Tax Glossary

Under the Mortgage Forgiveness Debt Relief Act of 2007, taxpayers may exclude certain debt forgiven or canceled on their principal residence. This exclusion is applicable to the discharge of qualified principal residence indebtedness. If the canceled debt qualifies for exclusion from gross income, the debtor may be required to reduce tax attributes (certain credits, losses, and basis of assets) by the amount excluded.

Capital gains passed to investors typically by Mutual funds (regulated investment companies) and real estate investment trusts (REITs)

Sale of stock, mutual funds, and the sale of a personal residence. The Capital Gain or Loss lesson will help you identify the asset's holding period, adjusted basis, net short-term and long-term capital gains or losses, the taxable gain or deductible loss, the tax liability, and the amount of any capital loss carryover.

See Capital Gain Distributions

A taxpayer cannot take net losses of more than $3,000 ($1,500 for married taxpayers filing separately) in figuring taxable income for any single tax year. The allowable loss is referred to as the deduction limit. Unused losses can be carried over to later years until they are completely used up. The carryover losses are combined with the gains and losses that actually occur in the next year.

Accounting method that reports income when constructively received (not earned) and expenses when paid (not incurred), as opposed to the accrual method.

A nonrefundable credit that allows taxpayers to claim a credit for paying someone to care for their qualifying Dependents under the age of 13 or spouses or dependents who are unable to care for themselves. The credit ranges from 20 to 35% of the taxpayer's expenses.

A credit that may reduce tax by as much as $1,000 for each qualifying child.

One of the tests for identifying a qualifying child or qualifying relative as a dependent: Assuming all other dependency tests are met, the citizen or resident test allows taxpayers to claim a dependency exemption for persons who are U.S. citizens for some part of the year or who live in the United States, Canada, or Mexico for some part of the year.

Any area (1) 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, (2) the Department of Defense has certified for combat zone tax benefits due to its direct support of military operations, or (3) a Qualified Hazardous Duty Area established by statute where the service member receives imminent danger pay. Members of the U.S. Armed Forces who serve in a combat zone may exclude military pay from their taxable income.

Wages, salaries, commissions, tips, bonuses, professional fees, earnings from self-employment, and alimony.

When an amount is credited to the taxpayer's account or made available to the taxpayer (or taxpayer's agent) without restriction.

An amount for which taxes have already been paid.

A Coverdell ESA is a trust or custodial account created or organized in the United States only for the purpose of paying the qualified education expenses of the designated beneficiary of the account.

A direct reduction of the taxpayer's liability. Credits are allowed for such purposes as child care expenses, higher education costs, qualifying children, and earned income of low-income taxpayers.

The credit for the elderly or the disabled is calculated on Schedule R and reported in the Tax and Credits section of Form 1040.