state income tax See Appendix A of Publication 946 for complete tables. Nd state income tax The percentages in Tables 2-2a, 2-2b, and 2-2c make the change from declining balance to straight line in the year that straight line will give a larger deduction. Nd state income tax If you elect to use the straight line method for 5-, 7-, or 15-year property, or the 150% declining balance method for 5- or 7-year property, use the tables in Appendix A of Publication 946. Nd state income tax How to use the percentage tables. Nd state income tax   You must apply the table rates to your property's unadjusted basis (defined below) each year of the recovery period. Nd state income tax   Once you begin using a percentage table to figure depreciation, you must continue to use it for the entire recovery period unless there is an adjustment to the basis of your property for a reason other than: Depreciation allowed or allowable, or An addition or improvement that is depreciated as a separate item of property. Nd state income tax   If there is an adjustment for any reason other than (1) or (2), for example, because of a deductible casualty loss, you can no longer use the table. Nd state income tax For the year of the adjustment and for the remaining recovery period, figure depreciation using the property's adjusted basis at the end of the year and the appropriate depreciation method, as explained earlier under Figuring Your Depreciation Deduction . Nd state income tax See Figuring the Deduction Without Using the Tables in Publication 946, chapter 4. Nd state income tax Unadjusted basis. Nd state income tax   This is the same basis you would use to figure gain on a sale (see Basis of Depreciable Property , earlier), but without reducing your original basis by any MACRS depreciation taken in earlier years. Nd state income tax   However, you do reduce your original basis by other amounts claimed on the property, including: Any amortization, Any section 179 deduction, and Any special depreciation allowance. Nd state income tax For more information, see chapter 4 of Publication 946. Nd state income tax Please click here for the text description of the image. Nd state income tax Table 2-2 Tables 2-2a, 2-2b, and 2-2c. Nd state income tax   The percentages in these tables take into account the half-year and mid-quarter conventions. Nd state income tax Use Table 2-2a for 5-year property, Table 2-2b for 7-year property, and Table 2-2c for 15-year property. Nd state income tax Use the percentage in the second column (half-year convention) unless you are required to use the mid-quarter convention (explained earlier). Nd state income tax If you must use the mid-quarter convention, use the column that corresponds to the calendar year quarter in which you placed the property in service. Nd state income tax Example 1. Nd state income tax You purchased a stove and refrigerator and placed them in service in June. Nd state income tax Your basis in the stove is $600 and your basis in the refrigerator is $1,000. Nd state income tax Both are 5-year property. Nd state income tax Using the half-year convention column in Table 2-2a, the depreciation percentage for Year 1 is 20%. Nd state income tax For that year your depreciation deduction is $120 ($600 × . Nd state income tax 20) for the stove and $200 ($1,000 × . Nd state income tax 20) for the refrigerator. Nd state income tax For Year 2, the depreciation percentage is 32%. Nd state income tax That year's depreciation deduction will be $192 ($600 × . Nd state income tax 32) for the stove and $320 ($1,000 × . Nd state income tax 32) for the refrigerator. Nd state income tax Example 2. Nd state income tax Assume the same facts as in Example 1, except you buy the refrigerator in October instead of June. Nd state income tax Since the refrigerator was placed in service in the last 3 months of the tax year, and its basis ($1,000) is more than 40% of the total basis of all property placed in service during the year ($1,600 × . Nd state income tax 40 = $640), you are required to use the mid-quarter convention to figure depreciation on both the stove and refrigerator. Nd state income tax Because you placed the refrigerator in service in October, you use the fourth quarter column of Table 2-2a and find the depreciation percentage for Year 1 is 5%. Nd state income tax Your depreciation deduction for the refrigerator is $50 ($1,000 x . Nd state income tax 05). Nd state income tax Because you placed the stove in service in June, you use the second quarter column of Table 2-2a and find the depreciation percentage for Year 1 is 25%. Nd state income tax For that year, your depreciation deduction for the stove is $150 ($600 x . Nd state income tax 25). Nd state income tax Table 2-2d. Nd state income tax    Use this table when you are using the GDS 27. Nd state income tax 5 year option for residential rental property. Nd state income tax Find the row for the month that you placed the property in service. Nd state income tax Use the percentages listed for that month to figure your depreciation deduction. Nd state income tax The mid-month convention is taken into account in the percentages shown in the table. Nd state income tax Continue to use the same row (month) under the column for the appropriate year. Nd state income tax Example. Nd state income tax You purchased a single family rental house for $185,000 and placed it in service on February 8. Nd state income tax The sales contract showed that the building cost $160,000 and the land cost $25,000. Nd state income tax Your basis for depreciation is its original cost, $160,000. Nd state income tax This is the first year of service for your residential rental property and you decide to use GDS which has a recovery period of 27. Nd state income tax 5 years. Nd state income tax Using Table 2-2d, you find that the percentage for property placed in service in February of Year 1 is 3. Nd state income tax 182%. Nd state income tax That year's depreciation deduction is $5,091 ($160,000 x . Nd state income tax 03182). Nd state income tax Figuring MACRS Depreciation Under ADS Table 2–1, earlier, shows the ADS recovery periods for property used in rental activities. Nd state income tax See Appendix B in Publication 946 for other property. Nd state income tax If your property is not listed in Appendix B, it is considered to have no class life. Nd state income tax Under ADS, personal property with no class life is depreciated using a recovery period of 12 years. Nd state income tax Use the mid-month convention for residential rental property and nonresidential real property. Nd state income tax For all other property, use the half-year or mid-quarter convention, as appropriate. Nd state income tax See Publication 946 for ADS depreciation tables. Nd state income tax Claiming the Correct Amount of Depreciation You should claim the correct amount of depreciation each tax year. Nd state income tax If you did not claim all the depreciation you were entitled to deduct, you must still reduce your basis in the property by the full amount of depreciation that you could have deducted. Nd state income tax For more information, see Depreciation under Decreases to Basis in Publication 551. Nd state income tax If you deducted an incorrect amount of depreciation for property in any year, you may be able to make a correction by filing Form 1040X, Amended U. Nd state income tax S. Nd state income tax Individual Income Tax Return. Nd state income tax If you are not allowed to make the correction on an amended return, you can change your accounting method to claim the correct amount of depreciation. Nd state income tax Filing an amended return. Nd state income tax   You can file an amended return to correct the amount of depreciation claimed for any property in any of the following situations. Nd state income tax You claimed the incorrect amount because of a mathematical error made in any year. Nd state income tax You claimed the incorrect amount because of a posting error made in any year. Nd state income tax You have not adopted a method of accounting for property placed in service by you in tax years ending after December 29, 2003. Nd state income tax You claimed the incorrect amount on property placed in service by you in tax years ending before December 30, 2003. Nd state income tax   Generally, you adopt a method of accounting for depreciation by using a permissible method of determining depreciation when you file your first tax return for the property used in your rental activity. Nd state income tax This also occurs when you use the same impermissible method of determining depreciation (for example, using the wrong MACRS recovery period) in two or more consecutively filed tax returns. Nd state income tax   If an amended return is allowed, you must file it by the later of the following dates. Nd state income tax 3 years from the date you filed your original return for the year in which you did not deduct the correct amount. Nd state income tax A return filed before an unextended due date is considered filed on that due date. Nd state income tax 2 years from the time you paid your tax for that year. Nd state income tax Changing your accounting method. Nd state income tax   To change your accounting method, you generally must file Form 3115, Application for Change in Accounting Method, to get the consent of the IRS. Nd state income tax In some instances, that consent is automatic. Nd state income tax For more information, see Changing Your Accounting Method in Publication 946,  chapter 1. Nd state income tax Prev  Up  Next   Home   More Online Publications
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The Nd State Income Tax

Nd state income tax 7. Nd state income tax   Interest Income Table of Contents Reminder Introduction Useful Items - You may want to see: General InformationSSN for joint account. Nd state income tax Custodian account for your child. Nd state income tax Penalty for failure to supply SSN. Nd state income tax Reporting backup withholding. Nd state income tax Savings account with parent as trustee. Nd state income tax Interest not reported on Form 1099-INT. Nd state income tax Nominees. Nd state income tax Incorrect amount. Nd state income tax Information reporting requirement. Nd state income tax Taxable InterestInterest subject to penalty for early withdrawal. Nd state income tax Money borrowed to invest in certificate of deposit. Nd state income tax U. Nd state income tax S. Nd state income tax Savings Bonds Education Savings Bond Program U. Nd state income tax S. Nd state income tax 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. Nd state income tax How To Report Interest IncomeSchedule B (Form 1040A or 1040). Nd state income tax Reporting tax-exempt interest. Nd state income tax U. Nd state income tax S. Nd state income tax savings bond interest previously reported. Nd state income tax Reminder Foreign-source income. Nd state income tax  If you are a U. Nd state income tax S. Nd state income tax 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. Nd state income tax S. Nd state income tax law. Nd state income tax 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. Nd state income tax Introduction This chapter discusses the following topics. Nd state income tax Different types of interest income. Nd state income tax What interest is taxable and what interest is nontaxable. Nd state income tax When to report interest income. Nd state income tax How to report interest income on your tax return. Nd state income tax In general, any interest you receive or that is credited to your account and can be withdrawn is taxable income. Nd state income tax Exceptions to this rule are discussed later in this chapter. Nd state income tax You may be able to deduct expenses you have in earning this income on Schedule A (Form 1040) if you itemize your deductions. Nd state income tax See Money borrowed to invest in certificate of deposit , later, and chapter 28. Nd state income tax 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. Nd state income tax S. Nd state income tax Savings Bonds Issued After 1989 8818 Optional Form To Record Redemption of Series EE and I U. Nd state income tax S. Nd state income tax Savings Bonds Issued After 1989 General Information A few items of general interest are covered here. Nd state income tax Recordkeeping. Nd state income tax You should keep a list showing sources and interest amounts received during the year. Nd state income tax Also, keep the forms you receive showing your interest income (Forms 1099-INT, for example) as an important part of your records. Nd state income tax Tax on unearned income of certain children. Nd state income tax    Part of a child's 2013 unearned income may be taxed at the parent's tax rate. Nd state income tax If so, Form 8615, Tax for Certain Children Who Have Unearned Income, must be completed and attached to the child's tax return. Nd state income tax If not, Form 8615 is not required and the child's income is taxed at his or her own tax rate. Nd state income tax   Some parents can choose to include the child's interest and dividends on the parent's return. Nd state income tax If you can, use Form 8814, Parents' Election To Report Child's Interest and Dividends, for this purpose. Nd state income tax   For more information about the tax on unearned income of children and the parents' election, see chapter 31. Nd state income tax Beneficiary of an estate or trust. Nd state income tax   Interest you receive as a beneficiary of an estate or trust is generally taxable income. Nd state income tax You should receive a Schedule K-1 (Form 1041), Beneficiary's Share of Income, Deductions, Credits, etc. Nd state income tax , from the fiduciary. Nd state income tax Your copy of Schedule K-1 (Form 1041) and its instructions will tell you where to report the income on your Form 1040. Nd state income tax Social security number (SSN). Nd state income tax   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. Nd state income tax This includes payers of interest. Nd state income tax If you do not give your SSN or ITIN to the payer of interest, you may have to pay a penalty. Nd state income tax SSN for joint account. Nd state income tax   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. Nd state income tax (For information on who owns the funds in a joint account, see Joint accounts , later. Nd state income tax ) If the joint account contains combined funds, give the SSN of the person whose name is listed first on the account. Nd state income tax This is because only one name and SSN can be shown on Form 1099. Nd state income tax   These rules apply both to joint ownership by a married couple and to joint ownership by other individuals. Nd state income tax 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. Nd state income tax Custodian account for your child. Nd state income tax   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. Nd state income tax 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. Nd state income tax Penalty for failure to supply SSN. Nd state income tax   If you do not give your SSN to the payer of interest, you may have to pay a penalty. Nd state income tax See Failure to supply SSN under Penalties in chapter 1. Nd state income tax Backup withholding also may apply. Nd state income tax Backup withholding. Nd state income tax   Your interest income is generally not subject to regular withholding. Nd state income tax However, it may be subject to backup withholding to ensure that income tax is collected on the income. Nd state income tax Under backup withholding, the payer of interest must withhold, as income tax, on the amount you are paid, applying the appropriate withholding rate. Nd state income tax   Backup withholding may also be required if the IRS has determined that you underreported your interest or dividend income. Nd state income tax For more information, see Backup Withholding in chapter 4. Nd state income tax Reporting backup withholding. Nd state income tax   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. Nd state income tax The Form 1099-INT will show any backup withholding as “Federal income tax withheld. Nd state income tax ” Joint accounts. Nd state income tax   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. Nd state income tax Income from property given to a child. Nd state income tax   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. Nd state income tax   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. Nd state income tax Savings account with parent as trustee. Nd state income tax   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. Nd state income tax The savings account legally belongs to the child. Nd state income tax The parents are not legally permitted to use any of the funds to support the child. Nd state income tax Form 1099-INT. Nd state income tax   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. Nd state income tax This form shows you the interest you received during the year. Nd state income tax Keep this form for your records. Nd state income tax You do not have to attach it to your tax return. Nd state income tax   Report on your tax return the total interest income you receive for the tax year. Nd state income tax Interest not reported on Form 1099-INT. Nd state income tax   Even if you do not receive Form 1099-INT, you must still report all of your interest income. Nd state income tax For example, you may receive distributive shares of interest from partnerships or S corporations. Nd state income tax This interest is reported to you on Schedule K-1 (Form 1065), Partner's Share of Income, Deduction, Credits, etc. Nd state income tax , or Schedule K-1 (Form 1120S), Shareholder's Share of Income, Deductions, Credits, etc. Nd state income tax Nominees. Nd state income tax   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. Nd state income tax   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. Nd state income tax Incorrect amount. Nd state income tax   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. Nd state income tax The new Form 1099-INT you receive will be marked “Corrected. Nd state income tax ” Form 1099-OID. Nd state income tax   Reportable interest income also may be shown on Form 1099-OID, Original Issue Discount. Nd state income tax For more information about amounts shown on this form, see Original Issue Discount (OID) , later in this chapter. Nd state income tax Exempt-interest dividends. Nd state income tax   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. Nd state income tax (However, see Information reporting requirement , next. Nd state income tax ) Exempt-interest dividends should be shown in box 10 of Form 1099-DIV. Nd state income tax You do not reduce your basis for distributions that are exempt-interest dividends. Nd state income tax Information reporting requirement. Nd state income tax   Although exempt-interest dividends are not taxable, you must show them on your tax return if you have to file. Nd state income tax This is an information reporting requirement and does not change the exempt-interest dividends into taxable income. Nd state income tax Note. Nd state income tax Exempt-interest dividends paid from specified private activity bonds may be subject to the alternative minimum tax. Nd state income tax See Alternative Minimum Tax (AMT) in chapter 30 for more information. Nd state income tax Chapter 1 of Publication 550 contains a discussion on private activity bonds under State or Local Government Obligations. Nd state income tax Interest on VA dividends. Nd state income tax   Interest on insurance dividends left on deposit with the Department of Veterans Affairs (VA) is not taxable. Nd state income tax This includes interest paid on dividends on converted United States Government Life Insurance and on National Service Life Insurance policies. Nd state income tax Individual retirement arrangements (IRAs). Nd state income tax   Interest on a Roth IRA generally is not taxable. Nd state income tax Interest on a traditional IRA is tax deferred. Nd state income tax You generally do not include it in your income until you make withdrawals from the IRA. Nd state income tax See chapter 17. Nd state income tax Taxable Interest Taxable interest includes interest you receive from bank accounts, loans you make to others, and other sources. Nd state income tax The following are some sources of taxable interest. Nd state income tax Dividends that are actually interest. Nd state income tax   Certain distributions commonly called dividends are actually interest. Nd state income tax 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. Nd state income tax  The “dividends” will be shown as interest income on Form 1099-INT. Nd state income tax Money market funds. Nd state income tax   Money market funds pay dividends and are offered by nonbank financial institutions, such as mutual funds and stock brokerage houses. Nd state income tax Generally, amounts you receive from money market funds should be reported as dividends, not as interest. Nd state income tax Certificates of deposit and other deferred interest accounts. Nd state income tax   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. Nd state income tax 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. Nd state income tax The same is true for accounts that mature in 1 year or less and pay interest in a single payment at maturity. Nd state income tax If interest is deferred for more than 1 year, see Original Issue Discount (OID) , later. Nd state income tax Interest subject to penalty for early withdrawal. Nd state income tax   If you withdraw funds from a deferred interest account before maturity, you may have to pay a penalty. Nd state income tax You must report the total amount of interest paid or credited to your account during the year, without subtracting the penalty. Nd state income tax 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. Nd state income tax Money borrowed to invest in certificate of deposit. Nd state income tax   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. Nd state income tax You must report the total interest you earn on the certificate in your income. Nd state income tax If you itemize deductions, you can deduct the interest you pay as investment interest, up to the amount of your net investment income. Nd state income tax See Interest Expenses in chapter 3 of Publication 550. Nd state income tax Example. Nd state income tax 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. Nd state income tax 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. Nd state income tax The bank gives you a Form 1099-INT for 2013 showing the $575 interest you earned. Nd state income tax The bank also gives you a statement showing that you paid $310 interest for 2013. Nd state income tax You must include the $575 in your income. Nd state income tax If you itemize your deductions on Schedule A (Form 1040), you can deduct $310, subject to the net investment income limit. Nd state income tax Gift for opening account. Nd state income tax   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. Nd state income tax   For deposits of less than $5,000, gifts or services valued at more than $10 must be reported as interest. Nd state income tax For deposits of $5,000 or more, gifts or services valued at more than $20 must be reported as interest. Nd state income tax The value is determined by the cost to the financial institution. Nd state income tax Example. Nd state income tax You open a savings account at your local bank and deposit $800. Nd state income tax The account earns $20 interest. Nd state income tax You also receive a $15 calculator. Nd state income tax 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. Nd state income tax You must report $35 interest income on your tax return. Nd state income tax Interest on insurance dividends. Nd state income tax   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. Nd state income tax 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. Nd state income tax Prepaid insurance premiums. Nd state income tax   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. Nd state income tax U. Nd state income tax S. Nd state income tax obligations. Nd state income tax   Interest on U. Nd state income tax S. Nd state income tax obligations, such as U. Nd state income tax S. Nd state income tax Treasury bills, notes, and bonds, issued by any agency or instrumentality of the United States is taxable for federal income tax purposes. Nd state income tax Interest on tax refunds. Nd state income tax   Interest you receive on tax refunds is taxable income. Nd state income tax Interest on condemnation award. Nd state income tax   If the condemning authority pays you interest to compensate you for a delay in payment of an award, the interest is taxable. Nd state income tax Installment sale payments. Nd state income tax   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. Nd state income tax That interest is taxable when you receive it. Nd state income tax If little or no interest is provided for in a deferred payment contract, part of each payment may be treated as interest. Nd state income tax See Unstated Interest and Original Issue Discount in Publication 537, Installment Sales. Nd state income tax Interest on annuity contract. Nd state income tax   Accumulated interest on an annuity contract you sell before its maturity date is taxable. Nd state income tax Usurious interest. Nd state income tax   Usurious interest is interest charged at an illegal rate. Nd state income tax This is taxable as interest unless state law automatically changes it to a payment on the principal. Nd state income tax Interest income on frozen deposits. Nd state income tax   Exclude from your gross income interest on frozen deposits. Nd state income tax 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. Nd state income tax   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). Nd state income tax 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. Nd state income tax   The interest you exclude is treated as credited to your account in the following year. Nd state income tax You must include it in income in the year you can withdraw it. Nd state income tax Example. Nd state income tax $100 of interest was credited on your frozen deposit during the year. Nd state income tax You withdrew $80 but could not withdraw any more as of the end of the year. Nd state income tax You must include $80 in your income and exclude $20 from your income for the year. Nd state income tax You must include the $20 in your income for the year you can withdraw it. Nd state income tax Bonds traded flat. Nd state income tax   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. Nd state income tax The defaulted or unpaid interest is not income and is not taxable as interest if paid later. Nd state income tax When you receive a payment of that interest, it is a return of capital that reduces the remaining cost basis of your bond. Nd state income tax Interest that accrues after the date of purchase, however, is taxable interest income for the year it is received or accrued. Nd state income tax See Bonds Sold Between Interest Dates , later, for more information. Nd state income tax Below-market loans. Nd state income tax   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. Nd state income tax See Below-Market Loans in chapter 1 of Publication 550 for more information. Nd state income tax U. Nd state income tax S. Nd state income tax Savings Bonds This section provides tax information on U. Nd state income tax S. Nd state income tax savings bonds. Nd state income tax It explains how to report the interest income on these bonds and how to treat transfers of these bonds. Nd state income tax For other information on U. Nd state income tax S. Nd state income tax savings bonds, write to:  For series EE and I paper savings bonds: Bureau of the Public Debt Division of Customer Assistance P. Nd state income tax O. Nd state income tax Box 7012 Parkersburg, WV 26106-7012  For series EE and I electronic bonds: Bureau of the Public Debt Division of Customer Assistance P. Nd state income tax O. Nd state income tax Box 7015 Parkersburg, WV 26106–7015  For series HH/H: Bureau of the Public Debt Division of Customer Assistance P. Nd state income tax O. Nd state income tax Box 2186 Parkersburg, WV 26106-2186 Or, on the Internet, visit: www. Nd state income tax treasurydirect. Nd state income tax gov/indiv/indiv. Nd state income tax htm. Nd state income tax Accrual method taxpayers. Nd state income tax   If you use an accrual method of accounting, you must report interest on U. Nd state income tax S. Nd state income tax savings bonds each year as it accrues. Nd state income tax You cannot postpone reporting interest until you receive it or until the bonds mature. Nd state income tax Accrual methods of accounting are explained in chapter 1 under Accounting Methods . Nd state income tax Cash method taxpayers. Nd state income tax   If you use the cash method of accounting, as most individual taxpayers do, you generally report the interest on U. Nd state income tax S. Nd state income tax savings bonds when you receive it. Nd state income tax The cash method of accounting is explained in chapter 1 under Accounting Methods. Nd state income tax But see Reporting options for cash method taxpayers , later. Nd state income tax Series HH bonds. Nd state income tax    These bonds were issued at face value. Nd state income tax Interest is paid twice a year by direct deposit to your bank account. Nd state income tax If you are a cash method taxpayer, you must report interest on these bonds as income in the year you receive it. Nd state income tax   Series HH bonds were first offered in 1980 and last offered in August 2004. Nd state income tax Before 1980, series H bonds were issued. Nd state income tax Series H bonds are treated the same as series HH bonds. Nd state income tax If you are a cash method taxpayer, you must report the interest when you receive it. Nd state income tax   Series H bonds have a maturity period of 30 years. Nd state income tax Series HH bonds mature in 20 years. Nd state income tax The last series H bonds matured in 2009. Nd state income tax Series EE and series I bonds. Nd state income tax   Interest on these bonds is payable when you redeem the bonds. Nd state income tax The difference between the purchase price and the redemption value is taxable interest. Nd state income tax Series EE bonds. Nd state income tax   Series EE bonds were first offered in January 1980 and have a maturity period of 30 years. Nd state income tax   Before July 1980, series E bonds were issued. Nd state income tax 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. Nd state income tax Paper series EE and series E bonds are issued at a discount. Nd state income tax The face value is payable to you at maturity. Nd state income tax Electronic series EE bonds are issued at their face value. Nd state income tax The face value plus accrued interest is payable to you at maturity. Nd state income tax As of January 1, 2012, paper savings bonds were no longer sold at financial institutions. Nd state income tax   Owners of paper series EE bonds can convert them to electronic bonds. Nd state income tax These converted bonds do not retain the denomination listed on the paper certificate but are posted at their purchase price (with accrued interest). Nd state income tax Series I bonds. Nd state income tax   Series I bonds were first offered in 1998. Nd state income tax These are inflation-indexed bonds issued at their face amount with a maturity period of 30 years. Nd state income tax The face value plus all accrued interest is payable to you at maturity. Nd state income tax Reporting options for cash method taxpayers. Nd state income tax   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. Nd state income tax Method 1. Nd state income tax Postpone reporting the interest until the earlier of the year you cash or dispose of the bonds or the year they mature. Nd state income tax (However, see Savings bonds traded , later. Nd state income tax )  Note. Nd state income tax Series EE bonds issued in 1983 matured in 2013. Nd state income tax If you have used method 1, you generally must report the interest on these bonds on your 2013 return. Nd state income tax The last series E bonds were issued in 1980 and matured in 2010. Nd state income tax If you used method 1, you generally should have reported the interest on these bonds on your 2010 return. Nd state income tax Method 2. Nd state income tax Choose to report the increase in redemption value as interest each year. Nd state income tax You must use the same method for all series EE, series E, and series I bonds you own. Nd state income tax If you do not choose method 2 by reporting the increase in redemption value as interest each year, you must use method 1. Nd state income tax    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. Nd state income tax To learn how, see Education Savings Bond Program, later. Nd state income tax Change from method 1. Nd state income tax   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. Nd state income tax In the year of change you must report all interest accrued to date and not previously reported for all your bonds. Nd state income tax   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. Nd state income tax Change from method 2. Nd state income tax   To change from method 2 to method 1, you must request permission from the IRS. Nd state income tax Permission for the change is automatically granted if you send the IRS a statement that meets all the following requirements. Nd state income tax You have typed or printed the following number at the top: “131. Nd state income tax ” It includes your name and social security number under “131. Nd state income tax ” It includes the year of change (both the beginning and ending dates). Nd state income tax It identifies the savings bonds for which you are requesting this change. Nd state income tax 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. Nd state income tax   You must attach this statement to your tax return for the year of change, which you must file by the due date (including extensions). Nd state income tax   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. Nd state income tax On the statement, type or print “Filed pursuant to section 301. Nd state income tax 9100-2. Nd state income tax ” To get this extension, you must have filed your original return for the year of the change by the due date (including extensions). Nd state income tax    By the date you file the original statement with your return, you must also send a signed copy to the address below. Nd state income tax   Internal Revenue Service Attention: CC:IT&A (Automatic Rulings Branch) P. Nd state income tax O. Nd state income tax Box 7604 Benjamin Franklin Station Washington, DC 20044   If you use a private delivery service, send the signed copy to the address below. Nd state income tax   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. Nd state income tax In that case, follow the form instructions for an automatic change. Nd state income tax No user fee is required. Nd state income tax Co-owners. Nd state income tax   If a U. Nd state income tax S. Nd state income tax 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. Nd state income tax One co-owner's funds used. Nd state income tax    If you used your funds to buy the bond, you must pay the tax on the interest. Nd state income tax This is true even if you let the other co-owner redeem the bond and keep all the proceeds. Nd state income tax 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. Nd state income tax The co-owner who redeemed the bond is a “nominee. Nd state income tax ” 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. Nd state income tax Both co-owners' funds used. Nd state income tax   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. Nd state income tax Community property. Nd state income tax   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. Nd state income tax If you file separate returns, each of you generally must report one-half of the bond interest. Nd state income tax For more information about community property, see Publication 555. Nd state income tax Table 7-1. Nd state income tax   These rules are also shown in Table 7-1. Nd state income tax Ownership transferred. Nd state income tax   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. Nd state income tax But, if the bonds were reissued in your name alone, you do not have to report the interest accrued at that time. Nd state income tax   This same rule applies when bonds (other than bonds held as community property) are transferred between spouses or incident to divorce. Nd state income tax Purchased jointly. Nd state income tax   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. Nd state income tax 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. Nd state income tax This interest, however, as well as all interest earned after the reissue, is income to the former co-owner. Nd state income tax   This income-reporting rule also applies when the bonds are reissued in the name of your former co-owner and a new co-owner. Nd state income tax But the new co-owner will report only his or her share of the interest earned after the transfer. Nd state income tax   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. Nd state income tax    Table 7-1. Nd state income tax Who Pays the Tax on U. Nd state income tax S. Nd state income tax Savings Bond Interest IF . Nd state income tax . Nd state income tax . Nd state income tax THEN the interest must be reported by . Nd state income tax . Nd state income tax . Nd state income tax you buy a bond in your name and the name of another person as co-owners, using only your own funds you. Nd state income tax 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. Nd state income tax 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. Nd state income tax you and your spouse, who live in a community property state, buy a bond that is community property you and your spouse. Nd state income tax If you file separate returns, both you and your spouse generally report one-half of the interest. Nd state income tax Example 1. Nd state income tax You and your spouse each spent an equal amount to buy a $1,000 series EE savings bond. Nd state income tax The bond was issued to you and your spouse as co-owners. Nd state income tax You both postpone reporting interest on the bond. Nd state income tax You later have the bond reissued as two $500 bonds, one in your name and one in your spouse's name. Nd state income tax At that time neither you nor your spouse has to report the interest earned to the date of reissue. Nd state income tax Example 2. Nd state income tax You bought a $1,000 series EE savings bond entirely with your own funds. Nd state income tax The bond was issued to you and your spouse as co-owners. Nd state income tax You both postpone reporting interest on the bond. Nd state income tax You later have the bond reissued as two $500 bonds, one in your name and one in your spouse's name. Nd state income tax You must report half the interest earned to the date of reissue. Nd state income tax Transfer to a trust. Nd state income tax   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. Nd state income tax 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. Nd state income tax 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. Nd state income tax   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. Nd state income tax See Savings bonds traded , later. Nd state income tax Decedents. Nd state income tax   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. Nd state income tax This is explained in chapter 1 of Publication 550. Nd state income tax Savings bonds traded. Nd state income tax   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. Nd state income tax (You cannot trade series I bonds for series HH bonds. Nd state income tax After August 31, 2004, you cannot trade any other series of bonds for series HH bonds. Nd state income tax ) Any cash you received is income up to the amount of the interest earned on the bonds traded. Nd state income tax 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. Nd state income tax 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. Nd state income tax Example. Nd state income tax You traded series EE bonds (on which you postponed reporting the interest) for $2,500 in series HH bonds and $223 in cash. Nd state income tax You reported the $223 as taxable income on your tax return. Nd state income tax At the time of the trade, the series EE bonds had accrued interest of $523 and a redemption value of $2,723. Nd state income tax You hold the series HH bonds until maturity, when you receive $2,500. Nd state income tax You must report $300 as interest income in the year of maturity. Nd state income tax This is the difference between their redemption value, $2,500, and your cost, $2,200 (the amount you paid for the series EE bonds). Nd state income tax (It is also the difference between the accrued interest of $523 on the series EE bonds and the $223 cash received on the trade. Nd state income tax ) Choice to report interest in year of trade. Nd state income tax   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. Nd state income tax If you made this choice, it is treated as a change from method 1. Nd state income tax See Change from method 1 under Series EE and series I bonds, earlier. Nd state income tax Form 1099-INT for U. Nd state income tax S. Nd state income tax savings bonds interest. Nd state income tax   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. Nd state income tax 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. Nd state income tax However, your Form 1099-INT may show more interest than you have to include on your income tax return. Nd state income tax For example, this may happen if any of the following are true. Nd state income tax You chose to report the increase in the redemption value of the bond each year. Nd state income tax The interest shown on your Form 1099-INT will not be reduced by amounts previously included in income. Nd state income tax You received the bond from a decedent. Nd state income tax 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. Nd state income tax Ownership of the bond was transferred. Nd state income tax The interest shown on your Form 1099-INT will not be reduced by interest that accrued before the transfer. Nd state income tax You were named as a co-owner, and the other co-owner contributed funds to buy the bond. Nd state income tax The interest shown on your Form 1099-INT will not be reduced by the amount you received as nominee for the other co-owner. Nd state income tax (See Co-owners , earlier in this chapter, for more information about the reporting requirements. Nd state income tax ) You received the bond in a taxable distribution from a retirement or profit-sharing plan. Nd state income tax 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. Nd state income tax (This amount is generally shown on Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. Nd state income tax , for the year of distribution. Nd state income tax )   For more information on including the correct amount of interest on your return, see How To Report Interest Income , later. Nd state income tax Publication 550 includes examples showing how to report these amounts. Nd state income tax    Interest on U. Nd state income tax S. Nd state income tax savings bonds is exempt from state and local taxes. Nd state income tax The Form 1099-INT you receive will indicate the amount that is for U. Nd state income tax S. Nd state income tax savings bond interest in box 3. Nd state income tax 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. Nd state income tax S. Nd state income tax savings bonds during the year if you pay qualified higher educational expenses during the same year. Nd state income tax This exclusion is known as the Education Savings Bond Program. Nd state income tax You do not qualify for this exclusion if your filing status is married filing separately. Nd state income tax Form 8815. Nd state income tax   Use Form 8815 to figure your exclusion. Nd state income tax Attach the form to your Form 1040 or Form 1040A. Nd state income tax Qualified U. Nd state income tax S. Nd state income tax savings bonds. Nd state income tax   A qualified U. Nd state income tax S. Nd state income tax savings bond is a series EE bond issued after 1989 or a series I bond. Nd state income tax The bond must be issued either in your name (sole owner) or in your and your spouse's names (co-owners). Nd state income tax You must be at least 24 years old before the bond's issue date. Nd state income tax 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. Nd state income tax    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. Nd state income tax Beneficiary. Nd state income tax   You can designate any individual (including a child) as a beneficiary of the bond. Nd state income tax Verification by IRS. Nd state income tax   If you claim the exclusion, the IRS will check it by using bond redemption information from the Department of the Treasury. Nd state income tax Qualified expenses. Nd state income tax   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. Nd state income tax   Qualified expenses include any contribution you make to a qualified tuition program or to a Coverdell education savings account. Nd state income tax   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. Nd state income tax Eligible educational institutions. Nd state income tax   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. Nd state income tax S. Nd state income tax Department of Education. Nd state income tax Reduction for certain benefits. Nd state income tax   You must reduce your qualified higher educational expenses by all of the following tax-free benefits. Nd state income tax Tax-free part of scholarships and fellowships (see Scholarships and fellowships in chapter 12). Nd state income tax Expenses used to figure the tax-free portion of distributions from a Coverdell ESA. Nd state income tax Expenses used to figure the tax-free portion of distributions from a qualified tuition program. Nd state income tax 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. Nd state income tax Any expense used in figuring the American Opportunity and lifetime learning credits. Nd state income tax Amount excludable. Nd state income tax   If the total proceeds (interest and principal) from the qualified U. Nd state income tax S. Nd state income tax 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. Nd state income tax If the proceeds are more than the expenses, you may be able to exclude only part of the interest. Nd state income tax   To determine the excludable amount, multiply the interest part of the proceeds by a fraction. Nd state income tax The numerator of the fraction is the qualified higher educational expenses you paid during the year. Nd state income tax The denominator of the fraction is the total proceeds you received during the year. Nd state income tax Example. Nd state income tax In February 2013, Mark and Joan, a married couple, cashed a qualified series EE U. Nd state income tax S. Nd state income tax savings bond they bought in April 1997. Nd state income tax They received proceeds of $8,372 representing principal of $5,000 and interest of $3,372. Nd state income tax In 2013, they paid $4,000 of their daughter's college tuition. Nd state income tax They are not claiming an education credit for that amount, and their daughter does not have any tax-free educational assistance. Nd state income tax They can exclude $1,611 ($3,372 × ($4,000 ÷ $8,372)) of interest in 2013. Nd state income tax They must pay tax on the remaining $1,761 ($3,372 − $1,611) interest. Nd state income tax Modified adjusted gross income limit. Nd state income tax   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. Nd state income tax 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. Nd state income tax   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. Nd state income tax   Use the Line 9 Worksheet in the Form 8815 instructions to figure your modified AGI. Nd state income tax 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. Nd state income tax   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. Nd state income tax Recordkeeping. Nd state income tax If you claim the interest exclusion, you must keep a written record of the qualified U. Nd state income tax S. Nd state income tax savings bonds you redeem. Nd state income tax Your record must include the serial number, issue date, face value, and total redemption proceeds (principal and interest) of each bond. Nd state income tax You can use Form 8818 to record this information. Nd state income tax You should also keep bills, receipts, canceled checks, or other documentation that shows you paid qualified higher educational expenses during the year. Nd state income tax U. Nd state income tax S. Nd state income tax Treasury Bills, Notes, and Bonds Treasury bills, notes, and bonds are direct debts (obligations) of the U. Nd state income tax S. Nd state income tax Government. Nd state income tax Taxation of interest. Nd state income tax   Interest income from Treasury bills, notes, and bonds is subject to federal income tax but is exempt from all state and local income taxes. Nd state income tax You should receive Form 1099-INT showing the interest (in box 3) paid to you for the year. Nd state income tax   Payments of principal and interest generally will be credited to your designated checking or savings account by direct deposit through the TreasuryDirect® system. Nd state income tax Treasury bills. Nd state income tax   These bills generally have a 4-week, 13-week, 26-week, or 52-week maturity period. Nd state income tax They are generally issued at a discount in the amount of $100 and multiples of $100. Nd state income tax The difference between the discounted price you pay for the bills and the face value you receive at maturity is interest income. Nd state income tax Generally, you report this interest income when the bill is paid at maturity. Nd state income tax 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. Nd state income tax Treasury notes and bonds. Nd state income tax   Treasury notes have maturity periods of more than 1 year, ranging up to 10 years. Nd state income tax Maturity periods for Treasury bonds are longer than 10 years. Nd state income tax Both generally are issued in denominations of $100 to $1 million and generally pay interest every 6 months. Nd state income tax Generally, you report this interest for the year paid. Nd state income tax For more information, see U. Nd state income tax S. Nd state income tax Treasury Bills, Notes, and Bonds in chapter 1 of Publication 550. Nd state income tax For other information on Treasury notes or bonds, write to:  Bureau of the Public Debt P. Nd state income tax O. Nd state income tax Box 7015 Parkersburg, WV 26106-7015 Or, on the Internet, visit: www. Nd state income tax treasurydirect. Nd state income tax gov/indiv/indiv. Nd state income tax htm. Nd state income tax For information on series EE, series I, and series HH savings bonds, see U. Nd state income tax S. Nd state income tax Savings Bonds , earlier. Nd state income tax Treasury inflation-protected securities (TIPS). Nd state income tax   These securities pay interest twice a year at a fixed rate, based on a principal amount adjusted to take into account inflation and deflation. Nd state income tax For the tax treatment of these securities, see Inflation-Indexed Debt Instruments under Original Issue Discount (OID), in Publication 550. Nd state income tax 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. Nd state income tax You must report that part of the sales price as interest income for the year of sale. Nd state income tax If you buy a bond between interest payment dates, part of the purchase price represents interest accrued before the date of purchase. Nd state income tax 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. Nd state income tax See Accrued interest on bonds under How To Report Interest Income in chapter 1 of Publication 550 for information on reporting the payment. Nd state income tax Insurance Life insurance proceeds paid to you as beneficiary of the insured person are usually not taxable. Nd state income tax But if you receive the proceeds in installments, you must usually report a part of each installment payment as interest income. Nd state income tax For more information about insurance proceeds received in installments, see Publication 525, Taxable and Nontaxable Income. Nd state income tax Annuity. Nd state income tax   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. Nd state income tax See chapter 10 for information on pension and annuity income from nonqualified plans. Nd state income tax 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. Nd state income tax 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. Nd state income tax 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. Nd state income tax 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. Nd state income tax Information reporting requirement. Nd state income tax   If you must file a tax return, you are required to show any tax-exempt interest you received on your return. Nd state income tax This is an information reporting requirement only. Nd state income tax It does not change tax-exempt interest to taxable interest. Nd state income tax Original Issue Discount (OID) Original issue discount (OID) is a form of interest. Nd state income tax 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. Nd state income tax A debt instrument generally has OID when the instrument is issued for a price that is less than its stated redemption price at maturity. Nd state income tax OID is the difference between the stated redemption price at maturity and the issue price. Nd state income tax All debt instruments that pay no interest before maturity are presumed to be issued at a discount. Nd state income tax Zero coupon bonds are one example of these instruments. Nd state income tax 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). Nd state income tax See Discount on Short-Term Obligations in chapter 1 of Publication 550. Nd state income tax De minimis OID. Nd state income tax   You can treat the discount as zero if it is less than one-fourth of 1% (. Nd state income tax 0025) of the stated redemption price at maturity multiplied by the number of full years from the date of original issue to maturity. Nd state income tax This small discount is known as “de minimis” OID. Nd state income tax Example 1. Nd state income tax You bought a 10-year bond with a stated redemption price at maturity of $1,000, issued at $980 with OID of $20. Nd state income tax 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. Nd state income tax Because the $20 discount is less than $25, the OID is treated as zero. Nd state income tax (If you hold the bond at maturity, you will recognize $20 ($1,000 − $980) of capital gain. Nd state income tax ) Example 2. Nd state income tax The facts are the same as in Example 1, except that the bond was issued at $950. Nd state income tax The OID is $50. Nd state income tax 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. Nd state income tax Debt instrument bought after original issue. Nd state income tax   If you buy a debt instrument with de minimis OID at a premium, the discount is not includible in income. Nd state income tax If you buy a debt instrument with de minimis OID at a discount, the discount is reported under the market discount rules. Nd state income tax See Market Discount Bonds in chapter 1 of Publication 550. Nd state income tax Exceptions to reporting OID. Nd state income tax   The OID rules discussed in this chapter do not apply to the following debt instruments. Nd state income tax Tax-exempt obligations. Nd state income tax (However, see Stripped tax-exempt obligations under Stripped Bonds and Coupons in chapter 1 of Publication 550). Nd state income tax U. Nd state income tax S. Nd state income tax savings bonds. Nd state income tax Short-term debt instruments (those with a fixed maturity date of not more than 1 year from the date of issue). Nd state income tax Obligations issued by an individual before March 2, 1984. Nd state income tax Loans between individuals if all the following are true. Nd state income tax The lender is not in the business of lending money. Nd state income tax The amount of the loan, plus the amount of any outstanding prior loans between the same individuals, is $10,000 or less. Nd state income tax Avoiding any federal tax is not one of the principal purposes of the loan. Nd state income tax Form 1099-OID. Nd state income tax   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. Nd state income tax Form 1099-OID will show, in box 1, the amount of OID for the part of the year that you held the bond. Nd state income tax It also will show, in box 2, the stated interest you must include in your income. Nd state income tax A copy of Form 1099-OID will be sent to the IRS. Nd state income tax Do not file your copy with your return. Nd state income tax Keep it for your records. Nd state income tax   In most cases, you must report the entire amount in boxes 1 and 2 of Form 1099-OID as interest income. Nd state income tax But see Refiguring OID shown on Form 1099-OID, later in this discussion, for more information. Nd state income tax Form 1099-OID not received. Nd state income tax   If you had OID for the year but did not receive a Form 1099-OID, you can find tables on IRS. Nd state income tax gov that list total OID on certain debt instruments and have information that will help you figure OID. Nd state income tax For the latest OID tables, go to www. Nd state income tax irs. Nd state income tax gov and enter “OID tables” in the Search box. Nd state income tax If your debt instrument is not listed, consult the issuer for further information about the accrued OID for the year. Nd state income tax Nominee. Nd state income tax   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. Nd state income tax Refiguring OID shown on Form 1099-OID. Nd state income tax   You must refigure the OID shown in box 1 or box 8 of Form 1099-OID if either of the following apply. Nd state income tax You bought the debt instrument after its original issue and paid a premium or an acquisition premium. Nd state income tax The debt instrument is a stripped bond or a stripped coupon (including certain zero coupon instruments). Nd state income tax 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. Nd state income tax Refiguring periodic interest shown on Form 1099-OID. Nd state income tax   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. Nd state income tax Certificates of deposit (CDs). Nd state income tax   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. Nd state income tax   This also applies to similar deposit arrangements with banks, building and loan associations, etc. Nd state income tax , including: Time deposits, Bonus plans, Savings certificates, Deferred income certificates, Bonus savings certificates, and Growth savings certificates. Nd state income tax Bearer CDs. Nd state income tax   CDs issued after 1982 generally must be in registered form. Nd state income tax Bearer CDs are CDs not in registered form. Nd state income tax They are not issued in the depositor's name and are transferable from one individual to another. Nd state income tax   Banks must provide the IRS and the person redeeming a bearer CD with a Form 1099-INT. Nd state income tax More information. Nd state income tax   See chapter 1 of Publication 550 for more information about OID and related topics, such as market discount bonds. Nd state income tax 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. Nd state income tax Cash method. Nd state income tax   Most individual taxpayers use the cash method. Nd state income tax If you use this method, you generally report your interest income in the year in which you actually or constructively receive it. Nd state income tax However, there are special rules for reporting the discount on certain debt instruments. Nd state income tax See U. Nd state income tax S. Nd state income tax Savings Bonds and Original Issue Discount (OID) , earlier. Nd state income tax Example. Nd state income tax On September 1, 2011, you loaned another individual $2,000 at 12%, compounded annually. Nd state income tax You are not in the business of lending money. Nd state income tax The note stated that principal and interest would be due on August 31, 2013. Nd state income tax In 2013, you received $2,508. Nd state income tax 80 ($2,000 principal and $508. Nd state income tax 80 interest). Nd state income tax If you use the cash method, you must include in income on your 2013 return the $508. Nd state income tax 80 interest you received in that year. Nd state income tax Constructive receipt. Nd state income tax   You constructively receive income when it is credited to your account or made available to you. Nd state income tax You do not need to have physical possession of it. Nd state income tax 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. Nd state income tax This is true even if they are not yet entered in your passbook. Nd state income tax   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. Nd state income tax Accrual method. Nd state income tax   If you use an accrual method, you report your interest income when you earn it, whether or not you have received it. Nd state income tax Interest is earned over the term of the debt instrument. Nd state income tax Example. Nd state income tax If, in the previous example, you use an accrual method, you must include the interest in your income as you earn it. Nd state income tax You would report the interest as follows: 2011, $80; 2012, $249. Nd state income tax 60; and 2013, $179. Nd state income tax 20. Nd state income tax Coupon bonds. Nd state income tax   Interest on coupon bonds is taxable in the year the coupon becomes due and payable. Nd state income tax It does not matter when you mail the coupon for payment. Nd state income tax 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. Nd state income tax You cannot use Form 1040EZ if your taxable interest income is more than $1,500. Nd state income tax Instead, you must use Form 1040A or Form 1040. Nd state income tax Form 1040A. Nd state income tax   You must complete Schedule B (Form 1040A or 1040), Part I, if you file Form 1040A and any of the following are true. Nd state income tax Your taxable interest income is more than $1,500. Nd state income tax You are claiming the interest exclusion under the Education Savings Bond Program (discussed earlier). Nd state income tax You received interest from a seller-financed mortgage, and the buyer used the property as a home. Nd state income tax You received a Form 1099-INT for U. Nd state income tax S. Nd state income tax savings bond interest that includes amounts you reported before 2013. Nd state income tax You received, as a nominee, interest that actually belongs to someone else. Nd state income tax You received a Form 1099-INT for interest on frozen deposits. Nd state income tax You are reporting OID in an amount less than the amount shown on Form 1099-OID. Nd state income tax You received a Form 1099-INT for interest on a bond you bought between interest payment dates. Nd state income tax 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). Nd state income tax List each payer's name and the amount of interest income received from each payer on line 1. Nd state income tax If you received a Form 1099-INT or Form 1099-OID from a brokerage firm, list the brokerage firm as the payer. Nd state income tax   You cannot use Form 1040A if you must use Form 1040, as described next. Nd state income tax Form 1040. Nd state income tax   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. Nd state income tax Schedule B (Form 1040A or 1040). Nd state income tax   You must complete Schedule B (Form 1040A or 1040), Part I, if you file Form 1040 and any of the following apply. Nd state income tax Your taxable interest income is more than $1,500. Nd state income tax You are claiming the interest exclusion under the Education Savings Bond Program (discussed earlier). Nd state income tax You received interest from a seller-financed mortgage, and the buyer used the property as a home. Nd state income tax You received a Form 1099-INT for U. Nd state income tax S. Nd state income tax savings bond interest that includes amounts you reported before 2013. Nd state income tax You received, as a nominee, interest that actually belongs to someone else. Nd state income tax You received a Form 1099-INT for interest on frozen deposits. Nd state income tax You received a Form 1099-INT for interest on a bond you bought between interest payment dates. Nd state income tax You are reporting OID in an amount less than the amount shown on Form 1099-OID. Nd state income tax Statement (2) in the preceding list under Form 1040 is true. Nd state income tax In Part I, line 1, list each payer's name and the amount received from each. Nd state income tax If you received a Form 1099-INT or Form 1099-OID from a brokerage firm, list the brokerage firm as the payer. Nd state income tax Reporting tax-exempt interest. Nd state income tax   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. Nd state income tax Add these amounts to any other tax-exempt interest you received. Nd state income tax Report the total on line 8b of Form 1040A or 1040. Nd state income tax   If you file Form 1040EZ, enter “TEI” and the amount in the space to the left of line 2. Nd state income tax Do not add tax-exempt interest in the total on Form 1040EZ, line 2. Nd state income tax   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. Nd state income tax These amounts are already included in the amounts on Form 1099-INT, box 8, and Form 1099-DIV, box 10. Nd state income tax 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. Nd state income tax    Do not report interest from an individual retirement account (IRA) as tax-exempt interest. Nd state income tax Form 1099-INT. Nd state income tax   Your taxable interest income, except for interest from U. Nd state income tax S. Nd state income tax savings bonds and Treasury obligations, is shown in box 1 of Form 1099-INT. Nd state income tax Add this amount to any other taxable interest income you received. Nd state income tax You must report all of your taxable interest income even if you do not receive a Form 1099-INT. Nd state income tax Generally, contact your financial institution if you do not receive a Form 1099-INT by February 15. Nd state income tax Your identifying number may be truncated on any paper Form 1099-INT you receive. Nd state income tax   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. Nd state income tax See Penalty on early withdrawal of savings in chapter 1 of Publication 550. Nd state income tax   Box 3 of Form 1099-INT shows the interest income you received from U. Nd state income tax S. Nd state income tax savings bonds, Treasury bills, Treasury notes, and Treasury bonds. Nd state income tax 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. Nd state income tax If part of the amount shown in box 3 was previously included in your interest income, see U. Nd state income tax S. Nd state income tax savings bond interest previously reported , later. Nd state income tax   Box 4 of Form 1099-INT will contain an amount if you were subject to backup withholding. Nd state income tax 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). Nd state income tax   Box 5 of Form 1099-INT shows investment expenses you may be able to deduct as an itemized deduction. Nd state income tax See chapter 28 for more information about investment expenses. Nd state income tax   If there are entries in boxes 6 and 7 of Form 1099-INT, you must file Form 1040. Nd state income tax 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). Nd state income tax To take the credit, you may have to file Form 1116, Foreign Tax Credit. Nd state income tax For more information, see Publication 514, Foreign Tax Credit for Individuals. Nd state income tax U. Nd state income tax S. Nd state income tax savings bond interest previously reported. Nd state income tax   If you received a Form 1099-INT for U. Nd state income tax S. Nd state income tax savings bond interest, the form may show interest you do not have to report. Nd state income tax See Form 1099-INT for U. Nd state income tax S. Nd state income tax savings bonds interest , earlier, under U. Nd state income tax S. Nd state income tax Savings Bonds. Nd state income tax   On Schedule B (Form 1040A or 1040), Part I, line 1, report all the interest shown on your Form 1099-INT. Nd state income tax Then follow these steps. Nd state income tax Several lines above line 2, enter a subtotal of all interest listed on line 1. Nd state income tax Below the subtotal enter “U. Nd state income tax S. Nd state income tax Savings Bond Interest Previously Reported” and enter amounts previously reported or interest accrued before you received the bond. Nd state income tax Subtract these amounts from the subtotal and enter the result on line 2. Nd state income tax More information. Nd state income tax   For more information about how to report interest income, see chapter 1 of Publication 550 or the instructions for the form you must file. Nd state income tax Prev  Up  Next   Home   More Online Publications