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Timestamp: 2018-02-19 14:19:53
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Matched Legal Cases: ['§ 280', '§ 280', '§ 280', '§ 168', '§ 280', '§ 168', '§ 168', '§ 168', '§ 168', '§ 280', '§ 168', '§ 53', '§ 168', '§ 168', '§ 168', '§ 168', '§ 168', '§ 168', '§ 53', '§ 168', '§ 1', '§ 280', '§ 280', '§ 280', '§ 168', '§ 168', '§ 168', '§ 168', '§ 168', '§ 168', '§ 1']

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Hrblock taxcut 7. Hrblock taxcut Coverdell Education Savings Account (ESA) Table of Contents Introduction What Is a Coverdell ESAQualified Education Expenses ContributionsContribution Limits Additional Tax on Excess Contributions Rollovers and Other TransfersRollovers Changing the Designated Beneficiary Transfer Because of Divorce DistributionsTax-Free Distributions Taxable Distributions When Assets Must Be Distributed Introduction If your modified adjusted gross income (MAGI) is less than $110,000 ($220,000 if filing a joint return), you may be able to establish a Coverdell ESA to finance the qualified education expenses of a designated beneficiary. Hrblock taxcut For most taxpayers, MAGI is the adjusted gross income as figured on their federal income tax return. Hrblock taxcut There is no limit on the number of separate Coverdell ESAs that can be established for a designated beneficiary. Hrblock taxcut However, total contributions for the beneficiary in any year cannot be more than $2,000, no matter how many accounts have been established. Hrblock taxcut See Contributions , later. Hrblock taxcut This benefit applies not only to higher education expenses, but also to elementary and secondary education expenses. Hrblock taxcut What is the tax benefit of the Coverdell ESA. Hrblock taxcut Contributions to a Coverdell ESA are not deductible, but amounts deposited in the account grow tax free until distributed. Hrblock taxcut If, for a year, distributions from an account are not more than a designated beneficiary's qualified education expenses at an eligible educational institution, the beneficiary will not owe tax on the distributions. Hrblock taxcut See Tax-Free Distributions , later. Hrblock taxcut Table 7-1 summarizes the main features of the Coverdell ESA. Hrblock taxcut Table 7-1. Hrblock taxcut Coverdell ESA at a Glance Do not rely on this table alone. Hrblock taxcut It provides only general highlights. Hrblock taxcut See the text for definitions of terms in bold type and for more complete explanations. Hrblock taxcut Question Answer What is a Coverdell ESA? A savings account that is set up to pay the qualified education expenses of a designated beneficiary. Hrblock taxcut Where can it be established? It can be opened in the United States at any bank or other IRS-approved entity that offers Coverdell ESAs. Hrblock taxcut Who can have a Coverdell ESA? Any beneficiary who is under age 18 or is a special needs beneficiary. Hrblock taxcut Who can contribute to a Coverdell ESA? Generally, any individual (including the beneficiary) whose modified adjusted gross income for the year is less than $110,000 ($220,000 in the case of a joint return). Hrblock taxcut Are distributions tax free? Yes, if the distributions are not more than the beneficiary's adjusted qualified education expenses for the year. Hrblock taxcut What Is a Coverdell ESA A Coverdell ESA is a trust or custodial account created or organized in the United States only for the purpose of paying the qualified education expenses of the Designated beneficiary (defined later) of the account. Hrblock taxcut When the account is established, the designated beneficiary must be under age 18 or a special needs beneficiary. Hrblock taxcut To be treated as a Coverdell ESA, the account must be designated as a Coverdell ESA when it is created. Hrblock taxcut The document creating and governing the account must be in writing and must satisfy the following requirements. Hrblock taxcut The trustee or custodian must be a bank or an entity approved by the IRS. Hrblock taxcut The document must provide that the trustee or custodian can only accept a contribution that meets all of the following conditions. Hrblock taxcut The contribution is in cash. Hrblock taxcut The contribution is made before the beneficiary reaches age 18, unless the beneficiary is a special needs beneficiary. Hrblock taxcut The contribution would not result in total contributions for the year (not including rollover contributions) being more than $2,000. Hrblock taxcut Money in the account cannot be invested in life insurance contracts. Hrblock taxcut Money in the account cannot be combined with other property except in a common trust fund or common investment fund. Hrblock taxcut The balance in the account generally must be distributed within 30 days after the earlier of the following events. Hrblock taxcut The beneficiary reaches age 30, unless the beneficiary is a special needs beneficiary. Hrblock taxcut The beneficiary's death. Hrblock taxcut Qualified Education Expenses Generally, these are expenses required for the enrollment or attendance of the designated beneficiary at an eligible educational institution. Hrblock taxcut For purposes of Coverdell ESAs, the expenses can be either qualified higher education expenses or qualified elementary and secondary education expenses. Hrblock taxcut Designated beneficiary. Hrblock taxcut This is the individual named in the document creating the trust or custodial account to receive the benefit of the funds in the account. Hrblock taxcut Contributions to a qualified tuition program (QTP). Hrblock taxcut A contribution to a QTP is a qualified education expense if the contribution is on behalf of the designated beneficiary of the Coverdell ESA. Hrblock taxcut In the case of a change in beneficiary, this is a qualified expense only if the new beneficiary is a family member of that designated beneficiary. Hrblock taxcut See chapter 8, Qualified Tuition Program . Hrblock taxcut Eligible Educational Institution For purposes of Coverdell ESAs, an eligible educational institution can be either an eligible postsecondary school or an eligible elementary or secondary school. Hrblock taxcut Eligible postsecondary school. Hrblock taxcut This is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U. Hrblock taxcut S. Hrblock taxcut Department of Education. Hrblock taxcut It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. Hrblock taxcut The educational institution should be able to tell you if it is an eligible educational institution. Hrblock taxcut Certain educational institutions located outside the United States also participate in the U. Hrblock taxcut S. Hrblock taxcut Department of Education's Federal Student Aid (FSA) programs. Hrblock taxcut Eligible elementary or secondary school. Hrblock taxcut This is any public, private, or religious school that provides elementary or secondary education (kindergarten through grade 12), as determined under state law. Hrblock taxcut Qualified Higher Education Expenses These are expenses related to enrollment or attendance at an eligible postsecondary school. Hrblock taxcut As shown in the following list, to be qualified, some of the expenses must be required by the school and some must be incurred by students who are enrolled at least half-time. Hrblock taxcut The following expenses must be required for enrollment or attendance of a designated beneficiary at an eligible postsecondary school. Hrblock taxcut Tuition and fees. Hrblock taxcut Books, supplies, and equipment. Hrblock taxcut Expenses for special needs services needed by a special needs beneficiary must be incurred in connection with enrollment or attendance at an eligible postsecondary school. Hrblock taxcut Expenses for room and board must be incurred by students who are enrolled at least half-time (defined below). Hrblock taxcut The expense for room and board qualifies only to the extent that it is not more than the greater of the following two amounts. Hrblock taxcut The allowance for room and board, as determined by the school, that was included in the cost of attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student. Hrblock taxcut The actual amount charged if the student is residing in housing owned or operated by the school. Hrblock taxcut Half-time student. Hrblock taxcut A student is enrolled “at least half-time” if he or she is enrolled for at least half the full-time academic work load for the course of study the student is pursuing, as determined under the standards of the school where the student is enrolled. Hrblock taxcut Qualified Elementary and Secondary Education Expenses These are expenses related to enrollment or attendance at an eligible elementary or secondary school. Hrblock taxcut As shown in the following list, to be qualified, some of the expenses must be required or provided by the school. Hrblock taxcut There are special rules for computer-related expenses. Hrblock taxcut The following expenses must be incurred by a designated beneficiary in connection with enrollment or attendance at an eligible elementary or secondary school. Hrblock taxcut Tuition and fees. Hrblock taxcut Books, supplies, and equipment. Hrblock taxcut Academic tutoring. Hrblock taxcut Special needs services for a special needs beneficiary. Hrblock taxcut The following expenses must be required or provided by an eligible elementary or secondary school in connection with attendance or enrollment at the school. Hrblock taxcut Room and board. Hrblock taxcut Uniforms. Hrblock taxcut Transportation. Hrblock taxcut Supplementary items and services (including extended day programs). Hrblock taxcut The purchase of computer technology, equipment, or Internet access and related services is a qualified elementary and secondary education expense if it is to be used by the beneficiary and the beneficiary's family during any of the years the beneficiary is in elementary or secondary school. Hrblock taxcut (This does not include expenses for computer software designed for sports, games, or hobbies unless the software is predominantly educational in nature. Hrblock taxcut ) Contributions Any individual (including the designated beneficiary) can contribute to a Coverdell ESA if the individual's MAGI (defined later under Contribution Limits ) for the year is less than $110,000. Hrblock taxcut For individuals filing joint returns, that amount is $220,000. Hrblock taxcut Organizations, such as corporations and trusts, can also contribute to Coverdell ESAs. Hrblock taxcut There is no requirement that an organization's income be below a certain level. Hrblock taxcut Contributions must meet all of the following requirements. Hrblock taxcut They must be in cash. Hrblock taxcut They cannot be made after the beneficiary reaches age 18, unless the beneficiary is a special needs beneficiary. Hrblock taxcut They must be made by the due date of the contributor's tax return (not including extensions). Hrblock taxcut Contributions can be made to one or several Coverdell ESAs for the same designated beneficiary provided that the total contributions are not more than the contribution limits (defined later) for a year. Hrblock taxcut Contributions can be made, without penalty, to both a Coverdell ESA and a QTP in the same year for the same beneficiary. Hrblock taxcut Table 7-2 summarizes many of the features of contributing to a Coverdell ESA. Hrblock taxcut When contributions considered made. Hrblock taxcut Contributions made to a Coverdell ESA for the preceding tax year are considered to have been made on the last day of the preceding year. Hrblock taxcut They must be made by the due date (not including extensions) for filing your return for the preceding year. Hrblock taxcut For example, if you make a contribution to a Coverdell ESA in February 2014, and you designate it as a contribution for 2013, you are considered to have made that contribution on December 31, 2013. Hrblock taxcut Contribution Limits There are two yearly limits: One on the total amount that can be contributed for each designated beneficiary in any year, and One on the amount that any individual can contribute for any one designated beneficiary for a year. Hrblock taxcut Limit for each designated beneficiary. Hrblock taxcut For 2013, the total of all contributions to all Coverdell ESAs set up for the benefit of any one designated beneficiary cannot be more than $2,000. Hrblock taxcut This includes contributions (other than rollovers) to all the beneficiary's Coverdell ESAs from all sources. Hrblock taxcut Rollovers are discussed under Rollovers and Other Transfers , later. Hrblock taxcut Example. Hrblock taxcut When Maria Luna was born in 2012, three separate Coverdell ESAs were set up for her, one by her parents, one by her grandfather, and one by her aunt. Hrblock taxcut In 2013, the total of all contributions to Maria's three Coverdell ESAs cannot be more than $2,000. Hrblock taxcut For example, if her grandfather contributed $2,000 to one of her Coverdell ESAs, no one else could contribute to any of her three accounts. Hrblock taxcut Or, if her parents contributed $1,000 and her aunt $600, her grandfather or someone else could contribute no more than $400. Hrblock taxcut These contributions could be put into any of Maria's Coverdell ESA accounts. Hrblock taxcut Limit for each contributor. Hrblock taxcut Generally, you can contribute up to $2,000 for each designated beneficiary for 2013. Hrblock taxcut This is the most you can contribute for the benefit of any one beneficiary for the year, regardless of the number of Coverdell ESAs set up for the beneficiary. Hrblock taxcut Example. Hrblock taxcut The facts are the same as in the previous example except that Maria Luna's older brother, Edgar, also has a Coverdell ESA. Hrblock taxcut If their grandfather contributed $2,000 to Maria's Coverdell ESA in 2013, he could also contribute $2,000 to Edgar's Coverdell ESA. Hrblock taxcut Reduced limit. Hrblock taxcut Your contribution limit may be reduced. Hrblock taxcut If your MAGI (defined on this page) is between $95,000 and $110,000 (between $190,000 and $220,000 if filing a joint return), the $2,000 limit for each designated beneficiary is gradually reduced (see Figuring the limit , later). Hrblock taxcut If your MAGI is $110,000 or more ($220,000 or more if filing a joint return), you cannot contribute to anyone's Coverdell ESA. Hrblock taxcut Table 7-2. Hrblock taxcut Coverdell ESA Contributions at a Glance Do not rely on this table alone. Hrblock taxcut It provides only general highlights. Hrblock taxcut See the text for more complete explanations. Hrblock taxcut Question Answer Are contributions deductible? No. Hrblock taxcut What is the annual contribution limit per designated beneficiary? $2,000 for each designated beneficiary. Hrblock taxcut What if more than one Coverdell ESA has been opened for the same designated beneficiary? The annual contribution limit is $2,000 for each beneficiary, no matter how many Coverdell ESAs are set up for that beneficiary. Hrblock taxcut What if more than one individual makes contributions for the same designated beneficiary? The annual contribution limit is $2,000 per beneficiary, no matter how many individuals contribute. Hrblock taxcut Can contributions other than cash be made to a Coverdell ESA? No. Hrblock taxcut When must contributions stop? No contributions can be made to a beneficiary's Coverdell ESA after he or she reaches age 18, unless the beneficiary is a special needs beneficiary. Hrblock taxcut Modified adjusted gross income (MAGI). Hrblock taxcut For most taxpayers, MAGI is adjusted gross income (AGI) as figured on their federal income tax return. Hrblock taxcut MAGI when using Form 1040A. Hrblock taxcut If you file Form 1040A, your MAGI is the AGI on line 22 of that form. Hrblock taxcut MAGI when using Form 1040. Hrblock taxcut If you file Form 1040, your MAGI is the AGI on line 38 of that form, modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, and Exclusion of income by bona fide residents of Puerto Rico. Hrblock taxcut MAGI when using Form 1040NR. Hrblock taxcut If you file Form 1040NR, your MAGI is the AGI on line 36 of that form. Hrblock taxcut MAGI when using Form 1040NR-EZ. Hrblock taxcut If you file Form 1040NR-EZ, your MAGI is the AGI on line 10 of that form. Hrblock taxcut If you have any of these adjustments, you can use Worksheet 7-1. Hrblock taxcut MAGI for a Coverdell ESA , later, to figure your MAGI for Form 1040. Hrblock taxcut Worksheet 7-1. Hrblock taxcut MAGI for a Coverdell ESA 1. Hrblock taxcut Enter your adjusted gross income (Form 1040, line 38) 1. Hrblock taxcut 2. Hrblock taxcut Enter your foreign earned income exclusion and/or housing exclusion (Form 2555, line 45, or Form 2555-EZ, line 18) 2. Hrblock taxcut 3. Hrblock taxcut Enter your foreign housing deduction (Form 2555, line 50) 3. Hrblock taxcut 4. Hrblock taxcut Enter the amount of income from Puerto Rico you are excluding 4. Hrblock taxcut 5. Hrblock taxcut Enter the amount of income from American Samoa you are excluding (Form 4563, line 15) 5. Hrblock taxcut 6. Hrblock taxcut Add lines 2, 3, 4, and 5 6. Hrblock taxcut 7. Hrblock taxcut Add lines 1 and 6. Hrblock taxcut This is your modified adjusted gross income 7. Hrblock taxcut Figuring the limit. Hrblock taxcut To figure the limit on the amount you can contribute for each designated beneficiary, multiply $2,000 by a fraction. Hrblock taxcut The numerator (top number) is your MAGI minus $95,000 ($190,000 if filing a joint return). Hrblock taxcut The denominator (bottom number) is $15,000 ($30,000 if filing a joint return). Hrblock taxcut Subtract the result from $2,000. Hrblock taxcut This is the amount you can contribute for each beneficiary. Hrblock taxcut You can use Worksheet 7-2. Hrblock taxcut Coverdell ESA Contribution Limit to figure the limit on contributions. Hrblock taxcut Worksheet 7-2. Hrblock taxcut Coverdell ESA Contribution Limit 1. Hrblock taxcut Maximum contribution 1. Hrblock taxcut $2,000 2. Hrblock taxcut Enter your modified adjusted gross income (MAGI) for purposes of figuring the contribution limit to a Coverdell ESA (see definition or Worksheet 7-1, earlier) 2. Hrblock taxcut 3. Hrblock taxcut Enter $190,000 if married filing jointly; $95,000 for all other filers 3. Hrblock taxcut 4. Hrblock taxcut Subtract line 3 from line 2. Hrblock taxcut If zero or less, enter -0- on line 4, skip lines 5 through 7, and enter $2,000 on line 8 4. Hrblock taxcut 5. Hrblock taxcut Enter $30,000 if married filing jointly; $15,000 for all other filers 5. Hrblock taxcut Note. Hrblock taxcut If the amount on line 4 is greater than or equal to the amount on line 5, stop here. Hrblock taxcut You are not allowed to contribute to a Coverdell ESA for 2013. Hrblock taxcut 6. Hrblock taxcut Divide line 4 by line 5 and enter the result as a decimal (rounded to at least 3 places) 6. Hrblock taxcut . Hrblock taxcut 7. Hrblock taxcut Multiply line 1 by line 6 7. Hrblock taxcut 8. Hrblock taxcut Subtract line 7 from line 1 8. Hrblock taxcut Note: The total Coverdell ESA contributions from all sources for the designated beneficiary during the tax year may not exceed $2,000. Hrblock taxcut Example. Hrblock taxcut Paul, who is single, had a MAGI of $96,500 for 2013. Hrblock taxcut Paul can contribute up to $1,800 in 2013 for each beneficiary, as shown in the illustrated Worksheet 7-2, Coverdell ESA Contribution Limit–Illustrated. Hrblock taxcut Worksheet 7-2. Hrblock taxcut Coverdell ESA Contribution Limit—Illustrated 1. Hrblock taxcut Maximum contribution 1. Hrblock taxcut $2,000 2. Hrblock taxcut Enter your modified adjusted gross income (MAGI) for purposes of figuring the contribution limit to a Coverdell ESA (see definition or Worksheet 7-1, earlier) 2. Hrblock taxcut 96,500 3. Hrblock taxcut Enter $190,000 if married filing jointly; $95,000 for all other filers 3. Hrblock taxcut 95,000 4. Hrblock taxcut Subtract line 3 from line 2. Hrblock taxcut If zero or less, enter -0- on line 4, skip lines 5 through 7, and enter $2,000 on line 8 4. Hrblock taxcut 1,500 5. Hrblock taxcut Enter $30,000 if married filing jointly; $15,000 for all other filers 5. Hrblock taxcut 15,000 Note. Hrblock taxcut If the amount on line 4 is greater than or equal to the amount on line 5, stop here. Hrblock taxcut You are not allowed to contribute to a Coverdell ESA for 2013. Hrblock taxcut 6. Hrblock taxcut Divide line 4 by line 5 and enter the result as a decimal (rounded to at least 3 places) 6. Hrblock taxcut . Hrblock taxcut 100 7. Hrblock taxcut Multiply line 1 by line 6 7. Hrblock taxcut 200 8. Hrblock taxcut Subtract line 7 from line 1 8. Hrblock taxcut 1,800 Note: The total Coverdell ESA contributions from all sources for the designated beneficiary during the tax year may not exceed $2,000. Hrblock taxcut Additional Tax on Excess Contributions The beneficiary must pay a 6% excise tax each year on excess contributions that are in a Coverdell ESA at the end of the year. Hrblock taxcut Excess contributions are the total of the following two amounts. Hrblock taxcut Contributions to any designated beneficiary's Coverdell ESA for the year that are more than $2,000 (or, if less, the total of each contributor's limit for the year, as discussed earlier). Hrblock taxcut Excess contributions for the preceding year, reduced by the total of the following two amounts: Distributions (other than those rolled over as discussed later) during the year, and The contribution limit for the current year minus the amount contributed for the current year. Hrblock taxcut Exceptions. Hrblock taxcut The excise tax does not apply if excess contributions made during 2013 (and any earnings on them) are distributed before the first day of the sixth month of the following tax year (June 1, 2014, for a calendar year taxpayer). Hrblock taxcut However, you must include the distributed earnings in gross income for the year in which the excess contribution was made. Hrblock taxcut You should receive Form 1099-Q, Payments From Qualified Education Programs, from each institution from which excess contributions were distributed. Hrblock taxcut Box 2 of that form will show the amount of earnings on your excess contributions. Hrblock taxcut Code “2” or “3” entered in the blank box below boxes 5 and 6 indicate the year in which the earnings are taxable. Hrblock taxcut See Instructions for Recipient on the back of copy B of your Form 1099-Q. Hrblock taxcut Enter the amount of earnings on line 21 of Form 1040 (or Form 1040NR) for the applicable tax year. Hrblock taxcut For more information, see Taxable Distributions , later. Hrblock taxcut The excise tax does not apply to any rollover contribution. Hrblock taxcut Note. Hrblock taxcut Contributions made in one year for the preceding tax year are considered to have been made on the last day of the preceding year. Hrblock taxcut Example. Hrblock taxcut In 2012, Greta's parents and grandparents contributed a total of $2,300 to Greta's Coverdell ESA— an excess contribution of $300. Hrblock taxcut Because Greta did not withdraw the excess before June 1, 2013, she had to pay an additional tax of $18 (6% × $300) when she filed her 2012 tax return. Hrblock taxcut In 2013, excess contributions of $500 were made to Greta's account, however, she withdrew $250 from that account to use for qualified education expenses. Hrblock taxcut Using the steps shown earlier under Additional Tax on Excess Contributions , Greta figures the excess contribution in her account at the end of 2013 as follows. Hrblock taxcut (1) $500 excess contributions made in 2013 + (2) $300 excess contributions in ESA at end of 2012 − (2a) $250 distribution during 2013 $550 excess at end of 2013 × 6%=$33 If Greta limits 2014 contributions to $1,450 ($2,000 maximum allowed − $550 excess contributions from 2013), she will not owe any additional tax in 2014 for excess contributions. Hrblock taxcut Figuring and reporting the additional tax. Hrblock taxcut You figure this excise tax in Part V of Form 5329. Hrblock taxcut Report the additional tax on Form 1040, line 58 (or Form 1040NR, line 56). Hrblock taxcut Rollovers and Other Transfers Assets can be rolled over from one Coverdell ESA to another or the designated beneficiary can be changed. Hrblock taxcut The beneficiary's interest can be transferred to a spouse or former spouse because of divorce. Hrblock taxcut Rollovers Any amount distributed from a Coverdell ESA is not taxable if it is rolled over to another Coverdell ESA for the benefit of the same beneficiary or a member of the beneficiary's family (including the beneficiary's spouse) who is under age 30. Hrblock taxcut This age limitation does not apply if the new beneficiary is a special needs beneficiary. Hrblock taxcut An amount is rolled over if it is paid to another Coverdell ESA within 60 days after the date of the distribution. Hrblock taxcut Do not report qualifying rollovers (those that meet the above criteria) anywhere on Form 1040 or 1040NR. Hrblock taxcut These are not taxable distributions. Hrblock taxcut Members of the beneficiary's family. Hrblock taxcut For these purposes, the beneficiary's family includes the beneficiary's spouse and the following other relatives of the beneficiary. Hrblock taxcut Son, daughter, stepchild, foster child, adopted child, or a descendant of any of them. Hrblock taxcut Brother, sister, stepbrother, or stepsister. Hrblock taxcut Father or mother or ancestor of either. Hrblock taxcut Stepfather or stepmother. Hrblock taxcut Son or daughter of a brother or sister. Hrblock taxcut Brother or sister of father or mother. Hrblock taxcut Son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law. Hrblock taxcut The spouse of any individual listed above. Hrblock taxcut First cousin. Hrblock taxcut Example. Hrblock taxcut When Aaron graduated from college last year he had $5,000 left in his Coverdell ESA. Hrblock taxcut He wanted to give this money to his younger sister, who was still in high school. Hrblock taxcut In order to avoid paying tax on the distribution of the amount remaining in his account, Aaron contributed the same amount to his sister's Coverdell ESA within 60 days of the distribution. Hrblock taxcut Only one rollover per Coverdell ESA is allowed during the 12-month period ending on the date of the payment or distribution. Hrblock taxcut This rule does not apply to the rollover of a military death gratuity or payment from Servicemembers' Group Life Insurance (SGLI). Hrblock taxcut Military death gratuity. Hrblock taxcut If you received a military death gratuity or a payment from Servicemembers' Group Life Insurance (SGLI), you may roll over all or part of the amount received to one or more Coverdell ESAs for the benefit of members of the beneficiary's family (see Members of the beneficiary's family , earlier). Hrblock taxcut Such payments are made to an eligible survivor upon the death of a member of the armed forces. Hrblock taxcut The contribution to a Coverdell ESA from survivor benefits received cannot be made later than 1 year after the date on which you receive the gratuity or SGLI payment. Hrblock taxcut This rollover contribution is not subject to (but is in addition to) the contribution limits discussed earlier under Contribution Limits . Hrblock taxcut The amount you roll over cannot exceed the total survivor benefits you received, reduced by contributions from these benefits to a Roth IRA or other Coverdell ESAs. Hrblock taxcut The amount contributed from the survivor benefits is treated as part of your basis (cost) in the Coverdell ESA, and will not be taxed when distributed. Hrblock taxcut See Distributions , later. Hrblock taxcut The limit of one rollover per Coverdell ESA during a 12-month period does not apply to a military death gratuity or SGLI payment. Hrblock taxcut Changing the Designated Beneficiary The designated beneficiary can be changed. Hrblock taxcut See Members of the beneficiary's family , earlier. Hrblock taxcut There are no tax consequences if, at the time of the change, the new beneficiary is under age 30 or is a special needs beneficiary. Hrblock taxcut Example. Hrblock taxcut Assume the same situation for Aaron as in the last example (see Rollovers , earlier). Hrblock taxcut Instead of closing his Coverdell ESA and paying the distribution into his sister's Coverdell ESA, Aaron could have instructed the trustee of his account to simply change the name of the beneficiary on his account to that of his sister. Hrblock taxcut Transfer Because of Divorce If a spouse or former spouse receives a Coverdell ESA under a divorce or separation instrument, it is not a taxable transfer. Hrblock taxcut After the transfer, the spouse or former spouse treats the Coverdell ESA as his or her own. Hrblock taxcut Example. Hrblock taxcut In their divorce settlement, Peg received her ex-husband's Coverdell ESA. Hrblock taxcut In this process, the account was transferred into her name. Hrblock taxcut Peg now treats the funds in this Coverdell ESA as if she were the original owner. Hrblock taxcut Distributions The designated beneficiary of a Coverdell ESA can take a distribution at any time. Hrblock taxcut Whether the distributions are tax free depends, in part, on whether the distributions are equal to or less than the amount of Adjusted qualified education expenses (defined later) that the beneficiary has in the same tax year. Hrblock taxcut See Table 7-3, Coverdell ESA Distributions at a Glance, for highlights. Hrblock taxcut Table 7-3. Hrblock taxcut Coverdell ESA Distributions at a Glance Do not rely on this table alone. Hrblock taxcut It provides only general highlights. Hrblock taxcut See the text for definitions of terms in bold type and for more complete explanations. Hrblock taxcut Question Answer Is a distribution from a Coverdell ESA to pay for a designated beneficiary's qualified education expenses tax free? Generally, yes, to the extent the amount of the distribution is not more than the designated beneficiary's adjusted qualified education expenses. Hrblock taxcut After the designated beneficiary completes his or her education at an eligible educational institution, can amounts remaining in the Coverdell ESA be distributed? Yes. Hrblock taxcut Amounts must be distributed when the designated beneficiary reaches age 30, unless he or she is a special needs beneficiary. Hrblock taxcut Also, certain transfers to members of the beneficiary's family are permitted. Hrblock taxcut Does the designated beneficiary need to be enrolled for a minimum number of courses to take a tax-free distribution? No. Hrblock taxcut Adjusted qualified education expenses. Hrblock taxcut To determine if total distributions for the year are more than the amount of qualified education expenses, reduce total qualified education expenses by any tax-free educational assistance. Hrblock taxcut Tax-free educational assistance includes: The tax-free part of scholarships and fellowships (see Tax-Free Scholarships and Fellowships in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Veterans' educational assistance (see Veterans' Benefits in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Pell grants (see Pell Grants and Other Title IV Need-Based Education Grants in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Employer-provided educational assistance (see chapter 11, Employer-Provided Educational Assistance ), and Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. Hrblock taxcut The amount you get by subtracting tax-free educational assistance from your total qualified education expenses is your adjusted qualified education expenses. Hrblock taxcut Tax-Free Distributions Generally, distributions are tax free if they are not more than the beneficiary's adjusted qualified education expenses for the year. Hrblock taxcut Do not report tax-free distributions (including qualifying rollovers) on your tax return. Hrblock taxcut Taxable Distributions A portion of the distributions is generally taxable to the beneficiary if the total distributions are more than the beneficiary's adjusted qualified education expenses for the year. Hrblock taxcut Excess distribution. Hrblock taxcut This is the part of the total distribution that is more than the beneficiary's adjusted qualified education expenses for the year. Hrblock taxcut Earnings and basis. Hrblock taxcut You will receive a Form 1099-Q for each of the Coverdell ESAs from which money was distributed in 2013. Hrblock taxcut The amount of your gross distribution will be shown in box 1. Hrblock taxcut For 2013, instead of dividing the gross distribution between your earnings (box 2) and your basis (already-taxed amount) (box 3), the payer or trustee may report the fair market value (account balance) of the Coverdell ESA as of December 31, 2013. Hrblock taxcut This will be shown in the blank box below boxes 5 and 6. Hrblock taxcut The amount contributed from survivor benefits (see Military death gratuity , earlier) is treated as part of your basis and will not be taxed when distributed. Hrblock taxcut Figuring the Taxable Portion of a Distribution The taxable portion is the amount of the excess distribution that represents earnings that have accumulated tax free in the account. Hrblock taxcut Figure the taxable portion for 2013 as shown in the following steps. Hrblock taxcut Multiply the total amount distributed by a fraction. Hrblock taxcut The numerator is the basis (contributions not previously distributed) at the end of 2012 plus total contributions for 2013 and the denominator is the value (balance) of the account at the end of 2013 plus the amount distributed during 2013. Hrblock taxcut Subtract the amount figured in (1) from the total amount distributed during 2013. Hrblock taxcut The result is the amount of earnings included in the distribution(s). Hrblock taxcut Multiply the amount of earnings figured in (2) by a fraction. Hrblock taxcut The numerator is the adjusted qualified education expenses paid during 2013 and the denominator is the total amount distributed during 2013. Hrblock taxcut Subtract the amount figured in (3) from the amount figured in (2). Hrblock taxcut The result is the amount the beneficiary must include in income. Hrblock taxcut The taxable amount must be reported on Form 1040 or Form 1040NR, line 21. Hrblock taxcut Example. Hrblock taxcut You received an $850 distribution from your Coverdell ESA, to which $1,500 had been contributed before 2013. Hrblock taxcut There were no contributions in 2013. Hrblock taxcut This is your first distribution from the account, so your basis in the account on December 31, 2012, was $1,500. Hrblock taxcut The value (balance) of your account on December 31, 2013, was $950. Hrblock taxcut You had $700 of adjusted qualified education expenses (AQEE) for the year. Hrblock taxcut Using the steps in Figuring the Taxable Portion of a Distribution , earlier, figure the taxable portion of your distribution as follows. Hrblock taxcut 1. Hrblock taxcut $850 (distribution) × $1,500 basis + $0 contributions $950 value + $850 distribution =$708 (basis portion of distribution) 2. Hrblock taxcut $850 (distribution)−$708 (basis portion of distribution) =$142 (earnings included in distribution) 3. Hrblock taxcut $142 (earnings) × $700 AQEE $850 distribution =$117 (tax-free earnings) 4. Hrblock taxcut $142 (earnings)−$117 (tax-free earnings)=$25 (taxable earnings) You must include $25 in income as distributed earnings not used for qualified education expenses. Hrblock taxcut Report this amount on Form 1040, line 21, listing the type and amount of income on the dotted line. Hrblock taxcut Worksheet 7-3, Coverdell ESA–Taxable Distributions and Basis , at the end of this chapter, can help you figure your adjusted qualified education expenses, how much of your distribution must be included in income, and the remaining basis in your Coverdell ESA(s). Hrblock taxcut Coordination With American Opportunity and Lifetime Learning Credits The American opportunity or lifetime learning credit can be claimed in the same year the beneficiary takes a tax-free distribution from a Coverdell ESA, as long as the same expenses are not used for both benefits. Hrblock taxcut This means the beneficiary must reduce qualified higher education expenses by tax-free educational assistance, and then further reduce them by any expenses taken into account in determining an American opportunity or lifetime learning credit. Hrblock taxcut Example. Hrblock taxcut Derek Green had $5,800 of qualified higher education expenses for 2013, his first year in college. Hrblock taxcut He paid his college expenses from the following sources. Hrblock taxcut Partial tuition scholarship (tax free) $1,500 Coverdell ESA distribution 1,000 Gift from parents 2,100 Earnings from part-time job 1,200 Of his $5,800 of qualified higher education expenses, $4,000 was tuition and related expenses that also qualified for an American opportunity credit. Hrblock taxcut Derek's parents claimed a $2,500 American opportunity credit (based on $4,000 expenses) on their tax return. Hrblock taxcut Before Derek can determine the taxable portion of his Coverdell ESA distribution, he must reduce his total qualified higher education expenses. Hrblock taxcut Total qualified higher education expenses $5,800 Minus: Tax-free educational assistance −1,500 Minus: Expenses taken into account in figuring American opportunity credit − 4,000 Equals: Adjusted qualified higher education expenses (AQHEE) $ 300 Since the adjusted qualified higher education expenses ($300) are less than the Coverdell ESA distribution ($1,000), part of the distribution will be taxable. Hrblock taxcut The balance in Derek's account was $1,800 on December 31, 2013. Hrblock taxcut Prior to 2013, $2,100 had been contributed to this account. Hrblock taxcut Contributions for 2013 totaled $400. Hrblock taxcut Using the four steps outlined earlier, Derek figures the taxable portion of his distribution as shown below. Hrblock taxcut 1. Hrblock taxcut $1,000 (distribution) × $2,100 basis + $400 contributions $1,800 value + $1,000 distribution =$893 (basis portion of distribution) 2. Hrblock taxcut $1,000 (distribution)−$893 (basis portion of distribution) = $107 (earnings included in distribution) 3. Hrblock taxcut $107 (earnings) × $300 AQHEE $1,000 distribution =$32 (tax-free earnings) 4. Hrblock taxcut $107 (earnings)−$32 (tax-free earnings)=$75 (taxable earnings) Derek must include $75 in income (Form 1040, line 21). Hrblock taxcut This is the amount of distributed earnings not used for adjusted qualified higher education expenses. Hrblock taxcut Coordination With Qualified Tuition Program (QTP) Distributions If a designated beneficiary receives distributions from both a Coverdell ESA and a QTP in the same year, and the total distribution is more than the beneficiary's adjusted qualified higher education expenses, those expenses must be allocated between the distribution from the Coverdell ESA and the distribution from the QTP before figuring how much of each distribution is taxable. Hrblock taxcut The following two examples illustrate possible allocations. Hrblock taxcut Example 1. Hrblock taxcut In 2013, Beatrice graduated from high school and began her first semester of college. Hrblock taxcut That year, she had $1,000 of qualified elementary and secondary education expenses (QESEE) for high school and $3,000 of qualified higher education expenses (QHEE) for college. Hrblock taxcut To pay these expenses, Beatrice withdrew $800 from her Coverdell ESA and $4,200 from her QTP. Hrblock taxcut No one claimed Beatrice as a dependent, nor was she eligible for an education credit. Hrblock taxcut She did not receive any tax-free educational assistance in 2013. Hrblock taxcut Beatrice must allocate her total qualified education expenses between the two distributions. Hrblock taxcut Beatrice knows that tax-free treatment will be available if she applies her $800 Coverdell ESA distribution toward her $1,000 of qualified education expenses for high school. Hrblock taxcut The qualified expenses are greater than the distribution, making the $800 Coverdell ESA distribution tax free. Hrblock taxcut Next, Beatrice matches her $4,200 QTP distribution to her $3,000 of QHEE, and finds she has an excess QTP distribution of $1,200 ($4,200 QTP − $3,000 QHEE). Hrblock taxcut She cannot use the extra $200 of high school expenses (from (1) above) against the QTP distribution because those expenses do not qualify a QTP for tax-free treatment. Hrblock taxcut Finally, Beatrice figures the taxable and tax-free portions of her QTP distribution based on her $3,000 of QHEE. Hrblock taxcut (See Figuring the Taxable Portion of a Distribution in chapter 8, Qualified Tuition Program for more information. Hrblock taxcut ) Example 2. Hrblock taxcut Assume the same facts as in Example 1 , except that Beatrice withdrew $1,800 from her Coverdell ESA and $3,200 from her QTP. Hrblock taxcut In this case, she allocates her qualified education expenses as follows. Hrblock taxcut Using the same reasoning as in Example 1, Beatrice matches $1,000 of her Coverdell ESA distribution to her $1,000 of QESEE—she has $800 of her distribution remaining. Hrblock taxcut Because higher education expenses can also qualify a Coverdell ESA distribution for tax-free treatment, Beatrice allocates her $3,000 of QHEE between the remaining $800 Coverdell ESA and the $3,200 QTP distributions ($4,000 total). Hrblock taxcut $3,000 QHEE × $800 ESA distribution $4,000 total distribution = $600 QHEE (ESA) $3,000 QHEE × $3,200 QTP distribution $4,000 total distribution = $2,400 QHEE (QTP) Beatrice then figures the taxable part of her: Coverdell ESA distribution based on qualified education expenses of $1,600 ($1,000 QESEE + $600 QHEE). Hrblock taxcut See Figuring the Taxable Portion of a Distribution , earlier, in this chapter. Hrblock taxcut QTP distribution based on her $2,400 of QHEE (see Figuring the Taxable Portion of a Distribution in chapter 8, Qualified Tuition Program). Hrblock taxcut The above examples show two types of allocation between distributions from a Coverdell ESA and a QTP. Hrblock taxcut However, you do not have to allocate your expenses in the same way. Hrblock taxcut You can use any reasonable method. Hrblock taxcut Losses on Coverdell ESA Investments If you have a loss on your investment in a Coverdell ESA, you may be able to deduct the loss on your income tax return. Hrblock taxcut You can deduct the loss only when all amounts from that account have been distributed and the total distributions are less than your unrecovered basis. Hrblock taxcut Your basis is the total amount of contributions to that Coverdell ESA. Hrblock taxcut You claim the loss as a miscellaneous itemized deduction on Schedule A (Form 1040), line 23 (Schedule A (Form 1040NR), line 9), subject to the 2%-of-adjusted-gross-income limit. Hrblock taxcut If you have distributions from more than one Coverdell ESA account during a year, you must combine the information (amount of distribution, basis, etc. Hrblock taxcut ) from all such accounts in order to determine your taxable earnings for the year. Hrblock taxcut By doing this, the loss from one ESA account reduces the distributed earnings (if any) from any other ESA account. Hrblock taxcut For examples of the calculation, see Losses on QTP Investments in chapter 8, Qualified Tuition Program. Hrblock taxcut Additional Tax on Taxable Distributions Generally, if you receive a taxable distribution, you also must pay a 10% additional tax on the amount included in income. Hrblock taxcut Exceptions. Hrblock taxcut The 10% additional tax does not apply to distributions: Paid to a beneficiary (or to the estate of the designated beneficiary) on or after the death of the designated beneficiary. Hrblock taxcut Made because the designated beneficiary is disabled. Hrblock taxcut A person is considered to be disabled if he or she shows proof that he or she cannot do any substantial gainful activity because of his or her physical or mental condition. Hrblock taxcut A physician must determine that his or her condition can be expected to result in death or to be of long-continued and indefinite duration. Hrblock taxcut Included in income because the designated beneficiary received: A tax-free scholarship or fellowship (see Tax-Free Scholarships and Fellowships in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Veterans' educational assistance (see Veterans' Benefits in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Employer-provided educational assistance (see chapter 11, Employer-Provided Educational Assistance ), or Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. Hrblock taxcut Made on account of the attendance of the designated beneficiary at a U. Hrblock taxcut S. Hrblock taxcut military academy (such as the USMA at West Point). Hrblock taxcut This exception applies only to the extent that the amount of the distribution does not exceed the costs of advanced education (as defined in section 2005(d)(3) of title 10 of the U. Hrblock taxcut S. Hrblock taxcut Code) attributable to such attendance. Hrblock taxcut Included in income only because the qualified education expenses were taken into account in determining the American opportunity or lifetime learning credit (see Coordination With American Opportunity and Lifetime Learning Credits , earlier). Hrblock taxcut Made before June 1, 2014, of an excess 2013 contribution (and any earnings on it). Hrblock taxcut The distributed earnings must be included in gross income for the year in which the excess contribution was made. Hrblock taxcut Exception (3) applies only to the extent the distribution is not more than the scholarship, allowance, or payment. Hrblock taxcut Figuring the additional tax. Hrblock taxcut Use Part II of Form 5329, to figure any additional tax. Hrblock taxcut Report the amount on Form 1040, line 58, or Form 1040NR, line 56. Hrblock taxcut When Assets Must Be Distributed Any assets remaining in a Coverdell ESA must be distributed when either one of the following two events occurs. Hrblock taxcut The designated beneficiary reaches age 30. Hrblock taxcut In this case, the remaining assets must be distributed within 30 days after the beneficiary reaches age 30. Hrblock taxcut However, this rule does not apply if the beneficiary is a special needs beneficiary. Hrblock taxcut The designated beneficiary dies before reaching age 30. Hrblock taxcut In this case, the remaining assets must generally be distributed within 30 days after the date of death. Hrblock taxcut Exception for Transfer to Surviving Spouse or Family Member If a Coverdell ESA is transferred to a surviving spouse or other family member as the result of the death of the designated beneficiary, the Coverdell ESA retains its status. Hrblock taxcut (“Family member” was defined earlier under Rollovers . Hrblock taxcut ) This means the spouse or other family member can treat the Coverdell ESA as his or her own and does not need to withdraw the assets until he or she reaches age 30. Hrblock taxcut This age limitation does not apply if the new beneficiary is a special needs beneficiary. Hrblock taxcut There are no tax consequences as a result of the transfer. Hrblock taxcut How To Figure the Taxable Earnings When a total distribution is made because the designated beneficiary either reached age 30 or died, the earnings that accumulated tax free in the account must be included in taxable income. Hrblock taxcut You determine these earnings as shown in the following two steps. Hrblock taxcut Multiply the amount distributed by a fraction. Hrblock taxcut The numerator is the basis (contributions not previously distributed) at the end of 2012 plus total contributions for 2013 and the denominator is the balance in the account at the end of 2013 plus the amount distributed during 2013. Hrblock taxcut Subtract the amount figured in (1) from the total amount distributed during 2013. Hrblock taxcut The result is the amount of earnings included in the distribution. Hrblock taxcut For an example, see steps (1) and (2) of the Example under Figuring the Taxable Portion of a Distribution, earlier. Hrblock taxcut The beneficiary or other person receiving the distribution must report this amount on Form 1040, line 21, or Form 1040NR, line 21, listing the type and amount of income on the dotted line. Hrblock taxcut Worksheet 7-3 Instructions. Hrblock taxcut Coverdell ESA—Taxable Distributions and Basis Line G. Hrblock taxcut Enter the total distributions received from all Coverdell ESAs during 2013. Hrblock taxcut Do not include amounts rolled over to another ESA within 60 days (only one rollover is allowed during any 12-month period). Hrblock taxcut Also, do not include excess contributions that were distributed with the related earnings (or less any loss) before the first day of the sixth month of the tax year following the year for which the contributions were made. Hrblock taxcut Line 2. Hrblock taxcut Your basis (amount already taxed) in this Coverdell ESA as of December 31, 2012, is the total of: •All contributions to this Coverdell ESA before 2013 •Minus the tax-free portion of any distributions from this Coverdell ESA before 2013. Hrblock taxcut If your last distribution from this Coverdell ESA was before 2013, you must start with the basis in your account as of the end of the last year in which you took a distribution. Hrblock taxcut For years before 2002, you can find that amount on the last line of the worksheet in the Instructions for Form 8606, Nondeductible IRAs, that you completed for that year. Hrblock taxcut For years after 2001, you can find that amount by using the ending basis from the worksheet in Publication 970 for that year. Hrblock taxcut You can determine your basis in this Coverdell ESA as of December 31, 2012, by adding to the basis as of the end of that year any contributions made to that account after the year of the distribution and before 2013. Hrblock taxcut Line 4. Hrblock taxcut Enter the total distributions received from this Coverdell ESA in 2013. Hrblock taxcut Do not include amounts rolled over to another Coverdell ESA within 60 days (only one rollover is allowed during any 12-month period). Hrblock taxcut Also, do not include excess contributions that were distributed with the related earnings (or less any loss) before the first day of the sixth month of the tax year following the year of the contributions. Hrblock taxcut Line 7. Hrblock taxcut Enter the total value of this Coverdell ESA as of December 31, 2013, plus any outstanding rollovers contributed to the account after 2012, but before the end of the 60-day rollover period. Hrblock taxcut A statement should be sent to you by January 31, 2014, for this Coverdell ESA showing the value on December 31, 2013. Hrblock taxcut A rollover is a tax-free withdrawal from one Coverdell ESA that is contributed to another Coverdell ESA. Hrblock taxcut An outstanding rollover is any amount withdrawn within 60 days before the end of 2013 (November 2 through December 31) that was rolled over after December 31, 2013, but within the 60-day rollover period. Hrblock taxcut Worksheet 7-3. Hrblock taxcut Coverdell ESA—Taxable Distributions and Basis How to complete this worksheet. Hrblock taxcut • • • Complete Part I, lines A through H, on only one worksheet. Hrblock taxcut Complete a separate Part II, lines 1 through 15, for each of your Coverdell ESAs. Hrblock taxcut Complete Part III, the Summary (line 16), on only one worksheet. Hrblock taxcut Part I. Hrblock taxcut Qualified Education Expenses (Complete for total expenses) A. Hrblock taxcut Enter your total qualified education expenses for 2013 A. Hrblock taxcut B. Hrblock taxcut Enter those qualified education expenses paid for with tax-free educational assistance (for example, tax-free scholarships, veterans' educational benefits, Pell grants, employer-provided educational assistance) B. Hrblock taxcut C. Hrblock taxcut Enter those qualified higher education expenses deducted on Schedule C or C-EZ (Form 1040). Hrblock taxcut Schedule F (Form 1040), or as a miscellaneous itemized deduction on Schedule A (Form 1040 or 1040NR) C. Hrblock taxcut D. Hrblock taxcut Enter those qualified higher education expenses on which an American opportunity or lifetime learning credit was based D. Hrblock taxcut E. Hrblock taxcut Add lines B, C, and D D. Hrblock taxcut F. Hrblock taxcut Subtract line E from line A. Hrblock taxcut This is your adjusted qualified education expense for 2013 E. Hrblock taxcut G. Hrblock taxcut Enter your total distributions from all Coverdell ESAs during 2013. Hrblock taxcut Do not include rollovers or the return of excess contributions (see instructions) F. Hrblock taxcut H. Hrblock taxcut Divide line F by line G. Hrblock taxcut Enter the result as a decimal (rounded to at least 3 places). Hrblock taxcut If the result is 1. Hrblock taxcut 000 or more, enter 1. Hrblock taxcut 000 G. Hrblock taxcut . Hrblock taxcut Part II. Hrblock taxcut Taxable Distributions and Basis (Complete separately for each account) 1. Hrblock taxcut Enter the amount contributed to this Coverdell ESA for 2013, including contributions made for 2013 from January 1, 2014, through April 15, 2014. Hrblock taxcut Do not include rollovers or the return of excess contributions 1. Hrblock taxcut 2. Hrblock taxcut Enter your basis in this Coverdell ESA as of December 31, 2012 (see instructions) 2. Hrblock taxcut 3. Hrblock taxcut Add lines 1 and 2 3. Hrblock taxcut 4. Hrblock taxcut Enter the total distributions from this Coverdell ESA during 2013. Hrblock taxcut Do not include rollovers or the return of excess contributions (see instructions) 4. Hrblock taxcut 5. Hrblock taxcut Multiply line 4 by line H. Hrblock taxcut This is the amount of adjusted qualified education expense attributable to this Coverdell ESA 5. Hrblock taxcut 6. Hrblock taxcut Subtract line 5 from line 4 6. Hrblock taxcut 7. Hrblock taxcut Enter the total value of this Coverdell ESA as of December 31, 2013, plus any outstanding rollovers (see instructions) 7. Hrblock taxcut 8. Hrblock taxcut Add lines 4 and 7 8. Hrblock taxcut 9. Hrblock taxcut Divide line 3 by line 8. Hrblock taxcut Enter the result as a decimal (rounded to at least 3 places). Hrblock taxcut If the result is 1. Hrblock taxcut 000 or more, enter 1. Hrblock taxcut 000 9. Hrblock taxcut . Hrblock taxcut 10. Hrblock taxcut Multiply line 4 by line 9. Hrblock taxcut This is the amount of basis allocated to your distributions, and is tax free 10. Hrblock taxcut Note. Hrblock taxcut If line 6 is zero, skip lines 11 through 13, enter -0- on line 14, and go to line 15. Hrblock taxcut 11. Hrblock taxcut Subtract line 10 from line 4 11. Hrblock taxcut 12. Hrblock taxcut Divide line 5 by line 4. Hrblock taxcut Enter the result as a decimal (rounded to at least 3 places). Hrblock taxcut If the result is 1. Hrblock taxcut 000 or more, enter 1. Hrblock taxcut 000 12. Hrblock taxcut . Hrblock taxcut 13. Hrblock taxcut Multiply line 11 by line 12. Hrblock taxcut This is the amount of qualified education expenses allocated to your distributions, and is tax free 13. Hrblock taxcut 14. Hrblock taxcut Subtract line 13 from line 11. Hrblock taxcut This is the portion of the distributions from this Coverdell ESA in 2013 that you must include in income 14. Hrblock taxcut 15. Hrblock taxcut Subtract line 10 from line 3. Hrblock taxcut This is your basis in this Coverdell ESA as of December 31, 2013 15. Hrblock taxcut Part III. Hrblock taxcut Summary (Complete only once) 16. Hrblock taxcut Taxable amount. Hrblock taxcut Add together all amounts on line 14 for all your Coverdell ESAs. Hrblock taxcut Enter here and include on Form 1040, line 21, or Form 1040NR, line 21, listing the type and amount of income on the dotted line 16. Hrblock taxcut Prev Up Next Home More Online Publications
Hrblock taxcut Internal Revenue Bulletin: 2013-12 March 18, 2013 Rev. Hrblock taxcut Proc. Hrblock taxcut 2013-21 Table of Contents SECTION 1. Hrblock taxcut PURPOSE SECTION 2. Hrblock taxcut BACKGROUND SECTION 3. Hrblock taxcut SCOPE SECTION 4. Hrblock taxcut APPLICATION. Hrblock taxcut 01 Limitations on Depreciation Deductions for Certain Automobiles. Hrblock taxcut . Hrblock taxcut 02 Inclusions in Income of Lessees of Passenger Automobiles. Hrblock taxcut SECTION 5. Hrblock taxcut EFFECTIVE DATE SECTION 6. Hrblock taxcut DRAFTING INFORMATION SECTION 1. Hrblock taxcut PURPOSE This revenue procedure provides: (1) limitations on depreciation deductions for owners of passenger automobiles first placed in service by the taxpayer during calendar year 2013, including separate tables of limitations on depreciation deductions for trucks and vans; and (2) the amounts that must be included in income by lessees of passenger automobiles first leased by the taxpayer during calendar year 2013, including a separate table of inclusion amounts for lessees of trucks and vans. Hrblock taxcut The tables detailing these depreciation limitations and lessee inclusion amounts reflect the automobile price inflation adjustments required by § 280F(d)(7) of the Internal Revenue Code. Hrblock taxcut SECTION 2. Hrblock taxcut BACKGROUND . Hrblock taxcut 01 For owners of passenger automobiles, § 280F(a) imposes dollar limitations on the depreciation deduction for the year the taxpayer places the passenger automobile in service and for each succeeding year. Hrblock taxcut For passenger automobiles placed in service after 1988, § 280F(d)(7) requires the Internal Revenue Service to increase the amounts allowable as depreciation deductions by a price inflation adjustment amount. Hrblock taxcut The method of calculating this price inflation amount for trucks and vans placed in service in or after calendar year 2003 uses a different CPI “automobile component” (the “new trucks” component) than that used in the price inflation amount calculation for other passenger automobiles (the “new cars” component), resulting in somewhat higher depreciation deductions for trucks and vans. Hrblock taxcut This change reflects the higher rate of price inflation for trucks and vans since 1988. Hrblock taxcut . Hrblock taxcut 02 Section 331(a) of the American Taxpayer Relief Act of 2012, Pub. Hrblock taxcut L. Hrblock taxcut No. Hrblock taxcut 112-240, 126 Stat. Hrblock taxcut 2313 (Jan. Hrblock taxcut 2, 2013) (the “Act”) extended the 50 percent additional first year depreciation deduction under § 168(k) to qualified property acquired by the taxpayer after December 31, 2007, and before January 1, 2014, if no written binding contract for the acquisition of the property existed before January 1, 2008, and if the taxpayer places the property in service generally before January 1, 2014. Hrblock taxcut Section 168(k)(2)(F)(i) increases the first year depreciation allowed under § 280F(a)(1)(A)(i) by $8,000 for passenger automobiles to which the additional first year depreciation deduction under § 168(k) (hereinafter, referred to as “§ 168(k) additional first year depreciation deduction”) applies. Hrblock taxcut . Hrblock taxcut 03 Section 168(k)(2)(D)(i) provides that the § 168(k) additional first year depreciation deduction does not apply to any property required to be depreciated under the alternative depreciation system of § 168(g), including property described in § 280F(b)(1). Hrblock taxcut Section 168(k)(2)(D)(iii) permits a taxpayer to elect out of the § 168(k) additional first year depreciation deduction for any class of property. Hrblock taxcut Section 168(k)(4), as amended by the Act, permits a corporation to elect to increase the alternative minimum tax (“AMT”) credit limitation under § 53(c), instead of claiming the § 168(k) additional first year depreciation deduction for all eligible qualified property placed in service after December 31, 2012, that is round 3 extension property (as defined in § 168(k)(4)(J)(iv)). Hrblock taxcut Accordingly, this revenue procedure provides tables for passenger automobiles for which the § 168(k) additional first year depreciation deduction applies. Hrblock taxcut This revenue procedure also provides tables for passenger automobiles for which the § 168(k) additional first year depreciation deduction does not apply, either because taxpayer: (1) purchased the passenger automobile used; (2) did not use the passenger automobile during 2013 more than 50 percent for business purposes; (3) elected out of the § 168(k) additional first year depreciation deduction pursuant to § 168(k)(2)(D)(iii); or (4) elected to increase the § 53 AMT credit limitation in lieu of claiming § 168(k) additional first year depreciation. Hrblock taxcut . Hrblock taxcut 04 Section 280F(c) requires a reduction in the deduction allowed to the lessee of a leased passenger automobile. Hrblock taxcut The reduction must be substantially equivalent to the limitations on the depreciation deductions imposed on owners of passenger automobiles. Hrblock taxcut Under § 1. Hrblock taxcut 280F-7(a) of the Income Tax Regulations, this reduction requires a lessee to include in gross income an amount determined by applying a formula to the amount obtained from a table. Hrblock taxcut One table applies to lessees of trucks and vans and another table applies to all other passenger automobiles. Hrblock taxcut Each table shows inclusion amounts for a range of fair market values for each taxable year after the passenger automobile is first leased. Hrblock taxcut SECTION 3. Hrblock taxcut SCOPE . Hrblock taxcut 01 The limitations on depreciation deductions in section 4. Hrblock taxcut 01(2) of this revenue procedure apply to passenger automobiles (other than leased passenger automobiles) that are placed in service by the taxpayer in calendar year 2013, and continue to apply for each taxable year that the passenger automobile remains in service. Hrblock taxcut . Hrblock taxcut 02 The tables in section 4. Hrblock taxcut 02 of this revenue procedure apply to leased passenger automobiles for which the lease term begins during calendar year 2013. Hrblock taxcut Lessees of these passenger automobiles must use these tables to determine the inclusion amount for each taxable year during which the passenger automobile is leased. Hrblock taxcut See Rev. Hrblock taxcut Proc. Hrblock taxcut 2008-22, 2008-1 C. Hrblock taxcut B. Hrblock taxcut 658, for passenger automobiles first leased during calendar year 2008; Rev. Hrblock taxcut Proc. Hrblock taxcut 2009-24, 2009-17 I. Hrblock taxcut R. Hrblock taxcut B. Hrblock taxcut 885, for passenger automobiles first leased during calendar year 2009; Rev. Hrblock taxcut Proc. Hrblock taxcut 2010-18, 2010-09 I. Hrblock taxcut R. Hrblock taxcut B. Hrblock taxcut 427, as amplified and modified by section 4. Hrblock taxcut 03 of Rev. Hrblock taxcut Proc. Hrblock taxcut 2011-21, 2011-12 I. Hrblock taxcut R. Hrblock taxcut B. Hrblock taxcut 560, for passenger automobiles first leased during calendar year 2010; Rev. Hrblock taxcut Proc. Hrblock taxcut 2011-21, for passenger automobiles first leased during calendar year 2011; and Rev. Hrblock taxcut Proc. Hrblock taxcut 2012-23, 2012-14 I. Hrblock taxcut R. Hrblock taxcut B. Hrblock taxcut 712, for passenger automobiles first leased during calendar year 2012. Hrblock taxcut SECTION 4. Hrblock taxcut APPLICATION . Hrblock taxcut 01 Limitations on Depreciation Deductions for Certain Automobiles. Hrblock taxcut (1) Amount of the inflation adjustment. Hrblock taxcut (a) Passenger automobiles (other than trucks or vans). Hrblock taxcut Under § 280F(d)(7)(B)(i), the automobile price inflation adjustment for any calendar year is the percentage (if any) by which the CPI automobile component for October of the preceding calendar year exceeds the CPI automobile component for October 1987. Hrblock taxcut Section 280F(d)(7)(B)(ii) defines the term “CPI automobile component” as the automobile component of the Consumer Price Index for all Urban Consumers published by the Department of Labor. Hrblock taxcut The new car component of the CPI was 115. Hrblock taxcut 2 for October 1987 and 143. Hrblock taxcut 787 for October 2012. Hrblock taxcut The October 2012 index exceeded the October 1987 index by 28. Hrblock taxcut 587. Hrblock taxcut Therefore, the automobile price inflation adjustment for 2013 for passenger automobiles (other than trucks and vans) is 24. Hrblock taxcut 8 percent (28. Hrblock taxcut 587/115. Hrblock taxcut 2 x 100%). Hrblock taxcut The dollar limitations in § 280F(a) are multiplied by a factor of 0. Hrblock taxcut 248, and the resulting increases, after rounding to the nearest $100, are added to the 1988 limitations to give the depreciation limitations applicable to passenger automobiles (other than trucks and vans) for calendar year 2013. Hrblock taxcut This adjustment applies to all passenger automobiles (other than trucks and vans) that are first placed in service in calendar year 2013. Hrblock taxcut (b) Trucks and vans. Hrblock taxcut To determine the dollar limitations for trucks and vans first placed in service during calendar year 2013, the Service uses the new truck component of the CPI instead of the new car component. Hrblock taxcut The new truck component of the CPI was 112. Hrblock taxcut 4 for October 1987 and 149. Hrblock taxcut 386 for October 2012. Hrblock taxcut The October 2012 index exceeded the October 1987 index by 36. Hrblock taxcut 986. Hrblock taxcut Therefore, the automobile price inflation adjustment for 2013 for trucks and vans is 32. Hrblock taxcut 9 percent (36. Hrblock taxcut 986/112. Hrblock taxcut 4 x 100%). Hrblock taxcut The dollar limitations in § 280F(a) are multiplied by a factor of 0. Hrblock taxcut 329, and the resulting increases, after rounding to the nearest $100, are added to the 1988 limitations to give the depreciation limitations for trucks and vans. Hrblock taxcut This adjustment applies to all trucks and vans that are first placed in service in calendar year 2013. Hrblock taxcut (2) Amount of the limitation. Hrblock taxcut Tables 1 through 4 contain the dollar amount of the depreciation limitation for each taxable year for passenger automobiles a taxpayer places in service in calendar year 2013. Hrblock taxcut Use Table 1 for a passenger automobile (other than a truck or van), and Table 2 for a truck or van, placed in service in calendar year 2013 for which the § 168(k) additional first year depreciation deduction applies. Hrblock taxcut Use Table 3 for a passenger automobile (other than a truck or van), and Table 4 for a truck or van, placed in service in calendar year 2013 for which the § 168(k) additional first year depreciation deduction does not apply. Hrblock taxcut REV. Hrblock taxcut PROC. Hrblock taxcut 2013-21 TABLE 1 DEPRECIATION LIMITATIONS FOR PASSENGER AUTOMOBILES (THAT ARE NOT TRUCKS OR VANS) PLACED IN SERVICE IN CALENDAR YEAR 2013 FOR WHICH THE § 168(k) ADDITIONAL FIRST YEAR DEPRECIATION DEDUCTION APPLIES Tax Year Amount 1st Tax Year $11,160 2nd Tax Year $5,100 3rd Tax Year $3,050 Each Succeeding Year $1,875 REV. Hrblock taxcut PROC. Hrblock taxcut 2013-21 TABLE 2 DEPRECIATION LIMITATIONS FOR TRUCKS AND VANS PLACED IN SERVICE IN CALENDAR YEAR 2013 FOR WHICH THE § 168(k) ADDITIONAL FIRST YEAR DEPRECIATION DEDUCTION APPLIES Tax Year Amount 1st Tax Year $11,360 2nd Tax Year $5,400 3rd Tax Year $3,250 Each Succeeding Year $1,975 REV. Hrblock taxcut PROC. Hrblock taxcut 2013-21 TABLE 3 DEPRECIATION LIMITATIONS FOR PASSENGER AUTOMOBILES (THAT ARE NOT TRUCKS OR VANS) PLACED IN SERVICE IN CALENDAR YEAR 2013 FOR WHICH THE § 168(k) ADDITIONAL FIRST YEAR DEPRECIATION DEDUCTION DOES NOT APPLY Tax Year Amount 1st Tax Year $3,160 2nd Tax Year $5,100 3rd Tax Year $3,050 Each Succeeding Year $1,875 REV. Hrblock taxcut PROC. Hrblock taxcut 2013-21 TABLE 4 DEPRECIATION LIMITATIONS FOR TRUCKS AND VANS PLACED IN SERVICE IN CALENDAR YEAR 2013 FOR WHICH THE § 168(k) ADDITIONAL FIRST YEAR DEPRECIATION DEDUCTION DOES NOT APPLY Tax Year Amount 1st Tax Year $3,360 2nd Tax Year $5,400 3rd Tax Year $3,250 Each Succeeding Year $1,975 . Hrblock taxcut 02 Inclusions in Income of Lessees of Passenger Automobiles. Hrblock taxcut A taxpayer must follow the procedures in § 1. Hrblock taxcut 280F-7(a) for determining the inclusion amounts for passenger automobiles first leased in calendar year 2013. Hrblock taxcut In applying these procedures, lessees of passenger automobiles other than trucks and vans should use Table 5 of this revenue procedure, while lessees of trucks and vans should use Table 6 of this revenue procedure. Hrblock taxcut REV. Hrblock taxcut PROC. Hrblock taxcut 2013-21 TABLE 5 DOLLAR AMOUNTS FOR PASSENGER AUTOMOBILES (THAT ARE NOT TRUCKS OR VANS) WITH A LEASE TERM BEGINNING IN CALENDAR YEAR 2013 Fair Market Value of Passenger Automobile Tax Year During Lease Over Not Over 1st 2nd 3rd 4th 5th & later $19,000 $19,500 2 4 6 7 8 19,500 20,000 2 5 6 9 9 20,000 20,500 2 5 8 9 11 20,500 21,000 3 6 8 10 12 21,000 21,500 3 6 10 11 13 21,500 22,000 3 7 10 13 14 22,000 23,000 4 8 11 14 16 23,000 24,000 4 9 14 16 18 24,000 25,000 5 10 15 18 21 25,000 26,000 5 12 16 21 23 26,000 27,000 6 12 19 23 25 27,000 28,000 6 14 20 25 28 28,000 29,000 7 15 22 27 30 29,000 30,000 7 16 24 29 33 30,000 31,000 8 17 26 31 35 31,000 32,000 8 19 27 33 38 32,000 33,000 9 20 29 35 40 33,000 34,000 10 21 31 37 43 34,000 35,000 10 22 33 39 45 35,000 36,000 11 23 35 41 48 36,000 37,000 11 25 36 43 50 37,000 38,000 12 26 38 45 53 38,000 39,000 12 27 40 47 55 39,000 40,000 13 28 42 49 58 40,000 41,000 13 29 44 52 59 41,000 42,000 14 30 45 54 63 42,000 43,000 14 32 47 56 64 43,000 44,000 15 33 48 59 67 44,000 45,000 15 34 51 60 69 45,000 46,000 16 35 52 63 72 46,000 47,000 17 36 54 65 74 47,000 48,000 17 38 55 67 77 48,000 49,000 18 39 57 69 79 49,000 50,000 18 40 59 71 82 50,000 51,000 19 41 61 73 84 51,000 52,000 19 42 63 75 87 52,000 53,000 20 43 65 77 89 53,000 54,000 20 45 66 79 92 54,000 55,000 21 46 68 81 94 55,000 56,000 21 47 70 84 96 56,000 57,000 22 48 72 85 99 57,000 58,000 22 50 73 88 101 58,000 59,000 23 51 75 90 103 59,000 60,000 24 52 76 92 106 60,000 62,000 24 54 79 95 110 62,000 64,000 25 56 83 99 115 64,000 66,000 27 58 87 103 120 66,000 68,000 28 60 90 108 125 68,000 70,000 29 63 93 112 130 70,000 72,000 30 65 97 117 134 72,000 74,000 31 68 100 121 139 74,000 76,000 32 70 104 125 144 76,000 78,000 33 73 107 129 149 78,000 80,000 34 75 111 133 154 80,000 85,000 36 79 117 141 162 85,000 90,000 39 85 126 151 174 90,000 95,000 41 91 135 162 186 95,000 100,000 44 97 144 172 199 100,000 110,000 48 106 157 188 217 110,000 120,000 53 118 174 210 241 120,000 130,000 59 129 193 230 266 130,000 140,000 64 141 210 252 290 140,000 150,000 70 153 227 273 315 150,000 160,000 75 165 245 294 339 160,000 170,000 80 177 263 315 363 170,000 180,000 86 189 280 336 388 180,000 190,000 91 201 298 357 412 190,000 200,000 97 212 316 378 436 200,000 210,000 102 224 333 400 461 210,000 220,000 107 236 351 420 486 220,000 230,000 113 248 368 442 509 230,000 240,000 118 260 386 463 534 240,000 And up 124 272 403 484 558 REV. Hrblock taxcut PROC. Hrblock taxcut 2013-21 TABLE 6 DOLLAR AMOUNTS FOR TRUCKS AND VANS WITH A LEASE TERM BEGINNING IN CALENDAR YEAR 2013 Fair Market Value of Truck or Van Tax Year During Lease Over Not Over 1st 2nd 3rd 4th 5th & later $19,000 $19,500 1 3 4 5 6 19,500 20,000 2 3 5 6 7 20,000 20,500 2 4 6 7 8 20,500 21,000 2 5 7 8 9 21,000 21,500 2 5 8 9 11 21,500 22,000 3 6 8 10 12 22,000 23,000 3 7 10 11 14 23,000 24,000 4 8 11 14 16 24,000 25,000 4 9 14 16 18 25,000 26,000 5 10 15 18 21 26,000 27,000 5 12 17 20 23 27,000 28,000 6 13 18 23 25 28,000 29,000 6 14 20 25 28 29,000 30,000 7 15 22 27 30 30,000 31,000 7 16 24 29 33 31,000 32,000 8 17 26 31 35 32,000 33,000 8 19 27 33 38 33,000 34,000 9 20 29 35 41 34,000 35,000 10 21 31 37 43 35,000 36,000 10 22 33 39 46 36,000 37,000 11 23 35 41 48 37,000 38,000 11 25 36 43 51 38,000 39,000 12 26 38 45 53 39,000 40,000 12 27 40 48 55 40,000 41,000 13 28 42 49 58 41,000 42,000 13 29 44 52 60 42,000 43,000 14 30 46 54 62 43,000 44,000 14 32 47 56 65 44,000 45,000 15 33 48 59 67 45,000 46,000 15 34 51 60 70 46,000 47,000 16 35 52 63 72 47,000 48,000 17 36 54 65 74 48,000 49,000 17 38 55 67 77 49,000 50,000 18 39 57 69 79 50,000 51,000 18 40 59 71 82 51,000 52,000 19 41 61 73 84 52,000 53,000 19 42 63 75 87 53,000 54,000 20 43 65 77 89 54,000 55,000 20 45 66 80 91 55,000 56,000 21 46 68 81 94 56,000 57,000 21 47 70 84 96 57,000 58,000 22 48 72 86 98 58,000 59,000 22 50 73 88 101 59,000 60,000 23 51 75 90 103 60,000 62,000 24 52 78 93 108 62,000 64,000 25 55 81 97 113 64,000 66,000 26 57 85 101 118 66,000 68,000 27 60 88 106 122 68,000 70,000 28 62 92 110 127 70,000 72,000 29 64 96 114 132 72,000 74,000 30 67 99 118 137 74,000 76,000 31 69 103 122 142 76,000 78,000 32 72 105 127 147 78,000 80,000 34 73 110 131 151 80,000 85,000 35 78 116 138 160 85,000 90,000 38 84 124 149 172 90,000 95,000 41 90 133 160 184 95,000 100,000 44 95 142 171 196 100,000 110,000 48 104 156 186 214 110,000 120,000 53 116 173 207 240 120,000 130,000 58 128 191 228 264 130,000 140,000 64 140 208 249 288 140,000 150,000 69 152 226 270 313 150,000 160,000 75 164 243 292 336 160,000 170,000 80 176 261 312 361 170,000 180,000 85 188 278 334 386 180,000 190,000 91 199 296 355 410 190,000 200,000 96 211 314 376 434 200,000 210,000 101 223 332 397 459 210,000 220,000 107 235 349 418 483 220,000 230,000 112 247 367 439 507 230,000 240,000 118 259 384 460 532 240,000 And up 123 271 401 482 556 SECTION 5. Hrblock taxcut EFFECTIVE DATE This revenue procedure applies to passenger automobiles that a taxpayer first places in service or first leases during calendar year 2013. Hrblock taxcut SECTION 6. Hrblock taxcut DRAFTING INFORMATION The principal author of this revenue procedure is Bernard P. Hrblock taxcut Harvey of the Office of Associate Chief Counsel (Income Tax & Accounting). Hrblock taxcut For further information regarding this revenue procedure, contact Mr. Hrblock taxcut Harvey at (202) 622-4930 (not a toll-free call). Hrblock taxcut Prev Up Next Home More Internal Revenue Bulletins