1040 Quickfinder Handbook (2015 Tax Year) Updates for the Protecting Americans From Tax Hikes Act of 2015

Transcription

1 Quickfinder 1040 Quickfinder Handbook (2015 Tax Year) Updates for the Protecting Americans From Tax Hikes Act of 2015 Replacement Pages for Two-Sided (Duplex) Printing Instructions: This packet contains marked up changes to the pages in the 1040 Quickfinder Handbook that were affected by the Protecting Americans From Tax Hikes Act of 2015, which was enacted after the handbook was published. This is a specially designed update packet for owners of the 3-ring binder version of the handbook who have access to a printer that prints two-sided (duplex). Simply print the entire PDF file (make sure to select two-sided or duplex printing), three-hole punch the pages, and then replace the pages in your handbook. It s that easy.

2

3 TAX PREPARATION 1040 Quickfinder Handbook 2015 Key Amounts Standard Deduction Earned Income Credit (Maximum) MFJ or QW 1... $ 12,600 No children... $ 503 Single ,300 1 child... 3,359 HOH ,250 2 children... 5,548 MFS ,300 >2 children... 6,242 Dependent ,050 3 Investment income limit... 3,400 Personal Exemption Kiddie Tax Threshold $4,000 $2,100 Gift Tax Annual Exclusion Elective Deferral Limits $14,000 SIMPLE IRA Plan Estate and Gift Tax Exclusion Amount < age $ 12,500 $5,430,000 4 age ,500 Standard Mileage Rates Business (k), 403(b) and 457 Plans Medical/moving < age $ 18,000 Charitable age ,000 Profit-Sharing Plan/SEP Contribution limit... $ 53,000 Compensation limit 5... $265,000 Health Savings Accounts (HSAs) Self-only coverage Contribution (deduction) limit... $ 3,350 Plan minimum deductible... 1,300 Plan out-of-pocket limit... 6,450 Family coverage Contribution (deduction) limit... $ 6,650 Plan minimum deductible... 2,600 Plan out-of-pocket limit... 12,900 Additional contribution amount if age 55 or older... $ 1,000 1 Add $1,250 for age 65 or older or blind, each. 2 Add $1,550 for age 65 or older or blind, each. 3 If greater, amount of earned income plus $350 (but not to exceed $6,300). 4 Plus the amount, if any, of deceased spousal unused exclusion amount. 5 For computing employer contributions. Form Tax Year 2015 Quick Tax Method MFJ or QW Taxable Income $ 0 $ 18, % minus $ 0.00 = Tax 18,451 74, minus = Tax 74, , minus 8, = Tax 151, , minus 12, = Tax 230, , minus 24, = Tax 411, , minus 32, = Tax 464,851 and over 39.6 minus 54, = Tax Single Taxable Income $ 0 $ 9, % minus $ 0.00 = Tax 9,226 37, minus = Tax 37,451 90, minus 4, = Tax 90, , minus 6, = Tax 189, , minus 16, = Tax 411, , minus 24, = Tax 413,201 and over 39.6 minus 43, = Tax HOH Taxable Income $ 0 $ 13, % minus $ 0.00 = Tax 13,151 50, minus = Tax 50, , minus 5, = Tax 129, , minus 9, = Tax 209, , minus 20, = Tax 411, , minus 28, = Tax 439,001 and over 39.6 minus 48, = Tax MFS Taxable Income $ 0 $ 9, % minus $ 0.00 = Tax 9,226 37, minus = Tax 37,451 75, minus 4, = Tax 75, , minus 6, = Tax 115, , minus 12, = Tax 205, , minus 16, = Tax 232,426 and over 39.6 minus 27, = Tax Note: Assumes taxable income is all ordinary income. High-income taxpayers may also be subject to the 3.8% tax on net investment income and/or the 0.9% additional Medicare tax on earned income. Caution: IRS Tax Tables must be used for taxable income under $100,000. To calculate the exact tax using the Quick Tax Method for taxable income under $100,000, round taxable income to the nearest $25 or $75 increment before using the formula. Round $50 or $100 increments up AGI Phase-Out Amounts/Ranges Filing Tuition and Fees Student Loan Interest Education Savings Lifetime Learning American Opportunity Education Savings Status Deduction 1 Deduction Bond Interest Exclusion Credit Credit Account (ESA) MFJ $130,000 / $160,000 $130,000 $160,000 $115,750 $145,750 $110,000 $130,000 $160,000 $180,000 $190,000 $220,000 QW 65,000 / 80,000 65,000 80, , ,750 55,000 65,000 80,000 90,000 95, ,000 Single 65,000 / 80,000 65,000 80,000 77,200 92,200 55,000 65,000 80,000 90,000 95, ,000 HOH 65,000 / 80,000 65,000 80,000 77,200 92,200 55,000 65,000 80,000 90,000 95, ,000 MFS Do Not Qualify Do Not Qualify Do Not Qualify Do Not Qualify Do Not Qualify 95, ,000 Child Tax Saver s Earned Income Credit 3 Traditional IRA Roth IRA Passive Loss in Active Credit 2 Credit 3 No Child 1 Child 2 Children >2 Children Deduction 4 Contribution Rental Real Estate MFJ $ 110,000 $ 61,000 $ 20,330 $ 44,651 $ 49,974 $ 53,267 $ 98,000 $118,000 $183,000 $193,000 $100,000 $150,000 QW 75,000 30,500 14,820 39,131 44,454 47,747 98, , , , , ,000 Single 75,000 30,500 14,820 39,131 44,454 47,747 61,000 71, , , , ,000 HOH 75,000 45,750 14,820 39,131 44,454 47,747 61,000 71, , , , ,000 MFS 55,000 30,500 Do Not Qualify , ,000 50,000 75,000 1 Expired Provision Alert: The tuition and fees deduction expired on 12/31/2014. It s possible Congress will extend the deduction to 2015 but had not done so at the date of publication. 2 Amount at which phase-out begins. 3 Amount at which phase-out is complete. 4 Phase-out that applies if taxpayer is covered by an employer retirement plan. For MFJ, phase-out range for non-covered spouse is $183,000 $193, Married individuals filing MFS who live apart at all times during the year are treated as single. Replacement Page 1/2016

4 1040 Quickfinder Handbook 2015 Thomson Reuters/Tax & Accounting. Thomson Reuters, Checkpoint, Quickfinder and the Kinesis logo are trademarks of Thomson Reuters and its affiliated companies. ISSN ISBN P.O. Box Carrollton, TX Phone Fax tax.thomsonreuters.com The 1040 Quickfinder Handbook is published by Thomson Reuters. Reproduction is prohibited without written permission of the publisher. Not assignable without consent. The 1040 Quickfinder Handbook is to be used as a first-source, quick reference to basic tax principles used in preparing individual income tax returns. The focus of this handbook is to present often-needed reference information in a concise, easy-to-use format. The summaries, highlights, tax tips and other information included herein are intended to apply to the average individual taxpayer only. Information included is general in nature and we acknowledge the existence of many exceptions in the area of income tax. The information this handbook contains has been carefully compiled from sources believed to be reliable, but its accuracy is not guaranteed. The author/publisher is not engaged in rendering legal, accounting or other advice and will not be held liable for any actions or suit based on this handbook. For further information regarding a specific situation, see applicable IRS publications, rulings, regulations, court cases and Code sections. This handbook is not intended to be used as your only reference source Key Amounts Standard Deduction Earned Income Credit (Maximum) MFJ or QW 1... $ 12,600 No Children... $ 506 Single ,300 1 Child... 3,373 HOH ,300 2 Children... 5,572 MFS ,300 >2 Children... 6,269 Dependent ,050 5 Investment Income Limit... $ 3,400 Traditional IRA Deduction Phase-Out Begins at AGI of Elective Deferral Limits SIMPLE IRA MFJ, 4 QW 4... $ 98,000 < age $ 12,500 MFJ ,000 age ,500 Single , (k), 403(b) and 457 Plans HOH ,000 < age $ 18,000 MFS age ,000 Gift Tax Annual Exclusion Kiddie Tax Threshold $14,000 $2,100 Profit-Sharing Plan/SEP Contribution limit... $ 53,000 Compensation limit (for computing employer contributions) ,000 1 Add $1,250 for age 65 or blind, each. 2 Add $1,550 for age 65 or blind, each. 3 Noncovered spouse. 4 Covered by an employer retirement plan. 5 If greater, earned income plus $350, not to exceed $6,300. Updates For supplemental information to the material in this handbook, please refer to the Handbook Updates section of our website: tax.thomsonreuters.com/quickfinder. Join our Quickfinder Community Do you have a client-specific question? Visit tax.thomsonreuters. com/quickfinder. Click on Community to join. Post questions, comment on posts and share insights. You can also follow thought leaders, set community notifications, search for specific topics and even share files, links and videos. If you have any questions We welcome comments and questions from readers. However, our response is limited to verification of specific information presented in the Quickfinder Handbooks. We cannot give advice on a client s tax situation or provide information beyond the contents of this publication. Questions must be submitted in writing by mail, fax or online at tax. thomsonreuters.com/quickfinder (click on Content Questions). Research editors are not available to answer questions over the phone Quick Tax Method MFJ or QW Taxable Income $ 0 $ 18, % minus $ 0.00 = Tax 18,551 75, minus = Tax 75, , minus 8, = Tax 151, , minus 13, = Tax 231, , minus 24, = Tax 413, , minus 32, = Tax 466,951 and over 39.6 minus 54, = Tax Single Taxable Income $ 0 $ 9, % minus $ 0.00 = Tax 9,276 37, minus = Tax 37,651 91, minus 4, = Tax 91, , minus 6, = Tax 190, , minus 16, = Tax 413, , minus 24, = Tax 415,051 and over 39.6 minus 43, = Tax HOH Taxable Income $ 0 $ 13, % minus $ 0.00 = Tax 13,251 50, minus = Tax 50, , minus 5, = Tax 130, , minus 9, = Tax 210, , minus 20, = Tax 413, , minus 28, = Tax 441,001 and over 39.6 minus 48, = Tax MFS Taxable Income $ 0 $ 9, % minus $ 0.00 = Tax 9,276 37, minus = Tax 37,651 75, minus 4, = Tax 75, , minus 6, = Tax 115, , minus 12, = Tax 206, , minus 16, = Tax 233,476 and over 39.6 minus 27, = Tax Note: Assumes taxable income is all ordinary income. High-income taxpayers may also be subject to the 3.8% tax on net investment income and/or the 0.9% additional Medicare tax on earned income. Tax Rules By Age for 2015 Age Rule 13 Cannot claim a child care credit for children age 13 or older. 17 Cannot claim $1,000 child tax credit for children age 17 or older. 18 Children working for parents unincorporated business subject to FICA. Generally cannot contribute to an ESA for children age 18 or older. Adoption credit/exclusion generally unavailable for children age 18 or older. Qualifies for saver s credit (if not a dependent or a full-time student). Kiddie tax doesn t apply if child s earned income > than half his support. 19 Exemption for dependent children who are not full-time students expires. Kiddie tax generally no longer applies except to full-time students. 21 Children working for parents unincorporated business subject to FUTA. 24 Exemption for dependent children who are full-time-students expires. Can purchase savings bonds and exclude income used for education. Kiddie tax no longer applies. 25 Taxpayers with no children qualify for EIC. 27 Income exclusion for health insurance coverage and self-employed health insurance deduction for coverage of children age 26 and younger expires. 30 Generally must distribute ESA when beneficiary reaches age Eligible for catch-up contributions to IRAs, SIMPLE-IRAs, 401(k), 403(b) and 457 plans. Qualified public safety employees eligible for penalty-free withdrawals from a governmental defined benefit pension plan, if retired. 55 Eligible for penalty-free withdrawal from employer retirement plan (but not an IRA) if separated from service. Eligible for catch-up contributions to HSAs. 59½ Penalty for early withdrawal from retirement accounts expires. Roth IRA distributions are tax-free (if any Roth held for at least five years). 65 Non-itemizers become eligible for a higher standard deduction. Taxpayers with no children no longer qualify for EIC. HSA and MSA withdrawals not used for medical costs are taxed but no longer subject to a 20% penalty. Eligible for credit for the elderly. 7.5% (rather than 10%) of AGI threshold applies to medical expenses. 70½ Contributions no longer allowed to traditional IRAs. RMDs from retirement plans (other than Roth IRAs) must begin.

5 Quick Facts, Worksheets, Where to File All worksheets included in Tab 3 may be copied and used in your tax practice. Quick Facts Data Sheet... Page 3-1 Business Use of Home Worksheet... Page 3-4 Capital Loss Carryover Worksheet (2015)... Page 3-5 Child Tax Credit Worksheet (2015)... Page 3-5 Donations Noncash... Page 3-6 Donated Goods Valuation Guide... Page 3-6 Donations Substantiation Guide... Page 3-7 Earned Income Credit (EIC) Worksheet (2015)... Page 3-8 Net Operating Loss Worksheet #1... Page 3-9 Net Operating Loss Worksheet #2 Computation of NOL... Page 3-10 Net Operating Loss Worksheet #3 NOL Carryover... Page 3-10 Tab 3 Topics Social Security Benefits Worksheet (2015)... Page 3-11 Form 8949, Sales and Other Dispositions of Capital Assets Gain/Loss Adjustment Codes... Page 3-12 Deduction for Exemptions Worksheet (2015)... Page 3-12 Itemized Deductions Worksheet... Page State and Local Sales Tax Deduction... Page 3-13 Health Coverage Exemptions... Page 3-13 Where to File 2015 Form 1040, 1040A, 1040EZ... Page 3-14 Where to File Form 1040-ES for Page 3-14 Where to File Form 4868 for 2015 Return... Page 3-14 Quick Facts Data Sheet General Deductions and Credits Standard deduction: MFJ or QW $ 12,600 $ 12,600 $ 12,400 $ 12,200 $ 11,900 Single 6,300 6,300 6,200 6,100 5,950 HOH 9,300 9,250 9,100 8,950 8,700 MFS 6,300 6,300 6,200 6,100 5,950 Additional for age 65 or older or blind each (MFJ, QW, MFS) 1,250 1,250 1,200 1,200 1,150 Additional for age 65 or older or blind each (Single, HOH) 1,550 1,550 1,550 1,500 1,450 Personal exemption $ 4,050 $ 4,000 $ 3,950 $ 3,900 $ 3,800 Personal exemption and itemized deduction phase-out begins at AGI of: MFJ or QW $ 311,300 $ 309,900 $ 305,050 $ 300,000 N/A Single 259, , , ,000 N/A HOH 285, , , ,000 N/A MFS 155, , , ,000 N/A Earned income credit: Earned income and AGI must be less than (MFJ): 1 No qualifying children $ 20,430 $ 20,330 $ 20,020 $ 19,680 $ 19,190 One qualifying child 44,846 44,651 43,941 43,210 42,130 Two qualifying children 50,198 49,974 49,186 48,378 47,162 Three or more qualifying children 53,505 53,267 52,427 51,567 50,270 Maximum amount of credit (all filers except MFS): No qualifying children $ 506 $ 503 $ 496 $ 487 $ 475 One qualifying child 3,373 3,359 3,305 3,250 3,169 Two qualifying children 5,572 5,548 5,460 5,372 5,236 Three or more qualifying children 6,269 6,242 6,143 6,044 5,891 Investment income limit 3,400 3,400 3,350 3,300 3,200 Advance payment of health insurance premium tax credit repayment limit: 2 Household income < 200% of federal poverty line (FPL) $ 600 $ 600 $ 600 N/A N/A Household income 200% of FPL, but < 300% 1,500 1,500 1,500 N/A N/A Household income 300% of FPL, but < 400% 2,550 2,500 2,500 N/A N/A Household income 400% of FPL No Limit No Limit No Limit N/A N/A Child tax credit: Credit per child $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ 1,000 Additional (refundable) credit earned income floor 3,000 3,000 3,000 3,000 3,000 Adoption credit/exclusion: Maximum credit/exclusion (and amount allowed for adoption of special needs child) $ 13,460 $ 13,400 $ 13,190 $ 12,970 $ 12,650 Credit/exclusion phase-out begins at AGI of: All taxpayers except MFS $ 201,920 $ 201,010 $ 197,880 $ 194,580 $ 189,710 MFS Not Allowed Not Allowed Not Allowed Not Allowed Not Allowed Kiddie tax unearned income threshold $ 2,100 $ 2,100 $ 2,000 $ 2,000 $ 1,900 Foreign earned income exclusion $ 101,300 $ 100,800 $ 99,200 $ 97,600 $ 95,100 Table continued on the next page 2015 Tax Year 1040 Quickfinder Handbook 3-1

6 Quick Facts Data Sheet (Continued) FICA/SE Taxes Maximum earnings subject to tax: Social Security tax $ 118,500 $ 118,500 $ 117,000 $ 113,700 $ 110,100 Medicare tax No Limit No Limit No Limit No Limit No Limit Maximum tax paid by: Employee Social Security $ 7, $ 7, $ 7, $ 7, $ 4, Self-employed Social Security 14, , , , , Employee or self-employed Medicare No Limit No Limit No Limit No Limit No Limit Additional Medicare tax begins at earnings of: MFJ $ 250,000 $ 250,000 $ 250,000 $ 250,000 N/A Single, HOH or QW 200, , , ,000 N/A MFS 125, , , ,000 N/A Business Deductions Section 179 deduction limit $ 500,000 3 $ 500,000 $ 500,000 $ 500,000 $ 500,000 Section 179 deduction SUV limit (per vehicle) 25,000 25,000 25,000 25,000 25,000 Section 179 deduction qualified real property limit N/A 250, , , ,000 Section 179 deduction qualifying property phase-out threshold 2,000, ,000,000 2,000,000 2,000,000 2,000,000 Depreciation limit autos (1st year) 4, 5 3, , , ,160 5 Depreciation limit trucks and vans (1st year) 4, 5 3, , , ,360 5 Standard mileage allowances: Business Charity work Medical/moving Health Care Deductions/Exclusions Health savings accounts (HSAs): Self-only coverage: Contribution limit $ 3,350 $ 3,350 $ 3,300 $ 3,250 $ 3,100 Plan minimum deductible 1,300 1,300 1,250 1,250 1,200 Plan out-of-pocket limit 6,550 6,450 6,350 6,250 6,050 Family coverage: Contribution limit 6,750 6,650 6,550 6,450 6,250 Plan minimum deductible 2,600 2,600 2,500 2,500 2,400 Plan out-of-pocket limit 13,100 12,900 12,700 12,500 12,100 Additional contribution limit age 55 or older 1,000 1,000 1,000 1,000 1,000 Long-term care insurance deduction limits: Age 40 and under $ 390 $ 380 $ 370 $ 360 $ 350 Age Age ,460 1,430 1,400 1,360 1,310 Age ,900 3,800 3,720 3,640 3,500 Age 71 and older 4,870 4,750 4,660 4,550 4,370 Long-term care excludible per diem $ 340 $ 330 $ 330 $ 320 $ 310 Medical savings accounts (MSAs): Self-only coverage: Plan minimum deductible $ 2,250 $ 2,200 $ 2,200 $ 2,150 $ 2,100 Plan maximum deductible 3,350 3,300 3,250 3,200 3,150 Plan out-of-pocket limit 4,450 4,450 4,350 4,300 4,200 Family coverage: Plan minimum deductible 4,450 4,450 4,350 4,300 4,200 Plan maximum deductible 6,700 6,650 6,550 6,450 6,300 Plan out-of-pocket limit 8,150 8,150 8,000 7,850 7,650 Health flexible spending arrangement contribution limit $ 2,550 $ 2,550 $ 2,500 $ 2,500 N/A Education Tax Incentives Education savings accounts (ESAs) phase-out begins at AGI of: MFJ $ 190,000 $ 190,000 $ 190,000 $ 190,000 $ 190,000 Single, HOH, QW or MFS 95,000 95,000 95,000 95,000 95,000 Hope/American opportunity credit maximum credit (per student) $ 2,500 $ 2,500 $ 2,500 $ 2,500 $ 2,500 Lifetime learning credit (LLC) maximum credit (per return) $ 2,000 $ 2,000 $ 2,000 $ 2,000 $ 2,000 Education credit phase-out begins at AGI of: MFJ: Hope/American opportunity $ 160,000 $ 160,000 $ 160,000 $ 160,000 $ 160,000 LLC 111, , , , ,000 Single, HOH or QW: Hope/American opportunity 80,000 80,000 80,000 80,000 80,000 LLC 55,000 55,000 54,000 53,000 52,000 MFS Not Allowed Not Allowed Not Allowed Not Allowed Not Allowed Student loan interest deduction limit $ 2,500 $ 2,500 $ 2,500 $ 2,500 $ 2,500 Student loan interest deduction phase-out begins at AGI of: MFJ $ 130,000 $ 130,000 $ 130,000 $ 125,000 $ 125,000 Single, HOH or QW 65,000 65,000 65,000 60,000 60,000 MFS Not Allowed Not Allowed Not Allowed Not Allowed Not Allowed Tax Year 1040 Quickfinder Handbook Replacement Page 1/2016

7 Quick Facts Data Sheet (Continued) Savings bonds income exclusion phase-out begins at AGI of: MFJ or QW $ 116,300 $ 115,750 $ 113,950 $ 112,050 $ 109,250 Single or HOH 77,550 77,200 76,000 74,700 72,850 MFS Not Allowed Not Allowed Not Allowed Not Allowed Not Allowed Tuition deduction phase-out begins at AGI of: MFJ $ 130,000 $ 130,000 $ 130,000 $ 130,000 $ 130,000 Single, HOH or QW 65,000 65,000 65,000 65,000 65,000 MFS Not Allowed Not Allowed Not Allowed Not Allowed Not Allowed Additional Taxes AMT exemption: MFJ or QW $ 83,800 $ 83,400 $ 82,100 $ 80,800 $ 78,750 Single or HOH 53,900 53,600 52,800 51,900 50,600 MFS 41,900 41,700 41,050 40,400 39,375 Child subject to kiddie tax earned income plus $ 7,400 $ 7,400 $ 7,250 $ 7,150 $ 6,950 Net investment income tax begins at AGI of: MFJ or QW $ 250,000 $ 250,000 $ 250,000 $ 250,000 N/A Single or HOH 200, , , ,000 N/A MFS 125, , , ,000 N/A Retirement Plans IRA contribution limits: Under age 50 at year end $ 5,500 $ 5,500 $ 5,500 $ 5,500 $ 5,000 Age 50 or older at year end 6,500 6,500 6,500 6,500 6,000 Traditional IRA deduction phase-out begins at AGI of (taxpayer or spouse covered by employer retirement plan): MFJ and QW (covered spouse) $ 98,000 $ 98,000 $ 96,000 $ 95,000 $ 92,000 MFJ (non-covered spouse) 184, , , , ,000 Single and HOH 61,000 61,000 60,000 59,000 58,000 MFS Roth IRA contribution phase-out begins at AGI of: MFJ or QW $ 184,000 $ 183,000 $ 181,000 $ 178,000 $ 173,000 Single or HOH 117, , , , ,000 MFS SIMPLE IRA plan elective deferral limits: Under age 50 at year end $ 12,500 $ 12,500 $ 12,000 $ 12,000 $ 11,500 Age 50 or older at year end 15,500 15,500 14,500 14,500 14, (k), 403(b), 457 and SARSEP elective deferral limits: Under age 50 at year end $ 18,000 $ 18,000 $ 17,500 $ 17,500 $ 17,000 Age 50 or older at year end 24,000 24,000 23,000 23,000 22,500 Profit-sharing plan/sep contribution limits $ 53,000 $ 53,000 $ 52,000 $ 51,000 $ 50,000 Compensation limit (for employer contributions to profit sharing plans) $ 265,000 $ 265,000 $ 260,000 $ 255,000 $ 250,000 Defined benefit plans annual benefit limit $ 210,000 $ 210,000 $ 210,000 $ 205,000 $ 200,000 Retirement saver s credit phased-out when AGI exceeds: MFJ $ 61,500 $ 61,000 $ 60,000 $ 59,000 $ 57,500 HOH 46,125 45,750 45,000 44,250 43,125 Single, MFS or QW 30,750 30,500 30,000 29,500 28,750 Key employee compensation threshold $ 170,000 $ 170,000 $ 170,000 $ 165,000 $ 165,000 Highly compensated threshold $ 120,000 $ 120,000 $ 115,000 $ 115,000 $ 115,000 Social Security Maximum earnings and still receive full Social Security benefits: Under full retirement age (FRA) at year-end, benefits reduced by $1 for each $2 earned over Year FRA reached, benefits reduced $1 for each $3 earned $ 15,720 $ 15,720 $ 15,480 $ 15,120 $ 14,640 41,880 41,880 41,400 40,080 38,880 over (months up to FRA only) Month FRA reached and later No Limit No Limit No Limit No Limit No Limit Estate and Gift Taxes Estate and gift tax exclusion $ 5,450,000 7 $ 5,430,000 7 $ 5,340,000 7 $ 5,250,000 7 $ 5,120,000 7 GST tax exemption $ 5,450,000 $ 5,430,000 $ 5,340,000 $ 5,250,000 $ 5,120,000 Gift tax annual exclusion $ 14,000 $ 14,000 $ 14,000 $ 14,000 $ 13,000 1 Phaseout amount for all other filers (except MFS) is amount shown reduced by: $5,550 in 2016; $5,520 ($5,510 if no children) in 2015; $5,430 in 2014; $5,340 in 2013; $5,210 in For single filing status, the amount is half of the amount shown. 3 Amount has been raised by Congress many times in the past. Watch for developments. As adjusted by IRS for inflation. 4 Amount not released by IRS at publication time. Tax professionals should watch for developments. 5 Add $8,000 if special depreciation claimed. See Special Depreciation Allowance on Page 10-8 for application to Caution: Deduction expired at the end of 2014, but could be reinstated for 2015 and Watch for developments. 7 Plus the amount, if any, of deceased spousal unused exclusion amount. Replacement Page 1/ Tax Year 1040 Quickfinder Handbook 3-3

8 Business Use of Home Worksheet Caution: Schedule C filers must use Form 8829, Expenses for Business Use of Your Home, or claim the deduction computed under the simplified method on Schedule C, line 30. Use this worksheet if Schedule F is filed or if the individual is an employee (result to Schedule A) or a partner (result to Schedule E). For daycare facilities not used exclusively for business, see Form Part 1 Part of Home Used for Business: 1) Area of home used for business... 1) 2) Total area of home... 2) 3) Percentage of home used for business (divide line 1 by line 2 and show result as percentage)... 3) % Part 2 Allowable Deductions: 4) Gross income from business... 4) (a) (b) Direct Expenses Indirect Expenses 5) Casualty loss... 5) 6) Deductible mortgage interest... 6) 7) Real estate taxes... 7) 8) Total of lines 5 through ) 9) Multiply column (b) of line 8 by line ) 10) Add column (a) of line 8 and line ) 11) Business expenses not related to business use of home... 11) 12) Add lines 10 and ) 13) Deduction limit. Subtract line 12 from line 4 (if zero or less, enter -0-)... 13) 14) Excess mortgage interest... 14) 15) Insurance... 15) 16) Rent... 16) 17) Repairs and maintenance... 17) 18) Utilities... 18) 19) Other expenses related to use of home... 19) 20) Add lines 14 through ) 21) Multiply column (b) of line 20 by line ) 22) Carryover of operating expenses from prior year... 22) 23) Add column (a) of line 20, line 21 and line ) 24) Allowable operating expenses. Enter the smaller of line 13 or line ) 25) Limit on excess casualty losses and depreciation. Subtract line 24 from line ) 26) Excess casualty losses... 26) 27) Depreciation of home from line 39 below... 27) 28) Carryover of excess casualty losses and depreciation from prior year... 28) 29) Add lines 26 through ) 30) Allowable excess casualty losses and depreciation. Enter the smaller of line 25 or line ) 31) Add lines 10, 24 and ) 32) Casualty losses included on lines 10 and ) 33) Allowable expenses for business use of home. (Subtract line 32 from line 31.)... 33) Part 3 Depreciation of Home: 34) Smaller of adjusted basis or fair market value of home when first used for business... 34) 35) Basis of land (or FMV, if FMV of home used on line 34)... 35) 36) Depreciable basis of building (subtract line 35 from line 34)... 36) 37) Business basis of building (multiply line 36 by line 3)... 37) 38) MACRS depreciation percentage... 38) 39) Depreciation allowable (multiply line 37 by line 38)... 39) Part 4 Carryover of Unallowed Expenses to Next Year: 40) Operating expenses. Subtract line 24 from line 23. If less than zero, enter ) 41) Excess casualty losses and depreciation. Subtract line 30 from line 29. If less than zero, enter ) Tax Year 1040 Quickfinder Handbook

9 2015 State and Local Sales Tax Deduction 2015 For 2014, taxpayers can elect to deduct state and local sales taxes instead of state and local income taxes (see Electing to Deduct Sales Tax on Page 5-5). Instead of deducting their actual expenses, taxpayers can use optional sales tax tables [based on the taxpayer s state(s) of residence] provided by the IRS. The election expired on December 31, It is possible that Congress will extend the election to 2015 but had not done so at the time of publication. If the election to deduct state and local sales taxes in lieu of income taxes is extended to 2015, a deduction worksheet and any optional tables issued by the IRS will be posted to the Updates section of tax.thomsonreuters.com/quickfinder. The Health Coverage Exemptions For 2015, individuals must have health care coverage, qualify for a health coverage exemption, or make a shared responsibility payment with their tax return. This chart shows all of the coverage exemptions available for 2015, including information about where the coverage exemptions can be obtained and the code for the coverage exemption that is to be used on Form 8965, Health Insurance Exemptions, when claiming the exemption. See Health Care: Individual Responsibility on Page 4-21 for more information. Coverage Exemption Income below the filing threshold The individual s gross income or his household income was less than his applicable minimum threshold for filing a tax return. Granted By Marketplace Claimed on Tax Return Code for Exemption No Code See Part II 1 Coverage considered unaffordable The minimum amount the individual would have paid for premiums is more than 8.05% of his household income. A Short coverage gap The individual went without coverage for less than 3 consecutive months during the year. B Citizens living abroad and certain noncitizens The individual was: A U.S. citizen or resident who spent at least 330 full days outside of the U.S. during a 12 month period; A U.S. citizen who was a bona fide resident of a foreign country or U.S. territory; A resident alien who was a citizen of a foreign country with which the U.S. has an income tax treaty with a nondiscrimination clause, and the individual was a bona fide resident of a foreign country for the tax year; Not lawfully present in the U.S and not a U.S. citizen or U.S. national or A nonresident alien, including (1) a dual-status alien in the first year of residency and (2) a nonresident alien or dual-status nonresident alien who elects to file a joint return with a spouse. C Members of a health care sharing ministry The individual was a member of a health care sharing ministry. D Members of Indian tribes The individual was either a member of a federally-recognized Indian tribe, including an Alaska Native Claims Settlement Act (ANCSA) Corporation Shareholder (regional or village) or he was otherwise eligible for services through an Indian health care provider or the Indian Health Service. E Incarceration The individual was in a jail, prison or similar penal institution or correctional facility after the disposition of charges. F Aggregate self-only coverage considered unaffordable Two or more family members aggregate cost of selfonly employer-sponsored coverage was more than 8.05% of household income, as was the cost of any available employer-sponsored coverage for the entire family. Resident of a state that did not expand Medicaid The individual s household income was below 138% of the federal poverty line for his family size and, at any time in 2015, he resided in a state that didn t participate in the Medicaid expansion under the Affordable Care Act. Member of tax household born, adopted or died During 2015, a child was added to the individual s tax household by birth or adoption, or a member of his tax household died during the year and he can t check the fullyear coverage checkbox on his tax return. Members of certain religious sects The individual is a member of a recognized religious sect. Determined ineligible for Medicaid in a state that didn t expand Medicaid coverage The individual was determined ineligible for Medicaid solely because the state in which he resided didn t participate in Medicaid expansion under the Affordable Care Act. General hardship The individual experienced a hardship that prevented him from obtaining coverage under a qualified health plan. Coverage considered unaffordable based on projected income The individual didn t have access to coverage that is considered affordable based on his projected household income. Unable to renew existing coverage The individual was notified that his health insurance policy was not renewable and he considered the other plans available unaffordable. Certain Medicaid programs that are not minimum essential coverage The individual was (1) enrolled in Medicaid coverage provided to a pregnant woman that is not recognized as minimum essential coverage; (2) enrolled in Medicaid coverage provided to a medically-needy individual (also known as Spend-down Medicaid or Share-of-Cost Medicaid) that is not recognized as minimum essential coverage or (3) enrolled in Medicaid, and received minimum essential coverage for one or more months of the year by meeting a spend-down, but not in other months because the spend-down had not been met. 1 Of the instructions for Form 8965, Health Coverage Exemptions. G G H Need ECN See Part I 1 Need ECN See Part I 1 Need ECN See Part I 1 Need ECN See Part I 1 Need ECN See Part I 1 Need ECN See Part I 1 Replacement Page 1/ Tax Year 1040 Quickfinder Handbook 3-13

10 Taxpayer lives in: AL, GA, KY, NC, NJ, SC, TN, VA CT, DC, DE, MA, MD, ME, MO, NH, NY, PA, RI, VT, WV FL, LA, MS, TX AK, AZ, CA, CO, HI, ID, NM, NV, OR, UT, WA, WY AR, IA, IL, IN, KS, MI, MN, MT, ND, NE, OH, OK, SD, WI A foreign country, U.S. possession or territory or uses an APO or FPO address or files Form 2555, 2555-EZ or 4563 or is a dual-status alien. (See also Pub 570.) Where to File 2015 Form 1040, 1040A, 1040EZ Due Date: April 18, 2016 (April 19, 2016 for residents of MA and ME) Without payment Form 1040 Kansas City, MO Kansas City, MO Austin, TX Fresno, CA Fresno, CA Austin, TX USA Address to: Department of the Treasury Internal Revenue Service Without payment Form 1040EZ Kansas City, MO Kansas City, MO Austin, TX Fresno, CA Fresno, CA Austin, TX USA Without payment Form 1040A Kansas City, MO Kansas City, MO Austin, TX Fresno, CA Fresno, CA Austin, TX USA Address to: Internal Revenue Service With payment Form 1040, 1040A, 1040EZ P.O. Box Louisville, KY P.O. Box Hartford, CT P.O. Box 1214 Charlotte, NC P.O. Box 7704 San Francisco, CA P.O. Box Cincinnati, OH P.O. Box 1303 Charlotte, NC USA Where to File Form 1040-ES for 2016 Due Dates: See Page 16-5 At the date of publication, the IRS had not released the mailing addresses for Form 1040-ES for When available, the filing addresses will be posted to the Updates section of our website: tax.thomsonreuters.com/quickfinder. Where to File Form 4868 for 2015 Return Due Date: April 18, 2016 (April 19, 2016 for residents of MA and ME) Address to: Department of the Treasury, Internal Revenue Service Center Address to: Internal Revenue Service Taxpayer lives in: Without payment With payment AL, GA, KY, NC, NJ, SC, TN, VA Kansas City, MO P.O. Box Louisville, KY CT, DC, DE, MA, MD, ME, MO, NH, NY, PA, RI, VT, WV Kansas City, MO P.O. Box Hartford, CT FL, LA, MS, TX Austin, TX P.O. Box 1302 Charlotte, NC AK, AZ, CA, CO, HI, ID, NM, NV, OR, UT, WA, WY Fresno, CA P.O. Box 7122 San Francisco, CA AR, IA, IL, IN, KS, MI, MN, MT, ND, NE, OH, OK, SD, WI Fresno, CA P.O. Box Cincinnati, OH A foreign country, American Samoa or Puerto Rico; or is excluding Austin, TX USA P.O. Box 1302 Charlotte, NC USA income under Internal Revenue Code section 933; or using an APO or FPO address; or filing Form 2555, 2555-EZ or 4563; or is a dualstatus alien; or is a nonpermanent resident of Guam or the U.S. Virgin Islands All other Form 1040NR, 1040NR-EZ, 1040-PR and 1040-SS filers Austin, TX USA P.O. Box 1302 Charlotte, NC USA Tax Year 1040 Quickfinder Handbook End of Tab 3

11 as a condition for the home s promise to provide lifetime care that includes medical care. Court Case: In Baker [122 TC 143 (2004)], the court allowed a percentage method for calculating the portion of monthly fees deductible as medical expenses. Skilled nursing facility costs and other medical costs of the entire retirement community were assumed to be a percentage portion of each resident s entry fee and monthly payments. See also Revenue Ruling U Caution: Payments made for future medical care and insurance premiums for benefits substantially beyond the current tax year are not deductible in the year paid unless they are purchased in connection with obtaining lifetime care. (Rev. Rul ) Charitable contribution deduction. Some continuing-care facilities are operated by qualified charitable organizations. If payments exceed regular monthly fees and no additional benefits are provided, the excess may be deductible as a charitable contribution. Imputed interest. Part of the entrance fee to a life-care facility may be considered a loan if a portion of the payment is a longterm refundable fee. However, an individual is exempt from the imputed interest rule if he (or his spouse) is age 62 or older before the end of the year, the facility provides an independent living unit, along with an assisted living or nursing facility, or both, and substantially all of the independent living unit residents are covered by continuing care contracts. [IRC 7872(h)] Insurance Reimbursements Deductible medical costs must be reduced by any insurance reimbursements received. Excess reimbursements are taxable only to the extent they were provided for under an employer plan and attributable to the employer s contribution that was not included in income. Replacement Page 1/2016 Taxes See also IRS Pubs. 523, 530 and 535 State and Local Income Taxes State and local income taxes are deductible on Schedule A in the year paid. The tax may be paid either through withholding, estimated payments or payments for prior year returns. The IRS may disallow deductions for large estimated state income tax payments made solely to increase itemized deductions (Rev. Rul ). The prepayment of estimated state income tax should be based on tax liability. Penalties and interest are not deductible. N Observation: State and local income taxes properly allocable to items included in net investment income (NII) offset NII when computing the 3.8% NII tax. See 3.8% Net Investment Income Tax on Page for details. In determining whether to deduct state and local income taxes or state sales tax or general sales tax, the practitioner should consider the effect on NII tax. For can Electing to Deduct Sales Tax Expired Provision Alert: The election to deduct state and local sales tax expired December 31, However, Congress has, on several occasions, extended the provision. This section is retained in the event the provision is extended to Before 2015, taxpayers could elect to deduct state and local sales tax rather than state and local income taxes. Taxpayers who made the election could deduct either: can 1) Actual sales tax amounts (based on their records) or make 2) Predetermined deduction figures from IRS tables. To deduct actual amounts. Add up the nonbusiness general state and local sales taxes (including any compensating use taxes) paid during the year plus any selective sales taxes if the rate is the same as the general sales tax rate. Include selective sales taxes on food, clothing, medical supplies and motor vehicles even if the rate is lower than the general sales tax rate. If the selective sales tax rate on a motor vehicle is higher than the general rate, deduct only the amount that would have resulted from charging the lower general sales tax rate. To deduct amounts from IRS tables. The table amounts depend on the taxpayer s AGI plus nontaxable income (for example, taxexempt interest and nontaxable portion of Social Security benefits), the number of exemptions claimed on Form 1040 and the state of residence. If the taxpayer lives in more than one state during the year, pro-rate the amount from the table for each state (based on the number of days spent there divided by 365), add up the prorated amounts and deduct the total. See the 2015 State and Local Sales Tax Deduction Worksheet on Page Also, a Sales Tax Deduction Calculator can be found at Note: In addition to the table amounts, the taxpayer can deduct additional actual sales tax amounts from purchases of motor vehicles (including leased vehicles). If the sales tax rate on a motor vehicle is higher than the general rate, deduct only the amount that would have resulted from charging the lower general sales tax rate. Also add sales taxes paid on boats, airplanes, homes (including mobile and prefabricated) or home building materials if the rate was the same as the general sales tax rate. Real Estate Taxes A real estate tax is deductible in the year it is paid to the taxing authority. Prepaid real estate taxes can generally be deducted in the year of the prepayment if the taxpayer is on the cash basis and does not live in an area in which the prepayment would be considered a deposit by the taxing authority. How prepaid taxes are treated varies among local jurisdictions. Taxes placed in escrow are deductible when actually paid to the taxing authority, not when paid to the escrow agent. Penalties and interest on late payments are not deductible. Also, see Electing to Capitalize Taxes and Interest on Page 5-8. Generally, real estate taxes can be deducted only by the owner of the property upon which the tax is imposed. Regulation Section (b) defines real property taxes as taxes imposed on interests in real property and levied for the general public welfare Because of the lack of a detailed definition, the issue has been the subject of several court cases and IRS rulings. For example, the tax imposed on renters by the New York Real Property Tax Law is not deductible for federal tax purposes. Taxes paid under this law are considered rent, not property taxes. (Rev. Rul ) In contrast, Revenue Ruling stated that certain payments made to an educational construction fund by a cooperative housing corporation did qualify as real property taxes, and were deductible by the tenant-shareholders. More than one property. Real estate taxes are deductible for all property owned by a taxpayer. Sale of real estate. The buyer and the seller must divide real estate taxes according to the number of days that each owned the property during the year. Both are considered to have paid their share of taxes, even if one or the other paid the entire amount. Buyer-paid taxes. Deductible by the buyer only for the period he owned the property. The buyer cannot deduct the real estate taxes of the seller. The buyer must add these taxes to the basis of the property. The seller treats this as additional sales proceeds. Seller-paid taxes. If the seller pays real estate tax owed by the buyer (beginning on the date of sale), the buyer is considered to have paid the tax. The tax is deductible by the buyer. The buyer must reduce the basis in the property by the tax paid. The seller treats this as a reduced selling price Tax Year 1040 Quickfinder Handbook 5-5

12 Equitable owner. Taxpayers who do not have legal title to a property may still claim a Schedule A deduction for real estate taxes paid if they are equitable owners of the property. An equitable owner is a person who has the economic benefits and burdens of ownership, based on the facts. Occupying and maintaining the home and paying the mortgage and taxes on it are factors that might indicate equitable ownership. See Trans (TC Memo ), Uslu (TC Memo ), Edosada (TC Summ. Op ) and Phan (TC Summ. Op ) for situations where taxpayers were equitable owners. Court Case: The taxpayer did not hold legal title, but was under an oral agreement to purchase the property from his family members. He reported home mortgage interest expense of $35,880. Although the taxpayer did not hold legal title to the underlying property, nor did his name appear on the mortgage, the Tax Court determined that he provided clear and convincing evidence that he was an equitable owner because he paid the mortgage, taxes, insurance and other bills associated with the property; maintained the property and made improvements to it. Thus, he was entitled to take the mortgage interest deduction. (Phan, TC Summ. Op ) Condo tax equivalency payments. Payments in lieu of taxes (PILOT), commonly referred to as tax equivalency payments, made by a condominium developer to its landlord, a governmental fund, can be deducted as real estate taxes. When the developer sells condominium units, each unit buyer also should be able to deduct as real estate taxes a proportionate share of the PILOT payments. (PLR ) Cooperative Housing Corporations (Co-Ops) Mortgage interest and property taxes allocated to a tenant-shareholder in a co-op are generally treated the same as those paid by other homeowners, provided the following conditions are met. 1) The corporation has only one class of stock outstanding. 2) Each shareholder has the right (but is not required) to occupy a dwelling unit solely because of the ownership of the stock. 3) No shareholder can receive any distribution of capital, except on liquidation of the corporation. 4) During the year, the corporation either (a) receives at least 80% of its gross income from tenant-shareholders, (b) makes available at least 80% of the property s total square footage for use by tenant-shareholders or (c) pays or incurs at least 90% of its expenditures for the acquisition, construction, management, maintenance or care of the property for the benefit of the tenant-shareholders. [IRC 216(b)] The tenant-shareholder s deductible percentage of interest and taxes paid by the corporation is allocated based on the number of shares owned versus total shares outstanding. Co-ops usually issue a year-end statement showing the allocated amounts. Special Assessments Improvements. Taxes charged for local benefits or improvements that tend to increase the taxpayer s property value (such as construction of streets, sidewalks or water and sewer systems) are not deductible [IRC 164(c)(1)]. A tax is considered assessed for local benefits when property assessed with the tax is limited to property benefited [Reg (a)]. It is not necessary for the property s value to actually increase. Maintenance, repairs or interest. Assessments to meet maintenance or repair costs or interest charges for the local benefit are deductible (if the taxpayer can substantiate them) as taxes on Schedule A because such expenditures do not tend to increase property values. [Rev. Rul ; Reg (b)(1)] Personal Property Taxes Personal property taxes are deductible if they are a state or local tax: 1) Charged on personal property, 2) Based only on the value of the personal property and 3) Charged on a yearly basis (even if collected more or less than once per year). Automobile license fees. Fee based on weight, model, year or horsepower. Not deductible. Fee based on the value of the car. Deductible, even if the tax is imposed on the exercise of a privilege of registering a car or for using a car on the road. Tax based partly on value and partly on weight or other test. Only the tax attributed to the value is deductible. For example, assume annual registration fee based on 1% of value, plus 40 per hundred-weight. The part of the tax equal to 1% of value is deductible. Foreign Taxes Most income taxes paid to a foreign country or U.S. possession are allowable either as an itemized deduction or as a credit against tax on Form 1116, Foreign Tax Credit. If available, the credit is often more advantageous. See Foreign Tax Credit on Page Nondeductible Taxes Custom or import duties. Federal estate and gift taxes. Federal income and excise taxes. Fines or penalties for violation of the law, such as parking or speeding tickets. License fees (marriage, drivers, dogs, trailers, boats). Social Security, Medicare, railroad retirement taxes. Interest Tracing See also IRS Pub. 535 Taxpayers must track the use of loan proceeds to determine the type of interest paid (for example, personal, business, etc.). (Temp. Reg. Strategy: Keep loan proceeds totally separate from other funds whenever possible. This can avoid reallocation by the IRS, and may save important tax deductions. Interest Expense Types Business interest. Interest on debts incurred in a trade or business is deductible as a business expense on Schedule C or F or on Schedule E, Part II, if used to purchase stock in an S corporation or a partnership interest. Capitalized interest. Interest subject to capitalization rules, such as that incurred on manufacture or production of certain long life assets, is recovered through depreciation. (Form 4562) Student loan interest. Deducted as an adjustment to income on Form 1040 (available whether or not the taxpayer itemizes deductions). The deduction is limited to $2,500. See Student Loan Interest Deduction on Page 13-4 for more information. Interest paid to purchase or carry tax-exempt securities. Not deductible. Investment interest. Deductible up to the amount of net investment income (Schedule A, Form 4952). See Investment Interest Expense on Page 5-7. Mortgage interest (Schedule A). See Qualified Residence Interest on Page Tax Year 1040 Quickfinder Handbook

13 Points on the following cannot be deducted currently: Loans to purchase or improve a second residence. Refinancing loans unless used for improving the taxpayer s main home. Home equity loans or line of credit loans not used for improving the home. Home Improvement Loan Points Points paid on a loan to improve the principal residence are fully deductible in the year paid. The rules for deducting points on a loan to build or buy a home described under Points on Principal Residence Mortgage on Page 5-10 apply, except that items 6 and 7 are not required. Example: Ned takes out a home improvement loan for $20,000, but only $10,000 is actually used for home improvements. The other $10,000 is used to buy equipment for his Schedule C business. If Ned pays a $200 loan origination fee, $100 is currently deductible and the other $100 must be amortized over the life of the loan. Seller-Paid Points Homebuyers deduct seller-paid points as interest under the personal residence interest rules. Points paid by the seller, including points charged to the seller, are treated as paid directly by the buyer from funds that have not been borrowed, provided the buyer subtracts the amount of seller-paid points from the purchase price of the residence in computing basis. (Rev. Proc ) Example: Candy sells her home to Dee for $200,000. Dee makes a cash downpayment of $20,000 and borrows $180,000 from a mortgage company. Candy pays two points ($3,600) to the mortgage company to help Dee get the loan at a better rate of interest. Dee is treated as having paid $3,600 of points directly to the mortgage company and $196,400 to Candy for the purchase of the home. Points Paid to Refinance Taxpayers who refinance the mortgage on their principal residence must amortize any points paid over the life of the new loan unless loan proceeds are used to substantially improve the main residence. If only a portion of the loan is used to improve the home, only that portion of the points is deductible in the year paid (remaining portion must be amortized) (Pub. 936). If the loan is paid off early or refinanced, any remaining unamortized points may be deducted in full in the year the loan is paid in full. However, taxpayers who refinance a loan with the same lender must deduct the remaining points from the old loan over the life of the new loan. Court Case: In Hurley (TC Summary Opinion ), the Tax Court took a somewhat different approach in determining to what extent a mortgage refinancing was used to fund home improvements. The taxpayers refinanced their home mortgage so they could reduce their monthly payments by $300, which in turn they used for home improvements. Because the money saved each month was used to improve the residence, the Court held that the refinancing was in connection with home improvements and allowed the taxpayers to deduct the entire $4,400 of points paid in the year of the refinancing. Taxpayers who use short-term financing as a first step in securing a permanent mortgage may be entitled to deduct points on refinancing in the year paid. Court Case: In Huntsman, taxpayers purchased and improved their residence by means of a three-year loan and later refinanced the loan with a 30-year mortgage. The court allowed the deduction of the points on the refinancing. The court found that the 30-year mortgage was obtained in connection with the purchase of their principal residence, therefore the taxpayer was entitled to deduct all of the points in the year paid. [Huntsman, 66 AFTR 2d (8th Cir. 1990)] Amortizing Points Amortization is per month, not per year. Thus, if a taxpayer incurs $2,000 in points on a 30-year loan of 360 monthly payments and the first payment is for November of 2015, only $11.12 is deductible for 2015 ($2, = $ months). Home equity line-of-credit points. Points paid initially for a line of credit of up to $100,000 secured by the home are deductible as home equity debt interest over the period of time until the credit line expires. However, if funds from a line of credit are used for home improvements for the principal residence, the points are fully deductible the first year. Business or investment property. Amortize the points over the life of the loan. Second Home Assuming the home is treated as the second home under the qualified residence interest expense rules, points are treated as follows. Personal use only. Points are amortized as mortgage interest expense over the entire loan period. Rental and personal use: 1) If personal use is not more than the greater of 14 days or 10% of the days the home is rented, the second home is treated as a rental property. Amortize and deduct the rental portion of the points over the life of the loan. Points allocated to personal use are non-deductible. 2) If personal use exceeds the 14-day or 10% use rule, divide the points proportionately based on rental and personal use. Amortize and deduct the amount attributable to the rental activity against the rental income, and amortize and deduct the balance as qualified residence interest expense. Note: See Renting Out a Home on Page 8-1. Other Mortgage Interest Deduction Rules Late Payment Charges Late payment charges are generally deductible as mortgage interest if they are not for a specific service such as a collection fee. Land Rent (Redeemable Ground Rent) Periodic lease payments made for the use of land on which a home is located can be deductible as mortgage interest. To be deductible, all of the following must be true. 1) The land lease term is more than 15 years, including renewal periods, and is freely assignable by the lessee; 2) The lessee has the right to terminate the lease and purchase the lessor s land by paying a specific amount and 3) The lessor s interest in the land is a security interest to protect the entitlement to rental payment. Construction Loans Interest on construction loans or loans to buy a lot is qualified residence interest if the following requirements are met: 1) A home under construction is treated as a qualifying home for up to 24 months provided that when ready for occupancy, the house is used as a main or second home. The deduction was allowed even when the home was never completed because the taxpayers could not obtain financing. (Rose, TC Summary Opinion ) 2) If the construction period exceeds 24 months, the interest for the remaining months is considered personal interest. Continued on the next page 2015 Tax Year 1040 Quickfinder Handbook 5-11