What’s New on 2012 Form 1040 and Schedules

The IRS has recently announced that it is accepting all 2012 tax returns for filing (IRS News Release IR-2013-25), and the April 15, 2013, deadline for filing Form 1040, U.S. Individual Tax Return, for 2012 is approaching. Every filing season brings changes to Form 1040, and this year is no exception. The 2012 Form 1040 carries some changes compared to the 2011 Form 1040.

Extended Incentives

Educator expenses (teachers’ classroom expense deduction) (Line 23). The above-the-line deduction for eligible educators for up to $250 of qualified expenses paid during the year is extended to tax years beginning in 2012 and 2013. If two eligible educators are married and file a joint return, they may deduct up to $250 in qualified expenses that they each incur, for a maximum deduction of $500.

Higher education tuition and fees deduction (Line 34). The above-the-line deduction for higher education qualified tuition and related expenses is extended two years for expenses paid before January 1, 2014. Taxpayers claiming the higher education tuition and fees deduction must attach Form 8917, Tuition and Fees Deduction.

Residential energy credits (Line 52). The Code Sec. 25C nonbusiness energy property credit and the Code Sec. 25D residential energy efficient property credit reward taxpayers who make qualified improvements to their residences. The Code Sec. 25C credit is extended for two years through 2013. The lifetime credit limit remains at $500 and no more than $200 of the credit amount can be attributed to exterior windows and skylights. The Code Sec. 25D credit is scheduled to expire after 2016. Both credits are claimed on Form 5695, Residential Energy Credits.

Other Credits

Adoption credit (Line 53). The Patient Protection and Affordable Care Act, P.L. 111-148, made the adoption credit refundable for 2010 and 2011. For tax year 2012, the credit has reverted to being non-refundable (which is why Form 1040, Line 71, box b is shown as “Reserved”).

COMMENT 

For 2012, the adoption credit has a dollar limitation of $12,650 per qualifying child. The maximum exclusion for employer-provided adoption assistance for 2012 is $12,650 per qualifying child (non-special needs and special needs adoptions). The credit and the exclusion are each subject to an income limitation and a dollar limitation. The income limit on the adoption credit or exclusion is based on modified adjusted gross income. For 2012, MAGI phase out begins at $189,710 and ends at $229,710. Under the American Taxpayer Relief Act of 2012, P.L. 112-240, the offset of the adoption credit against regular tax and alternative minimum tax liabilities is made permanent for tax years beginning after December 31, 2011.

Additional child tax credit (Line 65). For 2012, the IRS has instructed taxpayers claiming the additional child tax credit to use Schedule 8812, Child Tax Credit, to calculate their additional child tax credit and attach Schedule 8812 to their return.

First-time homebuyer credit (Line 67). The Code Sec. 36 first-time homebuyer credit is unavailable for 2012. This is why Form 1040, Line 67 is shown as “Reserved.”

COMMENT 

The 2012 Taxpayer Relief Act did not extend the D.C. first-time homebuyer credit, which expired after 2011 and is unavailable for 2012.

Standard Deduction

For 2012, the standard deduction for single individuals and married couples filing separately is $5,950. The standard deduction for married couples filing joint returns and qualifying widow(er)s is $11,900 for 2012. The standard deduction for heads of households is $8,700 for 2012.

COMMENT 

Note that for the 2013 tax year, the amount of otherwise allowable itemized deductions of a taxpayer will be phased out if his or her adjusted gross income exceeds a threshold amount for the year based on filing status. The applicable threshold amounts beginning in 2013 (and indexed for inflation in subsequent years) are $300,000 for married couples filing a joint return or a surviving spouse; $275,000 for heads of households; $250,000 for single individuals; and $150,000 for married couples filing separate returns.

Personal Exemption

For 2012, the amount for each exemption is $3,800.

COMMENT 

Note that for the 2013 tax year, the amount of otherwise allowable personal and dependency exemptions of a taxpayer will be phased out if his or her AGI exceeds a threshold amount for the year based on filing status. The applicable threshold amounts beginning in 2013 (and indexed for inflation in subsequent years) are $300,000 for married couples filing a joint return or a surviving spouse; $275,000 for heads of households; $250,000 for single individuals; and $150,000 for married couples filing separate returns.

Identity Protection PINs

Taxpayers who received an identity protection personal identification number from the IRS for 2012 should enter the IP PIN on their return. If taxpayers are filing a joint return and both taxpayers received an IP PIN, the IRS has instructed that only the taxpayer whose Social Security number appears first on the return should enter his or her IP PIN.

COMMENT 

The IRS recently reported that it has assigned more than 600,000 IP PINs for use on 2012 returns to taxpayers who have been victims of identity theft.

Schedule A, Itemized Deductions

Medical and dental expenses (Line 1). For 2012, the standard mileage rate for use of a motor vehicle to obtain medical care is 23 cents per mile.

COMMENT 

The medical (and moving) mileage rate for 2013 is 24 cents per mile.

State and local taxes (Line 5). The election to claim an itemized deduction for state and local general sales taxes in lieu of state and local income taxes is extended two years by the 2012 Taxpayer Relief Act and may be claimed for tax years beginning in 2012 and 2013.

COMMENT 

The election to state and local general sales taxes is available to all individual taxpayers, although it is primarily designed to benefit taxpayers in states without state and local income taxes. However, purchase of a big ticket item in 2012 may cause the state and local sales tax deduction to be more valuable than the state and local income tax deduction for some taxpayers.

Mortgage insurance premiums (Line 13). Taxpayers may deduct qualified mortgage insurance premiums paid or accrued in 2012 (and 2013), or are properly allocable to any period on or before December 31, 2013.

Unreimbursed employee expenses (Line 21). For 2012, the standard mileage rate for use of a vehicle is 55.5 cents per mile for business miles driven.

COMMENT 

The business standard mileage rate for 2013 is 56.5 cents per mile.

Schedule B, Interest and Ordinary Dividends

Excludable interest on series EE and I U.S. savings bonds (Line 3). For 2012, the phase-out of the exclusion for education-related savings bond interest begins at modified adjusted gross income above $72,850 for single individuals and $109,250 for married couples filing a joint return.

Schedule C, Profit or Loss From Business

Car and truck expenses (Part II, Line 9). For 2012, the standard mileage rate for use of a vehicle is 55.5 cents per mile for business miles driven.

Form 4562, Depreciation and Amortization

Election to expense certain property under Section 179. The 2012 Taxpayer Relief Act increased the Code Sec. 179 dollar and investment limitations to $500,000 and $2 million, respectively, for tax years beginning in 2012 and 2013. The new law also extended the Code Sec. 179 expense deduction for off-the-shelf computer software to apply to qualified software placed in service in tax years beginning before 2014. Under the 2012 Taxpayer Relief Act, for tax years beginning in 2012 and 2013, a taxpayer can elect to treat up to $250,000 of qualified real property as Code Sec. 179 property. Qualified real property generally consists of qualified leasehold improvements, qualified retail improvement property, and qualified restaurant property.

COMMENT 

As the Code Sec. 179 dollar and investment limitations have been increased for 2012, any further inflation adjustment for 2012 is eliminated.

Additional depreciation allowance. Qualified property placed in service before January 1, 2014 (January 1, 2015, for certain longer production period and transportation property), may be eligible for an additional depreciation allowance (50-percent bonus depreciation).

COMMENT 

The additional depreciation allowance for 2011 is 100 percent (available through 2012 for certain longer production period and transportation property).

Listed property. The first-year depreciation limit on luxury automobiles first placed in service in 2012 for business and investment purposes if bonus depreciation is claimed is $11,160 for passenger automobiles and $11,360 for trucks and vans. If bonus depreciation is not claimed, the first year cap is $3,160 for passenger automobiles and $3,360 for trucks and vans.

Schedule D, Capital Gains and Losses

Excluded gain on sale of small business stock. The 100-percent exclusion of gain applies to qualified small business stock that is acquired after September 27, 2010, and before January 1, 2014, and held for more than five years.

Schedule E, Supplemental Income and Loss

Information reporting requirements. Lines A and B, which address required filing of Forms 1099, are in Part I of Schedule E for 2012. In the Instructions for Schedule E, the IRS instructed taxpayers that they only need to answer the questions on lines A and B if they are completing Part I.