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1040 Ez Irs

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1040 Ez Irs

1040 ez irs 4. 1040 ez irs   Special Situations Table of Contents Condominiums CooperativesDepreciation Property Changed to Rental UseBasis of Property Changed to Rental Use Figuring the Depreciation Deduction Renting Part of Property Not Rented for ProfitPostponing decision. 1040 ez irs Example—Property Changed to Rental Use This chapter discusses some rental real estate activities that are subject to additional rules. 1040 ez irs Condominiums A condominium is most often a dwelling unit in a multi-unit building, but can also take other forms, such as a townhouse or garden apartment. 1040 ez irs If you own a condominium, you also own a share of the common elements, such as land, lobbies, elevators, and service areas. 1040 ez irs You and the other condominium owners may pay dues or assessments to a special corporation that is organized to take care of the common elements. 1040 ez irs Special rules apply if you rent your condominium to others. 1040 ez irs You can deduct as rental expenses all the expenses discussed in chapters 1 and 2. 1040 ez irs In addition, you can deduct any dues or assessments paid for maintenance of the common elements. 1040 ez irs You cannot deduct special assessments you pay to a condominium management corporation for improvements. 1040 ez irs However, you may be able to recover your share of the cost of any improvement by taking depreciation. 1040 ez irs Cooperatives If you live in a cooperative, you do not own your apartment. 1040 ez irs Instead, a corporation owns the apartments and you are a tenant-stockholder in the cooperative housing corporation. 1040 ez irs If you rent your apartment to others, you usually can deduct, as a rental expense, all the maintenance fees you pay to the cooperative housing corporation. 1040 ez irs In addition to the maintenance fees paid to the cooperative housing corporation, you can deduct your direct payments for repairs, upkeep, and other rental expenses, including interest paid on a loan used to buy your stock in the corporation. 1040 ez irs Depreciation You will be depreciating your stock in the corporation rather than the apartment itself. 1040 ez irs Figure your depreciation deduction as follows. 1040 ez irs Figure the depreciation for all the depreciable real property owned by the corporation. 1040 ez irs (Depreciation methods are discussed in chapter 2 of this publication and Publication 946. 1040 ez irs ) If you bought your cooperative stock after its first offering, figure the depreciable basis of this property as follows. 1040 ez irs Multiply your cost per share by the total number of outstanding shares. 1040 ez irs Add to the amount figured in (a) any mortgage debt on the property on the date you bought the stock. 1040 ez irs Subtract from the amount figured in (b) any mortgage debt that is not for the depreciable real property, such as the part for the land. 1040 ez irs Subtract from the amount figured in (1) any depreciation for space owned by the corporation that can be rented but cannot be lived in by tenant-stockholders. 1040 ez irs Divide the number of your shares of stock by the total number of shares outstanding, including any shares held by the corporation. 1040 ez irs Multiply the result of (2) by the percentage you figured in (3). 1040 ez irs This is your depreciation on the stock. 1040 ez irs Your depreciation deduction for the year cannot be more than the part of your adjusted basis (defined in chapter 2) in the stock of the corporation that is allocable to your rental property. 1040 ez irs Payments added to capital account. 1040 ez irs   Payments earmarked for a capital asset or improvement, or otherwise charged to the corporation's capital account are added to the basis of your stock in the corporation. 1040 ez irs For example, you cannot deduct a payment used to pave a community parking lot, install a new roof, or pay the principal of the corporation's mortgage. 1040 ez irs   Treat as a capital cost the amount you were assessed for capital items. 1040 ez irs This cannot be more than the amount by which your payments to the corporation exceeded your share of the corporation's mortgage interest and real estate taxes. 1040 ez irs   Your share of interest and taxes is the amount the corporation elected to allocate to you, if it reasonably reflects those expenses for your apartment. 1040 ez irs Otherwise, figure your share in the following manner. 1040 ez irs Divide the number of your shares of stock by the total number of shares outstanding, including any shares held by the corporation. 1040 ez irs Multiply the corporation's deductible interest by the number you figured in (1). 1040 ez irs This is your share of the interest. 1040 ez irs Multiply the corporation's deductible taxes by the number you figured in (1). 1040 ez irs This is your share of the taxes. 1040 ez irs Property Changed to Rental Use If you change your home or other property (or a part of it) to rental use at any time other than the beginning of your tax year, you must divide yearly expenses, such as taxes and insurance, between rental use and personal use. 1040 ez irs You can deduct as rental expenses only the part of the expense that is for the part of the year the property was used or held for rental purposes. 1040 ez irs You cannot deduct depreciation or insurance for the part of the year the property was held for personal use. 1040 ez irs However, you can include the home mortgage interest, qualified mortgage insurance premiums, and real estate tax expenses for the part of the year the property was held for personal use as an itemized deduction on Schedule A (Form 1040). 1040 ez irs Example. 1040 ez irs Your tax year is the calendar year. 1040 ez irs You moved from your home in May and started renting it out on June 1. 1040 ez irs You can deduct as rental expenses seven-twelfths of your yearly expenses, such as taxes and insurance. 1040 ez irs Starting with June, you can deduct as rental expenses the amounts you pay for items generally billed monthly, such as utilities. 1040 ez irs When figuring depreciation, treat the property as placed in service on June 1. 1040 ez irs Basis of Property Changed to Rental Use When you change property you held for personal use to rental use (for example, you rent your former home), the basis for depreciation will be the lesser of fair market value or adjusted basis on the date of conversion. 1040 ez irs Fair market value. 1040 ez irs   This is the price at which the property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all the relevant facts. 1040 ez irs Sales of similar property, on or about the same date, may be helpful in figuring the fair market value of the property. 1040 ez irs Figuring the basis. 1040 ez irs   The basis for depreciation is the lesser of: The fair market value of the property on the date you changed it to rental use, or Your adjusted basis on the date of the change—that is, your original cost or other basis of the property, plus the cost of permanent additions or improvements since you acquired it, minus deductions for any casualty or theft losses claimed on earlier years' income tax returns and other decreases to basis. 1040 ez irs For other increases and decreases to basis, see Adjusted Basis in chapter 2. 1040 ez irs Example. 1040 ez irs Several years ago you built your home for $140,000 on a lot that cost you $14,000. 1040 ez irs Before changing the property to rental use this year, you added $28,000 of permanent improvements to the house and claimed a $3,500 casualty loss deduction for damage to the house. 1040 ez irs Part of the improvements qualified for a $500 residential energy credit, which you claimed on your 2010 tax return. 1040 ez irs Because land is not depreciable, you can only include the cost of the house when figuring the basis for depreciation. 1040 ez irs The adjusted basis of the house at the time of the change in its use was $164,000 ($140,000 + $28,000 − $3,500 − $500). 1040 ez irs On the date of the change in use, your property had a fair market value of $168,000, of which $21,000 was for the land and $147,000 was for the house. 1040 ez irs The basis for depreciation on the house is the fair market value on the date of the change ($147,000), because it is less than your adjusted basis ($164,000). 1040 ez irs Cooperatives If you change your cooperative apartment to rental use, figure your allowable depreciation as explained earlier. 1040 ez irs (Depreciation methods are discussed in chapter 2 of this publication and Publication 946. 1040 ez irs ) The basis of all the depreciable real property owned by the cooperative housing corporation is the smaller of the following amounts. 1040 ez irs The fair market value of the property on the date you change your apartment to rental use. 1040 ez irs This is considered to be the same as the corporation's adjusted basis minus straight line depreciation, unless this value is unrealistic. 1040 ez irs The corporation's adjusted basis in the property on that date. 1040 ez irs Do not subtract depreciation when figuring the corporation's adjusted basis. 1040 ez irs If you bought the stock after its first offering, the corporation's adjusted basis in the property is the amount figured in (1) under Depreciation (under Cooperatives, near the beginning of this chapter). 1040 ez irs The fair market value of the property is considered to be the same as the corporation's adjusted basis figured in this way minus straight line depreciation, unless the value is unrealistic. 1040 ez irs Figuring the Depreciation Deduction To figure the deduction, use the depreciation system in effect when you convert your residence to rental use. 1040 ez irs Generally, that will be MACRS for any conversion after 1986. 1040 ez irs Treat the property as placed in service on the conversion date. 1040 ez irs Example. 1040 ez irs Your converted residence (see previous example under Figuring the basis) was available for rent on August 1. 1040 ez irs Using Table 2-2d (see chapter 2), the percentage for Year 1 beginning in August is 1. 1040 ez irs 364% and the depreciation deduction for Year 1 is $2,005 ($147,000 × . 1040 ez irs 01364). 1040 ez irs Renting Part of Property If you rent part of your property, you must divide certain expenses between the part of the property used for rental purposes and the part of the property used for personal purposes, as though you actually had two separate pieces of property. 1040 ez irs You can deduct the expenses related to the part of the property used for rental purposes, such as home mortgage interest, qualified mortgage insurance premiums, and real estate taxes, as rental expenses on Schedule E (Form 1040). 1040 ez irs You can also deduct as rental expenses a portion of other expenses that normally are nondeductible personal expenses, such as expenses for electricity, or painting the outside of the house. 1040 ez irs There is no change in the types of expenses deductible for the personal-use part of your property. 1040 ez irs Generally, these expenses may be deducted only if you itemize your deductions on Schedule A (Form 1040). 1040 ez irs You cannot deduct any part of the cost of the first phone line even if your tenants have unlimited use of it. 1040 ez irs You do not have to divide the expenses that belong only to the rental part of your property. 1040 ez irs For example, if you paint a room that you rent, or if you pay premiums for liability insurance in connection with renting a room in your home, your entire cost is a rental expense. 1040 ez irs If you install a second phone line strictly for your tenant's use, all of the cost of the second line is deductible as a rental expense. 1040 ez irs You can deduct depreciation on the part of the house used for rental purposes as well as on the furniture and equipment you use for rental purposes. 1040 ez irs How to divide expenses. 1040 ez irs   If an expense is for both rental use and personal use, such as mortgage interest or heat for the entire house, you must divide the expense between rental use and personal use. 1040 ez irs You can use any reasonable method for dividing the expense. 1040 ez irs It may be reasonable to divide the cost of some items (for example, water) based on the number of people using them. 1040 ez irs The two most common methods for dividing an expense are (1) the number of rooms in your home, and (2) the square footage of your home. 1040 ez irs Example. 1040 ez irs You rent a room in your house. 1040 ez irs The room is 12 × 15 feet, or 180 square feet. 1040 ez irs Your entire house has 1,800 square feet of floor space. 1040 ez irs You can deduct as a rental expense 10% of any expense that must be divided between rental use and personal use. 1040 ez irs If your heating bill for the year for the entire house was $600, $60 ($600 × . 1040 ez irs 10) is a rental expense. 1040 ez irs The balance, $540, is a personal expense that you cannot deduct. 1040 ez irs Duplex. 1040 ez irs   A common situation is the duplex where you live in one unit and rent out the other. 1040 ez irs Certain expenses apply to the entire property, such as mortgage interest and real estate taxes, and must be split to determine rental and personal expenses. 1040 ez irs Example. 1040 ez irs You own a duplex and live in one half, renting the other half. 1040 ez irs Both units are approximately the same size. 1040 ez irs Last year, you paid a total of $10,000 mortgage interest and $2,000 real estate taxes for the entire property. 1040 ez irs You can deduct $5,000 mortgage interest and $1,000 real estate taxes on Schedule E (Form 1040), and if you itemize your deductions, you can deduct the other $5,000 mortgage interest and $1,000 real estate taxes on Schedule A (Form 1040). 1040 ez irs Not Rented for Profit If you do not rent your property to make a profit, you can deduct your rental expenses only up to the amount of your rental income. 1040 ez irs You cannot deduct a loss or carry forward to the next year any rental expenses that are more than your rental income for the year. 1040 ez irs Where to report. 1040 ez irs   Report your not-for-profit rental income on Form 1040 or 1040NR, line 21. 1040 ez irs For example, if you are filing Form 1040, you can include your mortgage interest and any qualified mortgage insurance premiums (if you use the property as your main home or second home), real estate taxes, and casualty losses on the appropriate lines of Schedule A (Form 1040) if you itemize your deductions. 1040 ez irs   If you itemize your deductions, claim your other rental expenses, subject to the rules explained in chapter 1 of Publication 535, as miscellaneous itemized deductions on Schedule A (Form 1040), line 23, or Schedule A (Form 1040NR), line 9. 1040 ez irs You can deduct these expenses only if they, together with certain other miscellaneous itemized deductions, total more than 2% of your adjusted gross income. 1040 ez irs Presumption of profit. 1040 ez irs   If your rental income is more than your rental expenses for at least 3 years out of a period of 5 consecutive years, you are presumed to be renting your property to make a profit. 1040 ez irs Postponing decision. 1040 ez irs   If you are starting your rental activity and do not have 3 years showing a profit, you can elect to have the presumption made after you have the 5 years of experience required by the test. 1040 ez irs You may choose to postpone the decision of whether the rental is for profit by filing Form 5213. 1040 ez irs You must file Form 5213 within 3 years after the due date of your return (determined without extensions) for the year in which you first carried on the activity or, if earlier, within 60 days after receiving written notice from the Internal Revenue Service proposing to disallow deductions attributable to the activity. 1040 ez irs More information. 1040 ez irs   For more information about the rules for an activity not engaged in for profit, see Not-for-Profit Activities in chapter 1 of Publication 535. 1040 ez irs Example—Property Changed to Rental Use In January, Eileen Johnson bought a condominium apartment to live in. 1040 ez irs Instead of selling the house she had been living in, she decided to change it to rental property. 1040 ez irs Eileen selected a tenant and started renting the house on February 1. 1040 ez irs Eileen charges $750 a month for rent and collects it herself. 1040 ez irs Eileen also received a $750 security deposit from her tenant. 1040 ez irs Because she plans to return it to her tenant at the end of the lease, she does not include it in her income. 1040 ez irs Her rental expenses for the year are as follows. 1040 ez irs   Mortgage interest $1,800     Fire insurance (1-year policy) 100     Miscellaneous repairs (after renting) 297     Real estate taxes imposed and paid 1,200   Eileen must divide the real estate taxes, mortgage interest, and fire insurance between the personal use of the property and the rental use of the property. 1040 ez irs She can deduct eleven-twelfths of these expenses as rental expenses. 1040 ez irs She can include the balance of the allowable taxes and mortgage interest on Schedule A (Form 1040) if she itemizes. 1040 ez irs She cannot deduct the balance of the fire insurance because it is a personal expense. 1040 ez irs Eileen bought this house in 1984 for $35,000. 1040 ez irs Her property tax was based on assessed values of $10,000 for the land and $25,000 for the house. 1040 ez irs Before changing it to rental property, Eileen added several improvements to the house. 1040 ez irs She figures her adjusted basis as follows:   Improvements Cost     House $25,000     Remodeled kitchen 4,200     Recreation room 5,800     New roof 1,600     Patio and deck 2,400     Adjusted basis $39,000   On February 1, when Eileen changed her house to rental property, the property had a fair market value of $152,000. 1040 ez irs Of this amount, $35,000 was for the land and $117,000 was for the house. 1040 ez irs Because Eileen's adjusted basis is less than the fair market value on the date of the change, Eileen uses $39,000 as her basis for depreciation. 1040 ez irs As specified for residential rental property, Eileen must use the straight line method of depreciation over the GDS or ADS recovery period. 1040 ez irs She chooses the GDS recovery period of 27. 1040 ez irs 5 years. 1040 ez irs She uses Table 2-2d to find her depreciation percentage. 1040 ez irs Since she placed the property in service in February, the percentage is 3. 1040 ez irs 182%. 1040 ez irs On April 1, Eileen bought a new dishwasher for the rental property at a cost of $425. 1040 ez irs The dishwasher is personal property used in a rental real estate activity, which has a 5-year recovery period. 1040 ez irs She uses Table 2-2a to find the percentage for Year 1 under “Half-year convention” (20%) to figure her depreciation deduction. 1040 ez irs On May 1, Eileen paid $4,000 to have a furnace installed in the house. 1040 ez irs The furnace is residential rental property. 1040 ez irs Because she placed the property in service in May, the percentage from Table 2-2d is 2. 1040 ez irs 273%. 1040 ez irs Eileen figures her net rental income or loss for the house as follows: Total rental income received  ($750 × 11) $8,250 Minus: Expenses     Mortgage interest ($1,800 × 11/12) $1,650   Fire insurance ($100 × 11/12) 92   Miscellaneous repairs 297   Real estate taxes ($1,200 × 11/12) 1,100   Total expenses 3,139 Balance $5,111 Minus: Depreciation     House ($39,000 × . 1040 ez irs 03182) $1,241   Dishwasher ($425 × . 1040 ez irs 20) 85   Furnace ($4,000 × . 1040 ez irs 02273) 91   Total depreciation 1,417 Net rental income for house   $3,694       Eileen uses Schedule E, Part I, to report her rental income and expenses. 1040 ez irs She enters her income, expenses, and depreciation for the house in the column for Property A. 1040 ez irs Since all property was placed in service this year, Eileen must use Form 4562 to figure the depreciation. 1040 ez irs See the Instructions for Form 4562 for more information on preparing the form. 1040 ez irs Prev  Up  Next   Home   More Online Publications
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The 1040 Ez Irs

1040 ez irs 14. 1040 ez irs   Penalties and Interest Table of Contents Penalties and interest may result from any of the following acts. 1040 ez irs Failing to collect and pay over tax as the collecting agent (see Trust fund recovery penalty, later). 1040 ez irs Failing to keep adequate records. 1040 ez irs Failing to file returns. 1040 ez irs Failing to pay taxes. 1040 ez irs Filing returns late. 1040 ez irs Filing false or fraudulent returns. 1040 ez irs Paying taxes late. 1040 ez irs Failing to make deposits. 1040 ez irs Depositing taxes late. 1040 ez irs Making false statements relating to tax. 1040 ez irs Failing to register. 1040 ez irs Misrepresenting that tax is excluded from the price of an article. 1040 ez irs Failure to register. 1040 ez irs   The penalty for failure to register if you are required to register, unless due to reasonable cause, is $10,000 for the initial failure, and then $1,000 each day thereafter you fail to register. 1040 ez irs Claims. 1040 ez irs   There are criminal penalties for false or fraudulent claims. 1040 ez irs In addition, any person who files a refund claim, discussed earlier, for an excessive amount (without reasonable cause) may have to pay a penalty. 1040 ez irs An excessive amount is the amount claimed that is more than the allowable amount. 1040 ez irs The penalty is the greater of two times the excessive amount or $10. 1040 ez irs Trust fund recovery penalty. 1040 ez irs   If you provide taxable communications, air transportation services, or indoor tanning services, you have to collect excise taxes (as discussed earlier) from those persons who pay you for those services. 1040 ez irs You must pay over these taxes to the U. 1040 ez irs S. 1040 ez irs Government. 1040 ez irs   If you willfully fail to collect or pay over these taxes, or if you evade or defeat them in any way, the trust fund recovery penalty may apply. 1040 ez irs Willfully means voluntarily, consciously, and intentionally. 1040 ez irs The trust fund recovery penalty equals 100% of the taxes not collected or not paid over to the U. 1040 ez irs S. 1040 ez irs Government. 1040 ez irs   The trust fund recovery penalty may be imposed on any person responsible for collecting, accounting for, and paying over these taxes. 1040 ez irs If this person knows that these required actions are not taking place for whatever reason, the person is acting willfully. 1040 ez irs Paying other expenses of the business instead of paying the taxes is willful behavior. 1040 ez irs   A responsible person can be an officer or employee of a corporation, a partner or employee of a partnership, or any other person who had responsibility for certain aspects of the business and financial affairs of the employer (or business). 1040 ez irs This may include accountants, trustees in bankruptcy, members of a board, banks, insurance companies, or sureties. 1040 ez irs The responsible person could even be another corporation—in other words, anyone who has the duty and the ability to direct, account for, or pay over the money. 1040 ez irs Having signature power on the business checking account could be a significant factor in determining responsibility. 1040 ez irs Prev  Up  Next   Home   More Online Publications