Filing Your Taxes Online is Fast, Easy and Secure.
Start now and receive your tax refund in as little as 7 days.

1. Get Answers

Your online questions are customized to your unique tax situation.

2. Maximize your Refund

Find tax credits for everything from school tuition to buying a hybri

3. E-File for FREE

E-file free with direct deposit to get your refund in as few as 7 days.

Filing your taxes with paper mail can be difficult and it could take weeks for your refund to arrive. IRS e-file is easy, fast and secure. There is no paperwork going to the IRS so tax refunds can be processed in as little as 7 days with direct deposit. As you prepare your taxes online, you can see your tax refund in real time.

FREE audit support and representation from an enrolled agent – NEW and only from H&R Block

1040x Fillable Form

File An Amended Return OnlineIrs Free Tax Filing 20121040ez Worksheet Line F2012 Federal Income Tax Forms 1040ez1040ez Free040ez1040x Amended2012 Amended Tax FormTaxaid ComFiling 2010 Taxes LateTax Forms 2009State TaxTax FormsAmending Tax Returns1040ez GovPrintable Irs Tax Forms 20111040ez InstructionsIncome Tax ExtensionIrs Ez File OnlineFile 2010 Tax Return LateFederal Taxes 2012Can I File 1040ezSample 1040ezFile A Tax Return1040xFree Fed And State EfileFiling My 2012 TaxesIrs InstructionsAmend 2011 Tax Return OnlineWhere Do I File My State Taxes For FreeAmending A Tax ReturnCan I File My 2011 And 2012 Taxes Together2012 Tax Form 1040ezFreefilefillableformsIrs 2012 Tax Forms1040 Tax Form 2011File Your Taxes For FreeNj 1040nr FormFree Federal Income Tax FilingFederal Income Tax Return

1040x Fillable Form

1040x fillable form Publication 925 - Main Content Table of Contents Passive Activity LimitsWho Must Use These Rules? Passive Activity Loss Passive Activity Credit Publicly Traded Partnership Excess Farm Loss Passive Activities Activities That Are Not Passive Activities Passive Activity Income and Deductions Grouping Your Activities Recharacterization of Passive Income Dispositions How To Report Your Passive Activity Loss Comprehensive ExampleGeneral Information At-Risk LimitsWho Is Affected? Activities Covered by the At-Risk Rules At-Risk Amounts Amounts Not At Risk Reductions of Amounts At Risk Recapture Rule How To Get Tax HelpLow Income Taxpayer Clinics Passive Activity Limits Who Must Use These Rules? The passive activity rules apply to: Individuals, Estates, Trusts (other than grantor trusts), Personal service corporations, and Closely held corporations. 1040x fillable form Even though the rules do not apply to grantor trusts, partnerships, and S corporations directly, they do apply to the owners of these entities. 1040x fillable form For information about personal service corporations and closely held corporations, including definitions and how the passive activity rules apply to these corporations, see Form 8810 and its instructions. 1040x fillable form Before applying the passive activity limits, you must first determine the amount of the deductions disallowed under the basis, excess farm loss, or at-risk rules. 1040x fillable form See Passive Activity Deductions, later. 1040x fillable form Passive Activity Loss Generally, the passive activity loss for the tax year is not allowed. 1040x fillable form However, there is a special allowance under which some or all of your passive activity loss may be allowed. 1040x fillable form See Special $25,000 allowance , later. 1040x fillable form Definition of passive activity loss. 1040x fillable form    Generally, your passive activity loss for the tax year is the excess of your passive activity deductions over your passive activity gross income. 1040x fillable form See Passive Activity Income and Deductions , later. 1040x fillable form   For a closely held corporation, the passive activity loss is the excess of passive activity deductions over the sum of passive activity gross income and net active income. 1040x fillable form For details on net active income, see the Instructions for Form 8810. 1040x fillable form For the definition of passive activity gross income, see Passive Activity Income , later. 1040x fillable form For the definition of passive activity deductions, see Passive Activity Deductions , later. 1040x fillable form Identification of Disallowed Passive Activity Deductions If all or a part of your passive activity loss is disallowed for the tax year, you may need to allocate the disallowed passive activity loss among different passive activities and among different deductions within a passive activity. 1040x fillable form Allocation of disallowed passive activity loss among activities. 1040x fillable form   If all or any part of your passive activity loss is disallowed for the tax year, a ratable portion of the loss (if any) from each of your passive activities is disallowed. 1040x fillable form The ratable portion of a loss from an activity is computed by multiplying the passive activity loss that is disallowed for the tax year by the fraction obtained by dividing: The loss from the activity for the tax year; by The sum of the losses for the tax year from all activities having losses for the tax year. 1040x fillable form Use Worksheet 5 of Form 8582 to figure the ratable portion of the loss from each activity that is disallowed. 1040x fillable form Loss from an activity. 1040x fillable form   The term “loss from an activity” means: The amount by which the passive activity deductions (defined later) from the activity for the tax year exceed the passive activity gross income (defined later) from the activity for the tax year; reduced by Any part of such amount that is allowed under the Special $25,000 Allowance , later. 1040x fillable form   If your passive activity gross income from significant participation passive activities (defined later) for the tax year is more than your passive activity deductions from those activities for the tax year, those activities shall be treated, solely for purposes of figuring your loss from the activity, as a single activity that does not have a loss for such taxable year. 1040x fillable form See Significant Participation Passive Activities , later. 1040x fillable form Example. 1040x fillable form John Pine holds interests in three passive activities, A, B, and C. 1040x fillable form The gross income and deductions from these activities for the taxable year are as follows:   A B C Total Gross income $7,000 $4,000 $12,000 $23,000 Deductions (16,000) (20,000) (8,000) (44,000)           Net income (loss) ($9,000) ($16,000) $4,000 ($21,000)   John Pine’s $21,000 passive activity loss for the taxable year is disallowed. 1040x fillable form Therefore, a ratable portion of the losses from activities A and B is disallowed. 1040x fillable form He figures the disallowed portion of each loss as follows: A: $21,000 x $9,000/$25,000 $7,560 B: $21,000 x $16,000/$25,000 13,440     Total $21,000 Allocation within loss activities. 1040x fillable form   If all or any part of your loss from an activity is disallowed under Allocation of disallowed passive activity loss among activities for the tax year, a ratable portion of each of your passive activity deductions (defined later), other than an excluded deduction (defined below) from such activity is disallowed. 1040x fillable form The ratable portion of a passive activity deduction is the amount of the disallowed portion of the loss from the activity for the tax year multiplied by the fraction obtained by dividing: The amount of such deduction; by The sum of all of your passive activity deductions (other than excluded deductions) from that activity from the tax year. 1040x fillable form Excluded deductions. 1040x fillable form    “Excluded deduction” means any passive activity deduction that is taken into account in computing your net income from an item of property for a taxable year in which an amount of the taxpayer's gross income from such item of property is treated as not from a passive activity. 1040x fillable form See Recharacterization of Passive Income , later. 1040x fillable form Separately identified deductions. 1040x fillable form   In identifying the deductions from an activity that are disallowed, you do not need to account separately for a deduction unless such deduction may, if separately taken into account, result in an income tax liability for any tax year different from that which would result were such deduction not taken into account separately. 1040x fillable form   Use Form 8582, Worksheet 7, for any activity if you have passive activity deductions for that activity that must be separately identified. 1040x fillable form   Deductions that must be accounted for separately include (but are not limited to) the following deductions. 1040x fillable form Deductions that arise in a rental real estate activity in tax years in which you actively participate in such activity. 1040x fillable form See Active participation , later. 1040x fillable form Deductions that arise in a rental real estate activity in tax years in which you do not actively participate in such activity. 1040x fillable form See Active participation , later. 1040x fillable form Losses from sales or exchanges of capital assets. 1040x fillable form Section 1231 losses. 1040x fillable form See Section 1231 Gains and Losses in Publication 544, Sales and Other Disposition of Assets, for more information. 1040x fillable form Carryover of Disallowed Deductions In the case of an activity with respect to which any deductions or credits are disallowed for a taxable year (the loss activity), the disallowed deductions are allocated among your activities for the next tax year in a manner that reasonably reflects the extent to which each activity continues the loss activity. 1040x fillable form The disallowed deductions or credits allocated to an activity under the preceding sentence are treated as deductions or credits from the activity for the next tax year. 1040x fillable form For more information, see Regulations section 1. 1040x fillable form 469-1(f)(4). 1040x fillable form Passive Activity Credit Generally, the passive activity credit for the tax year is disallowed. 1040x fillable form The passive activity credit is the amount by which the sum of all your credits subject to the passive activity rules exceed your regular tax liability allocable to all passive activities for the tax year. 1040x fillable form Credits that are included in figuring the general business credit are subject to the passive activity rules. 1040x fillable form See the Instructions for Form 8582-CR for more information. 1040x fillable form Publicly Traded Partnership You must apply the rules in this part separately to your income or loss from a passive activity held through a publicly traded partnership (PTP). 1040x fillable form You also must apply the limit on passive activity credits separately to your credits from a passive activity held through a PTP. 1040x fillable form You can offset deductions from passive activities of a PTP only against income or gain from passive activities of the same PTP. 1040x fillable form Likewise, you can offset credits from passive activities of a PTP only against the tax on the net passive income from the same PTP. 1040x fillable form This separate treatment rule also applies to a regulated investment company holding an interest in a PTP for the items attributable to that interest. 1040x fillable form For more information on how to apply the passive activity loss rules to PTPs, and on how to apply the limit on passive activity credits to PTPs, see Publicly Traded Partnerships (PTPs) in the Instructions for Forms 8582 and 8582-CR, respectively. 1040x fillable form Excess Farm Loss If you receive an applicable subsidy for any tax year and you have an excess farm loss for the tax year, special rules apply. 1040x fillable form These rules do not apply to C corporations. 1040x fillable form For information, see the Instructions for Schedule F (Form 1040), Profit or Loss From Farming. 1040x fillable form Passive Activities There are two kinds of passive activities. 1040x fillable form Trade or business activities in which you do not materially participate during the year. 1040x fillable form Rental activities, even if you do materially participate in them, unless you are a real estate professional. 1040x fillable form Material participation in a trade or business is discussed later, under Activities That Are Not Passive Activities . 1040x fillable form Treatment of former passive activities. 1040x fillable form   A former passive activity is an activity that was a passive activity in any earlier tax year, but is not a passive activity in the current tax year. 1040x fillable form You can deduct a prior year's unallowed loss from the activity up to the amount of your current year net income from the activity. 1040x fillable form Treat any remaining prior year unallowed loss like you treat any other passive loss. 1040x fillable form   In addition, any prior year unallowed passive activity credits from a former passive activity offset the allocable part of your current year tax liability. 1040x fillable form The allocable part of your current year tax liability is that part of this year's tax liability that is allocable to the current year net income from the former passive activity. 1040x fillable form You figure this after you reduce your net income from the activity by any prior year unallowed loss from that activity (but not below zero). 1040x fillable form Trade or Business Activities A trade or business activity is an activity that: Involves the conduct of a trade or business (that is, deductions would be allowable under section 162 of the Internal Revenue Code if other limitations, such as the passive activity rules, did not apply), Is conducted in anticipation of starting a trade or business, or Involves research or experimental expenditures that are deductible under Internal Revenue Code section 174 (or that would be deductible if you chose to deduct rather than capitalize them). 1040x fillable form A trade or business activity does not include a rental activity or the rental of property that is incidental to an activity of holding the property for investment. 1040x fillable form You generally report trade or business activities on Schedule C, C-EZ, F, or in Part II or III of Schedule E. 1040x fillable form Rental Activities A rental activity is a passive activity even if you materially participated in that activity, unless you materially participated as a real estate professional. 1040x fillable form See Real Estate Professional under Activities That Are Not Passive Activities, later. 1040x fillable form An activity is a rental activity if tangible property (real or personal) is used by customers or held for use by customers, and the gross income (or expected gross income) from the activity represents amounts paid (or to be paid) mainly for the use of the property. 1040x fillable form It does not matter whether the use is under a lease, a service contract, or some other arrangement. 1040x fillable form Exceptions. 1040x fillable form   Your activity is not a rental activity if any of the following apply. 1040x fillable form The average period of customer use of the property is 7 days or less. 1040x fillable form You figure the average period of customer use by dividing the total number of days in all rental periods by the number of rentals during the tax year. 1040x fillable form If the activity involves renting more than one class of property, multiply the average period of customer use of each class by a fraction. 1040x fillable form The numerator of the fraction is the gross rental income from that class of property and the denominator is the activity's total gross rental income. 1040x fillable form The activity's average period of customer use will equal the sum of the amounts for each class. 1040x fillable form The average period of customer use of the property, as figured in (1) above, is 30 days or less and you provide significant personal services with the rentals. 1040x fillable form Significant personal services include only services performed by individuals. 1040x fillable form To determine if personal services are significant, all relevant facts and circumstances are taken into consideration, including the frequency of the services, the type and amount of labor required to perform the services, and the value of the services relative to the amount charged for use of the property. 1040x fillable form Significant personal services do not include the following. 1040x fillable form Services needed to permit the lawful use of the property, Services to repair or improve property that would extend its useful life for a period substantially longer than the average rental, and Services that are similar to those commonly provided with long-term rentals of real estate, such as cleaning and maintenance of common areas or routine repairs. 1040x fillable form You provide extraordinary personal services in making the rental property available for customer use. 1040x fillable form Services are extraordinary personal services if they are performed by individuals and the customers' use of the property is incidental to their receipt of the services. 1040x fillable form The rental is incidental to a nonrental activity. 1040x fillable form The rental of property is incidental to an activity of holding property for investment if the main purpose of holding the property is to realize a gain from its appreciation and the gross rental income from the property is less than 2% of the smaller of the property's unadjusted basis or fair market value. 1040x fillable form The unadjusted basis of property is its cost not reduced by depreciation or any other basis adjustment. 1040x fillable form The rental of property is incidental to a trade or business activity if all of the following apply. 1040x fillable form You own an interest in the trade or business activity during the year. 1040x fillable form The rental property was used mainly in that trade or business activity during the current year, or during at least 2 of the 5 preceding tax years. 1040x fillable form Your gross rental income from the property is less than 2% of the smaller of its unadjusted basis or fair market value. 1040x fillable form Lodging provided to an employee or the employee's spouse or dependents is incidental to the activity or activities in which the employee performs services if the lodging is furnished for the employer's convenience. 1040x fillable form You customarily make the rental property available during defined business hours for nonexclusive use by various customers. 1040x fillable form You provide the property for use in a nonrental activity in your capacity as an owner of an interest in the partnership, S corporation, or joint venture conducting that activity. 1040x fillable form    If you meet any of the exceptions listed above, see the instructions for Form 8582 for information about how to report any income or loss from the activity. 1040x fillable form Special $25,000 allowance. 1040x fillable form   If you or your spouse actively participated in a passive rental real estate activity, the amount of the passive activity loss that is disallowed is decreased and you therefore can deduct up to $25,000 of loss from the activity from your nonpassive income. 1040x fillable form This special allowance is an exception to the general rule disallowing the passive activity loss. 1040x fillable form Similarly, you can 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. 1040x fillable form   If you are married, filing a separate return, and lived apart from your spouse for the entire tax year, your special allowance cannot be more than $12,500. 1040x fillable form If you lived with your spouse at any time during the year and are filing a separate return, you cannot use the special allowance to reduce your nonpassive income or tax on nonpassive income. 1040x fillable form   The maximum special allowance is reduced if your modified adjusted gross income exceeds certain amounts. 1040x fillable form See Phaseout rule , later. 1040x fillable form Example. 1040x fillable form Kate, a single taxpayer, has $70,000 in wages, $15,000 income from a limited partnership, a $26,000 loss from rental real estate activities in which she actively participated, and is not subject to the modified adjusted gross income phaseout rule. 1040x fillable form She can use $15,000 of her $26,000 loss to offset her $15,000 passive income from the partnership. 1040x fillable form She actively participated in her rental real estate activities, so she can use the remaining $11,000 rental real estate loss to offset $11,000 of her nonpassive income (wages). 1040x fillable form Commercial revitalization deduction (CRD). 1040x fillable form   The special allowance must first be applied to losses from rental real estate activities figured without the CRD. 1040x fillable form Any remaining part of the special allowance is available for the CRD from the rental real estate activities and is not subject to the active participation rules or the phaseout based on modified adjusted gross income. 1040x fillable form You cannot claim a CRD for a building placed in service after December 31, 2009. 1040x fillable form Active participation. 1040x fillable form   Active participation is not the same as material participation (defined later). 1040x fillable form Active participation is a less stringent standard than material participation. 1040x fillable form For example, you may be treated as actively participating if you make management decisions in a significant and bona fide sense. 1040x fillable form Management decisions that count as active participation include approving new tenants, deciding on rental terms, approving expenditures, and similar decisions. 1040x fillable form   Only individuals can actively participate in rental real estate activities. 1040x fillable form However, a decedent's estate is treated as actively participating for its tax years ending less than 2 years after the decedent's death, if the decedent would have satisfied the active participation requirement for the activity for the tax year the decedent died. 1040x fillable form   A decedent's qualified revocable trust can also be treated as actively participating if both the trustee and the executor (if any) of the estate choose to treat the trust as part of the estate. 1040x fillable form The choice applies to tax years ending after the decedent's death and before: 2 years after the decedent's death if no estate tax return is required, or 6 months after the estate tax liability is finally determined if an estate tax return is required. 1040x fillable form   The choice is irrevocable and cannot be made later than the due date for the estate's first income tax return (including any extensions). 1040x fillable form   Limited partners are not treated as actively participating in a partnership's rental real estate activities. 1040x fillable form   You are not treated as actively participating in a rental real estate activity unless your interest in the activity (including your spouse's interest) was at least 10% (by value) of all interests in the activity throughout the year. 1040x fillable form   Active participation is not required to take the low-income housing credit, the rehabilitation investment credit, or CRD from rental real estate activities. 1040x fillable form Example. 1040x fillable form Mike, a single taxpayer, had the following income and loss during the tax year: Salary $42,300 Dividends 300 Interest 1,400 Rental loss (4,000) The rental loss came from a house Mike owned. 1040x fillable form He advertised and rented the house to the current tenant himself. 1040x fillable form He also collected the rents and did the repairs or hired someone to do them. 1040x fillable form Even though the rental loss is a loss from a passive activity, Mike can use the entire $4,000 loss to offset his other income because he actively participated. 1040x fillable form Phaseout rule. 1040x fillable form   The maximum special allowance of $25,000 ($12,500 for married individuals filing separate returns and living apart at all times during the year) is reduced by 50% of the amount of your modified adjusted gross income that is more than $100,000 ($50,000 if you are married filing separately). 1040x fillable form If your modified adjusted gross income is $150,000 or more ($75,000 or more if you are married filing separately), you generally cannot use the special allowance. 1040x fillable form    Modified adjusted gross income for this purpose is your adjusted gross income figured without the following. 1040x fillable form Taxable social security and tier 1 railroad retirement benefits. 1040x fillable form Deductible contributions to individual retirement accounts (IRAs) and section 501(c)(18) pension plans. 1040x fillable form The exclusion from income of interest from qualified U. 1040x fillable form S. 1040x fillable form savings bonds used to pay qualified higher education expenses. 1040x fillable form The exclusion from income of amounts received from an employer's adoption assistance program. 1040x fillable form Passive activity income or loss included on Form 8582. 1040x fillable form Any rental real estate loss allowed because you materially participated in the rental activity as a Real Estate Professional (as discussed later, under Activities That Are Not Passive Activities). 1040x fillable form Any overall loss from a publicly traded partnership (see Publicly Traded Partnerships (PTPs) in the instructions for Form 8582). 1040x fillable form The deduction for the employer-equivalent portion of self-employment tax. 1040x fillable form The deduction for domestic production activities. 1040x fillable form The deduction allowed for interest on student loans. 1040x fillable form The deduction for qualified tuition and related expenses. 1040x fillable form Example. 1040x fillable form During 2013, John was unmarried and was not a real estate professional. 1040x fillable form For 2013, he had $120,000 in salary and a $31,000 loss from his rental real estate activities in which he actively participated. 1040x fillable form His modified adjusted gross income is $120,000. 1040x fillable form When he files his 2013 return, he can deduct only $15,000 of his passive activity loss. 1040x fillable form He must carry over the remaining $16,000 passive activity loss to 2014. 1040x fillable form He figures his deduction and carryover as follows: Adjusted gross income, modified as required $120,000       Minus amount not subject to phaseout 100,000 Amount subject to phaseout rule $20,000 Multiply by 50% × 50% Required reduction to special allowance $10,000 Maximum special allowance $25,000 Minus required reduction (see above) 10,000 Adjusted special allowance $15,000 Passive loss from rental real estate $31,000 Deduction allowable/Adjusted  special allowance (see above) 15,000       Amount that must be carried forward $16,000 Exceptions to the phaseout rules. 1040x fillable form   A higher phaseout range applies to rehabilitation investment credits from rental real estate activities. 1040x fillable form For those credits, the phaseout of the $25,000 special allowance starts when your modified adjusted gross income exceeds $200,000 ($100,000 if you are a married individual filing a separate return and living apart at all times during the year). 1040x fillable form   There is no phaseout of the $25,000 special allowance for low-income housing credits or for the CRD. 1040x fillable form Ordering rules. 1040x fillable form   If you have more than one of the exceptions to the phaseout rules in the same tax year, you must apply the $25,000 phaseout against your passive activity losses and credits in the following order. 1040x fillable form The portion of passive activity losses not attributable to the CRD. 1040x fillable form The portion of passive activity losses attributable to the CRD. 1040x fillable form The portion of passive activity credits attributable to credits other than the rehabilitation and low-income housing credits. 1040x fillable form The portion of passive activity credits attributable to the rehabilitation credit. 1040x fillable form The portion of passive activity credits attributable to the low-income housing credit. 1040x fillable form Activities That Are Not Passive Activities The following are not passive activities. 1040x fillable form Trade or business activities in which you materially participated for the tax year. 1040x fillable form A working interest in an oil or gas well which you hold directly or through an entity that does not limit your liability (such as a general partner interest in a partnership). 1040x fillable form It does not matter whether you materially participated in the activity for the tax year. 1040x fillable form However, if your liability was limited for part of the year (for example, you converted your general partner interest to a limited partner interest during the year) and you had a net loss from the well for the year, some of your income and deductions from the working interest may be treated as passive activity gross income and passive activity deductions. 1040x fillable form  See Temporary Regulations section 1. 1040x fillable form 469-1T(e)(4)(ii). 1040x fillable form The rental of a dwelling unit that you also used for personal purposes during the year for more than the greater of 14 days or 10% of the number of days during the year that the home was rented at a fair rental. 1040x fillable form An activity of trading personal property for the account of those who own interests in the activity. 1040x fillable form See Temporary Regulations section 1. 1040x fillable form 469-1T(e)(6). 1040x fillable form Rental real estate activities in which you materially participated as a real estate professional. 1040x fillable form See Real Estate Professional , later. 1040x fillable form You should not enter income and losses from these activities on Form 8582. 1040x fillable form Instead, enter them on the forms or schedules you would normally use. 1040x fillable form Material Participation A trade or business activity is not a passive activity if you materially participated in the activity. 1040x fillable form Material participation tests. 1040x fillable form    You materially participated in a trade or business activity for a tax year if you satisfy any of the following tests. 1040x fillable form You participated in the activity for more than 500 hours. 1040x fillable form Your participation was substantially all the participation in the activity of all individuals for the tax year, including the participation of individuals who did not own any interest in the activity. 1040x fillable form You participated in the activity for more than 100 hours during the tax year, and you participated at least as much as any other individual (including individuals who did not own any interest in the activity) for the year. 1040x fillable form The activity is a significant participation activity, and you participated in all significant participation activities for more than 500 hours. 1040x fillable form A significant participation activity is any trade or business activity in which you participated for more than 100 hours during the year and in which you did not materially participate under any of the material participation tests, other than this test. 1040x fillable form See Significant Participation Passive Activities , under Recharacterization of Passive Income, later. 1040x fillable form You materially participated in the activity for any 5 (whether or not consecutive) of the 10 immediately preceding tax years. 1040x fillable form The activity is a personal service activity in which you materially participated for any 3 (whether or not consecutive) preceding tax years. 1040x fillable form An activity is a personal service activity if it involves the performance of personal services in the fields of health (including veterinary services), law, engineering, architecture, accounting, actuarial science, performing arts, consulting, or any other trade or business in which capital is not a material income-producing factor. 1040x fillable form Based on all the facts and circumstances, you participated in the activity on a regular, continuous, and substantial basis during the year. 1040x fillable form   You did not materially participate in the activity under test (7) if you participated in the activity for 100 hours or less during the year. 1040x fillable form Your participation in managing the activity does not count in determining whether you materially participated under this test if: Any person other than you received compensation for managing the activity, or Any individual spent more hours during the tax year managing the activity than you did (regardless of whether the individual was compensated for the management services). 1040x fillable form Participation. 1040x fillable form   In general, any work you do in connection with an activity in which you own an interest is treated as participation in the activity. 1040x fillable form Work not usually performed by owners. 1040x fillable form   You do not treat the work you do in connection with an activity as participation in the activity if both of the following are true. 1040x fillable form The work is not work that is customarily done by the owner of that type of activity. 1040x fillable form One of your main reasons for doing the work is to avoid the disallowance of any loss or credit from the activity under the passive activity rules. 1040x fillable form Participation as an investor. 1040x fillable form   You do not treat the work you do in your capacity as an investor in an activity as participation unless you are directly involved in the day-to-day management or operations of the activity. 1040x fillable form Work you do as an investor includes: Studying and reviewing financial statements or reports on operations of the activity, Preparing or compiling summaries or analyses of the finances or operations of the activity for your own use, and Monitoring the finances or operations of the activity in a nonmanagerial capacity. 1040x fillable form Spouse's participation. 1040x fillable form   Your participation in an activity includes your spouse's participation. 1040x fillable form This applies even if your spouse did not own any interest in the activity and you and your spouse do not file a joint return for the year. 1040x fillable form Proof of participation. 1040x fillable form You can use any reasonable method to prove your participation in an activity for the year. 1040x fillable form You do not have to keep contemporaneous daily time reports, logs, or similar documents if you can establish your participation in some other way. 1040x fillable form For example, you can show the services you performed and the approximate number of hours spent by using an appointment book, calendar, or narrative summary. 1040x fillable form Limited partners. 1040x fillable form   If you owned an activity as a limited partner, you generally are not treated as materially participating in the activity. 1040x fillable form However, you are treated as materially participating in the activity if you met test (1), (5), or (6) under Material participation tests , discussed earlier, for the tax year. 1040x fillable form   You are not treated as a limited partner, however, if you also were a general partner in the partnership at all times during the partnership's tax year ending with or within your tax year (or, if shorter, during that part of the partnership's tax year in which you directly or indirectly owned your limited partner interest). 1040x fillable form Retired or disabled farmer and surviving spouse of a farmer. 1040x fillable form   If you are a retired or disabled farmer, you are treated as materially participating in a farming activity if you materially participated for 5 or more of the 8 years before your retirement or disability. 1040x fillable form Similarly, if you are a surviving spouse of a farmer, you are treated as materially participating in a farming activity if the real property used in the activity meets the estate tax rules for special valuation of farm property passed from a qualifying decedent, and you actively manage the farm. 1040x fillable form Corporations. 1040x fillable form   A closely held corporation or a personal service corporation is treated as materially participating in an activity only if one or more shareholders holding more than 50% by value of the outstanding stock of the corporation materially participate in the activity. 1040x fillable form   A closely held corporation can also satisfy the material participation standard by meeting the first two requirements for the qualifying business exception from the at-risk limits. 1040x fillable form See Special exception for qualified corporations under Activities Covered by the At-Risk Rules, later. 1040x fillable form Real Estate Professional Generally, rental activities are passive activities even if you materially participated in them. 1040x fillable form However, if you qualified as a real estate professional, rental real estate activities in which you materially participated are not passive activities. 1040x fillable form For this purpose, each interest you have in a rental real estate activity is a separate activity, unless you choose to treat all interests in rental real estate activities as one activity. 1040x fillable form See the Instructions for Schedule E (Form 1040), Supplemental Income and Loss, for information about making this choice. 1040x fillable form If you qualified as a real estate professional for 2013, report income or losses from rental real estate activities in which you materially participated as nonpassive income or losses, and complete line 43 of Schedule E (Form 1040). 1040x fillable form If you also have an unallowed loss from these activities from an earlier year when you did not qualify, see Treatment of former passive activities under Passive Activities, earlier. 1040x fillable form Qualifications. 1040x fillable form   You qualified as a real estate professional for the year if you met both of the following requirements. 1040x fillable form More than half of the personal services you performed in all trades or businesses during the tax year were performed in real property trades or businesses in which you materially participated. 1040x fillable form You performed more than 750 hours of services during the tax year in real property trades or businesses in which you materially participated. 1040x fillable form   Do not count personal services you performed as an employee in real property trades or businesses unless you were a 5% owner of your employer. 1040x fillable form You were a 5% owner if you owned (or are considered to have owned) more than 5% of your employer's outstanding stock, outstanding voting stock, or capital or profits interest. 1040x fillable form   If you file a joint return, do not count your spouse's personal services to determine whether you met the preceding requirements. 1040x fillable form However, you can count your spouse's participation in an activity in determining if you materially participated. 1040x fillable form Real property trades or businesses. 1040x fillable form   A real property trade or business is a trade or business that does any of the following with real property. 1040x fillable form Develops or redevelops it. 1040x fillable form Constructs or reconstructs it. 1040x fillable form Acquires it. 1040x fillable form Converts it. 1040x fillable form Rents or leases it. 1040x fillable form Operates or manages it. 1040x fillable form Brokers it. 1040x fillable form Closely held corporations. 1040x fillable form   A closely held corporation can qualify as a real estate professional if more than 50% of the gross receipts for its tax year came from real property trades or businesses in which it materially participated. 1040x fillable form Passive Activity Income and Deductions In figuring your net income or loss from a passive activity, take into account only passive activity income and passive activity deductions. 1040x fillable form Self-charged interest. 1040x fillable form   Certain self-charged interest income or deductions may be treated as passive activity gross income or passive activity deductions if the loan proceeds are used in a passive activity. 1040x fillable form   Generally, self-charged interest income and deductions result from loans between you and a partnership or S corporation in which you had a direct or indirect ownership interest. 1040x fillable form This includes both loans you made to the partnership or S corporation and loans the partnership or S corporation made to you. 1040x fillable form   It also includes loans from one partnership or S corporation to another partnership or S corporation if each owner in the borrowing entity has the same proportional ownership interest in the lending entity. 1040x fillable form    Exception. 1040x fillable form The self-charged interest rules do not apply to your interest in a partnership or S corporation if the entity made an election under Regulations section 1. 1040x fillable form 469-7(g) to avoid the application of these rules. 1040x fillable form For more details on the self-charged interest rules, see Regulations section 1. 1040x fillable form 469-7. 1040x fillable form Passive Activity Income Passive activity income includes all income from passive activities and generally includes gain from disposition of an interest in a passive activity or property used in a passive activity. 1040x fillable form Passive activity income does not include the following items. 1040x fillable form Income from an activity that is not a passive activity. 1040x fillable form These activities are discussed under Activities That Are Not Passive Activities , earlier. 1040x fillable form Portfolio income. 1040x fillable form This includes interest, dividends, annuities, and royalties not derived in the ordinary course of a trade or business. 1040x fillable form It includes gain or loss from the disposition of property that produces these types of income or that is held for investment. 1040x fillable form The exclusion for portfolio income does not apply to self-charged interest treated as passive activity income. 1040x fillable form For more information on self-charged interest, see Self-charged interest , earlier. 1040x fillable form Personal service income. 1040x fillable form This includes salaries, wages, commissions, self-employment income from trade or business activities in which you materially participated, deferred compensation, taxable social security and other retirement benefits, and payments from partnerships to partners for personal services. 1040x fillable form Income from positive section 481 adjustments allocated to activities other than passive activities. 1040x fillable form (Section 481 adjustments are adjustments that must be made due to changes in your accounting method. 1040x fillable form ) Income or gain from investments of working capital. 1040x fillable form Income from an oil or gas property if you treated any loss from a working interest in the property for any tax year beginning after 1986 as a nonpassive loss, as discussed in item (2) under Activities That Are Not Passive Activities , earlier. 1040x fillable form This also applies to income from other oil and gas property the basis of which is determined wholly or partly by the basis of the property in the preceding sentence. 1040x fillable form Any income from intangible property, such as a patent, copyright, or literary, musical, or artistic composition, if your personal efforts significantly contributed to the creation of the property. 1040x fillable form Any other income that must be treated as nonpassive income. 1040x fillable form See Recharacterization of Passive Income , later. 1040x fillable form Overall gain from any interest in a publicly traded partnership. 1040x fillable form See Publicly Traded Partnerships (PTPs) in the instructions for Form 8582. 1040x fillable form State, local, and foreign income tax refunds. 1040x fillable form Income from a covenant not to compete. 1040x fillable form Reimbursement of a casualty or theft loss included in gross income to recover all or part of a prior year loss deduction, if the loss deduction was not a passive activity deduction. 1040x fillable form Alaska Permanent Fund dividends. 1040x fillable form Cancellation of debt income, if at the time the debt is discharged the debt is not allocated to passive activities under the interest expense allocation rules. 1040x fillable form See chapter 4 of Publication 535, Business Expenses, for information about the rules for allocating interest. 1040x fillable form Disposition of property interests. 1040x fillable form   Gain on the disposition of an interest in property generally is passive activity income if, at the time of the disposition, the property was used in an activity that was a passive activity in the year of disposition. 1040x fillable form The gain generally is not passive activity income if, at the time of disposition, the property was used in an activity that was not a passive activity in the year of disposition. 1040x fillable form An exception to this general rule may apply if you previously used the property in a different activity. 1040x fillable form Exception for more than one use in the preceding 12 months. 1040x fillable form   If you used the property in more than one activity during the 12-month period before its disposition, you must allocate the gain between the activities on a basis that reasonably reflects the property's use during that period. 1040x fillable form Any gain allocated to a passive activity is passive activity income. 1040x fillable form   For this purpose, an allocation of the gain solely to the activity in which the property was mainly used during that period reasonably reflects the property's use if the fair market value of your interest in the property is not more than the lesser of: $10,000, or 10% of the total of the fair market value of your interest in the property and the fair market value of all other property used in that activity immediately before the disposition. 1040x fillable form Exception for substantially appreciated property. 1040x fillable form   The gain is passive activity income if the fair market value of the property at disposition was more than 120% of its adjusted basis and either of the following conditions applies. 1040x fillable form You used the property in a passive activity for 20% of the time you held your interest in the property. 1040x fillable form You used the property in a passive activity for the entire 24-month period before its disposition. 1040x fillable form If neither condition applies, the gain is not passive activity income. 1040x fillable form However, it is treated as portfolio income only if you held the property for investment for more than half of the time you held it in nonpassive activities. 1040x fillable form   For this purpose, treat property you held through a corporation (other than an S corporation) or other entity whose owners receive only portfolio income as property held in a nonpassive activity and as property held for investment. 1040x fillable form Also, treat the date you agree to transfer your interest for a fixed or determinable amount as the disposition date. 1040x fillable form   If you used the property in more than one activity during the 12-month period before its disposition, this exception applies only to the part of the gain allocated to a passive activity under the rules described in the preceding discussion. 1040x fillable form Disposition of property converted to inventory. 1040x fillable form   If you disposed of property that you had converted to inventory from its use in another activity (for example, you sold condominium units you previously held for use in a rental activity), a special rule may apply. 1040x fillable form Under this rule, you disregard the property's use as inventory and treat it as if it were still used in that other activity at the time of disposition. 1040x fillable form This rule applies only if you meet all of the following conditions. 1040x fillable form At the time of disposition, you held your interest in the property in a dealing activity (an activity that involves holding the property or similar property mainly for sale to customers in the ordinary course of a trade or business). 1040x fillable form Your other activities included a nondealing activity (an activity that does not involve holding similar property for sale to customers in the ordinary course of a trade or business) in which you used the property for more than 80% of the period you held it. 1040x fillable form You did not acquire or hold your interest in the property for the main purpose of selling it to customers in the ordinary course of a trade or business. 1040x fillable form Passive Activity Deductions Generally, a deduction is a passive activity deduction for a taxable year if and only if such deduction either: Arises in connection with the conduct of an activity that is a passive activity for the tax year; or Is treated as a deduction from an activity for the tax year because it was disallowed by the passive activity rules in the preceding year and carried forward to the tax year. 1040x fillable form For purposes of item (1), above, an item of deduction arises in the taxable year in which the item would be allowable as a deduction under the taxpayer's method of accounting if taxable income for all taxable years were determined without regard to the passive activity rules and without regard to the basis, excess farm loss, and at-risk limits. 1040x fillable form See Coordination with other limitations on deductions that apply before the passive activity rules , later. 1040x fillable form Passive activity deductions generally include losses from dispositions of property used in a passive activity at the time of the disposition and losses from a disposition of less than your entire interest in a passive activity. 1040x fillable form Exceptions. 1040x fillable form   Passive activity deductions do not include the following items. 1040x fillable form Deductions for expenses (other than interest expense) that are clearly and directly allocable to portfolio income. 1040x fillable form Qualified home mortgage interest, capitalized interest expenses, and other interest expenses (other than self-charged interest) properly allocable to passive activities. 1040x fillable form For more information on self-charged interest, see Self-charged interest under Passive Activity Income and Deductions, earlier. 1040x fillable form Losses from dispositions of property that produce portfolio income or property held for investment. 1040x fillable form State, local, and foreign income taxes. 1040x fillable form Miscellaneous itemized deductions that may be disallowed because of the 2%-of-adjusted-gross-income limit. 1040x fillable form Charitable contribution deductions. 1040x fillable form Net operating loss deductions. 1040x fillable form Percentage depletion carryovers for oil and gas wells. 1040x fillable form Capital loss carrybacks and carryovers. 1040x fillable form Items of deduction from a passive activity that are disallowed under the limits on deductions that apply before the passive activity rules. 1040x fillable form See Coordination with other limitations on deductions that apply before the passive activity rules , later. 1040x fillable form Deductions and losses that would have been allowed for tax years beginning before 1987 but for basis or at-risk limits. 1040x fillable form Net negative section 481 adjustments allocated to activities other than passive activities. 1040x fillable form (Section 481 adjustments are adjustments required due to changes in accounting methods. 1040x fillable form ) Casualty and theft losses, unless losses similar in cause and severity recur regularly in the activity. 1040x fillable form The deduction for the employer-equivalent portion of self-employment tax. 1040x fillable form Coordination with other limitations on deductions that apply before the passive activity rules. 1040x fillable form   An item of deduction from a passive activity that is disallowed for a tax year under the basis or at-risk limitations is not a passive activity deduction for the tax year. 1040x fillable form The following sections provide rules for figuring the extent to which items of deduction from a passive activity are disallowed for a tax year under the basis or at-risk limitations. 1040x fillable form Proration of deductions disallowed under basis limitations. 1040x fillable form   If any amount of your distributive share of a partnership's loss for the tax year is disallowed under the basis limitation, a ratable portion of your distributive share of each item of deduction or loss of the partnership is disallowed for the tax year. 1040x fillable form For this purpose, the ratable portion of an item of deduction or loss is the amount of such item multiplied by the fraction obtained by dividing: The amount of your distributive share of partnership loss that is disallowed for the taxable year; by The sum of your distributive shares of all items of deduction and loss of the partnership for the tax year. 1040x fillable form   If any amount of your pro rata share of an S corporation's loss for the tax year is disallowed under the basis limitation, a ratable portion of your pro rata share of each item of deduction or loss of the S corporation is disallowed for the tax year. 1040x fillable form For this purpose, the ratable portion of an item of deduction or loss is the amount of such item multiplied by the fraction obtained by dividing: The amount of your share of S corporation loss that is disallowed for the tax year; by The sum of your pro rata shares of all items of deduction and loss of the corporation for the tax year. 1040x fillable form Proration of deductions disallowed under at-risk limitation. 1040x fillable form   If any amount of your loss from an activity (as defined in Activities Covered by the At-Risk Rules , later) is disallowed under the at-risk rules for the tax year, a ratable portion of each item of deduction or loss from the activity is disallowed for the tax year. 1040x fillable form For this purpose, the ratable portion of an item of deduction or loss is the amount of such item multiplied by the fraction obtained by dividing: The amount of the loss from the activity that is disallowed for the tax year; by The sum of all deductions from the activity for the taxable year. 1040x fillable form Coordination of basis and at-risk limitations. 1040x fillable form   The portion of any item of deduction or loss that is disallowed for the tax year under the basis limitations is not taken into account for the taxable year in determining the loss from an activity (as defined in Activities Covered by the At-Risk Rules , later) for purposes of applying the at-risk rules. 1040x fillable form Separately identified items of deduction and loss. 1040x fillable form   In identifying the items of deduction and loss from an activity that are not disallowed under the basis and at-risk limitations (and that therefore may be treated as passive activity deductions), you need not account separately for any item of deduction or loss unless such item may, if separately taken into account, result in an income tax liability different from that which would result were such item of deduction or loss taken into account separately. 1040x fillable form   Items of deduction or loss that must be accounted for separately include (but are not limited to) items of deduction or loss that: Are attributable to separate activities. 1040x fillable form See Grouping Your Activities , later. 1040x fillable form Arise in a rental real estate activity in tax years in which you actively participate in such activity; Arise in a rental real estate activity in taxable years in which you do not actively participate in such activity; Arose in a taxable year beginning before 1987 and were not allowed for such taxable year under the basis or at-risk limitations; Are taken into account under section 613A(d) (relating to limitations on certain depletion deductions); Are taken into account under section 1211 (relating to the limitation on capital losses); Are taken into account under section 1231 (relating to property used in a trade or business and involuntary conversions). 1040x fillable form See Section 1231 Gains and Losses in Publication 544 for more information. 1040x fillable form Are attributable to pre-enactment interests in activities. 1040x fillable form See Regulations section 1. 1040x fillable form 469-11T(c). 1040x fillable form Grouping Your Activities You can treat one or more trade or business activities, or rental activities, as a single activity if those activities form an appropriate economic unit for measuring gain or loss under the passive activity rules. 1040x fillable form Grouping is important for a number of reasons. 1040x fillable form If you group two activities into one larger activity, you need only show material participation in the activity as a whole. 1040x fillable form But if the two activities are separate, you must show material participation in each one. 1040x fillable form On the other hand, if you group two activities into one larger activity and you dispose of one of the two, then you have disposed of only part of your entire interest in the activity. 1040x fillable form But if the two activities are separate and you dispose of one of them, then you have disposed of your entire interest in that activity. 1040x fillable form Grouping can also be important in determining whether you meet the 10% ownership requirement for actively participating in a rental real estate activity. 1040x fillable form Appropriate Economic Units Generally, to determine if activities form an appropriate economic unit, you must consider all the relevant facts and circumstances. 1040x fillable form You can use any reasonable method of applying the relevant facts and circumstances in grouping activities. 1040x fillable form The following factors have the greatest weight in determining whether activities form an appropriate economic unit. 1040x fillable form All of the factors do not have to apply to treat more than one activity as a single activity. 1040x fillable form The factors that you should consider are: The similarities and differences in the types of trades or businesses, The extent of common control, The extent of common ownership, The geographical location, and The interdependencies between or among activities, which may include the extent to which the activities: Buy or sell goods between or among themselves, Involve products or services that are generally provided together, Have the same customers, Have the same employees, or Use a single set of books and records to account for the activities. 1040x fillable form Example 1. 1040x fillable form John Jackson owns a bakery and a movie theater at a shopping mall in Baltimore and a bakery and movie theater in Philadelphia. 1040x fillable form Based on all the relevant facts and circumstances, there may be more than one reasonable method for grouping John's activities. 1040x fillable form For example, John may be able to group the movie theaters and the bakeries into: One activity, A movie theater activity and a bakery activity, A Baltimore activity and a Philadelphia activity, or Four separate activities. 1040x fillable form Example 2. 1040x fillable form Betty is a partner in ABC partnership, which sells nonfood items to grocery stores. 1040x fillable form Betty is also a partner in DEF (a trucking business). 1040x fillable form ABC and DEF are under common control. 1040x fillable form The main part of DEF's business is transporting goods for ABC. 1040x fillable form DEF is the only trucking business in which Betty is involved. 1040x fillable form Based on the rules of this section, Betty treats ABC's wholesale activity and DEF's trucking activity as a single activity. 1040x fillable form Consistency and disclosure requirement. 1040x fillable form   Generally, when you group activities into appropriate economic units, you may not regroup those activities in a later tax year. 1040x fillable form You must meet any disclosure requirements of the IRS when you first group your activities and when you add or dispose of any activities in your groupings. 1040x fillable form   However, if the original grouping is clearly inappropriate or there is a material change in the facts and circumstances that makes the original grouping clearly inappropriate, you must regroup the activities and comply with any disclosure requirements of the IRS. 1040x fillable form   See Disclosure Requirement , later. 1040x fillable form Regrouping by the IRS. 1040x fillable form   If any of the activities resulting from your grouping is not an appropriate economic unit and one of the primary purposes of your grouping (or failure to regroup) is to avoid the passive activity rules, the IRS may regroup your activities. 1040x fillable form Rental activities. 1040x fillable form   In general, you cannot group a rental activity with a trade or business activity. 1040x fillable form However, you can group them together if the activities form an appropriate economic unit and: The rental activity is insubstantial in relation to the trade or business activity, The trade or business activity is insubstantial in relation to the rental activity, or Each owner of the trade or business activity has the same ownership interest in the rental activity, in which case the part of the rental activity that involves the rental of items of property for use in the trade or business activity may be grouped with the trade or business activity. 1040x fillable form Example. 1040x fillable form Herbert and Wilma are married and file a joint return. 1040x fillable form Healthy Food, an S corporation, is a grocery store business. 1040x fillable form Herbert is Healthy Food's only shareholder. 1040x fillable form Plum Tower, an S corporation, owns and rents out the building. 1040x fillable form Wilma is Plum Tower's only shareholder. 1040x fillable form Plum Tower rents part of its building to Healthy Food. 1040x fillable form Plum Tower's grocery store rental business and Healthy Food's grocery business are not insubstantial in relation to each other. 1040x fillable form Herbert and Wilma file a joint return, so they are treated as one taxpayer for purposes of the passive activity rules. 1040x fillable form The same owner (Herbert and Wilma) owns both Healthy Food and Plum Tower with the same ownership interest (100% in each). 1040x fillable form If the grouping forms an appropriate economic unit, as discussed earlier, Herbert and Wilma can group Plum Tower's grocery store rental and Healthy Food's grocery business into a single trade or business activity. 1040x fillable form Grouping of real and personal property rentals. 1040x fillable form   In general, you cannot treat an activity involving the rental of real property and an activity involving the rental of personal property as a single activity. 1040x fillable form However, you can treat them as a single activity if you provide the personal property in connection with the real property or the real property in connection with the personal property. 1040x fillable form Certain activities may not be grouped. 1040x fillable form   In general, if you own an interest as a limited partner or a limited entrepreneur in one of the following activities, you may not group that activity with any other activity in another type of business. 1040x fillable form Holding, producing, or distributing motion picture films or video tapes. 1040x fillable form Farming. 1040x fillable form Leasing any section 1245 property (as defined in section 1245(a)(3) of the Internal Revenue Code). 1040x fillable form For a list of section 1245 property, see Section 1245 property under Activities Covered by the At-Risk Rules , later. 1040x fillable form Exploring for, or exploiting, oil and gas resources. 1040x fillable form Exploring for, or exploiting, geothermal deposits. 1040x fillable form   If you own an interest as a limited partner or a limited entrepreneur in an activity described in the list above, you may group that activity with another activity in the same type of business if the grouping forms an appropriate economic unit as discussed earlier. 1040x fillable form Limited entrepreneur. 1040x fillable form   A limited entrepreneur is a person who: Has an interest in an enterprise other than as a limited partner, and Does not actively participate in the management of the enterprise. 1040x fillable form Activities conducted through another entity. 1040x fillable form   A personal service corporation, closely held corporation, partnership, or S corporation must group its activities using the rules discussed in this section. 1040x fillable form Once the entity groups its activities, you, as the partner or shareholder of the entity, may group those activities (following the rules of this section): With each other, With activities conducted directly by you, or With activities conducted through other entities. 1040x fillable form    You may not treat activities grouped together by the entity as separate activities. 1040x fillable form Personal service and closely held corporations. 1040x fillable form   You may group an activity conducted through a personal service or closely held corporation with your other activities only to determine whether you materially or significantly participated in those other activities. 1040x fillable form See Material Participation , earlier, and Significant Participation Passive Activities , later. 1040x fillable form Publicly traded partnership (PTP). 1040x fillable form   You may not group activities conducted through a PTP with any other activity, including an activity conducted through another PTP. 1040x fillable form Partial dispositions. 1040x fillable form   If you dispose of substantially all of an activity during your tax year, you may treat the part disposed of as a separate activity. 1040x fillable form However, you can do this only if you can show with reasonable certainty: The amount of deductions and credits disallowed in prior years under the passive activity rules that is allocable to the part of the activity disposed of, and The amount of gross income and any other deductions and credits for the current tax year that is allocable to the part of the activity disposed of. 1040x fillable form Disclosure Requirement For tax years beginning after January 24, 2010, the following disclosure requirements for groupings apply. 1040x fillable form You are required to report certain changes to your groupings that occur during the tax year to the IRS. 1040x fillable form If you fail to report these changes, each trade or business activity or rental activity will be treated as a separate activity. 1040x fillable form You will be considered to have made a timely disclosure if you filed all affected income tax returns consistent with the claimed grouping and make the required disclosure on the income tax return for the year in which you first discovered the failure to disclose. 1040x fillable form If the IRS discovered the failure to disclose, you must have reasonable cause for not making the required disclosure. 1040x fillable form New grouping. 1040x fillable form   You must file a written statement with your original income tax return for the first tax year in which two or more activities are originally grouped into a single activity. 1040x fillable form The statement must provide the names, addresses, and employer identification numbers (EINs), if applicable, for the activities being grouped as a single activity. 1040x fillable form In addition, the statement must contain a declaration that the grouped activities make up an appropriate economic unit for the measurement of gain or loss under the passive activity rules. 1040x fillable form Addition to an existing grouping. 1040x fillable form   You must file a written statement with your original income tax return for the tax year in which you add a new activity to an existing group. 1040x fillable form The statement must provide the name, address, and EIN, if applicable, for the activity that is being added and for the activities in the existing group. 1040x fillable form In addition, the statement must contain a declaration that the activities make up an appropriate economic unit for the measurement of gain or loss under the passive activity rules. 1040x fillable form Regrouping. 1040x fillable form   You must file a written statement with your original income tax return for the tax year in which you regroup the activities. 1040x fillable form The statement must provide the names, addresses, and EINs, if applicable, for the activities that are being regrouped. 1040x fillable form If two or more activities are being regrouped into a single activity, the statement must contain a declaration that the regrouped activities make up an appropriate economic unit for the measurement of gain or loss under the passive activity rules. 1040x fillable form In addition, the statement must contain an explanation of the material change in the facts and circumstances that made the original grouping clearly inappropriate. 1040x fillable form Groupings by partnerships and S corporations. 1040x fillable form   Partnerships and S corporations are not subject to the rules for new grouping, addition to an existing grouping, or regrouping. 1040x fillable form Instead, they must comply with the disclosure instructions for grouping activities provided in their Form 1065, U. 1040x fillable form S. 1040x fillable form Return of Partnership Income, or Form 1120S, U. 1040x fillable form S. 1040x fillable form Income Tax Return for an S Corporation, whichever is applicable. 1040x fillable form   The partner or shareholder is not required to make a separate disclosure of the groupings disclosed by the entity unless the partner or shareholder: Groups together any of the activities that the entity does not group together, Groups the entity's activities with activities conducted directly by the partner or shareholder, or Groups an entity's activities with activities conducted through another entity. 1040x fillable form   A partner or shareholder may not treat activities grouped together by the entity as separate activities. 1040x fillable form Recharacterization of Passive Income Net income from the following passive activities may have to be recharacterized and excluded from passive activity income. 1040x fillable form Significant participation passive activities, Rental of property when less than 30% of the unadjusted basis of the property is subject to depreciation, Equity-financed lending activities, Rental of property incidental to development activities, Rental of property to nonpassive activities, and Licensing of intangible property by  pass-through entities. 1040x fillable form If you are engaged in or have an interest in one of these activities during the tax year (either directly or through a partnership or an S corporation), combine the income and losses from the activity to determine if you have a net loss or net income from that activity. 1040x fillable form If the result is a net loss, treat the income and losses the same as any other income or losses from that type of passive activity (trade or business activity or rental activity). 1040x fillable form If the result is net income, do not enter any of the income or losses from the activity or property on Form 8582 or its worksheets. 1040x fillable form Instead, enter income or losses on the form and schedules you normally use. 1040x fillable form However, see Significant Participation Passive Activities , later, if the activity is a significant participation passive activity and you also have a net loss from a different significant participation passive activity. 1040x fillable form Limit on recharacterized passive income. 1040x fillable form   The total amount that you treat as nonpassive income under the rules described later in this discussion for significant participation passive activities, rental of nondepreciable property, and equity-financed lending activities cannot exceed the greatest amount that you treat as nonpassive income under any one of these rules. 1040x fillable form Investment income and investment expense. 1040x fillable form   To figure your investment interest expense limitation on Form 4952, treat as investment income any net passive income recharacterized as nonpassive income from rental of nondepreciable property, equity-financed lending activity, or licensing of intangible property by a pass-through entity. 1040x fillable form Significant Participation Passive Activities A significant participation passive activity is any trade or business activity in which you participated for more than 100 hours during the tax year but did not materially participate. 1040x fillable form If your gross income from all significant participation passive activities is more than your deductions from those activities, a part of your net income from each significant participation passive activity is treated as nonpassive income. 1040x fillable form Corporations. 1040x fillable form   An activity of a personal service corporation or closely held corporation is a significant participation passive activity if both of the following statements are true. 1040x fillable form The corporation is not treated as materially participating in the activity for the year. 1040x fillable form One or more individuals, each of whom is treated as significantly participating in the activity, directly or indirectly hold (in total) more than 50% (by value) of the corporation's outstanding stock. 1040x fillable form Worksheet A. 1040x fillable form   Complete Worksheet A. 1040x fillable form Significant Participation Passive Activities , below, if you have income or losses from any significant participation activity. 1040x fillable form Begin by entering the name of each activity in the left column. 1040x fillable form Column (a). 1040x fillable form   Enter the number of hours you participated in each activity and total the column. 1040x fillable form   If the total is more than 500, do not complete Worksheet A or B. 1040x fillable form None of the activities are passive activities because you satisfy test 4 for material participation. 1040x fillable form (See Material participation tests , earlier. 1040x fillable form ) Report all the income and losses from these activities on the forms and schedules you normally use. 1040x fillable form Do not include the income and losses on Form 8582. 1040x fillable form Column (b). 1040x fillable form   Enter the net loss, if any, from the activity. 1040x fillable form Net loss from an activity means either: The activity's current year net loss (if any) plus prior year unallowed losses (if any), or The excess of prior year unallowed losses over the current year net income (if any). 1040x fillable form Enter -0- here if the prior year unallowed loss is the same as the current year net income. 1040x fillable form Column (c). 1040x fillable form   Enter net income (if any) from the activity. 1040x fillable form Net income means the excess of the current year's net income from the activity over any prior year unallowed losses from the activity. 1040x fillable form Column (d). 1040x fillable form   Combine amounts in the Totals row for columns (b) and (c) and enter the total net income or net loss in the Totals row of column (d). 1040x fillable form If column (d) is a net loss, skip Worksheet B, Significant Participation Activities With Net Income. 1040x fillable form Include the income and losses in Worksheet 3 of Form 8582 (or Worksheet 2 in the Form 88
Español

The Federation of American Consumers and Travelers (FACT)

FACT is a national not-for-profit consumer group that provides help to individuals and small associations. FACT provides disaster aid, assistance for small business owners, travel discounts, and a Consumer Hotline/Library.

Contact the Agency or Department

Website: The Federation of American Consumers and Travelers (FACT)

E-mail:

Address: 318 Hillsboro Ave.
PO Box 104

Edwardsville, IL 62025

Toll-free: 1-800-872-3228

The 1040x Fillable Form

1040x fillable form Listed Property Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: Listed Property DefinedPassenger Automobile Defined Dwelling Unit Other Property Used for Transportation Computers and Related Peripheral Equipment Predominant Use TestMeeting the Predominant Use Test Qualified Business Use Method of Allocating Use Applying the Predominant Use Test Deductions After Recovery Period Leased PropertyLessor Lessee What Records Must Be KeptAdequate Records Reporting Information on Form 4562 Deductions in Later Years Appendix Topics - This chapter discusses: Listed property defined The predominant use test What records must be kept Useful Items - You may want to see: Publication 463 Travel, Entertainment, and Gift Expenses 587 Business Use of Your Home (Including Use by Day-Care Providers) 917 Business Use of a Car 946 How To Depreciate Property Form (and Instructions) 2106–EZ Unreimbursed Employee Business Expenses 2106 Employee Business Expenses 4255 Recapture of Investment Credit 4562 Depreciation and Amortization This chapter discusses some special rules and recordkeeping requirements for listed property. 1040x fillable form For complete coverage of the rules, including the rules concerning passenger automobiles, see Publication 946. 1040x fillable form If listed property is not used predominantly (more than 50%) in a qualified business use as discussed inPredominant Use Test, later, the section 179 deduction is not allowable and the property must be depreciated using the straight line method. 1040x fillable form Listed Property Defined Listed property is any of the following: Any passenger automobile (defined later), Any other property used for transportation, Any property of a type generally used for entertainment, recreation, or amusement (including photographic, phonographic, communication, and video recording equipment), Any computer and related peripheral equipment, defined later, unless it is used only at a regular business establishment and owned or leased by the person operating the establishment. 1040x fillable form A regular business establishment includes a portion of a dwelling unit (defined later), if, and only if, that portion is used both regularly and exclusively for business as discussed in Publication 587. 1040x fillable form Any cellular telephone (or similar telecommunication equipment) placed in service or leased in a tax year beginning after 1989. 1040x fillable form Passenger Automobile Defined A passenger automobile is any four-wheeled vehicle made primarily for use on public streets, roads, and highways and rated at 6,000 pounds or less of unloaded gross vehicle weight (at 6,000 pounds or less of gross vehicle weight for trucks and vans). 1040x fillable form It includes any part, component, or other item physically attached to the automobile or usually included in the purchase price of an automobile. 1040x fillable form A passenger automobile does not include: An ambulance, hearse, or combination ambulance-hearse used directly in a trade or business, and A vehicle used directly in the trade or business of transporting persons or property for compensation or hire. 1040x fillable form Dwelling Unit A dwelling unit is a house or apartment used to provide living accommodations in a building or structure. 1040x fillable form It does not include a unit in a hotel, motel, inn, or other establishment where more than half the units are used on a transient basis. 1040x fillable form Other Property Used for Transportation Other property used for transportation includes trucks, buses, boats, airplanes, motorcycles, and any other vehicles for transporting persons or goods. 1040x fillable form Listed property does not include: Any vehicle which, by reason of its design, is not likely to be used more than a minimal amount for personal purposes, such as clearly marked police and fire vehicles, ambulances, or hearses used for those purposes, Any vehicle that is designed to carry cargo and that has a loaded gross vehicle weight over 14,000 pounds, bucket trucks (cherry pickers), cement mixers, combines, cranes and derricks, delivery trucks with seating only for the driver (or only for the driver plus a folding jump seat), dump trucks (including garbage trucks), flatbed trucks, forklifts, qualified moving vans, qualified specialized utility repair trucks, and refrigerated trucks, Any passenger bus used for that purpose with a capacity of at least 20 passengers and school buses, Any tractor or other special purpose farm vehicle, and unmarked vehicles used by law enforcement officers if the use is officially authorized, and Any vehicle, such as a taxicab, if substantially all its use is in the trade or business of providing services to transport persons or property for compensation or hire by unrelated persons. 1040x fillable form Computers and Related Peripheral Equipment A computer is a programmable electronically activated device that: Is capable of accepting information, applying prescribed processes to the information, and supplying the results of those processes with or without human intervention, and Consists of a central processing unit with extensive storage, logic, arithmetic, and control capabilities. 1040x fillable form Related peripheral equipment is any auxiliary machine which is designed to be controlled by the central processing unit of a computer. 1040x fillable form Computer or peripheral equipment does not include: Any equipment which is an integral part of property which is not a computer, Typewriters, calculators, adding and accounting machines, copiers, duplicating equipment, and similar equipment, and Equipment of a kind, used primarily for the user's amusement or entertainment, such as video games. 1040x fillable form Predominant Use Test If “listed property,” defined earlier, placed in service after June 18, 1984, is not used predominantly (more than 50%) in a qualified business use during any tax year: The section 179 deduction on the property is not allowable, and You must depreciate the property using the straight line method. 1040x fillable form Listed property placed in service before 1987. 1040x fillable form   For listed property placed in service before 1987, depreciate the property over the following period: Class of Property Listed Property Recovery Period 3-year property 5 years 5-year property 12 years 10-year property 25 years 18-year real property 40 years 19-year real property 40 years If you must use the above recovery periods for listed property not used predominantly in a trade or business, use the percentages from Table 16 titled Listed Property Not Used Predominantly (Other Than 18- or 19-year Real Property), and Table 17 for 18- or 19-year real property, near the end of this publication in the Appendix. 1040x fillable form Listed property placed in service after 1986. 1040x fillable form   For information on listed property placed in service after 1986, see Publication 946. 1040x fillable form Meeting the Predominant Use Test Listed property meets the predominant use test for any tax year if its business use is more than 50% of its total use. 1040x fillable form You must allocate the use of any item of listed property used for more than one purpose during the tax year among its various uses. 1040x fillable form The percentage of investment use of listed property cannot be used as part of the percentage of qualified business use to meet the predominant use test. 1040x fillable form However, the combined total of business and investment use is taken into account to figure your depreciation deduction for the property. 1040x fillable form Note: Property does not stop being predominantly used in a qualified business use because of a transfer at death. 1040x fillable form Example. 1040x fillable form Sarah Bradley uses a home computer 50% of the time to manage her investments. 1040x fillable form She also uses the computer 40% of the time in her part-time consumer research business. 1040x fillable form Sarah's home computer is listed property because it is not used at a regular business establishment. 1040x fillable form Because her business use of the computer does not exceed 50%, the computer is not predominantly used in a qualified business use for the tax year. 1040x fillable form Because she does not meet the predominant use test, she cannot elect a section 179 deduction for this property. 1040x fillable form Her combined rate of business/investment use for determining her depreciation deduction is 90%. 1040x fillable form Qualified Business Use A qualified business use is any use in your trade or business. 1040x fillable form However, it does not include: The use of property held merely to produce income (investment use), The leasing of property to any 5% owner or related person (to the point that the property is used by a 5% owner or person related to the owner or lessee of the property), The use of property as compensation for the performance of services by a 5% owner or related person, or The use of property as compensation for the performance of services by any person (other than a5% owner or related person) unless the value of the use is included in that person's gross income for the use of the property and income tax is withheld on that amount where required. 1040x fillable form See Employees, later. 1040x fillable form 5% owner. 1040x fillable form   A 5% owner of a business, other than a corporation, is any person who owns more than 5% of the capital or profits interest in the business. 1040x fillable form   A 5% owner of a corporation is any person who owns, or is considered to own: More than 5% of the outstanding stock of the corporation, or Stock possessing more than 5% of the total combined voting power of all stock in the corporation. 1040x fillable form Related person. 1040x fillable form   A related person is anyone related to a taxpayer as discussed under Related persons, in chapter 2 under Nonqualifying Property in Publication 946. 1040x fillable form Entertainment Use The use of listed property for entertainment, recreation, or amusement purposes is treated as a qualified business use only to the extent that expenses (other than interest and property tax expenses) for its use are deductible as ordinary and necessary business expenses. 1040x fillable form See Publication 463. 1040x fillable form Leasing or Compensatory Use of Aircraft If at least 25% of the total use of any aircraft during the tax year is for a qualified business use, the leasing or compensatory use of the aircraft by a 5% owner or related person is treated as a qualified business use. 1040x fillable form Commuting The use of a vehicle for commuting is not business use, regardless of whether work is performed during the trip. 1040x fillable form Use of Your Passenger Automobile by Another Person If someone else uses your automobile, that use is not business use unless: That use is directly connected with your business, The value of the use is property reported by you as income to the other person and tax is withheld on the income where required, or The value of the use results in a payment of fair market rent. 1040x fillable form Any payment to you for the use of the automobile is treated as a rent payment for 3). 1040x fillable form Employees Any use by an employee of his or her own listed property (or listed property rented by an employee) in performing services as an employee is not business use unless: The use is for the employer's convenience, and The use is required as a condition of employment. 1040x fillable form Use for the employer's convenience. 1040x fillable form   Whether the use of listed property is for the employer's convenience must be determined from all the facts. 1040x fillable form The use is for the employer's convenience if it is for a substantial business reason of the employer. 1040x fillable form The use of listed property during the employee's regular working hours to carry on the employer's business is generally for the employer's convenience. 1040x fillable form Use required as a condition of employment. 1040x fillable form   Whether the use of listed property is a condition of employment depends on all the facts and circumstances. 1040x fillable form The use of property must be required for the employee to perform duties properly. 1040x fillable form The employer need not explicitly require the employee to use the property. 1040x fillable form A mere statement by the employer that the use of the property is a condition of employment is not sufficient. 1040x fillable form Example 1. 1040x fillable form Virginia Sycamore is employed as a courier with We Deliver which provides local courier services. 1040x fillable form She owns and uses a motorcycle to deliver packages to downtown offices. 1040x fillable form We Deliver explicitly requires all delivery persons to own a small car or motorcycle for use in their employment. 1040x fillable form The company reimburses delivery persons for their costs. 1040x fillable form Virginia's use of the motorcycle is for the convenience of We Deliver and is required as a condition of employment. 1040x fillable form Example 2. 1040x fillable form Bill Nelson is an inspector for Uplift, a construction company with many sites in the local area. 1040x fillable form He must travel to these sites on a regular basis. 1040x fillable form Uplift does not furnish an automobile or explicitly require him to use his own automobile. 1040x fillable form However, it reimburses him for any costs he incurs in traveling to the various sites. 1040x fillable form The use of his own automobile or a rental automobile is for the convenience of Uplift and is required as a condition of employment. 1040x fillable form Method of Allocating Use For passenger automobiles and other means of transportation, allocate the property's use on the basis of mileage. 1040x fillable form You determine the percentage of qualified business use by dividing the number of miles the vehicle is driven for business purposes during the year by the total number of miles the vehicle is driven for all purposes (including business miles) during the year. 1040x fillable form For other items of listed property, allocate the property's use on the basis of the most appropriate unit of time. 1040x fillable form For example, you can determine the percentage of business use of a computer by dividing the number of hours the computer is used for business purposes during the year by the total number of hours the computer is used for all purposes (including business hours) during the year. 1040x fillable form Applying the Predominant Use Test You must apply the predominant use test for an item of listed property each year of the recovery period. 1040x fillable form First Recovery Year If any item of listed property is not used predominantly in a qualified business use in the year it is placed in service: The property is not eligible for a section 179 deduction, and The depreciation deduction must be figured using the straight line method. 1040x fillable form Note: The required use of the straight line method for an item of listed property that does not meet the predominant use test is not the same as electing the straight line method. 1040x fillable form It does not mean that you have to use the straight line method for other property in the same class as the item of listed property. 1040x fillable form Years After the First Recovery Year If you use listed property predominantly (more than 50%) in a qualified business use in the tax year you place it in service, but not in a subsequent tax year during the recovery period, the following rules apply: Figure depreciation using the straight line method. 1040x fillable form Do this for each year, beginning with the year you no longer use the property predominantly in a qualified business use, and Figure any excess depreciation on the property and add it to: Your gross income, and The adjusted basis of your property. 1040x fillable form See Recapture of excess depreciation, next. 1040x fillable form Recapture of excess depreciation. 1040x fillable form   You must include any excess depreciation in your gross income for the first tax year the property is not predominantly used in a qualified business use. 1040x fillable form Any excess depreciation must also be added to the adjusted basis of your property. 1040x fillable form Excess depreciation is the excess (if any) of: The amount of depreciation allowable for the property (including any section 179 deduction claimed) for tax years before the first tax year the property was not predominantly used in a qualified business use, over The amount of depreciation that would have been allowable for those years if the property were not used predominantly in a qualified business use for the year it was placed in service. 1040x fillable form This means you figure your depreciation using the percentages fromTable 16 or 17. 1040x fillable form For information on investment credit recapture, see the instructions for Form 4255. 1040x fillable form Deductions After Recovery Period When listed property (other than passenger automobiles) is used for business, investment, and personal purposes, no deduction is ever allowable for the personal use. 1040x fillable form In tax years after the recovery period, you must determine if there is any unrecovered basis remaining before you compute the depreciation deduction for that tax year. 1040x fillable form To make this determination, figure the depreciation for earlier tax years as if your property were used 100% for business or investment purposes, beginning with the first tax year in which some or all use is for business or investment. 1040x fillable form See Car Used 50% or Less for Business in Publication 917. 1040x fillable form Leased Property The limitations on cost recovery deductions apply to the rental of listed property. 1040x fillable form The following discussion covers the rules that apply to the lessor (the owner of the property) and the lessee (the person who rents the property from the owner). 1040x fillable form SeeLeasing a Car in Publication 917 for a discussion of leased passenger automobiles. 1040x fillable form Lessor The limitations on cost recovery generally do not apply to any listed property leased or held for leasing by anyone regularly engaged in the business of leasing listed property. 1040x fillable form A person is considered regularly engaged in the business of leasing listed property only if contracts for leasing of listed property are entered into with some frequency over a continuous period of time. 1040x fillable form This determination is made on the basis of the facts and circumstances in each case and takes into account the nature of the person's business in its entirety. 1040x fillable form Occasional or incidental leasing activity is insufficient. 1040x fillable form For example, a person leasing only one passenger automobile during a tax year is not regularly engaged in the business of leasing automobiles. 1040x fillable form An employer who allows an employee to use the employer's property for personal purposes and charges the employee for the use is not regularly engaged in the business of leasing the property used by the employee. 1040x fillable form Lessee A lessee of listed property (other than passenger automobiles), must include an amount in gross income called the inclusion amount for the first tax year the property is not used predominantly in a qualified business use. 1040x fillable form Inclusion amount for property leased before 1987. 1040x fillable form   You determine the inclusion amount for property leased after June 18, 1984 and before 1987 by multiplying the fair market value of the property by both the average business/investment use percentage and the applicable percentage. 1040x fillable form You can find the applicable percentages for listed property that is 5- or 10-year recovery property in Tables 19 or 20 in Appendix A of Publication 946. 1040x fillable form   The lease term for listed property other than 18- or 19-year real property, and residential rental or nonresidential real property, includes options to renew. 1040x fillable form For 18- or 19-year real property and residential rental or nonresidential real property that is listed property, the period of the lease does not include any option to renew at fair market value, determined at the time of renewal. 1040x fillable form You treat two or more successive leases that are part of the same transaction (or a series of related transactions) for the same or substantially similar property as one lease. 1040x fillable form Special rules. 1040x fillable form   The lessee adds the inclusion amount to gross income in the next tax year if: The lease term begins within 9 months before the close of the lessee's tax year, The lessee does not use the property predominantly in a qualified business use during that portion of the tax year, and The lease term continues into the lessee's next tax year. 1040x fillable form The lessee determines the inclusion amount by taking into account the average of the business/investment use for both tax years and the applicable percentage for the tax year the lease term begins. 1040x fillable form   If the lease term is less than one year, the amount included in gross income is the amount that bears the same ratio to the additional inclusion amount as the number of days in the lease term bears to 365. 1040x fillable form Maximum inclusion amount. 1040x fillable form   The inclusion amount cannot be more than the sum of the deductible amounts of rent allocable to the lessee's tax year in which the amount must be included in gross income. 1040x fillable form What Records Must Be Kept You cannot take any depreciation or section 179 deduction for the use of listed property (including passenger automobiles) unless you can prove business/investment use with adequate records or sufficient evidence to support your own statements. 1040x fillable form How long to keep records. 1040x fillable form   For listed property, records must be kept for as long as any excess depreciation can be recaptured (included in income). 1040x fillable form Adequate Records To meet the adequate records requirement, you must maintain an account book, diary, log, statement of expense, trip sheet, or similar record or other documentary evidence that, together with the receipt, is sufficient to establish each element of an expenditure or use. 1040x fillable form It is not necessary to record information in an account book, diary, or similar record if the information is already shown on the receipt. 1040x fillable form However, your records should back up your receipts in an orderly manner. 1040x fillable form Elements of Expenditure or Use The records or other documentary evidence must support: The amount of each separate expenditure, such as the cost of acquiring the item, maintenance and repair costs, capital improvement costs, lease payments, and any other expenses, The amount of each business and investment use (based on an appropriate measure, such as mileage for vehicles and time for other listed property), and the total use of the property for the tax year, The date of the expenditure or use, and The business or investment purpose for the expenditure or use. 1040x fillable form Written documents of your expenditure or use are generally better evidence than oral statements alone. 1040x fillable form A written record prepared at or near the time of the expenditure or use has greater value as proof of the expenditure or use. 1040x fillable form A daily log is not required. 1040x fillable form However, some type of record containing the elements of an expenditure or the business or investment use of listed property made at or near the time and backed up by other documents is preferable to a statement prepared later. 1040x fillable form Timeliness The elements of an expenditure or use must be recorded at the time you have full knowledge of the elements. 1040x fillable form An expense account statement made from an account book, diary, or similar record prepared or maintained at or near the time of the expenditure or use is generally considered a timely record if in the regular course of business: The statement is submitted by an employee to the employer, or The statement is submitted by an independent contractor to the client or customer. 1040x fillable form For example, a log maintained on a weekly basis, which accounts for use during the week, will be considered a record made at or near the time of use. 1040x fillable form Business Purpose Supported An adequate record of business purpose must generally be in the form of a written statement. 1040x fillable form However, the amount of backup necessary to establish a business purpose depends on the facts and circumstances of each case. 1040x fillable form A written explanation of the business purpose will not be required if the purpose can be determined from the surrounding facts and circumstances. 1040x fillable form For example, a salesperson visiting customers on an established sales route will not normally need a written explanation of the business purpose of his or her travel. 1040x fillable form Business Use Supported An adequate record contains enough information on each element of every business or investment use. 1040x fillable form The amount of detail required to support the use depends on the facts and circumstances. 1040x fillable form For example, a taxpayer whose only business use of a truck is to make customer deliveries on an established route can satisfy the requirement by recording the length of the route, including the total number of miles driven during the tax year and the date of each trip at or near the time of the trips. 1040x fillable form Although an adequate record generally must be written, a record of the business use of listed property, such as a computer or automobile, can be prepared in a computer memory device using a logging program. 1040x fillable form Separate or Combined Expenditures or Uses Each use by you is normally considered a separate use. 1040x fillable form However, repeated uses can be combined as a single item. 1040x fillable form Each expenditure is recorded as a separate item and not combined with other expenditures. 1040x fillable form If you choose, however, amounts spent for the use of listed property during a tax year, such as for gasoline or automobile repairs, can be combined. 1040x fillable form If these expenses are combined, you do not need to support the business purpose of each expense. 1040x fillable form Instead, you can divide the expenses based on the total business use of the listed property. 1040x fillable form Uses which can be considered part of a single use, such as a round trip or uninterrupted business use, can be accounted for by a single record. 1040x fillable form For example, use of a truck to make deliveries at several locations which begin and end at the business premises and can include a stop at the business in between deliveries can be accounted for by a single record of miles driven. 1040x fillable form Use of a passenger automobile by a salesperson for a business trip away from home over a period of time can be accounted for by a single record of miles traveled. 1040x fillable form Minimal personal use (such as a stop for lunch between two business stops) is not an interruption of business use. 1040x fillable form Confidential Information If any of the information on the elements of an expenditure or use is confidential, it does not need to be in the account book or similar record if it is recorded at or near the time of the expenditure or use. 1040x fillable form It must be kept elsewhere and made available as support to the district director on request. 1040x fillable form Substantial Compliance If you have not fully supported a particular element of an expenditure or use, but have complied with the adequate records requirement for the expenditure or use to the district director's satisfaction, you can establish this element by any evidence the district director deems adequate. 1040x fillable form If you fail to establish that you have substantially complied with the adequate records requirement for an element of an expenditure or use to the district director's satisfaction, you must establish the element: By your own oral or written statement containing detailed information as to the element, and By other evidence sufficient to establish the element. 1040x fillable form If the element is the cost or amount, time, place, or date of an expenditure or use, its supporting evidence must be direct, such as oral testimony by witnesses or a written statement setting forth detailed information about the element or the documentary evidence. 1040x fillable form If the element is the business purpose of an expenditure, its supporting evidence can be circumstantial evidence. 1040x fillable form Sampling You can maintain an adequate record for portions of a tax year and use that record to support your business and investment use for the entire tax year if it can be shown by other evidence that the periods for which an adequate record is maintained are representative of use throughout the year. 1040x fillable form Loss of Records When you establish that failure to produce adequate records is due to loss of the records through circumstances beyond your control, such as through fire, flood, earthquake, or other casualty, you have the right to support a deduction by reasonable reconstruction of your expenditures and use. 1040x fillable form Reporting Information on Form 4562 If you claim a deduction for any listed property, you must provide the requested information on page 2, Section B of Form 4562. 1040x fillable form If you claim a deduction for any vehicle, you must answer certain questions onpage 2 of Form 4562 to provide information about the vehicle use. 1040x fillable form Employees. 1040x fillable form   Employees claiming the standard mileage rate or actual expenses (including depreciation) must use Form 2106 instead of Part V of Form 4562. 1040x fillable form Employees claiming the standard mileage rate may be able to use Form 2106–EZ. 1040x fillable form Employer who provides vehicles to employees. 1040x fillable form   An employer who provides vehicles to employees must obtain enough information from those employees to provide the requested information onForm 4562. 1040x fillable form   An employer who provides more than five vehicles to employees need not include any information on his or her tax return. 1040x fillable form Instead, the employer must obtain the information from his or her employees and indicate on his or her return that the information was obtained and is being retained. 1040x fillable form   You do not need to provide the information requested on page 2 of Form 4562 if, as an employer: You can satisfy the requirements of a written policy statement for vehicles either not used for personal purposes, or not used for personal purposes other than commuting, or You treat all vehicle use by employees as personal use. 1040x fillable form See the instructions for Form 4562. 1040x fillable form Deductions in Later Years When listed property is used for business, investment, and personal purposes, no deduction is allowable for its personal use either in the current year or any later tax year. 1040x fillable form In later years, you must determine if there is any remaining unadjusted or unrecovered basis before you compute the depreciation deduction for that tax year. 1040x fillable form In making this determination, figure the depreciation deductions for earlier tax years as if the listed property were used 100% for business or investment purposes in those years, beginning with the first tax year in which some or all of the property use is for business or investment. 1040x fillable form For more information about deductions after the recovery period for automobiles, see Publication 917. 1040x fillable form Appendix The following tables are for use in figuring depreciation deductions under the ACRS system. 1040x fillable form Table 1. 1040x fillable form 15-Year Real Property* (Other Than Low-Inclome Housing) Table 3. 1040x fillable form Low-Income Housing* Table 6 - Table 9 Table 6 - Table 9 Table 10 - Table 13 Table 14 - Table 17 Prev  Up  Next   Home   More Online Publications