Page 58 - Virtual Currencies

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The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
Expected inheritance. If you sell an inter- termine the taxable part of social security bene- you pay qualified higher education expenses in
est in an expected inheritance from a living per- fits. If the payments are made in property, your the same year. Qualified higher education ex-
son, include the entire amount you receive in basis in the property is its FMV when you re- penses are those you pay for tuition and re-
gross income on Schedule 1 (Form 1040), ceive it. quired fees at an eligible educational institution
line 8z. Excludable restitution payments are pay- for you, your spouse, or your dependent. A
ments or distributions made by any country or qualified U.S. savings bond is a series EE bond
Bequest for services. If you receive cash issued after 1989 or a series I bond. The bond
or other property as a bequest for services you any other entity because of persecution of an must have been issued to you when you were
individual on the basis of race, religion, physical
performed while the decedent was alive, the or mental disability, or sexual orientation by 24 years of age or older. For more information
value is taxable compensation. Nazi Germany, any other Axis regime, or any on this exclusion, see Education Savings Bond
Gulf oil spill. If you received payments for lost other Nazi-controlled or Nazi-allied country, Program in chapter 1 of Pub. 550 and in chap-
ter 10 of Pub. 970.
whether the payments are made under a law or
wages or income, property damage, or physical
injury due to the Gulf oil spill, the payment may as a result of a legal action. They include com- Interest on state and local government obli-
pensation or reparation for property losses re-
be taxable. sulting from Nazi persecution, including pro- gations. This interest is usually exempt from
Lost wages or income. Payments you re- ceeds under insurance policies issued before federal tax. However, you must show the
ceived for lost wages, lost business income, or and during World War II by European insurance amount of any tax-exempt interest on your fed-
lost profits are taxable. companies. eral income tax return. For more information,
see State or Local Government Obligations in
Property damage. Payments you re- Illegal activities. Income from illegal activities, chapter 1 of Pub. 550.
ceived for property damage aren't taxable if the such as money from dealing illegal drugs, must
payments aren't more than your adjusted basis be included in your income on Schedule 1 Job interview expenses. If a prospective em-
in the property. If the payments are more than (Form 1040), line 8z, or on Schedule C (Form ployer asks you to appear for an interview and
your adjusted basis, you'll realize a gain. If the 1040) if from your self-employment activity. either pays you an allowance or reimburses you
damage was due to an involuntary conversion, for your transportation and other travel expen-
you may defer the tax on the gain if you pur- Indian fishing rights. If you're a member of a ses, the amount you receive isn't taxable in
chase qualified replacement property. See Pub. qualified Indian tribe that has fishing rights se- most cases. You include in income only the
544. cured by treaty, executive order, or an Act of amount you receive that is more than your ac-
If the payments (including insurance pro- Congress as of March 17, 1988, don't include in tual expenses.
ceeds) you received, or expect to receive, are your income amounts you receive from activi-
less than your adjusted basis, you may be able ties related to those fishing rights. The income Jury duty. Jury duty pay you receive must be
to claim a casualty deduction. See Pub. 547. isn't subject to income tax, self-employment tax, included in your income on Schedule 1 (Form
Physical injury. Payments you received or employment taxes. 1040), line 8h. If you must give the pay to your
employer because your employer continues to
for personal physical injuries or physical sick- Indian money account litigation settlement. pay your salary while you serve on the jury, you
ness aren't taxable. This includes payments for Amounts received by an individual Indian as a can deduct the amount turned over to your em-
emotional distress that is attributable to per- lump sum or periodic payment pursuant to the ployer as an adjustment to income. Enter the
sonal physical injuries or physical sickness. Class Action Settlement Agreement dated De- amount you repay your employer on Schedule 1
Payments for emotional distress that aren't at- cember 7, 2009, aren't included in gross in- (Form 1040), line 24a.
tributable to personal physical injuries or physi- come. This amount won't be used to figure AGI
cal sickness are taxable. or MAGI in applying any Internal Revenue Code Kickbacks. You must include kickbacks, side
More information. For the most recent provision that takes into account excludable in- commissions, push money, or similar payments
guidance, go to IRS.gov and enter “Gulf Oil come. you receive in your income on Schedule 1
Spill” in the search box. (Form 1040), line 8z, or on Schedule C (Form
Interest on frozen deposits. In general, you 1040) if from your self-employment activity.
Historic preservation grants. Don’t include in exclude from your income the amount of inter-
your income any payment you receive under est earned on a frozen deposit. A deposit is fro- Example 37. You sell cars and help ar-
the National Historic Preservation Act to pre- zen if, at the end of the calendar year, you can't range car insurance for buyers. Insurance brok-
serve a historically significant property. withdraw any part of the deposit because: ers pay back part of their commissions to you
• The financial institution is bankrupt or in- for referring customers to them. You must in-
Hobby losses. Losses from a hobby aren't de- solvent, or clude the kickbacks in your income.
ductible from other income. A hobby is an activ- • The state where the institution is located
ity from which you don't expect to make a profit. has placed limits on withdrawals because Manufacturer incentive payments. You must
See Activity not for profit, earlier, under Other other financial institutions in the state are include as other income on Schedule 1 (Form
Income. bankrupt or insolvent. 1040), line 8z (or Schedule C (Form 1040) if
you're self-employed), incentive payments from
If you collect stamps, coins, or other Excludable amount. The amount of inter- a manufacturer that you receive as a salesper-
! items as a hobby for recreation and est you exclude from income for the year is the son. This is true whether you receive the pay-
CAUTION pleasure, and you sell any of the items, interest that was credited on the frozen deposit ment directly from the manufacturer or through
your gain is taxable as a capital gain. However, for that tax year minus the sum of: your employer.
if you sell items from your collection at a loss, 1. The net amount withdrawn from the de-
you can't deduct the loss. posit during that year, and bile dealership and receive incentive payments
Example 38. You sell cars for an automo-
Holocaust victims restitution. Restitution 2. The amount that could have been with- from the automobile manufacturer every time
payments you receive as a Holocaust victim (or drawn at the end of that tax year (not re- you sell a particular model of car. You report the
the heir of a Holocaust victim) and interest duced by any penalty for premature with- incentive payments on Schedule 1 (Form
earned on the payments aren't taxable. Exclud- drawals of a time deposit). 1040), line 8z.
able interest is earned by escrow accounts or The excluded part of the interest is included in
settlement funds established for holding funds your income in the tax year it becomes with- Medical savings accounts (Archer MSAs
prior to the settlement. You also don't include drawable. and Medicare Advantage MSAs). In most ca-
the restitution payments and interest the funds ses, you don't include in income amounts you
earned prior to disbursement in any calculation Interest on qualified savings bonds. You withdraw from your Archer MSA or Medicare
in which you ordinarily would add excludable in- may be able to exclude from income the interest Advantage MSA if you use the money to pay for
come to your AGI, such as the calculation to de- from qualified U.S. savings bonds you redeem if qualified medical expenses. Generally, qualified

Publication 525 (2022) Page 35