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Tax Return Form 1040ez

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Tax Return Form 1040ez

Tax return form 1040ez 12. Tax return form 1040ez   Business Deduction for Work-Related Education Table of Contents What's New Introduction Qualifying Work-Related EducationEducation Required by Employer or by Law Education To Maintain or Improve Skills Education To Meet Minimum Requirements Education That Qualifies You for a New Trade or Business What Expenses Can Be DeductedUnclaimed reimbursement. Tax return form 1040ez Transportation Expenses Travel Expenses No Double Benefit Allowed How To Treat ReimbursementsAccountable Plans Nonaccountable Plans Deducting Business ExpensesSelf-Employed Persons Employees Performing Artists and Fee-Basis Officials Impairment-Related Work Expenses Recordkeeping Illustrated Example What's New Standard mileage rate. Tax return form 1040ez  Generally, if you claim a business deduction for work-related education and you drive your car to and from school, the amount you can deduct for miles driven from January 1, 2013 through December 31, 2013, is 56. Tax return form 1040ez 5 cents per mile. Tax return form 1040ez For more information, see Transportation Expenses under What Expenses Can Be Deducted, later. Tax return form 1040ez Introduction This chapter discusses work-related education expenses that you may be able to deduct as business expenses. Tax return form 1040ez To claim such a deduction, you must: Itemize your deductions on Schedule A (Form 1040 or 1040NR) if you are an employee, File Schedule C (Form 1040), Profit or Loss From Business, Schedule C-EZ (Form 1040), Net Profit From Business, or Schedule F (Form 1040), Profit or Loss From Farming if you are self-employed, and Have expenses for education that meet the requirements discussed under Qualifying Work-Related Education , later. Tax return form 1040ez What is the tax benefit of taking a business deduction for work-related education. Tax return form 1040ez   If you are an employee and can itemize your deductions, you may be able to claim a deduction for the expenses you pay for your work-related education. Tax return form 1040ez Your deduction will be the amount by which your qualifying work-related education expenses plus other job and certain miscellaneous expenses (except for impairment-related work expenses of disabled individuals) is greater than 2% of your adjusted gross income. Tax return form 1040ez An itemized deduction reduces the amount of your income subject to tax. Tax return form 1040ez   If you are self-employed, you deduct your expenses for qualifying work-related education directly from your self-employment income. Tax return form 1040ez This reduces the amount of your income subject to both income tax and self-employment tax. Tax return form 1040ez   Your work-related education expenses may also qualify you for other tax benefits, such as the American opportunity and lifetime learning credits. Tax return form 1040ez You may qualify for these other benefits even if you do not meet the requirements listed above. Tax return form 1040ez   Also, your work-related education expenses may qualify you to claim more than one tax benefit. Tax return form 1040ez Generally, you may claim any number of benefits as long as you use different expenses to figure each one. Tax return form 1040ez Qualifying Work-Related Education You can deduct the costs of qualifying work-related education as business expenses. Tax return form 1040ez This is education that meets at least one of the following two tests. Tax return form 1040ez The education is required by your employer or the law to keep your present salary, status, or job. Tax return form 1040ez The required education must serve a bona fide business purpose of your employer. Tax return form 1040ez The education maintains or improves skills needed in your present work. Tax return form 1040ez However, even if the education meets one or both of the above tests, it is not qualifying work-related education if it: Is needed to meet the minimum educational requirements of your present trade or business, or Is part of a program of study that will qualify you for a new trade or business. Tax return form 1040ez You can deduct the costs of qualifying work-related education as a business expense even if the education could lead to a degree. Tax return form 1040ez Use Figure 12-1, Does Your Work-Related Education Qualify as a quick check to see if your education qualifies. Tax return form 1040ez Education Required by Employer or by Law Once you have met the minimum educational requirements for your job, your employer or the law may require you to get more education. Tax return form 1040ez This additional education is qualifying work-related education if all three of the following requirements are met. Tax return form 1040ez It is required for you to keep your present salary, status, or job, The requirement serves a bona fide business purpose of your employer, and The education is not part of a program that will qualify you for a new trade or business. Tax return form 1040ez When you get more education than your employer or the law requires, the additional education can be qualifying work-related education only if it maintains or improves skills required in your present work. Tax return form 1040ez See Education To Maintain or Improve Skills , later. Tax return form 1040ez Example. Tax return form 1040ez You are a teacher who has satisfied the minimum requirements for teaching. Tax return form 1040ez Your employer requires you to take an additional college course each year to keep your teaching job. Tax return form 1040ez If the courses will not qualify you for a new trade or business, they are qualifying work-related education even if you eventually receive a master's degree and an increase in salary because of this extra education. Tax return form 1040ez This image is too large to be displayed in the current screen. Tax return form 1040ez Please click the link to view the image. Tax return form 1040ez Figure 12-1 Education To Maintain or Improve Skills If your education is not required by your employer or the law, it can be qualifying work-related education only if it maintains or improves skills needed in your present work. Tax return form 1040ez This could include refresher courses, courses on current developments, and academic or vocational courses. Tax return form 1040ez Example. Tax return form 1040ez You repair televisions, radios, and stereo systems for XYZ Store. Tax return form 1040ez To keep up with the latest changes, you take special courses in radio and stereo service. Tax return form 1040ez These courses maintain and improve skills required in your work. Tax return form 1040ez Maintaining skills vs. Tax return form 1040ez qualifying for new job. Tax return form 1040ez   Education to maintain or improve skills needed in your present work is not qualifying education if it will also qualify you for a new trade or business. Tax return form 1040ez Education during temporary absence. Tax return form 1040ez   If you stop working for a year or less in order to get education to maintain or improve skills needed in your present work and then return to the same general type of work, your absence is considered temporary. Tax return form 1040ez Education that you get during a temporary absence is qualifying work-related education if it maintains or improves skills needed in your present work. Tax return form 1040ez Example. Tax return form 1040ez You quit your biology research job to become a full-time biology graduate student for 1 year. Tax return form 1040ez If you return to work in biology research after completing the courses, the education is related to your present work even if you do not go back to work with the same employer. Tax return form 1040ez Education during indefinite absence. Tax return form 1040ez   If you stop work for more than a year, your absence from your job is considered indefinite. Tax return form 1040ez Education during an indefinite absence, even if it maintains or improves skills needed in the work from which you are absent, is considered to qualify you for a new trade or business. Tax return form 1040ez Therefore, it is not qualifying work-related education. Tax return form 1040ez Education To Meet Minimum Requirements Education you need to meet the minimum educational requirements for your present trade or business is not qualifying work-related education. Tax return form 1040ez The minimum educational requirements are determined by: Laws and regulations, Standards of your profession, trade, or business, and Your employer. Tax return form 1040ez Once you have met the minimum educational requirements that were in effect when you were hired, you do not have to meet any new minimum educational requirements. Tax return form 1040ez This means that if the minimum requirements change after you were hired, any education you need to meet the new requirements can be qualifying education. Tax return form 1040ez You have not necessarily met the minimum educational requirements of your trade or business simply because you are already doing the work. Tax return form 1040ez Example 1. Tax return form 1040ez You are a full-time engineering student. Tax return form 1040ez Although you have not received your degree or certification, you work part time as an engineer for a firm that will employ you as a full-time engineer after you finish college. Tax return form 1040ez Although your college engineering courses improve your skills in your present job, they are also needed to meet the minimum job requirements for a full-time engineer. Tax return form 1040ez The education is not qualifying work-related education. Tax return form 1040ez Example 2. Tax return form 1040ez You are an accountant and you have met the minimum educational requirements of your employer. Tax return form 1040ez Your employer later changes the minimum educational requirements and requires you to take college courses to keep your job. Tax return form 1040ez These additional courses can be qualifying work-related education because you have already satisfied the minimum requirements that were in effect when you were hired. Tax return form 1040ez Requirements for Teachers States or school districts usually set the minimum educational requirements for teachers. Tax return form 1040ez The requirement is the college degree or the minimum number of college hours usually required of a person hired for that position. Tax return form 1040ez If there are no requirements, you will have met the minimum educational requirements when you become a faculty member. Tax return form 1040ez The determination of whether you are a faculty member of an educational institution must be made on the basis of the particular practices of the institution. Tax return form 1040ez You generally will be considered a faculty member when one or more of the following occurs. Tax return form 1040ez You have tenure. Tax return form 1040ez Your years of service count toward obtaining tenure. Tax return form 1040ez You have a vote in faculty decisions. Tax return form 1040ez Your school makes contributions for you to a retirement plan other than social security or a similar program. Tax return form 1040ez Example 1. Tax return form 1040ez The law in your state requires beginning secondary school teachers to have a bachelor's degree, including 10 professional education courses. Tax return form 1040ez In addition, to keep the job a teacher must complete a fifth year of training within 10 years from the date of hire. Tax return form 1040ez If the employing school certifies to the state Department of Education that qualified teachers cannot be found, the school can hire persons with only 3 years of college. Tax return form 1040ez However, to keep their jobs, these teachers must get a bachelor's degree and the required professional education courses within 3 years. Tax return form 1040ez Under these facts, the bachelor's degree, whether or not it includes the 10 professional education courses, is considered the minimum educational requirement for qualification as a teacher in your state. Tax return form 1040ez If you have all the required education except the fifth year, you have met the minimum educational requirements. Tax return form 1040ez The fifth year of training is qualifying work-related education unless it is part of a program of study that will qualify you for a new trade or business. Tax return form 1040ez Example 2. Tax return form 1040ez Assume the same facts as in Example 1 except that you have a bachelor's degree and only six professional education courses. Tax return form 1040ez The additional four education courses can be qualifying work-related education. Tax return form 1040ez Although you do not have all the required courses, you have already met the minimum educational requirements. Tax return form 1040ez Example 3. Tax return form 1040ez Assume the same facts as in Example 1 except that you are hired with only 3 years of college. Tax return form 1040ez The courses you take that lead to a bachelor's degree (including those in education) are not qualifying work-related education. Tax return form 1040ez They are needed to meet the minimum educational requirements for employment as a teacher. Tax return form 1040ez Example 4. Tax return form 1040ez You have a bachelor's degree and you work as a temporary instructor at a university. Tax return form 1040ez At the same time, you take graduate courses toward an advanced degree. Tax return form 1040ez The rules of the university state that you can become a faculty member only if you get a graduate degree. Tax return form 1040ez Also, you can keep your job as an instructor only as long as you show satisfactory progress toward getting this degree. Tax return form 1040ez You have not met the minimum educational requirements to qualify you as a faculty member. Tax return form 1040ez The graduate courses are not qualifying work-related education. Tax return form 1040ez Certification in a new state. Tax return form 1040ez   Once you have met the minimum educational requirements for teachers for your state, you are considered to have met the minimum educational requirements in all states. Tax return form 1040ez This is true even if you must get additional education to be certified in another state. Tax return form 1040ez Any additional education you need is qualifying work-related education. Tax return form 1040ez You have already met the minimum requirements for teaching. Tax return form 1040ez Teaching in another state is not a new trade or business. Tax return form 1040ez Example. Tax return form 1040ez You hold a permanent teaching certificate in State A and are employed as a teacher in that state for several years. Tax return form 1040ez You move to State B and are promptly hired as a teacher. Tax return form 1040ez You are required, however, to complete certain prescribed courses to get a permanent teaching certificate in State B. Tax return form 1040ez These additional courses are qualifying work-related education because the teaching position in State B involves the same general kind of work for which you were qualified in State A. Tax return form 1040ez Education That Qualifies You for a New Trade or Business Education that is part of a program of study that will qualify you for a new trade or business is not qualifying work-related education. Tax return form 1040ez This is true even if you do not plan to enter that trade or business. Tax return form 1040ez If you are an employee, a change of duties that involves the same general kind of work is not a new trade or business. Tax return form 1040ez Example 1. Tax return form 1040ez You are an accountant. Tax return form 1040ez Your employer requires you to get a law degree at your own expense. Tax return form 1040ez You register at a law school for the regular curriculum that leads to a law degree. Tax return form 1040ez Even if you do not intend to become a lawyer, the education is not qualifying because the law degree will qualify you for a new trade or business. Tax return form 1040ez Example 2. Tax return form 1040ez You are a general practitioner of medicine. Tax return form 1040ez You take a 2-week course to review developments in several specialized fields of medicine. Tax return form 1040ez The course does not qualify you for a new profession. Tax return form 1040ez It is qualifying work- related education because it maintains or improves skills required in your present profession. Tax return form 1040ez Example 3. Tax return form 1040ez While working in the private practice of psychiatry, you enter a program to study and train at an accredited psychoanalytic institute. Tax return form 1040ez The program will lead to qualifying you to practice psychoanalysis. Tax return form 1040ez The psychoanalytic training does not qualify you for a new profession. Tax return form 1040ez It is qualifying work-related education because it maintains or improves skills required in your present profession. Tax return form 1040ez Bar or CPA Review Course Review courses to prepare for the bar examination or the certified public accountant (CPA) examination are not qualifying work-related education. Tax return form 1040ez They are part of a program of study that can qualify you for a new profession. Tax return form 1040ez Teaching and Related Duties All teaching and related duties are considered the same general kind of work. Tax return form 1040ez A change in duties in any of the following ways is not considered a change to a new business. Tax return form 1040ez Elementary school teacher to secondary school teacher. Tax return form 1040ez Teacher of one subject, such as biology, to teacher of another subject, such as art. Tax return form 1040ez Classroom teacher to guidance counselor. Tax return form 1040ez Classroom teacher to school administrator. Tax return form 1040ez What Expenses Can Be Deducted If your education meets the requirements described earlier under Qualifying Work-Related Education you can generally deduct your education expenses as business expenses. Tax return form 1040ez If you are not self-employed, you can deduct business expenses only if you itemize your deductions. Tax return form 1040ez You cannot deduct expenses related to tax-exempt and excluded income. Tax return form 1040ez Deductible expenses. Tax return form 1040ez   The following education expenses can be deducted. Tax return form 1040ez Tuition, books, supplies, lab fees, and similar items. Tax return form 1040ez Certain transportation and travel costs. Tax return form 1040ez Other education expenses, such as costs of research and typing when writing a paper as part of an educational program. Tax return form 1040ez Nondeductible expenses. Tax return form 1040ez   You cannot deduct personal or capital expenses. Tax return form 1040ez For example, you cannot deduct the dollar value of vacation time or annual leave you take to attend classes. Tax return form 1040ez This amount is a personal expense. Tax return form 1040ez Unclaimed reimbursement. Tax return form 1040ez   If you do not claim reimbursement that you are entitled to receive from your employer, you cannot deduct the expenses that apply to that unclaimed reimbursement. Tax return form 1040ez Example. Tax return form 1040ez Your employer agrees to pay your education expenses if you file a voucher showing your expenses. Tax return form 1040ez You do not file a voucher and you do not get reimbursed. Tax return form 1040ez Because you did not file a voucher, you cannot deduct the expenses on your tax return. Tax return form 1040ez Transportation Expenses If your education qualifies, you can deduct local transportation costs of going directly from work to school. Tax return form 1040ez If you are regularly employed and go to school on a temporary basis, you can also deduct the costs of returning from school to home. Tax return form 1040ez Temporary basis. Tax return form 1040ez   You go to school on a temporary basis if either of the following situations applies to you. Tax return form 1040ez Your attendance at school is realistically expected to last 1 year or less and does indeed last for 1 year or less. Tax return form 1040ez Initially, your attendance at school is realistically expected to last 1 year or less, but at a later date your attendance is reasonably expected to last more than 1 year. Tax return form 1040ez Your attendance is temporary up to the date you determine it will last more than 1 year. Tax return form 1040ez If you are in either situation (1) or (2) above, your attendance is not temporary if facts and circumstances indicate otherwise. Tax return form 1040ez Attendance not on a temporary basis. Tax return form 1040ez   You do not go to school on a temporary basis if either of the following situations apply to you. Tax return form 1040ez Your attendance at school is realistically expected to last more than 1 year. Tax return form 1040ez It does not matter how long you actually attend. Tax return form 1040ez Initially, your attendance at school is realistically expected to last 1 year or less, but at a later date your attendance is reasonably expected to last more than 1 year. Tax return form 1040ez Your attendance is not temporary after the date you determine it will last more than 1 year. Tax return form 1040ez Deductible Transportation Expenses If you are regularly employed and go directly from home to school on a temporary basis, you can deduct the round-trip costs of transportation between your home and school. Tax return form 1040ez This is true regardless of the location of the school, the distance traveled, or whether you attend school on nonwork days. Tax return form 1040ez Transportation expenses include the actual costs of bus, subway, cab, or other fares, as well as the costs of using your car. Tax return form 1040ez Transportation expenses do not include amounts spent for travel, meals, or lodging while you are away from home overnight. Tax return form 1040ez Example 1. Tax return form 1040ez You regularly work in a nearby town, and go directly from work to home. Tax return form 1040ez You also attend school every work night for 3 months to take a course that improves your job skills. Tax return form 1040ez Since you are attending school on a temporary basis, you can deduct your daily round-trip transportation expenses in going between home and school. Tax return form 1040ez This is true regardless of the distance traveled. Tax return form 1040ez Example 2. Tax return form 1040ez Assume the same facts as in Example 1 except that on certain nights you go directly from work to school and then home. Tax return form 1040ez You can deduct your transportation expenses from your regular work site to school and then home. Tax return form 1040ez Example 3. Tax return form 1040ez Assume the same facts as in Example 1 except that you attend the school for 9 months on Saturdays, nonwork days. Tax return form 1040ez Since you are attending school on a temporary basis, you can deduct your round-trip transportation expenses in going between home and school. Tax return form 1040ez Example 4. Tax return form 1040ez Assume the same facts as in Example 1 except that you attend classes twice a week for 15 months. Tax return form 1040ez Since your attendance in school is not considered temporary, you cannot deduct your transportation expenses in going between home and school. Tax return form 1040ez If you go directly from work to school, you can deduct the one-way transportation expenses of going from work to school. Tax return form 1040ez If you go from work to home to school and return home, your transportation expenses cannot be more than if you had gone directly from work to school. Tax return form 1040ez Using your car. Tax return form 1040ez    If you use your car (whether you own or lease it) for transportation to school, you can deduct your actual expenses or use the standard mileage rate to figure the amount you can deduct. Tax return form 1040ez The standard mileage rate for miles driven from January 1, 2013 through December 31, 2013, is 56. Tax return form 1040ez 5 cents per mile. Tax return form 1040ez Whichever method you use, you can also deduct parking fees and tolls. Tax return form 1040ez See Publication 463, chapter 4, for information on deducting your actual expenses of using a car. Tax return form 1040ez Travel Expenses You can deduct expenses for travel, meals (see 50% limit on meals , later), and lodging if you travel overnight mainly to obtain qualifying work-related education. Tax return form 1040ez Travel expenses for qualifying work-related education are treated the same as travel expenses for other employee business purposes. Tax return form 1040ez For more information, see chapter 1 of Publication 463. Tax return form 1040ez You cannot deduct expenses for personal activities such as sightseeing, visiting, or entertaining. Tax return form 1040ez Mainly personal travel. Tax return form 1040ez   If your travel away from home is mainly personal, you cannot deduct all of your expenses for travel, meals, and lodging. Tax return form 1040ez You can deduct only your expenses for lodging and 50% of your expenses for meals during the time you attend the qualified educational activities. Tax return form 1040ez   Whether a trip's purpose is mainly personal or educational depends upon the facts and circumstances. Tax return form 1040ez An important factor is the comparison of time spent on personal activities with time spent on educational activities. Tax return form 1040ez If you spend more time on personal activities, the trip is considered mainly educational only if you can show a substantial nonpersonal reason for traveling to a particular location. Tax return form 1040ez Example 1. Tax return form 1040ez John works in Newark, New Jersey. Tax return form 1040ez He traveled to Chicago to take a deductible 1-week course at the request of his employer. Tax return form 1040ez His main reason for going to Chicago was to take the course. Tax return form 1040ez While there, he took a sightseeing trip, entertained some friends, and took a side trip to Pleasantville for a day. Tax return form 1040ez Since the trip was mainly for business, John can deduct his round-trip airfare to Chicago. Tax return form 1040ez He cannot deduct his transportation expenses of going to Pleasantville. Tax return form 1040ez He can deduct only the meals (subject to the 50% limit) and lodging connected with his educational activities. Tax return form 1040ez Example 2. Tax return form 1040ez Sue works in Boston. Tax return form 1040ez She went to a university in Michigan to take a course for work. Tax return form 1040ez The course is qualifying work-related education. Tax return form 1040ez She took one course, which is one-fourth of a full course load of study. Tax return form 1040ez She spent the rest of the time on personal activities. Tax return form 1040ez Her reasons for taking the course in Michigan were all personal. Tax return form 1040ez Sue's trip is mainly personal because three-fourths of her time is considered personal time. Tax return form 1040ez She cannot deduct the cost of her round-trip train ticket to Michigan. Tax return form 1040ez She can deduct one-fourth of the meals (subject to the 50% limit) and lodging costs for the time she attended the university. Tax return form 1040ez Example 3. Tax return form 1040ez Dave works in Nashville and recently traveled to California to take a 2-week seminar. Tax return form 1040ez The seminar is qualifying work-related education. Tax return form 1040ez While there, he spent an extra 8 weeks on personal activities. Tax return form 1040ez The facts, including the extra 8-week stay, show that his main purpose was to take a vacation. Tax return form 1040ez Dave cannot deduct his round-trip airfare or his meals and lodging for the 8 weeks. Tax return form 1040ez He can deduct only his expenses for meals (subject to the 50% limit) and lodging for the 2 weeks he attended the seminar. Tax return form 1040ez Cruises and conventions. Tax return form 1040ez   Certain cruises and conventions offer seminars or courses as part of their itinerary. Tax return form 1040ez Even if the seminars or courses are work related, your deduction for travel may be limited. Tax return form 1040ez This applies to: Travel by ocean liner, cruise ship, or other form of luxury water transportation, and Conventions outside the North American area. Tax return form 1040ez   For a discussion of the limits on travel expense deductions that apply to cruises and conventions, see Luxury Water Travel and Conventions in chapter 1 of Publication 463. Tax return form 1040ez 50% limit on meals. Tax return form 1040ez   You can deduct only 50% of the cost of your meals while traveling away from home to obtain qualifying work-related education. Tax return form 1040ez If you were reimbursed for the meals, see How To Treat Reimbursements , later. Tax return form 1040ez   Employees must use Form 2106 or Form 2106-EZ to apply the 50% limit. Tax return form 1040ez Travel as Education You cannot deduct the cost of travel as a form of education even if it is directly related to your duties in your work or business. Tax return form 1040ez Example. Tax return form 1040ez You are a French language teacher. Tax return form 1040ez While on sabbatical leave granted for travel, you traveled through France to improve your knowledge of the French language. Tax return form 1040ez You chose your itinerary and most of your activities to improve your French language skills. Tax return form 1040ez You cannot deduct your travel expenses as education expenses. Tax return form 1040ez This is true even if you spent most of your time learning French by visiting French schools and families, attending movies or plays, and engaging in similar activities. Tax return form 1040ez No Double Benefit Allowed You cannot do either of the following. Tax return form 1040ez Deduct work-related education expenses as business expenses if you benefit from these expenses under any other provision of the law, for example, as a tuition and fees deduction. Tax return form 1040ez Deduct work-related education expenses paid with tax-free scholarship, grant, or employer-provided educational assistance. Tax return form 1040ez See Adjustments to Qualifying Work-Related Education Expenses, next. Tax return form 1040ez Adjustments to Qualifying Work-Related Education Expenses If you pay qualifying work-related education expenses with certain tax-free funds, you cannot claim a deduction for those amounts. Tax return form 1040ez You must reduce the qualifying expenses by the amount of such expenses allocable to the tax-free educational assistance. Tax return form 1040ez Tax-free educational assistance. Tax return form 1040ez   This includes: The tax-free part of scholarships and fellowships (see Tax-Free Scholarships and Fellowships in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Pell grants (see Pell Grants and Other Title IV Need-Based Education Grants in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions). Tax return form 1040ez Employer-provided educational assistance (see chapter 11, Employer-Provided Educational Assistance ), Veterans' educational assistance (see Veterans' Benefits in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), and Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. Tax return form 1040ez Amounts that do not reduce qualifying work-related education expenses. Tax return form 1040ez   Do not reduce the qualifying work-related education expenses by amounts paid with funds the student receives as: Payment for services, such as wages, A loan, A gift, An inheritance, or A withdrawal from the student's personal savings. Tax return form 1040ez Also, do not reduce the qualifying work-related education expenses by any scholarship or fellowship reported as income on the student's return or any scholarship which, by its terms, cannot be applied to qualifying work-related education expenses. Tax return form 1040ez How To Treat Reimbursements How you treat reimbursements depends on the arrangement you have with your employer. Tax return form 1040ez There are two basic types of reimbursement arrangements—accountable plans and nonaccountable plans. Tax return form 1040ez You can tell the type of plan you are reimbursed under by the way the reimbursement is reported on your Form W-2. Tax return form 1040ez Note. Tax return form 1040ez The following rules about reimbursement arrangements also apply to expense allowances received from your employer. Tax return form 1040ez Accountable Plans To be an accountable plan, your employer's reimbursement arrangement must require you to meet all three of the following rules. Tax return form 1040ez Your expenses must have a business connection. Tax return form 1040ez This means your expenses must be deductible under the rules for qualifying work-related education explained earlier. Tax return form 1040ez You must adequately account to your employer for your expenses within a reasonable period of time. Tax return form 1040ez You must return any reimbursement or allowance in excess of the expenses accounted for within a reasonable period of time. Tax return form 1040ez If you are reimbursed under an accountable plan, your employer should not include any reimbursement in your income in box 1 of your Form W-2. Tax return form 1040ez If your employer included reimbursements in box 1 of your Form W-2 and you meet all three rules for accountable plans, ask your employer for a corrected Form W-2. Tax return form 1040ez Accountable plan rules not met. Tax return form 1040ez   Even though you are reimbursed under an accountable plan, some of your expenses may not meet all three rules for accountable plans. Tax return form 1040ez Those expenses that fail to meet the three rules are treated as having been reimbursed under a Nonaccountable Plan (discussed later). Tax return form 1040ez Expenses equal reimbursement. Tax return form 1040ez   Under an accountable plan, if your expenses equal your reimbursement, you do not complete Form 2106 or 2106-EZ. Tax return form 1040ez Because your expenses and reimbursements are equal, you do not have a deduction. Tax return form 1040ez Excess expenses. Tax return form 1040ez   If your expenses are more than your reimbursement, you can deduct your excess expenses. Tax return form 1040ez This is discussed later, under Deducting Business Expenses . Tax return form 1040ez Allocating your reimbursements for meals. Tax return form 1040ez   Because your excess meal expenses are subject to the 50% limit, you must figure them separately from your other expenses. Tax return form 1040ez If your employer paid you a single amount to cover both meals and other expenses, you must allocate the reimbursement so that you can figure your excess meal expenses separately. Tax return form 1040ez Make the allocation as follows. Tax return form 1040ez Divide your meal expenses by your total expenses. Tax return form 1040ez Multiply your total reimbursement by the result from (1). Tax return form 1040ez This is the allocated reimbursement for your meal expenses. Tax return form 1040ez Subtract the amount figured in (2) from your total reimbursement. Tax return form 1040ez The difference is the allocated reimbursement for your other expenses of qualifying work-related education. Tax return form 1040ez Example. Tax return form 1040ez Your employer paid you an expense allowance of $2,000 under an accountable plan. Tax return form 1040ez The allowance was to cover all of your expenses of traveling away from home to take a 2-week training course for work. Tax return form 1040ez There was no indication of how much of the reimbursement was for each type of expense. Tax return form 1040ez Your actual expenses equal $2,500 ($425 for meals + $700 lodging + $150 transportation expenses + $1,225 for books and tuition). Tax return form 1040ez Using the steps listed above, allocate the reimbursement between the $425 meal expenses and the $2,075 other expenses. Tax return form 1040ez   1. Tax return form 1040ez $425 meal expenses  $2,500 total expenses = . Tax return form 1040ez 17   2. Tax return form 1040ez $2,000 (reimbursement)×. Tax return form 1040ez 17     =$340 (allocated reimbursement for meal expenses)   3. Tax return form 1040ez $2,000 (reimbursement)−$340 (meals)     = $1,660 (allocated reimbursement for other qualifying work-related education expenses) Your excess meal expenses are $85 ($425 − $340) and your excess other expenses are $415 ($2,075 − $1,660). Tax return form 1040ez After you apply the 50% limit to your meals, you have a deduction for work-related education expenses of $458 (($85 × 50%) + $415). Tax return form 1040ez Nonaccountable Plans Your employer will combine the amount of any reimbursement or other expense allowance paid to you under a nonaccountable plan with your wages, salary, or other pay and report the total in box 1 of your Form W-2. Tax return form 1040ez You can deduct your expenses regardless of whether they are more than, less than, or equal to your reimbursement. Tax return form 1040ez This is discussed later under Deducting Business Expenses . Tax return form 1040ez An illustrated example of a nonaccountable plan, using Form 2106-EZ, is shown at the end of this chapter. Tax return form 1040ez Reimbursements for nondeductible expenses. Tax return form 1040ez   Reimbursements you received for nondeductible expenses are treated as paid under a nonaccountable plan. Tax return form 1040ez You must include them in your income. Tax return form 1040ez For example, you must include in your income reimbursements your employer gave you for expenses of education that: You need to meet the minimum educational requirements for your job, or Is part of a program of study that can qualify you for a new trade or business. Tax return form 1040ez   For more information on accountable and nonaccountable plans, see chapter 6 of Publication 463. Tax return form 1040ez Deducting Business Expenses Self-employed persons and employees report their business expenses differently. Tax return form 1040ez The following information explains what forms you must use to deduct the cost of your qualifying work-related education as a business expense. Tax return form 1040ez Self-Employed Persons If you are self-employed, you must report the cost of your qualifying work-related education on the appropriate form used to report your business income and expenses (generally Schedule C (Form 1040), Schedule C-EZ (Form 1040), or Schedule F (Form 1040)). Tax return form 1040ez If your education expenses include expenses for a car or truck, travel, or meals, report those expenses the same way you report other business expenses for those items. Tax return form 1040ez See the instructions for the form you file for information on how to complete it. Tax return form 1040ez Employees If you are an employee, you can deduct the cost of qualifying work-related education only if you: Did not receive (and were not entitled to receive) any reimbursement from your employer, Were reimbursed under a nonaccountable plan (amount is included in box 1 of Form W-2), or Received reimbursement under an accountable plan, but the amount received was less than your expenses for which you claimed reimbursement. Tax return form 1040ez If either (1) or (2) applies, you can deduct the total qualifying cost. Tax return form 1040ez If (3) applies, you can deduct only the qualifying costs that were more than your reimbursement. Tax return form 1040ez In order to deduct the cost of your qualifying work-related education as a business expense, include the amount with your deduction for any other employee business expenses on Schedule A (Form 1040), line 21, or Schedule A (Form 1040NR), line 7. Tax return form 1040ez (Special rules for expenses of certain performing artists and fee-basis officials and for impairment-related work expenses are explained later. Tax return form 1040ez ) This deduction (except for impairment-related work expenses of disabled individuals) is subject to the 2%-of-adjusted-gross-income limit that applies to most miscellaneous itemized deductions. Tax return form 1040ez Form 2106 or 2106-EZ. Tax return form 1040ez   To figure your deduction for employee business expenses, including qualifying work-related education, you generally must complete Form 2106 or 2106-EZ. Tax return form 1040ez Form not required. Tax return form 1040ez   Do not complete either Form 2106 or 2106-EZ if: All reimbursements, if any, are included in box 1 of your Form W-2, and You are not claiming travel, transportation, meal, or entertainment expenses. Tax return form 1040ez   If you meet both of these requirements, enter the expenses directly on Schedule A (Form 1040), line 21, or Schedule A (Form 1040NR), line 7. Tax return form 1040ez (Special rules for expenses of certain Performing Artists and Fee-Basis Officials and for Impairment-Related Work Expenses are explained later. Tax return form 1040ez ) Using Form 2106-EZ. Tax return form 1040ez   This form is shorter and easier to use than Form 2106. Tax return form 1040ez Generally, you can use this form if: All reimbursements, if any, are included in box 1 of your Form W-2, and You are using the standard mileage rate if you are claiming vehicle expenses. Tax return form 1040ez   If you do not meet both of these requirements, use Form 2106. Tax return form 1040ez Performing Artists and Fee-Basis Officials If you are a qualified performing artist, or a state (or local) government official who is paid in whole or in part on a fee basis, you can deduct the cost of your qualifying work-related education as an adjustment to gross income rather than as an itemized deduction. Tax return form 1040ez Include the cost of your qualifying work-related education with any other employee business expenses on Form 1040, line 24, or Form 1040NR, line 35. Tax return form 1040ez You do not have to itemize your deductions on Schedule A (Form 1040 or 1040NR), and, therefore, the deduction is not subject to the 2%-of-adjusted-gross-income limit. Tax return form 1040ez You must complete Form 2106 or 2106-EZ to figure your deduction even if you meet the requirements described earlier under Form not required . Tax return form 1040ez For more information on qualified performing artists, see chapter 6 of Publication 463. Tax return form 1040ez Impairment-Related Work Expenses If you are disabled and have impairment-related work expenses that are necessary for you to be able to get qualifying work-related education, you can deduct these expenses on Schedule A (Form 1040), line 28, or Schedule A (Form 1040NR), line 14. Tax return form 1040ez They are not subject to the 2%-of-adjusted-gross-income limit. Tax return form 1040ez To deduct these expenses, you must complete Form 2106 or 2106-EZ even if you meet the requirements described earlier under Form not required . Tax return form 1040ez For more information on impairment-related work expenses, see chapter 6 of Publication 463. Tax return form 1040ez Recordkeeping You must keep records as proof of any deduction claimed on your tax return. Tax return form 1040ez Generally, you should keep your records for 3 years from the date of filing the tax return and claiming the deduction. Tax return form 1040ez If you are an employee who is reimbursed for expenses and you give your records and documentation to your employer, you do not have to keep duplicate copies of this information. Tax return form 1040ez However, you should keep your records for a 3-year period if: You claim deductions for expenses that are more than your reimbursement, Your employer does not use adequate accounting procedures to verify expense accounts, You are related to your employer, or Your expenses are reimbursed under a nonaccountable plan. Tax return form 1040ez Examples of records to keep. Tax return form 1040ez   If any of the above cases apply to you, you must be able to prove that your expenses are deductible. Tax return form 1040ez You should keep adequate records or have sufficient evidence that will support your expenses. Tax return form 1040ez Estimates or approximations do not qualify as proof of an expense. Tax return form 1040ez Some examples of what can be used to help prove your expenses are: Documents, such as transcripts, course descriptions, catalogs, etc. Tax return form 1040ez , showing periods of enrollment in educational institutions, principal subjects studied, and descriptions of educational activity. Tax return form 1040ez Canceled checks and receipts to verify amounts you spent for: Tuition and books, Meals and lodging while away from home overnight for educational purposes, Travel and transportation, and Other education expenses. Tax return form 1040ez Statements from your employer explaining whether the education was necessary for you to keep your job, salary, or status; how the education helped maintain or improve skills needed in your job; how much reimbursement you received; and, if you are a teacher, the type of certificate and subjects taught. Tax return form 1040ez Complete information about any scholarship or fellowship grants, including amounts you received during the year. Tax return form 1040ez Illustrated Example Victor Jones teaches math at a private high school in North Carolina. Tax return form 1040ez He was selected to attend a 3-week math seminar at a university in California. Tax return form 1040ez The seminar will improve his skills in his current job and is qualifying work-related education. Tax return form 1040ez He was reimbursed for his expenses under his employer's nonaccountable plan, so his reimbursement of $2,100 is included in the wages shown in box 1 of his Form W-2. Tax return form 1040ez Victor will file Form 1040. Tax return form 1040ez His actual expenses for the seminar are as follows:   Lodging   $1,050     Meals   526     Airfare   550     Taxi fares   50     Tuition and books   400     Total Expenses   $2,576   Victor files Form 2106-EZ with his tax return. Tax return form 1040ez He shows his expenses for the seminar in Part I of the form. Tax return form 1040ez He enters $1,650 ($1,050 + $550 + $50) on line 3 to account for his lodging, airfare, and taxi fares. Tax return form 1040ez He enters $400 on line 4 for his tuition and books. Tax return form 1040ez On the line provided for total meals and entertainment expenses, Victor enters $526 for meal expenses. Tax return form 1040ez He multiplies that amount by 50% and enters the result, $263, on line 5. Tax return form 1040ez On line 6, Victor totals the amounts from lines 3 through 5. Tax return form 1040ez He carries the total, $2,313, to Schedule A (Form 1040), line 21. Tax return form 1040ez Since he does not claim any vehicle expenses, Victor leaves Part II blank. Tax return form 1040ez His filled-in form is shown on the next page. Tax return form 1040ez This image is too large to be displayed in the current screen. Tax return form 1040ez Please click the link to view the image. Tax return form 1040ez Form 2106-EZ for V. Tax return form 1040ez Jones Prev  Up  Next   Home   More Online Publications
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The Tax Return Form 1040ez

Tax return form 1040ez 3. Tax return form 1040ez   Reporting Rental Income, Expenses, and Losses Table of Contents Which Forms To UseSchedule E (Form 1040) Schedule C (Form 1040), Profit or Loss From Business Qualified Joint Venture Limits on Rental LossesAt-Risk Rules Passive Activity Limits Casualties and Thefts Example Figuring the net income or loss for a residential rental activity may involve more than just listing the income and deductions on Schedule E (Form 1040). Tax return form 1040ez There are activities which do not qualify to use Schedule E, such as when the activity is not engaged in to make a profit or when you provide substantial services in conjunction with the property. Tax return form 1040ez There are also the limitations which may need to be applied if you have a net loss on Schedule E. Tax return form 1040ez There are two: (1) the limitation based on the amount of investment you have at risk in your rental activity, and (2) the special limits imposed on passive activities. Tax return form 1040ez You may also have a gain or loss related to your rental property from a casualty or theft. Tax return form 1040ez This is considered separately from the income and expense information you report on Schedule E. Tax return form 1040ez Which Forms To Use The basic form for reporting residential rental income and expenses is Schedule E (Form 1040). Tax return form 1040ez However, do not use that schedule to report a not-for-profit activity. Tax return form 1040ez See Not Rented for Profit , in chapter 4. Tax return form 1040ez There are also other rental situations in which forms other than Schedule E would be used. Tax return form 1040ez Schedule E (Form 1040) If you rent buildings, rooms, or apartments, and provide basic services such as heat and light, trash collection, etc. Tax return form 1040ez , you normally report your rental income and expenses on Schedule E, Part I. Tax return form 1040ez List your total income, expenses, and depreciation for each rental property. Tax return form 1040ez Be sure to enter the number of fair rental and personal use days on line 2. Tax return form 1040ez If you have more than three rental or royalty properties, complete and attach as many Schedules E as are needed to list the properties. Tax return form 1040ez Complete lines 1 and 2 for each property. Tax return form 1040ez However, fill in lines 23a through 26 on only one Schedule E. Tax return form 1040ez On Schedule E, page 1, line 18, enter the depreciation you are claiming for each property. Tax return form 1040ez To find out if you need to attach Form 4562, see Form 4562 , later. Tax return form 1040ez If you have a loss from your rental real estate activity, you also may need to complete one or both of the following forms. Tax return form 1040ez Form 6198, At-Risk Limitations. Tax return form 1040ez See At-Risk Rules , later. Tax return form 1040ez Also see Publication 925. Tax return form 1040ez Form 8582, Passive Activity Loss Limitations. Tax return form 1040ez See Passive Activity Limits , later. Tax return form 1040ez Page 2 of Schedule E is used to report income or loss from partnerships, S corporations, estates, trusts, and real estate mortgage investment conduits. Tax return form 1040ez 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. Tax return form 1040ez Also, include the amount from line 26 (Part I) in the “Total income or (loss)” on line 41 (Part V). Tax return form 1040ez Form 4562. Tax return form 1040ez   You must complete and attach Form 4562 for rental activities only if you are claiming: Depreciation, including the special depreciation allowance, on property placed in service during 2013; Depreciation on listed property (such as a car), regardless of when it was placed in service; or Any other car expenses, including the standard mileage rate or lease expenses. Tax return form 1040ez Otherwise, figure your depreciation on your own worksheet. Tax return form 1040ez You do not have to attach these computations to your return, but you should keep them in your records for future reference. Tax return form 1040ez   See Publication 946 for information on preparing Form 4562. Tax return form 1040ez Schedule C (Form 1040), Profit or Loss From Business Generally, Schedule C is used when you provide substantial services in conjunction with the property or the rental is part of a trade or business as a real estate dealer. Tax return form 1040ez Providing substantial services. Tax return form 1040ez   If you provide substantial services that are primarily for your tenant's convenience, such as regular cleaning, changing linen, or maid service, you 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. Tax return form 1040ez Use Form 1065, U. Tax return form 1040ez S. Tax return form 1040ez Return of Partnership Income, if your rental activity is a partnership (including a partnership with your spouse unless it is a qualified joint venture). Tax return form 1040ez Substantial services do not include the furnishing of heat and light, cleaning of public areas, trash collection, etc. Tax return form 1040ez For information, see Publication 334, Tax Guide for Small Business. Tax return form 1040ez Also, you may have to pay self-employment tax on your rental income using Schedule SE (Form 1040), Self-Employment Tax. Tax return form 1040ez For a discussion of “substantial services,” see Real Estate Rents in Publication 334, chapter 5. Tax return form 1040ez Qualified Joint Venture If you and your spouse each materially participate (see Material participation under Passive Activity Limits, later) 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. Tax return form 1040ez 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. Tax return form 1040ez If you make this election, you must report rental real estate income on Schedule E (or Schedule C if you provide substantial services). Tax return form 1040ez You will not be required to file Form 1065 for any year the election is in effect. Tax return form 1040ez Rental real estate income generally is not included in net earnings from self-employment subject to self-employment tax and generally is subject to the passive activity limits. Tax return form 1040ez If you and your spouse filed a Form 1065 for the year prior to the election, the partnership terminates at the end of the tax year immediately preceding the year the election takes effect. Tax return form 1040ez For more information on qualified joint ventures, go to IRS. Tax return form 1040ez gov and enter “qualified joint venture” in the search box. Tax return form 1040ez 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. Tax return form 1040ez You must consider these rules in the order shown below. Tax return form 1040ez Both are discussed in this section. Tax return form 1040ez At-risk rules. Tax return form 1040ez These rules are applied first if there is investment in your rental real estate activity for which you are not at risk. Tax return form 1040ez This applies only if the real property was placed in service after 1986. Tax return form 1040ez Passive activity limits. Tax return form 1040ez 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. Tax return form 1040ez However, there are exceptions. Tax return form 1040ez 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. Tax return form 1040ez Losses from holding real property (other than mineral property) placed in service before 1987 are not subject to the at-risk rules. Tax return form 1040ez 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. Tax return form 1040ez 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. Tax return form 1040ez Any loss that is disallowed because of the at-risk limits is treated as a deduction from the same activity in the next tax year. Tax return form 1040ez See Publication 925 for a discussion of the at-risk rules. Tax return form 1040ez Form 6198. Tax return form 1040ez   If you are subject to the at-risk rules, file Form 6198, At-Risk Limitations, with your tax return. Tax return form 1040ez Passive Activity Limits In most cases, all rental real estate activities (except those of certain real estate professionals, discussed later) are passive activities. Tax return form 1040ez 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. Tax return form 1040ez For a discussion of activities that are not considered rental activities, see Rental Activities in Publication 925. Tax return form 1040ez Deductions or losses from passive activities are limited. Tax return form 1040ez You generally cannot offset income, other than passive income, with losses from passive activities. Tax return form 1040ez Nor can you offset taxes on income, other than passive income, with credits resulting from passive activities. Tax return form 1040ez Any excess loss or credit is carried forward to the next tax year. Tax return form 1040ez Exceptions to the rules for figuring passive activity limits for personal use of a dwelling unit and for rental real estate with active participation are discussed later. Tax return form 1040ez For a detailed discussion of these rules, see Publication 925. Tax return form 1040ez Real estate professionals. Tax return form 1040ez   If you are a real estate professional, complete line 43 of Schedule E. Tax return form 1040ez      You qualify as a real estate professional for the tax year if you meet both of the following requirements. Tax return form 1040ez More than half of the personal services you perform in all trades or businesses during the tax year are performed in real property trades or businesses in which you materially participate. Tax return form 1040ez You perform more than 750 hours of services during the tax year in real property trades or businesses in which you materially participate. Tax return form 1040ez If you qualify as a real estate professional, rental real estate activities in which you materially participated are not passive activities. Tax return form 1040ez For purposes of determining whether you materially participated in your rental real estate activities, each interest in rental real estate is a separate activity unless you elect to treat all your interests in rental real estate as one activity. Tax return form 1040ez   Do not count personal services you perform as an employee in real property trades or businesses unless you are a 5% owner of your employer. Tax return form 1040ez You are a 5% owner if you own (or are considered to own) more than 5% of your employer's outstanding stock, or capital or profits interest. Tax return form 1040ez   Do not count your spouse's personal services to determine whether you met the requirements listed earlier to qualify as a real estate professional. Tax return form 1040ez However, you can count your spouse's participation in an activity in determining if you materially participated. Tax return form 1040ez Real property trades or businesses. Tax return form 1040ez   A real property trade or business is a trade or business that does any of the following with real property. Tax return form 1040ez Develops or redevelops it. Tax return form 1040ez Constructs or reconstructs it. Tax return form 1040ez Acquires it. Tax return form 1040ez Converts it. Tax return form 1040ez Rents or leases it. Tax return form 1040ez Operates or manages it. Tax return form 1040ez Brokers it. Tax return form 1040ez Choice to treat all interests as one activity. Tax return form 1040ez   If you were a real estate professional and had more than one rental real estate interest during the year, you can choose to treat all the interests as one activity. Tax return form 1040ez You can make this choice for any year that you qualify as a real estate professional. Tax return form 1040ez If you forgo making the choice for one year, you can still make it for a later year. Tax return form 1040ez   If you make the choice, it is binding for the tax year you make it and for any later year that you are a real estate professional. Tax return form 1040ez This is true even if you are not a real estate professional in any intervening year. Tax return form 1040ez (For that year, the exception for real estate professionals will not apply in determining whether your activity is subject to the passive activity rules. Tax return form 1040ez )   See the Instructions for Schedule E for information about making this choice. Tax return form 1040ez Material participation. Tax return form 1040ez   Generally, you materially participated in an activity for the tax year if you were involved in its operations on a regular, continuous, and substantial basis during the year. Tax return form 1040ez For details, see Publication 925 or the Instructions for Schedule C. Tax return form 1040ez Participating spouse. Tax return form 1040ez   If you are married, determine whether you materially participated in an activity by also counting any participation in the activity by your spouse during the year. Tax return form 1040ez Do this even if your spouse owns no interest in the activity or files a separate return for the year. Tax return form 1040ez Form 8582. Tax return form 1040ez    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. Tax return form 1040ez See Form 8582 not required , later in this chapter, to determine if you must complete Form 8582. Tax return form 1040ez   If you are required to complete Form 8582 and are also subject to the at-risk rules, include the amount from Form 6198, line 21 (deductible loss) in column (b) of Form 8582, Worksheet 1 or 3, as required. Tax return form 1040ez 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. Tax return form 1040ez Instead, follow the rules explained in chapter 5, Personal Use of Dwelling Unit (Including Vacation Home). Tax return form 1040ez Exception for Rental Real Estate 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. Tax return form 1040ez This special allowance is an exception to the general rule disallowing losses in excess of income from passive activities. Tax return form 1040ez 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. Tax return form 1040ez Example. Tax return form 1040ez Jane is single and has $40,000 in wages, $2,000 of passive income from a limited partnership, and $3,500 of passive loss from a rental real estate activity in which she actively participated. Tax return form 1040ez $2,000 of Jane's $3,500 loss offsets her passive income. Tax return form 1040ez The remaining $1,500 loss can be deducted from her $40,000 wages. Tax return form 1040ez The special allowance is not available if you were married, lived with your spouse at any time during the year, and are filing a separate return. Tax return form 1040ez Active participation. Tax return form 1040ez   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. Tax return form 1040ez Management decisions that may count as active participation include approving new tenants, deciding on rental terms, approving expenditures, and other similar decisions. Tax return form 1040ez Example. Tax return form 1040ez Mike is single and had the following income and losses during the tax year:   Salary $42,300     Dividends 300     Interest 1,400     Rental loss (4,000)   The rental loss was from the rental of a house Mike owned. Tax return form 1040ez Mike had advertised and rented the house to the current tenant himself. Tax return form 1040ez He also collected the rents, which usually came by mail. Tax return form 1040ez All repairs were either made or contracted out by Mike. Tax return form 1040ez Although the rental loss is from a passive activity, because Mike actively participated in the rental property management he can use the entire $4,000 loss to offset his other income. Tax return form 1040ez Maximum special allowance. Tax return form 1040ez   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. Tax return form 1040ez   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. Tax return form 1040ez 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. Tax return form 1040ez   Generally, if your MAGI is $150,000 or more ($75,000 or more if you are married filing separately), there is no special allowance. Tax return form 1040ez Modified adjusted gross income (MAGI). Tax return form 1040ez   This is your adjusted gross income from Form 1040, U. Tax return form 1040ez S. Tax return form 1040ez Individual Income Tax Return, line 38, or Form 1040NR, U. Tax return form 1040ez S. Tax return form 1040ez Nonresident Alien Income Tax Return, line 37, figured without taking into account: The taxable amount of social security or equivalent tier 1 railroad retirement benefits, The deductible contributions to traditional individual retirement accounts (IRAs) and section 501(c)(18) pension plans, The exclusion from income of interest from Series EE and I U. Tax return form 1040ez S. Tax return form 1040ez savings bonds used to pay higher educational expenses, The exclusion of amounts received under an employer's adoption assistance program, Any passive activity income or loss included on Form 8582, Any rental real estate loss allowed to real estate professionals, Any overall loss from a publicly traded partnership (see Publicly Traded Partnerships (PTPs) in the Instructions for Form 8582), The deduction allowed for one-half of self-employment tax, The deduction allowed for interest paid on student loans, The deduction for qualified tuition and related fees, and The domestic production activities deduction (see the Instructions for Form 8903). Tax return form 1040ez Form 8582 not required. Tax return form 1040ez   Do not complete Form 8582 if you meet all of the following conditions. Tax return form 1040ez Your only passive activities were rental real estate activities in which you actively participated. Tax return form 1040ez Your overall net loss from these activities is $25,000 or less ($12,500 or less if married filing separately and you lived apart from your spouse all year). Tax return form 1040ez If married filing separately, you lived apart from your spouse all year. Tax return form 1040ez You have no prior year unallowed losses from these (or any other passive) activities. Tax return form 1040ez You have no current or prior year unallowed credits from passive activities. Tax return form 1040ez Your MAGI is $100,000 or less ($50,000 or less if married filing separately and you lived apart from your spouse all year). Tax return form 1040ez You do not hold any interest in a rental real estate activity as a limited partner or as a beneficiary of an estate or a trust. Tax return form 1040ez   If you meet all of the conditions listed above, your rental real estate activities are not limited by the passive activity rules and you do not have to complete Form 8582. Tax return form 1040ez On lines 23a through 23e of your Schedule E, enter the applicable amounts. Tax return form 1040ez Casualties and Thefts As a result of a casualty or theft, you may have a loss related to your rental property. Tax return form 1040ez You may be able to deduct the loss on your income tax return. Tax return form 1040ez Casualty. Tax return form 1040ez   This is the damage, destruction, or loss of property resulting from an identifiable event that is sudden, unexpected, or unusual. Tax return form 1040ez Such events include a storm, fire, or earthquake. Tax return form 1040ez Theft. Tax return form 1040ez   This is defined as the unlawful taking and removing of your money or property with the intent to deprive you of it. Tax return form 1040ez Gain from casualty or theft. Tax return form 1040ez   It is also possible to have a gain from a casualty or theft if you receive money, including insurance, that is more than your adjusted basis in the property. Tax return form 1040ez Generally, you must report this gain. Tax return form 1040ez However, under certain circumstances, you may defer paying tax by choosing to postpone reporting the gain. Tax return form 1040ez To do this, you generally must buy replacement property within 2 years after the close of the first tax year in which any part of your gain is realized. Tax return form 1040ez In certain circumstances, the replacement period can be greater than 2 years; see Replacement Period in Publication 547 for more information. Tax return form 1040ez The cost of the replacement property must be equal to or more than the net insurance or other payment you received. Tax return form 1040ez More information. Tax return form 1040ez   For information on business and nonbusiness casualty and theft losses, see Publication 547. Tax return form 1040ez How to report. Tax return form 1040ez    If you had a casualty or theft that involved property used in your rental activity, figure the net gain or loss in Section B of Form 4684, Casualties and Thefts. Tax return form 1040ez Follow the Instructions for Form 4684 for where to carry your net gain or loss. Tax return form 1040ez Example In February 2008, Marie Pfister bought a rental house for $135,000 (house $120,000 and land $15,000) and immediately began renting it out. Tax return form 1040ez In 2013, she rented it all 12 months for a monthly rental fee of $1,125. Tax return form 1040ez In addition to her rental income of $13,500 (12 x $1,125), Marie had the following expenses. Tax return form 1040ez Mortgage interest $8,000 Fire insurance (1-year policy) 250 Miscellaneous repairs 400 Real estate taxes imposed and paid 500 Maintenance 200 Marie depreciates the residential rental property under MACRS GDS. Tax return form 1040ez This means using the straight line method over a recovery period of 27. Tax return form 1040ez 5 years. Tax return form 1040ez She uses Table 2-2d to find her depreciation percentage. Tax return form 1040ez Because she placed the property in service in February 2008, she continues to use that row of Table 2-2d. Tax return form 1040ez For year 6, the rate is 3. Tax return form 1040ez 636%. Tax return form 1040ez Marie figures her net rental income or loss for the house as follows: Total rental income received  ($1,125 × 12) $13,500 Minus: Expenses     Mortgage interest $8,000   Fire insurance 250   Miscellaneous repairs 400   Real estate taxes 500   Maintenance 200   Total expenses 9,350 Balance $4,150 Minus: Depreciation ($120,000 x 3. Tax return form 1040ez 636%) 4,363 Net rental (loss) for house ($213)       Marie had a net loss for the year. Tax return form 1040ez Because she actively participated in her passive rental real estate activity and her loss was less than $25,000, she can deduct the loss on her return. Tax return form 1040ez Marie also meets all of the requirements for not having to file Form 8582. Tax return form 1040ez She uses Schedule E, Part I, to report her rental income and expenses. Tax return form 1040ez She enters her income, expenses, and depreciation for the house in the column for Property A and enters her loss on line 22. Tax return form 1040ez Form 4562 is not required. Tax return form 1040ez Prev  Up  Next   Home   More Online Publications