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Hrblock Publication 4492-B - Main Content Table of Contents DefinitionsMidwestern Disaster Areas Applicable Disaster Date Charitable Giving IncentivesTemporary Suspension of Limits on Charitable Contributions Standard Mileage Rate for Charitable Use of Vehicles Mileage Reimbursements to Charitable Volunteers Casualty and Theft LossesTime limit for making election. Hrblock Replacement Period for Nonrecognition of Gain Net Operating Losses IRAs and Other Retirement PlansDefinitions Taxation of Qualified Disaster Recovery Assistance Distributions Repayment of Qualified Disaster Recovery Assistance Distributions Repayment of Qualified Distributions for the Purchase or Construction of a Main Home Loans From Qualified Plans Additional Tax Relief for IndividualsEarned Income Credit and Child Tax Credit Additional Exemption for Housing Individuals Displaced by the Severe Storms, Tornadoes, or Flooding Education Credits Recapture of Federal Mortgage Subsidy Exclusion of Certain Cancellations of Indebtedness by Reason of the Severe Storms, Tornadoes, or Flooding Tax Relief for Temporary Relocation Additional Tax Relief for BusinessesEmployee Retention Credit Employer Housing Credit and Exclusion Demolition and Clean-up Costs Increase in Rehabilitation Tax Credit Request for Copy or Transcript of Tax Return How To Get Tax HelpLow Income Taxpayer Clinics (LITCs). Hrblock Definitions The following definitions are used throughout this publication. Hrblock Midwestern Disaster Areas A Midwestern disaster area is an area for which a major disaster was declared by the President during the period beginning on May 20, 2008, and ending on July 31, 2008, in the state of Arkansas, Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, or Wisconsin, as a result of severe storms, tornadoes, or flooding that occurred on the applicable disaster date. Hrblock See Tables 1 and 2 for a list of the counties included in the Midwestern disaster areas. Hrblock Applicable Disaster Date The term “applicable disaster date” as used in this publication, refers to the date on which the severe storms, tornadoes, or flooding occurred in the Midwestern disaster areas. Hrblock You will need to know this date when using this publication for the various tax provisions. Hrblock Table 1 The counties listed in Table 1 below are eligible for all tax provisions shown in this publication. Hrblock Applicable Disaster Dates* State Affected Counties—Midwestern Disaster Areas 05/02/2008through05/12/2008 Arkansas Arkansas, Benton, Cleburne, Conway, Crittenden, Grant, Lonoke, Mississippi, Phillips, Pulaski, Saline, and Van Buren. Hrblock 06/01/2008through07/22/2008 Illinois Adams, Calhoun, Clark, Coles, Crawford, Cumberland, Douglas, Edgar, Hancock, Henderson, Jasper, Jersey, Lake, Lawrence, Mercer, Rock Island, Whiteside, and Winnebago. Hrblock 05/30/2008through06/27/2008 Indiana Adams, Bartholomew, Brown, Clay, Daviess, Dearborn, Decatur, Gibson, Grant, Greene, Hamilton, Hancock, Hendricks, Henry, Huntington, Jackson, Jefferson, Jennings, Johnson, Knox, Lawrence, Madison, Marion, Monroe, Morgan, Owen, Parke, Pike, Posey, Putnam, Randolph, Ripley, Rush, Shelby, Sullivan, Tippecanoe, Vermillion, Vigo, Washington, and Wayne. Hrblock 05/25/2008through08/13/2008 Iowa Adair, Adams, Allamakee, Appanoose, Audubon, Benton, Black Hawk, Boone, Bremer, Buchanan, Butler, Cass, Cedar, Cerro Gordo, Chickasaw, Clarke, Clayton, Clinton, Crawford, Dallas, Davis, Decatur, Delaware, Des Moines, Dubuque, Fayette, Floyd, Franklin, Fremont, Greene, Grundy, Guthrie, Hamilton, Hancock, Hardin, Harrison, Henry, Howard, Humboldt, Iowa, Jackson, Jasper, Johnson, Jones, Keokuk, Kossuth, Lee, Linn, Louisa, Lucas, Madison, Mahaska, Marion, Marshall, Mills, Mitchell, Monona, Monroe, Montgomery, Muscatine, Page, Polk, Pottawattamie, Poweshiek, Ringgold, Scott, Story, Tama, Union, Van Buren, Wapello, Warren, Washington, Webster, Winnebago, Winneshiek, Worth, and Wright. Hrblock 05/10/2008through05/11/2008 Missouri Barry, Jasper, and Newton. Hrblock 06/01/2008through08/13/2008 Missouri Adair, Andrew, Callaway, Cass, Chariton, Clark, Gentry, Greene, Harrison, Holt, Johnson, Lewis, Lincoln, Linn, Livingston, Macon, Marion, Monroe, Nodaway, Pike, Putnam, Ralls, St. Hrblock Charles, Stone, Taney, Vernon, and Webster. Hrblock 05/22/2008through06/24/2008 Nebraska Buffalo, Butler, Colfax, Custer, Dawson, Douglas, Gage, Hamilton, Holt, Jefferson, Kearney, Lancaster, Platte, Richardson, Sarpy, and Saunders. Hrblock 06/05/2008through07/25/2008 Wisconsin Adams, Calumet, Crawford, Columbia, Dane, Dodge, Fond du Lac, Grant, Green, Green Lake, Iowa, Jefferson, Juneau, Kenosha, La Crosse, Manitowoc, Marquette, Milwaukee, Monroe, Ozaukee, Racine, Richland, Rock, Sauk, Sheboygan, Vernon, Walworth, Washington, Waukesha, and Winnebago. Hrblock *For more details, go to www. Hrblock fema. Hrblock gov Table 2 The counties listed in Table 2 below are eligible for all of the special tax provisions shown in this publication except the following. Hrblock Charitable Giving Incentives. Hrblock Net Operating Losses. Hrblock Education Credits. Hrblock Recapture of Federal Mortgage Subsidy. Hrblock Tax Relief for Temporary Relocation. Hrblock Employee Retention Credit. Hrblock Employer Housing Credit and Exclusion. Hrblock Demolition and Clean-up Costs. Hrblock Increase in Rehabilitation Credit. Hrblock Applicable Disaster Dates* State Affected Counties—Midwestern Disaster Areas 06/01/2008through07/22/2008 Illinois Greene, Madison, Monroe, Pike, Randolph, St. Hrblock Clair, and Scott. Hrblock 05/30/2008through06/27/2008 Indiana Benton, Boone, Fountain, Franklin, Jay, Montgomery, Ohio, Switzerland, Union, and Wabash. Hrblock 05/25/2008through08/13/2008 Iowa Carroll, Cherokee, Lyon, Palo Alto, Pocahontas, Taylor, and Wayne. Hrblock 05/22/2008through06/16/2008 Kansas Barber, Barton, Bourbon, Brown, Butler, Chautauqua, Cherokee, Clark, Clay, Comanche, Cowley, Crawford, Decatur, Dickinson, Edwards, Elk, Ellis, Ellsworth, Franklin, Gove, Graham, Harper, Haskell, Hodgeman, Jackson, Jewell, Kingman, Kiowa, Lane, Linn, Logan, Mitchell, Montgomery, Ness, Norton, Osborne, Pawnee, Phillips, Pratt, Reno, Republic, Riley, Rooks, Rush, Saline, Seward, Sheridan, Smith, Stafford, Sumner, Thomas, Trego, Wallace, and Wilson. Hrblock 06/06/2008through06/13/2008 Michigan Allegan, Barry, Eaton, Ingham, Lake, Manistee, Mason, Missaukee, Osceola, Ottawa, Saginaw, and Wexford. Hrblock 06/06/2008through06/12/2008 Minnesota Cook, Fillmore, Freeborn, Houston, Mower, and Nobles. Hrblock 06/01/2008through08/13/2008 Missouri Atchison, Audrain, Bates, Buchanan, Cape Girardeau, Carroll, Christian, Daviess, Grundy, Howard, Jefferson, Knox, Mercer, Miller, Mississippi, Morgan, New Madrid, Pemiscot, Perry, Pettis, Platte, Polk, Randolph, Ray, Saline, Schuyler, Scotland, Shelby, St. Hrblock Genevieve, St. Hrblock Louis, the Independent City of St. Hrblock Louis, Scott, Sullivan, and Worth. Hrblock 04/23/2008through04/26/2008 Nebraska Gage, Johnson, Morrill, Nemaha, and Pawnee. Hrblock 05/22/2008through06/24/2008 Nebraska Adams, Blaine, Boone, Boyd, Brown, Burt, Cass, Chase, Cherry, Cuming, Dundy, Fillmore, Frontier, Furnas, Garfield, Gosper, Greeley, Hall, Hayes, Howard, Johnson, Keya Paha, Lincoln, Logan, Loup, Merrick, McPherson, Morrill, Nance, Nemaha, Otoe, Phelps, Polk, Red Willow, Rock, Saline, Seward, Sherman, Stanton, Thayer, Thomas, Thurston, Valley, Webster, Wheeler, and York. Hrblock 06/27/2008 Nebraska Dodge, Douglas, Sarpy, and Saunders. Hrblock 06/05/2008through07/25/2008 Wisconsin Lafayette. Hrblock * For more details, go to www. Hrblock fema. Hrblock gov Charitable Giving Incentives Temporary Suspension of Limits on Charitable Contributions This benefit applies only to the counties in Table 1. Hrblock Individuals. Hrblock   Qualified contributions are not subject to the overall limit on itemized deductions or the 50% of adjusted gross income (AGI) limit. Hrblock A qualified contribution is a charitable contribution paid in cash or by check to a 50% limit organization if you make an election to have the 50% limit not apply to these contributions. Hrblock   A qualified contribution must also meet all of the following requirements. Hrblock Be paid after May 1, 2008, and before January 1, 2009. Hrblock The contribution must be for relief efforts in one or more Midwestern disaster areas. Hrblock Documentation must be provided by the donee organization that the contribution was used (or will be used) for relief efforts in one or more Midwestern disaster areas. Hrblock   Your deduction for qualified contributions is limited to your AGI minus your deduction for all other charitable contributions. Hrblock You can carry over any contributions you are not able to deduct for 2008 because of this limit. Hrblock In 2009, the carryover of your unused qualified contributions is subject to the 50% of AGI limit. Hrblock Exception. Hrblock   Qualified contributions do not include contributions to certain private foundations described in section 509(a)(3) or contributions for the establishment of a new, or maintenance of an existing, donor advised fund. Hrblock Corporations. Hrblock   A corporation can elect to deduct qualified cash contributions without regard to the 10% of taxable income limit if the contributions were paid after May 1, 2008, and before January 1, 2009, to a qualified charitable organization (other than certain private foundations described in section 509(a)(3) or contributions for the establishment of a new, or maintenance of an existing, donor advised fund), for relief efforts in one or more Midwestern disaster areas. Hrblock Documentation must be provided by the donee organization that the contribution was used (or will be used) for relief efforts in one or more Midwestern disaster areas. Hrblock The corporation's deduction for these qualified contributions is limited to 100% of taxable income (as modified for the 10% limit) minus the corporation's deduction for all other charitable contributions. Hrblock Any qualified contributions over this limit can be carried over to the next 5 years, subject to the 10% of taxable income limit. Hrblock Partners and shareholders. Hrblock   Each partner in a partnership and each shareholder in an S corporation must make a separate election to have the appropriate limit not apply. Hrblock More information. Hrblock   For more information, see Publication 526 or Publication 542, Corporations. Hrblock Publication 526 includes a worksheet you can use to figure your deduction if any limits apply to your charitable contributions. Hrblock Standard Mileage Rate for Charitable Use of Vehicles This benefit applies only to the counties in Table 1. Hrblock The following are special standard mileage rates in effect for 2008 for the cost of operating your vehicle for providing charitable services related only to the severe storms, tornadoes, or flooding. Hrblock 36 cents per mile for the period beginning on the applicable disaster date through June 30, 2008. Hrblock 41 cents per mile for the period July 1 through December 31, 2008. Hrblock Mileage Reimbursements to Charitable Volunteers This benefit applies only to the counties in Table 1. Hrblock You can exclude from income amounts you receive as mileage reimbursements for the use of a private passenger vehicle for the benefit of a qualified charitable organization in providing relief related to the severe storms, tornadoes, or flooding during the period beginning on the applicable disaster date, and ending on December 31, 2008. Hrblock You cannot claim a deduction or credit for amounts you exclude. Hrblock You must keep records of miles driven, time, place (or use), and purpose of the mileage. Hrblock The amount you can exclude cannot exceed the standard business mileage rate (shown below) for expenses incurred during the following periods. Hrblock 50. Hrblock 5 cents per mile for the period beginning on the applicable disaster date through June 30, 2008. Hrblock 58. Hrblock 5 cents per mile for the period July 1 through December 31, 2008. Hrblock Casualty and Theft Losses This benefit applies to the counties in both Tables 1 and 2. Hrblock The following paragraphs explain changes to casualty and theft losses that were caused by the severe storms, tornadoes, or flooding in the Midwestern disaster areas. Hrblock For more information, see Publication 547. Hrblock Limits on personal casualty or theft losses. Hrblock   Losses of personal use property that arose in a Midwestern disaster area on or after the applicable disaster date are not subject to the $100 or 10% of AGI limits. Hrblock Qualifying losses include losses from casualties and thefts that arose in a Midwestern disaster area that were attributable to the severe storms, tornadoes, or flooding. Hrblock When completing Form 4684, do not include on line 17 any losses that arose in a Midwestern disaster area. Hrblock A loss arising in a Midwestern disaster area is not considered a loss attributable to a federally declared disaster for purposes of that line and cannot be added to your standard deduction. Hrblock When to deduct the loss. Hrblock   Casualty and theft losses are generally deductible only in the year the casualty occurred or the theft was discovered. Hrblock However, you can elect to deduct losses caused by the severe storms, tornadoes, or flooding on your return for the prior year. Hrblock Special instructions for individuals who elect to claim a Midwestern disaster area casualty or theft loss for 2007. Hrblock   Individuals filing or amending their 2007 tax return for casualty or theft losses that were attributable to the severe storms, tornadoes, or flooding should: Enter “Midwestern Disaster Area” at the top of Form 1040 or Form 1040X, and Complete the 2008 version of Form 4684. Hrblock Cross out “2008” and enter “2007” at the top of Form 4684. Hrblock Time limit for making election. Hrblock   You must make this election to claim your casualty or theft loss in 2007 by the later of the following dates. Hrblock The due date (without extensions) for filing your 2008 income tax return. Hrblock The due date (with extensions) for filing your 2007 income tax return. Hrblock Example. Hrblock If you are a calendar year individual taxpayer, you have until April 15, 2009, to amend your 2007 tax return to claim a casualty or theft loss that occurred during 2008. Hrblock Replacement Period for Nonrecognition of Gain This benefit applies to the counties in both Tables 1 and 2. Hrblock Generally, an involuntary conversion occurs when property is damaged, destroyed, stolen, seized, requisitioned, or condemned, and you receive other property or money in payment, such as insurance or a condemnation award. Hrblock Generally, you do not have to report a gain (if any) if you replace the property within 2 years (4 years for a main home in a federally declared disaster area). Hrblock However, for property that was involuntarily converted on or after the applicable disaster date, as a result of the severe storms, tornadoes, or flooding, a 5-year replacement period applies if substantially all of the use of the replacement property is in a Midwestern disaster area. Hrblock For more information, see the Instructions for Form 4684. Hrblock Net Operating Losses This benefit applies only to the counties in Table 1. Hrblock Qualified disaster recovery assistance loss. Hrblock   Generally, you can carry a net operating loss (NOL) back to the 2 tax years before the NOL year. Hrblock However, the portion of an NOL that is a qualified disaster recovery assistance loss can be carried back to the 5 tax years before the NOL year. Hrblock In addition, the 90% limit on the alternative tax NOL deduction (ATNOLD) does not apply to such portion of the ATNOLD. Hrblock   A qualified disaster recovery assistance loss is the smaller of: The excess of the NOL for the year over the specified liability loss for the year to which a 10-year carryback applies, or The total of the following deductions (to the extent they are taken into account in computing the NOL for the tax year): Qualified disaster recovery assistance casualty loss (as defined below), Moving expenses paid or incurred on or after the applicable disaster date, and before January 1, 2011, for the employment of an individual whose main home was in a Midwestern disaster area before the applicable disaster date, who was unable to remain in that home because of the severe storms, tornadoes, or flooding, and whose main job location (after the move) is in a Midwestern disaster area, Temporary housing expenses paid or incurred on or after the applicable disaster date, and before January 1, 2011, to house employees of the taxpayer whose main job location is in a Midwestern disaster area, Depreciation or amortization allowable for any qualified disaster recovery assistance property (even if you elected not to claim the special disaster recovery assistance depreciation allowance for such property) for the year placed in service, and Repair expenses (including expenses for the removal of debris) paid or incurred on or after the applicable disaster date, and before January 1, 2011, for any damage from the severe storms, tornadoes, or flooding to property located in a Midwestern disaster area. Hrblock Qualified disaster recovery assistance casualty loss. Hrblock   A qualified disaster recovery assistance casualty loss is any deductible section 1231 loss of property located in a Midwestern disaster area if the loss was caused by the severe storms, tornadoes, or flooding. Hrblock For this purpose, the amount of the loss is reduced by any recognized gain from an involuntary conversion caused by the severe storms, tornadoes, or flooding of property located in a Midwestern disaster area. Hrblock Any such loss taken into account in figuring your qualified disaster recovery assistance loss is not eligible for the election to be treated as having occurred in the previous tax year. Hrblock More information. Hrblock   For more information on NOLs, see Publication 536 or Publication 542, Corporations. Hrblock IRAs and Other Retirement Plans New rules provide for tax-favored withdrawals, repayments, and loans from certain retirement plans for taxpayers who suffered economic losses as a result of the severe storms, tornadoes, or flooding. Hrblock Definitions Qualified disaster recovery assistance distribution. Hrblock   A qualified disaster recovery assistance distribution is any distribution you received from an eligible retirement plan if all of the following apply. Hrblock The distribution was made on or after the applicable disaster date and before January 1, 2010. Hrblock Your main home was located in a Midwestern disaster area on the applicable disaster date. Hrblock You sustained an economic loss because of the severe storms, tornadoes, or flooding and your main home was in a Midwestern disaster area on the applicable disaster date. Hrblock Examples of an economic loss include, but are not limited to: Loss, damage to, or destruction of real or personal property from fire, flooding, looting, vandalism, theft, wind, or other cause; Loss related to displacement from your home; or Loss of livelihood due to temporary or permanent layoffs. Hrblock   If (1) through (3) above apply, you can generally designate any distribution (including periodic payments and required minimum distributions) from an eligible retirement plan as a qualified disaster recovery assistance distribution, regardless of whether the distribution was made on account of the severe storms, tornadoes, or flooding. Hrblock Qualified disaster recovery assistance distributions are permitted without regard to your need or the actual amount of your economic loss. Hrblock   The total of your qualified disaster recovery assistance distributions from all plans is limited to $100,000. Hrblock If you have distributions in excess of $100,000 from more than one type of plan, such as a 401(k) plan and an IRA, you can allocate the $100,000 limit among the plans any way you choose. Hrblock   A reduction or offset (on or after the applicable disaster date) of your account balance in an eligible retirement plan in order to repay a loan can also be designated as a qualified disaster recovery assistance distribution. Hrblock Eligible retirement plan. Hrblock   An eligible retirement plan can be any of the following. Hrblock A qualified pension, profit-sharing, or stock bonus plan (including a 401(k) plan). Hrblock A qualified annuity plan. Hrblock A tax-sheltered annuity contract. Hrblock A governmental section 457 deferred compensation plan. Hrblock A traditional, SEP, SIMPLE, or Roth IRA. Hrblock Main home. Hrblock   Generally, your main home is the home where you live most of the time. Hrblock A temporary absence due to special circumstances, such as illness, education, business, military service, evacuation, or vacation, will not change your main home. Hrblock Taxation of Qualified Disaster Recovery Assistance Distributions This benefit applies to the counties in both Tables 1 and 2. Hrblock Qualified disaster recovery assistance distributions are included in income in equal amounts over three years. Hrblock However, if you elect, you can include the entire distribution in your income in the year it was received. Hrblock Qualified disaster recovery assistance distributions are not subject to the additional 10% tax (or the additional 25% tax for certain distributions from SIMPLE IRAs) on early distributions from qualified retirement plans (including IRAs). Hrblock However, any distributions you receive in excess of the $100,000 qualified disaster recovery assistance distribution limit may be subject to the additional tax on early distributions. Hrblock For more information, see Form 8930. Hrblock Repayment of Qualified Disaster Recovery Assistance Distributions This benefit applies to the counties in both Tables 1 and 2. Hrblock If you choose, you generally can repay any portion of a qualified disaster recovery assistance distribution that is eligible for tax-free rollover treatment to an eligible retirement plan. Hrblock Also, you can repay a qualified disaster recovery assistance distribution made on account of a hardship from a retirement plan. Hrblock However, see Exceptions later for qualified disaster recovery assistance distributions you cannot repay. Hrblock You have three years from the day after the date you received the distribution to make a repayment. Hrblock Amounts that are repaid are treated as a qualified rollover and are not included in income. Hrblock Also, a repayment of a qualified disaster recovery assistance distribution to an IRA is not counted when figuring the one-rollover-per-year limitation. Hrblock See Form 8930 for more information on how to report repayments. Hrblock Exceptions. Hrblock   You cannot repay the following types of distributions. Hrblock Qualified disaster recovery assistance distributions received as a beneficiary (other than a surviving spouse). Hrblock Required minimum distributions. Hrblock Periodic payments (other than from an IRA) that are for: A period of 10 years or more, Your life or life expectancy, or The joint lives or joint life expectancies of you and your beneficiary. Hrblock Repayment of Qualified Distributions for the Purchase or Construction of a Main Home This benefit applies to the counties in both Tables 1 and 2. Hrblock If you received a qualified distribution to purchase or construct a main home in a Midwestern disaster area, you can repay part or all of that distribution on or after the applicable disaster date, but no later than March 3, 2009, to an eligible retirement plan. Hrblock For this purpose, an eligible retirement plan is any plan, annuity, or IRA to which a qualified rollover can be made. Hrblock To be a qualified distribution, the distribution must meet all of the following requirements. Hrblock The distribution is a hardship distribution from a 401(k) plan, a hardship distribution from a tax-sheltered annuity contract, or a qualified first-time homebuyer distribution from an IRA. Hrblock The distribution was received after the date that was 6 months before the day after the applicable disaster date. Hrblock The distribution was to be used to purchase or construct a main home in a Midwestern disaster area that was not purchased or constructed because of the severe storms, tornadoes, or flooding. Hrblock Amounts that are repaid before March 4, 2009, are treated as a qualified rollover and are not included in income. Hrblock Also, a repayment of a qualified distribution to an IRA is not counted when figuring the one-rollover-per-year limitation. Hrblock A qualified distribution not repaid before March 4, 2009, may be taxable for 2007 or 2008 and subject to the additional 10% tax (or the additional 25% tax for certain SIMPLE IRAs) on early distributions. Hrblock You must file Form 8930 if you received a qualified distribution that you repaid, in whole or in part, before March 4, 2009. Hrblock Loans From Qualified Plans This benefit applies to the counties in both Tables 1 and 2. Hrblock The following benefits are available to qualified individuals. Hrblock Increases to the limits for distributions treated as loans from employer plans. Hrblock A 1-year suspension for payments due on plan loans. Hrblock Qualified individual. Hrblock   You are a qualified individual if your main home was located in a Midwestern disaster area on the applicable disaster date and you had an economic loss because of the severe storms, tornadoes, or flooding. Hrblock Examples of an economic loss include, but are not limited to: Loss, damage to, or destruction of real or personal property from fire, flooding, looting, vandalism, theft, wind, or other cause; Loss related to displacement from your home; or Loss of livelihood due to temporary or permanent layoffs. Hrblock Limits on plan loans. Hrblock   The $50,000 limit for distributions treated as plan loans is increased to $100,000. Hrblock In addition, the limit based on 50% of your vested accrued benefit is increased to 100% of that benefit. Hrblock If your main home was located in a Midwestern disaster area, the higher limits apply only to loans received during the period beginning on October 3, 2008, and ending on December 31, 2009. Hrblock One-year suspension of loan payments. Hrblock   Payments on plan loans outstanding on or after the applicable disaster date, may be suspended for 1 year by the plan administrator. Hrblock To qualify for the suspension, the due date for any loan payment must occur during the period beginning on the applicable disaster date and ending on December 31, 2009. Hrblock Additional Tax Relief for Individuals Earned Income Credit and Child Tax Credit This benefit applies to the counties in both Tables 1 and 2. Hrblock You can elect to use your 2007 earned income to figure your earned income credit (EIC) and additional child tax credit for 2008 if: Your 2008 earned income is less than your 2007 earned income, and At least one of the following statements is true. Hrblock Your main home on the applicable disaster date was in a Midwestern disaster area as shown in Table 1. Hrblock Your main home on the applicable disaster date was in a Midwestern disaster area as shown in Table 2, and you were displaced from that home because of the severe storms, tornadoes, or flooding. Hrblock Earned income. Hrblock    For the purpose of this election, your earned income for both the EIC and the additional child tax credit is the amount of earned income used to figure your EIC, even if you did not take the EIC and even if that amount is different than your earned income for the additional child tax credit. Hrblock If you are claiming only the additional child tax credit, you must figure the amount of your earned income for EIC purposes to determine your eligibility to make the election and the amount of the credit. Hrblock Joint returns. Hrblock   If you file a joint return, you qualify to make this election even if only one spouse meets the requirements. Hrblock If you make the election, your 2007 earned income is the sum of your 2007 earned income and your spouse's 2007 earned income. Hrblock Making the election. Hrblock   If you make the election to use your 2007 earned income, the election applies for figuring both the EIC and the additional child tax credit. Hrblock However, you can make the election for the additional child tax credit even if you do not take the EIC. Hrblock   Electing to use your 2007 earned income can increase or decrease your EIC. Hrblock Take the following steps to decide whether to make the election. Hrblock Figure your 2008 EIC using your 2007 earned income. Hrblock Figure your 2008 additional child tax credit using your 2007 earned income for EIC purposes. Hrblock Add the results of (1) and (2). Hrblock Figure your 2008 EIC using your 2008 earned income. Hrblock Figure your 2008 additional child tax credit using your 2008 earned income for additional child tax credit purposes. Hrblock Add the results of (4) and (5). Hrblock Compare the results of (3) and (6). Hrblock If (3) is larger than (6), it is to your benefit to make the election. Hrblock If (3) is equal to or smaller than (6), making the election will not help you. Hrblock   If you elect to use your 2007 earned income and you are claiming the EIC, enter “PYEI” and the amount of your 2007 earned income on the dotted line next to line 64a of Form 1040, on the line next to line 40a of Form 1040A, or in the space to the left of line 8a of Form 1040EZ. Hrblock   If you elect to use your 2007 earned income and you are claiming the additional child tax credit, enter your 2007 earned income for EIC purposes (even if you did not claim the EIC) on Form 8812, Additional Child Tax Credit, line 4a, and check the box on that line. Hrblock Getting your 2007 tax return information. Hrblock   If you do not have your 2007 tax records, you can get the amount of earned income used to figure your 2007 EIC by calling 1-866-562-5227. Hrblock You can also get this information by visiting the IRS website at www. Hrblock irs. Hrblock gov. Hrblock   If you prefer to figure your 2007 earned income yourself, copies or transcripts of your filed and processed tax returns can help you reconstruct your tax records. Hrblock See Request for Copy or Transcript of Tax Return on page 11. Hrblock Additional Exemption for Housing Individuals Displaced by the Severe Storms, Tornadoes, or Flooding This benefit applies to the counties in both Tables 1 and 2. Hrblock You can claim an additional exemption amount of $500 for providing housing in your main home for each individual displaced by the severe storms, tornadoes, or flooding. Hrblock The additional exemption amount is claimed on Form 8914. Hrblock You can claim an additional exemption amount only one time for a specific individual. Hrblock If you claimed an additional exemption amount for an individual in 2008, you cannot claim that amount again for the same individual in 2009. Hrblock The maximum additional exemption amount you can claim for all displaced individuals is $2,000. Hrblock Any additional exemption amount you claimed for displaced individuals in 2008 will reduce the $2,000 maximum for 2009. Hrblock The $2,000 limit applies to a husband and wife, whether the husband and wife file joint returns or separate returns. Hrblock If married filing separately, the $2,000 can be divided in $500 increments between the spouses. Hrblock For example, if one spouse claims an additional exemption amount for one displaced individual, the other spouse, if otherwise eligible, can claim additional exemption amounts for three different displaced individuals. Hrblock If two or more taxpayers share the same main home, only one taxpayer in that main home can claim the additional exemption amount for a specific displaced individual. Hrblock In order for you to be considered to have provided housing, you must have a legal interest in the main home (that is, own or rent the home). Hrblock To qualify as a displaced individual, the individual: Must have had his or her main home in a Midwestern disaster area on the applicable disaster date, and he or she must have been displaced from that home. Hrblock If the individual's main home was located in a Midwestern disaster area as shown in Table 2, that home must have been damaged by the severe storms, tornadoes, or flooding or the individual must have been evacuated from that home because of the severe storms, tornadoes, or flooding, Must have been provided housing in your main home for a period of at least 60 consecutive days ending in the tax year in which the exemption is claimed, and Cannot be your spouse or dependent. Hrblock You cannot claim the additional exemption amount if you received rent (or any other amount) from any source for providing the housing. Hrblock You are permitted to receive payments or reimbursements that do not relate to normal housing costs, including the following. Hrblock Food, clothing, or personal items consumed or used by the displaced individual. Hrblock Reimbursement for the cost of any long distance telephone calls made by the displaced individual. Hrblock Reimbursement for the cost of gasoline for the displaced individual's use of your vehicle. Hrblock However, you cannot claim the additional exemption amount if you received any reimbursement for the extra costs of heat, electricity, or water used by the displaced individual. Hrblock Also, you must report on Form 8914 the displaced individual's social security number or individual taxpayer identification number to claim an additional exemption amount. Hrblock For more information, see Form 8914. Hrblock Education Credits This benefit applies only to the counties in Table 1. Hrblock The education credits have been expanded for students attending an eligible educational institution located in a Midwestern disaster area (Midwestern disaster area students) for any tax year beginning in 2008 or 2009. Hrblock The Hope credit for a Midwestern disaster area student is increased to 100% of the first $2,400 in qualified education expenses and 50% of the next $2,400 of qualified education expenses for a maximum credit of $3,600 per student. Hrblock The lifetime learning credit rate for a Midwestern disaster area student is increased from 20% to 40%. Hrblock The definition of qualified education expenses for a Midwestern disaster area student also has been expanded. Hrblock This expanded definition also applies to the tuition and fees deduction claimed on Form 8917. Hrblock In addition to tuition and fees required for the student's enrollment or attendance at an eligible educational institution, qualified education expenses for a Midwestern disaster area student include the following. Hrblock Books, supplies, and equipment required for enrollment or attendance at an eligible educational institution. Hrblock For a special needs student, expenses that are necessary for that person's enrollment or attendance at an eligible educational institution. Hrblock For a student who is at least a half-time student, the reasonable costs of room and board, but only to the extent that the costs are not more than the greater of the following two amounts. Hrblock The allowance for room and board, as determined by the eligible educational institution, that was included in the cost of attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student. Hrblock The actual amount charged if the student is residing in housing owned or operated by the eligible educational institution. Hrblock You will need to contact the eligible educational institution for qualified room and board costs. Hrblock For more information, see Form 8863. Hrblock See Form 8917 for the tuition and fees deduction. Hrblock Recapture of Federal Mortgage Subsidy This benefit applies only to the counties in Table 1. Hrblock Generally, if you financed your home under a federally subsidized program (loans from tax-exempt qualified mortgage bonds or loans with mortgage credit certificates), you may have to recapture all or part of the benefit you received from that program when you sell or otherwise dispose of your home. Hrblock However, you do not have to recapture any benefit if your mortgage loan was a qualified home improvement loan of not more than $15,000. Hrblock This amount is increased to $150,000 if the loan was provided before 2011 and was used to alter, repair, or improve an existing owner-occupied residence in a Midwestern disaster area as shown in Table 1. Hrblock Exclusion of Certain Cancellations of Indebtedness by Reason of the Severe Storms, Tornadoes, or Flooding This benefit applies to the counties in both Tables 1 and 2. Hrblock Generally, discharges of nonbusiness debts (such as mortgages) made on or after the applicable disaster date and before January 1, 2010, are excluded from income for individuals whose main home was in a Midwestern disaster area on the applicable disaster date. Hrblock If the individual's main home was located in a Midwestern disaster area as shown in Table 2, the individual also must have had an economic loss because of the severe storms, tornadoes, or flooding. Hrblock Examples of an economic loss include, but are not limited to: Loss, damage to, or destruction of real or personal property from fire, flooding, looting, vandalism, theft, wind, or other cause; Loss related to displacement from your home; or Loss of livelihood due to temporary or permanent layoffs. Hrblock This relief does not apply to any debt secured by real property located outside a Midwestern disaster area. Hrblock You may also have to reduce certain tax attributes by the amount excluded. Hrblock For more information, see Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment). Hrblock Tax Relief for Temporary Relocation This benefit applies only to the counties in Table 1. Hrblock The IRS can adjust the internal revenue laws to ensure that taxpayers do not lose a deduction or credit or experience a change of filing status in 2008 or 2009 as a result of a temporary relocation caused by the severe storms, tornadoes, or flooding. Hrblock However, any such adjustment must ensure that an individual is not taken into account by more than one taxpayer for the same tax benefit. Hrblock The IRS has exercised this authority as follows. Hrblock In determining whether you furnished over one-half of the cost of maintaining a household, you can exclude from total household costs any assistance received from the government or charitable organizations because you were temporarily relocated as a result of the severe storms, tornadoes, or flooding. Hrblock In determining whether you provided more than one-half of an individual's support, you can disregard any assistance received from the government or charitable organizations because you were temporarily relocated as a result of the severe storms, tornadoes, or flooding. Hrblock You can treat as a student an individual who enrolled in school before the applicable disaster date, and who is unable to attend classes because of the severe storms, tornadoes, or flooding, for each month of the enrollment period that individual is prevented by the severe storms, tornadoes, or flooding from attending school as planned. Hrblock Additional Tax Relief for Businesses Employee Retention Credit This benefit applies only to the counties in Table 1. Hrblock An eligible employer who conducted an active trade or business in a Midwestern disaster area can claim the employee retention credit. Hrblock The credit is 40% of qualified wages for each eligible employee (up to a maximum of $6,000 in qualified wages per employee). Hrblock Generally, you must reduce your deduction for salaries and wages by the amount of this credit (before the tax liability limit). Hrblock Use Form 5884-A to claim the credit. Hrblock Employers affected by the severe storms, tornadoes, or flooding. Hrblock   The following definitions apply to employers affected by the severe storms, tornadoes, or flooding. Hrblock Eligible employer. Hrblock   For this purpose, an eligible employer is any employer who meets all of the following. Hrblock Employed an average of not more than 200 employees on business days during the tax year before the applicable disaster date. Hrblock Conducted an active trade or business on the applicable disaster date in a Midwestern disaster area. Hrblock Whose trade or business was inoperable on any day after the applicable disaster date and before January 1, 2009, because of the damage caused by the severe storms, tornadoes, or flooding. Hrblock Eligible employee. Hrblock   For this purpose, an eligible employee is an employee whose principal place of employment on the applicable disaster date with such eligible employer was in a Midwestern disaster area. Hrblock An employee is not an eligible employee for purposes of the severe storms, tornadoes, or flooding if the employee is treated as an eligible employee for the work opportunity credit. Hrblock Qualified wages. Hrblock   Qualified wages are wages (up to $6,000 per employee) you paid or incurred before January 1, 2009, for an eligible employee beginning on the date your trade or business first became inoperable at the employee's principal place of employment immediately before the applicable disaster, and ending on the date your trade or business resumed significant operations at that place. Hrblock In addition, the wages must have been paid or incurred after the applicable disaster date. Hrblock    This includes wages paid even if the employee performed no services, performed services at a place of employment other than the principal place of employment, or performed services at the principal place of employment before significant operations resumed. Hrblock    Wages qualifying for the credit generally have the same meaning as wages subject to the Federal Unemployment Tax Act (FUTA). Hrblock Qualified wages also include amounts you paid for medical or hospitalization expenses in connection with sickness or accident disability. Hrblock Qualified wages for any employee must be reduced by the amount of any work supplementation payment you received under the Social Security Act. Hrblock   For agricultural employees, if the work performed by any employee during more than half of any pay period qualified under FUTA as agricultural labor, that employee's wages subject to social security and Medicare taxes are qualified wages. Hrblock For a special rule that applies to railroad employees, see section 51(h)(1)(B). Hrblock   Qualified wages do not include the following. Hrblock Wages paid to your dependent or a related individual. Hrblock See section 51(i)(1). Hrblock Wages paid to any employee during the period for which you received payment for the employee from a federally funded on-the-job training program. Hrblock Wages for services of replacement workers during a strike or lockout. Hrblock   For more information, see Form 5884-A. Hrblock Employer Housing Credit and Exclusion This benefit applies only to the counties in Table 1. Hrblock An employer who conducted an active trade or business in a Midwestern disaster area can claim the employer housing credit. Hrblock The credit is equal to 30% of the value (up to $600 per month per employee) of in-kind lodging furnished to a qualified employee (and the employee's spouse or dependents) from November 1, 2008, through May 1, 2009. Hrblock The value of the lodging is excluded from the income of the qualified employee but is treated as wages for purposes of taxes imposed under the Federal Insurance Contributions Act (FICA) and the Federal Unemployment Tax Act (FUTA). Hrblock Generally, you must reduce your deduction for salaries and wages by the amount of this credit (before the tax liability limit). Hrblock The employer must use Form 5884-A to claim the credit. Hrblock A qualified employee is an individual who had a main home in a Midwestern disaster area on the applicable disaster date, and who performs substantially all employment services in a Midwestern disaster area for the employer furnishing the lodging. Hrblock The employee cannot be your dependent or a related individual. Hrblock See section 51(i)(1). Hrblock For more information, see Form 5884-A. Hrblock Demolition and Clean-up Costs This benefit applies only to the counties in Table 1. Hrblock You can elect to deduct 50% of any qualified disaster recovery assistance clean-up costs for the tax year in which the costs are paid or incurred, instead of capitalizing them. Hrblock Qualified disaster recovery assistance clean-up costs are any amounts paid or incurred on or after the applicable disaster date, and before January 1, 2011, for the removal of debris from, or the demolition of structures on, real property located in a Midwestern disaster area that is: Held by you for use in a trade or business or for the production of income, or Inventory or other property held primarily for sale to customers in the ordinary course of your trade or business. Hrblock Qualified disaster recovery assistance clean-up costs are limited to amounts necessary due to damage attributable to the severe storms, tornadoes, or flooding in the Midwestern disaster areas. Hrblock Increase in Rehabilitation Tax Credit This benefit applies only to the counties in Table 1. Hrblock The rehabilitation credit is increased for qualified rehabilitation expenditures paid or incurred on or after the applicable disaster date, and before January 1, 2012, on buildings located in a Midwestern disaster area as follows. Hrblock For pre-1936 buildings (other than certified historic structures), the credit percentage is increased from 10% to 13%. Hrblock For certified historic structures, the credit percentage is increased from 20% to 26%. Hrblock For more information, see Form 3468, Investment Credit. Hrblock Request for Copy or Transcript of Tax Return Request for copy of tax return. Hrblock   You can use Form 4506 to order a copy of your tax return. Hrblock Generally, there is a $57 fee for requesting each copy of a tax return. Hrblock If your main home, principal place of business, or tax records are located in a Midwestern disaster area, the fee will be waived if “Midwestern Disaster Area” is written in red across the top of the form when filed. Hrblock Request for transcript of tax return. Hrblock   You can use Form 4506-T to order a free transcript of your tax return. Hrblock A transcript provides most of the line entries from a tax return and usually contains the information that a third party requires. Hrblock You can also call 1-800-829-1040 to order a transcript. Hrblock How To Get Tax Help Special IRS assistance. Hrblock   The IRS is providing special help for those affected by the severe storms, tornadoes, or flooding, as well as survivors and personal representatives of the victims. Hrblock We have set up a special toll-free number for people who may have trouble filing or paying their taxes because they were affected by recent federally declared disasters, or who have other tax issues related to the severe storms, tornadoes, or flooding. Hrblock Call 1-866-562-5227 Monday through FridayIn English–7 a. Hrblock m. Hrblock to 10 p. Hrblock m. Hrblock local timeIn Spanish–8 a. Hrblock m. Hrblock to 9:30 p. Hrblock m. Hrblock local time   The IRS website at www. Hrblock irs. Hrblock gov has notices and other tax relief information. Hrblock Check it periodically for any new guidance. Hrblock You can get help with unresolved tax issues, order free publications and forms, ask tax questions, and get information from the IRS in several ways. Hrblock By selecting the method that is best for you, you will have quick and easy access to tax help. Hrblock Contacting your Taxpayer Advocate. Hrblock   The Taxpayer Advocate Service (TAS) is an independent organization within the IRS whose employees assist taxpayers who are experiencing economic harm, who are seeking help in resolving tax problems that have not been resolved through normal channels, or who believe that an IRS system or procedure is not working as it should. Hrblock Here are seven things every taxpayer should know about TAS: TAS is your voice at the IRS. Hrblock Our service is free, confidential, and tailored to meet your needs. Hrblock You may be eligible for TAS help if you have tried to resolve your tax problem through normal IRS channels and have gotten nowhere, or you believe an IRS procedure just isn't working as it should. Hrblock TAS helps taxpayers whose problems are causing financial difficulty or significant cost, including the cost of professional representation. Hrblock This includes businesses as well as individuals. Hrblock TAS employees know the IRS and how to navigate it. Hrblock We will listen to your problem, help you understand what needs to be done to resolve it, and stay with you every step of the way until your problem is resolved. Hrblock TAS has at least one local taxpayer advocate in every state, the District of Columbia, and Puerto Rico. Hrblock You can call your local advocate, whose number is in your phone book, in Pub. Hrblock 1546, Taxpayer Advocate Service—Your Voice at the IRS, and on our website at www. Hrblock irs. Hrblock gov/advocate. Hrblock You can also call our toll-free line at 1-877-777-4778 or TTY/TDD 1-800-829-4059. Hrblock You can learn about your rights and responsibilities as a taxpayer by visiting our online tax toolkit at www. Hrblock taxtoolkit. Hrblock irs. Hrblock gov. Hrblock Low Income Taxpayer Clinics (LITCs). Hrblock   The Low Income Taxpayer Clinic program serves individuals who have a problem with the IRS and whose income is below a certain level. Hrblock LITCs are independent from the IRS. Hrblock Most LITCs can provide representation before the IRS or in court on audits, tax collection disputes, and other issues for free or a small fee. Hrblock If an individual's native language is not English, some clinics can provide multilingual information about taxpayer rights and responsibilities. Hrblock For more information, see Publication 4134, Low Income Taxpayer Clinic List. Hrblock This publication is available at www. Hrblock irs. Hrblock gov, by calling 1-800-TAX-FORM (1-800-829-3676), or at your local IRS office. Hrblock Free tax services. Hrblock   To find out what services are available, get Publication 910, IRS Guide to Free Tax Services. Hrblock It contains lists of free tax information sources, including publications, services, and free tax education and assistance programs. Hrblock It also has an index of over 100 TeleTax topics (recorded tax information) you can listen to on your telephone. Hrblock   Accessible versions of IRS published products are available on request in a variety of alternative formats for people with disabilities. Hrblock Free help with your return. Hrblock   Free help in preparing your return is available nationwide from IRS-trained volunteers. Hrblock The Volunteer Income Tax Assistance (VITA) program is designed to help low-income taxpayers and the Tax Counseling for the Elderly (TCE) program is designed to assist taxpayers age 60 and older with their tax returns. Hrblock Many VITA sites offer free electronic filing and all volunteers will let you know about credits and deductions you may be entitled to claim. Hrblock To find the nearest VITA or TCE site, call 1-800-829-1040. Hrblock   As part of the TCE program, AARP offers the Tax-Aide counseling program. Hrblock To find the nearest AARP Tax-Aide site, call 1-888-227-7669 or visit AARP's website atwww. Hrblock aarp. Hrblock org/money/taxaide. Hrblock   For more information on these programs, go to www. Hrblock irs. Hrblock gov and enter keyword “VITA” in the upper right-hand corner. Hrblock Internet. Hrblock You can access the IRS website at www. Hrblock irs. Hrblock gov 24 hours a day, 7 days a week to: E-file your return. Hrblock Find out about commercial tax preparation and e-file services available free to eligible taxpayers. Hrblock Check the status of your 2009 refund. Hrblock Go to www. Hrblock irs. Hrblock gov and click on Where's My Refund. Hrblock Wait at least 72 hours after the IRS acknowledges receipt of your e-filed return, or 3 to 4 weeks after mailing a paper return. Hrblock If you filed Form 8379 with your return, wait 14 weeks (11 weeks if you filed electronically). Hrblock Have your 2009 tax return available so you can provide your social security number, your filing status, and the exact whole dollar amount of your refund. Hrblock Download forms, instructions, and publications. Hrblock Order IRS products online. Hrblock Research your tax questions online. Hrblock Search publications online by topic or keyword. Hrblock Use the online Internal Revenue Code, Regulations, or other official guidance. Hrblock View Internal Revenue Bulletins (IRBs) published in the last few years. Hrblock Figure your withholding allowances using the withholding calculator online at www. Hrblock irs. Hrblock gov/individuals. Hrblock Determine if Form 6251 must be filed by using our Alternative Minimum Tax (AMT) Assistant. Hrblock Sign up to receive local and national tax news by email. Hrblock Get information on starting and operating a small business. Hrblock Phone. Hrblock Many services are available by phone. Hrblock Ordering forms, instructions, and publications. Hrblock Call 1-800-TAX FORM (1-800-829-3676) to order current-year forms, instructions, and publications, and prior-year forms and instructions. Hrblock You should receive your order within 10 days. Hrblock Asking tax questions. Hrblock Call the IRS with your tax questions at 1-800-829-1040. Hrblock Solving problems. Hrblock You can get face-to-face help solving tax problems every business day in IRS Taxpayer Assistance Centers. Hrblock An employee can explain IRS letters, request adjustments to your account, or help you set up a payment plan. Hrblock Call your local Taxpayer Assistance Center for an appointment. Hrblock To find the number, go to www. Hrblock irs. Hrblock gov/localcontacts or look in the phone book under United States Government, Internal Revenue Service. Hrblock TTY/TDD equipment. Hrblock If you have access to TTY/TDD equipment, call 1-800-829-4059 to ask tax questions or to order forms and publications. Hrblock TeleTax topics. Hrblock Call 1-800-829-4477 to listen to pre-recorded messages covering various tax topics. Hrblock Refund information. Hrblock To check the status of your 2009 refund, call 1-800-829-1954 during business hours or 1-800-829-4477 (automated refund information 24 hours a day, 7 days a week). Hrblock Wait at least 72 hours after the IRS acknowledges receipt of your e-filed return, or 3 to 4 weeks after mailing a paper return. Hrblock If you filed Form 8379 with your return, wait 14 weeks (11 weeks if you filed electronically). Hrblock Have your 2009 tax return available so you can provide your social security number, your filing status, and the exact whole dollar amount of your refund. Hrblock Refunds are sent out weekly on Fridays. Hrblock If you check the status of your refund and are not given the date it will be issued, please wait until the next week before checking back. Hrblock Other refund information. Hrblock To check the status of a prior year refund or amended return refund, call 1-800-829-1954. Hrblock Evaluating the quality of our telephone services. Hrblock To ensure IRS representatives give accurate, courteous, and professional answers, we use several methods to evaluate the quality of our telephone services. Hrblock One method is for a second IRS representative to listen in on or record random telephone calls. Hrblock Another is to ask some callers to complete a short survey at the end of the call. Hrblock Walk-in. Hrblock Many products and services are available on a walk-in basis. Hrblock Products. Hrblock You can walk in to many post offices, libraries, and IRS offices to pick up certain forms, instructions, and publications. Hrblock Some IRS offices, libraries, grocery stores, copy centers, city and county government offices, credit unions, and office supply stores have a collection of products available to print from a CD or photocopy from reproducible proofs. Hrblock Also, some IRS offices and libraries have the Internal Revenue Code, regulations, Internal Revenue Bulletins, and Cumulative Bulletins available for research purposes. Hrblock Services. Hrblock You can walk in to your local Taxpayer Assistance Center every business day for personal, face-to-face tax help. Hrblock An employee can explain IRS letters, request adjustments to your tax account, or help you set up a payment plan. Hrblock If you need to resolve a tax problem, have questions about how the tax law applies to your individual tax return, or you are more comfortable talking with someone in person, visit your local Taxpayer Assistance Center where you can spread out your records and talk with an IRS representative face-to-face. Hrblock No appointment is necessary—just walk in. Hrblock If you prefer, you can call your local Center and leave a message requesting an appointment to resolve a tax account issue. Hrblock A representative will call you back within 2 business days to schedule an in-person appointment at your convenience. Hrblock If you have an ongoing, complex tax account problem or a special need, such as a disability, an appointment can be requested. Hrblock All other issues will be handled without an appointment. Hrblock To find the number of your local office, go to www. Hrblock irs. Hrblock gov/localcontacts or look in the phone book under United States Government, Internal Revenue Service. Hrblock Mail. Hrblock You can send your order for forms, instructions, and publications to the address below. Hrblock You should receive a response within 10 days after your request is received. Hrblock Internal Revenue Service1201 N. Hrblock Mitsubishi MotorwayBloomington, IL 61705-6613 DVD for tax products. Hrblock You can order Publication 1796, IRS Tax Products DVD, and obtain: Current-year forms, instructions, and publications. Hrblock Prior-year forms, instructions, and publications. Hrblock Tax Map: an electronic research tool and finding aid. Hrblock Tax law frequently asked questions. Hrblock Tax Topics from the IRS telephone response system. Hrblock Internal Revenue Code—Title 26 of the U. Hrblock S. Hrblock Code. Hrblock Fill-in, print, and save features for most tax forms. Hrblock Internal Revenue Bulletins. Hrblock Toll-free and email technical support. Hrblock Two releases during the year. Hrblock – The first release will ship the beginning of January 2010. Hrblock – The final release will ship the beginning of March 2010. Hrblock Purchase the DVD from National Technical Information Service (NTIS) at www. Hrblock irs. Hrblock gov/cdorders for $30 (no handling fee) or call 1-877-233-6767 toll free to buy the DVD for $30 (plus a $6 handling fee). 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Understanding your CP276A Notice

We didn't receive a correctly completed tax liability schedule. We normally charge a Federal Tax Deposit (FTD) penalty when this happens. We decided not to do so this time.

Tax publications you may find useful

How to get help

Calling the toll free number listed on the top right corner of your notice is the fastest way to get your questions answered.

You can also authorize someone (such as an accountant) to contact the IRS on your behalf using this Power of Attorney and Declaration of Representative (Form 2848).
 


What you need to do

  • Review your tax liability schedule. Enter the liability amount for each payroll date and see if your payroll tax deposit liability matches the tax liability you reported on your tax form. When they don't match, we reject your tax liability schedule.
  • Correct the copy of your tax return and the schedule that you kept for your records.

You may want to...


Answers to Common Questions

Do I have to reply to this notice?
No, but you should check your records to see why your tax liability schedule was incorrect.

How do I know whether I should make monthly or semiweekly payroll tax deposits?
Go back and look at the total tax liability for the four quarters before the quarter ending in June of last year if you file a quarterly return. Annual return filers should go back and look at the total tax liability of the year before their previous filing year.

For either a quarterly or an annual filer, a total tax liability of $50,000 or less means you can make your federal payroll tax deposits monthly. A tax liability greater than $50,000 means you have to make semiweekly payroll tax deposits.

When are my payroll tax deposits due?
The following table shows the schedule for semiweekly payroll tax deposits:

When Then
The payroll tax liability period is Saturday, Sunday, Monday, and Tuesday Make the tax deposit by the following Friday.
The payroll tax liability period is Wednesday, Thursday, and Friday Make the tax deposit by the following Wednesday.
A holiday falls on a weekday after the payroll tax liability period and before or on the normal deposit day Extend the deposit due date one business day for each day of holiday.

Monthly payroll tax depositors must make their tax deposits by the fifteenth of each month. When the fifteenth falls on a Saturday, a Sunday, or a legal holiday, tax deposits are due on the next business day.

Do I have to make my payroll tax deposits electronically?
Normally, yes. However, you may send your payment in with your tax return when your tax liability is $2,500 or less. If you file a quarterly tax return, another time when you may send in your payment with your return is when:

  • Your tax liabilities never totaled $100,000 or more in a deposit period, and
  • Your tax liability in the preceding quarter was $2,500 or less.

Tips for next time you file

Report each tax liability (not your deposits) on the tax liability schedule.

Make sure that that the amount on your tax liability schedule matches the payroll tax amount on your tax return.

Do not list negative amounts on your tax liability schedule.


Understanding your notice

Reading your notice
Your notice may look different from the sample because the information contained in your notice is tailored to your situation.

Notice CP276A, Page 1

Notice CP276A, Page 2

Page Last Reviewed or Updated: 14-Mar-2014

The Hrblock

Hrblock 9. Hrblock   Rental Income and Expenses Table of Contents Introduction Useful Items - You may want to see: Rental Income Rental ExpensesVacant while listed for sale. Hrblock Repairs and Improvements Other Expenses Property Changed to Rental Use Renting Part of Property Not Rented for Profit Personal Use of Dwelling Unit (Including Vacation Home)Example. Hrblock Dividing Expenses Dwelling Unit Used as a Home Reporting Income and Deductions DepreciationChanging your accounting method to deduct unclaimed depreciation. Hrblock Limits on Rental LossesAt-Risk Rules Passive Activity Limits How To Report Rental Income and ExpensesSchedule E (Form 1040) Introduction This chapter discusses rental income and expenses. Hrblock It also covers the following topics. Hrblock Personal use of dwelling unit (including vacation home). Hrblock Depreciation. Hrblock Limits on rental losses. Hrblock How to report your rental income and expenses. Hrblock If you sell or otherwise dispose of your rental property, see Publication 544, Sales and Other Dispositions of Assets. Hrblock If you have a loss from damage to, or theft of, rental property, see Publication 547, Casualties, Disasters, and Thefts. Hrblock If you rent a condominium or a cooperative apartment, some special rules apply to you even though you receive the same tax treatment as other owners of rental property. Hrblock See Publication 527, Residential Rental Property, for more information. Hrblock Useful Items - You may want to see: Publication 527 Residential Rental Property 534 Depreciating Property Placed in Service Before 1987 535 Business Expenses 925 Passive Activity and At-Risk Rules 946 How To Depreciate Property Form (and Instructions) 4562 Depreciation and Amortization 6251 Alternative Minimum Tax—Individuals 8582 Passive Activity Loss Limitations Schedule E (Form 1040) Supplemental Income and Loss Rental Income In most cases, you must include in your gross income all amounts you receive as rent. Hrblock Rental income is any payment you receive for the use or occupation of property. Hrblock In addition to amounts you receive as normal rent payments, there are other amounts that may be rental income. Hrblock When to report. Hrblock   If you are a cash-basis taxpayer, you report rental income on your return for the year you actually or constructively receive it. Hrblock You are a cash-basis taxpayer if you report income in the year you receive it, regardless of when it was earned. Hrblock You constructively receive income when it is made available to you, for example, by being credited to your bank account. Hrblock   For more information about when you constructively receive income, see Accounting Methods in chapter 1. Hrblock Advance rent. Hrblock   Advance rent is any amount you receive before the period that it covers. Hrblock 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. Hrblock Example. Hrblock You sign a 10-year lease to rent your property. Hrblock In the first year, you receive $5,000 for the first year's rent and $5,000 as rent for the last year of the lease. Hrblock You must include $10,000 in your income in the first year. Hrblock Canceling a lease. Hrblock   If your tenant pays you to cancel a lease, the amount you receive is rent. Hrblock Include the payment in your income in the year you receive it regardless of your method of accounting. Hrblock Expenses paid by tenant. Hrblock   If your tenant pays any of your expenses, the payments are rental income. Hrblock Because you must include this amount in income, you can deduct the expenses if they are deductible rental expenses. Hrblock See Rental Expenses , later, for more information. Hrblock Property or services. Hrblock   If you receive property or services, instead of money, as rent, include the fair market value of the property or services in your rental income. Hrblock   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. Hrblock Security deposits. Hrblock   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. Hrblock 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. Hrblock   If an amount called a security deposit is to be used as a final payment of rent, it is advance rent. Hrblock Include it in your income when you receive it. Hrblock Part interest. Hrblock   If you own a part interest in rental property, you must report your part of the rental income from the property. Hrblock Rental of property also used as your home. Hrblock   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. Hrblock However, you can deduct on Schedule A (Form 1040) the interest, taxes, and casualty and theft losses that are allowed for nonrental property. Hrblock See Personal Use of Dwelling Unit (Including Vacation Home) , later. Hrblock Rental Expenses This part discusses expenses of renting property that you ordinarily can deduct from your rental income. Hrblock It includes information on the expenses you can deduct if you rent part of your property, or if you change your property to rental use. Hrblock Depreciation , which you can also deduct from your rental income, is discussed later. Hrblock Personal use of rental property. Hrblock   If you sometimes use your rental property for personal purposes, you must divide your expenses between rental and personal use. Hrblock Also, your rental expense deductions may be limited. Hrblock See Personal Use of Dwelling Unit (Including Vacation Home) , later. Hrblock Part interest. Hrblock   If you own a part interest in rental property, you can deduct expenses that you paid according to your percentage of ownership. Hrblock When to deduct. Hrblock   If you are a cash-basis taxpayer, you generally deduct your rental expenses in the year you pay them. Hrblock Depreciation. Hrblock   You can begin to depreciate rental property when it is ready and available for rent. Hrblock See Placed-in-Service under When Does Depreciation Begin and End in chapter 2 of Publication 527. Hrblock Pre-rental expenses. Hrblock   You can deduct your ordinary and necessary expenses for managing, conserving, or maintaining rental property from the time you make it available for rent. Hrblock Uncollected rent. Hrblock   If you are a cash-basis taxpayer, do not deduct uncollected rent. Hrblock Because you have not included it in your income, it is not deductible. Hrblock Vacant rental property. Hrblock   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. Hrblock However, you cannot deduct any loss of rental income for the period the property is vacant. Hrblock Vacant while listed for sale. Hrblock   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. Hrblock If the property is not held out and available for rent while listed for sale, the expenses are not deductible rental expenses. Hrblock 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. Hrblock Improvements. Hrblock   You must capitalize any expense you pay to improve your rental property. Hrblock 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. Hrblock Betterments. Hrblock   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. Hrblock Restoration. Hrblock   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. Hrblock Adaptation. Hrblock   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. Hrblock Separate the costs of repairs and improvements, and keep accurate records. Hrblock You will need to know the cost of improvements when you sell or depreciate your property. Hrblock The expenses you capitalize for improving your property can generally be depreciated as if the improvement were separate property. Hrblock Other Expenses Other expenses you can deduct from your rental income include advertising, cleaning and maintenance, utilities, fire and liability insurance, taxes, interest, commissions for the collection of rent, ordinary and necessary travel and transportation, and other expenses, discussed next. Hrblock Insurance premiums paid in advance. Hrblock   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. Hrblock You cannot deduct the total premium in the year you pay it. Hrblock Legal and other professional fees. Hrblock   You can deduct, as a rental expense, legal and other professional expenses, such as tax return preparation fees you paid to prepare Schedule E (Form 1040), Part I. Hrblock For example, on your 2013 Schedule E, you can deduct fees paid in 2013 to prepare your 2012 Schedule E, Part I. Hrblock 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. Hrblock Local benefit taxes. Hrblock   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. Hrblock These charges are nondepreciable capital expenditures, and must be added to the basis of your property. Hrblock However, you can deduct local benefit taxes that are for maintaining, repairing, or paying interest charges for the benefits. Hrblock Local transportation expenses. Hrblock    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. Hrblock 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. Hrblock See Publication 587, Business Use of Your Home, for information on determining if your home office qualifies as a principal place of business. Hrblock   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. Hrblock For 2013, the standard mileage rate for business use is 56. Hrblock 5 cents per mile. Hrblock For more information, see chapter 26. Hrblock    To deduct car expenses under either method, you must keep records that follow the rules in chapter 26. Hrblock In addition, you must complete Form 4562, Part V, and attach it to your tax return. Hrblock Rental of equipment. Hrblock   You can deduct the rent you pay for equipment that you use for rental purposes. Hrblock However, in some cases, lease contracts are actually purchase contracts. Hrblock If so, you cannot deduct these payments. Hrblock You can recover the cost of purchased equipment through depreciation. Hrblock Rental of property. Hrblock   You can deduct the rent you pay for property that you use for rental purposes. Hrblock 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. Hrblock Travel expenses. Hrblock   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. Hrblock You must properly allocate your expenses between rental and nonrental activities. Hrblock You cannot deduct the cost of traveling away from home if the primary purpose of the trip was to improve your property. Hrblock You recover the cost of improvements by taking depreciation. Hrblock For information on travel expenses, see chapter 26. Hrblock    To deduct travel expenses, you must keep records that follow the rules in chapter 26. Hrblock   See Rental Expenses in Publication 527 for more information. Hrblock 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. Hrblock 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. Hrblock You cannot deduct depreciation or insurance for the part of the year the property was held for personal use. Hrblock 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). Hrblock Example. Hrblock Your tax year is the calendar year. Hrblock You moved from your home in May and started renting it out on June 1. Hrblock You can deduct as rental expenses seven-twelfths of your yearly expenses, such as taxes and insurance. Hrblock Starting with June, you can deduct as rental expenses the amounts you pay for items generally billed monthly, such as utilities. Hrblock 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. Hrblock 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). Hrblock 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 your house. Hrblock There is no change in the types of expenses deductible for the personal-use part of your property. Hrblock Generally, these expenses may be deducted only if you itemize your deductions on Schedule A (Form 1040). Hrblock You cannot deduct any part of the cost of the first phone line even if your tenants have unlimited use of it. Hrblock You do not have to divide the expenses that belong only to the rental part of your property. Hrblock 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. Hrblock If you install a second phone line strictly for your tenants' use, all of the cost of the second line is deductible as a rental expense. Hrblock You can deduct depreciation, discussed later, on the part of the house used for rental purposes as well as on the furniture and equipment you use for rental purposes. Hrblock How to divide expenses. Hrblock   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 the rental use and the personal use. Hrblock You can use any reasonable method for dividing the expense. Hrblock It may be reasonable to divide the cost of some items (for example, water) based on the number of people using them. Hrblock The two most common methods for dividing an expense are based on (1) the number of rooms in your home, and (2) the square footage of your home. Hrblock 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. Hrblock 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. Hrblock 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. Hrblock Where to report. Hrblock   Report your not-for-profit rental income on Form 1040, line 21. Hrblock For example, 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. Hrblock   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 Form 1040, Schedule A, line 23. Hrblock You can deduct these expenses only if they, together with certain other miscellaneous itemized deductions, total more than 2% of your adjusted gross income. Hrblock Personal Use of Dwelling Unit (Including Vacation Home) If you have any personal use of a dwelling unit (including a vacation home) that you rent, you must divide your expenses between rental use and personal use. Hrblock In general, your rental expenses will be no more than your total expenses multiplied by a fraction; the denominator of which is the total number of days the dwelling unit is used and the numerator of which is the total number of days actually rented at a fair rental price. Hrblock Only your rental expenses may be deducted on Schedule E (Form 1040). Hrblock Some of your personal expenses may be deductible if you itemize your deductions on Schedule A (Form 1040). Hrblock You must also determine if the dwelling unit is considered a home. Hrblock The amount of rental expenses that you can deduct may be limited if the dwelling unit is considered a home. Hrblock Whether a dwelling unit is considered a home depends on how many days during the year are considered to be days of personal use. Hrblock There is a special rule if you used the dwelling unit as a home and you rented it for less than 15 days during the year. Hrblock Dwelling unit. Hrblock   A dwelling unit includes a house, apartment, condominium, mobile home, boat, vacation home, or similar property. Hrblock It also includes all structures or other property belonging to the dwelling unit. Hrblock A dwelling unit has basic living accommodations, such as sleeping space, a toilet, and cooking facilities. Hrblock   A dwelling unit does not include property used solely as a hotel, motel, inn, or similar establishment. Hrblock Property is used solely as a hotel, motel, inn, or similar establishment if it is regularly available for occupancy by paying customers and is not used by an owner as a home during the year. Hrblock Example. Hrblock   You rent a room in your home that is always available for short-term occupancy by paying customers. Hrblock You do not use the room yourself, and you allow only paying customers to use the room. Hrblock The room is used solely as a hotel, motel, inn, or similar establishment and is not a dwelling unit. Hrblock Dividing Expenses If you use a dwelling unit for both rental and personal purposes, divide your expenses between the rental use and the personal use based on the number of days used for each purpose. Hrblock When dividing your expenses, follow these rules. Hrblock Any day that the unit is rented at a fair rental price is a day of rental use even if you used the unit for personal purposes that day. Hrblock This rule does not apply when determining whether you used the unit as a home. Hrblock Any day that the unit is available for rent but not actually rented is not a day of rental use. Hrblock Example. Hrblock Your beach cottage was available for rent from June 1 through August 31 (92 days). Hrblock During that time, except for the first week in August (7 days) when you were unable to find a renter, you rented the cottage at a fair rental price. Hrblock The person who rented the cottage for July allowed you to use it over the weekend (2 days) without any reduction in or refund of rent. Hrblock Your family also used the cottage during the last 2 weeks of May (14 days). Hrblock The cottage was not used at all before May 17 or after August 31. Hrblock You figure the part of the cottage expenses to treat as rental expenses as follows. Hrblock The cottage was used for rental a total of 85 days (92 − 7). Hrblock The days it was available for rent but not rented (7 days) are not days of rental use. Hrblock The July weekend (2 days) you used it is rental use because you received a fair rental price for the weekend. Hrblock You used the cottage for personal purposes for 14 days (the last 2 weeks in May). Hrblock The total use of the cottage was 99 days (14 days personal use + 85 days rental use). Hrblock Your rental expenses are 85/99 (86%) of the cottage expenses. Hrblock Note. Hrblock When determining whether you used the cottage as a home, the July weekend (2 days) you used it is considered personal use even though you received a fair rental price for the weekend. Hrblock Therefore, you had 16 days of personal use and 83 days of rental use for this purpose. Hrblock Because you used the cottage for personal purposes more than 14 days and more than 10% of the days of rental use (8 days), you used it as a home. Hrblock If you have a net loss, you may not be able to deduct all of the rental expenses. Hrblock See Dwelling Unit Used as a Home, next. Hrblock Dwelling Unit Used as a Home If you use a dwelling unit for both rental and personal purposes, the tax treatment of the rental expenses you figured earlier under Dividing Expenses and rental income depends on whether you are considered to be using the dwelling unit as a home. Hrblock You use a dwelling unit as a home during the tax year if you use it for personal purposes more than the greater of: 14 days, or 10% of the total days it is rented to others at a fair rental price. Hrblock See What is a day of personal use , later. Hrblock Fair rental price. Hrblock   A fair rental price for your property generally is the amount of rent that a person who is not related to you would be willing to pay. Hrblock The rent you charge is not a fair rental price if it is substantially less than the rents charged for other properties that are similar to your property in your area. Hrblock   If a dwelling unit is used for personal purposes on a day it is rented at a fair rental price, do not count that day as a day of rental use in applying (2) above. Hrblock Instead, count it as a day of personal use in applying both (1) and (2) above. Hrblock What is a day of personal use?   A day of personal use of a dwelling unit is any day that the unit is used by any of the following persons. Hrblock You or any other person who has an interest in the unit, unless you rent it to another owner as his or her main home under a shared equity financing agreement (defined later). Hrblock However, see Days used as a main home before or after renting , later. Hrblock A member of your family or a member of the family of any other person who owns an interest in the unit, unless the family member uses the dwelling unit as his or her main home and pays a fair rental price. Hrblock Family includes only your spouse, brothers and sisters, half-brothers and half-sisters, ancestors (parents, grandparents, etc. Hrblock ), and lineal descendants (children, grandchildren, etc. Hrblock ). Hrblock Anyone under an arrangement that lets you use some other dwelling unit. Hrblock Anyone at less than a fair rental price. Hrblock Main home. Hrblock   If the other person or member of the family in (1) or (2) above has more than one home, his or her main home is ordinarily the one he or she lived in most of the time. Hrblock Shared equity financing agreement. Hrblock   This is an agreement under which two or more persons acquire undivided interests for more than 50 years in an entire dwelling unit, including the land, and one or more of the co-owners is entitled to occupy the unit as his or her main home upon payment of rent to the other co-owner or owners. Hrblock Donation of use of property. Hrblock   You use a dwelling unit for personal purposes if: You donate the use of the unit to a charitable organization, The organization sells the use of the unit at a fund-raising event, and The “purchaser” uses the unit. Hrblock Examples. Hrblock   The following examples show how to determine days of personal use. Hrblock Example 1. Hrblock You and your neighbor are co-owners of a condominium at the beach. Hrblock Last year, you rented the unit to vacationers whenever possible. Hrblock The unit was not used as a main home by anyone. Hrblock Your neighbor used the unit for 2 weeks last year; you did not use it at all. Hrblock Because your neighbor has an interest in the unit, both of you are considered to have used the unit for personal purposes during those 2 weeks. Hrblock Example 2. Hrblock You and your neighbors are co-owners of a house under a shared equity financing agreement. Hrblock Your neighbors live in the house and pay you a fair rental price. Hrblock Even though your neighbors have an interest in the house, the days your neighbors live there are not counted as days of personal use by you. Hrblock This is because your neighbors rent the house as their main home under a shared equity financing agreement. Hrblock Example 3. Hrblock You own a rental property that you rent to your son. Hrblock Your son does not own any interest in this property. Hrblock He uses it as his main home and pays you a fair rental price. Hrblock Your son's use of the property is not personal use by you because your son is using it as his main home, he owns no interest in the property, and he is paying you a fair rental price. Hrblock Example 4. Hrblock You rent your beach house to Joshua. Hrblock Joshua rents his cabin in the mountains to you. Hrblock You each pay a fair rental price. Hrblock You are using your house for personal purposes on the days that Joshua uses it because your house is used by Joshua under an arrangement that allows you to use his house. Hrblock Days used for repairs and maintenance. Hrblock   Any day that you spend working substantially full time repairing and maintaining (not improving) your property is not counted as a day of personal use. Hrblock Do not count such a day as a day of personal use even if family members use the property for recreational purposes on the same day. Hrblock Days used as a main home before or after renting. Hrblock   For purposes of determining whether a dwelling unit was used as a home, you may not have to count days you used the property as your main home before or after renting it or offering it for rent as days of personal use. Hrblock Do not count them as days of personal use if: You rented or tried to rent the property for 12 or more consecutive months. Hrblock You rented or tried to rent the property for a period of less than 12 consecutive months and the period ended because you sold or exchanged the property. Hrblock However, this special rule does not apply when dividing expenses between rental and personal use. Hrblock Examples. Hrblock   The following examples show how to determine whether you used your rental property as a home. Hrblock Example 1. Hrblock You converted the basement of your home into an apartment with a bedroom, a bathroom, and a small kitchen. Hrblock You rented the basement apartment at a fair rental price to college students during the regular school year. Hrblock You rented to them on a 9-month lease (273 days). Hrblock You figured 10% of the total days rented to others at a fair rental price is 27 days. Hrblock During June (30 days), your brothers stayed with you and lived in the basement apartment rent free. Hrblock Your basement apartment was used as a home because you used it for personal purposes for 30 days. Hrblock Rent-free use by your brothers is considered personal use. Hrblock Your personal use (30 days) is more than the greater of 14 days or 10% of the total days it was rented (27 days). Hrblock Example 2. Hrblock You rented the guest bedroom in your home at a fair rental price during the local college's homecoming, commencement, and football weekends (a total of 27 days). Hrblock Your sister-in-law stayed in the room, rent free, for the last 3 weeks (21 days) in July. Hrblock You figured 10% of the total days rented to others at a fair rental price is 3 days. Hrblock The room was used as a home because you used it for personal purposes for 21 days. Hrblock That is more than the greater of 14 days or 10% of the 27 days it was rented (3 days). Hrblock Example 3. Hrblock You own a condominium apartment in a resort area. Hrblock You rented it at a fair rental price for a total of 170 days during the year. Hrblock For 12 of those days, the tenant was not able to use the apartment and allowed you to use it even though you did not refund any of the rent. Hrblock Your family actually used the apartment for 10 of those days. Hrblock Therefore, the apartment is treated as having been rented for 160 (170 − 10) days. Hrblock You figured 10% of the total days rented to others at a fair rental price is 16 days. Hrblock Your family also used the apartment for 7 other days during the year. Hrblock You used the apartment as a home because you used it for personal purposes for 17 days. Hrblock That is more than the greater of 14 days or 10% of the 160 days it was rented (16 days). Hrblock Minimal rental use. Hrblock   If you use the dwelling unit as a home and you rent it less than 15 days during the year, that period is not treated as rental activity. Hrblock See Used as a home but rented less than 15 days , later, for more information. Hrblock Limit on deductions. Hrblock   Renting a dwelling unit that is considered a home is not a passive activity. Hrblock Instead, if your rental expenses are more than your rental income, some or all of the excess expenses cannot be used to offset income from other sources. Hrblock The excess expenses that cannot be used to offset income from other sources are carried forward to the next year and treated as rental expenses for the same property. Hrblock Any expenses carried forward to the next year will be subject to any limits that apply for that year. Hrblock This limitation will apply to expenses carried forward to another year even if you do not use the property as your home for that subsequent year. Hrblock   To figure your deductible rental expenses for this year and any carryover to next year, use Worksheet 9-1. Hrblock Reporting Income and Deductions Property not used for personal purposes. Hrblock   If you do not use a dwelling unit for personal purposes, see How To Report Rental Income and Expenses , later, for how to report your rental income and expenses. Hrblock Property used for personal purposes. Hrblock   If you do use a dwelling unit for personal purposes, then how you report your rental income and expenses depends on whether you used the dwelling unit as a home. Hrblock Not used as a home. Hrblock   If you use a dwelling unit for personal purposes, but not as a home, report all the rental income in your income. Hrblock Since you used the dwelling unit for personal purposes, you must divide your expenses between the rental use and the personal use as described earlier in Dividing Expenses . Hrblock The expenses for personal use are not deductible as rental expenses. Hrblock   Your deductible rental expenses can be more than your gross rental income; however, see Limits on Rental Losses , later. Hrblock Used as a home but rented less than 15 days. Hrblock   If you use a dwelling unit as a home and you rent it less than 15 days during the year, its primary function is not considered to be rental and it should not be reported on Schedule E (Form 1040). Hrblock You are not required to report the rental income and rental expenses from this activity. Hrblock The expenses, including qualified mortgage interest, property taxes, and any qualified casualty loss will be reported as normally allowed on Schedule A (Form 1040). Hrblock See the Instructions for Schedule A (Form 1040) for more information on deducting these expenses. Hrblock Used as a home and rented 15 days or more. Hrblock   If you use a dwelling unit as a home and rent it 15 days or more during the year, include all your rental income in your income. Hrblock Since you used the dwelling unit for personal purposes, you must divide your expenses between the rental use and the personal use as described earlier in Dividing Expenses . Hrblock The expenses for personal use are not deductible as rental expenses. Hrblock   If you had a net profit from renting the dwelling unit for the year (that is, if your rental income is more than the total of your rental expenses, including depreciation), deduct all of your rental expenses. Hrblock You do not need to use Worksheet 9-1. Hrblock   However, if you had a net loss from renting the dwelling unit for the year, your deduction for certain rental expenses is limited. Hrblock To figure your deductible rental expenses and any carryover to next year, use Worksheet 9-1. Hrblock Depreciation You recover the cost of income-producing property through yearly tax deductions. Hrblock You do this by depreciating the property; that is, by deducting some of the cost each year on your tax return. Hrblock Three factors determine how much depreciation you can deduct each year: (1) your basis in the property, (2) the recovery period for the property, and (3) the depreciation method used. Hrblock You cannot simply deduct your mortgage or principal payments, or the cost of furniture, fixtures, and equipment, as an expense. Hrblock You can deduct depreciation only on the part of your property used for rental purposes. Hrblock Depreciation reduces your basis for figuring gain or loss on a later sale or exchange. Hrblock You may have to use Form 4562 to figure and report your depreciation. Hrblock See How To Report Rental Income and Expenses , later. Hrblock Alternative minimum tax (AMT). Hrblock    If you use accelerated depreciation, you may be subject to the AMT. Hrblock Accelerated depreciation allows you to deduct more depreciation earlier in the recovery period than you could deduct using a straight line method (same deduction each year). Hrblock Claiming the correct amount of depreciation. Hrblock   You should claim the correct amount of depreciation each tax year. Hrblock If you did not claim all the depreciation you were entitled to deduct, you must still reduce your basis in the property by the full amount of depreciation that you could have deducted. Hrblock   If you deducted an incorrect amount of depreciation for property in any year, you may be able to make a correction by filing Form 1040X, Amended U. Hrblock S Individual Income Tax Return. Hrblock If you are not allowed to make the correction on an amended return, you can change your accounting method to claim the correct amount of depreciation. Hrblock See Claiming the correct amount of depreciation in chapter 2 of Publication 527 for more information. Hrblock Changing your accounting method to deduct unclaimed depreciation. Hrblock   To change your accounting method, you generally must file Form 3115, Application for Change in Accounting Method, to get the consent of the IRS. Hrblock In some instances, that consent is automatic. Hrblock For more information, see chapter 1 of Publication 946. Hrblock Land. Hrblock   You cannot depreciate the cost of land because land generally does not wear out, become obsolete, or get used up. Hrblock The costs of clearing, grading, planting, and landscaping are usually all part of the cost of land and cannot be depreciated. Hrblock More information. Hrblock   See Publication 527 for more information about depreciating rental property and see Publication 946 for more information about depreciation. Hrblock Limits on Rental Losses If you have a loss from your rental real estate activity, two sets of rules may limit the amount of loss you can deduct. Hrblock You must consider these rules in the order shown below. Hrblock At-risk rules. Hrblock These rules are applied first if there is investment in your rental real estate activity for which you are not at risk. Hrblock This applies only if the real property was placed in service after 1986. Hrblock Passive activity limits. Hrblock Generally, rental real estate activities are considered passive activities and losses are not deductible unless you have income from other passive activities to offset them. Hrblock However, there are exceptions. Hrblock At-Risk Rules You may be subject to the at-risk rules if you have: A loss from an activity carried on as a trade or business or for the production of income, and Amounts invested in the activity for which you are not fully at risk. Hrblock Losses from holding real property (other than mineral property) placed in service before 1987 are not subject to the at-risk rules. Hrblock In most cases, any loss from an activity subject to the at-risk rules is allowed only to the extent of the total amount you have at risk in the activity at the end of the tax year. Hrblock You are considered at risk in an activity to the extent of cash and the adjusted basis of other property you contributed to the activity and certain amounts borrowed for use in the activity. Hrblock See Publication 925 for more information. Hrblock Passive Activity Limits In most cases, all rental real estate activities (except those of certain real estate professionals, discussed later) are passive activities. Hrblock For this purpose, a rental activity is an activity from which you receive income mainly for the use of tangible property, rather than for services. Hrblock Limits on passive activity deductions and credits. Hrblock    Deductions or losses from passive activities are limited. Hrblock You generally cannot offset income, other than passive income, with losses from passive activities. Hrblock Nor can you offset taxes on income, other than passive income, with credits resulting from passive activities. Hrblock Any excess loss or credit is carried forward to the next tax year. Hrblock   For a detailed discussion of these rules, see Publication 925. Hrblock    You may have to complete Form 8582 to figure the amount of any passive activity loss for the current tax year for all activities and the amount of the passive activity loss allowed on your tax return. Hrblock Real estate professionals. Hrblock   Rental activities in which you materially participated during the year are not passive activities if, for that year, you were a real estate professional. Hrblock For a detailed discussion of the requirements, see Publication 527. Hrblock For a detailed discussion of material participation, see Publication 925. Hrblock Exception for Personal Use of Dwelling Unit If you used the rental property as a home during the year, any income, deductions, gain, or loss allocable to such use shall not be taken into account for purposes of the passive activity loss limitation. Hrblock Instead, follow the rules explained in Personal Use of Dwelling Unit (Including Vacation Home), earlier. Hrblock Exception for Rental Real Estate Activities With Active Participation If you or your spouse actively participated in a passive rental real estate activity, you may be able to deduct up to $25,000 of loss from the activity from your nonpassive income. Hrblock This special allowance is an exception to the general rule disallowing losses in excess of income from passive activities. Hrblock Similarly, you may be able to offset credits from the activity against the tax on up to $25,000 of nonpassive income after taking into account any losses allowed under this exception. Hrblock Active participation. Hrblock   You actively participated in a rental real estate activity if you (and your spouse) owned at least 10% of the rental property and you made management decisions or arranged for others to provide services (such as repairs) in a significant and bona fide sense. Hrblock Management decisions that may count as active participation include approving new tenants, deciding on rental terms, approving expenditures, and similar decisions. Hrblock Maximum special allowance. Hrblock   The maximum special allowance is: $25,000 for single individuals and married individuals filing a joint return for the tax year, $12,500 for married individuals who file separate returns for the tax year and lived apart from their spouses at all times during the tax year, and $25,000 for a qualifying estate reduced by the special allowance for which the surviving spouse qualified. Hrblock   If your modified adjusted gross income (MAGI) is $100,000 or less ($50,000 or less if married filing separately), you can deduct your loss up to the amount specified above. Hrblock If your MAGI is more than $100,000 (more than $50,000 if married filing separately), your special allowance is limited to 50% of the difference between $150,000 ($75,000 if married filing separately) and your MAGI. Hrblock   Generally, if your MAGI is $150,000 or more ($75,000 or more if you are married filing separately), there is no special allowance. Hrblock More information. Hrblock   See Publication 925 for more information on the passive loss limits, including information on the treatment of unused disallowed passive losses and credits and the treatment of gains and losses realized on the disposition of a passive activity. Hrblock How To Report Rental Income and Expenses The basic form for reporting residential rental income and expenses is Schedule E (Form 1040). Hrblock However, do not use that schedule to report a not-for-profit activity. Hrblock See Not Rented for Profit, earlier. Hrblock Providing substantial services. Hrblock   If you provide substantial services that are primarily for your tenant's convenience, such as regular cleaning, changing linen, or maid service, report your rental income and expenses on Schedule C (Form 1040), Profit or Loss From Business, or Schedule C-EZ (Form 1040), Net Profit From Business (Sole Proprietorship). Hrblock Substantial services do not include the furnishing of heat and light, cleaning of public areas, trash collection, etc. Hrblock For information, see Publication 334, Tax Guide for Small Business. Hrblock You also may have to pay self-employment tax on your rental income using Schedule SE (Form 1040), Self-Employment Tax. Hrblock   Use Form 1065, U. Hrblock S. Hrblock Return of Partnership Income, if your rental activity is a partnership (including a partnership with your spouse unless it is a qualified joint venture). Hrblock Qualified joint venture. Hrblock   If you and your spouse each materially participate as the only members of a jointly owned and operated real estate business, and you file a joint return for the tax year, you can make a joint election to be treated as a qualified joint venture instead of a partnership. Hrblock This election, in most cases, will not increase the total tax owed on the joint return, but it does give each of you credit for social security earnings on which retirement benefits are based and for Medicare coverage if your rental income is subject to self-employment tax. Hrblock For more information, see Publication 527. Hrblock Form 1098, Mortgage Interest Statement. Hrblock    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. Hrblock 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. Hrblock Attach a statement to your return showing the name and address of the other person. Hrblock In the left margin of Schedule E, next to line 13, enter “See attached. Hrblock ” Schedule E (Form 1040) If you rent buildings, rooms, or apartments, and provide basic services such as heat and light, trash collection, etc. Hrblock , you normally report your rental income and expenses on Schedule E, Part I. Hrblock List your total income, expenses, and depreciation for each rental property. Hrblock Be sure to enter the number of fair rental and personal use days on line 2. Hrblock If you have more than three rental or royalty properties, complete and attach as many Schedules E as are needed to list the properties. Hrblock Complete lines 1 and 2 for each property. Hrblock However, fill in lines 23a through 26 on only one Schedule E. Hrblock On Schedule E, page 1, line 18, enter the depreciation you are claiming for each property. Hrblock To find out if you need to attach Form 4562, see Form 4562, in chapter 3 of Publication 527. Hrblock If you have a loss from your rental real estate activity, you also may need to complete one or both of the following forms. Hrblock Form 6198, At-Risk Limitations. Hrblock See At-Risk Rules , earlier. Hrblock Also see Publication 925. Hrblock Form 8582, Passive Activity Loss Limitations. Hrblock See Passive Activity Limits , earlier. Hrblock Page 2 of Schedule E is used to report income or loss from partnerships, S corporations, estates, trusts, and real estate mortgage investment conduits. Hrblock If you need to use page 2 of Schedule E, be sure to use page 2 of the same Schedule E you used to enter your rental activity on page 1. Hrblock Also, include the amount from line 26 (Part I) in the “Total income or (loss)” on line 41 (Part V). Hrblock Worksheet 9-1. Hrblock Worksheet for Figuring Rental Deductions for a Dwelling Unit Used as a Home Use this worksheet only if you answer “yes” to all of the following questions. Hrblock Did you use the dwelling unit as a home this year? (See Dwelling Unit Used as a Home . Hrblock ) Did you rent the dwelling unit at a fair rental price 15 days or more this year? Is the total of your rental expenses and depreciation more than your rental income? PART I. Hrblock Rental Use Percentage A. Hrblock Total days available for rent at fair rental price A. Hrblock       B. Hrblock Total days available for rent (line A) but not rented B. Hrblock       C. Hrblock Total days of rental use. Hrblock Subtract line B from line A C. Hrblock       D. Hrblock Total days of personal use (including days rented at less than fair rental price) D. Hrblock       E. Hrblock Total days of rental and personal use. Hrblock Add lines C and D E. Hrblock       F. Hrblock Percentage of expenses allowed for rental. Hrblock Divide line C by line E     F. Hrblock   PART II. Hrblock Allowable Rental Expenses 1. Hrblock Enter rents received 1. Hrblock   2a. Hrblock Enter the rental portion of deductible home mortgage interest and qualified mortgage insurance premiums (see instructions) 2a. Hrblock       b. Hrblock Enter the rental portion of real estate taxes b. Hrblock       c. Hrblock Enter the rental portion of deductible casualty and theft losses (see instructions) c. Hrblock       d. Hrblock Enter direct rental expenses (see instructions) d. Hrblock       e. Hrblock Fully deductible rental expenses. Hrblock Add lines 2a–2d. Hrblock Enter here and  on the appropriate lines on Schedule E (see instructions) 2e. Hrblock   3. Hrblock Subtract line 2e from line 1. Hrblock If zero or less, enter -0- 3. Hrblock   4a. Hrblock Enter the rental portion of expenses directly related to operating or maintaining  the dwelling unit (such as repairs, insurance, and utilities) 4a. Hrblock       b. Hrblock Enter the rental portion of excess mortgage interest and qualified mortgage insurance premiums (see instructions) b. Hrblock       c. Hrblock Carryover of operating expenses from 2012 worksheet c. Hrblock       d. Hrblock Add lines 4a–4c d. Hrblock       e. Hrblock Allowable expenses. Hrblock Enter the smaller of line 3 or line 4d (see instructions) 4e. Hrblock   5. Hrblock Subtract line 4e from line 3. Hrblock If zero or less, enter -0- 5. Hrblock   6a. Hrblock Enter the rental portion of excess casualty and theft losses (see instructions) 6a. Hrblock       b. Hrblock Enter the rental portion of depreciation of the dwelling unit b. Hrblock       c. Hrblock Carryover of excess casualty losses and depreciation from 2012 worksheet c. Hrblock       d. Hrblock Add lines 6a–6c d. Hrblock       e. Hrblock Allowable excess casualty and theft losses and depreciation. Hrblock Enter the smaller of  line 5 or line 6d (see instructions) 6e. Hrblock   PART III. Hrblock Carryover of Unallowed Expenses to Next Year 7a. Hrblock Operating expenses to be carried over to next year. Hrblock Subtract line 4e from line 4d 7a. Hrblock   b. Hrblock Excess casualty and theft losses and depreciation to be carried over to next year. Hrblock  Subtract line 6e from line 6d b. Hrblock   Worksheet 9-1 Instructions. Hrblock Worksheet for Figuring Rental Deductions for a Dwelling Unit Used as a Home Caution. Hrblock Use the percentage determined in Part I, line F, to figure the rental portions to enter on lines 2a–2c, 4a–4b, and 6a–6b of  Part II. Hrblock Line 2a. Hrblock Figure the mortgage interest on the dwelling unit that you could deduct on Schedule A as if you had not rented the unit. Hrblock Do not include interest on a loan that did not benefit the dwelling unit. Hrblock For example, do not include interest on a home equity loan used to pay off credit cards or other personal loans, buy a car, or pay college tuition. Hrblock Include interest on a loan used to buy, build, or improve the dwelling unit, or to refinance such a loan. Hrblock Include the rental portion of this interest in the total you enter on line 2a of the worksheet. Hrblock   Figure the qualified mortgage insurance premiums on the dwelling unit that you could deduct on line 13 of Schedule A as if you had not rented the unit. Hrblock See the Schedule A instructions. Hrblock However, figure your adjusted gross income (Form 1040, line 38) without your rental income and expenses from the dwelling unit. Hrblock See Line 4b to deduct the part of the qualified mortgage insurance premiums not allowed because of the adjusted gross income limit. Hrblock Include the rental portion of the amount from Schedule A, line 13, in the total you enter on line 2a of the worksheet. Hrblock   Note. Hrblock Do not file this Schedule A or use it to figure the amount to deduct on line 13 of that schedule. Hrblock Instead, figure the personal portion on a separate Schedule A. Hrblock If you have deducted mortgage interest or qualified mortgage insurance premiums on the dwelling unit on other forms, such as Schedule C or F, remember to reduce your Schedule A deduction by that amount. Hrblock           Line 2c. Hrblock Figure the casualty and theft losses related to the dwelling unit that you could deduct on Schedule A as if you had not rented the dwelling unit. Hrblock To do this, complete Section A of Form 4684, Casualties and Thefts, treating the losses as personal losses. Hrblock If any of the loss is due to a federally declared disaster, see the Instructions for Form 4684. Hrblock On Form 4684, line 17, enter 10% of your adjusted gross income figured without your rental income and expenses from the dwelling unit. Hrblock Enter the rental portion of the result from Form 4684, line 18, on line 2c of this worksheet. Hrblock   Note. Hrblock Do not file this Form 4684 or use it to figure your personal losses on Schedule A. Hrblock Instead, figure the personal portion on a separate Form 4684. Hrblock           Line 2d. Hrblock Enter the total of your rental expenses that are directly related only to the rental activity. Hrblock These include interest on loans used for rental activities other than to buy, build, or improve the dwelling unit. Hrblock Also include rental agency fees, advertising, office supplies, and depreciation on office equipment used in your rental activity. Hrblock           Line 2e. Hrblock You can deduct the amounts on lines 2a, 2b, 2c, and 2d as rental expenses on Schedule E even if your rental expenses are more than your rental income. Hrblock Enter the amounts on lines 2a, 2b, 2c, and 2d on the appropriate lines of Schedule E. Hrblock           Line 4b. Hrblock On line 2a, you entered the rental portion of the mortgage interest and qualified mortgage insurance premiums you could deduct on Schedule A if you had not rented the dwelling unit. Hrblock If you had additional mortgage interest and qualified mortgage insurance premiums that would not be deductible on Schedule A because of limits imposed on them, enter on line 4b of this worksheet the rental portion of those excess amounts. Hrblock Do not include interest on a loan that did not benefit the dwelling unit (as explained in the line 2a instructions). Hrblock           Line 4e. Hrblock You can deduct the amounts on lines 4a, 4b, and 4c as rental expenses on Schedule E only to the extent they are not more than the amount on line 4e. Hrblock *           Line 6a. Hrblock To find the rental portion of excess casualty and theft losses, use the Form 4684 you prepared for line 2c of this worksheet. Hrblock   A. Hrblock Enter the amount from Form 4684, line 10       B. Hrblock Enter the rental portion of line A       C. Hrblock Enter the amount from line 2c of this worksheet       D. Hrblock Subtract line C from line B. Hrblock Enter the result here and on line 6a of this worksheet               Line 6e. Hrblock You can deduct the amounts on lines 6a, 6b, and 6c as rental expenses on Schedule E only to the extent they are not more than the amount on line 6e. Hrblock * *Allocating the limited deduction. Hrblock If you cannot deduct all of the amount on line 4d or 6d this year, you can allocate the allowable deduction in any way you wish among the expenses included on line 4d or 6d. Hrblock Enter the amount you allocate to each expense on the appropriate line of Schedule E, Part I. Hrblock Prev  Up  Next   Home   More Online Publications