What's New for 2007?

Tax benefits extended. The following tax benefits were extended through 2007. 

Deduction for educator expenses in figuring adjusted gross income.

• Tuition and fees deduction.
• District of Columbia first-time homebuyer credit.

Alternative minimum tax (AMT) exemption amount decreased. The AMT exemption amount is decreased to $33,750 ($45,000 if married filing jointly or a qualifying widow(er); $22,500 if married filing separately).

At the time these instructions went to print,  Congress was ex-pected to consider legislation! that would increase the amounts above. To find out if legislation was enacted and for more details see the Instructions for Form 6251. IRA deduction expanded. You may be able to take an IRA deduction if you were covered by a retirement plan and your 2007 modified adjusted gross income (AGI) is less than $62,000 ($103,000 if married fil-ing jointly or qualifying widow(er)). You may be able to deduct up to an ad-ditional $3,000 if you were a participant in a 401(k) plan and your employer was in bankruptcy in an earlier year. See the in-structions for line 32 on page 27. Standard mileage rates. The 2007 rate for business use of your vehicle is 481.2 cents a mile. The 2007 rate for use of your vehicle to get medical care or to move is 20 cents a mile. Earned income credit (EIC). You may be able to take the EIC if: " A child lived with you and you earned less than $37,783 ($39,783 if married filing jointly) or " A child did not live with you and you earned less than $12,590 ($14,590 if mar-ried filing jointly). The maximum AGI you can have and still get the credit also has increased.  You may be able to take the credit if your AGI is less than the amount in the above list that applies to you. The maximum investment income you can have and still get the credit has increased to $2,900. See the instruc-tions for lines 66a and 66b that begin on page 44.

Elective salary deferrals. The maximum amount you can defer under all plans is generally limited to $15,500 ($10,500 if you only have SIMPLE plans; $18,500 for section 403(b) plans if you qualify for the 15-year rule). See the instructions for line 7
on page 18.

g your return to a different address this year because the IRS has changed the filing lo-cation for several areas. If you received an envelope with your tax package, please use it. Otherwise, see Where Do You File? on the back cover.

Domestic production activities deduction. The deduction rate for 2007 is increased to 6%.

Unreported social security and Medicare tax on wages. If you are an employee and your employer did not withhold social se-curity and Medicare tax, see Form 8919 to figure and report this tax.

Refundable credit for prior-year minimum tax. If you have an unused minimum tax credit carryforward from 2004, see Form 8801 to find if you can take this credit.

Health savings account (HSA) funding dis-tributions. You may be able to elect to ex-clude from income a distribution made from your IRA to your HSA. See the in-structions for lines 15a and 15b on page 21.

Insurance premiums for retired public safety officers. If you are a retired safety officer, you can elect to exclude from in-come distributions made directly from your eligible retirement plans to pay premiums for certain insurance. See the instructions for lines 16a and 16b on page 22.

Exemption for housing a person displaced by Hurricane Katrina expires. The addi-tional exemption amount for housing a per-son displaced by Hurricane Katrina does not apply for 2007 or later years.

Telephone excise tax credit. This credit was available only on your 2006 return. If you filed but did not request it on your 2006 return, file Form 1040X using a simplified procedure explained in its instructions to amend your 2006 return. If you were not required to file a 2006 return, see the 2006 Form 1040EZ-T.

Filing Status

Check only the filing status that applies to you. The ones that will usually give you the lowest tax are listed last.

• Married filing separately.
  If you are married and file a separate return, you will usually pay more tax than if you use another filing status that you qualify for. Also, if you file a separate return, you cannot take the student loan interest deduc- sepation,
  the tuition and fees deduction, the education credits, or the earned income credit. You also cannot take the standard deduction if your spouse itemizes deductions.
  
  Generally, you report only your own income, exemptions, deductions, and credits. Different rules apply to people in community property states. See page 22.
  
  TIP: You may be able to file as head of household if you had a child living with you and you lived apart from your spouse during the last 6 months of 2007. See Married persons who live apart on this page.
  
• Single.
  • You were never married.
  • You were legally separated, according to your state law, under a decree of divorce or separate maintenance.
  • You were widowed before January 1, 2007, and did not remarry in 2007. But if you have a dependent child, you may be able to use the qualifying widow(er) filing status. See the instructions for line 5 that begin on page 17.
  
• Head of Household
  TIP Special rules may apply for people who had to relocate because of Hurricane Katrina. For details, see Pub. 4492.
  
  This filing status is for unmarried individuals who provide a home for certain
  other persons. (Some married persons who live apart are considered unmarried. See Married persons who live apart on this page.) You can check the box on line 4 only if you were unmarried or legally separated (according to your state law) under a decree of divorce or separate maintenance at the
  end of 2007 and either 1 or 2 below applies.
  
  1. You paid over half the cost of keeping up a home that was the main home for all of 2007 of your parent whom you can claim as a dependent, except under a multiple support agreement (see page 21). Your parent did not have to live with you.
  
  2. You paid over half the cost of keeping up a home in which you lived and in which one of the following also lived for more than half of the year (if half or less, see Exception to time lived with you below).
  
  a. Any person whom you can claim as a dependent. But do not include:
  
  i. Your qualifying child (as defined in Step 1 on page 19) whom you claim as
  your dependent based on the rules for Children of divorced or separated par-
  ents on page 20,
  
  ii. Any person who is your dependent only because he or she lived with you for all of 2007, or
  
  iii. Any person you claimed as a dependent under a multiple support agreement. See page 21.
  
  b. Your unmarried qualifying child who is not your dependent.
  
  c. Your married qualifying child who is not your dependent only because you can be claimed as a dependent on someone else’s 2007 return.
  
  d. Your child who is neither your dependent nor your qualifying child because of the rules for Children of divorced or separated parents on page 20.
  
  If the child is not your dependent, enter the child’s name on line 4. If you do not enter the name, it will take us longer to process your return.
  
  Dependent. To find out if someone is your dependent, see the instructions for line 6c that begin on page 19.
  
  Exception to time lived with you. Temprary absences for special circumstances, such as for school, vacation, medical care, military service, and detention in a juvenile facility, count as time lived in the home. If the person for whom you kept up a home was born or died in 2007, you can still file as head of household as long as the home was that person’s main home for the part of the year he or she was alive. Also see Kidnapped child on page 21, if applicable. Keeping up a home. To find out what is included in the cost of keeping up a home, see Pub. 501.
  
  If you used payments you received under Temporary Assistance for Needy
  Families (TANF) or other public assistance programs to pay part of the cost of keeping up your home, you cannot count them as money you paid. However, you must include them in the total cost of keeping up your home to figure if you paid over half of the cost.
  
  Married persons who live apart. Even if you were not divorced or legally separated at the end of 2007, you are considered unmarried if all of the following apply.
  
  • You lived apart from your spouse for the last 6 months of 2007. Temporary absences for special circumstances, such as for business, medical care, school, or military service, count as time lived in the home.
  • You file a separate return from your spouse.
  • You paid over half the cost of keeping up your home for 2007.
  • Your home was the main home of your child, stepchild, or foster child for
  more than half of 2007 (if half or less, see Exception to time lived with you on this page).
  • You claim this child as your dependent or the child’s other parent claims him or her under the rules for Children of divorced or separated parents on page 20.
  
  Adopted child. An adopted child is always treated as your own child. An adopted child includes a child lawfully placed with you for legal adoption.
  
  Foster child. A foster child is any child placed with you by an authorized placement agency or by judgment, decree, or other order of any court of competent juris-diction.
  
• Married Filing Jointly.
  You can check this box on line 2 if any of the following apply.
  • You were married at the end of 2007, even if you did not live with your spouse at the end of 2007.
  • Your spouse died in 2007 and you did not remarry in 2007.
  • You were married at the end of 2007, and your spouse died in 2007 before filing a 2007 return.
  For federal tax purposes, a marriage means only a legal union between a man and a woman as husband and wife. A husband and wife can file a joint return even if only one had income or if they did not live together all year. However, both persons must sign the return. Once you file a joint return, you cannot choose to file separate returns for that year after the due date of the
  return.
  Joint and several tax liability. If you file a joint return, both you and your spouse are generally responsible for the tax and any interest or penalties due on the return. This means that if one spouse does not pay the tax due, the other may have to. However, see Innocent Spouse Relief on page 62.
  Nonresident aliens and dual-status aliens. Generally a husband and wife cannot file a joint return if either spouse is a nonresident alien at any time during the year. However, if you were a nonresident alien or a dual-status alien and were married to a U.S. citizen or resident alien at the end of 2007,
  you may elect to be treated as a resident alien and file a joint return. See Pub. 519 for details.
  
  Qualifying Widow(er) With Dependent Child
  TIP: Special rules may apply for people who had to relocate bemunity cause of Hurricane Katrina. For details, see Pub. 4492.
  
  You can check the box on line 5 and use joint return tax rates for 2007 if all of the following apply.
  
  • Your spouse died in 2003 or 2006 and you did not remarry in 2007.
  • You have a child or stepchild whom you claim as a dependent. This does not include a foster child.
  • This child lived in your home for all of 2007. If the child did not live with you for the required time, see Exception to time lived with you below.
  • You paid over half the cost of keeping up your home.
  • You could have filed a joint return with your spouse the year he or she died, even if you did not actually do so.
  
  If your spouse died in 2007, you cannot file as qualifying widow(er) with dependent child. Instead, see the instructions for line 2 on page 17.
  
  Adopted child. An adopted child is always treated as your own child. An adopted child includes a child lawfully placed with you for legal adoption.
  
  Dependent. To find out if someone is your dependent, see the instructions for line 6c that begin on page 19.
  
  Exception to time lived with you. Temporary absences for special circumstances, such as for school, vacation, medical care, military service, and detention in a juvenile facility, count as time lived in the home. A child is considered to have lived with you for all of 2007 if the child was born or died
  in 2007 and your home was the child’s home for the entire time he or she was alive. Also see Kidnapped child on page 21, if applicable.
  
  Keeping up a home. To find out what is included in the cost of keeping up a home, see Pub. 501.
  
  If you used payments you received under Temporary Assistance for Needy
  Families (TANF) or other public assistance programs to pay part of the cost of keeping up your home, you cannot count them as money you paid. However, you must include them in the total cost of keeping up your home to figure if you paid over half of the cost.

Exemptions

You usually can deduct $3,400 on line 42 for each exemption you can take. You may also be able to take an additional exemption amount on line 42 if you provided housing to a person displaced by Hurricane Katrina.

Line 6b

Spouse

Check the box on line 6b if either of the following applies.

1. Your filing status is married filing jointly and your spouse cannot be claimed as a dependent on another person’s return.

2. You were married at the end of 2007, your filing status is married filing separately or head of household, and both of the following apply.
a. Your spouse had no income and is not filing a return.
b. Your spouse cannot be claimed as a dependent on another person’s return.
If your filing status is head of household and you check the box on line 6b, enter the name of your spouse on the dotted line next to line 6b. Also, enter your spouse’s social security number in the space provided at the top of your return.

Line 6c

Dependents

You can take an exemption for each of your dependents. The following is a brief description of the five tests that must be met for a person to qualify as your dependent. If you have more than five dependents, attach a statement to your return with the required information.

Relationship Test. The person must be either your relative or have lived in your home as a family member all year. If the person is not your relative, the relationship must not violate local law.

Joint Return Test. If the person is married, he or she cannot file a joint return. But the person can file a joint return if the return is filed only as a claim for refund and no tax liability would exist for either spouse if they had filed separate returns.

Citizen or Resident Test. The person must be a U.S. citizen or resident alien, or a resident of Canada or Mexico. There is an exception for certain adopted children. To find out who is a resident alien, use TeleTax topic 851 (see page 13) or see Pub. 519.

Income Test. The person’s gross income must be less than $3,400. But your child’s gross income can be $3,400 or more if he or she was either under age 19 at the end of 2007 or under age 24 at the end of 2007 and was a student.

TIP: For more details about the tests, including any exceptions that apply, see Pub. 501.

Line 6c, Column (2)

You must enter each dependent’s social security number (SSN). Be sure the name and SSN entered agree with the dependent's social security card. Otherwise, at the time we process your return, we may disallow the exemption claimed for the dependent and reduce or disallow any other tax benefits (such as the child tax credit and the earned income credit) based on the dependent. If the name or SSN on the dependent's social security card is not correct, call the Social Security Administration at 1-800-772-1213.

Tip: For details on how your dependent can get an SSN, see page 19. If your dependent will not have a number by April 17, 2007, see What if You Cannot File on Time? on page 15.

If your dependent child was born and died in 2007 and you do not have an SSN for the child, you may attach a copy of the child’s birth certificate instead and enter "DIED" in column (2).

Adoption Taxpayer Identification Numbers (ATINs). If you have a dependent who was placed with you by an authorized placement agency and you do not know his or her SSN, you must get an ATIN for the dependent from the IRS. See Form W-7A for details.

Line 6c, Column (4)

Check the box in this column if your dependent is a qualifying child for the child tax credit (defined below). If you have at least one qualifying child, you may be able to take the child tax credit on line 49 and the additional child tax credit on line 65.

Qualifying Child for Child Tax Credit. A qualifying child for purposes of the child tax credit is a child who:

• Is claimed as your dependent on line 6c, and
• Was under age 17 at the end of 2007, and
• Is your (a) son, daughter, adopted child, stepchild, or a descendant of any of them (for example, your grandchild); (b) brother, sister, stepbrother, stepsister, or a
  descendant of any of them (for example, your niece or nephew), whom you cared for as you would your own child; or (c) foster child (any child placed with you by an authorized placement agency whom you cared for as you would your own child), and
• Is a United States citizen or resident alien.

Note: The above requirements are not the same as the requirements to be a qualifying child for the earned income credit.

An adopted child is always treated as your own child. An adopted child includes a child placed with you by an authorized beneplacement agency for legal adoption even if the adoption is not final. An authorized placement agency includes any person or court authorized by state law to place children for legal adoption.

Children Who Did Not Live With You Due to Divorce or Separation

If you are claiming a child who did not live with you under the rules in Pub. 501 for children of divorced or separated parents, attach Form 8332 or similar statement to your return. But see Exception below.

If your divorce decree or separation agreement went into effect after 1984, you may attach certain pages from the decree or agreement instead of Form 8332. To be able
to do this, the decree or agreement must state:

1. You can claim the child as your dependent without regard to any condition, such as payment of support, and
2. The other parent will not claim the child as a dependent, and
3. The years for which the claim is released.

Attach the following pages from the decree or agreement:

• Cover page (include the other parent's SSN on that page), and
• The pages that include all of the information identified in 1 through 3 above, and
• Signature page with the other parent's signature and date of agreement.

Note: You must attach the required information even if you filed it in an earlier year.

Exception. You do not have to attach Form 8332 or similar statement if your divorce decree or written separation agreement went into effect before 1985 and it states that you can claim the child as your dependent.

Other Dependent Children

Include the total number of children who did not live with you for reasons other than divorce or separation on the line labeled "Dependents on 6c not entered above."Include dependent children who lived in Canada or Mexico during 2007.

Line 10

Taxable Refunds, Credits, or Offsets of State and Local Income Taxes

TIP: None of your refund is taxable if, in the year you paid the tax, you did not itemize deductions.

If you received a refund, credit, or offset of state or local income taxes in 2007, you may receive a Form 1099-G. If you chose to apply part or all of the refund to your 2007 estimated state or local income tax, the amount applied is treated as received in 2007. If the refund was for a tax you paid in 2006 and you itemized deductions for 2006, use the worksheet on this page to see if any of your refund is taxable.

Exceptions See Recoveries in Pub. 525 instead of using the worksheet if any of the following applies:

1. You received a refund in 2007 that is for a tax year other than 2006.
2. You received a refund other than an income tax refund, such as a eneral sales tax or real property tax refund, in 2007 of an amount deducted or credit claimed in an earlier year.
3. The amount on your 2006 Form 1040, line 41, was more than the amount on your 2006 Form 1040, line 40.
4. Your 2006 state and local income tax refund is more than your 2006 state and local income tax deduction minus the amount you could have deducted as your 2006 state and local general sales taxes.
5. You made your last payment of 2006 estimated state or local income tax in 2007.
6. You owed alternative minimum tax in 2006. You could not deduct the full amount of credits you were entitled to in 2006 be- cause the total credits exceeded the amount shown on your 2006 Form 1040, line 45.
7. You could be claimed as a dependent by someone else in 2006.
8. You had to use the Itemized Deductions Worksheet in the 2006 Instructions for Schedules A & B because your 2006 adjusted gross income was over $142,700 ($71,350 if married filing separately) and
   both of the following apply.
   • You could not deduct all of the amount on the 2006 Itemized Deductions Worksheet, line 1.
   • The amount on line 8 of that 2006 worksheet would be more than the amount on line 4 of that worksheet if the amount on line 4 were reduced by 80% of the refund you received in 2007.

Line 11

Alimony Received

Enter amounts received as alimony or separate maintenance. You must let the person who made the payments know your social security number. If you do not, you may have to pay a $50 penalty. For more details, use TeleTax topic 406 (see page 8) or see Pub. 504.

Line 19

Unemployment Compensation

You should receive a Form 1099-G showing the total unemployment compensation paid to you in 2007.

If you received an overpayment of unemployment compensation in 2007 and you repaid any of it in 2007, subtract the amount you repaid from the total amount you received. Enter the result on line 19. Also, enter "Repaid" and the amount you repaid on the dotted line next to line 19. If, in 2007, you repaid unemployment compensation that you included in gross income in an earlier year, you may deduct the amount repaid on Schedule A, line 22. But if you repaid more than $3,000, see Repayments in Pub. 525 for details on how to report the repayment.  

Lines 20a and 20b

Social Security Benefits

You should receive a Form SSA-1099 showing in box 3 the total social security benefits paid to you. Box 4 will show the amount of any benefits you repaid in 2007. If you received railroad retirement benefits treated as social security, you should receive a For RRB-1099.

Use the worksheet on page 28 to see if any of your benefits are taxable.

Exceptions. Do not use the worksheet on page 28 if any of the following apply.

• You made contributions to a traditional IRA for 2007 and you were covered by a retirement plan at work or through self-employment. Instead, use the worksheets in Pub. 590 to see if any of your social security benefits are taxable and to figure your IRA deduction.
• You repaid any benefits in 2007 and your total repayments (box 4) were more than your total benefits for 2007 (box 4). None of your benefits are taxable for 2006. In addition, you may be able to take an itemized deduction for part of the excess repayments if they were for benefits you included in gross income in an earlier year. For more details, see Pub. 915.
• You file Form 2555, 2555-EZ, 4563, or 8815, or you exclude employer-provided adoption benefits or income from sources within Puerto Rico. Instead, use the work-sheet in Pub. 915.

Line 21

Other Income

Do not report on this line any income from self-employment or fees received as a notary public. Instead, you must use Schedule C, C-EZ, or F, even if you do not have any business expenses. Also, do not report on line 21 any nonemployee compensation shown on Form 1099-MISC. Instead, see the chart on page 18 to find out where to report that income.

Use line 21 to report any income not reported elsewhere on your return or other schedules. See the examples that begin below. List the type and amount of income. If
necessary, show the required information on an attached statement. For more details, see Miscellaneous Income in Pub. 525.

TIP: Do not report any nontaxable income on line 21, such as child support; money or property that was inherited, willed to you, or received as a gift; or life insurance proceeds received because of a person’s death.

Examples of income to report on line 21 are:

• Taxable distributions from a Coverdell education savings account (ESA). Distributions from a Coverdell ESA may be taxable if they are more than the qualified education expenses of the designated beneficiary in 2006. See Pub. 970.
• Prizes and awards.
• Gambling winnings, including lotteries, raffles, a lump-sum payment from the sale of a right to receive future lottery payments, etc. For details on gambling losses,
  see the instructions for Schedule A, line 27, on page A-6.
• Jury duty fees. Also, see the instructions for line 33 that begin on page 33.
• Alaska Permanent Fund dividends.
• Qualified state tuition program earnings. However, you may be able to exclude part or all of the earnings from income if (a) the qualified tuition program was established and maintained by a state (or agency or instrumentality of the state) and (b) any part of the distribution was used to pay qualified higher education expenses. See Pub. 970.
  Caution: You may have to pay an additional tax if you received qualified tuition program earnings that are included on line 21. See the Instructions for Form 5329.
• Reimbursements or other amounts received for items deducted in an earlier year, such as medical expenses, real estate taxes, or home mortgage interest. See Recoveries in Pub. 525 for details on how to figure the amount to report.
• Income from the rental of personal property if you engaged in the rental for profit but were not in the business of renting such property. Also, see the instructions for line 36 that begin on page 35.
• Income from an activity not engaged in for profit. See Pub. 535.
• Loss on certain corrective distributions of excess deferrals. See Pub. 575.  

Line 23

Educator Expenses

If you were an eligible educator in 2007, you may deduct up to $250 of qualified expenses you paid in 2007. If you and your spouse are filing jointly and both of you were eligible educators, the maximum deduction is $500. However, neither spouse may deduct more than $250 of his or her qualified expenses. An eligible educator is a kindergarten through grade 12 teacher, instructor, counselor, principal, or aide in a school for at least 900 hours during a school year.

Qualified expenses include ordinary and necessary expenses paid in connection with books, supplies, equipment (including computer equipment, software, and services), and other materials used in the classroom. An ordinary expense is one that is common and accepted in your educational field. A necessary expense is one that is helpful and appropriate for your profession as an educator. An expense does not have to be required to be considered necessary.

Qualified expenses do not include expenses for home schooling or for nonathletic supplies for courses in health or physical education. You must reduce your qualified expenses by the following amounts.

• Excludable U.S. series EE and I savings bond interest from Form 8815.
• Nontaxable qualified state tuition program earnings.
• Nontaxable earnings from Coverdell education savings accounts.
• Any reimbursements you received for these expenses that were not reported to you in box 1 of your Form W-2.

Line 24

Certain Business Expenses of Reservists, Performing Artists, and Fee-Basis Government Officials

Include the following deductions on line 24.

• Certain business expenses of National Guard and reserve members who traveled more than 100 miles from home to perform services as a National Guard or reserve member.
• Performing-arts-related expenses as a qualified performing artist.
• Business expenses of fee-basis state or local government officials.

For more details, see Form 2106 or 2106-EZ.

Line 25

Health Savings Account Deduction

If contributions (other than employer contributions) were made to your health savings account for 2007, you may be able take this deduction. See Form 8889.

Line 26

Moving Expenses

If you moved in connection with your job or business or started a new job, you may be able to take this deduction. But your new workplace must be at least 50 miles farther from your old home than your old home was from your old workplace. If you had no former workplace, your new workplace must be at least 50 miles from your old home. Use TeleTax topic 455 (see page 8) or see Form 3903.

Line 28

Self-Employed SEP, SIMPLE, and Qualified Plans

If you were self-employed or a partner, you may be able to take this deduction. See Pub. 560 or, if you were a minister, Pub. 517.

If you moved in connection with your job or business or started a new job, you may be able to take this deduction. But your new workplace must be at least 50 miles farther from your old home than your old home was from your old workplace. If you had no former workplace, your new workplace must be at least 50 miles from your old home. Use TeleTax topic 455 (see page 8) or see Form 3903.

Line 29

Self-Employed Health Insurance Deduction

You may be able to deduct part of the amount paid for health insurance for your-self, your spouse, and dependents if either of the following applies.

• You were self-employed and had a net profit for the year.
• You received wages in 2007 from an S corporation in which you were a more-than- 2% shareholder. Health insurance benefits paid for you may be shown in box 14 of your W-2 form.

The insurance plan must be established under your business. But if you were also eligible to participate in any subsidized health plan maintained by your or your spouse’s employer for any month or part of a month in 2007, amounts paid for health insurance coverage for that month cannot be used to figure the deduction. For example, if you were eligible to participate in a sub-sidized health plan maintained by your spouse’s employer from September 30 through December 31, you cannot use amounts paid for health insurance coverage for September through December to figure your deduction. For more details, see Pub. 535.

Note. If, during 2007, you were an eligible trade adjustment assistance (TAA) recipient, alternative TAA recipient, or Pension Benefit Guaranty Corporation pension recipient, you must complete Form 8885 before completing the worksheet below. When figuring the amount to enter on line 1of the worksheet below, do not include any health coverage tax credit advance payments shown in box 1 of Form 1099-H. Also, subtract the amount shown on line 4 of Form 8885 (reduced by any advance
payments shown on line 6 of that form) from the total insurance premiums you paid.

Exception. Use Pub. 535 to find out how to figure your deduction if any of the following apply:

• You had more than one source of income subject to self-employment tax.
• You file Form 2555 or 2555-EZ.
• You are using amounts paid for qualified long-term care insurance to figure the deduction.

Line 30

Penalty on Early Withdrawal of Savings

The Form 1099-INT or Form 1099-OID you received will show the amount of any penalty you were charged.

Lines 31a and 31b

Alimony Paid

If you made payments to or for your spouse or former spouse under a divorce or separation instrument, you may be able to take this deduction - see Pub. 504.

Line 32

IRA Deduction

If you make any nondeductible contributions to a traditional IRA for 2007, you must report them on Form 8606.

If you made contributions to a traditional individual retirement arrangement (IRA) for 2007, you may be able to take an IRA deduction. But you must have had earned income to do so. For IRA purposes, earned income includes certain alimony received. See Pub. 590 for details. You should receive a statement by May 31, 2007, that shows all contributions to your traditional IRA for 2007.

• If you were age 70 1/2 or older at the end of 2007, you cannot deduct any contributions made to your traditional IRA for 2006 or treat them as nondeductible contributions.
• You cannot deduct contributions to a Roth IRA or an education IRA.
  Caution: If you made contributions to both a traditional IRA and a Roth IRA for 2007, use the worksheet in Pub. 590 to figure the amount, if any, of your IRA deduction.
• You cannot deduct contributions to a 401(k) plan, SIMPLE plan, or the Federal Thrift Savings Plan. These amounts are not included as income in box 1 of your W-2 form.
• If you made contributions to your IRA in 2007 that you deducted for 2006, do not include them in the worksheet.
• If you received income from a nonqualified deferred compensation plan or
  nongovernmental section 457 plan that is included in Form W-2, box 1, or in Form 1099-MISC, box 7, do not include that income on line 8 of the worksheet. The income should be shown in (a) Form W-2, box 11, (b) Form W-2, box 12, with code Z, or (c) Form 1099-MISC, box 15b. If it is not, contact your employer or the payer for the amount of the income.
• You must file a joint return to deduct contributions to your spouse’s IRA. Enter the total IRA deduction for you and your spouse on line 32.
• Do not include rollover contributions in figuring your deduction. Instead, see the instructions for lines 15a and 15b on page 25.
• Do not include trustee’s fees that were billed separately and paid by you for your IRA. These fees can be deducted only as an itemized deduction on Schedule A.
• If the total of your IRA deduction on Form 1040 plus any nondeductible contribution to your traditional IRAs shown on Form 8606 is less than your total traditional IRA contributions for 2007, see Pub. 590 for special rules.

TIP: By April 1 of the year after the year in which you turn age 70 1/2 , you must start taking minimum required distributions from your traditional IRA. If you do not, you may have to pay a 50% additional tax on the amount that should have been distributed. For details, including how to figure the minimum required distribution, see Pub. 590.

Were You Covered by a Retirement Plan?

If you were covered by a retirement plan (qualified pension, profit-sharing (including 401(k)), annuity, Keogh, SEP, SIMPLE, etc.) at work or through self-employment, your IRA deduction may be reduced or eliminated. But you can still make contributions to an IRA even if you cannot deduct them. In any case, the income earned on your IRA contributions is not taxed until it is paid to you.

The "Retirement plan" box in box 13 of your W-2 form should be checked if you were covered by a plan at work even if you were not vested in the plan. You are also covered by a plan if you were self-employed and had a Keogh, SEP, or SIMPLE retirement plan.

If you were covered by a retirement plan and you file Form 2555, 2555-EZ, or 8815, or you exclude employer-provided adoption benefits, see Pub. 590 to figure the amount, if any, of your IRA deduction.

Married Persons Filing Separately. If you were not covered by a retirement plan but your spouse was, you are considered covered by a plan unless you lived apart from your spouse for all of 2006.

Line 33

Student Loan Interest Deduction

You may take this deduction if all four of the following apply.

1. You paid interest in 2007 on a qualified student loan (see below).
2. Your filing status is any status except married filing separately.
3. Your modified adjusted gross income (AGI) is less than: $70,000 if single, head of household, or qualifying widow(er); $140,000 if married filing jointly.
4. You are not claimed as a dependent on someone’s (such as your parent’s) 2007 tax return.

Qualified Student Loan. This is any loan you took out to pay the qualified higher education expenses for yourself, your spouse, or anyone who was your dependent when the loan was taken out. The person for whom the expenses were paid must have been an eligible student (see the next page). However, a loan is not a qualified student loan if (1) any of the proceeds were used for other purposes or (2) the loan was from either a related person or a person who borrowed the proceeds under a qualified employer plan or a contract purchased under such a plan. To find out who is a related person, see Pub. 970.

Qualified higher education expenses generally include tuition, fees, room and board, and related expenses such as books and supplies. The expenses must be for education in a degree, certificate, or similar program at an eligible educational institution. An eligible educational institution includes most colleges, universities, and certain vocational schools. You must reduce the expenses by the following nontaxable benefits:

• Employer-provided educational assistance benefits that are not included in box 1 of your W-2 form(s).
• Excludable U.S. series EE and I savings bond interest from Form 8815.
• Nontaxable qualified state tuition program earnings.
• Nontaxable earnings from Coverdell education savings accounts.
• Any scholarship, educational assistance allowance, or other payment (but not gifts, inheritances, etc.) excluded from income.
  
  For more details on these expenses, see Pub. 970.
  
  An eligible student is a person who:
• Was enrolled in a degree, certificate, or other program (including a program of study abroad that was approved for credit by the institution at which the student was enrolled) leading to a recognized educational credential at an eligible educational institution, and
• Carried at least half the normal full-time work load for the course of study he or she was pursuing.

Line 34

Tuition and Fees Deduction

You may take this deduction only if all of the following apply.

1. You paid qualified tuition and fees (see this page) in 2007 for yourself, your spouse, or your dependent(s).
2. Your filing status is any status except married filing separately.
3. Your modified adjusted gross income (AGI) is not more than: $80,000 if single, head of household, or qualifying widow(er); $160,000 if married filing jointly. Use lines
   1 through 3 of the worksheet below to figure your modified AGI.
4. You cannot be claimed as a dependent on someone's (such as your parent's) 2007 tax return.
5. You are not claiming an education credit on line 47 for the same student.

Use the worksheet below to figure your tuition and fees deduction.

Exception. Use Pub. 970 instead of the worksheet below to figure your tuition and fees deduction if you file Form 2555, 2555-EZ, or 4563, or you exclude income from sources within Puerto Rico.

Qualified tuition and fees. Qualified tuition and fees are amounts paid in 2007 for tuition and fees required for the student’s enrollment or attendance at an eligible educational institution during 2007. Tuition and fees paid in 2007 for an academic period that begins in the first 3 months of 2007 can also be used in figuring your deduction. Amounts paid include those paid by credit card or with borrowed funds. An eligible educational institution includes most colleges, universities, and certain vocational schools.

Qualified tuition and fees do not include any of the following:

• Amounts paid for room and board, insurance, medical expenses (including student health fees), transportation, or other similar personal, living, or family expenses.
• Amounts paid for course-related books, supplies, equipment, and nonacademic activities, except for fees required to be paid to the institution as a condition of enrollment or attendance.
• Amounts paid for any course involving sports, games, or hobbies, unless such course is part of the student's degree program.

Qualified tuition and fees must be reduced by the following benefits.

• Excludable U.S. series EE and I savings bond interest from Form 8815.
• Nontaxable qualified state tuition program earnings.
• Nontaxable earnings from Coverdell education savings accounts.
• Any scholarship, educational assistance allowance, or other payment (but not gifts, inheritances, etc.) excluded from income.

For more details, see Pub. 970.

Line 36

Include in the total on line 36 any of the following adjustments. To find out if you can take the deduction, see the form or publication indicated. On the dotted line next to line 33, enter the amount of your deduction and identify it as indicated.

• Deduction for clean-fuel vehicles (see Pub. 535). Identify as "Clean-Fuel."
• Performing-arts-related expenses (see Form 2106 or 2106-EZ). Identify as "QPA."
• Jury duty pay given to your employer (see Pub. 525). Identify as "Jury Pay."
• Deductible expenses related to income reported on line 21 from the rental of personal property engaged in for profit. Identify as "PPR."
• Reforestation amortization (see Pub. 535). Identify as "RFST."
• Repayment of supplemental unemployment benefits under the Trade Act of 1974 (see Pub. 525). Identify as "Sub-Pay TRA."
• Contributions to section 501(c)(18) pension plans (see Pub. 575). Identify as "501(c)(18)."
• Contributions by certain chaplains to section 403(b) plans (see Pub. 517). Identify as "403(b)."
• Employee business expenses of fee-basis state or local government officials (see Form 2106 or 2106-EZ). Identify as "FBO.

Line 48

Retirement Savings Contributions Credit

You may be able to take this credit if you, or your spouse if filing jointly, made:

• Contributions to a traditional or Roth IRA.
• Elective deferrals to a 401(k), 403(b), 457, SEP, or SIMPLE plan.
• Voluntary contributions to a qualified retirement plan.
• Voluntary contributions to a 501(c)(18 plan.

However, you cannot take the credit if any of the following apply.

• The amount on Form 1040, line 36, is more than $25,000 ($37,500 if head of household; $50,000 if married filing jointly).
• You were under age 18 at the end of 2007.
• You are claimed as a dependent on someone's (such as your parent's) 2006 tax return.
• You were a student (defined below). You were a student if during any 5 months of 2007 you:
• Were enrolled as a full-time student at a school or
• Took a full-time, on-farm training course given by a school or a state, county, or local government agency.

A school includes technical, trade, and mechanical schools. It does not include on-the-job training courses, correspondence
schools, or night schools.

For more details, use TeleTax topic 610 (see page 13) or see Form 8880.