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Hr Block Free State Return

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Hr Block Free State Return

Hr block free state return 6. Hr block free state return   Tip Income Table of Contents Introduction Useful Items - You may want to see: Keeping a Daily Tip RecordElectronic tip record. Hr block free state return Reporting Tips to Your EmployerElectronic tip statement. Hr block free state return Final report. Hr block free state return Reporting Tips on Your Tax Return Allocated Tips Introduction This chapter is for employees who receive tips. Hr block free state return All tips you receive are income and are subject to federal income tax. Hr block free state return You must include in gross income all tips you receive directly, charged tips paid to you by your employer, and your share of any tips you receive under a tip-splitting or tip-pooling arrangement. Hr block free state return The value of noncash tips, such as tickets, passes, or other items of value, is also income and subject to tax. Hr block free state return Reporting your tip income correctly is not difficult. Hr block free state return You must do three things. Hr block free state return Keep a daily tip record. Hr block free state return Report tips to your employer. Hr block free state return Report all your tips on your income tax return. Hr block free state return  This chapter will explain these three things and show you what to do on your tax return if you have not done the first two. Hr block free state return This chapter will also show you how to treat allocated tips. Hr block free state return For information on special tip programs and agreements, see Publication 531. Hr block free state return Useful Items - You may want to see: Publication 531 Reporting Tip Income 1244 Employee's Daily Record of Tips and Report to Employer Form (and Instructions) 4137 Social Security and Medicare Tax on Unreported Tip Income 4070 Employee's Report of Tips to Employer Keeping a Daily Tip Record Why keep a daily tip record. Hr block free state return   You must keep a daily tip record so you can: Report your tips accurately to your employer, Report your tips accurately on your tax return, and Prove your tip income if your return is ever questioned. Hr block free state return How to keep a daily tip record. Hr block free state return   There are two ways to keep a daily tip record. Hr block free state return You can either: Write information about your tips in a tip diary, or Keep copies of documents that show your tips, such as restaurant bills and credit or debit card charge slips. Hr block free state return You should keep your daily tip record with your tax or other personal records. Hr block free state return You must keep your records for as long as they are important for administration of the federal tax law. Hr block free state return For information on how long to keep records, see How long to keep records in chapter 1. Hr block free state return    If you keep a tip diary, you can use Form 4070A, Employee's Daily Record of Tips. Hr block free state return To get Form 4070A, ask the Internal Revenue Service (IRS) or your employer for Publication 1244. Hr block free state return Also, Publication 1244 is available online at www. Hr block free state return irs. Hr block free state return gov/pub/irs-pdf/p1244. Hr block free state return pdf. Hr block free state return Publication 1244 includes a 1-year supply of Form 4070A. Hr block free state return Each day, write in the information asked for on the form. Hr block free state return   In addition to the information asked for on Form 4070A, you also need to keep a record of the date and value of any noncash tips you get, such as tickets, passes, or other items of value. Hr block free state return Although you do not report these tips to your employer, you must report them on your tax return. Hr block free state return   If you do not use Form 4070A, start your records by writing your name, your employer's name, and the name of the business (if it is different from your employer's name). Hr block free state return Then, each workday, write the date and the following information. Hr block free state return Cash tips you get directly from customers or from other employees. Hr block free state return Tips from credit and debit card charge customers that your employer pays you. Hr block free state return The value of any noncash tips you get, such as tickets, passes, or other items of value. Hr block free state return The amount of tips you paid out to other employees through tip pools or tip splitting, or other arrangements, and the names of the employees to whom you paid the tips. Hr block free state return Electronic tip record. Hr block free state return   You can use an electronic system provided by your employer to record your daily tips. Hr block free state return If you do, you must receive and keep a paper copy of this record. Hr block free state return Service charges. Hr block free state return    Do not write in your tip diary the amount of any service charge that your employer adds to a customer's bill and then pays to you and treats as wages. Hr block free state return This is part of your wages, not a tip. Hr block free state return See examples below. Hr block free state return Example 1. Hr block free state return Good Food Restaurant adds an 18% charge to the bill for parties of 6 or more customers. Hr block free state return Jane’s bill for food and beverages for her party of 8 includes an amount on the tip line equal to 18% of the charges for food and beverages, and the total includes this amount. Hr block free state return Because Jane did not have an unrestricted right to determine the amount on the “tip line,” the 18% charge is considered a service charge. Hr block free state return Do not include the 18% charge in your tip diary. Hr block free state return Service charges that are paid to you are considered wages, not tips. Hr block free state return Example 2. Hr block free state return Good Food Restaurant also includes sample calculations of tip amounts at the bottom of its bills for food and beverages provided to customers. Hr block free state return David’s bill includes a blank “tip line,” with sample tip calculations of 15%, 18%, and 20% of his charges for food and beverages at the bottom of the bill beneath the signature line. Hr block free state return Because David is free to enter any amount on the “tip line” or leave it blank, any amount he includes is considered a tip. Hr block free state return Be sure to include this amount in your tip diary. Hr block free state return Reporting Tips to Your Employer Why report tips to your employer. Hr block free state return   You must report tips to your employer so that: Your employer can withhold federal income tax and social security, Medicare, Additional Medicare, or railroad retirement taxes, Your employer can report the correct amount of your earnings to the Social Security Administration or Railroad Retirement Board (which affects your benefits when you retire or if you become disabled, or your family's benefits if you die), and You can avoid the penalty for not reporting tips to your employer (explained later). Hr block free state return What tips to report. Hr block free state return   Report to your employer only cash, check, and debit and credit card tips you receive. Hr block free state return   If your total tips for any 1 month from any one job are less than $20, do not report the tips for that month to that employer. Hr block free state return   If you participate in a tip-splitting or tip-pooling arrangement, report only the tips you receive and retain. Hr block free state return Do not report to your employer any portion of the tips you receive that you pass on to other employees. Hr block free state return However, you must report tips you receive from other employees. Hr block free state return    Do not report the value of any noncash tips, such as tickets or passes, to your employer. Hr block free state return You do not pay social security, Medicare, Additional Medicare or railroad retirement taxes on these tips. Hr block free state return How to report. Hr block free state return    If your employer does not give you any other way to report tips, you can use Form 4070. Hr block free state return Fill in the information asked for on the form, sign and date the form, and give it to your employer. Hr block free state return To get a 1-year supply of the form, ask the IRS or your employer for Publication 1244. Hr block free state return   If you do not use Form 4070, give your employer a statement with the following information. Hr block free state return Your name, address, and social security number. Hr block free state return Your employer's name, address, and business name (if it is different from your employer's name). Hr block free state return The month (or the dates of any shorter period) in which you received tips. Hr block free state return The total tips required to be reported for that period. Hr block free state return You must sign and date the statement. Hr block free state return Be sure to keep a copy with your tax or other personal records. Hr block free state return   Your employer may require you to report your tips more than once a month. Hr block free state return However, the statement cannot cover a period of more than 1 calendar month. Hr block free state return Electronic tip statement. Hr block free state return   Your employer can have you furnish your tip statements electronically. Hr block free state return When to report. Hr block free state return   Give your report for each month to your employer by the 10th of the next month. Hr block free state return If the 10th falls on a Saturday, Sunday, or legal holiday, give your employer the report by the next day that is not a Saturday, Sunday, or legal holiday. Hr block free state return Example. Hr block free state return You must report your tips received in September 2014 by October 10, 2014. Hr block free state return Final report. Hr block free state return   If your employment ends during the month, you can report your tips when your employment ends. Hr block free state return Penalty for not reporting tips. Hr block free state return   If you do not report tips to your employer as required, you may be subject to a penalty equal to 50% of the social security, Medicare, and Additional Medicare taxes or railroad retirement tax you owe on the unreported tips. Hr block free state return (For information about these taxes, see Reporting social security, Medicare, Additional Medicare, or railroad retirement taxes on tips not reported to your employer under Reporting Tips on Your Tax Return, later. Hr block free state return ) The penalty amount is in addition to the taxes you owe. Hr block free state return   You can avoid this penalty if you can show reasonable cause for not reporting the tips to your employer. Hr block free state return To do so, attach a statement to your return explaining why you did not report them. Hr block free state return Giving your employer money for taxes. Hr block free state return   Your regular pay may not be enough for your employer to withhold all the taxes you owe on your regular pay plus your reported tips. Hr block free state return If this happens, you can give your employer money until the close of the calendar year to pay the rest of the taxes. Hr block free state return   If you do not give your employer enough money, your employer will apply your regular pay and any money you give in the following order. Hr block free state return All taxes on your regular pay. Hr block free state return Social security, Medicare, and Additional Medicare taxes or railroad retirement taxes on your reported tips. Hr block free state return Federal, state, and local income taxes on your reported tips. Hr block free state return    Any taxes that remain unpaid can be collected by your employer from your next paycheck. Hr block free state return If withholding taxes remain uncollected at the end of the year, you may be subject to a penalty for underpayment of estimated taxes. Hr block free state return See Publication 505, Tax Withholding and Estimated Tax, for more information. Hr block free state return    Uncollected taxes. Hr block free state return You must report on your tax return any social security and Medicare taxes or railroad retirement tax that remained uncollected at the end of 2013. Hr block free state return These uncollected taxes will be shown on your 2013 Form W-2. Hr block free state return See Reporting uncollected social security, Medicare, or railroad retirement taxes on tips reported to your employer under Reporting Tips on Your Tax Return, later. Hr block free state return Reporting Tips on Your Tax Return How to report tips. Hr block free state return    Report your tips with your wages on Form 1040, line 7; Form 1040A, line 7; or Form 1040EZ, line 1. Hr block free state return What tips to report. Hr block free state return   You must report all tips you received in 2013 on your tax return, including both cash tips and noncash tips. Hr block free state return Any tips you reported to your employer for 2013 are included in the wages shown in box 1 of your Form W-2. Hr block free state return Add to the amount in box 1 only the tips you did not report to your employer. Hr block free state return    If you received $20 or more in cash and charge tips in a month and did not report all of those tips to your employer, see Reporting social security, Medicare, Additional Medicare, or railroad retirement taxes on tips not reported to your employer, later. Hr block free state return    If you did not keep a daily tip record as required and an amount is shown in box 8 of your Form W-2, see Allocated Tips, later. Hr block free state return   If you kept a daily tip record and reported tips to your employer as required under the rules explained earlier, add the following tips to the amount in box 1 of your Form W-2. Hr block free state return Cash and charge tips you received that totaled less than $20 for any month. Hr block free state return The value of noncash tips, such as tickets, passes, or other items of value. Hr block free state return Example. Hr block free state return Ben Smith began working at the Blue Ocean Restaurant (his only employer in 2013) on June 30 and received $10,000 in wages during the year. Hr block free state return Ben kept a daily tip record showing that his tips for June were $18 and his tips for the rest of the year totaled $7,000. Hr block free state return He was not required to report his June tips to his employer, but he reported all of the rest of his tips to his employer as required. Hr block free state return Ben's Form W-2 from Blue Ocean Restaurant shows $17,000 ($10,000 wages plus $7,000 reported tips) in box 1. Hr block free state return He adds the $18 unreported tips to that amount and reports $17,018 as wages on his tax return. Hr block free state return Reporting social security, Medicare, Additional Medicare, or railroad retirement taxes on tips not reported to your employer. Hr block free state return    If you received $20 or more in cash and charge tips in a month from any one job and did not report all of those tips to your employer, you must report the social security, Medicare, and Additional Medicare taxes on the unreported tips as additional tax on your return. Hr block free state return To report these taxes, you must file a return even if you would not otherwise have to file. Hr block free state return You must use Form 1040. Hr block free state return (You cannot file Form 1040EZ or Form 1040A. Hr block free state return )    Use Form 4137 to figure social security and Medicare taxes. Hr block free state return Enter the tax on your return as instructed, and attach the completed Form 4137 to your return. Hr block free state return Use Form 8959 to figure Additional Medicare Tax. Hr block free state return    If you are subject to the Railroad Retirement Tax Act, you cannot use Form 4137 to pay railroad retirement tax on unreported tips. Hr block free state return To get railroad retirement credit, you must report tips to your employer. Hr block free state return Reporting uncollected social security, Medicare, or railroad retirement taxes on tips reported to your employer. Hr block free state return   You may have uncollected taxes if your regular pay was not enough for your employer to withhold all the taxes you owe and you did not give your employer enough money to pay the rest of the taxes. Hr block free state return For more information, see Giving your employer money for taxes , under Reporting Tips to Your Employer, earlier. Hr block free state return   If your employer could not collect all the social security and Medicare taxes or railroad retirement tax you owe on tips reported for 2013, the uncollected taxes will be shown in box 12 of your Form W-2 (codes A and B). Hr block free state return You must report these amounts as additional tax on your return. Hr block free state return Unlike the uncollected portion of the regular (1. Hr block free state return 45%) Medicare tax, the uncollected Additional Medicare Tax is not reported in box 12 of Form W-2 with code B. Hr block free state return    To report these uncollected taxes, you must file a return even if you would not otherwise have to file. Hr block free state return You must report these taxes on Form 1040, line 60. Hr block free state return See the instructions for Form 1040, line 60. Hr block free state return (You cannot file Form 1040EZ or Form 1040A. Hr block free state return ) Allocated Tips If your employer allocated tips to you, they are shown separately in box 8 of your Form W-2. Hr block free state return They are not included in box 1 with your wages and reported tips. Hr block free state return If box 8 is blank, this discussion does not apply to you. Hr block free state return What are allocated tips. Hr block free state return   These are tips that your employer assigned to you in addition to the tips you reported to your employer for the year. Hr block free state return Your employer will have done this only if: You worked in an establishment (restaurant, cocktail lounge, or similar business) that must allocate tips to employees, and The tips you reported to your employer were less than your share of 8% of food and drink sales. Hr block free state return No income, social security, Medicare, Additional Medicare or railroad retirement taxes are withheld on allocated tips. Hr block free state return How were your allocated tips figured. Hr block free state return   The tips allocated to you are your share of an amount figured by subtracting the reported tips of all employees from 8% (or an approved lower rate) of food and drink sales (other than carryout sales and sales with a service charge of 10% or more). Hr block free state return Your share of that amount was figured using either a method provided by an employer-employee agreement or a method provided by IRS regulations based on employees' sales or hours worked. Hr block free state return For information about the exact allocation method used, ask your employer. Hr block free state return Must you report your allocated tips on your tax return. Hr block free state return   You must report all tips you received in 2013 on your tax return, including both cash tips and noncash tips. Hr block free state return Any tips you reported to your employer for 2013 are included in the wages shown in box 1 of your Form W-2. Hr block free state return Add to the amount in box 1 only the tips you did not report to your employer. Hr block free state return This should include any allocated tips shown in box 8 on your Form(s) W-2, unless you have adequate records to show that you received less tips in the year than the allocated figures. Hr block free state return   See What tips to report under Reporting Tips on Your Tax Return, and Keeping a Daily Tip Record , earlier. Hr block free state return How to report allocated tips. Hr block free state return   Report the amount in box 1 and the allocated tips in box 8 of your Form(s) W-2 as wages on Form 1040, line 7; Form 1040NR, line 8; or Form 1040NR-EZ, line 3. Hr block free state return (You cannot file Form 1040A or Form 1040EZ when you have allocated tips. Hr block free state return )    Because social security, Medicare, and Additional Medicare taxes were not withheld from the allocated tips, you must report those taxes as additional tax on your return. Hr block free state return Complete Form 4137, and include the allocated tips on line 1 of the form. Hr block free state return See Reporting social security, Medicare, Additional Medicare, or railroad retirement taxes on tips not reported to your employer under Reporting Tips on Your Tax Return, earlier. 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What to Expect for Refunds in 2014

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You will get personalized refund information based on the processing of your tax return. The tool will provide an actual refund date as soon as the IRS processes your tax return and approves your refund. Remember, most refunds will be issued in less than 21 days, and our phone and walk-in representatives can research the status of your refund only if it’s been 21 days or more since you filed electronically or more than 6 weeks since you mailed your paper return.

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The Hr Block Free State Return

Hr block free state return 1. Hr block free state return   Rental Income and Expenses (If No Personal Use of Dwelling) Table of Contents Rental IncomeWhen To Report Types of Income Rental ExpensesWhen To Deduct Types of Expenses This chapter discusses the various types of rental income and expenses for a residential rental activity with no personal use of the dwelling. Hr block free state return Generally, each year you will report all income and deduct all out-of-pocket expenses in full. Hr block free state return The deduction to recover the cost of your rental property—depreciation—is taken over a prescribed number of years, and is discussed in chapter 2, Depreciation of Rental Property. Hr block free state return If your rental income is from property you also use personally or rent to someone at less than a fair rental price, first read the information in chapter 5 , Personal Use of Dwelling Unit (Including Vacation Home). Hr block free state return Rental Income In most cases, you must include in your gross income all amounts you receive as rent. Hr block free state return Rental income is any payment you receive for the use or occupation of property. Hr block free state return In addition to amounts you receive as normal rental payments, there are other amounts that may be rental income. Hr block free state return When To Report When you report rental income on your tax return generally depends on whether you are a cash basis taxpayer or use an accrual method. Hr block free state return Most individual taxpayers use the cash method. Hr block free state return Cash method. Hr block free state return   You are a cash basis taxpayer if you report income on your return in the year you actually or constructively receive it, regardless of when it was earned. Hr block free state return You constructively receive income when it is made available to you, for example, by being credited to your bank account. Hr block free state return Accrual method. Hr block free state return    If you are an accrual basis taxpayer, you generally report income when you earn it, rather than when you receive it. Hr block free state return You generally deduct your expenses when you incur them, rather than when you pay them. Hr block free state return More information. Hr block free state return   See Publication 538, Accounting Periods and Methods, for more information about when you constructively receive income and accrual methods of accounting. Hr block free state return Types of Income The following are common types of rental income. Hr block free state return Advance rent. Hr block free state return   Advance rent is any amount you receive before the period that it covers. Hr block free state return Include advance rent in your rental income in the year you receive it regardless of the period covered or the method of accounting you use. Hr block free state return Example. Hr block free state return On March 18, 2013, you signed a 10-year lease to rent your property. Hr block free state return During 2013, you received $9,600 for the first year's rent and $9,600 as rent for the last year of the lease. Hr block free state return You must include $19,200 in your rental income in the first year. Hr block free state return Canceling a lease. Hr block free state return   If your tenant pays you to cancel a lease, the amount you receive is rent. Hr block free state return Include the payment in your income in the year you receive it regardless of your method of accounting. Hr block free state return Expenses paid by tenant. Hr block free state return   If your tenant pays any of your expenses, those payments are rental income. Hr block free state return Because you must include this amount in income, you can also deduct the expenses if they are deductible rental expenses. Hr block free state return For more information, see Rental Expenses , later. Hr block free state return Example 1. Hr block free state return Your tenant pays the water and sewage bill for your rental property and deducts the amount from the normal rent payment. Hr block free state return Under the terms of the lease, your tenant does not have to pay this bill. Hr block free state return Include the utility bill paid by the tenant and any amount received as a rent payment in your rental income. Hr block free state return You can deduct the utility payment made by your tenant as a rental expense. Hr block free state return Example 2. Hr block free state return While you are out of town, the furnace in your rental property stops working. Hr block free state return Your tenant pays for the necessary repairs and deducts the repair bill from the rent payment. Hr block free state return Include the repair bill paid by the tenant and any amount received as a rent payment in your rental income. Hr block free state return You can deduct the repair payment made by your tenant as a rental expense. Hr block free state return Property or services. Hr block free state return   If you receive property or services as rent, instead of money, include the fair market value of the property or services in your rental income. Hr block free state return   If the services are provided at an agreed upon or specified price, that price is the fair market value unless there is evidence to the contrary. Hr block free state return Example. Hr block free state return Your tenant is a house painter. Hr block free state return He offers to paint your rental property instead of paying 2 months rent. Hr block free state return You accept his offer. Hr block free state return Include in your rental income the amount the tenant would have paid for 2 months rent. Hr block free state return You can deduct that same amount as a rental expense for painting your property. Hr block free state return Security deposits. Hr block free state return   Do not include a security deposit in your income when you receive it if you plan to return it to your tenant at the end of the lease. Hr block free state return But if you keep part or all of the security deposit during any year because your tenant does not live up to the terms of the lease, include the amount you keep in your income in that year. Hr block free state return    If an amount called a security deposit is to be used as a final payment of rent, it is advance rent. Hr block free state return Include it in your income when you receive it. Hr block free state return Other Sources of Rental Income Lease with option to buy. Hr block free state return   If the rental agreement gives your tenant the right to buy your rental property, the payments you receive under the agreement are generally rental income. Hr block free state return If your tenant exercises the right to buy the property, the payments you receive for the period after the date of sale are considered part of the selling price. Hr block free state return Part interest. Hr block free state return   If you own a part interest in rental property, you must report your part of the rental income from the property. Hr block free state return Rental of property also used as your home. Hr block free state return   If you rent property that you also use as your home and you rent it less than 15 days during the tax year, do not include the rent you receive in your income and do not deduct rental expenses. Hr block free state return However, you can deduct on Schedule A (Form 1040), Itemized Deductions, the interest, taxes, and casualty and theft losses that are allowed for nonrental property. Hr block free state return See chapter 5, Personal Use of Dwelling Unit (Including Vacation Home). Hr block free state return Rental Expenses In most cases, the expenses of renting your property, such as maintenance, insurance, taxes, and interest, can be deducted from your rental income. Hr block free state return Personal use of rental property. Hr block free state return   If you sometimes use your rental property for personal purposes, you must divide your expenses between rental and personal use. Hr block free state return Also, your rental expense deductions may be limited. Hr block free state return See chapter 5, Personal Use of Dwelling Unit (Including Vacation Home). Hr block free state return Part interest. Hr block free state return   If you own a part interest in rental property, you can deduct expenses you paid according to your percentage of ownership. Hr block free state return Example. Hr block free state return Roger owns a one-half undivided interest in a rental house. Hr block free state return Last year he paid $968 for necessary repairs on the property. Hr block free state return Roger can deduct $484 (50% × $968) as a rental expense. Hr block free state return He is entitled to reimbursement for the remaining half from the co-owner. Hr block free state return When To Deduct You generally deduct your rental expenses in the year you pay them. Hr block free state return If you use the accrual method, see Publication 538 for more information. Hr block free state return Types of Expenses Listed below are the most common rental expenses. Hr block free state return Advertising. Hr block free state return Auto and travel expenses. Hr block free state return Cleaning and maintenance. Hr block free state return Commissions. Hr block free state return Depreciation. Hr block free state return Insurance. Hr block free state return Interest (other). Hr block free state return Legal and other professional fees. Hr block free state return Local transportation expenses. Hr block free state return Management fees. Hr block free state return Mortgage interest paid to banks, etc. Hr block free state return Points. Hr block free state return Rental payments. Hr block free state return Repairs. Hr block free state return Taxes. Hr block free state return Utilities. Hr block free state return Some of these expenses, as well as other less common ones, are discussed below. Hr block free state return Depreciation. Hr block free state return   Depreciation is a capital expense. Hr block free state return It is the mechanism for recovering your cost in an income producing property and must be taken over the expected life of the property. Hr block free state return   You can begin to depreciate rental property when it is ready and available for rent. Hr block free state return See Placed in Service under When Does Depreciation Begin and End in chapter 2. Hr block free state return Insurance premiums paid in advance. Hr block free state return   If you pay an insurance premium for more than one year in advance, for each year of coverage you can deduct the part of the premium payment that will apply to that year. Hr block free state return You cannot deduct the total premium in the year you pay it. Hr block free state return See chapter 6 of Publication 535 for information on deductible premiums. Hr block free state return Interest expense. Hr block free state return   You can deduct mortgage interest you pay on your rental property. Hr block free state return When you refinance a rental property for more than the previous outstanding balance, the portion of the interest allocable to loan proceeds not related to rental use generally cannot be deducted as a rental expense. Hr block free state return Chapter 4 of Publication 535 explains mortgage interest in detail. Hr block free state return Expenses paid to obtain a mortgage. Hr block free state return   Certain expenses you pay to obtain a mortgage on your rental property cannot be deducted as interest. Hr block free state return These expenses, which include mortgage commissions, abstract fees, and recording fees, are capital expenses that are part of your basis in the property. Hr block free state return Form 1098, Mortgage Interest Statement. Hr block free state return   If you paid $600 or more of mortgage interest on your rental property to any one person, you should receive a Form 1098 or similar statement showing the interest you paid for the year. Hr block free state return If you and at least one other person (other than your spouse if you file a joint return) were liable for, and paid interest on, the mortgage, and the other person received the Form 1098, report your share of the interest on Schedule E (Form 1040), line 13. Hr block free state return Attach a statement to your return showing the name and address of the other person. Hr block free state return On the dotted line next to line 13, enter “See attached. Hr block free state return ” Legal and other professional fees. Hr block free state return   You can deduct, as a rental expense, legal and other professional expenses such as tax return preparation fees you paid to prepare Schedule E, Part I. Hr block free state return For example, on your 2013 Schedule E you can deduct fees paid in 2013 to prepare Part I of your 2012 Schedule E. Hr block free state return You can also deduct, as a rental expense, any expense (other than federal taxes and penalties) you paid to resolve a tax underpayment related to your rental activities. Hr block free state return Local benefit taxes. Hr block free state return   In most cases, you cannot deduct charges for local benefits that increase the value of your property, such as charges for putting in streets, sidewalks, or water and sewer systems. Hr block free state return These charges are nondepreciable capital expenditures and must be added to the basis of your property. Hr block free state return However, you can deduct local benefit taxes that are for maintaining, repairing, or paying interest charges for the benefits. Hr block free state return Local transportation expenses. Hr block free state return   You may be able to deduct your ordinary and necessary local transportation expenses if you incur them to collect rental income or to manage, conserve, or maintain your rental property. Hr block free state return However, transportation expenses incurred to travel between your home and a rental property generally constitute nondeductible commuting costs unless you use your home as your principal place of business. Hr block free state return See Publication 587, Business Use of Your Home, for information on determining if your home office qualifies as a principal place of business. Hr block free state return   Generally, if you use your personal car, pickup truck, or light van for rental activities, you can deduct the expenses using one of two methods: actual expenses or the standard mileage rate. Hr block free state return For 2013, the standard mileage rate for business use is 56. Hr block free state return 5 cents per mile. Hr block free state return For more information, see chapter 4 of Publication 463. Hr block free state return    To deduct car expenses under either method, you must keep records that follow the rules in chapter 5 of Publication 463. Hr block free state return In addition, you must complete Form 4562, Part V, and attach it to your tax return. Hr block free state return Pre-rental expenses. Hr block free state return   You can deduct your ordinary and necessary expenses for managing, conserving, or maintaining rental property from the time you make it available for rent. Hr block free state return Rental of equipment. Hr block free state return   You can deduct the rent you pay for equipment that you use for rental purposes. Hr block free state return However, in some cases, lease contracts are actually purchase contracts. Hr block free state return If so, you cannot deduct these payments. Hr block free state return You can recover the cost of purchased equipment through depreciation. Hr block free state return Rental of property. Hr block free state return   You can deduct the rent you pay for property that you use for rental purposes. Hr block free state return If you buy a leasehold for rental purposes, you can deduct an equal part of the cost each year over the term of the lease. Hr block free state return Travel expenses. Hr block free state return   You can deduct the ordinary and necessary expenses of traveling away from home if the primary purpose of the trip is to collect rental income or to manage, conserve, or maintain your rental property. Hr block free state return You must properly allocate your expenses between rental and nonrental activities. Hr block free state return You cannot deduct the cost of traveling away from home if the primary purpose of the trip is to improve the property. Hr block free state return The cost of improvements is recovered by taking depreciation. Hr block free state return For information on travel expenses, see chapter 1 of Publication 463. Hr block free state return    To deduct travel expenses, you must keep records that follow the rules in chapter 5 of Publication 463. Hr block free state return Uncollected rent. Hr block free state return   If you are a cash basis taxpayer, do not deduct uncollected rent. Hr block free state return Because you have not included it in your income, it is not deductible. Hr block free state return   If you use an accrual method, report income when you earn it. Hr block free state return If you are unable to collect the rent, you may be able to deduct it as a business bad debt. Hr block free state return See chapter 10 of Publication 535 for more information about business bad debts. Hr block free state return Vacant rental property. Hr block free state return   If you hold property for rental purposes, you may be able to deduct your ordinary and necessary expenses (including depreciation) for managing, conserving, or maintaining the property while the property is vacant. Hr block free state return However, you cannot deduct any loss of rental income for the period the property is vacant. Hr block free state return Vacant while listed for sale. Hr block free state return   If you sell property you held for rental purposes, you can deduct the ordinary and necessary expenses for managing, conserving, or maintaining the property until it is sold. Hr block free state return If the property is not held out and available for rent while listed for sale, the expenses are not deductible rental expenses. Hr block free state return Points The term “points” is often used to describe some of the charges paid, or treated as paid, by a borrower to take out a loan or a mortgage. Hr block free state return These charges are also called loan origination fees, maximum loan charges, or premium charges. Hr block free state return Any of these charges (points) that are solely for the use of money are interest. Hr block free state return Because points are prepaid interest, you generally cannot deduct the full amount in the year paid, but must deduct the interest over the term of the loan. Hr block free state return The method used to figure the amount of points you can deduct each year follows the original issue discount (OID) rules. Hr block free state return In this case, points are equivalent to OID, which is the difference between: The amount borrowed (redemption price at maturity, or principal) and The proceeds (issue price). Hr block free state return The first step is to determine whether your total OID (which you may have on bonds or other investments in addition to the mortgage loan), including the OID resulting from the points, is insignificant or de minimis. Hr block free state return If the OID is not de minimis, you must use the constant-yield method to figure how much you can deduct. Hr block free state return De minimis OID. Hr block free state return   The OID is de minimis if it is less than one-fourth of 1% (. Hr block free state return 0025) of the stated redemption price at maturity (principal amount of the loan) multiplied by the number of full years from the date of original issue to maturity (term of the loan). Hr block free state return   If the OID is de minimis, you can choose one of the following ways to figure the amount of points you can deduct each year. Hr block free state return On a constant-yield basis over the term of the loan. Hr block free state return On a straight line basis over the term of the loan. Hr block free state return In proportion to stated interest payments. Hr block free state return In its entirety at maturity of the loan. Hr block free state return You make this choice by deducting the OID (points) in a manner consistent with the method chosen on your timely filed tax return for the tax year in which the loan is issued. Hr block free state return Example. Hr block free state return Carol Madison took out a $100,000 mortgage loan on January 1, 2013, to buy a house she will use as a rental during 2013. Hr block free state return The loan is to be repaid over 30 years. Hr block free state return During 2013, Carol paid $10,000 of mortgage interest (stated interest) to the lender. Hr block free state return When the loan was made, she paid $1,500 in points to the lender. Hr block free state return The points reduced the principal amount of the loan from $100,000 to $98,500, resulting in $1,500 of OID. Hr block free state return Carol determines that the points (OID) she paid are de minimis based on the following computation. Hr block free state return Redemption price at maturity (principal amount of the loan) $100,000 Multiplied by: The term of the  loan in complete years ×30 Multiplied by ×. Hr block free state return 0025 De minimis amount $7,500 The points (OID) she paid ($1,500) are less than the de minimis amount ($7,500). Hr block free state return Therefore, Carol has de minimis OID and she can choose one of the four ways discussed earlier to figure the amount she can deduct each year. Hr block free state return Under the straight line method, she can deduct $50 each year for 30 years. Hr block free state return Constant-yield method. Hr block free state return   If the OID is not de minimis, you must use the constant-yield method to figure how much you can deduct each year. Hr block free state return   You figure your deduction for the first year in the following manner. Hr block free state return Determine the issue price of the loan. Hr block free state return If you paid points on the loan, the issue price generally is the difference between the principal and the points. Hr block free state return Multiply the result in (1) by the yield to maturity (defined later). Hr block free state return Subtract any qualified stated interest payments (defined later) from the result in (2). Hr block free state return This is the OID you can deduct in the first year. Hr block free state return Yield to maturity (YTM). Hr block free state return   This rate is generally shown in the literature you receive from your lender. Hr block free state return If you do not have this information, consult your lender or tax advisor. Hr block free state return In general, the YTM is the discount rate that, when used in computing the present value of all principal and interest payments, produces an amount equal to the principal amount of the loan. Hr block free state return Qualified stated interest (QSI). Hr block free state return   In general, this is the stated interest that is unconditionally payable in cash or property (other than another loan of the issuer) at least annually over the term of the loan at a fixed rate. Hr block free state return Example—Year 1. Hr block free state return The facts are the same as in the previous example. Hr block free state return The yield to maturity on Carol's loan is 10. Hr block free state return 2467%, compounded annually. Hr block free state return She figured the amount of points (OID) she could deduct in 2013 as follows. Hr block free state return Principal amount of the loan $100,000 Minus: Points (OID) –1,500 Issue price of the loan $98,500 Multiplied by: YTM × . Hr block free state return 102467 Total 10,093 Minus: QSI –10,000 Points (OID) deductible in 2013 $93 To figure your deduction in any subsequent year, you start with the adjusted issue price. Hr block free state return To get the adjusted issue price, add to the issue price figured in Year 1 any OID previously deducted. Hr block free state return Then follow steps (2) and (3), earlier. Hr block free state return Example—Year 2. Hr block free state return Carol figured the deduction for 2014 as follows. Hr block free state return Issue price $98,500 Plus: Points (OID) deducted  in 2013 +93 Adjusted issue price $98,593 Multiplied by: YTM × . Hr block free state return 102467 Total 10,103 Minus: QSI –10,000 Points (OID) deductible in 2014 $103 Loan or mortgage ends. Hr block free state return    If your loan or mortgage ends, you may be able to deduct any remaining points (OID) in the tax year in which the loan or mortgage ends. Hr block free state return A loan or mortgage may end due to a refinancing, prepayment, foreclosure, or similar event. Hr block free state return However, if the refinancing is with the same lender, the remaining points (OID) generally are not deductible in the year in which the refinancing occurs, but may be deductible over the term of the new mortgage or loan. Hr block free state return Points when loan refinance is more than the previous outstanding balance. Hr block free state return   When you refinance a rental property for more than the previous outstanding balance, the portion of the points allocable to loan proceeds not related to rental use generally cannot be deducted as a rental expense. Hr block free state return For example, if an individual refinanced a loan with a balance of $100,000, the amount of the new loan was $120,000, and the taxpayer used $20,000 to purchase a car, points allocable to the $20,000 would be treated as nondeductible personal interest. Hr block free state return Repairs and Improvements Generally, an expense for repairing or maintaining your rental property may be deducted if you are not required to capitalize the expense. Hr block free state return Improvements. Hr block free state return   You must capitalize any expense you pay to improve your rental property. Hr block free state return An expense is for an improvement if it results in a betterment to your property, restores your property, or adapts your property to a new or different use. Hr block free state return Betterments. Hr block free state return   Expenses that may result in a betterment to your property include expenses for fixing a pre-existing defect or condition, enlarging or expanding your property, or increasing the capacity, strength, or quality of your property. Hr block free state return Restoration. Hr block free state return   Expenses that may be for restoration include expenses for replacing a substantial structural part of your property, repairing damage to your property after you properly adjusted the basis of your property as a result of a casualty loss, or rebuilding your property to a like-new condition. Hr block free state return Adaptation. Hr block free state return   Expenses that may be for adaptation include expenses for altering your property to a use that is not consistent with the intended ordinary use of your property when you began renting the property. Hr block free state return Separate the costs of repairs and improvements, and keep accurate records. Hr block free state return You will need to know the cost of improvements when you sell or depreciate your property. Hr block free state return The expenses you capitalize for improving your property can generally be depreciated as if the improvement were separate property. Hr block free state return Table 1-1. Hr block free state return Examples of Improvements Additions Bedroom Bathroom Deck Garage Porch Patio  Lawn & Grounds Landscaping Driveway Walkway Fence Retaining wall Sprinkler system Swimming pool Miscellaneous Storm windows, doors New roof Central vacuum Wiring upgrades Satellite dish Security system   Heating & Air Conditioning Heating system Central air conditioning Furnace Duct work Central humidifier Filtration system Plumbing Septic system Water heater Soft water system Filtration system  Interior Improvements Built-in appliances Kitchen modernization Flooring Wall-to-wall carpeting  Insulation Attic Walls, floor Pipes, duct work Prev  Up  Next   Home   More Online Publications