Tax Glossary

Benefits paid to railroad retirees covered by the Railroad Retirement Act. The RRA has two components. Tier 1 is the equivalent of social security benefits and Tier 2 is like an employer's pension plan.

Recourse debt holds the borrower personally liable for any amount not satisfied by the surrender of secured property. If a lender forecloses on property subject to a recourse debt and cancels the portion of the debt in excess of the fair market value (FMV) of the property, the canceled portion of the debt will be treated as ordinary income from cancellation of indebtedness and will be required to be included in gross income unless the cancellation of indebtedness qualifies for one of the exceptions or exclusions from gross income under some provision of the Internal Revenue Code.

Occurs when the amount of a credit is greater than the tax owed. Taxpayers not only can have their tax reduced to zero; they can also receive a "refund" of excess credit.

Most common method for computing self-employment tax. Under the regular method, the net self-employment income entered on Schedule SE is the sum of net self-employment earnings from the taxpayer's Schedules C, C-EZ, and F. (Taxpayers should consult a professional tax preparer or a military legal assistance officer if they use a different method or require Schedule F.

One of the tests for identifying a qualifying child as a dependent: Was the person the taxpayer's son, daughter, stepchild, eligible foster child, brother, sister, stepbrother, stepsister, or a descendant of any of them (i.e., the taxpayer's grandchild, niece, or nephew)?

Someone related to the taxpayer by blood, marriage, or adoption, including the following:

Ordinary and necessary expenses attributable to the production of rental income and maintenance of the rental property, such as advertising, cleaning and repairs, insurance premiums, and property management fees.

Payments received by a taxpayer from tenants who rent the taxpayer's property, including regular and advanced rent, payments for breaking a lease, expenses paid by the tenant, and the fair market value of property or services received in lieu of monetary rental payments.

The amount that must be distributed each year from a retirement plan or IRA.

One of the tests for identifying a qualifying child as a dependent: Did the potential dependent live with the taxpayer as a member of the taxpayer's household for more than half of the year?

An individual is considered to be a U.S. resident alien if he or she meets either the Green Card Test or the Substantial Presence Test.

Taxpayers may qualify for an energy credit for qualified solar electric property costs, qualified solar water heating property costs, qualified small wind energy property costs, and qualified geothermal heat pump property costs. This credit is claimed on Part II of Form 5695. This information is out of scope for the VITA/TCE programs and is included for your awareness only.

The retirement savings contributions credit is a nonrefundable credit a qualifying taxpayer may claim if they made a contribution to a qualified plan.

Tier I Railroad Retirement Tax is the railroad retirement equivalent of social security wages and benefit amounts.

Generally, a rollover is a tax-free distribution to the taxpayer from one retirement account (traditional IRA or employer's pension plan) that rolls over into a similar retirement account within 60 days.