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1040 Ez Tax

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1040 Ez Tax

1040 ez tax 3. 1040 ez tax   Exclusions From Gross Income Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Resident AliensForeign Earned Income and Housing Amount Nonresident AliensInterest Income Dividend Income Services Performed for Foreign Employer Gambling Winnings From Dog or Horse Racing Gain From the Sale of Your Main Home Scholarships and Fellowship GrantsExpenses that do not qualify. 1040 ez tax Introduction Resident and nonresident aliens are allowed exclusions from gross income if they meet certain conditions. 1040 ez tax An exclusion from gross income is generally income you receive that is not included in your U. 1040 ez tax S. 1040 ez tax income and is not subject to U. 1040 ez tax S. 1040 ez tax tax. 1040 ez tax This chapter covers some of the more common exclusions allowed to resident and nonresident aliens. 1040 ez tax Topics - This chapter discusses: Nontaxable interest, Nontaxable dividends, Certain compensation paid by a foreign employer, Gain from sale of home, and Scholarships and fellowship grants. 1040 ez tax Useful Items - You may want to see: Publication 54 Tax Guide for U. 1040 ez tax S. 1040 ez tax Citizens and Resident Aliens Abroad 523 Selling Your Home See chapter 12 for information about getting these publications. 1040 ez tax Resident Aliens Resident aliens may be able to exclude the following items from their gross income. 1040 ez tax Foreign Earned Income and Housing Amount If you are physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months, you may qualify for the foreign earned income exclusion. 1040 ez tax The exclusion is $97,600 in 2013. 1040 ez tax In addition, you may be able to exclude or deduct certain foreign housing amounts. 1040 ez tax You may also qualify if you are a bona fide resident of a foreign country and you are a citizen or national of a country with which the United States has an income tax treaty. 1040 ez tax For more information, see Publication 54. 1040 ez tax Foreign country. 1040 ez tax    A foreign country is any territory under the sovereignty of a government other than that of the United States. 1040 ez tax   The term “foreign country” includes the country's territorial waters and airspace, but not international waters and the airspace above them. 1040 ez tax It also includes the seabed and subsoil of those submarine areas adjacent to the country's territorial waters over which it has exclusive rights under international law to explore and exploit the natural resources. 1040 ez tax   The term “foreign country” does not include U. 1040 ez tax S. 1040 ez tax possessions or territories. 1040 ez tax It does not include the Antarctic region. 1040 ez tax Nonresident Aliens Nonresident aliens can exclude the following items from their gross income. 1040 ez tax Interest Income Interest income that is not connected with a U. 1040 ez tax S. 1040 ez tax trade or business is excluded from income if it is from: Deposits (including certificates of deposit) with persons in the banking business, Deposits or withdrawable accounts with mutual savings banks, cooperative banks, credit unions, domestic building and loan associations, and other savings institutions chartered and supervised as savings and loan or similar associations under federal or state law (if the interest paid or credited can be deducted by the association), and Amounts held by an insurance company under an agreement to pay interest on them. 1040 ez tax State and local government obligations. 1040 ez tax   Interest on obligations of a state or political subdivision, the District of Columbia, or a U. 1040 ez tax S. 1040 ez tax possession, generally is not included in income. 1040 ez tax However, interest on certain private activity bonds, arbitrage bonds, and certain bonds not in registered form is included in income. 1040 ez tax Portfolio interest. 1040 ez tax   Interest and original issue discount that qualifies as portfolio interest is not subject to NRA withholding. 1040 ez tax To qualify as portfolio interest, the interest must be paid on obligations issued after July 18, 1984, and otherwise subject to NRA withholding. 1040 ez tax Note. 1040 ez tax For obligations issued after March 18, 2012, portfolio interest does not include interest paid on debt that is not in registered form. 1040 ez tax Before March 19, 2012, portfolio interest included interest on certain registered and nonregistered (bearer) bonds if the obligations meet the requirements described below. 1040 ez tax Obligations in registered form. 1040 ez tax   Portfolio interest includes interest paid on an obligation that is in registered form, and for which you have received documentation that the beneficial owner of the obligation is not a United States person. 1040 ez tax   Generally, an obligation is in registered form if: (i) the obligation is registered as to both principal and any stated interest with the issuer (or its agent) and any transfer of the obligation may be effected only by surrender of the old obligation and reissuance to the new holder; (ii) the right to principal and stated interest with respect to the obligation may be transferred only through a book entry system maintained by the issuer or its agent; or (iii) the obligation is registered as to both principal and stated interest with the issuer or its agent and can be transferred both by surrender and reissuance and through a book entry system. 1040 ez tax   An obligation that would otherwise be considered to be in registered form is not considered to be in registered form as of a particular time if it can be converted at any time in the future into an obligation that is not in registered form. 1040 ez tax For more information on whether obligations are considered to be in registered form, see Portfolio interest in Publication 515. 1040 ez tax Obligations not in registered form. 1040 ez tax    For obligations issued before March 19, 2012, interest on an obligation that is not in registered form (bearer obligation) is portfolio interest if the obligation is foreign-targeted. 1040 ez tax A bearer obligation is foreign-targeted if: There are arrangements to ensure that the obligation will be sold, or resold in connection with the original issue, only to a person who is not a United States person, Interest on the obligation is payable only outside the United States and its possessions, and The face of the obligation contains a statement that any United States person who holds the obligation will be subject to limits under the United States income tax laws. 1040 ez tax   Documentation is not required for interest on bearer obligations to qualify as portfolio interest. 1040 ez tax In some cases, however, you may need documentation for purposes of Form 1099 reporting and backup withholding. 1040 ez tax Interest that does not qualify as portfolio interest. 1040 ez tax   Payments to certain persons and payments of contingent interest do not qualify as portfolio interest. 1040 ez tax You must withhold at the statutory rate on such payments unless some other exception, such as a treaty provision, applies. 1040 ez tax Contingent interest. 1040 ez tax   Portfolio interest does not include contingent interest. 1040 ez tax Contingent interest is either of the following: Interest that is determined by reference to: Any receipts, sales, or other cash flow of the debtor or related person, Income or profits of the debtor or related person, Any change in value of any property of the debtor or a related person, or Any dividend, partnership distributions, or similar payments made by the debtor or a related person. 1040 ez tax For exceptions, see Internal Revenue Code section 871(h)(4)(C). 1040 ez tax Any other type of contingent interest that is identified by the Secretary of the Treasury in regulations. 1040 ez tax Related persons. 1040 ez tax   Related persons include the following. 1040 ez tax Members of a family, including only brothers, sisters, half-brothers, half-sisters, spouse, ancestors (parents, grandparents, etc. 1040 ez tax ), and lineal descendants (children, grandchildren, etc. 1040 ez tax ). 1040 ez tax Any person who is a party to any arrangement undertaken for the purpose of avoiding the contingent interest rules. 1040 ez tax Certain corporations, partnerships, and other entities. 1040 ez tax For details, see Nondeductible Loss in chapter 2 of Publication 544. 1040 ez tax Exception for existing debt. 1040 ez tax   Contingent interest does not include interest paid or accrued on any debt with a fixed term that was issued: On or before April 7, 1993, or After April 7, 1993, pursuant to a written binding contract in effect on that date and at all times thereafter before that debt was issued. 1040 ez tax Dividend Income The following dividend income is exempt from the 30% tax. 1040 ez tax Certain dividends paid by foreign corporations. 1040 ez tax   There is no 30% tax on U. 1040 ez tax S. 1040 ez tax source dividends you receive from a foreign corporation. 1040 ez tax See Second exception under Dividends in chapter 2 for how to figure the amount of U. 1040 ez tax S. 1040 ez tax source dividends. 1040 ez tax Certain interest-related dividends. 1040 ez tax   There is no 30% tax on interest-related dividends from sources within the United States that you receive from a mutual fund or other regulated investment company in 2013. 1040 ez tax The mutual fund will designate in writing which dividends are interest-related dividends. 1040 ez tax Certain short-term capital gain dividends. 1040 ez tax   There may not be any 30% tax on certain short-term capital gain dividends from sources within the United States that you receive from a mutual fund or other regulated investment company. 1040 ez tax The mutual fund will designate in writing which dividends are short-term capital gain dividends. 1040 ez tax This tax relief will not apply to you if you are present in the United States for 183 days or more during your tax year. 1040 ez tax Services Performed for Foreign Employer If you were paid by a foreign employer, your U. 1040 ez tax S. 1040 ez tax source income may be exempt from U. 1040 ez tax S. 1040 ez tax tax, but only if you meet one of the situations discussed next. 1040 ez tax Employees of foreign persons, organizations, or offices. 1040 ez tax   Income for personal services performed in the United States as a nonresident alien is not considered to be from U. 1040 ez tax S. 1040 ez tax sources and is tax exempt if you meet all three of the following conditions. 1040 ez tax You perform personal services as an employee of or under a contract with a nonresident alien individual, foreign partnership, or foreign corporation, not engaged in a trade or business in the United States; or you work for an office or place of business maintained in a foreign country or possession of the United States by a U. 1040 ez tax S. 1040 ez tax corporation, a U. 1040 ez tax S. 1040 ez tax partnership, or a U. 1040 ez tax S. 1040 ez tax citizen or resident. 1040 ez tax You perform these services while you are a nonresident alien temporarily present in the United States for a period or periods of not more than a total of 90 days during the tax year. 1040 ez tax Your pay for these services is not more than $3,000. 1040 ez tax If you do not meet all three conditions, your income from personal services performed in the United States is U. 1040 ez tax S. 1040 ez tax source income and is taxed according to the rules in chapter 4. 1040 ez tax   If your pay for these services is more than $3,000, the entire amount is income from a trade or business within the United States. 1040 ez tax To find if your pay is more than $3,000, do not include any amounts you get from your employer for advances or reimbursements of business travel expenses, if you were required to and did account to your employer for those expenses. 1040 ez tax If the advances or reimbursements are more than your expenses, include the excess in your pay for these services. 1040 ez tax   A day means a calendar day during any part of which you are physically present in the United States. 1040 ez tax Example 1. 1040 ez tax During 2013, Henry Smythe, a nonresident alien from a nontreaty country, worked for an overseas office of a U. 1040 ez tax S. 1040 ez tax partnership. 1040 ez tax Henry, who uses the calendar year as his tax year, was temporarily present in the United States for 60 days during 2013 performing personal services for the overseas office of the partnership. 1040 ez tax That office paid him a total gross salary of $2,800 for those services. 1040 ez tax During 2013, he was not engaged in a trade or business in the United States. 1040 ez tax The salary is not considered U. 1040 ez tax S. 1040 ez tax source income and is exempt from U. 1040 ez tax S. 1040 ez tax tax. 1040 ez tax Example 2. 1040 ez tax The facts are the same as in Example 1, except that Henry's total gross salary for the services performed in the United States during 2013 was $4,500. 1040 ez tax He received $2,875 in 2013, and $1,625 in 2014. 1040 ez tax During 2013, he was engaged in a trade or business in the United States because the compensation for his personal services in the United States was more than $3,000. 1040 ez tax Henry's salary is U. 1040 ez tax S. 1040 ez tax source income and is taxed under the rules in chapter 4. 1040 ez tax Crew members. 1040 ez tax   Compensation for services performed by a nonresident alien in connection with the individual's temporary presence in the United States as a regular crew member of a foreign vessel (for example, a boat or ship) engaged in transportation between the United States and a foreign country or U. 1040 ez tax S. 1040 ez tax possession is not U. 1040 ez tax S. 1040 ez tax source income and is exempt from U. 1040 ez tax S. 1040 ez tax tax. 1040 ez tax This exemption does not apply to compensation for services performed on foreign aircraft. 1040 ez tax Students and exchange visitors. 1040 ez tax   Nonresident alien students and exchange visitors present in the United States under “F,” “J,” or “Q” visas can exclude from gross income pay received from a foreign employer. 1040 ez tax   This group includes bona fide students, scholars, trainees, teachers, professors, research assistants, specialists, or leaders in a field of specialized knowledge or skill, or persons of similar description. 1040 ez tax It also includes the alien's spouse and minor children if they come with the alien or come later to join the alien. 1040 ez tax   A nonresident alien temporarily present in the United States under a “J” visa includes an alien individual entering the United States as an exchange visitor under the Mutual Educational and Cultural Exchange Act of 1961. 1040 ez tax Foreign employer. 1040 ez tax   A foreign employer is: A nonresident alien individual, foreign partnership, or foreign corporation, or An office or place of business maintained in a foreign country or in a U. 1040 ez tax S. 1040 ez tax possession by a U. 1040 ez tax S. 1040 ez tax corporation, a U. 1040 ez tax S. 1040 ez tax partnership, or an individual who is a U. 1040 ez tax S. 1040 ez tax citizen or resident. 1040 ez tax   The term “foreign employer” does not include a foreign government. 1040 ez tax Pay from a foreign government that is exempt from U. 1040 ez tax S. 1040 ez tax income tax is discussed in chapter 10. 1040 ez tax Income from certain annuities. 1040 ez tax   Do not include in income any annuity received under a qualified annuity plan or from a qualified trust exempt from U. 1040 ez tax S. 1040 ez tax income tax if you meet both of the following conditions. 1040 ez tax You receive the annuity only because: You performed personal services outside the United States while you were a nonresident alien, or You performed personal services inside the United States while you were a nonresident alien and you met the three conditions, described earlier, under Employees of foreign persons, organizations, or offices . 1040 ez tax At the time the first amount is paid as an annuity under the plan (or by the trust), 90% or more of the employees for whom contributions or benefits are provided under the annuity plan (or under the plan of which the trust is a part) are U. 1040 ez tax S. 1040 ez tax citizens or residents. 1040 ez tax   If the annuity qualifies under condition (1) but not condition (2) above, you do not have to include the amount in income if: You are a resident of a country that gives a substantially equal exclusion to U. 1040 ez tax S. 1040 ez tax citizens and residents, or You are a resident of a beneficiary developing country under Title V of the Trade Act of 1974. 1040 ez tax   If you are not sure whether the annuity is from a qualified annuity plan or qualified trust, ask the person who made the payment. 1040 ez tax Income affected by treaties. 1040 ez tax   Income of any kind that is exempt from U. 1040 ez tax S. 1040 ez tax tax under a treaty to which the United States is a party is excluded from your gross income. 1040 ez tax Income on which the tax is only limited by treaty, however, is included in gross income. 1040 ez tax See chapter 9. 1040 ez tax Gambling Winnings From Dog or Horse Racing You can exclude from your gross income winnings from legal wagers initiated outside the United States in a parimutuel pool with respect to a live horse or dog race in the United States. 1040 ez tax Gain From the Sale of Your Main Home If you sold your main home, you may be able to exclude up to $250,000 of the gain on the sale of your home. 1040 ez tax If you are married and file a joint return, you may be able to exclude up to $500,000. 1040 ez tax For information on the requirements for this exclusion, see Publication 523. 1040 ez tax This exclusion does not apply to nonresident aliens who are subject to the expatriation tax rules discussed in chapter 4. 1040 ez tax Scholarships and Fellowship Grants If you are a candidate for a degree, you may be able to exclude from your income part or all of the amounts you receive as a qualified scholarship. 1040 ez tax The rules discussed here apply to both resident and nonresident aliens. 1040 ez tax If a nonresident alien receives a grant that is not from U. 1040 ez tax S. 1040 ez tax sources, it is not subject to U. 1040 ez tax S. 1040 ez tax tax. 1040 ez tax See Scholarships, Grants, Prizes, and Awards in chapter 2 to determine whether your grant is from U. 1040 ez tax S. 1040 ez tax sources. 1040 ez tax A scholarship or fellowship is excludable from income only if: You are a candidate for a degree at an eligible educational institution, and You use the scholarship or fellowship to pay qualified education expenses. 1040 ez tax Candidate for a degree. 1040 ez tax   You are a candidate for a degree if you: Attend a primary or secondary school or are pursuing a degree at a college or university, or Attend an accredited educational institution that is authorized to provide: A program that is acceptable for full credit toward a bachelor's or higher degree, or A program of training to prepare students for gainful employment in a recognized occupation. 1040 ez tax Eligible educational institution. 1040 ez tax   An eligible educational institution is one that maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance at the place where it carries on its educational activities. 1040 ez tax Qualified education expenses. 1040 ez tax   These are expenses for: Tuition and fees required to enroll at or attend an eligible educational institution, and Course-related expenses, such as fees, books, supplies, and equipment that are required for the courses at the eligible educational institution. 1040 ez tax These items must be required of all students in your course of instruction. 1040 ez tax However, in order for these to be qualified education expenses, the terms of the scholarship or fellowship cannot require that it be used for other purposes, such as room and board, or specify that it cannot be used for tuition or course-related expenses. 1040 ez tax Expenses that do not qualify. 1040 ez tax   Qualified education expenses do not include the cost of: Room and board, Travel, Research, Clerical help, or Equipment and other expenses that are not required for enrollment in or attendance at an eligible educational institution. 1040 ez tax This is true even if the fee must be paid to the institution as a condition of enrollment or attendance. 1040 ez tax Scholarship or fellowship amounts used to pay these costs are taxable. 1040 ez tax Amounts used to pay expenses that do not qualify. 1040 ez tax   A scholarship amount used to pay any expense that does not qualify is taxable, even if the expense is a fee that must be paid to the institution as a condition of enrollment or attendance. 1040 ez tax Payment for services. 1040 ez tax   You cannot exclude from income the portion of any scholarship, fellowship, or tuition reduction that represents payment for past, present, or future teaching, research, or other services. 1040 ez tax This is true even if all candidates for a degree are required to perform the services as a condition for receiving the degree. 1040 ez tax Example. 1040 ez tax On January 7, Maria Gomez is notified of a scholarship of $2,500 for the spring semester. 1040 ez tax As a condition for receiving the scholarship, Maria must serve as a part-time teaching assistant. 1040 ez tax Of the $2,500 scholarship, $1,000 represents payment for her services. 1040 ez tax Assuming that Maria meets all other conditions, she can exclude no more than $1,500 from income as a qualified scholarship. 1040 ez tax Prev  Up  Next   Home   More Online Publications
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Updated IRS Smartphone App IRS2Go Version 4.0 Now Available

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IR-2014-11, Feb. 4, 2014

WASHINGTON — The Internal Revenue Service today announced the release of IRS2Go 4.0, an update to its smartphone application featuring new added features available in both English and Spanish.

The redesigned IRS2Go provides new features for taxpayers to access the latest information to help them in the preparation of their tax returns. In this version, IRS2Go highlights the addition of an innovative new refund status tracker, providing taxpayers an easy-to-use feature to follow their tax return throughout the process.

 “The new version of IRS2Go provides taxpayers another way to quickly get information and help around the clock,” said IRS Commissioner John Koskinen. “The IRS is focused on providing taxpayers with convenient self-service tools like IRS2Go, which provides details on everything from tax refunds to free tax assistance.”

There have been about 3.5 million downloads of IRS2Go since its inception in 2011. iPhone and iPod Touch users can update or download the free IRS2Go application by visiting the iTunes App Store. Android users can visit Google Play to download the free IRS2Go app.

The newest version of the free mobile app offers a number of safe and secure ways for taxpayers to access other popular tools and the most up-to-date tax information, including:

  • Refund Status. Taxpayers can check the status of their federal tax refund through IRS2Go. People simply enter their Social Security number, which will be masked and encrypted for security purposes, then select their filing status and enter the amount of their anticipated refund for their 2013 tax return. A new refund status tracker has been added so that taxpayers can follow their tax return throughout the process. Users can check their refund status 24 hours after the IRS acknowledges receipt of an e-filed return, or four weeks after mailing a paper return. The IRS reminds taxpayers the tool is updated just once a day, usually overnight, so there is no reason to check more than once a day.

  • Free Tax Prep Providers. The IRS Volunteer Income Tax Assistance (VITA) and the Tax Counseling for the Elderly (TCE) Programs offer free tax help for taxpayers who qualify. This brand new tool on IRS2Go will help taxpayers find the nearest VITA site to their home by simply entering their zip code and selecting a mileage range. By clicking on the directions button within the results, the maps application on the device will load with the address, making it easy to navigate to your desired location.

  • Tax Records. Taxpayers can request their tax account or tax return transcript from IRS2Go. The transcript will be delivered via the U.S. Postal Service to their address of record.

  • Stay Connected. Taxpayers can interact with the IRS by following the IRS on Twitter, @IRSnews or @IRSenEspanol, watching helpful videos on YouTube, signing up for email updates or by using the Contact Us feature.

For more information on IRS2Go, products and services through social media channels and other media products, visit www.IRS.gov.

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Page Last Reviewed or Updated: 04-Feb-2014

The 1040 Ez Tax

1040 ez tax 3. 1040 ez tax   Rent Expense Table of Contents Introduction Topics - This chapter discusses: RentConditional sales contract. 1040 ez tax Leveraged leases. 1040 ez tax Leveraged leases of limited-use property. 1040 ez tax Taxes on Leased Property Cost of Getting a Lease Improvements by Lessee Capitalizing Rent Expenses Introduction This chapter discusses the tax treatment of rent or lease payments you make for property you use in your business but do not own. 1040 ez tax It also discusses how to treat other kinds of payments you make that are related to your use of this property. 1040 ez tax These include payments you make for taxes on the property. 1040 ez tax Topics - This chapter discusses: The definition of rent Taxes on leased property The cost of getting a lease Improvements by the lessee Capitalizing rent expenses Rent Rent is any amount you pay for the use of property you do not own. 1040 ez tax In general, you can deduct rent as an expense only if the rent is for property you use in your trade or business. 1040 ez tax If you have or will receive equity in or title to the property, the rent is not deductible. 1040 ez tax Unreasonable rent. 1040 ez tax   You cannot take a rental deduction for unreasonable rent. 1040 ez tax Ordinarily, the issue of reasonableness arises only if you and the lessor are related. 1040 ez tax Rent paid to a related person is reasonable if it is the same amount you would pay to a stranger for use of the same property. 1040 ez tax Rent is not unreasonable just because it is figured as a percentage of gross sales. 1040 ez tax For examples of related persons, see Related persons in chapter 2, Publication 544. 1040 ez tax Rent on your home. 1040 ez tax   If you rent your home and use part of it as your place of business, you may be able to deduct the rent you pay for that part. 1040 ez tax You must meet the requirements for business use of your home. 1040 ez tax For more information, see Business use of your home in chapter 1. 1040 ez tax Rent paid in advance. 1040 ez tax   Generally, rent paid in your trade or business is deductible in the year paid or accrued. 1040 ez tax If you pay rent in advance, you can deduct only the amount that applies to your use of the rented property during the tax year. 1040 ez tax You can deduct the rest of your payment only over the period to which it applies. 1040 ez tax Example 1. 1040 ez tax You are a calendar year taxpayer and you leased a building for 5 years beginning July 1. 1040 ez tax Your rent is $12,000 per year. 1040 ez tax You paid the first year's rent ($12,000) on June 30. 1040 ez tax You can deduct only $6,000 (6/12 × $12,000) for the rent that applies to the first year. 1040 ez tax Example 2. 1040 ez tax You are a calendar year taxpayer. 1040 ez tax Last January you leased property for 3 years for $6,000 a year. 1040 ez tax You paid the full $18,000 (3 × $6,000) during the first year of the lease. 1040 ez tax Each year you can deduct only $6,000, the part of the lease that applies to that year. 1040 ez tax Canceling a lease. 1040 ez tax   You generally can deduct as rent an amount you pay to cancel a business lease. 1040 ez tax Lease or purchase. 1040 ez tax   There may be instances in which you must determine whether your payments are for rent or for the purchase of the property. 1040 ez tax You must first determine whether your agreement is a lease or a conditional sales contract. 1040 ez tax Payments made under a conditional sales contract are not deductible as rent expense. 1040 ez tax Conditional sales contract. 1040 ez tax   Whether an agreement is a conditional sales contract depends on the intent of the parties. 1040 ez tax Determine intent based on the provisions of the agreement and the facts and circumstances that exist when you make the agreement. 1040 ez tax No single test, or special combination of tests, always applies. 1040 ez tax However, in general, an agreement may be considered a conditional sales contract rather than a lease if any of the following is true. 1040 ez tax The agreement applies part of each payment toward an equity interest you will receive. 1040 ez tax You get title to the property after you make a stated amount of required payments. 1040 ez tax The amount you must pay to use the property for a short time is a large part of the amount you would pay to get title to the property. 1040 ez tax You pay much more than the current fair rental value of the property. 1040 ez tax You have an option to buy the property at a nominal price compared to the value of the property when you may exercise the option. 1040 ez tax Determine this value when you make the agreement. 1040 ez tax You have an option to buy the property at a nominal price compared to the total amount you have to pay under the agreement. 1040 ez tax The agreement designates part of the payments as interest, or that part is easy to recognize as interest. 1040 ez tax Leveraged leases. 1040 ez tax   Leveraged lease transactions may not be considered leases. 1040 ez tax Leveraged leases generally involve three parties: a lessor, a lessee, and a lender to the lessor. 1040 ez tax Usually the lease term covers a large part of the useful life of the leased property, and the lessee's payments to the lessor are enough to cover the lessor's payments to the lender. 1040 ez tax   If you plan to take part in what appears to be a leveraged lease, you may want to get an advance ruling. 1040 ez tax Revenue Procedure 2001-28 on page 1156 of Internal Revenue Bulletin 2001-19 contains the guidelines the IRS will use to determine if a leveraged lease is a lease for federal income tax purposes. 1040 ez tax Revenue Procedure 2001-29 on page 1160 of the same Internal Revenue Bulletin provides the information required to be furnished in a request for an advance ruling on a leveraged lease transaction. 1040 ez tax Internal Revenue Bulletin 2001-19 is available at www. 1040 ez tax irs. 1040 ez tax gov/pub/irs-irbs/irb01-19. 1040 ez tax pdf. 1040 ez tax   In general, Revenue Procedure 2001-28 provides that, for advance ruling purposes only, the IRS will consider the lessor in a leveraged lease transaction to be the owner of the property and the transaction to be a valid lease if all the factors in the revenue procedure are met, including the following. 1040 ez tax The lessor must maintain a minimum unconditional “at risk” equity investment in the property (at least 20% of the cost of the property) during the entire lease term. 1040 ez tax The lessee may not have a contractual right to buy the property from the lessor at less than fair market value when the right is exercised. 1040 ez tax The lessee may not invest in the property, except as provided by Revenue Procedure 2001-28. 1040 ez tax The lessee may not lend any money to the lessor to buy the property or guarantee the loan used by the lessor to buy the property. 1040 ez tax The lessor must show that it expects to receive a profit apart from the tax deductions, allowances, credits, and other tax attributes. 1040 ez tax   The IRS may charge you a user fee for issuing a tax ruling. 1040 ez tax For more information, see Revenue Procedure 2014-1 available at  www. 1040 ez tax irs. 1040 ez tax gov/irb/2014-1_IRB/ar05. 1040 ez tax html. 1040 ez tax Leveraged leases of limited-use property. 1040 ez tax   The IRS will not issue advance rulings on leveraged leases of so-called limited-use property. 1040 ez tax Limited-use property is property not expected to be either useful to or usable by a lessor at the end of the lease term except for continued leasing or transfer to a lessee. 1040 ez tax See Revenue Procedure 2001-28 for examples of limited-use property and property that is not limited-use property. 1040 ez tax Leases over $250,000. 1040 ez tax   Special rules are provided for certain leases of tangible property. 1040 ez tax The rules apply if the lease calls for total payments of more than $250,000 and any of the following apply. 1040 ez tax Rents increase during the lease. 1040 ez tax Rents decrease during the lease. 1040 ez tax Rents are deferred (rent is payable after the end of the calendar year following the calendar year in which the use occurs and the rent is allocated). 1040 ez tax Rents are prepaid (rent is payable before the end of the calendar year preceding the calendar year in which the use occurs and the rent is allocated). 1040 ez tax These rules do not apply if your lease specifies equal amounts of rent for each month in the lease term and all rent payments are due in the calendar year to which the rent relates (or in the preceding or following calendar year). 1040 ez tax   Generally, if the special rules apply, you must use an accrual method of accounting (and time value of money principles) for your rental expenses, regardless of your overall method of accounting. 1040 ez tax In addition, in certain cases in which the IRS has determined that a lease was designed to achieve tax avoidance, you must take rent and stated or imputed interest into account under a constant rental accrual method in which the rent is treated as accruing ratably over the entire lease term. 1040 ez tax For details, see section 467 of the Internal Revenue Code. 1040 ez tax Taxes on Leased Property If you lease business property, you can deduct as additional rent any taxes you have to pay to or for the lessor. 1040 ez tax When you can deduct these taxes as additional rent depends on your accounting method. 1040 ez tax Cash method. 1040 ez tax   If you use the cash method of accounting, you can deduct the taxes as additional rent only for the tax year in which you pay them. 1040 ez tax Accrual method. 1040 ez tax   If you use an accrual method of accounting, you can deduct taxes as additional rent for the tax year in which you can determine all the following. 1040 ez tax That you have a liability for taxes on the leased property. 1040 ez tax How much the liability is. 1040 ez tax That economic performance occurred. 1040 ez tax   The liability and amount of taxes are determined by state or local law and the lease agreement. 1040 ez tax Economic performance occurs as you use the property. 1040 ez tax Example 1. 1040 ez tax Oak Corporation is a calendar year taxpayer that uses an accrual method of accounting. 1040 ez tax Oak leases land for use in its business. 1040 ez tax Under state law, owners of real property become liable (incur a lien on the property) for real estate taxes for the year on January 1 of that year. 1040 ez tax However, they do not have to pay these taxes until July 1 of the next year (18 months later) when tax bills are issued. 1040 ez tax Under the terms of the lease, Oak becomes liable for the real estate taxes in the later year when the tax bills are issued. 1040 ez tax If the lease ends before the tax bill for a year is issued, Oak is not liable for the taxes for that year. 1040 ez tax Oak cannot deduct the real estate taxes as rent until the tax bill is issued. 1040 ez tax This is when Oak's liability under the lease becomes fixed. 1040 ez tax Example 2. 1040 ez tax The facts are the same as in Example 1 except that, according to the terms of the lease, Oak becomes liable for the real estate taxes when the owner of the property becomes liable for them. 1040 ez tax As a result, Oak will deduct the real estate taxes as rent on its tax return for the earlier year. 1040 ez tax This is the year in which Oak's liability under the lease becomes fixed. 1040 ez tax Cost of Getting a Lease You may either enter into a new lease with the lessor of the property or get an existing lease from another lessee. 1040 ez tax Very often when you get an existing lease from another lessee, you must pay the previous lessee money to get the lease, besides having to pay the rent on the lease. 1040 ez tax If you get an existing lease on property or equipment for your business, you generally must amortize any amount you pay to get that lease over the remaining term of the lease. 1040 ez tax For example, if you pay $10,000 to get a lease and there are 10 years remaining on the lease with no option to renew, you can deduct $1,000 each year. 1040 ez tax The cost of getting an existing lease of tangible property is not subject to the amortization rules for section 197 intangibles discussed in chapter 8. 1040 ez tax Option to renew. 1040 ez tax   The term of the lease for amortization includes all renewal options plus any other period for which you and the lessor reasonably expect the lease to be renewed. 1040 ez tax However, this applies only if less than 75% of the cost of getting the lease is for the term remaining on the purchase date (not including any period for which you may choose to renew, extend, or continue the lease). 1040 ez tax Allocate the lease cost to the original term and any option term based on the facts and circumstances. 1040 ez tax In some cases, it may be appropriate to make the allocation using a present value computation. 1040 ez tax For more information, see Regulations section 1. 1040 ez tax 178-1(b)(5). 1040 ez tax Example 1. 1040 ez tax You paid $10,000 to get a lease with 20 years remaining on it and two options to renew for 5 years each. 1040 ez tax Of this cost, you paid $7,000 for the original lease and $3,000 for the renewal options. 1040 ez tax Because $7,000 is less than 75% of the total $10,000 cost of the lease (or $7,500), you must amortize the $10,000 over 30 years. 1040 ez tax That is the remaining life of your present lease plus the periods for renewal. 1040 ez tax Example 2. 1040 ez tax The facts are the same as in Example 1, except that you paid $8,000 for the original lease and $2,000 for the renewal options. 1040 ez tax You can amortize the entire $10,000 over the 20-year remaining life of the original lease. 1040 ez tax The $8,000 cost of getting the original lease was not less than 75% of the total cost of the lease (or $7,500). 1040 ez tax Cost of a modification agreement. 1040 ez tax   You may have to pay an additional “rent” amount over part of the lease period to change certain provisions in your lease. 1040 ez tax You must capitalize these payments and amortize them over the remaining period of the lease. 1040 ez tax You cannot deduct the payments as additional rent, even if they are described as rent in the agreement. 1040 ez tax Example. 1040 ez tax You are a calendar year taxpayer and sign a 20-year lease to rent part of a building starting on January 1. 1040 ez tax However, before you occupy it, you decide that you really need less space. 1040 ez tax The lessor agrees to reduce your rent from $7,000 to $6,000 per year and to release the excess space from the original lease. 1040 ez tax In exchange, you agree to pay an additional rent amount of $3,000, payable in 60 monthly installments of $50 each. 1040 ez tax   You must capitalize the $3,000 and amortize it over the 20-year term of the lease. 1040 ez tax Your amortization deduction each year will be $150 ($3,000 ÷ 20). 1040 ez tax You cannot deduct the $600 (12 × $50) that you will pay during each of the first 5 years as rent. 1040 ez tax Commissions, bonuses, and fees. 1040 ez tax   Commissions, bonuses, fees, and other amounts you pay to get a lease on property you use in your business are capital costs. 1040 ez tax You must amortize these costs over the term of the lease. 1040 ez tax Loss on merchandise and fixtures. 1040 ez tax   If you sell at a loss merchandise and fixtures that you bought solely to get a lease, the loss is a cost of getting the lease. 1040 ez tax You must capitalize the loss and amortize it over the remaining term of the lease. 1040 ez tax Improvements by Lessee If you add buildings or make other permanent improvements to leased property, depreciate the cost of the improvements using the modified accelerated cost recovery system (MACRS). 1040 ez tax Depreciate the property over its appropriate recovery period. 1040 ez tax You cannot amortize the cost over the remaining term of the lease. 1040 ez tax If you do not keep the improvements when you end the lease, figure your gain or loss based on your adjusted basis in the improvements at that time. 1040 ez tax For more information, see the discussion of MACRS in Publication 946, How To Depreciate Property. 1040 ez tax Assignment of a lease. 1040 ez tax   If a long-term lessee who makes permanent improvements to land later assigns all lease rights to you for money and you pay the rent required by the lease, the amount you pay for the assignment is a capital investment. 1040 ez tax If the rental value of the leased land increased since the lease began, part of your capital investment is for that increase in the rental value. 1040 ez tax The rest is for your investment in the permanent improvements. 1040 ez tax   The part that is for the increased rental value of the land is a cost of getting a lease, and you amortize it over the remaining term of the lease. 1040 ez tax You can depreciate the part that is for your investment in the improvements over the recovery period of the property as discussed earlier, without regard to the lease term. 1040 ez tax Capitalizing Rent Expenses Under the uniform capitalization rules, you must capitalize the direct costs and part of the indirect costs for certain production or resale activities. 1040 ez tax Include these costs in the basis of property you produce or acquire for resale, rather than claiming them as a current deduction. 1040 ez tax You recover the costs through depreciation, amortization, or cost of goods sold when you use, sell, or otherwise dispose of the property. 1040 ez tax Indirect costs include amounts incurred for renting or leasing equipment, facilities, or land. 1040 ez tax Uniform capitalization rules. 1040 ez tax   You may be subject to the uniform capitalization rules if you do any of the following, unless the property is produced for your use other than in a business or an activity carried on for profit. 1040 ez tax Produce real property or tangible personal property. 1040 ez tax For this purpose, tangible personal property includes a film, sound recording, video tape, book, or similar property. 1040 ez tax Acquire property for resale. 1040 ez tax However, these rules do not apply to the following property. 1040 ez tax Personal property you acquire for resale if your average annual gross receipts are $10 million or less for the 3 prior tax years. 1040 ez tax Property you produce if you meet either of the following conditions. 1040 ez tax Your indirect costs of producing the property are $200,000 or less. 1040 ez tax You use the cash method of accounting and do not account for inventories. 1040 ez tax Example 1. 1040 ez tax You rent construction equipment to build a storage facility. 1040 ez tax If you are subject to the uniform capitalization rules, you must capitalize as part of the cost of the building the rent you paid for the equipment. 1040 ez tax You recover your cost by claiming a deduction for depreciation on the building. 1040 ez tax Example 2. 1040 ez tax You rent space in a facility to conduct your business of manufacturing tools. 1040 ez tax If you are subject to the uniform capitalization rules, you must include the rent you paid to occupy the facility in the cost of the tools you produce. 1040 ez tax More information. 1040 ez tax   For more information on these rules, see Uniform Capitalization Rules in Publication 538 and the regulations under Internal Revenue Code section 263A. 1040 ez tax Prev  Up  Next   Home   More Online Publications