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2003 Tax Help Archives |
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Tax Help Archives > 2003 > Publications > Publication 3
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Table B. Excluded Items The exclusion for certain items applies whether the item is furnished in kind or is a reimbursement or allowance. There is no exclusion for the personal use of a government-provided vehicle.
Claim for death gratuity refunds.
In 2003, the death gratuity paid to a survivor of a member of the Armed Forces who died after September 10, 2001,
was increased to $12,000 and was
made nontaxable. Previously, the death gratuity was $6,000 and only $3,000 of it was nontaxable. So, you may be able to claim
a refund if you paid tax
on a death gratuity you received due to the death of a member of the Armed Forces after September 10, 2001. If you are entitled
to a refund, complete
and file Form 1040X, Amended U.S. Individual Income Tax Return. At the top of Form 1040X, write “Military Family Tax Relief Act” in
red. Generally, you must file a claim for credit or refund within 3 years from the date you filed your original return or
2 years from the date you
paid the tax, whichever is later.
Military base realignment and closure benefit.
Payments made under the Homeowners Assistance Program (HAP) after November 11, 2003, generally are excluded from income.
However, the excludable
amount cannot be more than the following limit:
If you are a U.S. citizen with income from sources outside the United States (foreign income), you must report all of that income on your tax return unless it is exempt by U.S. law. This is true whether you reside inside or outside the United States and whether or not you receive a Form W–2, Wage and Tax Statement, or a Form 1099. This applies to earned income (such as wages and tips) as well as unearned income (such as interest, dividends, capital gains, pensions, rents, and royalties). Certain taxpayers can exclude income earned in foreign countries. For 2003, this exclusion amount is $80,000. However, the foreign earned income exclusion does not apply to the wages and salaries of military and civilian employees of the U.S. Government. Employees of the U.S. Government include those who work at Armed Forces post exchanges, officers' and enlisted personnel clubs, and embassy commissaries, and similar personnel paid from nonappropriated funds. Other foreign income earned by military personnel or their spouses may be eligible for the foreign earned income exclusion. For more information on the exclusion, get Publication 54. Residents of American Samoa may be able to exclude income from Guam, American Samoa, and the Northern Mariana Islands. This possession exclusion does not apply to wages and salaries of military and civilian employees of the U.S. Government. If you need information on the possession exclusion, get Publication 570, Tax Guide for Individuals With Income From U.S. Possessions. The pay you earn as a member of the Armed Forces may be subject to community property laws depending on your marital status, your domicile, and the nature of the payment. The community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Marital status.
Community property rules apply to married persons whose domicile during the tax year was in a community property state.
The rules may affect your
tax liability if you file separate returns or are divorced during the year.
Domicile.
Your domicile is the permanent legal home you intend to use for an indefinite or unlimited period, and to which, when
absent, you intend to return.
It is not always where you presently live.
Nature of the payment.
Active duty military pay is subject to community property laws. Armed Forces retired or retainer pay may be subject
to community property laws.
Adjusted gross income is your total income minus certain adjustments. The following adjustments are of particular interest to members of the Armed Forces. If you are a member of a reserve component of the Armed Forces and you travel more than 100 miles away from home in connection with your performance of services as a member of the reserves, you can deduct your travel expenses as an adjustment to income on line 33 of Form 1040 rather than as a miscellaneous itemized deduction. The deduction is limited to the amount the federal government pays its employees for travel expenses. For more information about this limit, see Per Diem and Car Allowances in chapter 6 of Publication 463. Member of a reserve component.
You are a member of a reserve component of the Armed Forces if you are in the Army, Navy, Marine Corps, Air Force,
or Coast Guard Reserve, the Army
National Guard of the United States, the Air National Guard of the United States, or the Reserve Corps of the Public Health
Service.
How to report.
If you have reserve-related travel that takes you more than 100 miles from home, you should first complete Form 2106,
Employee Business
Expenses, or Form 2106–EZ, Unreimbursed Employee Business Expenses. Then include in the total on line 33 of Form 1040 your
expenses for reserve travel over 100 miles from home, up to the federal rate, from line 10 of Form 2106 or line 6 of Form
2106–EZ. Write
“RC” and the amount of these expenses in the space to the left of line 33 of Form 1040. Subtract this amount from the total on
line 10 of Form
2106 or line 6 of Form 2106–EZ and deduct the balance as an itemized deduction on line 20 of Schedule A (Form 1040). See Armed Forces
reservists under Miscellaneous Itemized Deductions, later.
Individual Retirement Arrangements For purposes of a deduction for contributions to a traditional individual retirement arrangement (IRA), Armed Forces' members (including reservists on active duty for more than 90 days during the year) are considered to be active participants in an employer-maintained retirement plan. Generally, you can deduct the lesser of the contributions to your traditional IRA for the year or the general limit (or spousal IRA limit, if applicable). However, if you or your spouse was covered by an employer-maintained retirement plan at any time during the year for which contributions were made, you may not be able to deduct all of the contributions. The Form W–2 you or your spouse receives from an employer has a box used to indicate whether you were covered for the year. The Retirement plan box should have a mark in it if you were covered. Individuals serving in the U.S. Armed Forces or in support of the U.S. Armed Forces in designated combat zones have additional time to make a qualified retirement contribution to an IRA. For more information on this extension of deadline provision, see Extension of Deadline, later. For more information on IRAs, get Publication 590. To deduct moving expenses, you generally must meet certain time and distance tests. However, if you are a member of the Armed Forces on active duty and you move because of a permanent change of station, you do not have to meet these tests. You can deduct your unreimbursed moving expenses on Form 3903. Permanent change of station.
A permanent change of station includes:
Spouse and dependents.
If a member of the Armed Forces deserts, is imprisoned, or dies, a permanent change of station for the spouse or dependent
includes a move to:
Services or reimbursements provided by the government.
Do not include in your income the value of moving and storage services provided by the government because of a permanent
change of station.
Similarly, do not include in income amounts received as a dislocation allowance, temporary lodging expense, temporary lodging
allowance, or move-in
housing allowance. Generally, if the total reimbursements or allowances that you receive from the government because of the
move are more than your
actual moving expenses, the excess is included in your wages on Form W–2. However, if any reimbursements or allowances (other
than dislocation,
temporary lodging, temporary lodging expense, or move-in housing allowances) exceed the cost of moving and the excess is not
included in your Form
W–2, the excess still must be included in gross income on line 7 of Form 1040.
Deductible moving expenses.
If you meet the requirements discussed earlier, you can deduct the reasonable unreimbursed expenses that are incurred
by you and members of your
household.
Member of your household.
A member of your household is anyone who has both your former home and your new home as his or her main home. It does
not include a tenant or
employee unless you can claim that person as a dependent.
Foreign moves.
A foreign move is a move from the United States or its possessions to a foreign country or from one foreign country
to another foreign country. It
is not a move from a foreign country to the United States or its possessions.
Reporting moving expenses.
Figure moving expense deductions on Form 3903. Carry the deduction from Form 3903 to line 27, Form 1040. For more
information, get Publication 521
and Form 3903.
If you are a member of the U.S. Armed Forces who serves in a combat zone (defined later), you can exclude certain pay from your income. You do not have to receive the pay while you are in a combat zone, are hospitalized, or in the same year you served in a combat zone. However, your entitlement to the pay must have fully accrued in a month during which you served in the combat zone or were hospitalized as a result of wounds, disease, or injury incurred while serving in the combat zone. Enlisted personnel, warrant officers, and commissioned warrant officers can exclude the following amounts from their income. (Other officer personnel are discussed later.)
Retirement pay and pensions do not qualify for the combat zone exclusion. Partial (month) service.
If you serve in a combat zone for any part of one or more days during a particular month, you are entitled to an exclusion
for that entire month.
A combat zone is any area the President of the United States designates by Executive Order as an area in which the U.S. Armed Forces are engaging or have engaged in combat. An area usually becomes a combat zone and ceases to be a combat zone on the dates the President designates by Executive Order. Afghanistan area.
By Executive Order No. 13239, Afghanistan (and airspace above) was designated as a combat zone beginning September
19, 2001.
The Kosovo area.
By Executive Order No. 13119 and Public Law 106–21, the following locations (including air space above) were designated
as a combat zone and
a qualified hazardous duty area beginning March 24, 1999.
Persian Gulf area.
By Executive Order No. 12744, the following locations (and airspace above) were designated as a combat zone beginning
January 17, 1991.
Qualified hazardous duty area.
Beginning November 21, 1995, a qualified hazardous duty area in the former Yugoslavia is treated as if it were a combat
zone. The qualified
hazardous duty area includes:
Note. Members of the Armed Forces deployed overseas away from their permanent duty station in support of operations in a qualified hazardous duty area, but outside the qualified hazardous duty area, are treated as if they are in a combat zone solely for the purposes of the extension of deadlines. These personnel are not entitled to other combat zone tax benefits. However, if they satisfy additional requirements, they may be entitled to full combat zone tax benefits. See Qualifying service outside combat zone, later. Service in a combat zone includes any periods you are absent from duty because of sickness, wounds, or leave. If, as a result of serving in a combat zone, a person becomes a prisoner of war or is missing in action, that person is considered to be serving in the combat zone so long as he or she keeps that status for military pay purposes. Note. You are considered to be serving in a combat zone if you are either assigned on official temporary duty to a combat zone or you qualify for hostile fire/imminent danger pay while in a combat zone. Qualifying service outside combat zone.
Military service outside a combat zone is considered to be performed in a combat zone if:
Nonqualifying presence in combat zone.
None of the following types of military service qualify as service in a combat zone.
If you are an enlisted member, warrant officer, or commissioned warrant officer and you serve in a combat zone during any part of a month, all of your military pay for that month is excluded from your income. You also can exclude military pay earned while you are hospitalized as a result of wounds, disease, or injury incurred in the combat zone. The exclusion of your military pay while you are hospitalized does not apply to any month that begins more than 2 years after the end of combat activities in that combat zone. Your hospitalization does not have to be in the combat zone. If you are a commissioned officer (other than a commissioned warrant officer), you may exclude your pay according to the rules just discussed. However, the amount of your exclusion is limited to the highest rate of enlisted pay (plus imminent danger/hostile fire pay you received) for each month during any part of which you served in a combat zone or were hospitalized as a result of your service there.
You do not need to claim the combat zone exclusion on your tax return because this type of income is not included in the wages reported on your Form W–2. (See Form W–2, below.) Hospitalized while serving in the combat zone.
If you are hospitalized while serving in the combat zone, the wound, disease, or injury causing the hospitalization
will be presumed to have been
incurred while serving in the combat zone unless there is clear evidence to the contrary.
Example. You are hospitalized for a specific disease in a combat zone where you have been serving for 3 weeks, and the disease for which you are hospitalized has an incubation period of 2 to 4 weeks. The disease is presumed to have been incurred while you were serving in the combat zone. On the other hand, if the incubation period of the disease is one year, the disease would not have been incurred while you were serving in the combat zone. Hospitalized after leaving the combat zone.
In some cases, the wound, disease, or injury may have been incurred while you were serving in the combat zone, even
though you were not
hospitalized until after you left.
Form W–2.
The wages shown in box 1 of your 2003 Form W–2 should not include military pay excluded from your income under the
combat zone exclusion
provisions. If it does, you will need to get a corrected Form W–2 from your finance office.
For tax purposes, an alien is an individual who is not a U.S. citizen. An alien is in one of three categories: resident, nonresident, or dual-status. Placement in the correct category is crucial in determining what income to report and what forms to file. Most members of the Armed Forces are U.S. citizens or resident aliens. However, if you have questions about your alien status or the alien status of your dependents or spouse, you should read the information in the following paragraphs and get Publication 519. Under peacetime enlistment rules, you generally cannot enlist in the Armed Forces unless you are a citizen or have been legally admitted to the United States for permanent residence. If you are an alien enlistee in the Armed Forces, you are probably a resident alien. If, under an income tax treaty, you are considered a resident of a foreign country, see your base legal officer. Other aliens who are in the United States only because of military assignments and who have a home outside the United States are nonresident aliens. Guam and Puerto Rico have special rules. Residents of those areas should contact their taxing authority with their questions. You are considered a U.S. resident alien for tax purposes if you meet either the green card test or the substantial presence test for the calendar year (January 1 – December 31). These tests are explained in Publication 519. Generally, resident aliens are taxed on their worldwide income and file the same tax forms as U.S. citizens. Treating nonresident alien spouse as resident alien.
A nonresident alien spouse can be treated as a resident alien if all the following conditions are met.
Making the choice.
Both you and your spouse must sign a statement and attach it to your joint return for the first tax year for which
the choice applies. Include in
the statement:
Ending the choice.
Once you make this choice, it applies to all later years unless one of the following situations occurs.
Choice not made.
If you and your nonresident alien spouse do not make this choice:
An alien who does not meet the requirements to be a resident alien, as discussed earlier, is a nonresident alien. If required to file a federal tax return, nonresident aliens must file either Form 1040NR, U.S. Nonresident Alien Income Tax Return, or Form 1040NR–EZ, U.S. Income Tax Return for Certain Nonresident Aliens With No Dependents. See the form instructions for information on who must file and filing status. Nonresident aliens generally must pay tax on income from sources in the United States. A nonresident alien's income that is from conducting a trade or business in the United States is taxed at graduated U.S. tax rates. Other income from U.S. sources is taxed at a flat 30% (or lower treaty) rate. For example, dividends from a U.S. corporation paid to a nonresident alien generally are subject to a 30% (or lower treaty) rate. An alien may be both a nonresident and resident alien during the same tax year, usually the year of arrival or departure. Dual-status aliens are taxed on income from all sources for the part of the year they are resident aliens. Generally, they are taxed only on income from sources in the United States for the part of the year they are nonresident aliens. Exemptions reduce your income before you figure your tax. There are two types of exemptions.
While both types of exemptions are worth the same amount, different rules apply to each. You generally can claim one exemption for yourself. If you are married and file a joint return, you can claim your own exemption and one for your spouse. If you file a separate return, you can claim the exemption for your spouse only if your spouse had no gross income and was not a dependent of another taxpayer. You also can claim one exemption for each person qualifying as your dependent who meets five specific tests.
You may be eligible to claim an exemption for a child, even if the child has been kidnapped. See Kidnapped child under Exemptions for Dependents in Publication 501. For 2003, you generally can deduct $3,050 for each exemption you claim for yourself, your spouse, and each person who qualifies as your dependent. If another taxpayer can claim an exemption for you or your spouse, you cannot claim that exemption on your tax return. If you can claim an exemption for a dependent, that dependent cannot claim an exemption on his or her own tax return. To claim an exemption for a dependent on your tax return, you must list either the social security number (SSN), individual taxpayer identification number (ITIN), or adoption taxpayer identification number (ATIN) for that person on your return. For more information on exemptions, see Publication 501.
This image is too large to be displayed in the current screen.
Please click the link to view the image. Can You Claim a Dependency Exemption?
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Please click the link to view the image. Can You Claim a Dependency Exemption?
If you do not list the dependent's SSN, ITIN, or ATIN, the exemption may be disallowed. A dependent is a person, other than you or your spouse, who meets the dependency tests. You can claim a dependency exemption if all five of the following tests are met.
Expenses that are not directly related to any one member of a household, such as the cost of food for the household, must be divided among the members of the household. Divorced or separated parents.
Different rules apply to the support test for children of divorced or separated parents. These rules are discussed
in Publication 501.
Dependency allotments.
You can authorize an allotment from your pay for the support of your dependents. The amount is considered as provided
by you in figuring whether
you provide more than half the dependent's support.
Example. Army Sergeant Jeff Banks authorizes an allotment for his widowed mother. She uses the money to support herself and Jeff's 10-year-old sister. If that amount provides more than half their support, Jeff can claim an exemption for each of them, if they otherwise qualify, even though he only authorized the allotment for his mother. Dependent in the Armed Forces.
Generally, an exemption cannot be claimed for a person who is in the Armed Forces or is at one of the Armed Forces
academies for the entire year
because the support test will not have been met. However, if your dependent receives only partial support from the Armed Forces,
you can still claim
the exemption if you provided more than half his or her support and the other tests are met.
Example. Leslie James is 18 and single. She graduated from high school in June 2003 and entered the U.S. Air Force in September 2003. Leslie provided $4,400 (her wages of $3,400 and $1,000 for other items provided by the Air Force) for her support that year. Her parents provided $4,100. Her parents cannot claim a dependency exemption for her for 2003 because they did not provide more than half her support.
Current tax rules that apply when you sell your main home differ from tax rules that applied when you sold your main home before May 7, 1997. Usually, your main home is the one in which you live most of the time. It can be a:
See Publication 523 for more information. You generally can exclude up to $250,000 of gain ($500,000, in most cases, if married filing a joint return) realized on the sale or exchange of a main home in 2003. The exclusion is allowed each time you sell or exchange a main home, but generally not more than once every 2 years. To be eligible, during the 5-year period ending on the date of the sale, you must have owned the home for at least 2 years (the ownership test), and lived in the home as your main home for at least 2 years (the use test). Exception to ownership and use tests.
You can exclude gain, but the maximum amount of gain you can exclude will be reduced if you do not meet the ownership
and use tests due to a move
to a new permanent duty station.
5-year test period suspended.
You can choose to have the 5-year test period for ownership and use suspended during any period you or your spouse
serve on qualified official
extended duty as a member of the Armed Forces. This means that you may be able to meet the 2-year use test even if, because of your service,
you
did not actually live in your home for at least the required 2 years during the 5-year period ending on the date of sale.
Example. David bought and moved into a home in 1995. He lived in it as his main home for 2½ years. For the next 6 years, he did not live in it because he was on qualified official extended duty with the Army. He then sold the home at a gain in 2003. To meet the use test, David chooses to suspend the 5-year test period for the 6 years he was on qualifying official extended duty. This means he can disregard those 6 years. Therefore, David's 5-year test period consists of the 5 years before he went on qualifying official extended duty. He meets the ownership and use tests because he owned and lived in the home for 2½ years during this test period. Period of suspension.
The period of suspension cannot last more than 10 years. You cannot suspend the 5-year period for more than one property
at a time. You can revoke
your choice to suspend the 5-year period at any time.
Qualified official extended duty.
You are on qualified official extended duty if you serve on extended duty either:
Claiming a refund for a prior-year home sale.
This rule for suspending the 5-year period became law in 2003 but applies to any sale of a main home after May 6,
1997. Therefore, you may be
entitled to claim a refund if this rule applies to you and you paid tax on a gain from the sale of a home after that date.
If you are entitled to a
refund, complete and file Form 1040X, Amended U.S. Individual Income Tax Return. At the top of Form 1040X, write “Military Family Tax
Relief Act” in red.
The rules in this section apply to you only if you sold your main home at a gain before May 7, 1997, and all three of the following statements are true.
Gain.
If you had a gain from the sale, you had to include it in your income for the year of sale, except for any part you
postponed or excluded.
Under the rules of this section, you were required to postpone tax on the gain on the sale of your main home before May 7, 1997, if both of the following were true.
Also, if you were age 55 or older on the date of sale and met certain other qualifications, no tax applied to any gain you chose to exclude (on line 14 of Form 2119). This section explains the time allowed for replacing your main home (the replacement period) and how to determine the taxable gain, if any. The main topics in this section are:
Tax postponed, not forgiven.
The tax on the gain is postponed, not forgiven. You subtract any gain that is not taxed in the year you sell your
old home from the cost of your
new home. This gives you a lower basis in the new home.
Example. You sold your home in February 1997 for $90,000 and had a $5,000 gain. You were a member of the Armed Forces stationed outside the United States until your return in 2003. In January 2003, within the time allowed for replacement, you bought another home for $203,000 and moved into it. The $5,000 gain was not taxed in 1997, but you must subtract it from the $203,000. This makes the basis of your new home $198,000. If you later sell the new home for $210,000, your gain will be $12,000 ($210,000 - $198,000). Your replacement period is the time period during which you must replace your old home to postpone any of the gain from its sale. It starts 2 years before and ends 2 years after the date of sale unless the replacement period was suspended. Example. You sold your old home on April 27, 1997. You had until April 27, 1999, to buy and move into a new home that you use as your main home, unless you qualified for a suspension of the replacement period. Suspension of replacement period.
The 2-year replacement period after the sale may still be suspended only for members of the Armed Forces stationed
outside the United States.
Serving on extended active duty.
The replacement period after the sale of your old home is suspended while you serve on extended active duty in the
Armed Forces. You are on
extended active duty if you are serving under a call or order for more than 90 days or for an indefinite period. The suspension
applies only if your
service begins before the end of the 2-year replacement period. The replacement period, plus any period of suspension, is
limited to 4 years
after the date you sold your old home, unless you are stationed outside the United States.
Stationed outside the United States.
The suspension of the replacement period after the sale of your old home is extended for up to an additional 4 years
while you are:
Example. You are a regular member of the Armed Forces and sold your home on May 1, 1997. During the 4 years from April 1, 1997, to April 1, 2001, you served outside the United States. When you returned, you were stationed at a remote site and were required to live on base because off-base housing was not available. The time to replace your home was suspended:
The requirement that you live on base ended on October 31, 2002. The suspension period will expire October 31, 2003. You have less than the full 2-year replacement period to buy or build and occupy a new home. This is because your replacement period plus your 6½-year period of suspension is limited to 8 years after the sale of your old home. Therefore, your replacement period ends on April 1, 2005. Spouse in Armed Forces.
If your spouse is in the Armed Forces and you are not, the suspension also applies to you if you owned the old home.
Both of you must have used the
old home and must use the new home as your main home. However, if you are divorced or separated while the replacement period
is suspended, the
suspension ends for you on the date of the divorce or separation.
Combat zone service.
The running of the replacement period (including any suspension) is suspended for any period you served in a combat
zone. See Combat Zone
Exclusion, earlier, for the definition of a combat zone and when service is considered to have been performed in a combat zone.
When suspension ends.
This suspension ends 180 days after the later of:
Example. Sergeant James Smith, on extended active duty in an Army unit stationed in Virginia, had a gain from the sale of his home on April 4, 1997. He had not yet purchased a new home when he entered a combat zone on January 4, 1999. He left the combat zone on January 4, 2000, and returned with his unit to Virginia. He remains on active duty in Virginia. Sergeant Smith's replacement period began on April 4, 1997, the date he sold the home. When he entered the combat zone on January 4, 1999, Sergeant Smith had used 21 months of the replacement period. The replacement period was then suspended for the time he served in the combat zone plus 180 days. The replacement period started again on July 3, 2000, after the end of the 180-day period (January 5, 2000, to July 2, 2000) following his last day in the combat zone. Sergeant Smith then has 27 months remaining in his replacement period (4 years or 48 months minus the 21 months already used). His replacement period ends October 2, 2002 (27 months after July 2, 2000). Spouse.
The suspension for service in a combat zone generally applies to your spouse (even if you file separate returns).
However, any suspension because
of your hospitalization within the United States does not apply to your spouse. Also, the suspension for your spouse does
not apply for any tax year
beginning more than 2 years after the last day the area qualified as a combat zone.
Home not replaced within replacement period.
If you do not replace the home in time and you had postponed gain in the year of sale, you must file an amended return
for the year of sale. You
must include in your income the entire gain on the sale of your old home. For details, see What To Report Now, later.
Occupancy test.
You must physically live in the new home as your main home within the replacement period. If you move furniture or
other personal belongings into
the new home but do not actually live in it, you have not met the occupancy test.
No added time is allowed.
To postpone gain on the sale of your home, you must replace the old home and occupy the new home within the specified
period. You are not allowed
any additional time, even if conditions beyond your control keep you from doing it. For example, destruction of the new home
while it was being built
would not extend the replacement period.
To figure the taxable gain and postponed gain from the sale of your old home, compare the adjusted sales price of your old home with the cost of your new home, as shown in the following chart.
Adjusted sales price.
This is the amount realized from the sale of your old home minus:
Fixing-up expenses.
Fixing-up expenses are decorating and repair costs that you paid to sell your old home. For example, the costs of
painting the home, planting
flowers, and replacing broken windows are fixing-up expenses. Fixing-up expenses must meet all the following conditions. The
expenses:
Note. You subtract fixing-up expenses from the amount realized only in figuring the part of the gain that you postpone. You cannot use them in figuring the actual gain on the sale. Example. Your old home had a basis of $55,000. You signed a contract to sell it on December 17, 1996. On January 7, 1997, you sold it for $71,400. Selling expenses were $5,000. During the 90-day period ending December 17, 1996, you had the following work done. You paid for the work within 30 days after the date of sale.
Within the replacement period, you bought and lived in a new home that cost $64,600. You figure the gain postponed and not postponed, and the basis of your new home, as follows:
Property used partly as your home and partly for business or rental.
You may use part of your property as your home and part of it for business or to produce income. If you sell the entire
property, you should
consider the transaction as the sale of two properties. You postpone the gain only on the part used as your home. This includes
the land and
outbuildings, such as a garage for the home, but not those used for the business or the production of income.
Home changed to rental property.
You cannot postpone tax on the gain on rental property, even if you once used it as your home. The rules explained
in this publication generally
will not apply to sale of rental property. Gains are taxable and losses are deductible as explained in Publication 544.
Temporary rental of home before sale.
You have not changed your home to rental property if you temporarily rented your old home before selling it, or your
new home before living in it,
as a matter of convenience or for another nonbusiness purpose. You postpone the tax on the gain from the sale if you meet
the requirements explained
earlier.
Failed attempt to rent home.
If you placed your home with a real estate agent for rent or sale and it was not rented, it is not considered business property or
property held for the production of income. The postponement of gain rules explained in this publication will apply to the
sale.
Your new home must be your main home. See the explanation of main home, earlier. You must include in income any gain from the sale of your old home if you replace it with property that is not your main home. New home outside the United States.
A new home outside the United States qualifies as a new home for purposes of postponing gain. You must buy or build
and live in the new home as
your main home within the time allowed for replacement.
Retirement home.
You have not purchased a new home if you invest in a retirement home project that gives you living quarters and personal
care but does not give you
any legal interest in the property. Therefore, you must include in income any gain on the sale of your old home. However,
if you were age 55 or older
on the date of the sale, you may have been able to claim a one-time exclusion (line 14 of Form 2119).
Title to new home not held by you or spouse.
You have not purchased a new home if you invest in a home in which neither you nor your spouse holds any legal interest
(for example, a house to
which someone else, such as your child, holds the title).
Holding period.
If you postponed tax on any part of the gain from the sale of your old home, you will be considered to have owned
your new home for the combined
period you owned both the old and the new homes. This may affect how any taxable gain when you sell the new home is reported
on Schedule D (Form
1040).
How To Figure Cost of New Home You need to know the cost of your new home to figure the gain taxed and the gain on which tax is postponed on the sale of your old home. The cost of your new home includes costs incurred during the replacement period for the following items:
You cannot consider any costs incurred before or after the replacement period. However, you can include any costs incurred during the suspension period (discussed under Replacement Period, earlier). Debts on new home.
The cost of a new home includes the debts it is subject to when you buy it (purchase-money mortgage or deed of trust)
and the face amount of notes
or other liabilities you give for it.
Temporary housing.
If a builder gives you temporary housing while your new home is being finished, you must reduce the contract price
to arrive at the cost of the new
home. To figure the amount of the reduction, multiply the contract price by a fraction. The numerator (top number) is the
value of the temporary
housing, and the denominator (bottom number) is the sum of the value of the temporary housing plus the value of the new home.
Seller-paid points.
In figuring the cost of your new home, you must subtract any points paid by the seller from your purchase price.
Settlement fees or closing costs.
The cost of your new home includes the settlement fees and closing costs that you can include in your basis. See Settlement fees or closing
costs under Basis, in Publication 523.
Real estate taxes.
If you agreed to pay taxes the seller owed on your new home (that is, taxes up to the date of sale), the taxes you
paid are treated as part of the
cost. For more information, see Real Estate and Transfer Taxes in Publication 523.
New home used partly for business or rental.
If you replace your old home with property used partly as your home and partly for business or rental, you consider
only the cost of the part used
as your home. You must compare the cost of this part to the adjusted sales price of the old home to determine the amount of
gain taxed in the year of
sale and the amount of gain on which tax is postponed.
Example. Your old home had a basis of $50,000. You sold it in February 1997 for a gain of $25,000. Your adjusted sales price is $75,000. Before your replacement period ended, you bought a duplex house for $120,000. You live in half and rent the other half. Only half of the cost of the duplex ($60,000) is considered an investment in a new main home, so you are taxed on $15,000 ($75,000 adjusted sales price - $60,000 cost) of the $25,000 gain on the sale. You must postpone tax on $10,000 of the gain reinvested in your new home. The basis of your new home is $50,000 ($60,000 cost - $10,000 postponed gain). The basis of the rented part of the duplex is $60,000. Inheritance or gift.
If you receive any part of your new home as a gift or an inheritance, you cannot include the value of that part in
the cost of the new home when
figuring the gain taxed in the year of sale and the gain on which tax is postponed. However, you include the basis of that
part in your adjusted basis
to determine any gain when you sell the new home.
Example. You bought a home in 1992 for $60,000. You sold that home in March 1997 for $65,000, at a gain of $5,000. You had fixing-up expenses of $200. Later, your father died and you inherited his home. Its basis to you is $62,000. You spent $14,000 to modernize the home, resulting in an adjusted basis to you of $76,000. You moved into the home before your replacement period ended. To find the gain taxed in the year of the sale, you compare the adjusted sales price of the old home, $64,800 ($65,000 - $200), with the $14,000 you invested in your new home. (For this purpose, you do not include the value of the inherited part of your property, $62,000, in the cost of your new home.) The $5,000 gain is fully taxed because the adjusted sales price of the old home is more than the amount you paid to remodel your new home, and the difference between the two amounts is more than $5,000. Certain Sales by Married Persons This section explains how married persons figure their postponed gain in certain situations. You may be able to postpone gain from the sale of your old home even if:
You and your spouse can figure the postponed gain, which reduces the basis of the new home, as if the two of you owned both homes jointly. To do this, both of you must meet both of the following requirements.
Both of you must sign the statement. You can make the statement in the bottom margin on page 1 of Form 2119 or on an attached sheet. If either of you does not sign the statement, you must report the gain in the regular way, as explained in the following example. Example. In April 1997, you sold a home that you owned separately but that both you and your spouse used as your main home. The adjusted sales price was $98,000, the adjusted basis was $86,000, and the gain on the sale was $12,000. Before the replacement period ends, you and your spouse buy a new home for $100,000. You move in immediately. The title is held jointly, and under state law, you each have a one-half interest. If you both sign the statement to reduce the basis of the new home, you postpone the gain on the sale as if you had owned both the old and new homes jointly. You and your spouse will each have an adjusted basis of $44,000 ($50,000 cost minus $6,000 postponed gain) in the new home. If either of you does not sign the statement, your entire gain of $12,000 will be currently taxed, not postponed. This is because the adjusted sales price of the old home ($98,000) is greater than your part of the cost of the new home ($50,000). You and your spouse will each have a basis of $50,000 in the new home. Deceased spouse.
If your spouse died after you sold your old home and before you bought and occupied a new home, you can postpone the
gain from the sale of the old
home if the basic requirements are met, and:
Separate homes replaced by single home.
If you and your spouse both had gains from the sales of homes that had been your separate main homes before your marriage,
you may have to postpone
the tax on both gains. This can happen if all of the following are true.
Home replaced by two homes of spouses living apart.
If you and your spouse sell a jointly-owned home and each of you then buys and lives in separate new homes, the postponement
provisions apply
separately to your gain and to your spouse's gain.
Only one spouse buys a new home.
Even if your spouse does not buy a new home within the replacement period, you still should report only your share
of any gain from the sale of the
old home. You postpone your share of the gain if you meet all the requirements to do so, even though your spouse cannot postpone
his or her share.
If the rules for sales before May 7, 1997, apply to you, the reporting requirements you may have are explained here. Form 2119.
For sales before 1998, Form 2119 was used to report the sale of an old home and any purchase of a new one within the
replacement period. You should
have filed Form 2119 with your tax return for the year you sold your old home. If you filed your return for that year before
buying a new home, you
also may have to file a second Form 2119 when you do buy your new home. If you need Form 2119 for that purpose, you still
can order it from the IRS.
See How to Get Tax Help, later.
Loss reported on sale.
If you reported a loss on the sale of your home, do not file a second Form 2119 if you later buy a new home. The loss
on the sale was not
deductible and has no effect on the basis of your new home.
New home purchased after return filed.
If you postponed gain from the sale of your old home and you buy and live in a new home after you file your return
for the year of the sale but
within the replacement period, you should notify the IRS by filing a second Form 2119 and, if necessary, Form 1040X and Schedule
D.
New home costs at least as much as adjusted sales price.
If your new home costs at least as much as the adjusted sales price of your old home, file the second Form 2119 by
itself. This form must include
your address, signature, and the date. If you filed a joint return for the year of sale, the form also must include your spouse's
signature.
New home costs less.
If your new home costs less than the adjusted sales price of the old home, you must file an amended return (Form 1040X)
for the year of sale.
Attach a second completed Form 2119 to report the purchase and Schedule D (Form 1040) showing the gain you must report. You
will have to pay interest
on any additional tax due. The interest generally is figured from the due date of the original return.
No new home within replacement period.
If you postponed gain on the sale of your old home because you planned to replace it but you do not replace it within
the replacement period, you
must file a second Form 2119. Attach it to your amended return (Form 1040X) for the year of the sale. Include a Schedule D
(Form 1040) to report your
gain.
Divorce after sale.
If you are divorced after filing a joint return on which you postponed the gain on the sale of your home, but you
do not buy or build a new home
(and your former spouse does), you must file an amended joint return to report the tax on your share of the gain. If your
former spouse refuses to
sign the amended joint return, attach a letter explaining why your former spouse's signature is missing.
Statute of limitations.
The 3-year limit for assessing tax on the gain from the sale of your home begins when you give the IRS information
that shows:
Example.
Frank and Evelyn Smith sold their home on May 1, 1997, for $87,000. They spent $500 on fixing-up expenses and paid
a commission on the sale of
$5,200. Neither Frank nor Evelyn was 55 or older on the date of the sale. They planned to buy a replacement home but had not
bought one before they
filed their 1997 tax return.
To figure your taxable income, you must subtract either your standard deduction or your itemized deductions from adjusted gross income. For information on the standard deduction, get Publication 501. Itemized deductions are figured on Schedule A (Form 1040). This chapter discusses itemized deductions of particular interest to members of the Armed Forces. For information on other itemized deductions, get the publications listed below.
Miscellaneous Itemized Deductions You must reduce the total of most miscellaneous itemized deductions by 2% of your adjusted gross income. For information on deductions that are not subject to the 2% limit, get Publication 529. Deductible employee business expenses are miscellaneous itemized deductions subject to the 2% limit. For information on employee business expenses, get Publication 463. Generally, you must file Form 2106, Employee Business Expenses, or Form 2106–EZ, Unreimbursed Employee Business Expenses, to claim these expenses. You do not have to file Form 2106 or Form 2106–EZ if you are claiming only unreimbursed expenses for uniforms, professional society dues, and work-related educational expenses (all discussed later). You can deduct these expenses directly on Schedule A (Form 1040). Reimbursement.
Generally, to receive advances, reimbursements, or other allowances from the government, you must adequately account
for your expenses and return
any excess reimbursement. Amounts that are not excess reimbursements that you receive under an accountable plan are not included
on your Form
W–2. Your reimbursed expenses are not deductible.
For 2003, the standard mileage rate is 36 cents a mile for all business miles driven. This rate is adjusted periodically. Travel expenses.
You can deduct unreimbursed travel expenses only if they are incurred while you are traveling away from home. If you
are a member of the U.S. Armed
Forces on a permanent duty assignment overseas, you are not traveling away from home. You cannot deduct your expenses for
meals and lodging while at
your permanent duty station. You cannot deduct these expenses even if you have to maintain a home in the United States for
your family members who are
not allowed to accompany you overseas. (A naval officer assigned to permanent duty aboard a ship that has regular eating and
living facilities has a
tax home aboard ship for travel expense purposes.)
Away from home.
Home is your permanent duty station (which can be a ship or base), regardless of where you or your family live. You
are away from home if you are
away from your permanent duty station substantially longer than an ordinary day's work and you need to get sleep or rest to
meet the demands of your
work while away from home.
Examples of deductible travel expenses include:
You cannot deduct any expenses for travel away from home if the temporary assignment in a single location is realistically expected to last (and does in fact last) for more than 1 year. This rule may not apply if you are participating in a federal crime investigation or prosecution. For more information, see Publication 463 and the Form 2106 instructions. Transportation expenses.
Transportation expenses are the ordinary and necessary costs you have to get from one workplace to another while not
traveling away from home and
for certain other business-related transportation. These expenses include the costs of transportation by air, bus, rail, taxi,
and driving and
maintaining your car. Transportation expenses incurred while traveling away from home are travel expenses. However, if you
use your car while
traveling away from home overnight, see the rules in chapter 4 of Publication 463 to figure your car expense deduction.
Temporary work location.
If you have one or more regular places of business away from your home and you commute to a temporary work location
in the same trade or business,
you can deduct the expenses of the daily round-trip transportation between your home and the temporary location.
Armed Forces reservists.
A meeting of an Armed Forces reserve unit is a second place of business if the meeting is held on a day on which you
work at your regular job. You
can deduct the expense of getting from one workplace to the other. You usually cannot deduct the expense if the reserve meeting
is held on a day on
which you do not work at your regular job. In this case, your transportation generally is a nondeductible commuting expense.
However, you can deduct
your transportation expenses if the location of the meeting is temporary and you have one or more regular places of work.
Uniforms.
You usually cannot deduct the expenses for uniform cost and upkeep. Generally, you must wear uniforms when on duty
and you are allowed to wear them
when off duty.
Professional dues.
You can deduct dues paid to professional societies directly related to your military position. However, you cannot
deduct amounts paid to an
officers' club or a noncommissioned officers' club.
Qualifications.
You can deduct the costs of qualifying education. This is education that meets at least one of the following two tests.
Example 1. Lieutenant Colonel Mason has a degree in financial management and is in charge of base finances at her post of duty. She took an advanced finance course. She already meets the minimum qualifications for her job. By taking the course, she is improving skills in her current position. The course does not qualify her for a new trade or business. She can deduct educational expenses that are more than the educational allowance she received. Example 2. Major Williams worked in the military base legal office as a legal intern. He was placed in excess leave status by his employer to attend law school. He paid all his educational expenses and was not reimbursed. After obtaining his law degree, he passed the state bar exam and worked as a judge advocate. His educational expenses are not deductible because the law degree qualified him for a new trade or business, even though the education maintained and improved his skills in his work. Travel expenses.
You cannot deduct the cost of travel that is itself a form of education, even if it is directly related to your duties
in your work or business.
However, if your educational expenses qualify as a deduction, travel for that education, including transportation, meals (subject
to the 50% limit),
and lodging, can be deducted. Educational services provided in kind, such as base-provided transportation to or from class,
are not deductible.
After you have figured your taxable income and tax liability, you can determine if you are entitled to any tax credits. Most tax credits do not have special rules for members of the Armed Forces. However, the earned income credit and the child tax credit may be of interest to you. The earned income credit (EIC) is a special credit for certain persons who work. The credit reduces the amount of tax you owe (if any). It may also give you a refund.
If you claim the EIC and it is later disallowed, you may have to complete an additional form if you want to claim the credit in a following year. See chapter 5 in Publication 596 for more information, including how to claim the EIC after disallowance. Persons With a Qualifying Child If you have a qualifying child, you must meet all the following rules to claim the earned income credit.
Qualifying child of more than one person.
Sometimes, a child meets the rules to be a qualifying child of more than one person. However, only one person can
treat that child as a qualifying
child and claim the EIC using that child. The paragraphs that follow will help you decide who can claim the EIC when more
than one person has the same
qualifying child.
You can choose which person will claim the EIC.
If you and someone else have the same qualifying child, you and the other person(s) can decide who will claim the credit using that
qualifying child. However, if you and the other person(s) cannot agree and more than one person claims the credit using the
same child, the
tie-breaker rule (explained in the next paragraph) applies. If the other person is your spouse and you file a joint return, this rule does
not apply.
Tie-breaker rule.
Under the tie-breaker rule, the child will be treated as a qualifying child only by:
If another person claims the EIC using this child.
If your qualifying child is treated under this rule as the qualifying child of another person for 2003, you cannot
take the EIC using this
qualifying child.
Qualifying child of another person.
If you are a qualifying child of another person, you cannot claim the credit—no matter how many qualifying children
you have.
How to report.
If you meet all these rules, fill out Schedule EIC and attach it to either Form 1040 or Form 1040A. Also, complete
the worksheet in the
instructions for Form 1040 or Form 1040A to figure the amount of your credit. If you have a qualifying child, you cannot claim
the credit on Form
1040EZ.
Social security number.
You must provide a correct and valid social security number (SSN) issued by the Social Security Administration for
yourself, your spouse, and any
qualifying child. If a social security card for you, your spouse, or your qualifying child says “Not valid for employment” and the SSN was issued
only so that you (or your spouse or child) could get a federally funded benefit, you cannot get the credit.
If an SSN for you, your spouse, or your qualifying child is missing from your tax return, or is incorrect, you may not get the credit. Married persons.
Married persons usually must file a joint return to claim the earned income credit. Your filing status cannot be “married filing separately.”
You have a qualifying child if your child meets three tests:
Relationship test.
To meet the relationship test, the child must be your:
Adopted child.
A child you legally adopt or who is placed with you by an authorized placement agency for adoption is treated the
same as your child by blood.
Married child.
Generally, a married child can be your qualifying child only if you can claim an exemption for the child. If you cannot
claim an exemption for your
married child, he or she still can be your qualifying child if the only reason you cannot claim the exemption is one of the
following.
Residency test.
To meet the residency test:
Birth or death of a child.
The child is considered to have lived with you for all of 2003 if:
Temporary absences.
Count time that you or the qualifying child is away from home on a temporary absence due to a special circumstance
as time lived at home. Examples
of special circumstances include:
Age test.
The age test is met if your child is:
Persons Without a Qualifying Child If you do not have a qualifying child, you can take the credit if you meet all the following rules.
How to report.
If you meet all of these rules, fill out the EIC worksheet in your tax forms instructions to figure the amount of
your credit.
For purposes of the earned income credit, earned income includes:
For purposes of the earned income credit, earned income does not include:
IRS Will Figure Your Credit for You There are certain instructions you must follow before the IRS can figure the credit for you. See Publication 967, The IRS Will Figure Your Tax.
You must meet all the following rules to qualify for the advance earned income credit in 2004. You must meet all of the following requirements.
If you expect to qualify for the earned income credit for 2004, you can choose to get part of the credit in advance by giving a completed 2004 Form W–5 to your appropriate finance office. The credit will be included regularly in your pay. If you received advance earned income credit payments in 2003, you must file either Form 1040 or Form 1040A for 2003 to report the payments. The child tax credit reduces your tax. If you have children, you may be able to take a child tax credit on your tax return for each of your qualifying children.
The child tax credit is not the same as the credit for child and dependent care expenses. See Publication 503 for more information on the credit for child and dependent care expenses. A qualifying child for purposes of the child tax credit must be all of the following.
Adopted child.
A child placed with you by an authorized placement agency for legal adoption is an adopted child even if the adoption
is not final.
Eligible foster child.
An eligible foster child is any child you cared for as your own and who is placed with you by an authorized placement
agency.
Note. A child who was born or died in 2003 is considered to have lived with you for all of 2003 if your home was the child's home for the entire time he or she was alive during 2003. The maximum credit that you can claim is $1,000 for each qualifying child. Limits on the credit.
You must reduce your child tax credit if either (1) or (2), below, applies.
Modified AGI.
For purposes of the child tax credit, your modified AGI is your AGI plus the following amounts that may apply to you.
To claim the child tax credit, you must file Form 1040 or Form 1040A. You must provide the name and identification number (usually a social security number) on your tax return for each qualifying child. Answer the Questions in your form instructions for line 49 (Form 1040) or line 33 (Form 1040A) to find out which child tax credit worksheet you can use to compute the credit.
If you answer Yes to question 1, 2, or 3 in your Form 1040 instructions or question 1 or 2 in your Form 1040A instructions, you must complete the Child Tax Credit Worksheet in Publication 972, Child Tax Credit. For more information on the child tax credit, see the instructions for Form 1040 or Form 1040A. This credit is for certain individuals who get less than the full amount of the child tax credit. The additional child tax credit may give you a refund even if you do not owe any tax. How to claim the additional child tax credit.
To claim the additional child tax credit, follow the steps below.
If a member of the Armed Forces dies, a surviving spouse or personal representative handles duties such as filing any tax returns and claims for refund of withheld or estimated tax. A personal representative can be an executor, administrator, or anyone who is in charge of the decedent's assets. This section discusses the special tax provisions that apply to individuals who:
For information on the tax relief provisions that apply to individuals who died as a result of the terrorist attacks on April 19, 1995 (Oklahoma City), or September 11, 2001, or the terrorist attacks involving anthrax, see Publication 3920. For other information concerning decedents, get Publication 559. If a member of the U.S. Armed Forces dies while in active service in a combat zone or from wounds, disease, or other injury received in a combat zone, the decedent's income tax liability is forgiven for the tax year in which death occurred and for any earlier tax year ending on or after the first day the member served in a combat zone in active service. (Forgiven tax is tax that does not have to be paid.) Any forgiven tax liability that has already been paid will be refunded, and any unpaid tax liability at the date of death will be forgiven. In addition, any unpaid taxes for prior years will be forgiven and any prior year taxes paid after the date of death will be refunded. This provision also applies to a member of the Armed Forces serving outside the combat zone if the service:
For a description of combat zone, see Combat Zone, earlier. Missing status.
The date of death for a member of the Armed Forces who was in a missing status (missing in action or prisoner of war)
is the date his or her name
is removed from missing status for military pay purposes. This is true even if death actually occurred earlier.
Terrorist or Military Action
Tax liability is forgiven for an individual who:
Beginning in 2001, tax liability is forgiven for an individual who dies from wounds or injury incurred while a U.S. employee in a terrorist or military action regardless of where the terrorist or military action occurred. The forgiveness applies to the tax year death occurred and for any earlier tax year beginning with the year before the year in which the wounds or injury occurred. A terrorist or military action is any terrorist activity primarily directed against the United States or its allies or any military action involving the U.S. Armed Forces resulting from violence or aggression against the United States or its allies. Any multinational force in which the United States participates is considered an ally of the United States. Example. Army Private John Kane died in 2003 of wounds incurred in a terrorist attack in 2002. His income tax liability is forgiven for all tax years from 2001 through 2003. Refunds are allowed for the tax years for which the period for filing a claim for refund has not ended. If the tax-forgiveness provisions apply to a prior year's tax that has been paid and the period for filing a refund claim has not ended, the tax will be refunded. If any tax is still due, it will be canceled. Generally, the period for filing a claim for credit or refund of income tax is 3 years from the time the return was filed or 2 years from the time the tax was paid, whichever is later. If death occurred in a combat zone or from wounds, disease, or injury incurred in a combat zone, the deadline for filing a claim for credit or refund is extended using the rules discussed later under Extension of Deadline. Procedures for claiming forgiveness.
If the individual died in a combat zone or as a result of a terrorist or military action, use the following procedures
for filing a claim for
income tax forgiveness.
Necessary documents.
The following documents must accompany all returns and claims for refund (other than returns and claims relating to
individuals who died as a
result of the Oklahoma City, September 11, 2001, or anthrax terrorist attacks, that are discussed in Publication 3920).
U.S. Postal Service.
If you use the U.S. Postal Service, file these returns and claims at the following address.
Designated private delivery service.
Private delivery services cannot deliver items to P.O. boxes. If you use a private delivery service, file these returns
and claims at the following
address.
Joint returns.
Only the decedent's part of the joint income tax liability is eligible for the refund or tax forgiveness. To determine
the decedent's part, the
person filing the claim must:
Residents of community property states.
If the member of the Armed Forces was domiciled in a community property state and the spouse reported half the military
pay on a separate return,
the spouse can get a refund of taxes paid on his or her share of the pay for the years involved. The forgiveness of unpaid
tax on the military pay
also would apply to the half owed by the spouse for the years involved.
This section discusses the special procedures for military personnel when filing federal tax returns. For information on filing returns for those involved in a combat zone, see Extension of Deadline, later. Send your federal tax return to the Internal Revenue Service center for the place where you live. For example, Sgt. Kane, who is stationed in Maine but whose permanent home address is in California, should send her federal return to the service center for Maine. The instructions for Forms 1040, 1040A, and 1040EZ give the addresses for the service centers. If you are overseas and have an APO or FPO address, file your return with the Internal Revenue Service Center, Philadelphia, PA 19255–0215. Most individual tax returns cover a calendar year, January through December. The regular due date for these tax returns is April 15 of the following year. If April 15 falls on a Saturday, Sunday, or legal holiday, your tax return is considered timely filed if it is filed by the next business day that is not a Saturday, Sunday, or legal holiday. For 2003 tax returns, the due date is April 15, 2004. You can receive an extension of time to file your return. Different rules apply depending on whether you live inside or outside the United States. Inside the United States.
You can receive an automatic 4-month extension to file your return if you file Form 4868 by the regular due date of
your return. You can file it
electronically or on paper. See Form 4868 for details.
When you file your return.
Enter the amount you paid on line 66, Form 1040. On Form 1040A, include the amount in the total on line 43. On Form
1040EZ, include the amount in
the total on line 9. To the left of line 43 or line 9, enter “Form 4868” and show the amount paid.
Outside the United States and Puerto Rico.
If you are a U.S. citizen or resident alien, you can qualify for an automatic extension of time until June 15 without
filing Form 4868 if either of
the following situations applies to you.
Joint returns.
For married persons filing a joint return, only one spouse needs to meet the requirements to take advantage of the
automatic extension to June 15.
Separate returns.
For married persons filing separate returns, only the spouse who meets the requirements qualifies for the automatic
extension to June 15.
Payment of tax.
An extension of time to file does not mean you have an extension of time to pay any tax due. You must estimate your
tax due. You do not have to
send in any payment of tax due when you file Form 4868. However, if you pay the tax after the regular due date, you will be
charged interest from the
regular due date to the date the tax is paid. You also may be charged a penalty for paying the tax late unless you have reasonable
cause for not
paying your tax when due.
Exception.
If you are a member of the Armed Forces, you may qualify to defer (delay) payment of income tax that becomes due before
or during your military
service. You must notify the Internal Revenue Service that your ability to pay the income tax has been materially affected
by your military service.
Additional extension beyond August 15.
You can request an extension beyond the 4-month extension by filing Form 2688 or by writing a letter to the IRS. Except
in undue hardship cases,
this additional extension will be granted only if Form 4868 has already been filed. Form 2688 or your letter will not be considered
if it is filed
after the extended due date. If you file Form 2688 and are granted an extension and the IRS discovers that the information
you gave was false or
misleading, the extension is void. You may then be subject to a penalty for filing late.
If you are unable to pay the tax owed by the end of the extension period, you may want to file Form 9465 to arrange an installment payment agreement with the IRS that reflects your ability to pay the tax owed. Generally, you must sign your return. However, if you are overseas or incapacitated, you can grant a power of attorney to an agent to file and sign your return. If you are acting on behalf of someone serving in a combat zone, see Filing Returns for Combat Zone or Contingency Operation Participants, later. A power of attorney also can be granted by filing Form 2848. These forms are available at your nearest legal assistance office. While other power of attorney forms may be used, they must contain the information required by Form 2848. In Part I of the form, you must indicate that you are granting the power to sign the return, the tax form number, and the tax year for which the form is being filed. Attach the power of attorney to the tax return. Joint returns.
Generally, joint returns must be signed by both spouses. However, when a spouse is overseas, in a combat zone or qualified
hazardous duty area, in
a missing status, incapacitated, or deceased, a power of attorney may be needed to file a joint return.
Spouse overseas.
If one spouse is overseas on military duty, there are two options when filing a joint return.
Spouse in combat zone/qualified hazardous duty area.
If your spouse is unable to sign the return because he or she is serving in a combat zone/qualified hazardous duty
area or is performing qualifying
service outside of a combat zone/qualified hazardous duty area, and you do not have a power of attorney or other statement,
you can sign for your
spouse. Attach a signed statement to your return that explains that your spouse is serving in a combat zone.
Spouse in missing status.
The spouse of a member of the Armed Forces who is in a missing status in a combat zone can still file a joint return.
A joint return can be filed
for any year beginning not more than 2 years after the end of the combat zone activities. A joint return filed under these
conditions is valid even if
it is later determined that the missing spouse died before the year covered by the return.
Spouse incapacitated.
If your spouse cannot sign because of disease or injury and he or she tells you to sign, you can sign your spouse's
name in the proper space on the
return, followed by the words “by [your name], Husband (or Wife).” Be sure to sign your name in the space provided for your signature. Attach a
dated statement, signed by you, to your return. The statement should include the form number of the return you are filing,
the tax year, the reason
your spouse could not sign, and that your spouse has agreed to your signing for him or her.
Spouse died during the year.
If one spouse died during the year and the surviving spouse did not remarry before the end of the year, the surviving
spouse can file a joint
return for that year writing in the signature area “Filing as surviving spouse.” If an executor or administrator has been appointed, both he or
she and the surviving spouse must sign the return filed for the decedent.
In general, military personnel follow the same rules as other taxpayers concerning tax refunds. See your tax form instructions for information on what to do if you do not receive an expected refund and how to call to check on your refund status.
Use Form 8822 to notify the IRS if you move or change your address after filing your return. See How To Get Tax Help, near the end of this publication, for information about getting this form. Certain periods of time are disregarded when determining whether certain tax matters have been taken care of on time. For ease of understanding, this publication refers to these provisions as “extensions of deadlines.” These deadline extensions should not be confused with other parts of the tax law that refer to extensions of time for performing acts. Service That Qualifies for an
The deadline for filing tax returns, paying taxes, filing claims for refund, and taking other actions with the IRS is automatically extended if any of the following statements is true.
The deadline for IRS to take certain actions, such as collection and examination actions, is also extended. See Combat Zone, earlier, for the beginning dates for the Afghanistan area combat zone, the Kosovo area combat zone, the Persian Gulf area combat zone, and the qualified hazardous duty areas. Deadline extension period.
Your deadline for taking actions with the IRS is extended for 180 days after the later of:
Example 1. Captain Margaret Jones entered Saudi Arabia on December 1, 2001. She remained there through March 31, 2003, when she departed for the United States. She was not injured and did not return to the combat zone. The deadlines for filing Captain Jones' 2001, 2002, and 2003 returns are figured as follows.
Example 2. Petty Officer Leonard Brown's ship entered the Persian Gulf on January 5, 2002. On February 15, 2002, Leonard was injured and was flown to a U.S. hospital. He remained in the hospital through April 21, 2003. The deadlines for filing Petty Officer Brown's 2001, 2002, and 2003 returns are figured as follows.
Example 3. You generally have 3 years from April 15, 2000, to file a claim for refund against your timely filed 1999 tax return. This means that your claim normally must be filed by April 15, 2003. However, if you served in a combat zone from November 1, 2002, through March 23, 2003, and were not injured, your deadline for filing that claim is extended 346 days (180 plus 166) after you leave the combat zone. This extends your deadline to March 4, 2004. The 166 additional days are the number of days in the 3-year period for filing the refund claim that were left when you entered the combat zone on November 1 (November 1, 2002 – April 15, 2003). Missing status.
Time in a missing status (missing in action or prisoner of war) counts as time in a combat zone or a contingency operation.
Support personnel.
The deadline extension provision also applies if you are serving in a combat zone or a contingency operation in support
of the Armed Forces. This
includes Red Cross personnel, accredited correspondents, and civilian personnel acting under the direction of the Armed Forces
in support of those
forces.
Qualified hospitalization.
The hospitalization must be the result of an injury received while serving in a combat zone or a contingency operation.
Qualified hospitalization
means:
Actions extended.
The actions to which the deadline extension provision applies include:
Spouses.
Spouses of individuals who served in a combat zone or contingency operation are entitled to the same deadline extension
with two exceptions.
Not in a combat zone.
If you are a member of the Armed Forces, you may qualify to defer (delay) payment of income tax that becomes due before
or during your military
service. To qualify, you must:
Military service.
The term military service means the period beginning on the date on which you enter military service and ending on
the date on which you are
released from military service or die while in military service. In the case of a member of the National Guard, this includes
service under a call to
active service authorized by the President or the Secretary of Defense for a period of more than 30 consecutive days under
section 502(f) of title 32,
United States Code, for purposes of responding to a national emergency declared by the President and supported by Federal
funds.
Request for deferment.
If you have a current payment agreement, you must make a written request for deferment to the IRS office where you
have the agreement.
Maximum rate of interest.
Section 207 of the Servicemembers Civil Relief Act limits the maximum interest rate you can be charged to 6% per year for obligations or
liabilities incurred before your entry into military service. The reduced rate applies only if your service materially affects
your ability to pay.
This rate applies only to that interest charged during the period of your military service.
Filing Returns for Combat Zone or Contingency Operation Participants You can choose to file your return before the end of your extension period. File your return in accordance with instructions provided by the Armed Forces. If you are acting on behalf of someone serving in a combat zone or contingency operation and you do not have a power of attorney from that person specifying that you can handle federal tax matters, the IRS will accept a general power of attorney or other statement signed by that person that authorizes you to act on his or her behalf. A copy must be attached to the tax return. If it is not possible for the spouse of someone serving in a combat zone or contingency operation to obtain that person's signature on a joint return, power of attorney form, or other signed authorization to act on his or her behalf, the IRS will accept a written statement explaining that the husband or wife is serving in a combat zone or contingency operation. The statement must be signed by the spouse filing the tax return and attached to the return. Outside the Combat Zone or Contingency Operation If you do not qualify for the deadline extension provision, your 2003 return is due by the regular due date, April 15, 2004 (June 15, 2004, if you are stationed outside the United States and Puerto Rico on April 15). Interest on any unpaid tax will be charged from April 15. There are other provisions that extend the time for filing your return. See Extensions, earlier. You can get help with unresolved tax issues, order free publications and forms, ask tax questions, and get more information from the IRS in several ways. By selecting the method that is best for you, you will have quick and easy access to tax help. Contacting your Taxpayer Advocate.
If you have attempted to deal with an IRS problem unsuccessfully, you should contact your Taxpayer Advocate.
Free tax services.
To find out what services are available, get Publication 910, Guide to Free Tax Services. It contains a list of free tax publications
and an index of tax topics. It also describes other free tax information services, including tax education and assistance
programs and a list of
TeleTax topics.
Internet. You can access the IRS web site 24 hours a day, 7 days a week at www.irs.gov to:
You can also reach us using File Transfer Protocol at ftp.irs.gov.
Fax. You can get over 100 of the most requested forms and instructions 24 hours a day, 7 days a week, by fax. Just call 703–368–9694 from your fax machine. Follow the directions from the prompts. When you order forms, enter the catalog number for the form you need. The items you request will be faxed to you. For help with transmission problems, call 703–487–4608. Long-distance charges may apply.
Phone. Many services are available by phone.
Walk-in. Many products and services are available on a walk-in basis.
Mail. You can send your order for forms, instructions, and publications to the Distribution Center nearest to you and receive a response within 10 workdays after your request is received. Use the address that applies to your part of the country.
CD-ROM for tax products. You can order IRS Publication 1796, Federal Tax Products on CD-ROM, and obtain:
Buy the CD-ROM from National Technical Information Service (NTIS) on the Internet at www.irs.gov/cdorders for $22 (no handling fee) or call 1–877–233–6767 toll free to buy the CD-ROM for $22 (plus a $5 handling fee). The first release is available in early January and the final release is available in late February.
CD-ROM for small businesses. IRS Publication 3207, Small Business Resource Guide, is a must for every small business owner or any taxpayer about to start a business. This handy, interactive CD contains all the business tax forms, instructions and publications needed to successfully manage a business. In addition, the CD provides an abundance of other helpful information, such as how to prepare a business plan, finding financing for your business, and much more. The design of the CD makes finding information easy and quick and incorporates file formats and browsers that can be run on virtually any desktop or laptop computer. It is available in early April. You can get a free copy by calling 1–800–829–3676 or by visiting the web site at www.irs.gov/smallbiz. Publications Index | 2003 Tax Help Archives | Tax Help Archives | Home © 2005, UncleFed.com
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