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2010 Tax Returns Online

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2010 Tax Returns Online

2010 tax returns online 23. 2010 tax returns online   Interest Expense Table of Contents Introduction Useful Items - You may want to see: Home Mortgage InterestAmount Deductible Points Mortgage Insurance Premiums Form 1098, Mortgage Interest Statement Investment InterestInvestment Property Allocation of Interest Expense Limit on Deduction Items You Cannot DeductPersonal Interest Allocation of Interest How To ReportMore than one borrower. 2010 tax returns online Mortgage proceeds used for business or investment. 2010 tax returns online Introduction This chapter discusses what interest expenses you can deduct. 2010 tax returns online Interest is the amount you pay for the use of borrowed money. 2010 tax returns online The following are types of interest you can deduct as itemized deductions on Schedule A (Form 1040). 2010 tax returns online Home mortgage interest, including certain points and mortgage insurance premiums. 2010 tax returns online Investment interest. 2010 tax returns online This chapter explains these deductions. 2010 tax returns online It also explains where to deduct other types of interest and lists some types of interest you cannot deduct. 2010 tax returns online Use Table 23-1 to find out where to get more information on various types of interest, including investment interest. 2010 tax returns online Useful Items - You may want to see: Publication 936 Home Mortgage Interest Deduction 550 Investment Income and Expenses Home Mortgage Interest Generally, home mortgage interest is any interest you pay on a loan secured by your home (main home or a second home). 2010 tax returns online The loan may be a mortgage to buy your home, a second mortgage, a line of credit, or a home equity loan. 2010 tax returns online You can deduct home mortgage interest if all the following conditions are met. 2010 tax returns online You file Form 1040 and itemize deductions on Schedule A (Form 1040). 2010 tax returns online The mortgage is a secured debt on a qualified home in which you have an ownership interest. 2010 tax returns online (Generally, your mortgage is a secured debt if you put your home up as collateral to protect the interest of the lender. 2010 tax returns online The term “qualified home” means your main home or second home. 2010 tax returns online For details, see Publication 936. 2010 tax returns online )  Both you and the lender must intend that the loan be repaid. 2010 tax returns online Amount Deductible In most cases, you can deduct all of your home mortgage interest. 2010 tax returns online How much you can deduct depends on the date of the mortgage, the amount of the mortgage, and how you use the mortgage proceeds. 2010 tax returns online Fully deductible interest. 2010 tax returns online   If all of your mortgages fit into one or more of the following three categories at all times during the year, you can deduct all of the interest on those mortgages. 2010 tax returns online (If any one mortgage fits into more than one category, add the debt that fits in each category to your other debt in the same category. 2010 tax returns online )   The three categories are as follows: Mortgages you took out on or before October 13, 1987 (called grandfathered debt). 2010 tax returns online Mortgages you took out after October 13, 1987, to buy, build, or improve your home (called home acquisition debt), but only if throughout 2013 these mortgages plus any grandfathered debt totaled $1 million or less ($500,000 or less if married filing separately). 2010 tax returns online Mortgages you took out after October 13, 1987, other than to buy, build, or improve your home (called home equity debt), but only if throughout 2013 these mortgages totaled $100,000 or less ($50,000 or less if married filing separately) and totaled no more than the fair market value of your home reduced by (1) and (2). 2010 tax returns online The dollar limits for the second and third categories apply to the combined mortgages on your main home and second home. 2010 tax returns online   See Part II of Publication 936 for more detailed definitions of grandfathered, home acquisition, and home equity debt. 2010 tax returns online    You can use Figure 23-A to check whether your home mortgage interest is fully deductible. 2010 tax returns online Figure 23-A. 2010 tax returns online Is My Home Mortgage Interest Fully Deductible? Please click here for the text description of the image. 2010 tax returns online Figure 23-A. 2010 tax returns online Is My Interest Fully Deductible? Limits on deduction. 2010 tax returns online   You cannot fully deduct interest on a mortgage that does not fit into any of the three categories listed earlier. 2010 tax returns online If this applies to you, see Part II of Publication 936 to figure the amount of interest you can deduct. 2010 tax returns online Special Situations This section describes certain items that can be included as home mortgage interest and others that cannot. 2010 tax returns online It also describes certain special situations that may affect your deduction. 2010 tax returns online Late payment charge on mortgage payment. 2010 tax returns online   You can deduct as home mortgage interest a late payment charge if it was not for a specific service performed in connection with your mortgage loan. 2010 tax returns online Mortgage prepayment penalty. 2010 tax returns online   If you pay off your home mortgage early, you may have to pay a penalty. 2010 tax returns online You can deduct that penalty as home mortgage interest provided the penalty is not for a specific service performed or cost incurred in connection with your mortgage loan. 2010 tax returns online Sale of home. 2010 tax returns online   If you sell your home, you can deduct your home mortgage interest (subject to any limits that apply) paid up to, but not including, the date of sale. 2010 tax returns online Example. 2010 tax returns online John and Peggy Harris sold their home on May 7. 2010 tax returns online Through April 30, they made home mortgage interest payments of $1,220. 2010 tax returns online The settlement sheet for the sale of the home showed $50 interest for the 6-day period in May up to, but not including, the date of sale. 2010 tax returns online Their mortgage interest deduction is $1,270 ($1,220 + $50). 2010 tax returns online Prepaid interest. 2010 tax returns online   If you pay interest in advance for a period that goes beyond the end of the tax year, you must spread this interest over the tax years to which it applies. 2010 tax returns online You can deduct in each year only the interest that qualifies as home mortgage interest for that year. 2010 tax returns online However, there is an exception that applies to points, discussed later. 2010 tax returns online Mortgage interest credit. 2010 tax returns online   You may be able to claim a mortgage interest credit if you were issued a mortgage credit certificate (MCC) by a state or local government. 2010 tax returns online Figure the credit on Form 8396, Mortgage Interest Credit. 2010 tax returns online If you take this credit, you must reduce your mortgage interest deduction by the amount of the credit. 2010 tax returns online   For more information on the credit, see chapter 37. 2010 tax returns online Ministers' and military housing allowance. 2010 tax returns online   If you are a minister or a member of the uniformed services and receive a housing allowance that is not taxable, you can still deduct your home mortgage interest. 2010 tax returns online Hardest Hit Fund and Emergency Homeowners' Loan Programs. 2010 tax returns online   You can use a special method to compute your deduction for mortgage interest and real estate taxes on your main home if you meet the following two conditions. 2010 tax returns online You received assistance under: A State Housing Finance Agency (State HFA) Hardest Hit Fund program in which program payments could be used to pay mortgage interest, or An Emergency Homeowners' Loan Program administered by the Department of Housing and Urban Development (HUD) or a state. 2010 tax returns online You meet the rules to deduct all of the mortgage interest on your loan and all of the real estate taxes on your main home. 2010 tax returns online If you meet these tests, then you can deduct all of the payments you actually made during the year to your mortgage servicer, the State HFA, or HUD on the home mortgage (including the amount shown on box 3 of Form 1098-MA, Mortgage Assistance Payments), but not more than the sum of the amounts shown on Form 1098, Mortgage Interest Statement, in box 1 (mortgage interest received from payer(s) / borrower(s)), box 4 (mortgage insurance premiums) and box 5 (real property taxes). 2010 tax returns online However, you are not required to use this special method to compute your deduction for mortgage interest and real estate taxes on your main home. 2010 tax returns online Mortgage assistance payments under section 235 of the National Housing Act. 2010 tax returns online   If you qualify for mortgage assistance payments for lower-income families under section 235 of the National Housing Act, part or all of the interest on your mortgage may be paid for you. 2010 tax returns online You cannot deduct the interest that is paid for you. 2010 tax returns online No other effect on taxes. 2010 tax returns online   Do not include these mortgage assistance payments in your income. 2010 tax returns online Also, do not use these payments to reduce other deductions, such as real estate taxes. 2010 tax returns online Divorced or separated individuals. 2010 tax returns online   If a divorce or separation agreement requires you or your spouse or former spouse to pay home mortgage interest on a home owned by both of you, the payment of interest may be alimony. 2010 tax returns online See the discussion of Payments for jointly-owned home in chapter 18. 2010 tax returns online Redeemable ground rents. 2010 tax returns online   If you make annual or periodic rental payments on a redeemable ground rent, you can deduct them as mortgage interest. 2010 tax returns online   Payments made to end the lease and to buy the lessor's entire interest in the land are not deductible as mortgage interest. 2010 tax returns online For more information, see Publication 936. 2010 tax returns online Nonredeemable ground rents. 2010 tax returns online   Payments on a nonredeemable ground rent are not mortgage interest. 2010 tax returns online You can deduct them as rent if they are a business expense or if they are for rental property. 2010 tax returns online Reverse mortgages. 2010 tax returns online   A reverse mortgage is a loan where the lender pays you (in a lump sum, a monthly advance, a line of credit, or a combination of all three) while you continue to live in your home. 2010 tax returns online With a reverse mortgage, you retain title to your home. 2010 tax returns online Depending on the plan, your reverse mortgage becomes due with interest when you move, sell your home, reach the end of a pre-selected loan period, or die. 2010 tax returns online Because reverse mortgages are considered loan advances and not income, the amount you receive is not taxable. 2010 tax returns online Any interest (including original issue discount) accrued on a reverse mortgage is not deductible until the loan is paid in full. 2010 tax returns online Your deduction may be limited because a reverse mortgage loan generally is subject to the limit on Home Equity Debt discussed in Publication 936. 2010 tax returns online Rental payments. 2010 tax returns online   If you live in a house before final settlement on the purchase, any payments you make for that period are rent and not interest. 2010 tax returns online This is true even if the settlement papers call them interest. 2010 tax returns online You cannot deduct these payments as home mortgage interest. 2010 tax returns online Mortgage proceeds invested in tax-exempt securities. 2010 tax returns online   You cannot deduct the home mortgage interest on grandfathered debt or home equity debt if you used the proceeds of the mortgage to buy securities or certificates that produce tax-free income. 2010 tax returns online “Grandfathered debt” and “home equity debt” are defined earlier under Amount Deductible. 2010 tax returns online Refunds of interest. 2010 tax returns online   If you receive a refund of interest in the same tax year you paid it, you must reduce your interest expense by the amount refunded to you. 2010 tax returns online If you receive a refund of interest you deducted in an earlier year, you generally must include the refund in income in the year you receive it. 2010 tax returns online However, you need to include it only up to the amount of the deduction that reduced your tax in the earlier year. 2010 tax returns online This is true whether the interest overcharge was refunded to you or was used to reduce the outstanding principal on your mortgage. 2010 tax returns online    If you received a refund of interest you overpaid in an earlier year, you generally will receive a Form 1098, Mortgage Interest Statement, showing the refund in box 3. 2010 tax returns online For information about Form 1098, see Form 1098, Mortgage Interest Statement , later. 2010 tax returns online   For more information on how to treat refunds of interest deducted in earlier years, see Recoveries in chapter 12. 2010 tax returns online Points The term “points” is used to describe certain charges paid, or treated as paid, by a borrower to obtain a home mortgage. 2010 tax returns online Points may also be called loan origination fees, maximum loan charges, loan discount, or discount points. 2010 tax returns online A borrower is treated as paying any points that a home seller pays for the borrower's mortgage. 2010 tax returns online See Points paid by the seller , later. 2010 tax returns online General Rule You generally cannot deduct the full amount of points in the year paid. 2010 tax returns online Because they are prepaid interest, you generally deduct them ratably over the life (term) of the mortgage. 2010 tax returns online See Deduction Allowed Ratably , next. 2010 tax returns online For exceptions to the general rule, see Deduction Allowed in Year Paid , later. 2010 tax returns online Deduction Allowed Ratably If you do not meet the tests listed under Deduction Allowed in Year Paid , later, the loan is not a home improvement loan, or you choose not to deduct your points in full in the year paid, you can deduct the points ratably (equally) over the life of the loan if you meet all the following tests. 2010 tax returns online You use the cash method of accounting. 2010 tax returns online This means you report income in the year you receive it and deduct expenses in the year you pay them. 2010 tax returns online Most individuals use this method. 2010 tax returns online Your loan is secured by a home. 2010 tax returns online (The home does not need to be your main home. 2010 tax returns online ) Your loan period is not more than 30 years. 2010 tax returns online If your loan period is more than 10 years, the terms of your loan are the same as other loans offered in your area for the same or longer period. 2010 tax returns online Either your loan amount is $250,000 or less, or the number of points is not more than: 4, if your loan period is 15 years or less, or 6, if your loan period is more than 15 years. 2010 tax returns online Deduction Allowed in Year Paid You can fully deduct points in the year paid if you meet all the following tests. 2010 tax returns online (You can use Figure 23-B as a quick guide to see whether your points are fully deductible in the year paid. 2010 tax returns online ) Your loan is secured by your main home. 2010 tax returns online (Your main home is the one you ordinarily live in most of the time. 2010 tax returns online ) Paying points is an established business practice in the area where the loan was made. 2010 tax returns online The points paid were not more than the points generally charged in that area. 2010 tax returns online You use the cash method of accounting. 2010 tax returns online This means you report income in the year you receive it and deduct expenses in the year you pay them. 2010 tax returns online (If you want more information about this method, see Accounting Methods in chapter 1. 2010 tax returns online ) The points were not paid in place of amounts that ordinarily are stated separately on the settlement statement, such as appraisal fees, inspection fees, title fees, attorney fees, and property taxes. 2010 tax returns online The funds you provided at or before closing, plus any points the seller paid, were at least as much as the points charged. 2010 tax returns online The funds you provided are not required to have been applied to the points. 2010 tax returns online They can include a down payment, an escrow deposit, earnest money, and other funds you paid at or before closing for any purpose. 2010 tax returns online You cannot have borrowed these funds from your lender or mortgage broker. 2010 tax returns online You use your loan to buy or build your main home. 2010 tax returns online The points were computed as a percentage of the principal amount of the mortgage. 2010 tax returns online The amount is clearly shown on the settlement statement (such as the Settlement Statement, Form HUD-1) as points charged for the mortgage. 2010 tax returns online The points may be shown as paid from either your funds or the seller's. 2010 tax returns online Figure 23-B. 2010 tax returns online Are My Points Fully Deductible This Year? Please click here for the text description of the image. 2010 tax returns online Figure 23-B. 2010 tax returns online Are My Points Fully Deductible This Year? Note. 2010 tax returns online If you meet all of these tests, you can choose to either fully deduct the points in the year paid, or deduct them over the life of the loan. 2010 tax returns online Home improvement loan. 2010 tax returns online   You can also fully deduct in the year paid points paid on a loan to improve your main home, if tests (1) through (6) are met. 2010 tax returns online Second home. 2010 tax returns online You cannot fully deduct in the year paid points you pay on loans secured by your second home. 2010 tax returns online You can deduct these points only over the life of the loan. 2010 tax returns online Refinancing. 2010 tax returns online   Generally, points you pay to refinance a mortgage are not deductible in full in the year you pay them. 2010 tax returns online This is true even if the new mortgage is secured by your main home. 2010 tax returns online   However, if you use part of the refinanced mortgage proceeds to improve your main home and you meet the first 6 tests listed under Deduction Allowed in Year Paid , earlier, you can fully deduct the part of the points related to the improvement in the year you paid them with your own funds. 2010 tax returns online You can deduct the rest of the points over the life of the loan. 2010 tax returns online Example 1. 2010 tax returns online In 1998, Bill Fields got a mortgage to buy a home. 2010 tax returns online In 2013, Bill refinanced that mortgage with a 15-year $100,000 mortgage loan. 2010 tax returns online The mortgage is secured by his home. 2010 tax returns online To get the new loan, he had to pay three points ($3,000). 2010 tax returns online Two points ($2,000) were for prepaid interest, and one point ($1,000) was charged for services, in place of amounts that ordinarily are stated separately on the settlement statement. 2010 tax returns online Bill paid the points out of his private funds, rather than out of the proceeds of the new loan. 2010 tax returns online The payment of points is an established practice in the area, and the points charged are not more than the amount generally charged there. 2010 tax returns online Bill's first payment on the new loan was due July 1. 2010 tax returns online He made six payments on the loan in 2013 and is a cash basis taxpayer. 2010 tax returns online Bill used the funds from the new mortgage to repay his existing mortgage. 2010 tax returns online Although the new mortgage loan was for Bill's continued ownership of his main home, it was not for the purchase or improvement of that home. 2010 tax returns online He cannot deduct all of the points in 2013. 2010 tax returns online He can deduct two points ($2,000) ratably over the life of the loan. 2010 tax returns online He deducts $67 [($2,000 ÷ 180 months) × 6 payments] of the points in 2013. 2010 tax returns online The other point ($1,000) was a fee for services and is not deductible. 2010 tax returns online Example 2. 2010 tax returns online The facts are the same as in Example 1, except that Bill used $25,000 of the loan proceeds to improve his home and $75,000 to repay his existing mortgage. 2010 tax returns online Bill deducts 25% ($25,000 ÷ $100,000) of the points ($2,000) in 2013. 2010 tax returns online His deduction is $500 ($2,000 × 25%). 2010 tax returns online Bill also deducts the ratable part of the remaining $1,500 ($2,000 − $500) that must be spread over the life of the loan. 2010 tax returns online This is $50 [($1,500 ÷ 180 months) × 6 payments] in 2013. 2010 tax returns online The total amount Bill deducts in 2013 is $550 ($500 + $50). 2010 tax returns online Special Situations This section describes certain special situations that may affect your deduction of points. 2010 tax returns online Original issue discount. 2010 tax returns online   If you do not qualify to either deduct the points in the year paid or deduct them ratably over the life of the loan, or if you choose not to use either of these methods, the points reduce the issue price of the loan. 2010 tax returns online This reduction results in original issue discount, which is discussed in chapter 4 of Publication 535. 2010 tax returns online Amounts charged for services. 2010 tax returns online   Amounts charged by the lender for specific services connected to the loan are not interest. 2010 tax returns online Examples of these charges are: Appraisal fees, Notary fees, and Preparation costs for the mortgage note or deed of trust. 2010 tax returns online You cannot deduct these amounts as points either in the year paid or over the life of the mortgage. 2010 tax returns online Points paid by the seller. 2010 tax returns online   The term “points” includes loan placement fees that the seller pays to the lender to arrange financing for the buyer. 2010 tax returns online Treatment by seller. 2010 tax returns online   The seller cannot deduct these fees as interest. 2010 tax returns online But they are a selling expense that reduces the amount realized by the seller. 2010 tax returns online See chapter 15 for information on selling your home. 2010 tax returns online Treatment by buyer. 2010 tax returns online    The buyer reduces the basis of the home by the amount of the seller-paid points and treats the points as if he or she had paid them. 2010 tax returns online If all the tests under Deduction Allowed in Year Paid , earlier, are met, the buyer can deduct the points in the year paid. 2010 tax returns online If any of those tests are not met, the buyer deducts the points over the life of the loan. 2010 tax returns online   For information about basis, see chapter 13. 2010 tax returns online Funds provided are less than points. 2010 tax returns online   If you meet all the tests in Deduction Allowed in Year Paid , earlier, except that the funds you provided were less than the points charged to you (test (6)), you can deduct the points in the year paid, up to the amount of funds you provided. 2010 tax returns online In addition, you can deduct any points paid by the seller. 2010 tax returns online Example 1. 2010 tax returns online When you took out a $100,000 mortgage loan to buy your home in December, you were charged one point ($1,000). 2010 tax returns online You meet all the tests for deducting points in the year paid, except the only funds you provided were a $750 down payment. 2010 tax returns online Of the $1,000 charged for points, you can deduct $750 in the year paid. 2010 tax returns online You spread the remaining $250 over the life of the mortgage. 2010 tax returns online Example 2. 2010 tax returns online The facts are the same as in Example 1, except that the person who sold you your home also paid one point ($1,000) to help you get your mortgage. 2010 tax returns online In the year paid, you can deduct $1,750 ($750 of the amount you were charged plus the $1,000 paid by the seller). 2010 tax returns online You spread the remaining $250 over the life of the mortgage. 2010 tax returns online You must reduce the basis of your home by the $1,000 paid by the seller. 2010 tax returns online Excess points. 2010 tax returns online   If you meet all the tests in Deduction Allowed in Year Paid , earlier, except that the points paid were more than generally paid in your area (test (3)), you deduct in the year paid only the points that are generally charged. 2010 tax returns online You must spread any additional points over the life of the mortgage. 2010 tax returns online Mortgage ending early. 2010 tax returns online   If you spread your deduction for points over the life of the mortgage, you can deduct any remaining balance in the year the mortgage ends. 2010 tax returns online However, if you refinance the mortgage with the same lender, you cannot deduct any remaining balance of spread points. 2010 tax returns online Instead, deduct the remaining balance over the term of the new loan. 2010 tax returns online    A mortgage may end early due to a prepayment, refinancing, foreclosure, or similar event. 2010 tax returns online Example. 2010 tax returns online Dan paid $3,000 in points in 2002 that he had to spread out over the 15-year life of the mortgage. 2010 tax returns online He deducts $200 points per year. 2010 tax returns online Through 2012, Dan has deducted $2,200 of the points. 2010 tax returns online Dan prepaid his mortgage in full in 2013. 2010 tax returns online He can deduct the remaining $800 of points in 2013. 2010 tax returns online Limits on deduction. 2010 tax returns online   You cannot fully deduct points paid on a mortgage unless the mortgage fits into one of the categories listed earlier under Fully deductible interest . 2010 tax returns online See Publication 936 for details. 2010 tax returns online Mortgage Insurance Premiums You can treat amounts you paid during 2013 for qualified mortgage insurance as home mortgage interest. 2010 tax returns online The insurance must be in connection with home acquisition debt and the insurance contract must have been issued after 2006. 2010 tax returns online Qualified mortgage insurance. 2010 tax returns online   Qualified mortgage insurance is mortgage insurance provided by the Department of Veterans Affairs, the Federal Housing Administration, or the Rural Housing Service, and private mortgage insurance (as defined in section 2 of the Homeowners Protection Act of 1998 as in effect on December 20, 2006). 2010 tax returns online   Mortgage insurance provided by the Department of Veterans Affairs is commonly known as a funding fee. 2010 tax returns online If provided by the Rural Housing Service, it is commonly known as a guarantee fee. 2010 tax returns online These fees can be deducted fully in 2013 if the mortgage insurance contract was issued in 2013. 2010 tax returns online Contact the mortgage insurance issuer to determine the deductible amount if it is not reported in box 4 of Form 1098. 2010 tax returns online Special rules for prepaid mortgage insurance. 2010 tax returns online   Generally, if you paid premiums for qualified mortgage insurance that are allocable to periods after the close of the tax year, such premiums are treated as paid in the period to which they are allocated. 2010 tax returns online You must allocate the premiums over the shorter of the stated term of the mortgage or 84 months, beginning with the month the insurance was obtained. 2010 tax returns online No deduction is allowed for the unamortized balance if the mortgage is satisfied before its term. 2010 tax returns online This paragraph does not apply to qualified mortgage insurance provided by the Department of Veterans Affairs or the Rural Housing Service. 2010 tax returns online See the Example below. 2010 tax returns online Example. 2010 tax returns online Ryan purchased a home in May of 2012 and financed the home with a 15-year mortgage. 2010 tax returns online Ryan also prepaid all of the $9,240 in private mortgage insurance required at the time of closing in May. 2010 tax returns online Since the $9,240 in private mortgage insurance is allocable to periods after 2012, Ryan must allocate the $9,240 over the shorter of the life of the mortgage or 84 months. 2010 tax returns online Ryan's adjusted gross income (AGI) for 2012 is $76,000. 2010 tax returns online Ryan can deduct $880 ($9,240 ÷ 84 × 8 months) for qualified mortgage insurance premiums in 2012. 2010 tax returns online For 2013, Ryan can deduct $1,320 ($9,240 ÷ 84 × 12 months) if his AGI is $100,000 or less. 2010 tax returns online In this example, the mortgage insurance premiums are allocated over 84 months, which is shorter than the life of the mortgage of 15 years (180 months). 2010 tax returns online Limit on deduction. 2010 tax returns online   If your adjusted gross income on Form 1040, line 38, is more than $100,000 ($50,000 if your filing status is married filing separately), the amount of your mortgage insurance premiums that are otherwise deductible is reduced and may be eliminated. 2010 tax returns online See Line 13 in the instructions for Schedule A (Form 1040) and complete the Mortgage Insurance Premiums Deduction Worksheet to figure the amount you can deduct. 2010 tax returns online If your adjusted gross income is more than $109,000 ($54,500 if married filing separately), you cannot deduct your mortgage insurance premiums. 2010 tax returns online Form 1098, Mortgage Interest Statement If you paid $600 or more of mortgage interest (including certain points and mortgage insurance premiums) during the year on any one mortgage, you generally will receive a Form 1098 or a similar statement from the mortgage holder. 2010 tax returns online You will receive the statement if you pay interest to a person (including a financial institution or a cooperative housing corporation) in the course of that person's trade or business. 2010 tax returns online A governmental unit is a person for purposes of furnishing the statement. 2010 tax returns online The statement for each year should be sent to you by January 31 of the following year. 2010 tax returns online A copy of this form will also be sent to the IRS. 2010 tax returns online The statement will show the total interest you paid during the year, any mortgage insurance premiums you paid, and if you purchased a main home during the year, it also will show the deductible points paid during the year, including seller-paid points. 2010 tax returns online However, it should not show any interest that was paid for you by a government agency. 2010 tax returns online As a general rule, Form 1098 will include only points that you can fully deduct in the year paid. 2010 tax returns online However, certain points not included on Form 1098 also may be deductible, either in the year paid or over the life of the loan. 2010 tax returns online See Points , earlier, to determine whether you can deduct points not shown on Form 1098. 2010 tax returns online Prepaid interest on Form 1098. 2010 tax returns online   If you prepaid interest in 2013 that accrued in full by January 15, 2014, this prepaid interest may be included in box 1 of Form 1098. 2010 tax returns online However, you cannot deduct the prepaid amount for January 2014 in 2013. 2010 tax returns online (See Prepaid interest , earlier. 2010 tax returns online ) You will have to figure the interest that accrued for 2014 and subtract it from the amount in box 1. 2010 tax returns online You will include the interest for January 2014 with the other interest you pay for 2014. 2010 tax returns online See How To Report , later. 2010 tax returns online Refunded interest. 2010 tax returns online   If you received a refund of mortgage interest you overpaid in an earlier year, you generally will receive a Form 1098 showing the refund in box 3. 2010 tax returns online See Refunds of interest , earlier. 2010 tax returns online Mortgage insurance premiums. 2010 tax returns online   The amount of mortgage insurance premiums you paid during 2013 may be shown in box 4 of Form 1098. 2010 tax returns online See Mortgage Insurance Premiums, earlier. 2010 tax returns online Investment Interest This section discusses interest expenses you may be able to deduct as an investor. 2010 tax returns online If you borrow money to buy property you hold for investment, the interest you pay is investment interest. 2010 tax returns online You can deduct investment interest subject to the limit discussed later. 2010 tax returns online However, you cannot deduct interest you incurred to produce tax-exempt income. 2010 tax returns online Nor can you deduct interest expenses on straddles. 2010 tax returns online Investment interest does not include any qualified home mortgage interest or any interest taken into account in computing income or loss from a passive activity. 2010 tax returns online Investment Property Property held for investment includes property that produces interest, dividends, annuities, or royalties not derived in the ordinary course of a trade or business. 2010 tax returns online It also includes property that produces gain or loss (not derived in the ordinary course of a trade or business) from the sale or trade of property producing these types of income or held for investment (other than an interest in a passive activity). 2010 tax returns online Investment property also includes an interest in a trade or business activity in which you did not materially participate (other than a passive activity). 2010 tax returns online Partners, shareholders, and beneficiaries. 2010 tax returns online   To determine your investment interest, combine your share of investment interest from a partnership, S corporation, estate, or trust with your other investment interest. 2010 tax returns online Allocation of Interest Expense If you borrow money for business or personal purposes as well as for investment, you must allocate the debt among those purposes. 2010 tax returns online Only the interest expense on the part of the debt used for investment purposes is treated as investment interest. 2010 tax returns online The allocation is not affected by the use of property that secures the debt. 2010 tax returns online Limit on Deduction Generally, your deduction for investment interest expense is limited to the amount of your net investment income. 2010 tax returns online You can carry over the amount of investment interest that you could not deduct because of this limit to the next tax year. 2010 tax returns online The interest carried over is treated as investment interest paid or accrued in that next year. 2010 tax returns online You can carry over disallowed investment interest to the next tax year even if it is more than your taxable income in the year the interest was paid or accrued. 2010 tax returns online Net Investment Income Determine the amount of your net investment income by subtracting your investment expenses (other than interest expense) from your investment income. 2010 tax returns online Investment income. 2010 tax returns online    This generally includes your gross income from property held for investment (such as interest, dividends, annuities, and royalties). 2010 tax returns online Investment income does not include Alaska Permanent Fund dividends. 2010 tax returns online It also does not include qualified dividends or net capital gain unless you choose to include them. 2010 tax returns online Choosing to include qualified dividends. 2010 tax returns online   Investment income generally does not include qualified dividends, discussed in chapter 8. 2010 tax returns online However, you can choose to include all or part of your qualified dividends in investment income. 2010 tax returns online   You make this choice by completing Form 4952, line 4g, according to its instructions. 2010 tax returns online   If you choose to include any amount of your qualified dividends in investment income, you must reduce your qualified dividends that are eligible for the lower capital gains tax rates by the same amount. 2010 tax returns online Choosing to include net capital gain. 2010 tax returns online   Investment income generally does not include net capital gain from disposing of investment property (including capital gain distributions from mutual funds). 2010 tax returns online However, you can choose to include all or part of your net capital gain in investment income. 2010 tax returns online    You make this choice by completing Form 4952, line 4g, according to its instructions. 2010 tax returns online   If you choose to include any amount of your net capital gain in investment income, you must reduce your net capital gain that is eligible for the lower capital gains tax rates by the same amount. 2010 tax returns online    Before making either choice, consider the overall effect on your tax liability. 2010 tax returns online Compare your tax if you make one or both of these choices with your tax if you do not. 2010 tax returns online Investment income of child reported on parent's return. 2010 tax returns online    Investment income includes the part of your child's interest and dividend income that you choose to report on your return. 2010 tax returns online If the child does not have qualified dividends, Alaska Permanent Fund dividends, or capital gain distributions, this is the amount on line 6 of Form 8814, Parents' Election To Report Child's Interest and Dividends. 2010 tax returns online Child's qualified dividends. 2010 tax returns online   If part of the amount you report is your child's qualified dividends, that part (which is reported on Form 1040, line 9b) generally does not count as investment income. 2010 tax returns online However, you can choose to include all or part of it in investment income, as explained under Choosing to include qualified dividends , earlier. 2010 tax returns online   Your investment income also includes the amount on Form 8814, line 12 (or, if applicable, the reduced amount figured next under Child's Alaska Permanent Fund dividends). 2010 tax returns online Child's Alaska Permanent Fund dividends. 2010 tax returns online   If part of the amount you report is your child's Alaska Permanent Fund dividends, that part does not count as investment income. 2010 tax returns online To figure the amount of your child's income that you can consider your investment income, start with the amount on Form 8814, line 6. 2010 tax returns online Multiply that amount by a percentage that is equal to the Alaska Permanent Fund dividends divided by the total amount on Form 8814, line 4. 2010 tax returns online Subtract the result from the amount on Form 8814, line 12. 2010 tax returns online Child's capital gain distributions. 2010 tax returns online    If part of the amount you report is your child's capital gain distributions, that part (which is reported on Schedule D, line 13, or Form 1040, line 13) generally does not count as investment income. 2010 tax returns online However, you can choose to include all or part of it in investment income, as explained in Choosing to include net capital gain , earlier. 2010 tax returns online   Your investment income also includes the amount on Form 8814, line 12 (or, if applicable, the reduced amount figured under Child's Alaska Permanent Fund dividends , earlier). 2010 tax returns online Investment expenses. 2010 tax returns online   Investment expenses are your allowed deductions (other than interest expense) directly connected with the production of investment income. 2010 tax returns online Investment expenses that are included as a miscellaneous itemized deduction on Schedule A (Form 1040) are allowable deductions after applying the 2% limit that applies to miscellaneous itemized deductions. 2010 tax returns online Use the smaller of: The investment expenses included on Schedule A (Form 1040), line 23, or The amount on Schedule A, line 27. 2010 tax returns online Losses from passive activities. 2010 tax returns online   Income or expenses that you used in computing income or loss from a passive activity are not included in determining your investment income or investment expenses (including investment interest expense). 2010 tax returns online See Publication 925, Passive Activity and At-Risk Rules, for information about passive activities. 2010 tax returns online Form 4952 Use Form 4952, Investment Interest Expense Deduction, to figure your deduction for investment interest. 2010 tax returns online Exception to use of Form 4952. 2010 tax returns online   You do not have to complete Form 4952 or attach it to your return if you meet all of the following tests. 2010 tax returns online Your investment interest expense is not more than your investment income from interest and ordinary dividends minus any qualified dividends. 2010 tax returns online You do not have any other deductible investment expenses. 2010 tax returns online You have no carryover of investment interest expense from 2012. 2010 tax returns online If you meet all of these tests, you can deduct all of your investment interest. 2010 tax returns online More Information For more information on investment interest, see Interest Expenses in chapter 3 of Publication 550. 2010 tax returns online Items You Cannot Deduct Some interest payments are not deductible. 2010 tax returns online Certain expenses similar to interest also are not deductible. 2010 tax returns online Nondeductible expenses include the following items. 2010 tax returns online Personal interest (discussed later). 2010 tax returns online Service charges (however, see Other Expenses (Line 23) in chapter 28). 2010 tax returns online Annual fees for credit cards. 2010 tax returns online Loan fees. 2010 tax returns online Credit investigation fees. 2010 tax returns online Interest to purchase or carry tax-exempt securities. 2010 tax returns online Penalties. 2010 tax returns online   You cannot deduct fines and penalties paid to a government for violations of law, regardless of their nature. 2010 tax returns online Personal Interest Personal interest is not deductible. 2010 tax returns online Personal interest is any interest that is not home mortgage interest, investment interest, business interest, or other deductible interest. 2010 tax returns online It includes the following items. 2010 tax returns online Interest on car loans (unless you use the car for business). 2010 tax returns online Interest on federal, state, or local income tax. 2010 tax returns online Finance charges on credit cards, retail installment contracts, and revolving charge accounts incurred for personal expenses. 2010 tax returns online Late payment charges by a public utility. 2010 tax returns online You may be able to deduct interest you pay on a qualified student loan. 2010 tax returns online For details, see Publication 970, Tax Benefits for Education. 2010 tax returns online Allocation of Interest If you use the proceeds of a loan for more than one purpose (for example, personal and business), you must allocate the interest on the loan to each use. 2010 tax returns online However, you do not have to allocate home mortgage interest if it is fully deductible, regardless of how the funds are used. 2010 tax returns online You allocate interest (other than fully deductible home mortgage interest) on a loan in the same way as the loan itself is allocated. 2010 tax returns online You do this by tracing disbursements of the debt proceeds to specific uses. 2010 tax returns online For details on how to do this, see chapter 4 of Publication 535. 2010 tax returns online How To Report You must file Form 1040 to deduct any home mortgage interest expense on your tax return. 2010 tax returns online Where you deduct your interest expense generally depends on how you use the loan proceeds. 2010 tax returns online See Table 23-1 for a summary of where to deduct your interest expense. 2010 tax returns online Home mortgage interest and points. 2010 tax returns online   Deduct the home mortgage interest and points reported to you on Form 1098 on Schedule A (Form 1040), line 10. 2010 tax returns online If you paid more deductible interest to the financial institution than the amount shown on Form 1098, show the larger deductible amount on line 10. 2010 tax returns online Attach a statement explaining the difference and print “See attached” next to line 10. 2010 tax returns online    Deduct home mortgage interest that was not reported to you on Form 1098 on Schedule A (Form 1040), line 11. 2010 tax returns online If you paid home mortgage interest to the person from whom you bought your home, show that person's name, address, and taxpayer identification number (TIN) on the dotted lines next to line 11. 2010 tax returns online The seller must give you this number and you must give the seller your TIN. 2010 tax returns online A Form W-9, Request for Taxpayer Identification Number and Certification, can be used for this purpose. 2010 tax returns online Failure to meet any of these requirements may result in a $50 penalty for each failure. 2010 tax returns online The TIN can be either a social security number, an individual taxpayer identification number (issued by the Internal Revenue Service), or an employer identification number. 2010 tax returns online See Social Security Number (SSN) in chapter 1 for more information about TINs. 2010 tax returns online    If you can take a deduction for points that were not reported to you on Form 1098, deduct those points on Schedule A (Form 1040), line 12. 2010 tax returns online   Deduct mortgage insurance premiums on Schedule A (Form 1040), line 13. 2010 tax returns online More than one borrower. 2010 tax returns online   If you and at least one other person (other than your spouse if you file a joint return) were liable for and paid interest on a mortgage that was for your home, and the other person received a Form 1098 showing the interest that was paid during the year, attach a statement to your return explaining this. 2010 tax returns online Show how much of the interest each of you paid, and give the name and address of the person who received the form. 2010 tax returns online Deduct your share of the interest on Schedule A (Form 1040), line 11, and print “See attached” next to the line. 2010 tax returns online Also, deduct your share of any qualified mortgage insurance premiums on Schedule A (Form 1040), line 13. 2010 tax returns online   Similarly, if you are the payer of record on a mortgage on which there are other borrowers entitled to a deduction for the interest shown on the Form 1098 you received, deduct only your share of the interest on Schedule A (Form 1040), line 10. 2010 tax returns online You should let each of the other borrowers know what his or her share is. 2010 tax returns online Mortgage proceeds used for business or investment. 2010 tax returns online    If your home mortgage interest deduction is limited, but all or part of the mortgage proceeds were used for business, investment, or other deductible activities, see Table 23-1. 2010 tax returns online It shows where to deduct the part of your excess interest that is for those activities. 2010 tax returns online Investment interest. 2010 tax returns online    Deduct investment interest, subject to certain limits discussed in Publication 550, on Schedule A (Form 1040), line 14. 2010 tax returns online Amortization of bond premium. 2010 tax returns online   There are various ways to treat the premium you pay to buy taxable bonds. 2010 tax returns online See Bond Premium Amortization in Publication 550. 2010 tax returns online Income-producing rental or royalty interest. 2010 tax returns online   Deduct interest on a loan for income-producing rental or royalty property that is not used in your business in Part I of Schedule E (Form 1040). 2010 tax returns online Example. 2010 tax returns online You rent out part of your home and borrow money to make repairs. 2010 tax returns online You can deduct only the interest payment for the rented part in Part I of Schedule E (Form 1040). 2010 tax returns online Deduct the rest of the interest payment on Schedule A (Form 1040) if it is deductible home mortgage interest. 2010 tax returns online Table 23-1. 2010 tax returns online Where To Deduct Your Interest Expense IF you have . 2010 tax returns online . 2010 tax returns online . 2010 tax returns online THEN deduct it on . 2010 tax returns online . 2010 tax returns online . 2010 tax returns online AND for more information go to . 2010 tax returns online . 2010 tax returns online . 2010 tax returns online deductible student loan interest Form 1040, line 33, or Form 1040A, line 18 Publication 970. 2010 tax returns online deductible home mortgage interest and points reported on Form 1098 Schedule A (Form 1040), line 10 Publication 936. 2010 tax returns online deductible home mortgage interest not reported on Form 1098 Schedule A (Form 1040), line 11 Publication 936. 2010 tax returns online deductible points not reported on Form 1098 Schedule A (Form 1040), line 12 Publication 936. 2010 tax returns online deductible mortgage insurance premiums Schedule A (Form 1040), line 13 Publication 936. 2010 tax returns online deductible investment interest (other than incurred to produce rents or royalties) Schedule A (Form 1040), line 14 Publication 550. 2010 tax returns online deductible business interest (non-farm) Schedule C or C-EZ (Form 1040) Publication 535. 2010 tax returns online deductible farm business interest Schedule F (Form 1040) Publications 225 and 535. 2010 tax returns online deductible interest incurred to produce rents or royalties Schedule E (Form 1040) Publications 527 and 535. 2010 tax returns online personal interest not deductible. 2010 tax returns online Prev  Up  Next   Home   More Online Publications
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Consumer Protection Offices

City, county, regional, and state consumer offices offer a variety of important services. They might mediate complaints, conduct investigations, prosecute offenders of consumer laws, license and regulate professional service providers, provide educational materials and advocate for consumer rights. To save time, call before sending a written complaint. Ask if the office handles the type of complaint you have and if complaint forms are provided.

State Consumer Protection Offices

Arkansas Office of the Attorney General

Website: Arkansas Office of the Attorney General http://www.gotyourbackarkansas.org

Address: Arkansas Office of the Attorney General
Consumer Protection Division
323 Center St., Suite 200
Little Rock, AR 72201

Phone Number: 501-682-2341

Toll-free: 1-800-482-8982 (Consumer Hotline)

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Banking Authorities

The officials listed in this section regulate and supervise state-chartered banks. Many of them handle or refer problems and complaints about other types of financial institutions as well. Some also answer general questions about banking and consumer credit. If you are dealing with a federally chartered bank, check Federal Agencies.

State Bank Department

Website: State Bank Department

Address: State Bank Department
400 Hardin Rd., Suite 100
Little Rock, AR 72211

Phone Number: 501-324-9019

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Insurance Regulators

Each state has its own laws and regulations for each type of insurance. The officials listed in this section enforce these laws. Many of these offices can also provide you with information to help you make informed insurance buying decisions.

Insurance Department

Website: Insurance Department

Address: Insurance Department
Consumer Services Division
1200 W. Third St.
Little Rock, AR 72201-1904

Phone Number: 501-371-2640

Toll-free: 1-800-852-5494

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Securities Administrators

Each state has its own laws and regulations for securities brokers and securities - including stocks, mutual funds, commodities, real estate, etc. The officials and agencies listed in this section enforce these laws and regulations. Many of these offices can also provide information to help you make informed investment decisions.

Securities Department

Website: Securities Department

Address: Securities Department
Heritage West Building, Suite 300
201 E. Markham St.
Little Rock, AR 72201-1692

Phone Number: 501-324-9260

Toll-free: 1-800-981-4429

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Utility Commissions

State Utility Commissions regulate services and rates for gas, electricity and telephones within your state. In some states, the utility commissions regulate other services such as water, transportation, and the moving of household goods. Many utility commissions handle consumer complaints. Sometimes, if a number of complaints are received about the same utility matter, they will conduct investigations.

Public Service Commission

Website: Public Service Commission

Address: Public Service Commission
Consumer Services Division
PO Box 400
Little Rock, AR 72203-0400

Phone Number: 501-682-1718

Toll-free: 1-800-482-1164 (AR)

TTY: 1-800-682-2698

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The 2010 Tax Returns Online

2010 tax returns online 5. 2010 tax returns online   Personal Use of Dwelling Unit (Including Vacation Home) Table of Contents Dividing Expenses Dwelling Unit Used as a HomeMain home. 2010 tax returns online Shared equity financing agreement. 2010 tax returns online Donation of use of the property. 2010 tax returns online Examples. 2010 tax returns online Days used for repairs and maintenance. 2010 tax returns online Days used as a main home before or after renting. 2010 tax returns online Reporting Income and DeductionsNot used as a home. 2010 tax returns online Used as a home but rented less than 15 days. 2010 tax returns online Used as a home and rented 15 days or more. 2010 tax returns online If you have any personal use of a dwelling unit (including a vacation home) that you rent, you must divide your expenses between rental use and personal use. 2010 tax returns online In general, your rental expenses will be no more than your total expenses multiplied by a fraction; the denominator of which is the total number of days the dwelling unit is used and the numerator of which is the total number of days actually rented at a fair rental price. 2010 tax returns online Only your rental expenses may deducted on Schedule E (Form 1040). 2010 tax returns online Some of your personal expenses may be deductible if you itemize your deductions on Schedule A (Form 1040). 2010 tax returns online You must also determine if the dwelling unit is considered a home. 2010 tax returns online The amount of rental expenses that you can deduct may be limited if the dwelling unit is considered a home. 2010 tax returns online Whether a dwelling unit is considered a home depends on how many days during the year are considered to be days of personal use. 2010 tax returns online There is a special rule if you used the dwelling unit as a home and you rented it for less than 15 days during the year. 2010 tax returns online Dwelling unit. 2010 tax returns online   A dwelling unit includes a house, apartment, condominium, mobile home, boat, vacation home, or similar property. 2010 tax returns online It also includes all structures or other property belonging to the dwelling unit. 2010 tax returns online A dwelling unit has basic living accommodations, such as sleeping space, a toilet, and cooking facilities. 2010 tax returns online   A dwelling unit does not include property (or part of the property) used solely as a hotel, motel, inn, or similar establishment. 2010 tax returns online Property is used solely as a hotel, motel, inn, or similar establishment if it is regularly available for occupancy by paying customers and is not used by an owner as a home during the year. 2010 tax returns online Example. 2010 tax returns online You rent a room in your home that is always available for short-term occupancy by paying customers. 2010 tax returns online You do not use the room yourself and you allow only paying customers to use the room. 2010 tax returns online This room is used solely as a hotel, motel, inn, or similar establishment and is not a dwelling unit. 2010 tax returns online Dividing Expenses If you use a dwelling unit for both rental and personal purposes, divide your expenses between the rental use and the personal use based on the number of days used for each purpose. 2010 tax returns online When dividing your expenses, follow these rules. 2010 tax returns online Any day that the unit is rented at a fair rental price is a day of rental use even if you used the unit for personal purposes that day. 2010 tax returns online (This rule does not apply when determining whether you used the unit as a home. 2010 tax returns online ) Any day that the unit is available for rent but not actually rented is not a day of rental use. 2010 tax returns online Fair rental price. 2010 tax returns online   A fair rental price for your property generally is the amount of rent that a person who is not related to you would be willing to pay. 2010 tax returns online The rent you charge is not a fair rental price if it is substantially less than the rents charged for other properties that are similar to your property in your area. 2010 tax returns online   Ask yourself the following questions when comparing another property with yours. 2010 tax returns online Is it used for the same purpose? Is it approximately the same size? Is it in approximately the same condition? Does it have similar furnishings? Is it in a similar location? If any of the answers are no, the properties probably are not similar. 2010 tax returns online Example. 2010 tax returns online Your beach cottage was available for rent from June 1 through August 31 (92 days). 2010 tax returns online Except for the first week in August (7 days), when you were unable to find a renter, you rented the cottage at a fair rental price during that time. 2010 tax returns online The person who rented the cottage for July allowed you to use it over the weekend (2 days) without any reduction in or refund of rent. 2010 tax returns online Your family also used the cottage during the last 2 weeks of May (14 days). 2010 tax returns online The cottage was not used at all before May 17 or after August 31. 2010 tax returns online You figure the part of the cottage expenses to treat as rental expenses as follows. 2010 tax returns online The cottage was used for rental a total of 85 days (92 − 7). 2010 tax returns online The days it was available for rent but not rented (7 days) are not days of rental use. 2010 tax returns online The July weekend (2 days) you used it is rental use because you received a fair rental price for the weekend. 2010 tax returns online You used the cottage for personal purposes for 14 days (the last 2 weeks in May). 2010 tax returns online The total use of the cottage was 99 days (14 days personal use + 85 days rental use). 2010 tax returns online Your rental expenses are 85/99 (86%) of the cottage expenses. 2010 tax returns online Note. 2010 tax returns online When determining whether you used the cottage as a home, the July weekend (2 days) you used it is considered personal use even though you received a fair rental price for the weekend. 2010 tax returns online Therefore, you had 16 days of personal use and 83 days of rental use for this purpose. 2010 tax returns online Because you used the cottage for personal purposes more than 14 days and more than 10% of the days of rental use (8 days), you used it as a home. 2010 tax returns online If you have a net loss, you may not be able to deduct all of the rental expenses. 2010 tax returns online See Dwelling Unit Used as a Home, next. 2010 tax returns online Dwelling Unit Used as a Home If you use a dwelling unit for both rental and personal purposes, the tax treatment of the rental expenses you figured earlier under Dividing Expenses and rental income depends on whether you are considered to be using the dwelling unit as a home. 2010 tax returns online You use a dwelling unit as a home during the tax year if you use it for personal purposes more than the greater of: 14 days, or 10% of the total days it is rented to others at a fair rental price. 2010 tax returns online See What is a day of personal use , later. 2010 tax returns online If a dwelling unit is used for personal purposes on a day it is rented at a fair rental price (discussed earlier), do not count that day as a day of rental use in applying (2) above. 2010 tax returns online Instead, count it as a day of personal use in applying both (1) and (2) above. 2010 tax returns online What is a day of personal use?   A day of personal use of a dwelling unit is any day that the unit is used by any of the following persons. 2010 tax returns online You or any other person who owns an interest in it, unless you rent it to another owner as his or her main home under a shared equity financing agreement (defined later). 2010 tax returns online However, see Days used as a main home before or after renting , later. 2010 tax returns online A member of your family or a member of the family of any other person who owns an interest in it, unless the family member uses the dwelling unit as his or her main home and pays a fair rental price. 2010 tax returns online Family includes only your spouse, brothers and sisters, half-brothers and half-sisters, ancestors (parents, grandparents, etc. 2010 tax returns online ), and lineal descendants (children, grandchildren, etc. 2010 tax returns online ). 2010 tax returns online Anyone under an arrangement that lets you use some other dwelling unit. 2010 tax returns online Anyone at less than a fair rental price. 2010 tax returns online Main home. 2010 tax returns online   If the other person or member of the family in (1) or (2) above has more than one home, his or her main home is ordinarily the one he or she lived in most of the time. 2010 tax returns online Shared equity financing agreement. 2010 tax returns online   This is an agreement under which two or more persons acquire undivided interests for more than 50 years in an entire dwelling unit, including the land, and one or more of the co-owners is entitled to occupy the unit as his or her main home upon payment of rent to the other co-owner or owners. 2010 tax returns online Donation of use of the property. 2010 tax returns online   You use a dwelling unit for personal purposes if: You donate the use of the unit to a charitable organization, The organization sells the use of the unit at a fund-raising event, and The “purchaser” uses the unit. 2010 tax returns online Examples. 2010 tax returns online   The following examples show how to determine if you have days of personal use. 2010 tax returns online Example 1. 2010 tax returns online You and your neighbor are co-owners of a condominium at the beach. 2010 tax returns online Last year, you rented the unit to vacationers whenever possible. 2010 tax returns online The unit was not used as a main home by anyone. 2010 tax returns online Your neighbor used the unit for 2 weeks last year; you did not use it at all. 2010 tax returns online Because your neighbor has an interest in the unit, both of you are considered to have used the unit for personal purposes during those 2 weeks. 2010 tax returns online Example 2. 2010 tax returns online You and your neighbors are co-owners of a house under a shared equity financing agreement. 2010 tax returns online Your neighbors live in the house and pay you a fair rental price. 2010 tax returns online Even though your neighbors have an interest in the house, the days your neighbors live there are not counted as days of personal use by you. 2010 tax returns online This is because your neighbors rent the house as their main home under a shared equity financing agreement. 2010 tax returns online Example 3. 2010 tax returns online You own a rental property that you rent to your son. 2010 tax returns online Your son does not own any interest in this property. 2010 tax returns online He uses it as his main home and pays you a fair rental price. 2010 tax returns online Your son's use of the property is not personal use by you because your son is using it as his main home, he owns no interest in the property, and he is paying you a fair rental price. 2010 tax returns online Example 4. 2010 tax returns online You rent your beach house to Rosa. 2010 tax returns online Rosa rents her cabin in the mountains to you. 2010 tax returns online You each pay a fair rental price. 2010 tax returns online You are using your beach house for personal purposes on the days that Rosa uses it because your house is used by Rosa under an arrangement that allows you to use her cabin. 2010 tax returns online Example 5. 2010 tax returns online You rent an apartment to your mother at less than a fair rental price. 2010 tax returns online You are using the apartment for personal purposes on the days that your mother rents it because you rent it for less than a fair rental price. 2010 tax returns online Days used for repairs and maintenance. 2010 tax returns online   Any day that you spend working substantially full time repairing and maintaining (not improving) your property is not counted as a day of personal use. 2010 tax returns online Do not count such a day as a day of personal use even if family members use the property for recreational purposes on the same day. 2010 tax returns online Example. 2010 tax returns online Corey owns a cabin in the mountains that he rents for most of the year. 2010 tax returns online He spends a week at the cabin with family members. 2010 tax returns online Corey works on maintenance of the cabin 3 or 4 hours each day during the week and spends the rest of the time fishing, hiking, and relaxing. 2010 tax returns online Corey's family members, however, work substantially full time on the cabin each day during the week. 2010 tax returns online The main purpose of being at the cabin that week is to do maintenance work. 2010 tax returns online Therefore, the use of the cabin during the week by Corey and his family will not be considered personal use by Corey. 2010 tax returns online Days used as a main home before or after renting. 2010 tax returns online   For purposes of determining whether a dwelling unit was used as a home, you may not have to count days you used the property as your main home before or after renting it or offering it for rent as days of personal use. 2010 tax returns online Do not count them as days of personal use if: You rented or tried to rent the property for 12 or more consecutive months. 2010 tax returns online You rented or tried to rent the property for a period of less than 12 consecutive months and the period ended because you sold or exchanged the property. 2010 tax returns online However, this special rule does not apply when dividing expenses between rental and personal use. 2010 tax returns online See Property Changed to Rental Use in chapter 4. 2010 tax returns online Example 1. 2010 tax returns online On February 29, 2012, you moved out of the house you had lived in for 6 years because you accepted a job in another town. 2010 tax returns online You rented your house at a fair rental price from March 15, 2012, to May 14, 2013 (14 months). 2010 tax returns online On June 1, 2013, you moved back into your old house. 2010 tax returns online The days you used the house as your main home from January 1 to February 29, 2012, and from June 1 to December 31, 2013, are not counted as days of personal use. 2010 tax returns online Therefore, you would use the rules in chapter 1 when figuring your rental income and expenses. 2010 tax returns online Example 2. 2010 tax returns online On January 31, you moved out of the condominium where you had lived for 3 years. 2010 tax returns online You offered it for rent at a fair rental price beginning on February 1. 2010 tax returns online You were unable to rent it until April. 2010 tax returns online On September 15, you sold the condominium. 2010 tax returns online The days you used the condominium as your main home from January 1 to January 31 are not counted as days of personal use when determining whether you used it as a home. 2010 tax returns online Examples. 2010 tax returns online   The following examples show how to determine whether you used your rental property as a home. 2010 tax returns online Example 1. 2010 tax returns online You converted the basement of your home into an apartment with a bedroom, a bathroom, and a small kitchen. 2010 tax returns online You rented the basement apartment at a fair rental price to college students during the regular school year. 2010 tax returns online You rented to them on a 9-month lease (273 days). 2010 tax returns online You figured 10% of the total days rented to others at a fair rental price is 27 days. 2010 tax returns online During June (30 days), your brothers stayed with you and lived in the basement apartment rent free. 2010 tax returns online Your basement apartment was used as a home because you used it for personal purposes for 30 days. 2010 tax returns online Rent-free use by your brothers is considered personal use. 2010 tax returns online Your personal use (30 days) is more than the greater of 14 days or 10% of the total days it was rented (27 days). 2010 tax returns online Example 2. 2010 tax returns online You rented the guest bedroom in your home at a fair rental price during the local college's homecoming, commencement, and football weekends (a total of 27 days). 2010 tax returns online Your sister-in-law stayed in the room, rent free, for the last 3 weeks (21 days) in July. 2010 tax returns online You figured 10% of the total days rented to others at a fair rental price is 3 days. 2010 tax returns online The room was used as a home because you used it for personal purposes for 21 days. 2010 tax returns online That is more than the greater of 14 days or 10% of the 27 days it was rented (3 days). 2010 tax returns online Example 3. 2010 tax returns online You own a condominium apartment in a resort area. 2010 tax returns online You rented it at a fair rental price for a total of 170 days during the year. 2010 tax returns online For 12 of these days, the tenant was not able to use the apartment and allowed you to use it even though you did not refund any of the rent. 2010 tax returns online Your family actually used the apartment for 10 of those days. 2010 tax returns online Therefore, the apartment is treated as having been rented for 160 (170 – 10) days. 2010 tax returns online You figured 10% of the total days rented to others at a fair rental price is 16 days. 2010 tax returns online Your family also used the apartment for 7 other days during the year. 2010 tax returns online You used the apartment as a home because you used it for personal purposes for 17 days. 2010 tax returns online That is more than the greater of 14 days or 10% of the 160 days it was rented (16 days). 2010 tax returns online Minimal rental use. 2010 tax returns online   If you use the dwelling unit as a home and you rent it less than 15 days during the year, that period is not treated as rental activity. 2010 tax returns online See Used as a home but rented less than 15 days, later, for more information. 2010 tax returns online Limit on deductions. 2010 tax returns online   Renting a dwelling unit that is considered a home is not a passive activity. 2010 tax returns online Instead, if your rental expenses are more than your rental income, some or all of the excess expenses cannot be used to offset income from other sources. 2010 tax returns online The excess expenses that cannot be used to offset income from other sources are carried forward to the next year and treated as rental expenses for the same property. 2010 tax returns online Any expenses carried forward to the next year will be subject to any limits that apply for that year. 2010 tax returns online This limitation will apply to expenses carried forward to another year even if you do not use the property as your home for that subsequent year. 2010 tax returns online   To figure your deductible rental expenses for this year and any carryover to next year, use Worksheet 5–1. 2010 tax returns online Reporting Income and Deductions Property not used for personal purposes. 2010 tax returns online   If you do not use a dwelling unit for personal purposes, see chapter 3 for how to report your rental income and expenses. 2010 tax returns online Property used for personal purposes. 2010 tax returns online   If you do use a dwelling unit for personal purposes, then how you report your rental income and expenses depends on whether you used the dwelling unit as a home. 2010 tax returns online Not used as a home. 2010 tax returns online   If you use a dwelling unit for personal purposes, but not as a home, report all the rental income in your income. 2010 tax returns online Since you used the dwelling unit for personal purposes, you must divide your expenses between the rental use and the personal use as described earlier in this chapter under Dividing Expenses . 2010 tax returns online The expenses for personal use are not deductible as rental expenses. 2010 tax returns online   Your deductible rental expenses can be more than your gross rental income; however, see Limits on Rental Losses in chapter 3. 2010 tax returns online Used as a home but rented less than 15 days. 2010 tax returns online   If you use a dwelling unit as a home and you rent it less than 15 days during the year, its primary function is not considered to be rental and it should not be reported on Schedule E (Form 1040). 2010 tax returns online You are not required to report the rental income and rental expenses from this activity. 2010 tax returns online The expenses, including qualified mortgage interest, property taxes, and any qualified casualty loss will be reported as normally allowed on Schedule A (Form 1040). 2010 tax returns online See the Instructions for Schedule A (Form 1040) for more information on deducting these expenses. 2010 tax returns online Used as a home and rented 15 days or more. 2010 tax returns online   If you use a dwelling unit as a home and rent it 15 days or more during the year, include all your rental income in your income. 2010 tax returns online Since you used the dwelling unit for personal purposes, you must divide your expenses between the rental use and the personal use as described earlier in this chapter under Dividing Expenses . 2010 tax returns online The expenses for personal use are not deductible as rental expenses. 2010 tax returns online   If you had a net profit from renting the dwelling unit for the year (that is, if your rental income is more than the total of your rental expenses, including depreciation), deduct all of your rental expenses. 2010 tax returns online You do not need to use Worksheet 5-1. 2010 tax returns online   However, if you had a net loss from renting the dwelling unit for the year, your deduction for certain rental expenses is limited. 2010 tax returns online To figure your deductible rental expenses and any carryover to next year, use Worksheet 5–1. 2010 tax returns online Worksheet 5-1. 2010 tax returns online Worksheet for Figuring Rental Deductions for a Dwelling Unit Used as a Home Use this worksheet only if you answer “yes” to all of the following questions. 2010 tax returns online Did you use the dwelling unit as a home this year? (See Dwelling Unit Used as a Home . 2010 tax returns online ) Did you rent the dwelling unit at a fair rental price 15 days or more this year? Is the total of your rental expenses and depreciation more than your rental income? PART I. 2010 tax returns online Rental Use Percentage A. 2010 tax returns online Total days available for rent at fair rental price A. 2010 tax returns online       B. 2010 tax returns online Total days available for rent (line A) but not rented B. 2010 tax returns online       C. 2010 tax returns online Total days of rental use. 2010 tax returns online Subtract line B from line A C. 2010 tax returns online       D. 2010 tax returns online Total days of personal use (including days rented at less than fair rental price) D. 2010 tax returns online       E. 2010 tax returns online Total days of rental and personal use. 2010 tax returns online Add lines C and D E. 2010 tax returns online       F. 2010 tax returns online Percentage of expenses allowed for rental. 2010 tax returns online Divide line C by line E     F. 2010 tax returns online . 2010 tax returns online PART II. 2010 tax returns online Allowable Rental Expenses 1. 2010 tax returns online Enter rents received 1. 2010 tax returns online   2a. 2010 tax returns online Enter the rental portion of deductible home mortgage interest and qualified mortgage insurance premiums (see instructions) 2a. 2010 tax returns online       b. 2010 tax returns online Enter the rental portion of real estate taxes b. 2010 tax returns online       c. 2010 tax returns online Enter the rental portion of deductible casualty and theft losses (see instructions) c. 2010 tax returns online       d. 2010 tax returns online Enter direct rental expenses (see instructions) d. 2010 tax returns online       e. 2010 tax returns online Fully deductible rental expenses. 2010 tax returns online Add lines 2a–2d. 2010 tax returns online Enter here and  on the appropriate lines on Schedule E (see instructions) 2e. 2010 tax returns online   3. 2010 tax returns online Subtract line 2e from line 1. 2010 tax returns online If zero or less, enter -0- 3. 2010 tax returns online   4a. 2010 tax returns online Enter the rental portion of expenses directly related to operating or maintaining  the dwelling unit (such as repairs, insurance, and utilities) 4a. 2010 tax returns online       b. 2010 tax returns online Enter the rental portion of excess mortgage interest and qualified mortgage insurance premiums (see instructions) b. 2010 tax returns online       c. 2010 tax returns online Carryover of operating expenses from 2012 worksheet c. 2010 tax returns online       d. 2010 tax returns online Add lines 4a–4c d. 2010 tax returns online       e. 2010 tax returns online Allowable expenses. 2010 tax returns online Enter the smaller of line 3 or line 4d (see instructions) 4e. 2010 tax returns online   5. 2010 tax returns online Subtract line 4e from line 3. 2010 tax returns online If zero or less, enter -0- 5. 2010 tax returns online   6a. 2010 tax returns online Enter the rental portion of excess casualty and theft losses (see instructions) 6a. 2010 tax returns online       b. 2010 tax returns online Enter the rental portion of depreciation of the dwelling unit b. 2010 tax returns online       c. 2010 tax returns online Carryover of excess casualty losses and depreciation from 2012 worksheet c. 2010 tax returns online       d. 2010 tax returns online Add lines 6a–6c d. 2010 tax returns online       e. 2010 tax returns online Allowable excess casualty and theft losses and depreciation. 2010 tax returns online Enter the smaller of  line 5 or line 6d (see instructions) 6e. 2010 tax returns online   PART III. 2010 tax returns online Carryover of Unallowed Expenses to Next Year 7a. 2010 tax returns online Operating expenses to be carried over to next year. 2010 tax returns online Subtract line 4e from line 4d 7a. 2010 tax returns online   b. 2010 tax returns online Excess casualty and theft losses and depreciation to be carried over to next year. 2010 tax returns online  Subtract line 6e from line 6d b. 2010 tax returns online   Worksheet 5-1 Instructions. 2010 tax returns online Worksheet for Figuring Rental Deductions for a Dwelling Unit Used as a Home Caution. 2010 tax returns online Use the percentage determined in Part I, line F, to figure the rental portions to enter on lines 2a–2c, 4a–4b, and 6a–6b of  Part II. 2010 tax returns online Line 2a. 2010 tax returns online Figure the mortgage interest on the dwelling unit that you could deduct on Schedule A as if you had not rented the unit. 2010 tax returns online Do not include interest on a loan that did not benefit the dwelling unit. 2010 tax returns online For example, do not include interest on a home equity loan used to pay off credit cards or other personal loans, buy a car, or pay college tuition. 2010 tax returns online Include interest on a loan used to buy, build, or improve the dwelling unit, or to refinance such a loan. 2010 tax returns online Include the rental portion of this interest in the total you enter on line 2a of the worksheet. 2010 tax returns online   Figure the qualified mortgage insurance premiums on the dwelling unit that you could deduct on line 13 of Schedule A as if you had not rented the unit. 2010 tax returns online See the Schedule A instructions. 2010 tax returns online However, figure your adjusted gross income (Form 1040, line 38) without your rental income and expenses from the dwelling unit. 2010 tax returns online See Line 4b to deduct the part of the qualified mortgage insurance premiums not allowed because of the adjusted gross income limit. 2010 tax returns online Include the rental portion of the amount from Schedule A, line 13, in the total you enter on line 2a of the worksheet. 2010 tax returns online   Note. 2010 tax returns online Do not file this Schedule A or use it to figure the amount to deduct on line 13 of that schedule. 2010 tax returns online Instead, figure the personal portion on a separate Schedule A. 2010 tax returns online If you have deducted mortgage interest or qualified mortgage insurance premiums on the dwelling unit on other forms, such as Schedule C or F, remember to reduce your Schedule A deduction by that amount. 2010 tax returns online           Line 2c. 2010 tax returns online Figure the casualty and theft losses related to the dwelling unit that you could deduct on Schedule A as if you had not rented the dwelling unit. 2010 tax returns online To do this, complete Section A of Form 4684, Casualties and Thefts, treating the losses as personal losses. 2010 tax returns online If any of the loss is due to a federally declared disaster, see the Instructions for Form 4684. 2010 tax returns online On Form 4684, line 17, enter 10% of your adjusted gross income figured without your rental income and expenses from the dwelling unit. 2010 tax returns online Enter the rental portion of the result from Form 4684, line 18, on line 2c of this worksheet. 2010 tax returns online   Note. 2010 tax returns online Do not file this Form 4684 or use it to figure your personal losses on Schedule A. 2010 tax returns online Instead, figure the personal portion on a separate Form 4684. 2010 tax returns online           Line 2d. 2010 tax returns online Enter the total of your rental expenses that are directly related only to the rental activity. 2010 tax returns online These include interest on loans used for rental activities other than to buy, build, or improve the dwelling unit. 2010 tax returns online Also include rental agency fees, advertising, office supplies, and depreciation on office equipment used in your rental activity. 2010 tax returns online           Line 2e. 2010 tax returns online You can deduct the amounts on lines 2a, 2b, 2c, and 2d as rental expenses on Schedule E even if your rental expenses are more than your rental income. 2010 tax returns online Enter the amounts on lines 2a, 2b, 2c, and 2d on the appropriate lines of Schedule E. 2010 tax returns online           Line 4b. 2010 tax returns online On line 2a, you entered the rental portion of the mortgage interest or qualified mortgage insurance premiums you could deduct on Schedule A if you had not rented the dwelling unit. 2010 tax returns online If you had additional mortgage interest and qualified mortgage insurance premiums that would not be deductible on Schedule A because of limits imposed on them, enter on line 4b of this worksheet the rental portion of those excess amounts. 2010 tax returns online Do not include interest on a loan that did not benefit the dwelling unit  (as explained in the line 2a instructions). 2010 tax returns online           Line 4e. 2010 tax returns online You can deduct the amounts on lines 4a, 4b, and 4c as rental expenses on Schedule E only to the extent they are not more than the amount on line 4e. 2010 tax returns online *           Line 6a. 2010 tax returns online To find the rental portion of excess casualty and theft losses, use the Form 4684 you prepared for line 2c of this worksheet. 2010 tax returns online   A. 2010 tax returns online Enter the amount from Form 4684, line 10       B. 2010 tax returns online Enter the rental portion of line A       C. 2010 tax returns online Enter the amount from line 2c of this worksheet       D. 2010 tax returns online Subtract line C from line B. 2010 tax returns online Enter the result here and on line 6a of this worksheet               Line 6e. 2010 tax returns online You can deduct the amounts on lines 6a, 6b, and 6c as rental expenses on Schedule E only to the extent they are not more than the amount on line 6e. 2010 tax returns online * *Allocating the limited deduction. 2010 tax returns online If you cannot deduct all of the amount on line 4d or 6d this year, you can allocate the allowable deduction in any way you wish among the expenses included on line 4d or 6d. 2010 tax returns online Enter the amount you allocate to each expense on the appropriate line of Schedule E, Part I. 2010 tax returns online Prev  Up  Next   Home   More Online Publications