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1040ez 2013 Form

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1040ez 2013 Form

1040ez 2013 form 9. 1040ez 2013 form   Rental Income and Expenses Table of Contents Introduction Useful Items - You may want to see: Rental Income Rental ExpensesVacant while listed for sale. 1040ez 2013 form Repairs and Improvements Other Expenses Property Changed to Rental Use Renting Part of Property Not Rented for Profit Personal Use of Dwelling Unit (Including Vacation Home)Example. 1040ez 2013 form Dividing Expenses Dwelling Unit Used as a Home Reporting Income and Deductions DepreciationChanging your accounting method to deduct unclaimed depreciation. 1040ez 2013 form Limits on Rental LossesAt-Risk Rules Passive Activity Limits How To Report Rental Income and ExpensesSchedule E (Form 1040) Introduction This chapter discusses rental income and expenses. 1040ez 2013 form It also covers the following topics. 1040ez 2013 form Personal use of dwelling unit (including vacation home). 1040ez 2013 form Depreciation. 1040ez 2013 form Limits on rental losses. 1040ez 2013 form How to report your rental income and expenses. 1040ez 2013 form If you sell or otherwise dispose of your rental property, see Publication 544, Sales and Other Dispositions of Assets. 1040ez 2013 form If you have a loss from damage to, or theft of, rental property, see Publication 547, Casualties, Disasters, and Thefts. 1040ez 2013 form If you rent a condominium or a cooperative apartment, some special rules apply to you even though you receive the same tax treatment as other owners of rental property. 1040ez 2013 form See Publication 527, Residential Rental Property, for more information. 1040ez 2013 form Useful Items - You may want to see: Publication 527 Residential Rental Property 534 Depreciating Property Placed in Service Before 1987 535 Business Expenses 925 Passive Activity and At-Risk Rules 946 How To Depreciate Property Form (and Instructions) 4562 Depreciation and Amortization 6251 Alternative Minimum Tax—Individuals 8582 Passive Activity Loss Limitations Schedule E (Form 1040) Supplemental Income and Loss Rental Income In most cases, you must include in your gross income all amounts you receive as rent. 1040ez 2013 form Rental income is any payment you receive for the use or occupation of property. 1040ez 2013 form In addition to amounts you receive as normal rent payments, there are other amounts that may be rental income. 1040ez 2013 form When to report. 1040ez 2013 form   If you are a cash-basis taxpayer, you report rental income on your return for the year you actually or constructively receive it. 1040ez 2013 form You are a cash-basis taxpayer if you report income in the year you receive it, regardless of when it was earned. 1040ez 2013 form You constructively receive income when it is made available to you, for example, by being credited to your bank account. 1040ez 2013 form   For more information about when you constructively receive income, see Accounting Methods in chapter 1. 1040ez 2013 form Advance rent. 1040ez 2013 form   Advance rent is any amount you receive before the period that it covers. 1040ez 2013 form Include advance rent in your rental income in the year you receive it regardless of the period covered or the method of accounting you use. 1040ez 2013 form Example. 1040ez 2013 form You sign a 10-year lease to rent your property. 1040ez 2013 form In the first year, you receive $5,000 for the first year's rent and $5,000 as rent for the last year of the lease. 1040ez 2013 form You must include $10,000 in your income in the first year. 1040ez 2013 form Canceling a lease. 1040ez 2013 form   If your tenant pays you to cancel a lease, the amount you receive is rent. 1040ez 2013 form Include the payment in your income in the year you receive it regardless of your method of accounting. 1040ez 2013 form Expenses paid by tenant. 1040ez 2013 form   If your tenant pays any of your expenses, the payments are rental income. 1040ez 2013 form Because you must include this amount in income, you can deduct the expenses if they are deductible rental expenses. 1040ez 2013 form See Rental Expenses , later, for more information. 1040ez 2013 form Property or services. 1040ez 2013 form   If you receive property or services, instead of money, as rent, include the fair market value of the property or services in your rental income. 1040ez 2013 form   If the services are provided at an agreed upon or specified price, that price is the fair market value unless there is evidence to the contrary. 1040ez 2013 form Security deposits. 1040ez 2013 form   Do not include a security deposit in your income when you receive it if you plan to return it to your tenant at the end of the lease. 1040ez 2013 form But if you keep part or all of the security deposit during any year because your tenant does not live up to the terms of the lease, include the amount you keep in your income in that year. 1040ez 2013 form   If an amount called a security deposit is to be used as a final payment of rent, it is advance rent. 1040ez 2013 form Include it in your income when you receive it. 1040ez 2013 form Part interest. 1040ez 2013 form   If you own a part interest in rental property, you must report your part of the rental income from the property. 1040ez 2013 form Rental of property also used as your home. 1040ez 2013 form   If you rent property that you also use as your home and you rent it less than 15 days during the tax year, do not include the rent you receive in your income and do not deduct rental expenses. 1040ez 2013 form However, you can deduct on Schedule A (Form 1040) the interest, taxes, and casualty and theft losses that are allowed for nonrental property. 1040ez 2013 form See Personal Use of Dwelling Unit (Including Vacation Home) , later. 1040ez 2013 form Rental Expenses This part discusses expenses of renting property that you ordinarily can deduct from your rental income. 1040ez 2013 form It includes information on the expenses you can deduct if you rent part of your property, or if you change your property to rental use. 1040ez 2013 form Depreciation , which you can also deduct from your rental income, is discussed later. 1040ez 2013 form Personal use of rental property. 1040ez 2013 form   If you sometimes use your rental property for personal purposes, you must divide your expenses between rental and personal use. 1040ez 2013 form Also, your rental expense deductions may be limited. 1040ez 2013 form See Personal Use of Dwelling Unit (Including Vacation Home) , later. 1040ez 2013 form Part interest. 1040ez 2013 form   If you own a part interest in rental property, you can deduct expenses that you paid according to your percentage of ownership. 1040ez 2013 form When to deduct. 1040ez 2013 form   If you are a cash-basis taxpayer, you generally deduct your rental expenses in the year you pay them. 1040ez 2013 form Depreciation. 1040ez 2013 form   You can begin to depreciate rental property when it is ready and available for rent. 1040ez 2013 form See Placed-in-Service under When Does Depreciation Begin and End in chapter 2 of Publication 527. 1040ez 2013 form Pre-rental expenses. 1040ez 2013 form   You can deduct your ordinary and necessary expenses for managing, conserving, or maintaining rental property from the time you make it available for rent. 1040ez 2013 form Uncollected rent. 1040ez 2013 form   If you are a cash-basis taxpayer, do not deduct uncollected rent. 1040ez 2013 form Because you have not included it in your income, it is not deductible. 1040ez 2013 form Vacant rental property. 1040ez 2013 form   If you hold property for rental purposes, you may be able to deduct your ordinary and necessary expenses (including depreciation) for managing, conserving, or maintaining the property while the property is vacant. 1040ez 2013 form However, you cannot deduct any loss of rental income for the period the property is vacant. 1040ez 2013 form Vacant while listed for sale. 1040ez 2013 form   If you sell property you held for rental purposes, you can deduct the ordinary and necessary expenses for managing, conserving, or maintaining the property until it is sold. 1040ez 2013 form If the property is not held out and available for rent while listed for sale, the expenses are not deductible rental expenses. 1040ez 2013 form Repairs and Improvements Generally, an expense for repairing or maintaining your rental property may be deducted if you are not required to capitalize the expense. 1040ez 2013 form Improvements. 1040ez 2013 form   You must capitalize any expense you pay to improve your rental property. 1040ez 2013 form An expense is for an improvement if it results in a betterment to your property, restores your property, or adapts your property to a new or different use. 1040ez 2013 form Betterments. 1040ez 2013 form   Expenses that may result in a betterment to your property include expenses for fixing a pre-existing defect or condition, enlarging or expanding your property, or increasing the capacity, strength, or quality of your property. 1040ez 2013 form Restoration. 1040ez 2013 form   Expenses that may be for restoration include expenses for replacing a substantial structural part of your property, repairing damage to your property after you properly adjusted the basis of your property as a result of a casualty loss, or rebuilding your property to a like-new condition. 1040ez 2013 form Adaptation. 1040ez 2013 form   Expenses that may be for adaptation include expenses for altering your property to a use that is not consistent with the intended ordinary use of your property when you began renting the property. 1040ez 2013 form Separate the costs of repairs and improvements, and keep accurate records. 1040ez 2013 form You will need to know the cost of improvements when you sell or depreciate your property. 1040ez 2013 form The expenses you capitalize for improving your property can generally be depreciated as if the improvement were separate property. 1040ez 2013 form Other Expenses Other expenses you can deduct from your rental income include advertising, cleaning and maintenance, utilities, fire and liability insurance, taxes, interest, commissions for the collection of rent, ordinary and necessary travel and transportation, and other expenses, discussed next. 1040ez 2013 form Insurance premiums paid in advance. 1040ez 2013 form   If you pay an insurance premium for more than one year in advance, for each year of coverage you can deduct the part of the premium payment that will apply to that year. 1040ez 2013 form You cannot deduct the total premium in the year you pay it. 1040ez 2013 form Legal and other professional fees. 1040ez 2013 form   You can deduct, as a rental expense, legal and other professional expenses, such as tax return preparation fees you paid to prepare Schedule E (Form 1040), Part I. 1040ez 2013 form For example, on your 2013 Schedule E, you can deduct fees paid in 2013 to prepare your 2012 Schedule E, Part I. 1040ez 2013 form You can also deduct, as a rental expense, any expense (other than federal taxes and penalties) you paid to resolve a tax underpayment related to your rental activities. 1040ez 2013 form Local benefit taxes. 1040ez 2013 form   In most cases, you cannot deduct charges for local benefits that increase the value of your property, such as charges for putting in streets, sidewalks, or water and sewer systems. 1040ez 2013 form These charges are nondepreciable capital expenditures, and must be added to the basis of your property. 1040ez 2013 form However, you can deduct local benefit taxes that are for maintaining, repairing, or paying interest charges for the benefits. 1040ez 2013 form Local transportation expenses. 1040ez 2013 form    You may be able to deduct your ordinary and necessary local transportation expenses if you incur them to collect rental income or to manage, conserve, or maintain your rental property. 1040ez 2013 form However, transportation expenses incurred to travel between your home and a rental property generally constitute nondeductible commuting costs unless you use your home as your principal place of business. 1040ez 2013 form See Publication 587, Business Use of Your Home, for information on determining if your home office qualifies as a principal place of business. 1040ez 2013 form   Generally, if you use your personal car, pickup truck, or light van for rental activities, you can deduct the expenses using one of two methods: actual expenses or the standard mileage rate. 1040ez 2013 form For 2013, the standard mileage rate for business use is 56. 1040ez 2013 form 5 cents per mile. 1040ez 2013 form For more information, see chapter 26. 1040ez 2013 form    To deduct car expenses under either method, you must keep records that follow the rules in chapter 26. 1040ez 2013 form In addition, you must complete Form 4562, Part V, and attach it to your tax return. 1040ez 2013 form Rental of equipment. 1040ez 2013 form   You can deduct the rent you pay for equipment that you use for rental purposes. 1040ez 2013 form However, in some cases, lease contracts are actually purchase contracts. 1040ez 2013 form If so, you cannot deduct these payments. 1040ez 2013 form You can recover the cost of purchased equipment through depreciation. 1040ez 2013 form Rental of property. 1040ez 2013 form   You can deduct the rent you pay for property that you use for rental purposes. 1040ez 2013 form If you buy a leasehold for rental purposes, you can deduct an equal part of the cost each year over the term of the lease. 1040ez 2013 form Travel expenses. 1040ez 2013 form   You can deduct the ordinary and necessary expenses of traveling away from home if the primary purpose of the trip is to collect rental income or to manage, conserve, or maintain your rental property. 1040ez 2013 form You must properly allocate your expenses between rental and nonrental activities. 1040ez 2013 form You cannot deduct the cost of traveling away from home if the primary purpose of the trip was to improve your property. 1040ez 2013 form You recover the cost of improvements by taking depreciation. 1040ez 2013 form For information on travel expenses, see chapter 26. 1040ez 2013 form    To deduct travel expenses, you must keep records that follow the rules in chapter 26. 1040ez 2013 form   See Rental Expenses in Publication 527 for more information. 1040ez 2013 form 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. 1040ez 2013 form 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. 1040ez 2013 form You cannot deduct depreciation or insurance for the part of the year the property was held for personal use. 1040ez 2013 form 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). 1040ez 2013 form Example. 1040ez 2013 form Your tax year is the calendar year. 1040ez 2013 form You moved from your home in May and started renting it out on June 1. 1040ez 2013 form You can deduct as rental expenses seven-twelfths of your yearly expenses, such as taxes and insurance. 1040ez 2013 form Starting with June, you can deduct as rental expenses the amounts you pay for items generally billed monthly, such as utilities. 1040ez 2013 form 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. 1040ez 2013 form 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). 1040ez 2013 form 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 your house. 1040ez 2013 form There is no change in the types of expenses deductible for the personal-use part of your property. 1040ez 2013 form Generally, these expenses may be deducted only if you itemize your deductions on Schedule A (Form 1040). 1040ez 2013 form You cannot deduct any part of the cost of the first phone line even if your tenants have unlimited use of it. 1040ez 2013 form You do not have to divide the expenses that belong only to the rental part of your property. 1040ez 2013 form 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. 1040ez 2013 form If you install a second phone line strictly for your tenants' use, all of the cost of the second line is deductible as a rental expense. 1040ez 2013 form You can deduct depreciation, discussed later, on the part of the house used for rental purposes as well as on the furniture and equipment you use for rental purposes. 1040ez 2013 form How to divide expenses. 1040ez 2013 form   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 the rental use and the personal use. 1040ez 2013 form You can use any reasonable method for dividing the expense. 1040ez 2013 form It may be reasonable to divide the cost of some items (for example, water) based on the number of people using them. 1040ez 2013 form The two most common methods for dividing an expense are based on (1) the number of rooms in your home, and (2) the square footage of your home. 1040ez 2013 form 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. 1040ez 2013 form 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. 1040ez 2013 form 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. 1040ez 2013 form Where to report. 1040ez 2013 form   Report your not-for-profit rental income on Form 1040, line 21. 1040ez 2013 form For example, 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. 1040ez 2013 form   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 Form 1040, Schedule A, line 23. 1040ez 2013 form You can deduct these expenses only if they, together with certain other miscellaneous itemized deductions, total more than 2% of your adjusted gross income. 1040ez 2013 form Personal Use of Dwelling Unit (Including Vacation Home) If you have any personal use of a dwelling unit (including a vacation home) that you rent, you must divide your expenses between rental use and personal use. 1040ez 2013 form In general, your rental expenses will be no more than your total expenses multiplied by a fraction; the denominator of which is the total number of days the dwelling unit is used and the numerator of which is the total number of days actually rented at a fair rental price. 1040ez 2013 form Only your rental expenses may be deducted on Schedule E (Form 1040). 1040ez 2013 form Some of your personal expenses may be deductible if you itemize your deductions on Schedule A (Form 1040). 1040ez 2013 form You must also determine if the dwelling unit is considered a home. 1040ez 2013 form The amount of rental expenses that you can deduct may be limited if the dwelling unit is considered a home. 1040ez 2013 form Whether a dwelling unit is considered a home depends on how many days during the year are considered to be days of personal use. 1040ez 2013 form There is a special rule if you used the dwelling unit as a home and you rented it for less than 15 days during the year. 1040ez 2013 form Dwelling unit. 1040ez 2013 form   A dwelling unit includes a house, apartment, condominium, mobile home, boat, vacation home, or similar property. 1040ez 2013 form It also includes all structures or other property belonging to the dwelling unit. 1040ez 2013 form A dwelling unit has basic living accommodations, such as sleeping space, a toilet, and cooking facilities. 1040ez 2013 form   A dwelling unit does not include property used solely as a hotel, motel, inn, or similar establishment. 1040ez 2013 form Property is used solely as a hotel, motel, inn, or similar establishment if it is regularly available for occupancy by paying customers and is not used by an owner as a home during the year. 1040ez 2013 form Example. 1040ez 2013 form   You rent a room in your home that is always available for short-term occupancy by paying customers. 1040ez 2013 form You do not use the room yourself, and you allow only paying customers to use the room. 1040ez 2013 form The room is used solely as a hotel, motel, inn, or similar establishment and is not a dwelling unit. 1040ez 2013 form Dividing Expenses If you use a dwelling unit for both rental and personal purposes, divide your expenses between the rental use and the personal use based on the number of days used for each purpose. 1040ez 2013 form When dividing your expenses, follow these rules. 1040ez 2013 form Any day that the unit is rented at a fair rental price is a day of rental use even if you used the unit for personal purposes that day. 1040ez 2013 form This rule does not apply when determining whether you used the unit as a home. 1040ez 2013 form Any day that the unit is available for rent but not actually rented is not a day of rental use. 1040ez 2013 form Example. 1040ez 2013 form Your beach cottage was available for rent from June 1 through August 31 (92 days). 1040ez 2013 form During that time, except for the first week in August (7 days) when you were unable to find a renter, you rented the cottage at a fair rental price. 1040ez 2013 form The person who rented the cottage for July allowed you to use it over the weekend (2 days) without any reduction in or refund of rent. 1040ez 2013 form Your family also used the cottage during the last 2 weeks of May (14 days). 1040ez 2013 form The cottage was not used at all before May 17 or after August 31. 1040ez 2013 form You figure the part of the cottage expenses to treat as rental expenses as follows. 1040ez 2013 form The cottage was used for rental a total of 85 days (92 − 7). 1040ez 2013 form The days it was available for rent but not rented (7 days) are not days of rental use. 1040ez 2013 form The July weekend (2 days) you used it is rental use because you received a fair rental price for the weekend. 1040ez 2013 form You used the cottage for personal purposes for 14 days (the last 2 weeks in May). 1040ez 2013 form The total use of the cottage was 99 days (14 days personal use + 85 days rental use). 1040ez 2013 form Your rental expenses are 85/99 (86%) of the cottage expenses. 1040ez 2013 form Note. 1040ez 2013 form When determining whether you used the cottage as a home, the July weekend (2 days) you used it is considered personal use even though you received a fair rental price for the weekend. 1040ez 2013 form Therefore, you had 16 days of personal use and 83 days of rental use for this purpose. 1040ez 2013 form Because you used the cottage for personal purposes more than 14 days and more than 10% of the days of rental use (8 days), you used it as a home. 1040ez 2013 form If you have a net loss, you may not be able to deduct all of the rental expenses. 1040ez 2013 form See Dwelling Unit Used as a Home, next. 1040ez 2013 form Dwelling Unit Used as a Home If you use a dwelling unit for both rental and personal purposes, the tax treatment of the rental expenses you figured earlier under Dividing Expenses and rental income depends on whether you are considered to be using the dwelling unit as a home. 1040ez 2013 form You use a dwelling unit as a home during the tax year if you use it for personal purposes more than the greater of: 14 days, or 10% of the total days it is rented to others at a fair rental price. 1040ez 2013 form See What is a day of personal use , later. 1040ez 2013 form Fair rental price. 1040ez 2013 form   A fair rental price for your property generally is the amount of rent that a person who is not related to you would be willing to pay. 1040ez 2013 form The rent you charge is not a fair rental price if it is substantially less than the rents charged for other properties that are similar to your property in your area. 1040ez 2013 form   If a dwelling unit is used for personal purposes on a day it is rented at a fair rental price, do not count that day as a day of rental use in applying (2) above. 1040ez 2013 form Instead, count it as a day of personal use in applying both (1) and (2) above. 1040ez 2013 form What is a day of personal use?   A day of personal use of a dwelling unit is any day that the unit is used by any of the following persons. 1040ez 2013 form You or any other person who has an interest in the unit, unless you rent it to another owner as his or her main home under a shared equity financing agreement (defined later). 1040ez 2013 form However, see Days used as a main home before or after renting , later. 1040ez 2013 form A member of your family or a member of the family of any other person who owns an interest in the unit, unless the family member uses the dwelling unit as his or her main home and pays a fair rental price. 1040ez 2013 form Family includes only your spouse, brothers and sisters, half-brothers and half-sisters, ancestors (parents, grandparents, etc. 1040ez 2013 form ), and lineal descendants (children, grandchildren, etc. 1040ez 2013 form ). 1040ez 2013 form Anyone under an arrangement that lets you use some other dwelling unit. 1040ez 2013 form Anyone at less than a fair rental price. 1040ez 2013 form Main home. 1040ez 2013 form   If the other person or member of the family in (1) or (2) above has more than one home, his or her main home is ordinarily the one he or she lived in most of the time. 1040ez 2013 form Shared equity financing agreement. 1040ez 2013 form   This is an agreement under which two or more persons acquire undivided interests for more than 50 years in an entire dwelling unit, including the land, and one or more of the co-owners is entitled to occupy the unit as his or her main home upon payment of rent to the other co-owner or owners. 1040ez 2013 form Donation of use of property. 1040ez 2013 form   You use a dwelling unit for personal purposes if: You donate the use of the unit to a charitable organization, The organization sells the use of the unit at a fund-raising event, and The “purchaser” uses the unit. 1040ez 2013 form Examples. 1040ez 2013 form   The following examples show how to determine days of personal use. 1040ez 2013 form Example 1. 1040ez 2013 form You and your neighbor are co-owners of a condominium at the beach. 1040ez 2013 form Last year, you rented the unit to vacationers whenever possible. 1040ez 2013 form The unit was not used as a main home by anyone. 1040ez 2013 form Your neighbor used the unit for 2 weeks last year; you did not use it at all. 1040ez 2013 form Because your neighbor has an interest in the unit, both of you are considered to have used the unit for personal purposes during those 2 weeks. 1040ez 2013 form Example 2. 1040ez 2013 form You and your neighbors are co-owners of a house under a shared equity financing agreement. 1040ez 2013 form Your neighbors live in the house and pay you a fair rental price. 1040ez 2013 form Even though your neighbors have an interest in the house, the days your neighbors live there are not counted as days of personal use by you. 1040ez 2013 form This is because your neighbors rent the house as their main home under a shared equity financing agreement. 1040ez 2013 form Example 3. 1040ez 2013 form You own a rental property that you rent to your son. 1040ez 2013 form Your son does not own any interest in this property. 1040ez 2013 form He uses it as his main home and pays you a fair rental price. 1040ez 2013 form Your son's use of the property is not personal use by you because your son is using it as his main home, he owns no interest in the property, and he is paying you a fair rental price. 1040ez 2013 form Example 4. 1040ez 2013 form You rent your beach house to Joshua. 1040ez 2013 form Joshua rents his cabin in the mountains to you. 1040ez 2013 form You each pay a fair rental price. 1040ez 2013 form You are using your house for personal purposes on the days that Joshua uses it because your house is used by Joshua under an arrangement that allows you to use his house. 1040ez 2013 form Days used for repairs and maintenance. 1040ez 2013 form   Any day that you spend working substantially full time repairing and maintaining (not improving) your property is not counted as a day of personal use. 1040ez 2013 form Do not count such a day as a day of personal use even if family members use the property for recreational purposes on the same day. 1040ez 2013 form Days used as a main home before or after renting. 1040ez 2013 form   For purposes of determining whether a dwelling unit was used as a home, you may not have to count days you used the property as your main home before or after renting it or offering it for rent as days of personal use. 1040ez 2013 form Do not count them as days of personal use if: You rented or tried to rent the property for 12 or more consecutive months. 1040ez 2013 form You rented or tried to rent the property for a period of less than 12 consecutive months and the period ended because you sold or exchanged the property. 1040ez 2013 form However, this special rule does not apply when dividing expenses between rental and personal use. 1040ez 2013 form Examples. 1040ez 2013 form   The following examples show how to determine whether you used your rental property as a home. 1040ez 2013 form Example 1. 1040ez 2013 form You converted the basement of your home into an apartment with a bedroom, a bathroom, and a small kitchen. 1040ez 2013 form You rented the basement apartment at a fair rental price to college students during the regular school year. 1040ez 2013 form You rented to them on a 9-month lease (273 days). 1040ez 2013 form You figured 10% of the total days rented to others at a fair rental price is 27 days. 1040ez 2013 form During June (30 days), your brothers stayed with you and lived in the basement apartment rent free. 1040ez 2013 form Your basement apartment was used as a home because you used it for personal purposes for 30 days. 1040ez 2013 form Rent-free use by your brothers is considered personal use. 1040ez 2013 form Your personal use (30 days) is more than the greater of 14 days or 10% of the total days it was rented (27 days). 1040ez 2013 form Example 2. 1040ez 2013 form You rented the guest bedroom in your home at a fair rental price during the local college's homecoming, commencement, and football weekends (a total of 27 days). 1040ez 2013 form Your sister-in-law stayed in the room, rent free, for the last 3 weeks (21 days) in July. 1040ez 2013 form You figured 10% of the total days rented to others at a fair rental price is 3 days. 1040ez 2013 form The room was used as a home because you used it for personal purposes for 21 days. 1040ez 2013 form That is more than the greater of 14 days or 10% of the 27 days it was rented (3 days). 1040ez 2013 form Example 3. 1040ez 2013 form You own a condominium apartment in a resort area. 1040ez 2013 form You rented it at a fair rental price for a total of 170 days during the year. 1040ez 2013 form For 12 of those days, the tenant was not able to use the apartment and allowed you to use it even though you did not refund any of the rent. 1040ez 2013 form Your family actually used the apartment for 10 of those days. 1040ez 2013 form Therefore, the apartment is treated as having been rented for 160 (170 − 10) days. 1040ez 2013 form You figured 10% of the total days rented to others at a fair rental price is 16 days. 1040ez 2013 form Your family also used the apartment for 7 other days during the year. 1040ez 2013 form You used the apartment as a home because you used it for personal purposes for 17 days. 1040ez 2013 form That is more than the greater of 14 days or 10% of the 160 days it was rented (16 days). 1040ez 2013 form Minimal rental use. 1040ez 2013 form   If you use the dwelling unit as a home and you rent it less than 15 days during the year, that period is not treated as rental activity. 1040ez 2013 form See Used as a home but rented less than 15 days , later, for more information. 1040ez 2013 form Limit on deductions. 1040ez 2013 form   Renting a dwelling unit that is considered a home is not a passive activity. 1040ez 2013 form Instead, if your rental expenses are more than your rental income, some or all of the excess expenses cannot be used to offset income from other sources. 1040ez 2013 form The excess expenses that cannot be used to offset income from other sources are carried forward to the next year and treated as rental expenses for the same property. 1040ez 2013 form Any expenses carried forward to the next year will be subject to any limits that apply for that year. 1040ez 2013 form This limitation will apply to expenses carried forward to another year even if you do not use the property as your home for that subsequent year. 1040ez 2013 form   To figure your deductible rental expenses for this year and any carryover to next year, use Worksheet 9-1. 1040ez 2013 form Reporting Income and Deductions Property not used for personal purposes. 1040ez 2013 form   If you do not use a dwelling unit for personal purposes, see How To Report Rental Income and Expenses , later, for how to report your rental income and expenses. 1040ez 2013 form Property used for personal purposes. 1040ez 2013 form   If you do use a dwelling unit for personal purposes, then how you report your rental income and expenses depends on whether you used the dwelling unit as a home. 1040ez 2013 form Not used as a home. 1040ez 2013 form   If you use a dwelling unit for personal purposes, but not as a home, report all the rental income in your income. 1040ez 2013 form Since you used the dwelling unit for personal purposes, you must divide your expenses between the rental use and the personal use as described earlier in Dividing Expenses . 1040ez 2013 form The expenses for personal use are not deductible as rental expenses. 1040ez 2013 form   Your deductible rental expenses can be more than your gross rental income; however, see Limits on Rental Losses , later. 1040ez 2013 form Used as a home but rented less than 15 days. 1040ez 2013 form   If you use a dwelling unit as a home and you rent it less than 15 days during the year, its primary function is not considered to be rental and it should not be reported on Schedule E (Form 1040). 1040ez 2013 form You are not required to report the rental income and rental expenses from this activity. 1040ez 2013 form The expenses, including qualified mortgage interest, property taxes, and any qualified casualty loss will be reported as normally allowed on Schedule A (Form 1040). 1040ez 2013 form See the Instructions for Schedule A (Form 1040) for more information on deducting these expenses. 1040ez 2013 form Used as a home and rented 15 days or more. 1040ez 2013 form   If you use a dwelling unit as a home and rent it 15 days or more during the year, include all your rental income in your income. 1040ez 2013 form Since you used the dwelling unit for personal purposes, you must divide your expenses between the rental use and the personal use as described earlier in Dividing Expenses . 1040ez 2013 form The expenses for personal use are not deductible as rental expenses. 1040ez 2013 form   If you had a net profit from renting the dwelling unit for the year (that is, if your rental income is more than the total of your rental expenses, including depreciation), deduct all of your rental expenses. 1040ez 2013 form You do not need to use Worksheet 9-1. 1040ez 2013 form   However, if you had a net loss from renting the dwelling unit for the year, your deduction for certain rental expenses is limited. 1040ez 2013 form To figure your deductible rental expenses and any carryover to next year, use Worksheet 9-1. 1040ez 2013 form Depreciation You recover the cost of income-producing property through yearly tax deductions. 1040ez 2013 form You do this by depreciating the property; that is, by deducting some of the cost each year on your tax return. 1040ez 2013 form Three factors determine how much depreciation you can deduct each year: (1) your basis in the property, (2) the recovery period for the property, and (3) the depreciation method used. 1040ez 2013 form You cannot simply deduct your mortgage or principal payments, or the cost of furniture, fixtures, and equipment, as an expense. 1040ez 2013 form You can deduct depreciation only on the part of your property used for rental purposes. 1040ez 2013 form Depreciation reduces your basis for figuring gain or loss on a later sale or exchange. 1040ez 2013 form You may have to use Form 4562 to figure and report your depreciation. 1040ez 2013 form See How To Report Rental Income and Expenses , later. 1040ez 2013 form Alternative minimum tax (AMT). 1040ez 2013 form    If you use accelerated depreciation, you may be subject to the AMT. 1040ez 2013 form Accelerated depreciation allows you to deduct more depreciation earlier in the recovery period than you could deduct using a straight line method (same deduction each year). 1040ez 2013 form Claiming the correct amount of depreciation. 1040ez 2013 form   You should claim the correct amount of depreciation each tax year. 1040ez 2013 form If you did not claim all the depreciation you were entitled to deduct, you must still reduce your basis in the property by the full amount of depreciation that you could have deducted. 1040ez 2013 form   If you deducted an incorrect amount of depreciation for property in any year, you may be able to make a correction by filing Form 1040X, Amended U. 1040ez 2013 form S Individual Income Tax Return. 1040ez 2013 form If you are not allowed to make the correction on an amended return, you can change your accounting method to claim the correct amount of depreciation. 1040ez 2013 form See Claiming the correct amount of depreciation in chapter 2 of Publication 527 for more information. 1040ez 2013 form Changing your accounting method to deduct unclaimed depreciation. 1040ez 2013 form   To change your accounting method, you generally must file Form 3115, Application for Change in Accounting Method, to get the consent of the IRS. 1040ez 2013 form In some instances, that consent is automatic. 1040ez 2013 form For more information, see chapter 1 of Publication 946. 1040ez 2013 form Land. 1040ez 2013 form   You cannot depreciate the cost of land because land generally does not wear out, become obsolete, or get used up. 1040ez 2013 form The costs of clearing, grading, planting, and landscaping are usually all part of the cost of land and cannot be depreciated. 1040ez 2013 form More information. 1040ez 2013 form   See Publication 527 for more information about depreciating rental property and see Publication 946 for more information about depreciation. 1040ez 2013 form Limits on Rental Losses If you have a loss from your rental real estate activity, two sets of rules may limit the amount of loss you can deduct. 1040ez 2013 form You must consider these rules in the order shown below. 1040ez 2013 form At-risk rules. 1040ez 2013 form These rules are applied first if there is investment in your rental real estate activity for which you are not at risk. 1040ez 2013 form This applies only if the real property was placed in service after 1986. 1040ez 2013 form Passive activity limits. 1040ez 2013 form Generally, rental real estate activities are considered passive activities and losses are not deductible unless you have income from other passive activities to offset them. 1040ez 2013 form However, there are exceptions. 1040ez 2013 form At-Risk Rules You may be subject to the at-risk rules if you have: A loss from an activity carried on as a trade or business or for the production of income, and Amounts invested in the activity for which you are not fully at risk. 1040ez 2013 form Losses from holding real property (other than mineral property) placed in service before 1987 are not subject to the at-risk rules. 1040ez 2013 form In most cases, any loss from an activity subject to the at-risk rules is allowed only to the extent of the total amount you have at risk in the activity at the end of the tax year. 1040ez 2013 form You are considered at risk in an activity to the extent of cash and the adjusted basis of other property you contributed to the activity and certain amounts borrowed for use in the activity. 1040ez 2013 form See Publication 925 for more information. 1040ez 2013 form Passive Activity Limits In most cases, all rental real estate activities (except those of certain real estate professionals, discussed later) are passive activities. 1040ez 2013 form For this purpose, a rental activity is an activity from which you receive income mainly for the use of tangible property, rather than for services. 1040ez 2013 form Limits on passive activity deductions and credits. 1040ez 2013 form    Deductions or losses from passive activities are limited. 1040ez 2013 form You generally cannot offset income, other than passive income, with losses from passive activities. 1040ez 2013 form Nor can you offset taxes on income, other than passive income, with credits resulting from passive activities. 1040ez 2013 form Any excess loss or credit is carried forward to the next tax year. 1040ez 2013 form   For a detailed discussion of these rules, see Publication 925. 1040ez 2013 form    You may have to complete Form 8582 to figure the amount of any passive activity loss for the current tax year for all activities and the amount of the passive activity loss allowed on your tax return. 1040ez 2013 form Real estate professionals. 1040ez 2013 form   Rental activities in which you materially participated during the year are not passive activities if, for that year, you were a real estate professional. 1040ez 2013 form For a detailed discussion of the requirements, see Publication 527. 1040ez 2013 form For a detailed discussion of material participation, see Publication 925. 1040ez 2013 form Exception for Personal Use of Dwelling Unit If you used the rental property as a home during the year, any income, deductions, gain, or loss allocable to such use shall not be taken into account for purposes of the passive activity loss limitation. 1040ez 2013 form Instead, follow the rules explained in Personal Use of Dwelling Unit (Including Vacation Home), earlier. 1040ez 2013 form Exception for Rental Real Estate Activities With Active Participation If you or your spouse actively participated in a passive rental real estate activity, you may be able to deduct up to $25,000 of loss from the activity from your nonpassive income. 1040ez 2013 form This special allowance is an exception to the general rule disallowing losses in excess of income from passive activities. 1040ez 2013 form Similarly, you may be able to offset credits from the activity against the tax on up to $25,000 of nonpassive income after taking into account any losses allowed under this exception. 1040ez 2013 form Active participation. 1040ez 2013 form   You actively participated in a rental real estate activity if you (and your spouse) owned at least 10% of the rental property and you made management decisions or arranged for others to provide services (such as repairs) in a significant and bona fide sense. 1040ez 2013 form Management decisions that may count as active participation include approving new tenants, deciding on rental terms, approving expenditures, and similar decisions. 1040ez 2013 form Maximum special allowance. 1040ez 2013 form   The maximum special allowance is: $25,000 for single individuals and married individuals filing a joint return for the tax year, $12,500 for married individuals who file separate returns for the tax year and lived apart from their spouses at all times during the tax year, and $25,000 for a qualifying estate reduced by the special allowance for which the surviving spouse qualified. 1040ez 2013 form   If your modified adjusted gross income (MAGI) is $100,000 or less ($50,000 or less if married filing separately), you can deduct your loss up to the amount specified above. 1040ez 2013 form If your MAGI is more than $100,000 (more than $50,000 if married filing separately), your special allowance is limited to 50% of the difference between $150,000 ($75,000 if married filing separately) and your MAGI. 1040ez 2013 form   Generally, if your MAGI is $150,000 or more ($75,000 or more if you are married filing separately), there is no special allowance. 1040ez 2013 form More information. 1040ez 2013 form   See Publication 925 for more information on the passive loss limits, including information on the treatment of unused disallowed passive losses and credits and the treatment of gains and losses realized on the disposition of a passive activity. 1040ez 2013 form How To Report Rental Income and Expenses The basic form for reporting residential rental income and expenses is Schedule E (Form 1040). 1040ez 2013 form However, do not use that schedule to report a not-for-profit activity. 1040ez 2013 form See Not Rented for Profit, earlier. 1040ez 2013 form Providing substantial services. 1040ez 2013 form   If you provide substantial services that are primarily for your tenant's convenience, such as regular cleaning, changing linen, or maid service, report your rental income and expenses on Schedule C (Form 1040), Profit or Loss From Business, or Schedule C-EZ (Form 1040), Net Profit From Business (Sole Proprietorship). 1040ez 2013 form Substantial services do not include the furnishing of heat and light, cleaning of public areas, trash collection, etc. 1040ez 2013 form For information, see Publication 334, Tax Guide for Small Business. 1040ez 2013 form You also may have to pay self-employment tax on your rental income using Schedule SE (Form 1040), Self-Employment Tax. 1040ez 2013 form   Use Form 1065, U. 1040ez 2013 form S. 1040ez 2013 form Return of Partnership Income, if your rental activity is a partnership (including a partnership with your spouse unless it is a qualified joint venture). 1040ez 2013 form Qualified joint venture. 1040ez 2013 form   If you and your spouse each materially participate as the only members of a jointly owned and operated real estate business, and you file a joint return for the tax year, you can make a joint election to be treated as a qualified joint venture instead of a partnership. 1040ez 2013 form This election, in most cases, will not increase the total tax owed on the joint return, but it does give each of you credit for social security earnings on which retirement benefits are based and for Medicare coverage if your rental income is subject to self-employment tax. 1040ez 2013 form For more information, see Publication 527. 1040ez 2013 form Form 1098, Mortgage Interest Statement. 1040ez 2013 form    If you paid $600 or more of mortgage interest on your rental property to any one person, you should receive a Form 1098, or similar statement showing the interest you paid for the year. 1040ez 2013 form If you and at least one other person (other than your spouse if you file a joint return) were liable for, and paid interest on the mortgage, and the other person received the Form 1098, report your share of the interest on Schedule E (Form 1040), line 13. 1040ez 2013 form Attach a statement to your return showing the name and address of the other person. 1040ez 2013 form In the left margin of Schedule E, next to line 13, enter “See attached. 1040ez 2013 form ” Schedule E (Form 1040) If you rent buildings, rooms, or apartments, and provide basic services such as heat and light, trash collection, etc. 1040ez 2013 form , you normally report your rental income and expenses on Schedule E, Part I. 1040ez 2013 form List your total income, expenses, and depreciation for each rental property. 1040ez 2013 form Be sure to enter the number of fair rental and personal use days on line 2. 1040ez 2013 form If you have more than three rental or royalty properties, complete and attach as many Schedules E as are needed to list the properties. 1040ez 2013 form Complete lines 1 and 2 for each property. 1040ez 2013 form However, fill in lines 23a through 26 on only one Schedule E. 1040ez 2013 form On Schedule E, page 1, line 18, enter the depreciation you are claiming for each property. 1040ez 2013 form To find out if you need to attach Form 4562, see Form 4562, in chapter 3 of Publication 527. 1040ez 2013 form If you have a loss from your rental real estate activity, you also may need to complete one or both of the following forms. 1040ez 2013 form Form 6198, At-Risk Limitations. 1040ez 2013 form See At-Risk Rules , earlier. 1040ez 2013 form Also see Publication 925. 1040ez 2013 form Form 8582, Passive Activity Loss Limitations. 1040ez 2013 form See Passive Activity Limits , earlier. 1040ez 2013 form Page 2 of Schedule E is used to report income or loss from partnerships, S corporations, estates, trusts, and real estate mortgage investment conduits. 1040ez 2013 form If you need to use page 2 of Schedule E, be sure to use page 2 of the same Schedule E you used to enter your rental activity on page 1. 1040ez 2013 form Also, include the amount from line 26 (Part I) in the “Total income or (loss)” on line 41 (Part V). 1040ez 2013 form Worksheet 9-1. 1040ez 2013 form Worksheet for Figuring Rental Deductions for a Dwelling Unit Used as a Home Use this worksheet only if you answer “yes” to all of the following questions. 1040ez 2013 form Did you use the dwelling unit as a home this year? (See Dwelling Unit Used as a Home . 1040ez 2013 form ) Did you rent the dwelling unit at a fair rental price 15 days or more this year? Is the total of your rental expenses and depreciation more than your rental income? PART I. 1040ez 2013 form Rental Use Percentage A. 1040ez 2013 form Total days available for rent at fair rental price A. 1040ez 2013 form       B. 1040ez 2013 form Total days available for rent (line A) but not rented B. 1040ez 2013 form       C. 1040ez 2013 form Total days of rental use. 1040ez 2013 form Subtract line B from line A C. 1040ez 2013 form       D. 1040ez 2013 form Total days of personal use (including days rented at less than fair rental price) D. 1040ez 2013 form       E. 1040ez 2013 form Total days of rental and personal use. 1040ez 2013 form Add lines C and D E. 1040ez 2013 form       F. 1040ez 2013 form Percentage of expenses allowed for rental. 1040ez 2013 form Divide line C by line E     F. 1040ez 2013 form   PART II. 1040ez 2013 form Allowable Rental Expenses 1. 1040ez 2013 form Enter rents received 1. 1040ez 2013 form   2a. 1040ez 2013 form Enter the rental portion of deductible home mortgage interest and qualified mortgage insurance premiums (see instructions) 2a. 1040ez 2013 form       b. 1040ez 2013 form Enter the rental portion of real estate taxes b. 1040ez 2013 form       c. 1040ez 2013 form Enter the rental portion of deductible casualty and theft losses (see instructions) c. 1040ez 2013 form       d. 1040ez 2013 form Enter direct rental expenses (see instructions) d. 1040ez 2013 form       e. 1040ez 2013 form Fully deductible rental expenses. 1040ez 2013 form Add lines 2a–2d. 1040ez 2013 form Enter here and  on the appropriate lines on Schedule E (see instructions) 2e. 1040ez 2013 form   3. 1040ez 2013 form Subtract line 2e from line 1. 1040ez 2013 form If zero or less, enter -0- 3. 1040ez 2013 form   4a. 1040ez 2013 form Enter the rental portion of expenses directly related to operating or maintaining  the dwelling unit (such as repairs, insurance, and utilities) 4a. 1040ez 2013 form       b. 1040ez 2013 form Enter the rental portion of excess mortgage interest and qualified mortgage insurance premiums (see instructions) b. 1040ez 2013 form       c. 1040ez 2013 form Carryover of operating expenses from 2012 worksheet c. 1040ez 2013 form       d. 1040ez 2013 form Add lines 4a–4c d. 1040ez 2013 form       e. 1040ez 2013 form Allowable expenses. 1040ez 2013 form Enter the smaller of line 3 or line 4d (see instructions) 4e. 1040ez 2013 form   5. 1040ez 2013 form Subtract line 4e from line 3. 1040ez 2013 form If zero or less, enter -0- 5. 1040ez 2013 form   6a. 1040ez 2013 form Enter the rental portion of excess casualty and theft losses (see instructions) 6a. 1040ez 2013 form       b. 1040ez 2013 form Enter the rental portion of depreciation of the dwelling unit b. 1040ez 2013 form       c. 1040ez 2013 form Carryover of excess casualty losses and depreciation from 2012 worksheet c. 1040ez 2013 form       d. 1040ez 2013 form Add lines 6a–6c d. 1040ez 2013 form       e. 1040ez 2013 form Allowable excess casualty and theft losses and depreciation. 1040ez 2013 form Enter the smaller of  line 5 or line 6d (see instructions) 6e. 1040ez 2013 form   PART III. 1040ez 2013 form Carryover of Unallowed Expenses to Next Year 7a. 1040ez 2013 form Operating expenses to be carried over to next year. 1040ez 2013 form Subtract line 4e from line 4d 7a. 1040ez 2013 form   b. 1040ez 2013 form Excess casualty and theft losses and depreciation to be carried over to next year. 1040ez 2013 form  Subtract line 6e from line 6d b. 1040ez 2013 form   Worksheet 9-1 Instructions. 1040ez 2013 form Worksheet for Figuring Rental Deductions for a Dwelling Unit Used as a Home Caution. 1040ez 2013 form Use the percentage determined in Part I, line F, to figure the rental portions to enter on lines 2a–2c, 4a–4b, and 6a–6b of  Part II. 1040ez 2013 form Line 2a. 1040ez 2013 form Figure the mortgage interest on the dwelling unit that you could deduct on Schedule A as if you had not rented the unit. 1040ez 2013 form Do not include interest on a loan that did not benefit the dwelling unit. 1040ez 2013 form For example, do not include interest on a home equity loan used to pay off credit cards or other personal loans, buy a car, or pay college tuition. 1040ez 2013 form Include interest on a loan used to buy, build, or improve the dwelling unit, or to refinance such a loan. 1040ez 2013 form Include the rental portion of this interest in the total you enter on line 2a of the worksheet. 1040ez 2013 form   Figure the qualified mortgage insurance premiums on the dwelling unit that you could deduct on line 13 of Schedule A as if you had not rented the unit. 1040ez 2013 form See the Schedule A instructions. 1040ez 2013 form However, figure your adjusted gross income (Form 1040, line 38) without your rental income and expenses from the dwelling unit. 1040ez 2013 form See Line 4b to deduct the part of the qualified mortgage insurance premiums not allowed because of the adjusted gross income limit. 1040ez 2013 form Include the rental portion of the amount from Schedule A, line 13, in the total you enter on line 2a of the worksheet. 1040ez 2013 form   Note. 1040ez 2013 form Do not file this Schedule A or use it to figure the amount to deduct on line 13 of that schedule. 1040ez 2013 form Instead, figure the personal portion on a separate Schedule A. 1040ez 2013 form If you have deducted mortgage interest or qualified mortgage insurance premiums on the dwelling unit on other forms, such as Schedule C or F, remember to reduce your Schedule A deduction by that amount. 1040ez 2013 form           Line 2c. 1040ez 2013 form Figure the casualty and theft losses related to the dwelling unit that you could deduct on Schedule A as if you had not rented the dwelling unit. 1040ez 2013 form To do this, complete Section A of Form 4684, Casualties and Thefts, treating the losses as personal losses. 1040ez 2013 form If any of the loss is due to a federally declared disaster, see the Instructions for Form 4684. 1040ez 2013 form On Form 4684, line 17, enter 10% of your adjusted gross income figured without your rental income and expenses from the dwelling unit. 1040ez 2013 form Enter the rental portion of the result from Form 4684, line 18, on line 2c of this worksheet. 1040ez 2013 form   Note. 1040ez 2013 form Do not file this Form 4684 or use it to figure your personal losses on Schedule A. 1040ez 2013 form Instead, figure the personal portion on a separate Form 4684. 1040ez 2013 form           Line 2d. 1040ez 2013 form Enter the total of your rental expenses that are directly related only to the rental activity. 1040ez 2013 form These include interest on loans used for rental activities other than to buy, build, or improve the dwelling unit. 1040ez 2013 form Also include rental agency fees, advertising, office supplies, and depreciation on office equipment used in your rental activity. 1040ez 2013 form           Line 2e. 1040ez 2013 form You can deduct the amounts on lines 2a, 2b, 2c, and 2d as rental expenses on Schedule E even if your rental expenses are more than your rental income. 1040ez 2013 form Enter the amounts on lines 2a, 2b, 2c, and 2d on the appropriate lines of Schedule E. 1040ez 2013 form           Line 4b. 1040ez 2013 form On line 2a, you entered the rental portion of the mortgage interest and qualified mortgage insurance premiums you could deduct on Schedule A if you had not rented the dwelling unit. 1040ez 2013 form If you had additional mortgage interest and qualified mortgage insurance premiums that would not be deductible on Schedule A because of limits imposed on them, enter on line 4b of this worksheet the rental portion of those excess amounts. 1040ez 2013 form Do not include interest on a loan that did not benefit the dwelling unit (as explained in the line 2a instructions). 1040ez 2013 form           Line 4e. 1040ez 2013 form You can deduct the amounts on lines 4a, 4b, and 4c as rental expenses on Schedule E only to the extent they are not more than the amount on line 4e. 1040ez 2013 form *           Line 6a. 1040ez 2013 form To find the rental portion of excess casualty and theft losses, use the Form 4684 you prepared for line 2c of this worksheet. 1040ez 2013 form   A. 1040ez 2013 form Enter the amount from Form 4684, line 10       B. 1040ez 2013 form Enter the rental portion of line A       C. 1040ez 2013 form Enter the amount from line 2c of this worksheet       D. 1040ez 2013 form Subtract line C from line B. 1040ez 2013 form Enter the result here and on line 6a of this worksheet               Line 6e. 1040ez 2013 form You can deduct the amounts on lines 6a, 6b, and 6c as rental expenses on Schedule E only to the extent they are not more than the amount on line 6e. 1040ez 2013 form * *Allocating the limited deduction. 1040ez 2013 form If you cannot deduct all of the amount on line 4d or 6d this year, you can allocate the allowable deduction in any way you wish among the expenses included on line 4d or 6d. 1040ez 2013 form Enter the amount you allocate to each expense on the appropriate line of Schedule E, Part I. 1040ez 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The 1040ez 2013 Form

1040ez 2013 form 10. 1040ez 2013 form   Business Bad Debts Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Definition of Business Bad DebtAccrual method. 1040ez 2013 form Cash method. 1040ez 2013 form Debt acquired from a decedent. 1040ez 2013 form Liquidation. 1040ez 2013 form Types of Business Bad Debts When a Debt Becomes Worthless How To Claim a Business Bad DebtSpecific Charge-Off Method Nonaccrual-Experience Method Recovery of a Bad DebtNet operating loss (NOL) carryover. 1040ez 2013 form Introduction You have a bad debt if you cannot collect money owed to you. 1040ez 2013 form A bad debt is either a business bad debt or a nonbusiness bad debt. 1040ez 2013 form This chapter discusses only business bad debts. 1040ez 2013 form Generally, a business bad debt is one that comes from operating your trade or business. 1040ez 2013 form You can deduct business bad debts on Schedule C (Form 1040) or your applicable business income tax return. 1040ez 2013 form All other bad debts are nonbusiness bad debts and are deductible only as short-term capital losses. 1040ez 2013 form For more information on nonbusiness bad debts, see Publication 550. 1040ez 2013 form Topics - This chapter discusses: Definition of business bad debt When a debt becomes worthless How to claim a business bad debt Recovery of a bad debt Useful Items - You may want to see: Publication 525 Taxable and Nontaxable Income 536 Net Operating Losses (NOLs) for Individuals, Estates, and Trusts 544 Sales and Other Dispositions of Assets 550 Investment Income and Expenses 556 Examination of Returns, Appeal Rights, and Claims for Refund Form (and Instructions) Schedule C (Form 1040) Profit or Loss From Business 1040X Amended U. 1040ez 2013 form S. 1040ez 2013 form Individual Income Tax Return 1045 Application for Tentative Refund 1139 Corporation Application for Tentative Refund 3115 Application for Change in Accounting Method See chapter 12 for information about getting publications and forms. 1040ez 2013 form Definition of Business Bad Debt A business bad debt is a loss from the worthlessness of a debt that was either: Created or acquired in your trade or business, or Closely related to your trade or business when it became partly or totally worthless. 1040ez 2013 form A debt is closely related to your trade or business if your primary motive for incurring the debt is business related. 1040ez 2013 form Bad debts of a corporation (other than an S corporation) are always business bad debts. 1040ez 2013 form Credit sales. 1040ez 2013 form   Business bad debts are mainly the result of credit sales to customers. 1040ez 2013 form Goods that have been sold, but not yet paid for, and services that have been performed, but not yet paid for, are recorded in your books as either accounts receivable or notes receivable. 1040ez 2013 form After a reasonable period of time, if you have tried to collect the amount due, but are unable to do so, the uncollectible part becomes a business bad debt. 1040ez 2013 form   Accounts or notes receivable valued at fair market value (FMV) when received are deductible only at that value, even though the FMV may be less than the face value. 1040ez 2013 form If you purchased an account receivable for less than its face value, and the receivable subsequently becomes worthless, the most you are allowed to deduct is the amount you paid to acquire it. 1040ez 2013 form    You can claim a business bad debt deduction only if the amount owed to you was previously included in gross income. 1040ez 2013 form This applies to amounts owed to you from all sources of taxable income, including sales, services, rents, and interest. 1040ez 2013 form Accrual method. 1040ez 2013 form   If you use the accrual method of accounting, you generally report income as you earn it. 1040ez 2013 form You can only claim a bad debt deduction for an uncollectible receivable if you have previously included the uncollectible amount in income. 1040ez 2013 form   If you qualify, you can use the nonaccrual-experience method of accounting discussed later. 1040ez 2013 form Under this method, you do not have to accrue income that, based on your experience, you do not expect to collect. 1040ez 2013 form Cash method. 1040ez 2013 form   If you use the cash method of accounting, you generally report income when you receive payment. 1040ez 2013 form You cannot claim a bad debt deduction for amounts owed to you because you never included those amounts in income. 1040ez 2013 form For example, a cash basis architect cannot claim a bad debt deduction if a client fails to pay the bill because the architect's fee was never included in income. 1040ez 2013 form Debts from a former business. 1040ez 2013 form   If you sell your business but retain its receivables, these debts are business debts because they arose out of your trade or business. 1040ez 2013 form If any of these receivables subsequently become worthless, the loss is still a business bad debt. 1040ez 2013 form Debt acquired from a decedent. 1040ez 2013 form   The character of a loss from debts of a business acquired from a decedent is determined in the same way as debts acquired on the purchase of a business. 1040ez 2013 form The executor of the decedent's estate treats any loss from the debts as a business bad debt if the debts were closely related to the decedent's trade or business when they became worthless. 1040ez 2013 form Otherwise, a loss from these debts becomes a nonbusiness bad debt for the decedent's estate. 1040ez 2013 form Liquidation. 1040ez 2013 form   If you liquidate your business and some of the accounts receivable that you retain become worthless, they become business bad debts. 1040ez 2013 form Types of Business Bad Debts Business bad debts may result from the following. 1040ez 2013 form Loans to clients and suppliers. 1040ez 2013 form   If you loan money to a client, supplier, employee, or distributor for a business reason and you are unable to collect the loan after attempting to do so, you have a business bad debt. 1040ez 2013 form Debts owed by political parties. 1040ez 2013 form   If a political party (or other organization that accepts contributions or spends money to influence elections) owes you money and the debt becomes worthless, you can claim a bad debt deduction only if all of the following requirements are met. 1040ez 2013 form You use the accrual method of accounting. 1040ez 2013 form The debt arose from the sale of goods or services in the ordinary course of your trade or business. 1040ez 2013 form More than 30% of your receivables accrued in the year of the sale were from sales to political parties. 1040ez 2013 form You made substantial and continuing efforts to collect on the debt. 1040ez 2013 form Loan or capital contribution. 1040ez 2013 form   You cannot claim a bad debt deduction for a loan you made to a corporation if, based on the facts and circumstances, the loan is actually a contribution to capital. 1040ez 2013 form Debts of an insolvent partner. 1040ez 2013 form   If your business partnership breaks up and one of your former partners becomes insolvent, you may have to pay more than your pro rata share of the partnership's debts. 1040ez 2013 form If you pay any part of the insolvent partner's share of the debts, you can claim a bad debt deduction for the amount you paid that is attributable to the insolvent partner's share. 1040ez 2013 form Business loan guarantee. 1040ez 2013 form   If you guarantee a debt that subsequently becomes worthless, the debt can qualify as a business bad debt if all the following requirements are met. 1040ez 2013 form You made the guarantee in the course of your trade or business. 1040ez 2013 form You have a legal duty to pay the debt. 1040ez 2013 form You made the guarantee before the debt became worthless. 1040ez 2013 form You meet this requirement if you reasonably expected you would not have to pay the debt without full reimbursement from the borrower. 1040ez 2013 form You received reasonable consideration for making the guarantee. 1040ez 2013 form You meet this requirement if you made the guarantee in accord with normal business practice or for a good faith business purpose. 1040ez 2013 form Example. 1040ez 2013 form Jane Zayne owns the Zayne Dress Company. 1040ez 2013 form She guaranteed payment of a $20,000 note for Elegant Fashions, a dress outlet. 1040ez 2013 form Elegant Fashions is one of Zayne's largest clients. 1040ez 2013 form Elegant Fashions later defaulted on the loan. 1040ez 2013 form As a result, Ms. 1040ez 2013 form Zayne paid the remaining balance of the loan in full to the bank. 1040ez 2013 form She can claim a business bad debt deduction only for the amount she paid, since her guarantee was made in the course of her trade or business for a good faith business purpose. 1040ez 2013 form She was motivated by the desire to retain one of her better clients and keep a sales outlet. 1040ez 2013 form Deductible in the year paid. 1040ez 2013 form   If you make a payment on a loan you guaranteed, you can deduct it in the year paid, unless you have rights against the borrower. 1040ez 2013 form Rights against a borrower. 1040ez 2013 form   When you make payment on a loan you guaranteed, you may have the right to take the place of the lender. 1040ez 2013 form The debt is then owed to you. 1040ez 2013 form If you have this right, or some other right to demand payment from the borrower, you cannot claim a bad debt deduction until these rights become partly or totally worthless. 1040ez 2013 form Joint debtor. 1040ez 2013 form   If two or more debtors jointly owe you money, your inability to collect from one does not enable you to deduct a proportionate amount as a bad debt. 1040ez 2013 form Sale of mortgaged property. 1040ez 2013 form   If mortgaged or pledged property is sold for less than the debt, the unpaid, uncollectible balance of the debt is a bad debt. 1040ez 2013 form When a Debt Becomes Worthless A debt becomes worthless when there is no longer any chance the amount owed will be paid. 1040ez 2013 form This may occur when the debt is due or prior to that date. 1040ez 2013 form To demonstrate worthlessness, you must only show that you have taken reasonable steps to collect the debt but were unable to do so. 1040ez 2013 form It is not necessary to go to court if you can show that a judgment from the court would be uncollectible. 1040ez 2013 form Bankruptcy of your debtor is generally good evidence of the worthlessness of at least a part of an unsecured and unpreferred debt. 1040ez 2013 form Property received for debt. 1040ez 2013 form   If you receive property in partial settlement of a debt, reduce the debt by the property's FMV, which becomes the property's basis. 1040ez 2013 form You can deduct the remaining debt as a bad debt if and when it becomes worthless. 1040ez 2013 form   If you later sell the property for more than its basis, any gain on the sale is due to the appreciation of the property. 1040ez 2013 form It is not a recovery of a bad debt. 1040ez 2013 form For information on the sale of an asset, see Publication 544. 1040ez 2013 form How To Claim a Business Bad Debt There are two methods to claim a business bad debt. 1040ez 2013 form The specific charge-off method. 1040ez 2013 form The nonaccrual-experience method. 1040ez 2013 form Generally, you must use the specific charge-off method. 1040ez 2013 form However, you may use the nonaccrual-experience method if you meet the requirements discussed later under Nonaccrual-Experience Method . 1040ez 2013 form Specific Charge-Off Method If you use the specific charge-off method, you can deduct specific business bad debts that become either partly or totally worthless during the tax year. 1040ez 2013 form However, with respect to partly worthless bad debts, your deduction is limited to the amount you charged off on your books during the year. 1040ez 2013 form Partly worthless debts. 1040ez 2013 form   You can deduct specific bad debts that become partly uncollectible during the tax year. 1040ez 2013 form Your tax deduction is limited to the amount you charge off on your books during the year. 1040ez 2013 form You do not have to charge off and deduct your partly worthless debts annually. 1040ez 2013 form You can delay the charge off until a later year. 1040ez 2013 form However, you cannot deduct any part of a debt after the year it becomes totally worthless. 1040ez 2013 form Significantly modified debt. 1040ez 2013 form   An exception to the charge-off rule exists for debt which has been significantly modified and on which the holder recognized gain. 1040ez 2013 form For more information, see Regulations section 1. 1040ez 2013 form 166-3(a)(3). 1040ez 2013 form Deduction disallowed. 1040ez 2013 form   Generally, you can claim a partial bad debt deduction only in the year you make the charge-off on your books. 1040ez 2013 form If, under audit, the IRS does not allow your deduction and the debt becomes partly worthless in a later tax year, you can deduct the amount you charged off in that year plus the disallowed amount charged off in the earlier year. 1040ez 2013 form The charge-off in the earlier year, unless reversed on your books, fulfills the charge-off requirement for the later year. 1040ez 2013 form Totally worthless debts. 1040ez 2013 form   If a debt becomes totally worthless in the current tax year, you can deduct the entire amount, less any amount deducted in an earlier tax year when the debt was only partly worthless. 1040ez 2013 form   You do not have to make an actual charge-off on your books to claim a bad debt deduction for a totally worthless debt. 1040ez 2013 form However, you may want to do so. 1040ez 2013 form If you do not and the IRS later rules the debt is only partly worthless, you will not be allowed a deduction for the debt in that tax year because a deduction of a partly worthless bad debt is limited to the amount actually charged off. 1040ez 2013 form See Partly worthless debts, earlier. 1040ez 2013 form Filing a claim for refund. 1040ez 2013 form   If you did not deduct a bad debt on your original return for the year it became worthless, you can file a claim for a credit or refund. 1040ez 2013 form If the bad debt was totally worthless, you must file the claim by the later of the following dates. 1040ez 2013 form 7 years from the date your original return was due (not including extensions). 1040ez 2013 form 2 years from the date you paid the tax. 1040ez 2013 form   If the claim is for a partly worthless bad debt, you must file the claim by the later of the following dates. 1040ez 2013 form 3 years from the date you filed your original return. 1040ez 2013 form 2 years from the date you paid the tax. 1040ez 2013 form You may have longer to file the claim if you were unable to manage your financial affairs due to a physical or mental impairment. 1040ez 2013 form Such an impairment requires proof of existence. 1040ez 2013 form   For details and more information about filing a claim, see Publication 556. 1040ez 2013 form Use one of the following forms to file a claim. 1040ez 2013 form For more information, see the instructions for the applicable form. 1040ez 2013 form Table 10-1. 1040ez 2013 form Forms Used To File a Claim IF you filed as a. 1040ez 2013 form . 1040ez 2013 form . 1040ez 2013 form THEN file. 1040ez 2013 form . 1040ez 2013 form . 1040ez 2013 form Sole proprietor or farmer Form 1040X Corporation Form 1120X S corporation Form 1120S and check box H(4) Partnership Form 1065X if filing on paper or  Form 1065 and check box G(5) if filing electronically Nonaccrual-Experience Method If you use an accrual method of accounting and qualify under the rules explained in this section, you can use the nonaccrual-experience method for bad debts. 1040ez 2013 form Under this method, you do not accrue service related income you expect to be uncollectible. 1040ez 2013 form Because the expected uncollectible amounts are not included in income, these amounts are not later deducted from income. 1040ez 2013 form Generally, you can use the nonaccrual-experience method for accounts receivable for services you performed only if: The services are provided in the fields of accounting, actuarial science, architecture, consulting, engineering, health, law, or the performing arts, or You meet the $5 million gross receipts test for all prior years. 1040ez 2013 form Service related income. 1040ez 2013 form   You can use the nonaccrual-experience method only for amounts earned by performing services. 1040ez 2013 form You cannot use this method for amounts owed to you from activities such as lending money, selling goods, or acquiring receivables or other rights to receive payment. 1040ez 2013 form Gross receipts test. 1040ez 2013 form   To find out if you meet the $5 million gross receipts test for all prior years, you must figure the average annual gross receipts for each prior year. 1040ez 2013 form If your average annual gross receipts for any year exceeds $5 million, you cannot use the non-accural experience method. 1040ez 2013 form   The average annual gross receipts for any year is the average of gross receipts from the year in question and the 2 previous years. 1040ez 2013 form For example, if you were figuring the average annual gross receipts for 2013, you would average your gross receipts for 2011, 2012, and 2013. 1040ez 2013 form Interest or penalty charged. 1040ez 2013 form   Generally, you cannot use the nonaccrual-experience method for amounts due on which you charge interest or a late payment penalty. 1040ez 2013 form However, do not treat a discount offered for early payment as the charging of interest or a penalty if both the following apply. 1040ez 2013 form You otherwise accrue the full amount due as gross income at the time you provide the services. 1040ez 2013 form You treat the discount allowed for early payment as an adjustment to gross income in the year of payment. 1040ez 2013 form Change in accounting method. 1040ez 2013 form   Generally, you must obtain consent to change to a nonaccrual-experience method (other than one of the safe harbor methods) or to change from one method to another. 1040ez 2013 form See Form 3115 and the Instructions for Form 3115 for more information. 1040ez 2013 form Recovery of a Bad Debt If you claim a deduction for a bad debt on your income tax return and later recover (collect) all or part of it, you may have to include all or part of the recovery in gross income. 1040ez 2013 form The amount you include is limited to the amount you actually deducted. 1040ez 2013 form However, you can exclude the amount deducted that did not reduce your tax. 1040ez 2013 form Report the recovery as “Other income” on the appropriate business form or schedule. 1040ez 2013 form See Recoveries in Publication 525 for more information. 1040ez 2013 form Net operating loss (NOL) carryover. 1040ez 2013 form   If a bad debt deduction increases an NOL carryover that has not expired before the beginning of the tax year in which the recovery takes place, you treat the deduction as having reduced your tax. 1040ez 2013 form A bad debt deduction that contributes to a NOL helps lower taxes in the year to which you carry the NOL. 1040ez 2013 form For more information about NOLs, see Publication 536. 1040ez 2013 form Also, see the Instructions for Form 1045, and the Instructions for Form 1139. 1040ez 2013 form Prev  Up  Next   Home   More Online Publications