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How To Fill 1040nr

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How To Fill 1040nr

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The How To Fill 1040nr

How to fill 1040nr 4. How to fill 1040nr   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. How to fill 1040nr Example—Property Changed to Rental Use This chapter discusses some rental real estate activities that are subject to additional rules. How to fill 1040nr 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. How to fill 1040nr If you own a condominium, you also own a share of the common elements, such as land, lobbies, elevators, and service areas. How to fill 1040nr 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. How to fill 1040nr Special rules apply if you rent your condominium to others. How to fill 1040nr You can deduct as rental expenses all the expenses discussed in chapters 1 and 2. How to fill 1040nr In addition, you can deduct any dues or assessments paid for maintenance of the common elements. How to fill 1040nr You cannot deduct special assessments you pay to a condominium management corporation for improvements. How to fill 1040nr However, you may be able to recover your share of the cost of any improvement by taking depreciation. How to fill 1040nr Cooperatives If you live in a cooperative, you do not own your apartment. How to fill 1040nr Instead, a corporation owns the apartments and you are a tenant-stockholder in the cooperative housing corporation. How to fill 1040nr 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. How to fill 1040nr 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. How to fill 1040nr Depreciation You will be depreciating your stock in the corporation rather than the apartment itself. How to fill 1040nr Figure your depreciation deduction as follows. How to fill 1040nr Figure the depreciation for all the depreciable real property owned by the corporation. How to fill 1040nr (Depreciation methods are discussed in chapter 2 of this publication and Publication 946. How to fill 1040nr ) If you bought your cooperative stock after its first offering, figure the depreciable basis of this property as follows. How to fill 1040nr Multiply your cost per share by the total number of outstanding shares. How to fill 1040nr Add to the amount figured in (a) any mortgage debt on the property on the date you bought the stock. How to fill 1040nr 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. How to fill 1040nr 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. How to fill 1040nr Divide the number of your shares of stock by the total number of shares outstanding, including any shares held by the corporation. How to fill 1040nr Multiply the result of (2) by the percentage you figured in (3). How to fill 1040nr This is your depreciation on the stock. How to fill 1040nr 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. How to fill 1040nr Payments added to capital account. How to fill 1040nr   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. How to fill 1040nr 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. How to fill 1040nr   Treat as a capital cost the amount you were assessed for capital items. How to fill 1040nr 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. How to fill 1040nr   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. How to fill 1040nr Otherwise, figure your share in the following manner. How to fill 1040nr Divide the number of your shares of stock by the total number of shares outstanding, including any shares held by the corporation. How to fill 1040nr Multiply the corporation's deductible interest by the number you figured in (1). How to fill 1040nr This is your share of the interest. How to fill 1040nr Multiply the corporation's deductible taxes by the number you figured in (1). How to fill 1040nr This is your share of the taxes. How to fill 1040nr 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. How to fill 1040nr 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. How to fill 1040nr You cannot deduct depreciation or insurance for the part of the year the property was held for personal use. How to fill 1040nr 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). How to fill 1040nr Example. How to fill 1040nr Your tax year is the calendar year. How to fill 1040nr You moved from your home in May and started renting it out on June 1. How to fill 1040nr You can deduct as rental expenses seven-twelfths of your yearly expenses, such as taxes and insurance. How to fill 1040nr Starting with June, you can deduct as rental expenses the amounts you pay for items generally billed monthly, such as utilities. How to fill 1040nr When figuring depreciation, treat the property as placed in service on June 1. How to fill 1040nr 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. How to fill 1040nr Fair market value. How to fill 1040nr   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. How to fill 1040nr Sales of similar property, on or about the same date, may be helpful in figuring the fair market value of the property. How to fill 1040nr Figuring the basis. How to fill 1040nr   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. How to fill 1040nr For other increases and decreases to basis, see Adjusted Basis in chapter 2. How to fill 1040nr Example. How to fill 1040nr Several years ago you built your home for $140,000 on a lot that cost you $14,000. How to fill 1040nr 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. How to fill 1040nr Part of the improvements qualified for a $500 residential energy credit, which you claimed on your 2010 tax return. How to fill 1040nr Because land is not depreciable, you can only include the cost of the house when figuring the basis for depreciation. How to fill 1040nr 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). How to fill 1040nr 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. How to fill 1040nr 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). How to fill 1040nr Cooperatives If you change your cooperative apartment to rental use, figure your allowable depreciation as explained earlier. How to fill 1040nr (Depreciation methods are discussed in chapter 2 of this publication and Publication 946. How to fill 1040nr ) The basis of all the depreciable real property owned by the cooperative housing corporation is the smaller of the following amounts. How to fill 1040nr The fair market value of the property on the date you change your apartment to rental use. How to fill 1040nr This is considered to be the same as the corporation's adjusted basis minus straight line depreciation, unless this value is unrealistic. How to fill 1040nr The corporation's adjusted basis in the property on that date. How to fill 1040nr Do not subtract depreciation when figuring the corporation's adjusted basis. How to fill 1040nr 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). How to fill 1040nr 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. How to fill 1040nr Figuring the Depreciation Deduction To figure the deduction, use the depreciation system in effect when you convert your residence to rental use. How to fill 1040nr Generally, that will be MACRS for any conversion after 1986. How to fill 1040nr Treat the property as placed in service on the conversion date. How to fill 1040nr Example. How to fill 1040nr Your converted residence (see previous example under Figuring the basis) was available for rent on August 1. How to fill 1040nr Using Table 2-2d (see chapter 2), the percentage for Year 1 beginning in August is 1. How to fill 1040nr 364% and the depreciation deduction for Year 1 is $2,005 ($147,000 × . How to fill 1040nr 01364). How to fill 1040nr 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. How to fill 1040nr 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). How to fill 1040nr 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. How to fill 1040nr There is no change in the types of expenses deductible for the personal-use part of your property. How to fill 1040nr Generally, these expenses may be deducted only if you itemize your deductions on Schedule A (Form 1040). How to fill 1040nr You cannot deduct any part of the cost of the first phone line even if your tenants have unlimited use of it. How to fill 1040nr You do not have to divide the expenses that belong only to the rental part of your property. How to fill 1040nr 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. How to fill 1040nr 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. How to fill 1040nr 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. How to fill 1040nr How to divide expenses. How to fill 1040nr   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. How to fill 1040nr You can use any reasonable method for dividing the expense. How to fill 1040nr It may be reasonable to divide the cost of some items (for example, water) based on the number of people using them. How to fill 1040nr 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. How to fill 1040nr Example. How to fill 1040nr You rent a room in your house. How to fill 1040nr The room is 12 × 15 feet, or 180 square feet. How to fill 1040nr Your entire house has 1,800 square feet of floor space. How to fill 1040nr You can deduct as a rental expense 10% of any expense that must be divided between rental use and personal use. How to fill 1040nr If your heating bill for the year for the entire house was $600, $60 ($600 × . How to fill 1040nr 10) is a rental expense. How to fill 1040nr The balance, $540, is a personal expense that you cannot deduct. How to fill 1040nr Duplex. How to fill 1040nr   A common situation is the duplex where you live in one unit and rent out the other. How to fill 1040nr 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. How to fill 1040nr Example. How to fill 1040nr You own a duplex and live in one half, renting the other half. How to fill 1040nr Both units are approximately the same size. How to fill 1040nr Last year, you paid a total of $10,000 mortgage interest and $2,000 real estate taxes for the entire property. How to fill 1040nr 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). How to fill 1040nr 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. How to fill 1040nr 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. How to fill 1040nr Where to report. How to fill 1040nr   Report your not-for-profit rental income on Form 1040 or 1040NR, line 21. How to fill 1040nr 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. How to fill 1040nr   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. How to fill 1040nr You can deduct these expenses only if they, together with certain other miscellaneous itemized deductions, total more than 2% of your adjusted gross income. How to fill 1040nr Presumption of profit. How to fill 1040nr   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. How to fill 1040nr Postponing decision. How to fill 1040nr   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. How to fill 1040nr You may choose to postpone the decision of whether the rental is for profit by filing Form 5213. How to fill 1040nr 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. How to fill 1040nr More information. How to fill 1040nr   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. How to fill 1040nr Example—Property Changed to Rental Use In January, Eileen Johnson bought a condominium apartment to live in. How to fill 1040nr Instead of selling the house she had been living in, she decided to change it to rental property. How to fill 1040nr Eileen selected a tenant and started renting the house on February 1. How to fill 1040nr Eileen charges $750 a month for rent and collects it herself. How to fill 1040nr Eileen also received a $750 security deposit from her tenant. How to fill 1040nr Because she plans to return it to her tenant at the end of the lease, she does not include it in her income. How to fill 1040nr Her rental expenses for the year are as follows. How to fill 1040nr   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. How to fill 1040nr She can deduct eleven-twelfths of these expenses as rental expenses. How to fill 1040nr She can include the balance of the allowable taxes and mortgage interest on Schedule A (Form 1040) if she itemizes. How to fill 1040nr She cannot deduct the balance of the fire insurance because it is a personal expense. How to fill 1040nr Eileen bought this house in 1984 for $35,000. How to fill 1040nr Her property tax was based on assessed values of $10,000 for the land and $25,000 for the house. How to fill 1040nr Before changing it to rental property, Eileen added several improvements to the house. How to fill 1040nr 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. How to fill 1040nr Of this amount, $35,000 was for the land and $117,000 was for the house. How to fill 1040nr 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. How to fill 1040nr As specified for residential rental property, Eileen must use the straight line method of depreciation over the GDS or ADS recovery period. How to fill 1040nr She chooses the GDS recovery period of 27. How to fill 1040nr 5 years. How to fill 1040nr She uses Table 2-2d to find her depreciation percentage. How to fill 1040nr Since she placed the property in service in February, the percentage is 3. How to fill 1040nr 182%. How to fill 1040nr On April 1, Eileen bought a new dishwasher for the rental property at a cost of $425. How to fill 1040nr The dishwasher is personal property used in a rental real estate activity, which has a 5-year recovery period. How to fill 1040nr She uses Table 2-2a to find the percentage for Year 1 under “Half-year convention” (20%) to figure her depreciation deduction. How to fill 1040nr On May 1, Eileen paid $4,000 to have a furnace installed in the house. How to fill 1040nr The furnace is residential rental property. How to fill 1040nr Because she placed the property in service in May, the percentage from Table 2-2d is 2. How to fill 1040nr 273%. How to fill 1040nr 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 × . How to fill 1040nr 03182) $1,241   Dishwasher ($425 × . How to fill 1040nr 20) 85   Furnace ($4,000 × . How to fill 1040nr 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. How to fill 1040nr She enters her income, expenses, and depreciation for the house in the column for Property A. How to fill 1040nr Since all property was placed in service this year, Eileen must use Form 4562 to figure the depreciation. How to fill 1040nr See the Instructions for Form 4562 for more information on preparing the form. How to fill 1040nr Prev  Up  Next   Home   More Online Publications