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H&r Block Taxcut

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H&r Block Taxcut

H&r block taxcut Publication 972 - Introductory Material Table of Contents Future Developments Reminder IntroductionOrdering forms and publications. H&r block taxcut Tax questions. H&r block taxcut Future Developments For the latest information about developments related to Publication 972, such as legislation enacted after it was published, go to www. H&r block taxcut irs. H&r block taxcut gov/pub972. H&r block taxcut Reminder Photographs of missing children. H&r block taxcut  The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. H&r block taxcut Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. H&r block taxcut You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. H&r block taxcut Introduction The purpose of this publication is: To figure the child tax credit you claim on Form 1040, line 51; Form 1040A, line 33; or Form 1040NR, line 48; and To figure the amount of earned income you enter on line 4a of Schedule 8812 (Form 1040A or 1040), Child Tax Credit. H&r block taxcut This publication is intended primarily for individuals sent here by the instructions to Forms 1040, 1040A, or 1040NR, or Schedule 8812. H&r block taxcut Even if you were not sent here by the instructions to one of the forms or the schedule, you can still choose to use this publication to figure your credit. H&r block taxcut However, most individuals can use a simpler worksheet in their tax form instructions. H&r block taxcut If you were sent here from your Form 1040, Form 1040A, or Form 1040NR instructions. H&r block taxcut   Complete the Child Tax Credit Worksheet , later in this publication. H&r block taxcut If you were sent here from your Schedule 8812 instructions. H&r block taxcut   Complete the 1040 and 1040NR Filers — Earned Income Worksheet , later in this publication. H&r block taxcut If you have not read your Form 1040, Form 1040A, or Form 1040NR instructions. H&r block taxcut   Read the explanation of who must use this publication next. H&r block taxcut If you find that you are not required to use this publication to figure your child tax credit, you can use the simpler worksheet in the Form 1040, Form 1040A, or Form 1040NR instructions to figure your credit. H&r block taxcut Who must use this publication. H&r block taxcut   If you answer “Yes” to either of the following questions, you must use this publication to figure your child tax credit. H&r block taxcut Are you excluding income from Puerto Rico or filing any of the following forms? Form 2555 or 2555-EZ (relating to foreign earned income). H&r block taxcut Form 4563 (exclusion of income for residents of American Samoa). H&r block taxcut Are you claiming any of the following credits? Mortgage interest credit, Form 8396. H&r block taxcut Adoption credit, Form 8839. H&r block taxcut Residential energy efficient property credit, Form 5695, Part I. H&r block taxcut District of Columbia first-time homebuyer credit, Form 8859. H&r block taxcut Comments and suggestions. H&r block taxcut   We welcome your comments about this publication and your suggestions for future editions. H&r block taxcut   You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. H&r block taxcut NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. H&r block taxcut Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. H&r block taxcut   You can send your comments from www. H&r block taxcut irs. H&r block taxcut gov/formspubs/. H&r block taxcut Click on “More Information” and then on “Comment on Tax Forms and Publications. H&r block taxcut ”   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. H&r block taxcut Ordering forms and publications. H&r block taxcut   Visit www. H&r block taxcut irs. H&r block taxcut gov/formspubs/ to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received. H&r block taxcut Internal Revenue Service 1201 N. H&r block taxcut Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. H&r block taxcut   If you have a tax question, check the information available on IRS. H&r block taxcut gov or call 1-800-829-1040. H&r block taxcut We cannot answer tax questions sent to either of the above addresses. H&r block taxcut Prev  Up  Next   Home   More Online Publications
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The H&r Block Taxcut

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