J.K.L ASSER’S Your Income 2016 Tax ™ Prepared by the J.K LASSER INSTITUTE™ Staff for This Book J.K Lasser Editorial Elliott Eiss, Member of the New York Bar, Contributing Editor Barbara Weltman, Member of the New York Bar, Contributing Editor Angelo C Jack, Senior Production Editor William Hamill, Copyediting and Proofreading Index by WordCo Indexing Services John Wiley & Sons, Inc John Wiley & Sons, Inc 111 River Street Hoboken, NJ 07030 Copyright © 2016 by John Wiley & Sons, Inc All rights reserved Published by John Wiley & Sons, Inc., Hoboken, New Jersey Published simultaneously in Canada No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate 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publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages For general information on our other products and services or for technical support, please contact our Customer Care Department within the United States at (800) 762-2974, outside the United States at (317) 572-3993, or fax (317) 572-4002 Wiley also publishes its books in a variety of electronic formats Some content that appears in print may not be available in electronic books For more information about Wiley products, visit our web site at www.wiley.com ISBN 978-1-119-13392-6 ISBN 978-0-13-443745-3 Printed in the United States of America 10 Seventy-Ninth Edition How To Use Your Income Tax 2016 Tax alert symbols Throughout the text of Your Income Tax, these special symbols alert you to advisory tips about filing your federal tax return and tax planning opportunities: Filing Tip or Filing Instruction A Filing Tip or Filing Instruction helps you prepare your 2015 return Planning Reminder A Planning Reminder highlights year-end tax strategies for 2015 or planning opportunities for 2016 and later years Caution A Caution points out potential pitfalls to avoid and areas where IRS opposition may be expected Law Alert A Law Alert indicates recent changes in the tax law and pending legislation before Congress Court Decision A Court Decision highlights key rulings from the Tax Court and other federal courts IRS Alert An IRS Alert highlights key rulings and announcements from the IRS Visit www.jklasser.com for FREE download of e-Supplement You can download a free e-Supplement to Your Income Tax 2016 at www jklasser.com The e-Supplement will provide an update on tax developments from the IRS and Congress, including a look ahead to 2016 On the homepage at jklasser.com, you will find free tax news, tax tips and tax planning articles, and you can sign up for a free e-newsletter The federal income tax law, despite efforts at simplification, remains a maze of statutes, regulations, rulings, and court decisions written in technical language covering thousands and thousands of pages For over 75 years, J.K Lasser’s™ Your Income Tax has aided and guided millions of taxpayers through this complex law Every effort has been made to provide a direct and easy-to-understand explanation that shows how to comply with the law and at the same time take advantage of tax-saving options and plans The 2016 edition of Your Income Tax—our 79th edition—continues this tradition To make maximum use of this tax guide, we suggest that you use these aids: Contents Chapter by Chapter The contents, on pages v–xxiv, lists the chapters in Your Income Tax References direct you to sections within a particular chapter Thus a reference to 21.1 directs you to Chapter 21 and then to section within that chapter Section and page references are provided in the index at the back of the book What’s New for 2015 Pages xxv–xxviii alert you to tax developments that may affect your 2015 tax return Key Tax Numbers for 2015 Pages xxix–xxx Tax-Saving Opportunities Page xxxi Filing tax basics Pages 1–8 alert you to filing requirements, filing addresses for IRS Service Centers, and a calendar with 2016 filing deadlines J.K Lasser’s Your Income Tax 2016 | iii Contents Chapter by Chapter What’s New for 2015 Key Tax Numbers for 2015 FILING BASICS xxv xxix Do You Have to File a 2015 Tax Return? Filing Tests for Dependents: 2015 Returns Where to File Your 2015 Return Filing Deadlines (on or before) Which Tax Form Should You File? Filing Status 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 1.9 1.10 1.11 1.12 1.13 1.14 1.15 1.16 1.17 1.18 1.19 1.20 Which Filing Status Should You Use? Tax Rates Based on Filing Status Filing Separately Instead of Jointly Filing a Joint Return Nonresident Alien Spouse Community Property Rules Innocent Spouse Rules Separate Liability Relief for Former Spouses Equitable Relief Death of Your Spouse in 2015 Qualifying Widow/Widower Status If Your Spouse Died in 2014 or 2013 Qualifying as Head of Household Filing for Your Child Return for Deceased Return for an Incompetent Person How a Nonresident Alien Is Taxed How a Resident Alien Is Taxed Who Is a Resident Alien? When an Alien Leaves the United States Expatriation Tax 10 11 12 14 15 15 17 18 21 22 23 24 25 26 28 28 28 29 31 31 REPORTING YOUR INCOME 33 Wages, Salary, and Other Compensation 35 2.1 2.2 2.3 2.4 2.5 2.6 Salary and Wage Income Constructive Receipt of Year-End Paychecks Pay Received in Property Is Taxed Commissions Taxable When Credited Unemployment Benefits Strike Pay Benefits and Penalties 38 39 39 40 40 41 J.K Lasser’s Your Income Tax 2016 | v Table of Contents 2.7 2.8 2.9 2.10 2.11 2.12 2.13 2.14 2.15 2.16 2.17 Nonqualified Deferred Compensation Did You Return Wages Received in a Prior Year? Waiver of Executor’s and Trustee’s Commissions Life Insurance Benefits Educational Benefits for Employees’ Children Sick Pay Is Taxable Workers’ Compensation Is Tax Free Disability Pensions Stock Appreciation Rights (SARs) Stock Options Restricted Stock Fringe Benefits 52 3.1 Tax-Free Health and Accident Coverage Under Employer Plans 3.2 Health Savings Accounts (HSAs) and Archer MSAs 3.3 Reimbursements and Other Tax-Free Payments From Employer Health and Accident Plans 3.4 Group-Term Life Insurance Premiums 3.5 Dependent Care Assistance 3.6 Adoption Benefits 3.7 Education Assistance Plans 3.8 Company Cars, Parking, and Transit Passes 3.9 Working Condition Fringe Benefits 3.10 De Minimis Fringe Benefits 3.11 Employer-Provided Retirement Advice 3.12 Employee Achievement Awards 3.13 Employer-Furnished Meals or Lodging 3.14 Minister’s Housing or Housing Allowance 3.15 Cafeteria Plans Provide Choice of Benefits 3.16 Flexible Spending Arrangements 3.17 Company Services Provided at No Additional Cost 3.18 Discounts on Company Products or Services Dividend and Interest Income 54 54 56 59 61 61 62 62 64 65 66 66 66 69 70 70 73 73 74 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 4.10 vi | J.K Lasser’s Your Income Tax 2016 41 43 43 43 44 45 45 46 47 48 50 Reporting Dividends and Mutual-Fund Distributions Qualified Corporate Dividends Taxed at Favorable Capital Gain Rates Dividends From a Partnership, S Corporation, Estate, or Trust Real Estate Investment Trust (REIT) Dividends Taxable Dividends of Earnings and Profits Stock Dividends on Common Stock Dividends Paid in Property Taxable Stock Dividends Who Reports the Dividends Year Dividends Are Reported 75 76 77 77 77 78 78 79 79 80 Table of Contents 4.11 Distribution Not Out of Earnings: Return of Capital 4.12 Reporting Interest on Your Tax Return 4.13 Interest on Frozen Accounts Not Taxed 4.14 Interest Income on Debts Owed to You 4.15 Reporting Interest on Bonds Bought or Sold 4.16 Forfeiture of Interest on Premature Withdrawals 4.17 Amortization of Bond Premium 4.18 Discount on Bonds 4.19 Reporting Original Issue Discount on Your Return 4.20 Reporting Income on Market Discount Bonds 4.21 Discount on Short-Term Obligations 4.22 Stripped Coupon Bonds and Stock 4.23 Sale or Retirement of Bonds and Notes 4.24 State and City Interest Generally Tax Exempt 4.25 Taxable State and City Interest 4.26 Tax-Exempt Bonds Bought at a Discount 4.27 Treasury Bills, Notes, and Bonds 4.28 Interest on United States Savings Bonds 4.29 Deferring United States Savings Bond Interest 4.30 Minimum Interest Rules 4.31 Interest-Free or Below-Market-Interest Loans 4.32 Minimum Interest on Seller-Financed Sales Reporting Property Sales 80 81 82 82 82 83 84 85 86 87 88 89 90 90 91 91 92 93 94 95 95 97 100 5.1 5.2 5.3 5.4 5.5 5.6 5.7 5.8 5.9 5.10 5.11 5.12 5.13 5.14 5.15 5.16 5.17 5.18 5.19 5.20 5.21 5.22 General Tax Rules for Property Sales How Property Sales Are Classified and Taxed Capital Gains Rates and Holding Periods Capital Losses and Carryovers Capital Losses of Married Couples Losses May Be Disallowed on Sales to Related Persons Deferring or Excluding Gain on Small Business Stock Investment Reporting Capital Asset Sales on Form 8949 and on Schedule D Counting the Months in Your Holding Period Holding Period for Securities Holding Period for Real Estate Holding Period: Gifts, Inheritances, and Other Property Calculating Gain or Loss Amount Realized Is the Total Selling Price Finding Your Cost Unadjusted Basis of Your Property Basis of Property You Inherited or Received as a Gift Joint Tenancy Basis Rules for Surviving Tenants Allocating Cost Among Several Assets How To Find Adjusted Basis Tax Advantage of Installment Sales Figuring the Taxable Part of Installment Payments 101 101 103 106 106 107 108 110 118 118 119 119 120 121 121 121 123 126 128 128 129 130 J.K Lasser’s Your Income Tax 2016 | vii Table of Contents 5.23 5.24 5.25 5.26 5.27 5.28 5.29 5.30 5.31 5.32 5.33 5.34 5.35 Electing Not To Report on the Installment Method Restriction on Installment Sales to Relatives Contingent Payment Sales Using Escrow and Other Security Arrangements Minimum Interest on Deferred Payment Sales Dispositions of Installment Notes Repossession of Personal Property Sold on Installment Boot in Like-Kind Exchange Payable in Installments “Interest” Tax if Sales Price Exceeds $150,000 With Over $5 Million Debt Worthless Securities Tax Consequences of Bad Debts Four Rules To Prove a Bad Debt Deduction Family Bad Debts Tax-Free Exchanges of Property 139 139 141 142 143 144 6.1 Trades of Like-Kind Property 6.2 Personal Property Held for Business or Investment 6.3 Receipt of Cash and Other Property—“Boot” 6.4 Time Limits and Security Arrangements for Deferred Exchanges 6.5 Qualified Exchange Accommodation Arrangements (QEAAs) for Reverse Exchanges 6.6 Exchanges Between Related Parties 6.7 Property Transfers Between Spouses and Ex-Spouses 6.8 Tax-Free Exchanges of Stock in Same Corporation 6.9 Joint Ownership Interests 6.10 Setting up Closely Held Corporations 6.11 Exchanges of Coins and Bullion 6.12 Tax-Free Exchanges of Insurance Policies Retirement and Annuity Income 145 146 147 150 152 153 153 156 156 156 157 157 159 7.1 7.2 7.3 7.4 7.5 7.6 7.7 7.8 7.9 7.10 7.11 7.12 7.13 7.14 7.15 viii | J.K Lasser’s Your Income Tax 2016 133 134 135 136 137 137 138 139 Retirement Distributions on Form 1099-R Lump-Sum Distributions Lump-Sum Options If You Were Born Before January 2, 1936 Averaging on Form 4972 Capital Gain Treatment for Pre-1974 Participation Lump-Sum Payments Received by Beneficiary Tax-Free Rollovers From Qualified Plans Direct Rollover or Personal Rollover Rollover of Proceeds From Sale of Property Distribution of Employer Stock or Other Securities Survivor Annuity for Spouse Court Distributions to Former Spouse Under a QDRO When Retirement Benefits Must Begin Payouts to Beneficiaries Penalty for Distributions Before Age 59½ 161 163 163 164 166 166 167 168 171 171 173 173 174 174 175 Index Merchant Marine Academy, 589 Merchant transactions, 656 Mergers, 88 Mid-month convention (depreciation), 700 Mid-quarter convention (depreciation), 696–697, 712–715 Midwestern disaster area, 405 Midwestern disaster area bonds, 550 Mileage rate, 707–708, 784 Mileage-tracking apps, 719 Military action, 47 death in, 612 Military service, 47 See also Armed Forces personnel Minimum Interest Rate for Seller Financing, 99 Minimum interest rules, 95 Minimum standards for job, educational courses required for, 593 Mining, 477 Ministers, housing or housing allowance for, 69–70 Minors, custodial accounts for, 82, 642–643 Miscellaneous expenses, 410–423 See also Job expenses 2% AGI floor on, 411, 412, 413 contingent fees paid out of awards, 423 investment expenses, 419–420 legal costs, 421–423 tax preparation and audit costs, 420– 421 Miscellaneous itemized deductions, 782 Missing status (Armed Forces personnel), 612 Model custodial account agreement See Form 5305-A Model trust See Form 5305 Modified ACRS (MACRS) depreciation, 782 accelerated, 709, 711 and AMT, 476 anti-churning restriction, 703 half-year convention, 696 rates for, 694–695, 711–715 for real estate placed in service after 1986, 700 recovery periods, 693–694 Modified adjusted gross income (MAGI), 199, 226, 255–256, 519, 585, 782 More-than-50%-business-use test, 709, 711 Mormon missionaries, 323 Mortgage debt, restructuring, 564–565 Mortgaged property, 121, 154, 329, 568 Mortgage interest credit, 475, 502 Mortgage interest deduction, 69, 236, 345–346, 502 Mortgage revenue bonds, 91 Mortgages, 566–567, 567–568 Mortgage subsidies, 502 Moving expense deductions, 413 39-week test for employees, 309–310 78-week test for self-employed persons and partners, 310 about, 307–308 claiming, 310 distance test for, 309 overseas, 621 Moving expense reimbursements, 37, 311, 616 MSAs See Archer Medical Savings Accounts (MSAs) Multiple support agreements, 459–460 Multi-unit residences, 239 Municipal bond funds, 549 Mutual funds, 75–76, 106, 121, 356, 571, 738 See also Investors in mutual funds MyRA accounts, 233, 681 N NAE method See Non-accrual experience method Name, on tax returns, 461–462 National Guard members, 305, 613 National Health Services Corps Loan Repayment Program, 290 National Health Services Corps Scholarship Program, 62, 579 National Housing Act, 351 National Oceanic and Atmospheric Administration, 528, 602, 609 Naval Academy, 589 Negative taxable income, 284 Negligence of IRS rules/regulations, 758 Net capital gains, 11, 355, 469–470 Net interest income, 265 Net investment income, 93, 470, 514, 519–522, 557 Net investment income tax (NIIT), 470, 514, 519–522 Net operating losses (NOLs), 782 about, 672–673 and AMT, 475 carryback of, 674 carryover of, 675 farm-related, 678 losses and deductions in, 673–674 and real estate allowance, 256 recapture of, 724 reporting, 673–674 for self-employed persons, 652, 729 New York City police officers, charities for families of slain, 321 New York Liberty bonds, 550 NIIT See Net investment income tax NOLs See Net operating losses Nominee distributions, 76, 86 Nominees, dividends received by, 79 Non-accountable plans, 449 Non-accrual experience (NAE) method, 656 Nonbusiness bad debts, 141–142 Noncare services, child and dependent credit and, 491 Noncitizen spouses, 647 Nondepreciable assets, 690 Nonfarm optional method (selfemployment tax), 732 Nongift loans, 96 Nonpassive income, 264, 265–267 Nonperiodic distributions, 782 Nonperiodic payments, retirement plan, 510 Nonprofit organizations, 321, 322 Nonqualified deferred compensation, 154 J.K Lasser’s Your Income Tax 2016 | 803 Index Nonqualified deferred compensation plans, 41–42 Nonqualified plan distributions, 36 Nonqualified use of residence, 529–530, 536 Nonqualifiying rental activities, 258 Nonrecourse financing, 275, 290, 563, 782 Nonrefundable tax credits, 488, 585 Nonresident aliens, 15, 28, 31, 494, 598, 602 Nonspouse beneficiaries, 171, 175, 217 Nonstatutory stock options, 37, 50, 154 Nontaxable distributed stock rights, 543 Nontaxable pensions, 602 Nonworking spouses, 198, 226 Northern Mariana Islands, 622 Notes, 90, 92, 137–138 Notice 797, 635 Notice 2007-34, 44 Notice 2010-33, 760 Notice 2014-7, 300 Notice of Deficiency, 762 Nursery schools, 490 Nurses, wages of, 381 Nursing homes, 380 Nutritional supplements, 369 O Obligations, 90, 91, 330 Offers in compromise (OIC), 742, 762–763 See also Form 656 Officers, in combat zones, 610 Offshore Voluntary Disclosure Program (OVDP), 760 OIC See Offers in compromise OID See Original issue discount Oil percentage depletion, 249–250 Oil wells, working interests in, 267–268 One-person 401(k) plans, 680 Operating expenses, traders’, 658 Options, 545–547, 561 Ordering rules, Roth IRA distribution, 231 Ordinary and necessary requirement, 782 Ordinary income, 11, 721–722, 782 Ordinary income property, donation of, 327 Ordinary losses, 550, 724, 782 Organizational costs, 664 Original issue discount (OID), 85, 86–87, 88, 91, 782 Overnight-sleep test, 426–428 Overnight travel, 613 Overseas, moving, 308, 621 Overtime work, 65 Overvaluation, of donated property, 340 Owners See also Co-owners casualty loss deductions for, 391 depreciation of cooperative apartments by, 672 IRA, 214, 220–222 Ownership, 15 See also Joint ownership Ownership tests, 527–530 P Paid-up life insurance, 189 Parents, 25, 26, 323, 460–461, 483–484 Parking, 62–64 Partial blindness, 316 Partial disposition of passive interests, 269, 270 Partially rented homes, 538 Partially tax-free distributions, 205–207 Partially-tax free exchanges of property, 560 Partial payments, 88 Partners 78-week test for, 310 as at-risk, 276 distributions from partnerships to, 723 first-year expensing for, 692 meals and lodging for, 69 passive activities for, 268 reporting of income and losses by, 294 self-employment tax for, 729 Partnership income, 27 reporting of partnership profit and loss, 293–294 unified tax audits for, 295 Partnerships, 783 804 | J.K Lasser’s Your Income Tax 2016 debt cancellation, 292 disposition of, 274 distributions to partners from, 723 dividends from, 77 domestic production activities deduction for, 676 elections made by, 293, 405 foreign earned income from, 616 grouping of business activities by, 260 holding periods for property of, 119 like-kind exchanges of interests, 146 loss limitations for, 294 organizational costs for, 664 and partners’ income and loss, 294 profit and loss of, 293–294 rental real estate interests held by, 258 retirement plans, 179 on Schedule K-1, 293 transfers of interest, 294 unified tax audits for, 295 Part-year employees, 491, 506 Passenger cars, depreciation on, 710 See also Car and truck expenses Passive activities aggregate vs separate treatment of, 259–261 for closely-held corporations, 272–273 on Form 8582, 269–270 interest expense and, 355 for LLC and LLP members, 269 material participation tests for businesses, 261–263 net operating losses and, 673 for partners, 268 passive loss restrictions and, 259 for personal service corporations, 272–273 and property loss reimbursements, 402 rental activities, 252–254, 254–256, 256–259 sales of property and business interests, 273–274 sales of subdivided land and, 558–559 suspended losses on business interest and, 270–272 tax credits and, 263, 272 tax-shelter farm activities, 477 working interests in oil/gas wells and, 267–268 Index Passive activity deductions, 264, 296 Passive equity-financed lending, 265 Passive income, 247, 264–265, 265–267 Passive interests, 271 Passive losses, 259, 265, 273, 275, 477, 652, 783 Patents, 248, 330 Patronage dividends, 783 Pay See also Salary or wage income (compensation) assignment of, 38 of government employees in foreign countries, 616 of Armed Forces personnel, 608, 609, 610–611 property received as, 39–40 Payment period, 135, 512, 630 Payments See also specific types over $10,000, 656 of clients’ expenses, 662 donations as, 337 from health and accident plans, 58 home mortgage interest and, 351–352 for independent contractors, 656 for insurance premiums, 59, 336 for itemized expenses, 318 for prior installment sales, 129 for reservists, 613 self-employed persons’ reporting of, 656–657 taxable part of, 130–133 to third parties, 628 PBGC See Pension Benefit Guaranty Corporation Peace Corps workers, 69, 528 Penalty(-ies) for 2015 payments, 512–513 for late filing and late payments, 740, 743–748 deductible, 662 for excess IRA contributions, 204 for excessive refund claims, 741, 752, 760 for failure to report tips, 508 for understating tax on inherited property, 125 for frivolous court action, 762, 764 for frivolous tax returns, 760 interest on, 760 for IRA withdrawals, 210–213 for late filing and late payments, 657 marriage, 10 for not reporting foreign financial accounts, 760–761 for reportable transactions, 759 single, 10 for substantial overvaluation of donated property, 340 Pension Benefit Guaranty Corporation (PBGC), 501, 502 Pension plans, 38 See also Simplified employee pension (SEP) plans Pensions disability, 46–47, 190 nontaxable, 602 self-employed income and, 657 Percentage depletion, 249, 783 Per diem travel allowance, 447–448 Performing artists, 305, 413 Periodic interest, 86 Periodic payments, retirement plan, 509 Permanent life insurance, 60 Permanently and totally disabled person, 493, 605 Permits, departure (sailing), 31 Personal creative works, donating, 332 Personal exemptions, 450–464 citizen and resident tests for dependents, 461 and joint returns by dependents, 461 number of, 451–452 phaseout of, 462–464 qualifying children, 452–454, 460–461 qualifying relatives, 454–456, 456– 459, 459–460 and Social Security numbers of dependents, 462 spouse, 452, 461–462 Personal injury settlements, 372–378, 422 See also Legal damages Personal interest, 783 Personal property, 146–147, 254, 721 Personal rollovers (retirement plan), 169–170 Personal service corporations, 272–273 Personal tax credits, 485–503 adoption credit, 495–496 child and dependent care credit, 488– 489 child tax credit, 487 earned income credit, 492–494 for fuel cell and plug-in electric vehicles, 503 health coverage credit, 501–502 mortgage interest credit, 502 overview, 486 for permanently disabled, 605 premium tax credit, 498–501 residential energy credits, 502 saver’s credit, 497 Personal use with business use, 536–537 capital losses on assets with, 101 losses on, 537 vehicles with, 708, 718 Personal-use days for residence, 243– 244 Personal-use property and imputed interest rule, 98 with business use, 692, 724–725 losses on, 398, 401 rental of, 145, 242–243, 243–244, 244–246 with business use, 713 Personal-use test for residence, 242–243 Phaseout Range for Deduction Limit on 2015 Returns, 200 Phaseout rules See Deduction phaseout rules Phaseout threshold, 199 Physical presence test, 620 Pilots, 431–432 Placed in service (term), 783 Pledge rule, 133 Plug-in electric vehicles, 503, 676 “Points”, 353–354, 354, 534, 783 Ponzi schemes, 395 Portability election (estate tax), 645–646 Portfolio income, 264 Postmarks, for returns, 739 Pre-1936 buildings, 562 Pre-1974 participation in retirement plans, 166 Premature distributions, 783 Premium tax credit, 306, 498–501, 502 Prepaid expenses, 318, 583 Prepaid interest, 359 J.K Lasser’s Your Income Tax 2016 | 805 Index Pre-tax retirement contributions, direct rollover of, 168 Primary purpose determination, educational program, 44 Principal residence, 353–354, 536, 783 Principal residence exclusion, 526–527, 527–530, 530–531, 531–534 Principal residence indebtedness, 291 Principals (school), 413 Prior law deferral rules, 122 Prior law rollover rules, 535 Private activity bonds, 90, 91, 476 Private letter ruling, 783 Private non-operating foundations, 329 Private schools, 380 Prizes, as income, 280 Probate estate, 783 Production activities, 675 Production costs, 248 Products, discounts on, 73 Product testing, 65 Professional gamblers, 281 Professionals, deductions for, 661–662 Professional sports players, 431 Profit presumption, 664 Profits See also Gross profit dividends of, 77–78 in partnerships, 293–294 of property sales, 107–108, 538 from sole proprietorships and partnerships, 616 Profit-sharing plans, 59, 783 Promissory notes, 128 Property See also specific types, e.g.: Community property; See also Tax-free exchanges of property adjusted basis of, 128–129 alimony and transfer of, 626 basis of, 121 cost of, 121 for depreciation deductions, 690–691 dividends paid as, 78–79 free use of, 323 listed, 698–700 overvaluing, 759 ownership of separate, 15 pay received as, 39–40 pledges of other, as at-risk investment, 276 repossession of, 566–567 returns of, to creditors, 563–564 Property management, 419 Property sales, 100–143 See also Business property sales; See also Residence sales adjusted basis of property, 128–129 amount realized for, 121 and escrow, 136 boot for like-kind exchanges of property, 139 capital losses on, 106, 107–108 carryovers, 106 classification and taxation of, 101–103 contingent payment sales, 135–136 cost of property, 121 deferred payment sales, 137 Form 8949 and Schedule D entries for, 110–117 gains on, 103–106, 108–109, 120 general rules, 101 holding periods, 103–106, 118–119 of inherited property, 125 installment sales, 129–130, 130–133, 134–135, 137–138, 138–139 losses on, 120 over $150,000 plus $5 million in debt, 139–143 as passive activities, 264, 273–274 real estate sales, 364–365 of real property, 560 restricted, 51 and rollovers of retirement plans, 171 of subdivided land, 558–559 to third parties, 568 unadjusted basis of property, 121–123, 123–124, 126–127, 128 Proprietorships, 616, 723 Proving a Casualty Loss, 394–409 Provisional income, 783 PTPs See Publicly traded partnerships Public Health Service, 528, 602, 609 Public Health Service Act, 290 Publicly traded partnerships (PTPs), 268 Publicly traded securities, 109, 129 Public safety employees, 45, 47, 176, 321 Puerto Rico, 322, 622 806 | J.K Lasser’s Your Income Tax 2016 Punitive damages, 289 Purchased stock rights, 543 Purchase money mortgages, 567–568 Purchase price adjustment, 292 Puts, 548 Q QCD See Qualified charitable distribution QDRO See Qualified domestic relations order QEAAs See Qualified exchange accommodation arrangements QJV See Qualified joint venture QSB stock See Qualified small business stock QTPs See Qualified tuition programs Qualified charitable distribution (QCD), 205 Qualified charitable organizations, 783 Qualified conservation contributions, 334, 342 Qualified disability expenses, 606 Qualified disclaimer, 219 Qualified distributions, IRA, 231 Qualified dividends, 469–470, 570, 783 Qualified Dividends and Capital Gain Tax Worksheet, 11, 101, 103, 104, 105, 110, 105 Qualified domestic relations orders (QDROs), 163, 170, 173–174, 210, 783 Qualified education expenses, 583, 587, 590, 591 Qualified employer retirement plans, 510 Qualified exchange accomodation arrangements (QEAAs), 152–153 Qualified intermediary, default by, 151 Qualified joint interest rule, 126, 127 Qualified joint venture (QJV), 235, 728 Qualified longevity annuity contracts (QLACs), 214 Qualified plan (term), 783 See also Qualified retirement plans Qualified retirement plans choosing, 680–688 deductible contributions, 681–684 Index distributions, 605, 685 Qualified small business (QSB) stock, 108 Qualified tuition programs (QTPs), 581–583, 590, 641, 783 Qualifying children, 452–454, 460–461, 494 Qualifying relatives (personal exemptions), 454–456, 456–459, 459–460 Qualifying tests for adoption credit, 495 for Armed Forces personnel in combat zones, 610 for child and dependent care credit, 488–489 and care of qualifying persons, 489 for EIC, 492–494 for head of household, 24–25 for innocent spouse relief, 17 for reduced maximum exclusion, 532 for resident aliens, 29 for U.S savings bond tuition programs, 580 for work-related costs of education, 593–594 Qualifying widows or widowers, 23, 783 R Rabbi trusts, 42 Railroad Retirement benefits, 509, 597, 602 Railroad Retirement Tax Act (RRTA), 509 Ransom, 396 Rate Table for Self-Employed, 681, 683 Real estate business, 292, 564 charitable donations of, 334–335 donation limit for, 341 exchanges of U.S and foreign country’s, 146 fair market value deduction for, 327 holding periods for, 119 losses, 563 recaputure of depreciation for, 721– 722 Section 1250 gain on, 106 in service after 1986, 700 in service between 1980 and 1987, 702 tax credits for real estate activities, 263 types of ventures, 557–558 Real estate investment trusts (REITs), 77, 557, 783 capital gains from, 571 Real estate losses See also Losses, on residence sales Real estate mortgage investment companies (REMICs), 86, 557–558 Real estate professionals, 256–259, 783 Real estate taxes, 236, 244, 363, 364–365 Real property, 254, 783 timing of, 560 Reasonable cause exception, 340 Recapture of American Opportunity credit, 584 of business vehicle deductions, 718– 719 for computers/listed property, 699 of deduction for appreciated tangible personal property, 328 of deductions for fractional interests, 334 of depreciation, 130, 145, 721–722, 780 for drops in alimony, 630–631 for exchanges/involuntary conversions, 721 of federal subsidies, 527 first-year expensing and, 130, 693, 722 of Lifetime Learning credit, 584 of MACRS depreciation, 710 of mortgage subsidies, 502 of net ordinary losses, 724 of tuition and fees deduction, 590 Receipts, 656–657, 658–661 See also Constructive receipts; See also Gross receipts Recertification, for EIC, 493 Recharacterizations, of IRAs, 209, 227, 228–230 Recklessness, denial of EIC due to, 493 Recognized gain, 783 Recognized loss, 783 Record date, dividend, 79 Recording, of audit examination, 758 Recordkeeping on adjusted basis for property, 536 of business use for business vehicles, 719 of deductible losses, 401 on fair market value of property, 568 for filing returns, 738 for substantiating contributions, 337– 338 of rental property improvements, 120 for Section 1244 stock, 550 on self-employed income, 652 standard mileage rate and, 707 for T&E expense deductions, 443 Recourse debt, 563–564 Recovered tax deductions, 286–287 Recovery, of tax dispute costs, 763–764 Recovery period for cars, trucks, and vans after, 717 for home office, 668 MACRS, 693–694, 712 straight-line depreciation over, 697 Recovery property, 783 Recreational purposes, travel for, 326 Red Cross personnel, 611 Redeemed shares (mutual fund), 573– 575 Redemptions, interest received from, 83 Reduced Maximum Exclusion, 534 Reduced principal residence exclusion, 531–534 Reemployment trade adjustment assistance (RTAA) program, 501 REEP credit See Residential energy efficient property credit Refinanced loans, 352–353 Refinanced mortgages, 352–353 Refiners, oil/gas percentage depletion, 250 Reforestation expenses, 307 Refundable entrance fees, continuing care facility, 604 Refundable tax credits, 487, 783 Refund claims interest paid on, 751 penalty for excessive, 741, 752 quick, 751 stating reasons for, 751 time limits for, 605, 750–751 withholding of refunds by IRS, 752 J.K Lasser’s Your Income Tax 2016 | 807 Index Refunds deliquent child support and, 629–630 disaster losses and, 389 estimated tax and, 362, 514 filing to obtain, on final returns, 27 getting, 740–741 income and, 283–286 military disability determination and, 47 Registration, U.S savings bond, 94 Regular business employees, of selfemployed persons, 635 Regular income tax liability See Tax liability Regular tax, 478 Regulated futures contracts, 549 Rehabilitation of buildings, 562, 702 tax credit for, 562 Reimbursements for casualty/theft losses, 402 dependent care credit and, 72, 490 foreign earned income as, 616 from health and accident plans, 57 medical expense deductions and, 372– 374 moving expense deductions and, 311 of moving expenses, 616 standard mileage rate and, 707 for T&E expenses, 440, 445–446, 446–447, 447–448, 448–449 Reinvestment plans, 570 REITs See Real estate investment trusts; See Real estate invesment trusts Related businesses, daily exemption rate for, 250 Related parties acquisitions from, 693 business expenses owed to, 655 capital losses on sales to, 107 resale of property by, 107–108 tax-free exchanges of property between, 153 Relationship test, 453, 454–456 Relatives See also specific types, e.g.: Children capital losses on sales of property to, 107–108 and daily exemption rate, 250 installment sales of property to, 134– 135 renting residences to, 241 Religious beliefs, 462 Remainder interest, 334, 526 REMICs See Real estate mortgage investment companies Rental activities about, 252–254 grouped with business activities, 260 loss allowance for, 254–256 nonqualifiying, and rental loss allowance, 258 for real estate professionals, 256–259 Rental days (for residence), 243–244, 244–246 Rental losses, 235, 264–265 Rental property 14-day/10% test, 242 depreciation on, 236, 240 home office in, 667 improvements to, 120 with insubstantial depreciable basis, 267 personal use of, 242–243, 243–244, 244–246 as rental income, 235 residence converted to, 240, 254, 537–538 safe harbor for like-kind exchange of, 145 short-term vacation home rentals, 252 Rental real estate income, 557, 616 deductions for, 236–237, 419 depreciation on rental property and, 240 from multi-unit residences, 239 personal use and rental of residence, 242–243, 243–244, 244–246 renting residences to relatives, 241 repair vs improvements and, 237–239 reporting expenses and, 235 Rental use of property, 526, 536, 537 Rent, below fair market, 236 Rented rooms, 239 Reorganizations, 83, 88 Repairs, 237–239, 401, 535 Repayments, 41, 196, 503 808 | J.K Lasser’s Your Income Tax 2016 Replacement property, identifying, 150 Replacement shares, 546 Reportable transactions, 758 Reporting Mutual Fund Distributions for 2015, 572–577 Repossession, 138–139, 290, 563, 566–567 Request for Appeals Review See Form 12203 Request for Taxpayer Advocate Service Assistance See Form 911 Required minimum distributions (RMDs), 214–216, 220–222, 228, 783 Resale of property, 107–108, 538, 656 Research and experimentation costs, 705 Research assistants, 579 Reservists, 196, 212, 609, 613 Residence interest, 782, 783 Residence(s) See also Home; See also Principal residence converting, to rental property, 240, 537–538 depreciation on rented, 240 domiciles vs., 619 insurance proceeds for damaged/ destroyed, 390–391 personal use of, 242–243, 243–244, 244–246, 536–537, 537 rental of, 244, 252, 254 reporting changes to, 622 vacant, 240 Residence sales, 525–539 adjusted basis for home, 535–536 gains on, 534–535 losses on, 534–535, 537, 537–538 loss on temporary rental before, 246– 247 personal use of home, 536–537, 537 principal residence exclusion, 526– 527, 527–530, 530–531, 531–534 Residence test, 453 Residency, 29, 30, 31 Resident aliens, 29–31 Residential energy efficient property (REEP) credits, 502 Residential rental property, 783 Residents (U.S.), 15, 29–31, 495 Index Resident tests, 461 Restaurants, 508, 691 Restricted stock, 50–51 Restrictive convenants, release of, 562 Restrictive test, 438, 440 Restructuring of mortgage debt, 564– 565 Retailers, oil/gas percentage depletion for, 250 Retail property, improvements to, 691 Retirees, 59, 262, 268, 308 Retirement of bonds, 90 waiver of estimated tax penalty due to, 513 Retirement advice, 66 Retirement benefits, 154, 600–601, 644 See also Social Security benefits Retirement communities, 370 Retirement income 401(k) plans, 178–179, 179–180, 180–181 403(b) plans, 182–183 before annuity starting date, 192 disability pay, 609 distribution of employer stock/ securities, 171–172 distributions before age 59½, 175–177 on Form 1099-R, 161–162 government and exempt organization deferred pay plans, 183 lump-sum distributions, 163, 164– 166, 166–167 from partnerships, 729 payouts to beneficiaries of, 174–175 QDRO distributions of, 173–174 required beginning date for, 174 restrictions on loans from company plans, 177–178 rollovers of retirement plans, 167–168, 168–169, 170–171 survivor annuities for spouses, 173 withholdings on, 509–510 Retirement plan rollovers by beneficiaries, 170–171 direct rollover, 168–169 from employer plan to Roth IRA, 228 by nonspouse beneficiaries, 217 once-a-year rollover rule, 209 personal rollover, 169–170 proceeds from sale of property and, 171 by surviving spouses, 222 tax-free rollover, 167–168 and transfers between traditional IRAs, 207–210 Retirement plans, 179 See also specific types distributions from, 509–510, 609 elective deferrals to, 36 for self-employed persons, 657 loans from, 177–178 qualified, 680–681, 681–684, 685, 783 rollovers of, 167–168, 168–169, 170–171 for self-employed persons, 680–681, 681–684, 685 withdrawals from, before annuity starting date, 192, 613 withholdings for, 38 Retirement savers credit See Saver’s credit Retroactive military disability determination, 47 Returned wages, 43 Return of capital, 783 Return of property to creditors, 563– 564 Revenue Procedure 99-17, 554 Revenue Procedure 2001-10, 654 Revenue Procedure 2002-28, 654 Revenue Procedure 2007-12, 526 Revenue Procedure 2009-20, 395, 396 Revenue Procedure 2011-38, 158 Revenue Procedure 2012-29, 51 Revenue Procedure 2015-32, 657 Revenue rulings, 783 Reverse exchanges, 150, 152–153 Reverse mortgage loans, 351 Reversionary interest, 334 Revocable grantor trusts, 296 Revocable trusts, 643, 783 Revocation, 615 Riots, 396 Risk of forfeiture, 50 RMDs See Required minimum distributions Robert T Stafford Disaster Relief and Emergency Assistance Act, 390 Rollovers, 783 See also Retirement plan rollovers of Coverdell ESAs, 588–589 of gain from QSP, 108 of gain on residence sales, 535 Section 529 plan, 582, 583 to SSBICs, 109 Roth IRAs, 181–182, 783 advantages of, 225–226 as alternative to traditional IRAs, 203 annual contributions to, 226–228 contributions to, after age 70½, 196 contributions to traditional and, 227 converting traditional IRAs and, 161, 228 deductible IRA vs., 201 direct rollover to, 168 distributions to beneficiaries from, 232–233 MyRA accounts, 233 and once-a-year rollover rule, 209 penalty for excess contributions to, 204 qualified distributions from, 230–232 recharacterizations, 228–230 rollovers from 403(b) plan to, 182 Royalty income, 247, 248, 249, 249–250, 419, 616 RRTA See Railroad Retirement Tax Act RTAA program See Reemployment trade adjustment assistance program S Safe harbor, 145, 151, 654, 675 De minimis, 238 for estimated tax payments, 514 for slot machine players, 281 for small taxpayers, 238 for Ponzi scheme investors, 396 Safety awards, 443 Sailing permits, 31 Salary or wage income (compensation), 35–51 assignment of pay, 38 for children and spouse(s), 509 commissions, 40 constructive receipt rule, 39 deferred, 179, 179–180, 780 J.K Lasser’s Your Income Tax 2016 | 809 Index differential wages, 505, 608 disability pensions, 46–47 and domestic production activities deduction, 675 educational benefits for employees’ children, 44–45 employee leave-sharing plans, 39 on Form W-2, 36–51 fringe benefits excluded from taxable, 635 gifts from employers, 39 golden parachute arrangements, 39 guaranteed salaries, 293 life insurance benefits, 43–44 nonqualified deferred compensation plans, 41–42 nurses’ wages as medical expense, 381 paid by parents to children, 26 pay received in property, 39–40 for personal services, 264 as rental deductions, 236 restricted stock, 50–51 self-employed income and, 657 self-employment tax and, 731 sick pay, 45 stock appreciation rights, 47 stock options, 48–50 strike and lockout benefits, 41 taxable alimony as, 196 taxable, IRA contributions based on, 195 unemployment compensation, 40–41 and waiver of executors’/trustees’ commissions, 43 withholdings for retirement plans, 38 withholdings on, 505–506, 506–507, 518–519 workers’ compensation, 45–46 Salary-reduction SEPs, 36, 223 Sales See also specific types of sales of appreciated financial positions, 548 of business interests, 273–274 of ISOs, 48 of bonds, 82–83, 90 of life insurance policies, 299 of options, 561 on Schedule C, 658–661 short sales of stock, 543–545 of stock dividends, 542 Sales taxes, 362 Salvage value, 784 Same-sex marriage recognition of, 10 Samoa, 622 SARs See Stock appreciation rights Saver’s credit, 497, 783 Savings Bond Maturity Dates, 552–555 Savings certificates, 81, 84 Schedule 1, 76 Schedule A, 12, 23, 43, 69, 84, 87, 207, 232, 239, 243, 245, 264, 280, 289, 295, 305, 312, 314, 315, 318, 321, 327, 368, 385, 392, 410, 411, 413, 419, 420, 424, 445, 446, 474, 475, 481, 571, 572, 573, 579, 582, 592, 613, 661, 663, 670, 673, 709, 710, 737, 746, 747 Schedule B, 76, 79, 80, 81, 82, 83, 84, 85, 86, 94, 295, 572, 760 Schedule C, 39, 234, 247, 248, 281, 289, 304, 361, 366, 420, 421, 440, 444, 495, 592, 591, 592, 651, 652, 657–661, 664, 669, 680, 681, 683, 691, 706, 709, 710, 719, 720, 728, 424, 744 Schedule C-EZ, 444, 651, 652, 657, 681, 706, 728, 744 Schedule D, 76, 78, 80, 90, 92, 101, 103, 105, 106, 110–117, 119, 129, 145, 295, 296, 294, 295, 304, 392, 409, 469, 536, 553, 563, 572, 573, 574, 669, 720, 120–143 Schedule D Tax Worksheet, 11, 104, 105, 110, 572, 721 Schedule E, 234, 235, 236, 239, 242, 245, 247, 251, 254, 256, 261, 264, 269, 293, 295, 296, 304, 558, 691, 728, 730, 745 Schedule EIC, 493, 748 Schedule F, 270, 420, 652, 653, 681, 683, 720, 728 Schedule H, 635–636 Schedule J, 470 Schedule K-1, 77, 106, 268, 293, 295, 296, 306, 676, 680, 728, 745 Schedule Q, 558 Schedule R, 748 Schedule SE, 39, 306, 366, 495, 727, 728, 731, 732, 746, 748 Scheduling, audit, 757 810 | J.K Lasser’s Your Income Tax 2016 Scholarships, 579 Schools, 182–183, 379–380 S corporations, 784 debt cancellation, 292 disposition of, 274 dividends from, 77 domestic production activities deduction for, 676 first-year expensing for, 692 grouping of business activities by, 260 rental real estate interests held by, 258 reporting stockholders’ income or loss, 295–296 on Schedule K-1, 293 Second homes, 537 See also Vacation homes Second lowest cost silver plan (SLCSP), 498 Section 1.448-2T, 656 Section 71, 626 Section 83, 42, 51 Section 121, 528 Section 127 exclusion, 62 Section 179 deduction, 691, 715, 722, 781, 784 Section 197, 248, 703–704 Section 215, 626 Section 263A, 656, 663 Section 274(m)(2), 595 Section 409A, 37, 41–42, 47, 50 Section 444, 294 Section 453A, 139 Section 453 (l), 129 Section 457 plans, 183, 784 Section 460, 656 Section 469(c)(7)(A), 257 Section 475(f), 555 Section 483, 97–99 Section 529 plans, 581, 605, 643 Section 1041, 153, 155 Section 1045 rollover, 108 Section 1202 exclusion, 105, 108 Section 1231 assets, 100, 560–561, 722, 723–724, 784 Section 1237, 558 Section 1244 stock, 103, 550 Section 1245 property, 277, 278, 721 Index Section 1250, 11, 101, 104, 106, 536, 572, 721 unrecaptured, 784 Section 1274, 97–99 Section 1341, 43 Section 2005(d)(3), 589 Section 7872, 95 Securities See also specific types as deductible contributions, 321 donation limit for appreciated, 341 holding periods for, 118–119 purchase of, with custodial accounts, 643 Treasury inflation-indexed, 86 worthless, 139–141 year-end sales of, 129 Securities Investor Protection Corporation (SIPC), 396 Security arrangements, 136, 150–152 Security deposits, 235 Self-charged interest, 265 Self-charged management fees, 265 Self-created intangibles, 704 Self-directed IRAs, 194 Self-employed income, 651–678 See also Home office accounting methods for, 654–656 business tax credits and, 676–677 deductions, 661–662, 664–665 defined, 728–729 domestic production activities deduction, 675 earned income credit and, 495 expenses, 662–663, 664–665 legal form of business and, 652 and net operating losses, 672–673 reporting, 652–653 and reporting of payments/receipts to IRS, 656–657 on Schedule C, 657–661 tax reporting year for, 656 Self-Employed or Employee?, 733–734 Self-employed persons, 679–688, 784 78-week test for, 310 additional Medicare taxes, 726 Archer MSA premiums for, 688 business-vacation trips by, 435–436 determination of employees vs., 733– 734 health insurance premium deduction for, 306, 377 housing costs of, 619 medical plans Archer MSAs, 687–688 deductible contributions, 686 distributions from, 686–687 health savings accounts, 685–686 overview of, 680 small business health tax credit and, 688 with coverage for spouses, 57–59 regular business and household employees of, 635 reporting of payments and receipts by, 656–657 reporting of T&E expenses by, 444 retirement plans, 223, 680–681, 681–684, 685 Self-employment tax, 633, 727–734, 784 above-the-line deduction for, 306, 366 definition of self-employment income, 728–729 determination of employees vs selfemployed persons for, 733–734 for low-income/loss years, 732 for partners, 729 Schedule E and, 730 wages and, 731 Self-insured medical reimbursement plans, 57–59 Self-rental rule, 266 Self-support test, 453 Seller-financed sales, 95, 97–99 Seller-paid points, 534 Sellers, repossession of property by, 566–567 Selling expenses, 120–143 Selling price, 130, 132, 135, 534 Senior citizens, 596–606 See also Social Security benefits elderly or disabled tax credit, 601–602 Medicare Part B and Part D premiums, 604–606 tax effects of continuing care facilities for, 603–604 tax rules favoring, 597 Separated couple, 488, 782 Separate dwelling units, rented rooms vs., 239 Separate household rule, 25 Separate liability relief, 18–21 Separate liability rules, 16 Separate residences, married couples with, 531 Separate returns, 784 American Opportunity credit and, 583 carryovers from, 107 community property rules and, 15 first-year expensing on, 692 itemized deductions for married couples with, 315–316 joint vs., 12–13, 14 for married dependents, 461 medical expenses, 375 Social Security benefits on, 598 standard deduction restriction, 12 student loan interest deduction and, 591 Separate structure, home office in, 667 Separation See Legal separation SEPs See Simplified employee pension plans Series E bonds, 93, 94, 551 Series EE bonds, 93, 551–552, 579–580 Series H bonds, 93 Series HH bonds, 93, 551–552 Series I bonds, 93, 552 Service Academy appointees, 589 Service income, NAE for, 656 Services discounts on, 73 donation of, 323 for no additional cost, 73 property obtained for, 122 as rental income, 235 Services performed test, 439 Settlement fees, 534 Settlements, 294, 631 Severance pay, 38 Sex reassignment surgery, 372 Shared-equity financing agreements, 243 Shared responsibility tax, 633, 637 Shares, fractional, 78 Short sales, 543–545, 547, 563, 784 Short tax year, 784 J.K Lasser’s Your Income Tax 2016 | 811 Index Short-term gains, 544, 784 Short-term losses, 544, 784 Short-term obligations, 88–89 Short-term vacation home rentals, 252 Shrubs, damage to, 392–393 Sick leave, 46 Sickness, military service and, 46 Sick pay, 36, 45 Sideline businesses, 663–664, 666, 670–672, 680 Signatures, 14–15, 23, 27 Significant participation, 265 SIMPLE IRAs, 685 converting to Roth IRAs, 228 distributions from, 225 elective salary deferrals to, 36 eligibility for, 224 employer contributions, 225 setting up, 195 withholdings for, 38 Simplified employee pension (SEP) plans, 784 basics of, 223 claiming deductions for, 684 converting to Roth IRAs, 228 deductible contributions to, 681–684 elective salary deferrals to, 36 qualifying for, 684 salary-reduction, 223 self-employed persons, 681 Singles penalty, 10 Skybox rentals, 442 Slain Officer Family Support Act (2015), 321 Slot machine players, 281–283 Small business health care tax credit, 677, 688 Small business stock, 102, 103, 108–109, 476, 550 Small cash transactions, 657 Small employer credit for retirement plan startup, 680 Small tools, job expenses for, 418 Smoking cessation programs, 369 Social Security and Medicare (FICA) taxes for children, 26 dependent care credit and, 489 estimated tax payments and, 514 for household employees, 634–635 for former employees, 59 on Form W-2, 36 for S corporation stockholders, 295 for household employees, 488 for low income earners, 506 self-employment tax and, 731 on tips, 37, 38, 507, 508 withholdings for, 36 withholdings on, 509 Social Security benefits computing taxable portion of, 598– 599 disability, 47, 604 earnings and tax on, 601 and IRA deductions, 201 legal costs for claiming, 422 lump-sum payment election, 600 net, 598 retirement benefits, 600–601 taxable types, 597–598 workers’ compensation and, , 46 Social Security numbers (SSNs) for child’s tax return, 25 of dependents, 451, 462 of employees, 634 of spouse, 452, 461–462 Software, computer, 699, 704 Sole beneficiary(-ies), 222–223 Source income, expatriation tax on, 32 Special allocations, 293 Special foods, 370 Special needs adoption, 496 Special needs beneficiaries, 587 Specific identification method, 576 Split-dollar insurance arrangements, 44, 336 Sponsorship gifts, 604 Sports managers, 431 Sports players, 431 Spouse(s) See also Former spouses (exspouses) as active plan participant, 198 allocating tax liability between, 20 Archer MSA contributions for, 688 of Armed Forces personnel, 611 as students, 490 basis of property received from, 122 in combat zone, 14 812 | J.K Lasser’s Your Income Tax 2016 death of, 16, 22–23, 126, 127, 530 disabled, 490 elderly or disabled tax credit for, 602– 603 failure to file by, 14 gifts to, 641 health plan coverage for, 57–59 innocent spouse rules, 14, 15, 17 IRAs for, 196 legal fees of, 631 and lump-sum averaging, 166 lump-sum retirement distributions for, 163 medical expenses of, 374–375 noncitizen, 647 nonresident alien spouse election, 15 nonworking or low-earning, 197, 226 personal exemptions for, 452, 461–462 QJV filed by, 235 and RMD, 215 Social Security numbers for, 452 surviving, 23, 45, 173, 222–223, 308, 621 suspicious tax reporting by, 12 tax-free exchanges of property between, 153–155 T&E expenses of, 437, 440, 445–446 transfer of U.S savings bonds to, 94 transfers of IRAs to, 210 withholdings on wages paid to, 509 SSBIC, rollover to, 109 SSN See Social Security numbers Standard deduction, 784 and state tax refunds, 284 basic, 314 for blind persons, 316 claiming, 314–315 for dependents, 317 if over age 65 or blind, 314 itemized deduction vs., 312 for persons over 65, 316 rules and limitations, 313–319 on separate returns, 12 Standard Deduction for Dependents in 2015, 317–319 Standard Deduction of 65 or Older or Blind, 316–319 Standard mileage rate, 707–708, 784 Startup costs, 664, 680 Index State bonuses, for Armed Forces personnel, 609 State government, donations to, 322 State law, treatment of home mortgage debt as nonrecourse financing under, 290 Statement of Person Claiming Refund Due a Deceased Taxpayer See Form 1310 State officials, expenses of, 305 State public safety officers, fallen, 45 State taxes for Armed Forces personnel, 608 deductions for, 362 on Form W-2, 37 income and refunds of, 283–286 refund offset for, 752 unemployment, 636 State unemployment tax, 636 Statute of limitations for additional taxes, 755 for disability determinations, 609 for gift valuation, 642 Statutory employees, 37, 658, 729, 784 Stock See also specific types devaluation due to corporate misconduct, 395 divorce-related redemptions of, 154 donation of, 329 earmarking of stock lots, 541–542 held by broker in street name, 79 redemption of, 103 sales of stock dividends, 542 short sales, 543–545 stock rights of investors, 542–543 stripped coupon bonds and, 89 tax-free exchanges of, 156 theft losses, 395–397 wash sales for, 545–547 worthless securities, 139–141 Stock appreciation rights (SARs), 47 Stock dividends, 78, 79, 542, 784 Stockholders, 295–296, 692 Stock lots, 118, 541–542 Stock options, 48–50, 547, 781, 784 See also Incentive stock options (ISOs) Stock rights, 78, 118, 542–543 Stock splits, 78 Stock subscriptions, holding period for, 118 Storage of inventory, in home, 668 Straddle losses, 549 Straddles, 784 Straight-line depreciation of cars, trucks, and vans, 715–716 deductions for, 697–698 and MACRS rate, 712 for real estate, 702 Straight-line depreciation method, 784 Straight-Line Half-Year Convention, 715 Straight-Line Mid-Quarter Convention, 716–719 Streamlined determinations of equitable relief, 22 Strike benefits, 41 Stripped coupon bonds, 86, 89 Stripped coupons, reporting OID for, 86 Stripped tax-exempt obligations, 91 Student loan cancellation, 290 Student loan interest, 307, 590–592 Students, 29, 456, 490 Student test, 453 Subdivided land, 128, 558–559 Subscriptions, 65, 413 Substantially equal payments, 175 “Substantially identical” securities, 546 Substantial risk of forfeiture, 50 Sudden event test, 386–387 Supplemental unemployment benefits, 41, 43 Supplements, nutritional, 369 Supplier-based intangibles, 703 Support, 323, 326, 376, 628 Support personnel (Armed Forces), 611 Support test for qualifying relatives, 456–459 Supreme Court decisions, 498 Surrender, of life insurance policies, 299 Surviving spouses, 23, 45, 126, 170, 173, 175, 308, 621 Surviving tenants, 126–127 Survivor annuities for spouses, 173 Suspended losses, 270–272, 274 Suspended tax credits, 263, 272 SUVs, depreciation on, 710–711 See also Car and truck expenses Sweepstakes winnings, 280 Swimming pools, 382 T TAA benefits See Trade Adjustment Assistance benefits Table of MACRS Depreciation Rates, 696 Tangible personal property, 327, 328, 784 Taxable income, 784 See also Salary or wage income (compensation) Taxable Income Brackets for 2015, 11 Taxable income limit, 249, 250 Taxable interest, 91 Taxable Premiums for Group-Term Insurance Coverage Over $50,000, 60–73 Tax advice, 660 Tax assessments, 364 Tax attributes, 784 Tax benefits, 12–13, 20 Tax brackets, 12 Tax Computation Worksheet, 11, 23, 469, 739, 778 Tax Court actual knowledge test in, 18 appeals to, 17, 21, 22 Tax Credit Record Keeper, 748 Tax credits See also Personal tax credits; See also specific credits; See also specific types against AMT, 477–478 erroneous, 20 for gift tax, 642 for investors in mutual funds, 571– 573 for investors in real estate, 562–563 for passive activities, 263 real estate allowance for, 256 refundable, 783 regular income tax liability and, 470 from regular tax, 478 for returned wages, 43 Tax deferral, 784 J.K Lasser’s Your Income Tax 2016 | 813 Index Taxes paid, allocating vehicle expenses for, 709 Tax-exempt bond funds, 571 Tax-exempt bonds, 85 Tax-exempt income, mutual fund, 356 Tax-exempt interest, 81, 90–91, 476 Tax-exempt obligations, debts for, 356 Tax-exempt organizations, 182–183, 549–550 Tax-free exchanges of property, 144– 158 basis of property received in, 122 between related parties, 153 between spouses and ex-spouses, 153– 155 boot, 147–149 business property in, 723 closely-held corporations and, 156– 157 exchanges of coins and bullion, 157 exchanges of insurance policies, 157– 158 exchanges of stock in same corporation, 156 by investors in real estate, 559–560 joint ownership interests and, 156 like-kind property, 145–146 personal property held for investment, 146–147 QEAAs for reverse exchanges, 152– 153 time limits and security arrangement for deferred exchanges, 150–152 Tax-free pay, 610–611 Tax-free rollovers (retirement plan), 167–168 Tax-free rule of common stock, 78 Tax-free stock rights, 118 Tax Guide for Individuals With Income From U.S Possessions See IRS Publication 570 Tax home, 29–31, 430, 431–432, 432–434, 784 Tax identification number, 451, 652, 784 Tax liability, 467–470 allocating, between spouses, 20 of children, 480–481 and child tax credit, 487 elderly or disabled tax credit and, 603 equitable relief for, 21–22 for farmers and fishermen, 470 from Foreign Earned Income Tax Worksheet, 470 from Tax Computation Worksheet, 469 and innocent spouse rules, 14, 16 Lifetime Learning credit and, 586 mortgage interest credit and, 502 with net capital gain or qualified dividends, 469–470 saver’s credit and, 497 separate liability relief, 16, 18–21 of surviving spouse, 23 taxable income and, 468 transfer of, 157 understatement of, 758 using Tax Table, 468 Tax matters partner (TMP), 295 Tax payment deductions, 360–366 and assessments, 364 automobile license fees, 365 buying/selling real estate and, 364– 365 deductible taxes, 361 foreign taxes, 366 real estate taxes, 363 and taxes as business expenses, 366 and tenants’ payment of taxes, 364 Tax payments, 612–613, 741–742 Tax preference items, 784 Tax preparation costs, 420–421, 660 Tax rates, 11–12, 28, 76–77, 634 Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, 125 Tax return preparation costs, 236 Tax returns children’s investment income on parents’, 483–484 copies of, 738 corrections to prior, 690 depreciation deductions on, 691 filing basics, 1–8 identifying care provider on, 488 inaccurate, 758–760 mailing, 739 name and social security number of spouse on, 461–462 recapture for alimony on, 630 reporting foreign income on, 624 814 | J.K Lasser’s Your Income Tax 2016 Tax-sheltered annuities, 784 Tax-shelter farm activity, 477 Tax Table, 11, 468, 739 Tax treaties, 30, 623 Tax year, 656, 784 Teachers, 29, 413, 593 Teaching assistants, 579 Telephone, 740, 741 Telephones, 418 See also Cell phones Temporary assignments, 425, 432–434 Temporary property rental, 246–247 Tenancy by the entireties, 784 Tenancy in common, 156, 784 Tenants, 126–127, 235, 364, 782 Terminally ill persons, 384 Termite damage, 387 Terrorist attacks, 47 Terroristic action, death in, 612 Testamentary trusts, 784 Theft losses deductible, 395–397 in excess of income, 403 floors for personal-use property losses, 398 on Form 4864, 398–400 insurance reimbursements for, 402 nondeductible, 397 for property with personal and business use, 401 proving, 397 repairs and, 401 and Section 1231 assets, 724 Third homes, mortgage interest on, 345 Third parties, 155, 568, 584, 628 Threshold conditions for equitable relief, 21 Thrift Savings Plan, 183 Tickets athletic, 324, 337, 441 benefit, 323 Tie-breaker rules, 453–454 Time limits, 150–152, 738 Time test for foreign earned income, 619 Tips, 36, 37, 38, 507–508 TIPS See Treasury inflation-protected securities Title issues/disputes, 422 Index TMP See Tax matters partner Token items, 324 “Too good to be true” test, 759 Total blindness, 316 Town government, donations to, 322 Trade Act (1974), 41 Trade Adjustment Assistance (TAA) benefits, 501 Trade-ins, 717–718, 725 Trademarks, 703 Trade names, 703 Trade Preferences Extension Act (2015), 501, 657 Traders, 552–553, 553–555, 658, 729 Traditional IRAs active participation in, 198–201, 201–202 contributions to, 195–196, 196–198, 202–203 contributions to Roth and, 227 converting Roth IRAs and, 161, 228 distributions from, 204–205, 205–207, 214–216 inherited, 217–223 penalty for withdrawals before age 59½, 210–213 starting, 194–195 transfers between, 207–210 Trainees, exempt-person exception for, 29 Training exercises, Armed Forces, 612 Transfers of Coverdell ESA assets, 588–589 of employer plan benefits, 210 between IRAs, 207–210 of IRAs, 56 of mortgaged real estate, 568 of property, 626 Section 83, 42 separate liability relief and, 20 Transfers in trust, 154 Transfers of partnership interest, 294 Transfer taxes, 362 Transit passes, 62–64 Transmittal of Wage and Tax Statement See Form W-3 Transportation benefits, 62–64 Transportation costs, 416, 594–595 Transportation industry workers, 442 Travel as education expense, 595 to National Guard and Reserve meetings, 613 and payment extensions, 740 Travel allowance, on Form W-2, 36 Travel and entertainment expense deductions, 424–449 50% limit on, 438 business gifts, 442–443 for business trips, 430–431, 437 business-vacation trips, 434–436 commuting expenses, 425–426 for conventions, 436–437, 437–438 entertainment costs, 438–439, 440–442 meal costs, 426–428, 428–429, 438–439, 440–442 proving, 443–444 record-keeping requirements, 443 reimbursements for, 445–446, 446–447, 447–448, 448–449 reporting of, 445 rules for, 425 and tax home, 431–432, 432–434 Travel expenses deductions for Armed Forces Reservists/National Guard members, 305 investment-related, 419 for job search, 415 medical expense deductions for, 378– 379 for recreational purposes, 326 as rental deductions, 236 repayment of disallowed, 43 as work-related costs of education, 594–595 Travel restrictions, income from countries with, 617 Treasury bills, 92 Treasury inflation-indexed securities, 86 Treasury inflation-protected securities (TIPS), 92 Trees, damage to, 387, 392–393 Trustees, waiver of commissions by, 43 Trusts, 296, 784 See also specific types additional Medicare taxes on, 522 basis of property received by, 122 charitable donations through, 336 deductible donations to, 321 dividends from, 77 gifts of income interests in, 336 gift tax and, 643–644 as IRA beneficiaries, 220 on Schedule K-1, 293 transfer of U.S savings bonds to, 94 transfers of mortgaged property to, 154 Tuition, 62, 177, 305, 323, 579–580, 589–590 Two-year resale rule, 134 Two-year rule, 153 U Unadjusted basis of property, 121–123, 125, 128 Unauthorized collection lawsuits, 764 Underpayments (tax), 512, 743 Underpriced award items, 66 Understanding Your Form W-2 for 2015 Wages and Tips, 36–51 Unearned commissions, 40 Unemployed persons, 490 Unemployment benefits, 40–41, 43, 307 Unemployment taxes dependent care credit and, 489 for housekeepers, 488 Unforeseen circumstances, sales due to, 533 Unified Estate and Gift Tax Schedule for 2015, 646–647 Uniform Lifetime Table, 214, 216 Uniforms, 414–415, 613 Uniform Transfers to Minors Act, 82, 280, 643 Union costs, 413 Unmarried co-owners of home, 346 Unmarried head of household, 12–13, 24 Unmarried joint tenants, 127 Unrecaptured Section 1250 gain, 784 Unrecaptured Section 1250 Gain Worksheet, 106, 721 Unreimbursed expenses, 325–326, 445 Unused tax credits, 286 J.K Lasser’s Your Income Tax 2016 | 815 Index U.S Citizenship and Immigration Services Form I-9, Employment Eligibility Verification See Form I-9 Useful life, 690, 784 Use-it-or-lose-it deadline, 71 Use tests, 527–530 U.S Military Academy, 589 U.S savings bonds, 93, 94–95, 154, 330 U.S savings bond tuition plans, 579– 580 U.S Tax Guide for Aliens See IRS Publication 519 V VA See Veterans Administration Vacant land, 526 Vacant residences, 240 Vacation homes, 242–243, 334, 537 Vacations, 434–436 Vans, depreciation on, 710–711 See also Car and truck expenses Van transportation, 63 Vehicle loans, 707, 709 Vehicles, business, 717–718, 719 See also Automobiles; See also Car and truck expenses Vehicles, charitable donations of, 331 Vesting, 51 Veterans, 321, 609, 751 Veterans Administration (VA), 47, 602 Virgin Islands, 622 VISTA volunteers, 69 Vitamins, 369 Voluntary conveyances, 290, 563, 567 Voluntary interest payments, 591 Volunteers, 69, 325–326, 340 W Wage and Tax Statement See Form W-2 Wage income See Salary or wage income (compensation) Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment See Form 870 Waivers, 513 Warrants, 546 Wash sales, 106, 119, 545–547, 554, 573, 784 Weekends, business-vacation trips on, 435–436 Weight-reduction programs, 369 What’s New for 2015, xxv–xxvii What You Need To Substantiate Your Donations, 339–343 Whistleblower awards, 307 Who Claims the Deduction for Real Estate Taxes?, 363–366 Widows or widowers See Qualifying widows or widowers Wills, contesting, 422 Winnings, 280, 280–283, 508 Withdrawals from 401(k) plans, 180–181 of nondeductible IRA contributions, 203 premature, 83–84 by reservists, 613 from Roth IRAs, penalties on, 232 saver’s credit and, 497 Withholdings, 504–510, 619, 784 additional Medicare taxes and, 518, 519 for Armed Forces personnel, 608 backup, 510 for children, 26 and child tax credit, 487 to cover prior tax underpayments, 512 estimated tax and, 505 FICA, 509 filing for refund of, on Form W-2, 36 on gambling winnings, 508 on government payments, 507 for household employees, 635 for housekeepers, 488–489 on late-filed original returns, 750–751 on lump-sum distributions from retirement plans, 163 and retirement distributions, 509–510 for retirement plans, 38, 681 on Social Security benefits, 597 on tips, 507–508 on wages, 505–506, 506–507, 608 816 | J.K Lasser’s Your Income Tax 2016 Work camps, 622 Work clothes, 414–415 Workers abroad, 621 Workers’ compensation, 45–46, 597, 604 Workforce, amortization of, 704 Working condition fringe benefits, 64– 65 Working interests, in oil and gas wells, 267–268 “Workouts,” mortgage loan, 290 Work-related costs of education, 592, 593–594 Worthless securities, 139–141 Wrongful death actions, 422 Wrongful termination, 288 Y Year-end benefits, 62 Year-end dividends, 80, 571 Year-end donations, 321 Year-end purchases, 693 Year-end sales, 119, 129 Year-end securities transactions, 541 Z Zero coupon bond discount, 89 WILEY END USER LICENSE AGREEMENT Go to www.wiley.com/go/eula to access Wiley’s ebook EULA ... apply for an automatic fourmonth filing extension on Form 4868 | J. K Lasser’s Your Income Tax 2016 2016 January 2016 S M T W T February 2016 F S 10 11 12 13 14 15 16 S M T W T F April 2016 March 2016. .. 22.5 Foreign Earned Income Tax Worksheet 470 22.6 Income Averaging for Farmers and Fishermen 470 22.7 Tax Credits 470 22.8 470 Additional Medicare Tax and Net Investment Income Tax J. K Lasser’s Your. .. 778 J. K Lasser’s Your Income Tax 2016 | xxiii What’s New for 2015 For an update on tax developments and a free download of the e-Supplement to this book, visit us online at www.jklasser.com Tax