2012 Filing Requirements for a Dependent

2012 Filing Requirements for a Dependent
If you are a dependent, then your filing requirements are different from that of a non-dependent. Also, if your parents can claim you as a dependent, then you can't file as a non-dependent even if your parents don't actually claim you. On a tax return, a dependent does not get personal exemption of $3,800. If you are a dependent and are not required to file, you should still file your tax return if you have a refund.

Filing Requirements for a Dependent under 65 and not blind (Single)
If you are a dependent (single), you must file a return if any of the following apply.
1. Your unearned income was more than $950.
2. Your earned income was more than $5,950.
3. Your gross income was more than the larger of:$950, or your earned income up to $5,650 plus $300, or
4. Your self employed income is $400 or more.
Filing Requirements for a Dependent under 65 and not blind (Married)

If you are a dependent (married), you must file a return if any of the following apply.
1. Your unearned income was more than $950.
2. Your earned income was more than $5,950.
3. Your gross income was more than the larger of :$950, or your earned income up to $5,650 plus $300.
4. If your gross income was at least $5 and your spouse files a separate return and itemizes deduction, or
5. Your self employed income is $400 or more.

Filing Requirements for a Dependent 65 or older or blind (Single)
If you are a dependent (single), you must file a return if any of the following apply.
1. Your unearned income was more than $2,400 ($3,850 if 65 or older and blind).
2. Your earned income was more than $7,400 ($8,850 if 65 or older and blind).
3. Your gross income was more than larger of : $2,400 ($3,850 if 65 or older and blind), or your earned income up to $5,650 plus $1,750 ($3,200 if 65 or older and blind).
4. Your self employed income is $400 or more.

Filing Requirements for a Dependent 65 or older or blind (Married)
If you are a dependent (single), you must file a return if any of the following apply.
1. Your unearned income was more than $2,100 ($3,750 if 65 or older and blind).
2. Your earned income was more than $7,100 ($8,250 if 65 or older and blind).
3. Your gross income for 2012 was more than larger of :$2,100 ($3,250 if 65 or older and blind), or your earned income up to $5,650 plus $1,450 ($2,600 if 65 or older and blind).
4. If your gross income was at least $5 and your spouse files a separate return and itemizes deduction, or
5. Your self employed income is $400 or more.

2012 Standard Deduction for Dependent Individual
On the 2012 tax return, the standard deduction amount that can be claimed by an Individual who is dependent can not exceed the greater of
(i) $950, or
(ii) the sum of $300 and the earned income up to $5,650.
Child's Taxable Age
There is no minimum age when a child's tax return must be filed. In other words, the day the child has taxable income (income minus deduction), child must pay the taxes. Thus infants also pay income tax. Some infants do have interest and other investment income.

If a child is under 18 and the income in 2012 is more than $950 but less than $9,500, then the parents can elect to include child's interest and dividends income in their own return. However, once a child is 18, child must file his/her own separate return. Also if a child has earned income, capital gain income, self employment income, winnings income, then the child must file his/her separate return.

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2012 Filing Requirements for Most Taxpayers

2012 Filing Requirements
You must file a federal income tax return if you are a citizen or resident of the United States or a resident of Puerto Rico and you meet the filing requirements as given below. However, if you are self employed or independent contractor, you must file tax return if your self employed income is $400 or more.

1. Filing Status Single
If under 65, must file tax return if gross income is at least $9,750.
If 65 or older, must file tax return if gross income is at least $11,200.

2. Filing Status Married Filing Jointly
If under 65 (both spouses), must file tax return if gross income is at least $19,500.
If 65 or older (one spouse), must file tax return if gross income is at least $20,650.
If 65 or older (both spouses), must file tax return if gross income is at least $21,800.
(Read Filing Status: Married Filing Jointly)

3. Filing Status Married Filing Separately
Any age, must file tax return if gross income is at least $3,800.
(Read Filing Status: Married Filing Separately)

4. Filing Status Head of Household
If under 65, must file tax return if gross income is at least $12,500.
If 65 or older, must file tax return if gross income is at least $13,950.
(Read More: Head of Household)

5. Filing Status Qualifying Widow(er) with Dependent Child
If under 65, must file tax return if gross income is at least $15,700.
If 65 or older, must file tax return if gross income is at least $16,850.

Standard Deduction
For the 2012 tax return, the standard deduction amounts are,
*Single (other than head of household and Surviving Spouses) $5,950
*Married Filing Joint Returns and Surviving Spouses $11,900
*Married Filing Separate Returns $5,950
*Head of Households $8,700

The 2012 Exemption Deduction for each exemption is $3,800
If you are a dependent, read: Filing Requirements of a Dependent
For more information read IRS Publication 501 (2008), Exemptions, Standard Deduction, and Filing Information

More Articles:Your Filing Status
1. Filing Status for Married
2. Head of Household
Exemptions for Dependents
1. Requirements for claiming a dependent
2. Child of separated or divorced parents
Filing Requirements
1. Filing Requirement for a Dependent
2. 2009 Filing Requirements
Your Income
1. W2 vs 1099-Misc: Employee vs Independent Contractor
2. Tax Filing by Self Employed Sole Proprietor or Independent Contractor
3. Partnerships
4. Filing W4 Employee’s Withholding Allowance Certificate
5. Missing W2, 1099-Misc, 1099-R, 1099-Int
6. My Tax Refund?
Your Foreign Income
1. U.S. Citizen or Resident with Foreign Income
2. Foreign Bank and Financial Accounts
Income Exemptions and Deductions
1. Moving Expenses
2. Itemized deductions
3. Student Loan Interest Deductions
Income Adjustment
1. Traditional IRA and Roth IRA
2. Elective Deferrals 401(k) Plans
U.S. Gift tax and Inheritance Tax
1. The U.S. Gift Tax
2. Tax on Inheritances
Sale of Your Home
1. Profit from the Sale of Your Home
2. Foreclosure or Repossession of Main Home
3. First-Time Homebuyer Credit
State Tax
1. Working in Two or More States
What's New for 2009
What's New for 2009

Tax for Nonresidents and Foreign Aliens
1. U.S. Tax Filing Requirements for Non-Residents
2. Substantial Presence Test
3. Social Security and Medicare (FICA) Taxes for Non-resident Exempt Individual
4. U.S. Tax Treaties for Professors, Teachers and Researchers
5. U.S. Tax Treaties for Students and Apprentices
6. The U.S. VisasComplete List of Articles

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2011 Filing Requirements for Most Taxpayers

2011 Filing Requirements
You must file a federal income tax return if you are a citizen or resident of the United States or a resident of Puerto Rico and you meet the filing requirements as given below. However, if you are self employed or independent contractor, you must file tax return if your self employed income is $400 or more.

1. Filing Status Single
If under 65, must file tax return if gross income is at least $9,500.
If 65 or older, must file tax return if gross income is at least $10,950.

2. Filing Status Married Filing Jointly
If under 65 (both spouses), must file tax return if gross income is at least $19,000.
If 65 or older (one spouse), must file tax return if gross income is at least $20,150.
If 65 or older (both spouses), must file tax return if gross income is at least $21,300.
(Read Filing Status: Married Filing Jointly)

3. Filing Status Married Filing Separately
Any age, must file tax return if gross income is at least $3,700.
(Read Filing Status: Married Filing Separately)

4. Filing Status Head of Household
If under 65, must file tax return if gross income is at least $12,200.
If 65 or older, must file tax return if gross income is at least $13,650.
(Read More: Head of Household)

5. Filing Status Qualifying Widow(er) with Dependent Child
If under 65, must file tax return if gross income is at least $15,300.
If 65 or older, must file tax return if gross income is at least $16,450.

Standard Deduction
For the 2011 tax return, the standard deduction amounts are,
*Single (other than head of household and Surviving Spouses) $5,800
*Married Filing Joint Returns and Surviving Spouses $11,600
*Married Filing Separate Returns $5,800
*Head of Households $8,500

The 2011 Exemption Deduction for each exemption is $3,700
If you are a dependent, read: Filing Requirements of a Dependent
For more information read IRS Publication 501 (2008), Exemptions, Standard Deduction, and Filing Information

More Articles:Your Filing Status
1. Filing Status for Married
2. Head of Household
Exemptions for Dependents
1. Requirements for claiming a dependent
2. Child of separated or divorced parents
Filing Requirements
1. Filing Requirement for a Dependent
2. 2009 Filing Requirements
Your Income
1. W2 vs 1099-Misc: Employee vs Independent Contractor
2. Tax Filing by Self Employed Sole Proprietor or Independent Contractor
3. Partnerships
4. Filing W4 Employee’s Withholding Allowance Certificate
5. Missing W2, 1099-Misc, 1099-R, 1099-Int
6. My Tax Refund?
Your Foreign Income
1. U.S. Citizen or Resident with Foreign Income
2. Foreign Bank and Financial Accounts
Income Exemptions and Deductions
1. Moving Expenses
2. Itemized deductions
3. Student Loan Interest Deductions
Income Adjustment
1. Traditional IRA and Roth IRA
2. Elective Deferrals 401(k) Plans
U.S. Gift tax and Inheritance Tax
1. The U.S. Gift Tax
2. Tax on Inheritances
Sale of Your Home
1. Profit from the Sale of Your Home
2. Foreclosure or Repossession of Main Home
3. First-Time Homebuyer Credit
State Tax
1. Working in Two or More States
What's New for 2009
What's New for 2009

Tax for Nonresidents and Foreign Aliens
1. U.S. Tax Filing Requirements for Non-Residents
2. Substantial Presence Test
3. Social Security and Medicare (FICA) Taxes for Non-resident Exempt Individual
4. U.S. Tax Treaties for Professors, Teachers and Researchers
5. U.S. Tax Treaties for Students and Apprentices
6. The U.S. VisasComplete List of Articles

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How to Report Income and Deductions

Form W-2G. Certain Gambling Winnings. Report amount from box 1 of W-2G on Form 1040, line 21. Professional gamblers must report it on schedule C or C-EZ (Form 1040).
Form 1042-S. Form 1042-S is used to report income paid to a non-resident regardless of whether the payment is taxable. The form has a number of purposes. It can be used to report wages exempt under a tax treaty, wages earned as an independent contractor, royalties, and scholarship or fellowship grants.
Form 1098-C. Contributions of Motor Vehicles, Boats and Airplanes. Report the allowable amount on schedule A, line 17.
Form 1098-E. Student Loan Interest Statement. To claim deduction, enter the allowable amount from box 1 of 1098-E on Form 1040, line 33 or Form 1040A, line 18. If you did not get 1098-E or you paid qualifying interest that is not reported on 1098-E, you can also deduct those amounts.
Form 1098-T. Qualified tuition and related expenses. Box 1--Payments received for qualifying tuition and related expenses. Box 2--Amounts billed for qualifying tuition and related expenses. Box 5- Scholarships and grants. Box 8-- If at least half time student. Box 9--If a graduate student.
For tuition and fee deduction on 2009 tax return (This deduction is not allowed in 2010), complete Form 8917 and take deduction on line 34 of Form 1040. On Form 8917, line 1, enter only the amount you paid in 2009 (for yourself, your spouse or dependent student) for qualified expenses to an eligible postsecondary institution for academic period beginning in 2009 and the first 3 months of 2010.
For education credit, complete Form 8863 and take credit on line 49 of Form 1040.
(If you are a dependent student, you are not eligible for the education credit).

1099-B. Proceeds From Broker Proceeds from Broker and Barter Exchange Transactions.
Use the information provided on the Form 1099-B to complete Schedule D (Form 1040).
1099-C. Cancellation of Debt.
Amount of Debt canceled (box 2). There are many exclusions and exceptions that can make all or part of this amount nontaxable. Read IRS Publication 4681. Canceled Debts, Foreclosures, Repossessions and Abandonments.
Report taxable amount as under:
*Nonbusiness debt, on line 21 of Form 1040 or 1040NR.
* Nonfarm sole proprietorship debt on line 6 of schedule C (Form 1040) or schedule on line 1 of schedule C-EZ (Form 1040).
* Nonfarm rental activity debt on line 3 of schedule E (Form 1040).
* Farm rental activity debt on line 6 of Form 4835.
*Farm debt and you are a farmer on line 10 of schedule F (Form 1040).
Form 1099-G. Certain Government Payments.
Unemployment compensation (box 1), report the payment, which is more than any allowed non-taxable amount, on Form 1040, line 19. In 2009, the non taxable umemployment compensation was $2400. In 2010, the entire umemployment compensation is taxable.
State or local income tax refunds, credits, or offsets (box 2), this amount is reported as income only if you itemized your deduction in 2008 and claimed deduction for these taxes. Use worksheet for Form 1040, line 10 and report on line 10.
ATAA payments (b0x 5), report on Form 1040, line 21.
Taxable grants (box 6), report on Form 1040, line 21, or on schedule C, C-EZ, E, or F or Form 4835.
Agricultural payments (box 7) and Market Gain (box 9) , report on schedule F.

1099-R. Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.
Distributions from IRA, report on line 15b of Form 1040 except if you have qualified rollover. If you have qualified rollover, report it on line 15a. Then on line 15b enter 0 if entire amount is qualified rollover, or the balance taxable amount.
Distributions from pensions, annuities, 401(k), 403(b) etc., report on line 16b of Form 1040 if the amount is fully taxable. If the amount is not fully taxable, report on line 16a. Then on line 16b report the taxable amount.
(If you owe additional tax on the distributions, you need to file Form 5329. Additional Taxes on Qualified Plans(Including IRAs) and Other Tax-Favored Account.)

More Articles:
Your Filing Status
1. Filing Status for Married
2. Head of Household
Exemptions for Dependents
1. Requirements for claiming a dependent
2. Child of separated or divorced parents
Filing Requirements
1. 2008 Filing Requirements
2. Filing Requirement for a Dependent
3. 2009 Filing Requirements
Your Income
1. W2 vs 1099-Misc: Employee vs Independent Contractor
2. Tax Filing by Self Employed Sole Proprietor or Independent Contractor
3. Partnerships
4. Filing W4 Employee’s Withholding Allowance Certificate
5. Missing W2, 1099-Misc, 1099-R, 1099-Int
6. My Tax Refund?
Your Foreign Income
1. U.S. Citizen or Resident with Foreign Income
2. Foreign Bank and Financial Accounts
Income Exemptions and Deductions
1. Moving Expenses
2. Itemized deductions
3. Student Loan Interest Deductions
Income Adjustment
1. Traditional IRA and Roth IRA
2. Elective Deferrals 401(k) Plans
U.S. Gift tax and Inheritance Tax
1. The U.S. Gift Tax
2. Tax on Inheritances
Sale of Your Home
1. Profit from the Sale of Your Home
2. Foreclosure or Repossession of Main Home
State Tax Return
1. Working in Two or More States
What's New for 2009
What's New for 2009

Complete List of Articles

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S Corporations

An S corporation or S-corp is a corporation that makes a valid election to be taxed under Subchapter S of Chapter 1 of the Internal Revenue Code. S corporations elect to pass corporate income, losses, deductions and credit through to their shareholders for federal tax purposes. Shareholders of S corporations report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates. This allows S corporations to avoid double taxation on the corporate income. S corporations are responsible for tax on certain built-in gains and passive income.

Qualification Requirements
To qualify for S corporation status, the corporation must meet the following requirements:
* Be a domestic corporation,
* Have only allowable shareholders including individuals, certain trust, and estates and may not include partnerships, corporations or non-resident alien shareholders,
* Have no more than 100 shareholders,
* Have one class of stock, and
* Not be an ineligible corporation i.e. certain financial institutions, insurance companies, and domestic international sales corporations.

Filing Requirements
1. For income tax return, S Corporation files Form 1120S and schedule K-1 (Form 1120S),
2. For estimate taxes, it files Form 1120-W (corporation only) and 8109 (for depositing taxes), and
3. For employment taxes it files (a) Form 941 for Social security and Medicare taxes and income tax withholding, (b) Form 940 for federal unemployment (FUTA) tax, and Form 8109 for depositing taxes.

Form 1120S generally must be filed by March 15th of the year immediately following the calendar year covered by the return or, if a fiscal year (a year ending on the last day of a month other than December) is used, by the 15th day of the third month immediately following the last day of the fiscal year, and the automatic extension period is six months. The corporation must complete a Schedule K-1 for each person who was a shareholder at any time during the tax year and file it with the IRS along with Form 1120S. The second copy of the Schedule K-1 must be mailed to the shareholder. For 2008, the amount for late fling is $86/month/shareholder with a maximum of 12 months.

Some but not all states recognize a state tax law equivalent to an S corporation, so that the S corporation in certain states may be treated the same way for state income tax purposes as it is treated for Federal purposes. A state taxing authority may require that a copy of the Form 1120S return be submitted to the state with the state income tax return.

California additional taxes
S-corporations pay a franchise tax of 1.5% of net income in the state of California (minimum $800). This is one factor to be taken into consideration when choosing between a limited liability company and an S-corporation in California. On highly profitable enterprises, the LLC franchise tax fees, which are based on gross revenues (minimum $800), may be lower than the 1.5% net income tax. Conversely, on high gross revenue, low profit-margin businesses, the LLC franchise tax fees may exceed the S corp net income tax.

New York City additional taxes
In New York City, S-corporations are subject to the full corporate income tax at a 8.85% rate. However if the S-corporation can demonstrate that a portion of its business was done outside the city, that portion will not be subject to the additional tax.

More Articles:
Your Filing Status
1. Filing Status for Married
2. Head of Household
Exemptions for Dependents
1. Requirements for claiming a dependent
2. Child of separated or divorced parents
Filing Requirements
1. Filing Requirement for a Dependent
2. 2009 Filing Requirements
Your Income
1. W2 vs 1099-Misc: Employee vs Independent Contractor
2. Tax Filing by Self Employed Sole Proprietor or Independent Contractor 3
. Partnerships
4. Filing W4 Employee’s Withholding Allowance Certificate
5. Missing W2, 1099-Misc, 1099-R, 1099-Int
6. My Tax Refund?
Your Foreign Income
1. U.S. Citizen or Resident with Foreign Income
2. Foreign Bank and Financial Accounts
Income Exemptions and Deductions
1. Moving Expenses
2. Itemized deductions
3. Student Loan Interest Deductions
Income Adjustment
1. Traditional IRA and Roth IRA
2. Elective Deferrals 401(k) Plans
U.S. Gift tax and Inheritance Tax
1. The U.S. Gift Tax
2. Tax on Inheritances
Sale of Your Home
1. Profit from the Sale of Your Home
2. Foreclosure or Repossession of Main Home
3. First-Time Homebuyer Credit
State Tax
1. Working in Two or More States
What's New for 2009
What's New for 2009

Complete List of Articles
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Form 4868 Automatic Extension for 6 months

The regular due date for filing your 2008 tax return is April 15, 2009. Instead of trying to complete your tax return in a rush, it is better to get an extension. Make sure that your return is error free. The due date to file Form 4868 (Application for Automatic Extension of Time to File U.S. Individual Income Tax Return) to get automatic extension is April 15, 2009. If you file Form 4848, your due date is October 15, 2009. You must pay the tax due by the regular due date. If you do not pay the tax due by the regular due date, you will owe interest. You may also be charged penalties.

Individuals Outside the United States If you are a U.S. citizen or resident, and you are outside the U.S. on the regular due date (April 15, 2009), you are allowed an automatic 2-month extension (until June 16, 2009). For this two month's extension, the taxpayer is not required to file Form 4868. The taxpayer may file Form 4868 to get further extension of 4 months.

If you do not pay the tax due by the regular due date of April 15, 2009, interest and penalty is charged until the date the tax is paid. The Form 4868 extends the date to file your tax return to October 15, 2009 but you must still pay all your due taxes on or before the regular due date.

It is possible that the IRS finds some error in the tax return that may result in an additional tax. If this happens after April 15, you will have to pay the due tax amount with interest and penalty. Taxpayers can limit these charges by filing on time and paying sooner.

The current interest rate charged by IRS is 5 percent per year and late payment penalties, normally 0.5 percent (1/2 of 1 percent) per month, apply to any tax paid after the April 15 deadline, taxpayers can limit these charges by paying sooner. For example, a taxpayer who files on May 1, owing $1,000 in tax, would be charged interest plus a $50 penalty. If you can not pay the tax due in full on or before the filing date of April 15, 2009, here is what you should do:

1. Make Partial Payment by April 15, 2009
Make sure to pay what ever maximum you can pay before April 15, 2009. If you are also filing your tax return, make sure to include the payment with your tax return. You will also attach Form 1040-V. If you are applying for extension to file, then send the payment with Form 4868. Various e-pay options offer taxpayers the easiest and fastest way to make a full or partial payment with their return. These options enable taxpayers to make payments either online or by phone using electronic funds withdrawal or a credit card. Alternatively, taxpayers can send the IRS a check made out to “United States Treasury.” If you are not paying the full amount of tax due, make sure to make a short-time payment agreement with IRS or apply for Installment Agreement.

2. Apply for 6-month’s Automatic Extension to File Your Tax Return (Form 4868)
If your tax return is not complete, make sure to file Form 4868 for 6-months extension to file your tax return. Make sure to pay all your tax due or the amount you are in a position to pay with Form 4868. If you apply for extension, then you can file your tax return up to October 15, 2009. You will not pay penalty for not filing your tax return. However, you will still pay interest on the tax due amount.

3. Make a Short-time Payment Arrangement with IRS
Taxpayers who need more time to pay can find out in just a few minutes whether they qualify for a payment agreement with the IRS. Just click on the Online Payment Agreement link and follow the prompts. By entering some basic information about their tax situation, eligible taxpayers can set up in a matter of minutes either a short-term payment extension or a monthly payment plan. A short-term extension gives a taxpayer up to 120 days to pay. No fee is charged, but the late-payment penalty plus interest will apply.

4. Apply for Installment Agreement
A monthly payment plan or installment agreement gives a taxpayer more time to pay. Though interest still applies, the late-payment penalty is cut in half for any month an installment agreement is in effect. This reduced rate of 0.25 percent (1/4 of 1 percent) per month is only available if the tax return was filed on time. A user fee will also be charged if the installment agreement is approved. The fee, normally $105, is reduced to $52, if taxpayers agree to make their monthly payments electronically through electronic funds withdrawal. The fee is $43 for eligible low-and-moderate-income taxpayers. Alternatively, taxpayers can apply for a payment agreement by filling out Form 9465, Installment Agreement Request. This form can be filed along with either an electronically filed return or a paper return. If filing on paper, be sure to attach it to the front of the return.

Extra Time to File
Some taxpayers can wait until after April 15 to file a return, pay any taxes due and make IRA contributions for 2009. As a general rule, those eligible get the extra time without having to ask for it. Eligible taxpayers include:
*Members of the military serving in Iraq, Afghanistan or other combat zone localities. Normally, the postponement is until at least 180 days after the service member leaves the combat zone.
*Victims of severe flooding in Minnesota and North Dakota have an extra 30 days, until May 15, to file their 2008 individual tax returns and pay any taxes due. Similarly, victims of severe storms and tornadoes in three Oklahoma counties have until May 11 to file and pay.

More Articles:
Your Filing Status
1. Filing Status for Married
2. Head of Household
Exemptions for Dependents
1. Requirements for claiming a dependent
2. Child of separated or divorced parents
Filing Requirements
1. 2008 Filing Requirements
2. Filing Requirement for a Dependent
2. 2009 Filing Requirements
Your Income
1. W2 vs 1099-Misc: Employee vs Independent Contractor
2. Tax Filing by Self Employed Sole Proprietor or Independent Contractor
3. Partnerships
4. Filing W4 Employee’s Withholding Allowance Certificate
5. Missing W2, 1099-Misc, 1099-R, 1099-Int
6. My Tax Refund?
Your Foreign Income
1. U.S. Citizen or Resident with Foreign Income
2. Foreign Bank and Financial Accounts
Income Exemptions and Deductions
1. Moving Expenses
2. Itemized deductions
3. Student Loan Interest Deductions
Income Adjustment
1. Traditional IRA and Roth IRA
2. Elective Deferrals 401(k) Plans
U.S. Gift tax and Inheritance Tax
1. The U.S. Gift Tax
2. Tax on Inheritances
Sale of Your Home
1. Profit from the Sale of Your Home
2. Foreclosure or Repossession of Main Home
3. First Time Homebuyers Credit
State Tax Return
1. Working in Two or More States
What's New for 2009
What's New for 2009

Complete List of Articles

OctroTalk - for iPhone and iPad and Mobile Phones Nokia S60 3rd., Window Mobile Smartphone and Pocket PC and Windows Desktop. OctroTalk has instant messaging, P2P file transfer, VoIP, SIP calling, live video chat and video conference. OctroTalk supports Google Talk (GMail) audio and Video calls. Free Download http://www.octro.com/

First-Time Homebuyer Credit

You can claim the credit if you are a first-time homebuyer and have purchased a home located in the United States after April 8, 2008 and before June 30, 2010. For the purpose of this credit, you are first time homebuyer if you (your spouse if married) did not own any other main home during the 3-year period ending on the date of purchase. Vacation homes and rental property are not eligible. The date of purchase is the date the title closes. If you constructed your main home, the purchase date is the first date you occupy the home. Different credit applies to home located in the United States purchased during
(a) After April 8, 2008, and before January 1, 2009, and
(b) After December 31, 2008 and before December 1, 2009. Under the new law, was signed into law on Nov. 6, 2009, an eligible taxpayer must buy, or enter into a binding contract to buy, a principal residence on or before April 30, 2010 and close on the home by June 30, 2010. For qualifying purchases in 2010, taxpayers have the option of claiming the credit on either their 2009 or 2010 return.

Taxpayers will claim the credit on IRS Form 5405, First-Time Homebuyer Credit. You claim the first-time homebuyer credit on your 2008 tax return or amended 2008 return or on your 2009 return. If you are claiming the credit on the amended tax return Form 1040X, then enter the credit on line 15 of Form 1040-X and enter "Form 5405" in the white space at the end of line 15, and attach the Form 5405.

How much is the credit?
(a) For home purchases after April 8, 2008, and before January 1, 2009
The credit is 10 percent of the purchase price of the home, with a maximum available credit of $7,500 for either a single taxpayer or a married couple filing jointly. The limit is $3,750 for a married person filing a separate return. In most cases, the maximum credit will be available for homes costing $75,000 or more.

The credit is in fact an interest-free loan because it must be repaid in equal installments over a 15-year period starting the second year after the year the credit is claimed. For example, if you properly claim the maximum available credit of $7,500 on your 2008 federal tax return, you must begin repaying the credit by including one-fifteenth of this amount, or $500, as an additional tax on your 2010 federal tax return. Normally, $500 will be due each year from 2010 to 2024.

The amount of the credit begins to phase out for taxpayers whose adjusted gross income is more than $75,000, or $150,000 for joint filers and the credit phases out at $95,000, or $170,000 for joint files. Also no credit is allowed if the taxpayer disposes of the residence, or the residence ceases to be principal residence, before the close of the tax year for which credit is otherwise allowed.

What if you sell your home?
When you sell the home or do not use the home as principal residence, you must pay back the balance of the loan in the year the home is sold or ceases to be the principal residence. However, the repayment of amount may not exceed the amount of gain from the sale of residence to an unrelated person. If there is no gain then repayment is waived.

If on divorce, the home is transferred to a spouse or former spouse, the spouse who receives the home is responsible for any future recapture.

(b) For home purchases closed after December 31, 2008 and before July 1, 2010 (Binding contract for the principal residence must be entered on or before April 30, 2010)
The credit is 10 percent of the purchase price of the home, with a maximum available credit of $8,000 for either a single taxpayer or a married couple filing jointly. The limit is $4,000 for a married person filing a separate return. In most cases, the maximum credit will be available for homes costing $80,000 or more.

They do not have to repay the credit, provided the home remains their main home for 36 months after the purchase date. The amount of the credit begins to phase out for taxpayers whose modified adjusted gross income (MAGI) is more than
(i) $75,000, or $150,000 for joint filers (for purchased before November 6, 2009), and
(ii) $125,000, or $225,000 for joint filers (for purchases on or after November 6, 2010).

Who Cannot Claim the Credit
1. If you are a non-resident, the home is located outside the United States, or you acquired home by gift, inheritance or from a related person. (Resident aliens even with ITIN are eligible).
2. If you own more than 50% outstanding stocks of a corporation or capital interest or profits interest of a partnership.
3. If you are or were eligible for District of Columbia first-time homebuyer credit.
4. You buy your home from a close relative. A related person includes your spouse, ancestors (parents, grandparents, etc), or linear descendants (children, grandchildren, etc.).
5. You stop using your home as your main home. You sell your home before the end of the year.
6. Your home financing comes from tax-exempt mortgage revenue bonds.

(c) Credit for long-time homeowners buying a replacement principal residence.
For the first time, long-time homeowners who buy a replacement principal residence may also claim a homebuyer credit of up to $6,500 (up to $3,250 for a married individual filing separately). They must have lived in the same principal residence for any five-consecutive year period during the eight-year period that ended on the date the replacement home is purchased. Replacement home must be purchased in the period from November 6, 2009 to April 30, 2010. or after April 30, 2010 and before July 1, 2010, and you entered into a binding contract before May 1, 2010 to purchase home before July 1, 2010.

Proof of Purchase
Real estate transfer records are public records. Many states make it available on line and the IRS can verify it easily. Some days do not have all the records online or public and in those cases IRS is asking for the proof of purchase. For example, most records in MO are not available on line and the IRS is asking for a copy of the recorded deed or a copy of the HUD-1 or RESPA settlement sheet as proof.

IRS Warns Taxpayers to Beware of First-Time Homebuyer Credit Fraud
IRS vigorously pursues anyone who falsely tries to claim this or any other tax credit or deduction. The penalties for tax fraud are steep. Taxpayers should be wary of anyone who promises to get them a big refund. So before claiming the credit, make sure that you meet the requirements, and claim the credit only after you actually purchase the home.

More Articles:
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1. Filing Status for Married
2. Head of Household
Exemptions for Dependents
1. Requirements for claiming a dependent
2. Child of separated or divorced parents
Filing Requirements
1. 2008 Filing Requirements
2. Filing Requirement for a Dependent
3. 2009 Filing Requirements
Your Income
1. W2 vs 1099-Misc: Employee vs Independent Contractor
2. Tax Filing by Self Employed Sole Proprietor or Independent Contractor
3. Partnerships
4. Filing W4 Employee’s Withholding Allowance Certificate
5. Missing W2, 1099-Misc, 1099-R, 1099-Int
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Your Foreign Income
1. U.S. Citizen or Resident with Foreign Income
2. Foreign Bank and Financial Accounts
Income Exemptions and Deductions
1. Moving Expenses
2. Itemized deductions
3. Student Loan Interest Deductions
Income Adjustment
1. Traditional IRA and Roth IRA
2. Elective Deferrals 401(k) Plans
U.S. Gift tax and Inheritance Tax
1. The U.S. Gift Tax
2. Tax on Inheritances
Sale of Your Home
1. Profit from the Sale of Your Home
2. Foreclosure or Repossession of Main Home
State Tax Return
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What's New for 2009
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When will I get my tax refund?

You can have a refund check mailed to you or you can have your refund direct deposited directly to your account. If you e-filed your tax return, you should get your refund within 15 days if you opted for direct deposit and 21 days if IRS send you a paper check. If you have mailed you return to the IRS, then you should receive your refund check within 6 weeks.

Refund Information from IRS
Refund information does not become available until it has been 6 weeks since you filed your tax return (3 weeks if you filed electronically). After waiting the appropriate number of weeks, the fastest, easiest way to find out about your current year refund is to log onto http://www.irs.gov/. Click on Where's My Refund then go to Get My Refund Status (or
click the link https://sa2.www4.irs.gov/irfof/lang/en/irfofgetstatus.jsp). You can call Refund Hotline at (800) 829-1954. Be sure to have a copy of your current tax return available because you will need to know your social security number shown on your return, the filing status and the exact whole dollar amount of our refund. The IRS updates refund information every seven days.

Refund Information For an Amended Tax Return
You cannot check the status of a refund for an amended return on the automated tax line or by accessing "Where's my Refund." Amended/corrected returns are processed as quickly as possible. However, it may take 8 to 12 weeks or longer to process the return. If 8 weeks have elapsed and you have not received your refund, you may call (800) 829-1040.

Many taxpayers have filed amended tax returns for 2009 to be able to get First Time Homebuyers Credit. For such returns IRS is taking longer time to process the return.

In Case of Overpayment or Underpayment of Refund
If you receive a check for more than the refund you claimed, do not cash the check until you receive a notice explaining the difference. If you receive a check for a refund you are not entitled to, or for an overpayment that should have been credited to estimated tax, do not cash the check. Call the IRS.

If your refund check is for less than you claimed, you will get a notice explaining the difference. Cash the check; this does not stop you from claiming an additional amount of refund. If you did not receive a notice and you have any questions about the amount of your refund, you should wait for 2 weeks before calling the IRS. All or part of any interest you were charged on an erroneous refund generally will be forgiven. Any interest charged for the period before demand for repayment was made will be forgiven unless
1. You, or a person related to you, caused the erroneous refund in any way, or
2. The refund is more than $50,000.

Offset Against Debts
If you owe certain past amounts including federal income tax, other federal debts (such as student loans), state income tax, and child and spousal support payments, all or part of the refund may be used to pay all or part of the past-due amount. You will be notified by IRS if your refund is offset against debts.
(Also you can check in advance if you are flagged for offset or not by calling FMS Autoresponder line at 1-800-304-3107.)

Joint Return and injured spouse. When you file a joint return and only one spouse owes a past-due amount, the other spouse should file Form 8379, Injured Spouse Allocation, so that the other spouse gets his/her share of tax refund.

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1. Filing Status for Married
2. Head of Household
Exemptions for Dependents
1. Requirements for claiming a dependent
2. Child of separated or divorced parents
Filing Requirements
1. 2008 Filing Requirements
2. Filing Requirement for a Dependent
3. 2009 Filing Requirements
Your Income
1. W2 vs 1099-Misc: Employee vs Independent Contractor
2. Tax Filing by Self Employed Sole Proprietor or Independent Contractor
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5. Missing W2, 1099-Misc, 1099-R, 1099-Int
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Income Exemptions and Deductions
1. Moving Expenses
2. Itemized deductions
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1. Traditional IRA and Roth IRA
2. Elective Deferrals 401(k) Plans
U.S. Gift tax and Inheritance Tax
1. The U.S. Gift Tax
2. Tax on Inheritances
Sale of Your Home
1. Profit from the Sale of Your Home
2. Foreclosure or Repossession of Main Home
3. First-Time Homebuyer Credit
State Tax Return
1. Working in Two or More States
Income Tax
1. My Tax Refund?
2. What's New for 2009

Complete List of Articles

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Partnerships

Generally a partnership is a business organization with two or more members for carrying on a trade, business, financial operation, or venture and divides its profits. An incorporated organization is not partnership. An LLC having two or more owners is a partnership for federal tax purpose unless the LLC elects to be treated as a corporation and files Form 8832. The conversion of a partnership into an LLC classified as a partnership for federal tax purposes or conversion of an LLC classified as a partnership into a partnership does not terminate the partnership.

A partner can be an individual person, corporation, trust, estate, or another partnership. All general partners are personally liable for partnership liabilities. There can be no limited partners in a general partnership.

Partnership Tax Return (Form 1065)
A partnership must file an information return Form 1065 showing its income, deductions, and other required information. It must show the names and addresses of each partner and each partner's distributive share of taxable income. The return must be signed by a general partner. If a limited liability company is treated as a partnership, it must file Form 1065 and one of its members must sign the return.

A partnership is not considered to engage in a trade or business, and is not required to file a Form 1065, for any tax year in which it neither receives income nor pays or incurs any expenses treated as deductions or credits for federal income tax purposes.

A partnership files Income Tax Return Form 1065 and does not pay any taxes. The profit of a partnership is distributed among the partners. For this the partnership issues Form K-1 to the partners. Partners must include this profit in their own income income tax return and on this income pay 15.3% employment taxes. Form K-1 (Form 1065) income is reported on part II of schedule E (Form 1040).

Late Filing of Partnership Return
You the year 2007, the penalty is $85/month/partner, with a maximum of twelve months. The base penalty for 2008 is $86/month/partner with a maximum of twelve months.

Filing Extension Period
For the partnership returns (Form 1065 series) that have unextended due dates on or after January 1, 2009, the filing extension period is only five months (previously six months).

Partnership Termination
A partnership terminates when one of the following events take place
1. All its operations are discontinued and no part of any business, financial operation, or venture is continued by any of its partners in a partnership
2. At least 50% of the total interest in partnership capital and profits is sold or exchanged within a 12-month period, including sale or exchange to another partner (except in case an electing large partnership).
3. For special rules that apply to merger, consolidation, or division of partnership.

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2. Head of Household
Exemptions for Dependents
1. Requirements for claiming a dependent
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Filing Requirements
1. Filing Requirement for a Dependent
2. 2009 Filing Requirements
Your Income
1. W2 vs 1099-Misc: Employee vs Independent Contractor
2. Tax Filing by Self Employed Sole Proprietor or Independent Contractor
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1. The U.S. Gift Tax
2. Tax on Inheritances
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1. Profit from the Sale of Your Home
2. Foreclosure or Repossession of Main Home
3. First-Time Homebuyer Credit
State Tax Return
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What's New for 2009
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The U.S. Income Tax Topics 2

Reporting Tips
All tips you receive directly, through your employer and under a tip-splitting or tip-pooling are income. If you have tips income, you must keep a proper record of tips, report tips to your employer and report tips income on your tax return.

1. Keep a daily tip record. You can either maintain your personal tip diary, or keep copies of documents that show your tips, such as restaurant bills and credit card charge slips.

2. Report tips to your employer. You must report tips (amounting to $20 or more in a month) to your employer each month by the 10th of the next month so that your employer can withhold FICA taxes. If your employer does not give you any other way to report tips, you can use Form 4070. Fill in the information and give it to your employer. To get a 1-year supply of the form, ask your employer for Publication 1244 or contact IRS.

3. Report all your tips on your income tax return. Report your tips with your wages on line 1 of Form 1040EZ or line 7 of Form 1040A or Form 1040. You must report all tips you received in 2008 on your tax return, including both cash tips and non cash tips. Any tips you reported to your employer for 2008 are included in the wages shown in box 1 of your Form W-2. Add to the amount in box 1 only the tips you did not report to your employer.

Record Keeping
You must keep all the records as per the federal law.
1. For assessment of tax you owe, this generally is 3 years from the date you filed the return or the due date of the return, which ever is later.
2. For filing a claim for credit or refund, this generally is 3 years from the date you filed the original return, or 2 years from the date you paid the tax, whichever is later. Returns filed before the due date are treated as filed on the due date.
3. If you did not report income that you should have reported on your return, and it is more than 25% of the income shown on the return, the period of limitations does not run out until 6 years after you filed the return.
4. If a return is false or fraudulent with intent to evade tax, or if no return is filed, an action can generally be brought at any time
5. You may need to keep records relating to the basis of property longer than the period of limitations. Keep those records as long as they are important in figuring the basis of the original or replacement property. Generally, this means for as long as you own the property and, after you dispose of it, for the period of limitations that applies to you.

The clause "if the return is false or fraudulent...," may mean that you should keep record for all your life.
Read http://www.irs.gov/businesses/small/article/0,,id=98513,00.html

What If I Have Incomplete Records?
If you do not have complete records to prove an element of an expense, then you must prove the element with:
*Your own written or oral statement, containing specific information about the element, and
*Other supporting evidence that is sufficient to establish the element.

Destroyed records. If you cannot produce a receipt because of reasons beyond your control, you can prove a deduction by reconstructing your records or expenses. Reasons beyond your control include fire, flood, and other casualty. Go through your bank statements, canceled checks, credit card statements and other records to collect as much information as you can. Get a copy of police report with you.

Excess Social Security Taxes Withheld
The Federal Insurance Contributions Act (FICA) provides for a federal system of old-age, survivors, disability, and hospital insurance. The FICA requires that the employer withhold social security tax at 6.2% and Medicare tax at 1.45% from the wages of the employees. For the year 2008 the social security tax is deducted from the first $102,000 of the wages while Medicare tax is deducted from the entire wages.If you, or your spouse if filing joint return, had more than one employer for 2008 and total wages of more than $102,000 (or $97,500 for 2007), too much social security tax may have been withheld. You can take a credit on this line for refund on line 67 of Form 1040 for the amount withheld in excess of $6324 for 2008 (or $6045 for 2007). But if any one employer withheld more than $6324, you cannot claim the excess on your return. The employer should adjust the tax for you. If the employer does not adjust the over collection amount, you can file a claim for refund using Form 843. The Form 843 is filed separate from the tax return.

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1. Filing Status for Married
2. Head of Household
Exemptions for Dependents
1. Requirements for claiming a dependent
2. Child of separated or divorced parents
Filing Requirements
1. Filing Requirement for a Dependent
2. 2009 Filing Requirements
Your Income
1. W2 vs 1099-Misc: Employee vs Independent Contractor
2. Tax Filing by Self Employed Sole Proprietor or Independent Contractor
3. Partnerships
4. Filing W4 Employee’s Withholding Allowance Certificate
5. Missing W2, 1099-Misc, 1099-R, 1099-Int
Your Foreign Income

1. U.S. Citizen or Resident with Foreign Income
2. Foreign Bank and Financial Accounts
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2. Itemized deductions
3. Student Loan Interest Deductions
Income Adjustment
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2. Elective Deferrals 401(k) Plans
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1. The U.S. Gift Tax
2. Tax on Inheritances
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1. Profit from the Sale of Your Home
2. Foreclosure or Repossession of Main Home
3. First-Time Homebuyer Credit
State Tax Return
1. Working in Two or More States
What's New for 2009

What's New for 2009

Complete List of Articles

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The U.S. Income Tax Topics 1

Copy of Tax Return and Transcripts
If you did not keep a copy of your tax return, you can get it from IRS. You can also get transcripts of the tax return. Transcripts serve most of your requirements. There is no fee for the transcripts. Transcripts have most of the information from your tax return including information from W2, 1099. Transcripts are normally available for 3-years. You can order a transcript by calling 1-800-829-1040, or using Form 4506-T, Request for Transcript of Tax Return. If you have a fax number, you can get it faxed.

To request for Copy of Tax Return you must use Form 4506. You will get copy of tax return filed by you along with all the attachments (like W2, 1099..). For each return the charges are $57 and IRS takes about 60 days to complete your request. In the Form 4506 you can also authorize a third party to receive the return.

Debt Cancellation
Generally, if a debt you owe is canceled or forgiven, other than as a gift or bequest, you must include the canceled amount in your income. If canceled is intended as a gift to you, then it is not income. A debt includes any indebtedness for which you are personally liable. However, in case of bankruptcy, insolvency or no-recourse loans, the debt cancellation is not treated as income. A non-recourse loan is a loan for which the lender’s only remedy in case of default is to repossess the property being financed or used as collateral. The lender cannot pursue you personally in case of default.

If the debt is a nonbusiness debt, report the canceled amount on Form 1040, line 21 (Other Income). If it is a business debt, report the amount on Schedule C or Schedule C-EZ (Form 1040) (or on Schedule F, Profit or Loss From Farming (Form 1040), if the debt is farm debt and you are a farmer).
Also read about debt cancellation in case of foreclosure or repossession.

Settlement - Taxability
Court awards and damages.
You must consider the items that the settlement replaces. Part of settlement may be taxable depending upon:
1. Physical injuries or physical sickness settlements are generally non-taxable if you did not take an itemized deduction for medical expenses related to this injury in prior years. If you did deduct medical expenses related to the injury, the amount is taxable and is reported as "Other Income" on line 21 of Form 1040.

2 Interest, punitive damages, emotional distress or mental anguish, and employment discrimination or injury to reputation settlements are generally taxable. Interest is taxable as "Interest Income" and is reported on line 8a of Form 1040). Punitive damages, emotional distress or mental anguish, and employment discrimination or injury to reputation settlements are reported as "Other Income" on line 21 of Form 1040.

Punitive Damages are taxable even if is related to a physical injury or physical sickness). Emotional distress or mental anguish amounts are taxable to the extent that they exceed medical costs, not previously deducted, for treatment of emotional distress or mental anguish.

3. Compensation for lost wages or lost profits in most cases is taxable income. Amounts received in settlement of pension rights (if you did not contribute to the plan) is taxable.

4. Loss-of-use or loss-in-value of property settlements may be taxable if the settlement exceeds your basis in the property; the excess is gain. Gains on personal capital assets are reported on Form 1040’s Schedule D, Capital Gains and Losses. Gains on business capital assets are reported on Form 4797, Sale of Business Property.

5. Attorneys fees are deductible if they are an attempt to get you taxable income otherwise they are not deductible. You can usually deduct legal expenses that you pay or incur to produce or collect taxable income or in connection with the determination, collection, or refund of any tax.

Scholarship and Fellowship Grants
If you are a degree candidate and if the financial aid (includes scholarship and fellowship grants) is for tuition fee, other fees, books, supplies and equipment, and are not a payment for your services, then it is not taxable. For a degree candidate aid for boarding and travel are taxable. If you are not a degree candidate, then all the financial aid is taxable. You must use Worksheet 1-1 in Chapter 1 of Publication 970 to figure out the taxable amount.

If you receive a scholarship award under the National Health Service Corps Scholarship Program or the Armed Forces Health Professions Scholarship and Financial Assistance Program, the amount received is tax free without regard to any services you are obligated to perform.

Scholarship and fellowship grants not reported on Form W-2 are included in your wages income. Also, enter “SCH” and the amount on the dotted line next to line 7 of Form 1040 (or line 1 of 1040EZ or line 7 of 1040A). However, if you were a degree candidate, include on line 7 only the amounts you used for expenses other than tuition and course-related expenses. For example, amounts used for room, board, and travel must be reported on line 7.

Any "SCH" amount that you put on line 7 of Form 1040 is subject to employment taxes at 15.3%. Include amounts you receive under a scholarship as pay for your services as an independent contractor in determining your net earnings from self-employment. If your net earnings are $400 or more, you will have to pay self-employment tax. Use Schedule SE, Self-Employment Tax, to figure this tax.
Read IRS Publication 970 - Tax Benefits for Education - Tax Benefits for Education; Chapter 1--Scholarships, Fellowships, Grants, and Tuition Reductions.

Social Security Income & Disability Benefits
Your social security benefits including social security disability benefits (excluding SSI payments) may be taxable, if the total of one-half of your benefits, plus all your other income including tax-exempt interest is more than the base amount for your filing status. The SSI benefits are not taxable.

Your base amount (without any exclusions) is:
$25,000 if you are single, head of household, or qualifying widow(er),
$25,000 if you are married filing separately and lived apart from your spouse for all of 2007,
$32,000 if you are married filing jointly, or
$-0- if you are married filing separately and lived with your spouse at any time during 2007.

Generally, up to 50% of your benefits will be taxable. However, up to 85 percent of your benefits could be taxed if
* you are a single and the total of all your other income plus half of your Social Security checks exceed $34,000,
* you are married filing jointly and the total of all your other income plus half of your Social Security checks exceed $44,000, or
* you are married filing separately and lived with your spouse at any time during 2008.
To find out your taxable benefits, you must complete the work sheet found in your Form 1040 or 1040A instruction book.

Your social security benefits or rail road benefits are reported in box 5 of Form SSA-1099 or RRB-1099. Enter is amount on Form 1040 line 20a or on Form 1040A line 14a. The taxable part of the benefits will appear on Form 1040 line 20b or on Form 1040A line 14b.

More Articles:
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1. Filing Status for Married
2. Head of Household
Exemptions for Dependents
1. Requirements for claiming a dependent
2. Child of separated or divorced parents
Filing Requirements
1. Filing Requirement for a Dependent
2. 2009 Filing Requirements
Your Income
1. W2 vs 1099-Misc: Employee vs Independent Contractor
2. Tax Filing by Self Employed Sole Proprietor or Independent Contractor
3. Filing W4 Employee’s Withholding Allowance Certificate
4. Missing W2, 1099-Misc, 1099-R, 1099-Int
Your Foreign Income
1. U.S. Citizen or Resident with Foreign Income
2. Foreign Bank and Financial Accounts
Income Exemptions and Deductions
1. Moving Expenses
2. Itemized deductions
3. Student Loan Interest Deductions
Income Adjustment
1. Traditional IRA and Roth IRA
2. Elective Deferrals 401(k) Plans
U.S. Gift tax and Inheritance Tax
1. The U.S. Gift Tax
2. Tax on Inheritances
Sale of Your Home
1. Profit from the Sale of Your Home
2. Foreclosure or Repossession of Main Home
3. First-Time Homebuyer Credit
State Tax Return
1. Working in Two or More States
What's New for 2009
What's New for 2009

Complete List of Articles

OctroTalk - - For iPhone and iPad, Nokia S60 3rd. phones, Window Mobile Smartphone and Pocket PC and Windows Desktop. OctroTalk has instant messaging, P2P file transfer, VoIP, SIP calling, live video chat and video conference. OctroTalk supports Google Talk (GMail) audio and Video calls. Free Trial/Download http://www.octro.com/

Foreclosure or Repossession of Main Home

The current economic crisis is causing record number of foreclosures, short sales and debt cancellations. If you do not make payments you owe on a loan secured by property, the lender may foreclose on the loan or repossess the property. In the foreclosure, the homeowner relinquishes title of property generally to the bank that holds the first mortgage or deed of trust on the property. Homeowners associations, taxing agencies, and other interested parties will sometimes also foreclose on a property. In case of foreclosures and short sales, when mortgages are not paid in full upon the transfer of real estate, it may be complicated to calculated the tax implications.

If you do not make payments you owe on a loan secured by property, the lender may foreclose on the loan or repossess the property. If your home was foreclosed on or repossessed, you may have two tax situations:
1. You have a sale. The sale may generate capital gain or loss. You figure the gain or loss from the sale in generally the same way as gain or loss from any sale. But the selling price of your home used to figure the amount of your gain or loss depends, in part, on whether you were personally liable for repaying the debt secured by the home and and whether the debt is qualified principal residence indebtness.
2. You have forgiveness of debt. Debt forgiveness may generate taxable ordinary income.

Form 1099-A and Form 1099-C.
Generally, you will receive Form 1099-A, Acquisition or Abandonment of Secured Property, from your lender. This form will have the information you need to determine the amount of your gain or loss and any ordinary income from cancellation of debt that is not a discharge of qualifying principal residence indebtness.
If your debt is canceled, you may receive Form 1099-C, Cancellation of Debt. You may need to report the cancellation of debt as income. When you borrowed the money you had an obligation to repay the lender. When that obligation is subsequently forgiven, the amount you received as loan proceeds is reportable as income because you no longer have an obligation to repay the lender. However, in case of bankruptcy, insolvency or no-recourse loans, the debt cancellation is not treated as income.

Qualified Principal Residence Indebtness. This indebtness is a mortgage you took out to buy, build or substantially improve your principal residence and the mortgage is secured by your principal residence.

Abandonment. If you abandon your home and have a home debt for which you are personally liable (recourse loan) and the debt is canceled, this is your ordinary income that you must report on your tax return.

Non-Recourse Loan. A non-recourse loan is a loan for which the lender’s only remedy in case of default is to repossess the property being financed or used as collateral. The lender cannot pursue you personally in case of default.

Mortgage Forgiveness Debt Relief Act of 2007.
The Mortgage Forgiveness Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt of recourse loan on their principal residence. The provision is to exclude cancelled mortgage debt from income applies only to the portion of the debt that was used to buy, build or improve the residence. Debt forgiven in connection with a foreclosure or debt reduced through mortgage restructuring, qualify for this relief.

The act applies to qualified debt forgiven in the years 2007, 2008 or 2009, and the taxpayer may be able to claim special tax relief up to $ 2 million (The limit is $1 million for a married person filing a separate return) by filling out newly-revised Form 982 (Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment)) and attaching it to their federal income tax return.

For more information: IRS Publication 523 Selling Your Home

More Articles:
Your Filing Status
1. Filing Status for Married
2. Head of Household
Exemptions for Dependents
1. Requirements for claiming a dependent
2. Child of separated or divorced parents
Filing Requirements
1. Filing Requirement for a Dependent
2. 2009 Filing Requirements
Your Income
1. W2 vs 1099-Misc: Employee vs Independent Contractor
2. Tax Filing by Self Employed Sole Proprietor or Independent Contractor
3. Filing W4 Employee’s Withholding Allowance Certificate
4. Missing W2, 1099-Misc, 1099-R, 1099-Int
Your Foreign Income
1. U.S. Citizen or Resident with Foreign Income
2. Foreign Bank and Financial Accounts
Income Exemptions and Deductions
1. Moving Expenses
2. Itemized deductions
3. Student Loan Interest Deductions
Income Adjustment
1. Traditional IRA and Roth IRA
2. Elective Deferrals 401(k) Plans
U.S. Gift tax and Inheritance Tax
1. The U.S. Gift Tax
2. Tax on Inheritances
Sale of Your Home
1. Profit from the Sale of Your Home
2. Foreclosure or Repossession of Main Home
State Tax Return
1. Working in Two or More States
What's New for 2009
What's New for 2009

Complete List of Articles

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