In this part, you will learn what income is taxable, what income is tax free, and how to report income on your tax return.

Pay special attention to—

• Form W-2, which shows your taxable wages and provides other important information on fringe benefits received (Chapter 2).
• Tax-free fringe benefit plans available from your employer (Chapter 3).
• Reporting rules for interest and dividend income (Chapter 4).
• Reporting gains and losses from sales of property (Chapter 5).
• Rules for tax-free exchanges of like-kind property (Chapter 6).
• Planning for retirement distributions. Lump-sum distributions from employer plans may qualify for special averaging or tax-free rollover (Chapter 7).
• IRA contributions and distributions. Penalties for distributions before age 59½ and after age 70½ may be avoided by advance planning (Chapter 8).
• Restrictions on rental losses where a rented residence is used personally by you or by family members during the year (Chapter 9).
• Passive activity restrictions. Losses from rentals or passive business operations are generally not allowed, but certain real estate professionals are exempt from the loss restrictions, and for others, a special rental loss allowance of up to $25,000 may be available (Chapter 10).
• Reporting refunds of state and local taxes. A refund of previously deducted taxes is generally taxable unless you had no benefit from the deduction (Chapter 11).
• Cancellation of debts. When your creditor cancels debts you owe, you generally have taxable income, but there are exceptions for debts discharged while you are bankrupt or insolvent (Chapter 11).
• Damages received in court proceedings. Learn when these are tax free and when taxable (Chapter 11).
• How life insurance proceeds are taxed (Chapter 11).