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1040ez tax Publication 584 - Main Content Table of Contents LossesCost or other basis. 1040ez tax Fair market value. 1040ez tax Exception for personal-use real property. 1040ez tax More information. 1040ez tax Comments and SuggestionsOrdering forms and publications. 1040ez tax Tax questions. 1040ez tax How To Get Tax HelpLow Income Taxpayer Clinics (LITCs). 1040ez tax Losses Generally, you may deduct losses to your home, household goods, and motor vehicles on your federal income tax return. 1040ez tax However, you may not deduct a casualty or theft loss that is covered by insurance unless you filed a timely insurance claim for reimbursement. 1040ez tax Any reimbursement you receive will reduce the loss. 1040ez tax If you did not file an insurance claim, you may deduct only the part of the loss that was not covered by insurance. 1040ez tax Amount of loss. 1040ez tax You figure the amount of your loss using the following steps. 1040ez tax Determine your cost or other basis in the property before the casualty or theft. 1040ez tax Determine the decrease in fair market value (FMV) of the property as a result of the casualty or theft. 1040ez tax (The decrease in FMV is the difference between the property's value immediately before and immediately after the casualty or theft. 1040ez tax ) From the smaller of the amounts you determined in (1) and (2), subtract any insurance or other reimbursement you received or expect to receive. 1040ez tax Apply the deduction limits, discussed later, to determine the amount of your deductible loss. 1040ez tax Cost or other basis. 1040ez tax Cost or other basis usually means original cost plus improvements. 1040ez tax If you did not acquire the property by purchasing it, your basis is determined as discussed in Publication 551, Basis of Assets. 1040ez tax If you inherited the property from someone who died in 2010, and the executor of the decedent's estate made the election to file Form 8939, refer to the information provided by the executor or see Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010. 1040ez tax Fair market value. 1040ez tax FMV is the price for which you could sell your property to a willing buyer, when neither of you has to sell or buy and both of you know all the relevant facts. 1040ez tax When filling out Schedules 1 through 20, you need to know the FMV of the property immediately before and immediately after the disaster, casualty, or theft. 1040ez tax Separate computations. 1040ez tax Generally, if a single casualty or theft involves more than one item of property, you must figure the loss on each item separately. 1040ez tax Then combine the losses to determine the total loss from that casualty or theft. 1040ez tax Exception for personal-use real property. 1040ez tax In figuring a casualty loss on personal-use real property, the entire property (including any improvements, such as buildings, trees, and shrubs) is treated as one item. 1040ez tax Figure the loss using the smaller of the following. 1040ez tax The decrease in FMV of the entire property. 1040ez tax The adjusted basis of the entire property. 1040ez tax Deduction limits. 1040ez tax After you have figured the amount of your loss, as discussed earlier, you must figure how much of the loss you can deduct. 1040ez tax You do this on Form 4684, section A. 1040ez tax If the loss was to property for your personal use or your family's, there are two limits on the amount you can deduct for your casualty or theft loss. 1040ez tax You must reduce each casualty or theft loss by $100 ($100 rule). 1040ez tax You must further reduce the total of all your losses by 10% of your adjusted gross income (10% rule). 1040ez tax More information. 1040ez tax For more information about the deduction limits, see Publication 547. 1040ez tax When your loss is deductible. 1040ez tax You can generally deduct a casualty or disaster area loss only in the tax year in which the casualty or disaster occurred. 1040ez tax You can generally deduct a theft loss only in the year you discovered your property was stolen. 1040ez tax However, you can choose to deduct disaster area losses on your return for the year immediately before the year of the disaster if the President has declared your area a federal disaster area. 1040ez tax For details, see Disaster Area Losses in Publication 547. 1040ez tax Comments and Suggestions We welcome your comments about this publication and your suggestions for future editions. 1040ez tax You can write to us at the following address: Internal Revenue Service Individual Forms and Publications Branch SE:W:CAR:MP:T:I 1111 Constitution Ave. 1040ez tax NW, IR-6526 Washington, DC 20224 We respond to many letters by telephone. 1040ez tax Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. 1040ez tax You can email us at taxforms@irs. 1040ez tax gov. 1040ez tax Please put “Publications Comment” on the subject line. 1040ez tax You can also send us comments from www. 1040ez tax irs. 1040ez tax gov/formspubs. 1040ez tax Select “Comment on Tax Forms and Publications” under “Information about. 1040ez tax ” Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. 1040ez tax Ordering forms and publications. 1040ez tax Visit www. 1040ez tax irs. 1040ez tax gov/formspubs/ to download forms and publications, call 1-800-829-3676, or write to the address below and receive a response within 10 days after your request is received. 1040ez tax Internal Revenue Service 1201 N. 1040ez tax Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. 1040ez tax If you have a tax question, check the information available on IRS. 1040ez tax gov or call 1-800-829-1040. 1040ez tax We cannot answer tax questions sent to either of the above addresses. 1040ez tax How To Get Tax Help 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. 1040ez tax By selecting the method that is best for you, you will have quick and easy access to tax help. 1040ez tax Free help with your return. 1040ez tax Free help in preparing your return is available nationwide from IRS-certified volunteers. 1040ez tax The Volunteer Income Tax Assistance (VITA) program is designed to help low-moderate income taxpayers and the Tax Counseling for the Elderly (TCE) program is designed to assist taxpayers age 60 and older with their tax returns. 1040ez tax Most VITA and TCE sites offer free electronic filing and all volunteers will let you know about credits and deductions you may be entitled to claim. 1040ez tax To find the nearest VITA or TCE site, visit IRS. 1040ez tax gov or call 1-800-906-9887 or 1-800-829-1040. 1040ez tax As part of the TCE program, AARP offers the Tax-Aide counseling program. 1040ez tax To find the nearest AARP Tax-Aide site, call 1-888-227-7669 or visit AARP's website at www. 1040ez tax aarp. 1040ez tax org/money/taxaide. 1040ez tax For more information on these programs, go to IRS. 1040ez tax gov and enter keyword “VITA” in the upper right-hand corner. 1040ez tax Internet. 1040ez tax You can access the IRS website at IRS. 1040ez tax gov 24 hours a day, 7 days a week to: E-file your return. 1040ez tax Find out about commercial tax preparation and e-file services available free to eligible taxpayers. 1040ez tax Check the status of your 2011 refund. 1040ez tax Go to IRS. 1040ez tax gov and click on Where's My Refund. 1040ez tax 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. 1040ez tax If you filed Form 8379 with your return, wait 14 weeks (11 weeks if you filed electronically). 1040ez tax Have your 2011 tax return available so you can provide your social security number, your filing status, and the exact whole dollar amount of your refund. 1040ez tax Download forms, including talking tax forms, instructions, and publications. 1040ez tax Order IRS products online. 1040ez tax Research your tax questions online. 1040ez tax Search publications online by topic or keyword. 1040ez tax Use the online Internal Revenue Code, regulations, or other official guidance. 1040ez tax View Internal Revenue Bulletins (IRBs) published in the last few years. 1040ez tax Figure your withholding allowances using the withholding calculator online at www. 1040ez tax irs. 1040ez tax gov/individuals. 1040ez tax Determine if Form 6251 must be filed by using our Alternative Minimum Tax (AMT) Assistant available online at www. 1040ez tax irs. 1040ez tax gov/individuals. 1040ez tax Sign up to receive local and national tax news by email. 1040ez tax Get information on starting and operating a small business. 1040ez tax Phone. 1040ez tax Many services are available by phone. 1040ez tax Ordering forms, instructions, and publications. 1040ez tax Call 1-800-TAX -FORM (1-800-829-3676) to order current-year forms, instructions, and publications, and prior-year forms and instructions. 1040ez tax You should receive your order within 10 days. 1040ez tax Asking tax questions. 1040ez tax Call the IRS with your tax questions at 1-800-829-1040. 1040ez tax Solving problems. 1040ez tax You can get face-to-face help solving tax problems every business day in IRS Taxpayer Assistance Centers. 1040ez tax An employee can explain IRS letters, request adjustments to your account, or help you set up a payment plan. 1040ez tax Call your local Taxpayer Assistance Center for an appointment. 1040ez tax To find the number, go to www. 1040ez tax irs. 1040ez tax gov/localcontacts or look in the phone book under United States Government, Internal Revenue Service. 1040ez tax TTY/TDD equipment. 1040ez tax If you have access to TTY/TDD equipment, call 1-800-829-4059 to ask tax questions or to order forms and publications. 1040ez tax TeleTax topics. 1040ez tax Call 1-800-829-4477 to listen to pre-recorded messages covering various tax topics. 1040ez tax Refund information. 1040ez tax To check the status of your 2011 refund, call 1-800-829-1954 or 1-800-829-4477 (automated refund information 24 hours a day, 7 days a week). 1040ez tax 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. 1040ez tax If you filed Form 8379 with your return, wait 14 weeks (11 weeks if you filed electronically). 1040ez tax Have your 2011 tax return available so you can provide your social security number, your filing status, and the exact whole dollar amount of your refund. 1040ez tax 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. 1040ez tax Other refund information. 1040ez tax To check the status of a prior-year refund or amended return refund, call 1-800-829-1040. 1040ez tax Evaluating the quality of our telephone services. 1040ez tax To ensure IRS representatives give accurate, courteous, and professional answers, we use several methods to evaluate the quality of our telephone services. 1040ez tax One method is for a second IRS representative to listen in on or record random telephone calls. 1040ez tax Another is to ask some callers to complete a short survey at the end of the call. 1040ez tax Walk-in. 1040ez tax Many products and services are available on a walk-in basis. 1040ez tax Products. 1040ez tax You can walk in to many post offices, libraries, and IRS offices to pick up certain forms, instructions, and publications. 1040ez tax 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. 1040ez tax Also, some IRS offices and libraries have the Internal Revenue Code, regulations, Internal Revenue Bulletins, and Cumulative Bulletins available for research purposes. 1040ez tax Services. 1040ez tax You can walk in to your local Taxpayer Assistance Center every business day for personal, face-to-face tax help. 1040ez tax An employee can explain IRS letters, request adjustments to your tax account, or help you set up a payment plan. 1040ez tax 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. 1040ez tax No appointment is necessary—just walk in. 1040ez tax If you prefer, you can call your local Center and leave a message requesting an appointment to resolve a tax account issue. 1040ez tax A representative will call you back within 2 business days to schedule an in-person appointment at your convenience. 1040ez tax If you have an ongoing, complex tax account problem or a special need, such as a disability, an appointment can be requested. 1040ez tax All other issues will be handled without an appointment. 1040ez tax To find the number of your local office, go to www. 1040ez tax irs. 1040ez tax gov/localcontacts or look in the phone book under United States Government, Internal Revenue Service. 1040ez tax Mail. 1040ez tax You can send your order for forms, instructions, and publications to the address below. 1040ez tax You should receive a response within 10 days after your request is received. 1040ez tax Internal Revenue Service 1201 N. 1040ez tax Mitsubishi Motorway Bloomington, IL 61705-6613 Taxpayer Advocate Service. 1040ez tax The Taxpayer Advocate Service (TAS) is your voice at the IRS. 1040ez tax Our job is to ensure that every taxpayer is treated fairly, and that you know and understand your rights. 1040ez tax We offer free help to guide you through the often-confusing process of resolving tax problems that you haven’t been able to solve on your own. 1040ez tax Remember, the worst thing you can do is nothing at all. 1040ez tax TAS can help if you can’t resolve your problem with the IRS and: Your problem is causing financial difficulties for you, your family, or your business. 1040ez tax You face (or your business is facing) an immediate threat of adverse action. 1040ez tax You have tried repeatedly to contact the IRS but no one has responded, or the IRS has not responded to you by the date promised. 1040ez tax If you qualify for our help, we’ll do everything we can to get your problem resolved. 1040ez tax You will be assigned to one advocate who will be with you at every turn. 1040ez tax We have offices in every state, the District of Columbia, and Puerto Rico. 1040ez tax Although TAS is independent within the IRS, our advocates know how to work with the IRS to get your problems resolved. 1040ez tax And our services are always free. 1040ez tax As a taxpayer, you have rights that the IRS must abide by in its dealings with you. 1040ez tax Our tax toolkit at www. 1040ez tax TaxpayerAdvocate. 1040ez tax irs. 1040ez tax gov can help you understand these rights. 1040ez tax If you think TAS might be able to help you, call your local advocate, whose number is in your phone book and on our website at www. 1040ez tax irs. 1040ez tax gov/advocate. 1040ez tax You can also call our toll-free number at 1-877-777-4778 or TTY/TDD 1-800-829-4059. 1040ez tax TAS also handles large-scale or systemic problems that affect many taxpayers. 1040ez tax If you know of one of these broad issues, please report it to us through our Systemic Advocacy Management System at www. 1040ez tax irs. 1040ez tax gov/advocate. 1040ez tax Low Income Taxpayer Clinics (LITCs). 1040ez tax Low Income Taxpayer Clinics (LITCs) are independent from the IRS. 1040ez tax Some clinics serve individuals whose income is below a certain level and who need to resolve a tax problem. 1040ez tax These clinics provide professional representation before the IRS or in court on audits, appeals, tax collection disputes, and other issues for free or for a small fee. 1040ez tax Some clinics can provide information about taxpayer rights and responsibilities in many different languages for individuals who speak English as a second language. 1040ez tax For more information and to find a clinic near you, see the LITC page on www. 1040ez tax irs. 1040ez tax gov/advocate or IRS Publication 4134, Low Income Taxpayer Clinic List. 1040ez tax This publication is also available by calling 1-800-829-3676 or at your local IRS office. 1040ez tax Free tax services. 1040ez tax Publication 910, IRS Guide to Free Tax Services, is your guide to IRS services and resources. 1040ez tax Learn about free tax information from the IRS, including publications, services, and education and assistance programs. 1040ez tax The publication also has an index of over 100 TeleTax topics 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The 1040ez Tax
1040ez tax 4. 1040ez tax Special Situations Table of Contents Condominiums CooperativesDepreciation Property Changed to Rental UseBasis of Property Changed to Rental Use Figuring the Depreciation Deduction Renting Part of Property Not Rented for ProfitPostponing decision. 1040ez tax Example—Property Changed to Rental Use This chapter discusses some rental real estate activities that are subject to additional rules. 1040ez tax Condominiums A condominium is most often a dwelling unit in a multi-unit building, but can also take other forms, such as a townhouse or garden apartment. 1040ez tax If you own a condominium, you also own a share of the common elements, such as land, lobbies, elevators, and service areas. 1040ez tax You and the other condominium owners may pay dues or assessments to a special corporation that is organized to take care of the common elements. 1040ez tax Special rules apply if you rent your condominium to others. 1040ez tax You can deduct as rental expenses all the expenses discussed in chapters 1 and 2. 1040ez tax In addition, you can deduct any dues or assessments paid for maintenance of the common elements. 1040ez tax You cannot deduct special assessments you pay to a condominium management corporation for improvements. 1040ez tax However, you may be able to recover your share of the cost of any improvement by taking depreciation. 1040ez tax Cooperatives If you live in a cooperative, you do not own your apartment. 1040ez tax Instead, a corporation owns the apartments and you are a tenant-stockholder in the cooperative housing corporation. 1040ez tax If you rent your apartment to others, you usually can deduct, as a rental expense, all the maintenance fees you pay to the cooperative housing corporation. 1040ez tax In addition to the maintenance fees paid to the cooperative housing corporation, you can deduct your direct payments for repairs, upkeep, and other rental expenses, including interest paid on a loan used to buy your stock in the corporation. 1040ez tax Depreciation You will be depreciating your stock in the corporation rather than the apartment itself. 1040ez tax Figure your depreciation deduction as follows. 1040ez tax Figure the depreciation for all the depreciable real property owned by the corporation. 1040ez tax (Depreciation methods are discussed in chapter 2 of this publication and Publication 946. 1040ez tax ) If you bought your cooperative stock after its first offering, figure the depreciable basis of this property as follows. 1040ez tax Multiply your cost per share by the total number of outstanding shares. 1040ez tax Add to the amount figured in (a) any mortgage debt on the property on the date you bought the stock. 1040ez tax Subtract from the amount figured in (b) any mortgage debt that is not for the depreciable real property, such as the part for the land. 1040ez tax Subtract from the amount figured in (1) any depreciation for space owned by the corporation that can be rented but cannot be lived in by tenant-stockholders. 1040ez tax Divide the number of your shares of stock by the total number of shares outstanding, including any shares held by the corporation. 1040ez tax Multiply the result of (2) by the percentage you figured in (3). 1040ez tax This is your depreciation on the stock. 1040ez tax Your depreciation deduction for the year cannot be more than the part of your adjusted basis (defined in chapter 2) in the stock of the corporation that is allocable to your rental property. 1040ez tax Payments added to capital account. 1040ez tax Payments earmarked for a capital asset or improvement, or otherwise charged to the corporation's capital account are added to the basis of your stock in the corporation. 1040ez tax For example, you cannot deduct a payment used to pave a community parking lot, install a new roof, or pay the principal of the corporation's mortgage. 1040ez tax Treat as a capital cost the amount you were assessed for capital items. 1040ez tax This cannot be more than the amount by which your payments to the corporation exceeded your share of the corporation's mortgage interest and real estate taxes. 1040ez tax Your share of interest and taxes is the amount the corporation elected to allocate to you, if it reasonably reflects those expenses for your apartment. 1040ez tax Otherwise, figure your share in the following manner. 1040ez tax Divide the number of your shares of stock by the total number of shares outstanding, including any shares held by the corporation. 1040ez tax Multiply the corporation's deductible interest by the number you figured in (1). 1040ez tax This is your share of the interest. 1040ez tax Multiply the corporation's deductible taxes by the number you figured in (1). 1040ez tax This is your share of the taxes. 1040ez tax 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. 1040ez tax 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. 1040ez tax You cannot deduct depreciation or insurance for the part of the year the property was held for personal use. 1040ez tax 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). 1040ez tax Example. 1040ez tax Your tax year is the calendar year. 1040ez tax You moved from your home in May and started renting it out on June 1. 1040ez tax You can deduct as rental expenses seven-twelfths of your yearly expenses, such as taxes and insurance. 1040ez tax Starting with June, you can deduct as rental expenses the amounts you pay for items generally billed monthly, such as utilities. 1040ez tax When figuring depreciation, treat the property as placed in service on June 1. 1040ez tax Basis of Property Changed to Rental Use When you change property you held for personal use to rental use (for example, you rent your former home), the basis for depreciation will be the lesser of fair market value or adjusted basis on the date of conversion. 1040ez tax Fair market value. 1040ez tax This is the price at which the property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all the relevant facts. 1040ez tax Sales of similar property, on or about the same date, may be helpful in figuring the fair market value of the property. 1040ez tax Figuring the basis. 1040ez tax The basis for depreciation is the lesser of: The fair market value of the property on the date you changed it to rental use, or Your adjusted basis on the date of the change—that is, your original cost or other basis of the property, plus the cost of permanent additions or improvements since you acquired it, minus deductions for any casualty or theft losses claimed on earlier years' income tax returns and other decreases to basis. 1040ez tax For other increases and decreases to basis, see Adjusted Basis in chapter 2. 1040ez tax Example. 1040ez tax Several years ago you built your home for $140,000 on a lot that cost you $14,000. 1040ez tax Before changing the property to rental use this year, you added $28,000 of permanent improvements to the house and claimed a $3,500 casualty loss deduction for damage to the house. 1040ez tax Part of the improvements qualified for a $500 residential energy credit, which you claimed on your 2010 tax return. 1040ez tax Because land is not depreciable, you can only include the cost of the house when figuring the basis for depreciation. 1040ez tax The adjusted basis of the house at the time of the change in its use was $164,000 ($140,000 + $28,000 − $3,500 − $500). 1040ez tax On the date of the change in use, your property had a fair market value of $168,000, of which $21,000 was for the land and $147,000 was for the house. 1040ez tax The basis for depreciation on the house is the fair market value on the date of the change ($147,000), because it is less than your adjusted basis ($164,000). 1040ez tax Cooperatives If you change your cooperative apartment to rental use, figure your allowable depreciation as explained earlier. 1040ez tax (Depreciation methods are discussed in chapter 2 of this publication and Publication 946. 1040ez tax ) The basis of all the depreciable real property owned by the cooperative housing corporation is the smaller of the following amounts. 1040ez tax The fair market value of the property on the date you change your apartment to rental use. 1040ez tax This is considered to be the same as the corporation's adjusted basis minus straight line depreciation, unless this value is unrealistic. 1040ez tax The corporation's adjusted basis in the property on that date. 1040ez tax Do not subtract depreciation when figuring the corporation's adjusted basis. 1040ez tax If you bought the stock after its first offering, the corporation's adjusted basis in the property is the amount figured in (1) under Depreciation (under Cooperatives, near the beginning of this chapter). 1040ez tax The fair market value of the property is considered to be the same as the corporation's adjusted basis figured in this way minus straight line depreciation, unless the value is unrealistic. 1040ez tax Figuring the Depreciation Deduction To figure the deduction, use the depreciation system in effect when you convert your residence to rental use. 1040ez tax Generally, that will be MACRS for any conversion after 1986. 1040ez tax Treat the property as placed in service on the conversion date. 1040ez tax Example. 1040ez tax Your converted residence (see previous example under Figuring the basis) was available for rent on August 1. 1040ez tax Using Table 2-2d (see chapter 2), the percentage for Year 1 beginning in August is 1. 1040ez tax 364% and the depreciation deduction for Year 1 is $2,005 ($147,000 × . 1040ez tax 01364). 1040ez tax 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. 1040ez tax 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). 1040ez tax You can also deduct as rental expenses a portion of other expenses that normally are nondeductible personal expenses, such as expenses for electricity, or painting the outside of the house. 1040ez tax There is no change in the types of expenses deductible for the personal-use part of your property. 1040ez tax Generally, these expenses may be deducted only if you itemize your deductions on Schedule A (Form 1040). 1040ez tax You cannot deduct any part of the cost of the first phone line even if your tenants have unlimited use of it. 1040ez tax You do not have to divide the expenses that belong only to the rental part of your property. 1040ez tax 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. 1040ez tax If you install a second phone line strictly for your tenant's use, all of the cost of the second line is deductible as a rental expense. 1040ez tax You can deduct depreciation on the part of the house used for rental purposes as well as on the furniture and equipment you use for rental purposes. 1040ez tax How to divide expenses. 1040ez tax If an expense is for both rental use and personal use, such as mortgage interest or heat for the entire house, you must divide the expense between rental use and personal use. 1040ez tax You can use any reasonable method for dividing the expense. 1040ez tax It may be reasonable to divide the cost of some items (for example, water) based on the number of people using them. 1040ez tax The two most common methods for dividing an expense are (1) the number of rooms in your home, and (2) the square footage of your home. 1040ez tax Example. 1040ez tax You rent a room in your house. 1040ez tax The room is 12 × 15 feet, or 180 square feet. 1040ez tax Your entire house has 1,800 square feet of floor space. 1040ez tax You can deduct as a rental expense 10% of any expense that must be divided between rental use and personal use. 1040ez tax If your heating bill for the year for the entire house was $600, $60 ($600 × . 1040ez tax 10) is a rental expense. 1040ez tax The balance, $540, is a personal expense that you cannot deduct. 1040ez tax Duplex. 1040ez tax A common situation is the duplex where you live in one unit and rent out the other. 1040ez tax Certain expenses apply to the entire property, such as mortgage interest and real estate taxes, and must be split to determine rental and personal expenses. 1040ez tax Example. 1040ez tax You own a duplex and live in one half, renting the other half. 1040ez tax Both units are approximately the same size. 1040ez tax Last year, you paid a total of $10,000 mortgage interest and $2,000 real estate taxes for the entire property. 1040ez tax You can deduct $5,000 mortgage interest and $1,000 real estate taxes on Schedule E (Form 1040), and if you itemize your deductions, you can deduct the other $5,000 mortgage interest and $1,000 real estate taxes on Schedule A (Form 1040). 1040ez tax 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. 1040ez tax 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. 1040ez tax Where to report. 1040ez tax Report your not-for-profit rental income on Form 1040 or 1040NR, line 21. 1040ez tax For example, if you are filing Form 1040, you can include your mortgage interest and any qualified mortgage insurance premiums (if you use the property as your main home or second home), real estate taxes, and casualty losses on the appropriate lines of Schedule A (Form 1040) if you itemize your deductions. 1040ez tax If you itemize your deductions, claim your other rental expenses, subject to the rules explained in chapter 1 of Publication 535, as miscellaneous itemized deductions on Schedule A (Form 1040), line 23, or Schedule A (Form 1040NR), line 9. 1040ez tax You can deduct these expenses only if they, together with certain other miscellaneous itemized deductions, total more than 2% of your adjusted gross income. 1040ez tax Presumption of profit. 1040ez tax If your rental income is more than your rental expenses for at least 3 years out of a period of 5 consecutive years, you are presumed to be renting your property to make a profit. 1040ez tax Postponing decision. 1040ez tax If you are starting your rental activity and do not have 3 years showing a profit, you can elect to have the presumption made after you have the 5 years of experience required by the test. 1040ez tax You may choose to postpone the decision of whether the rental is for profit by filing Form 5213. 1040ez tax You must file Form 5213 within 3 years after the due date of your return (determined without extensions) for the year in which you first carried on the activity or, if earlier, within 60 days after receiving written notice from the Internal Revenue Service proposing to disallow deductions attributable to the activity. 1040ez tax More information. 1040ez tax 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. 1040ez tax Example—Property Changed to Rental Use In January, Eileen Johnson bought a condominium apartment to live in. 1040ez tax Instead of selling the house she had been living in, she decided to change it to rental property. 1040ez tax Eileen selected a tenant and started renting the house on February 1. 1040ez tax Eileen charges $750 a month for rent and collects it herself. 1040ez tax Eileen also received a $750 security deposit from her tenant. 1040ez tax Because she plans to return it to her tenant at the end of the lease, she does not include it in her income. 1040ez tax Her rental expenses for the year are as follows. 1040ez tax Mortgage interest $1,800 Fire insurance (1-year policy) 100 Miscellaneous repairs (after renting) 297 Real estate taxes imposed and paid 1,200 Eileen must divide the real estate taxes, mortgage interest, and fire insurance between the personal use of the property and the rental use of the property. 1040ez tax She can deduct eleven-twelfths of these expenses as rental expenses. 1040ez tax She can include the balance of the allowable taxes and mortgage interest on Schedule A (Form 1040) if she itemizes. 1040ez tax She cannot deduct the balance of the fire insurance because it is a personal expense. 1040ez tax Eileen bought this house in 1984 for $35,000. 1040ez tax Her property tax was based on assessed values of $10,000 for the land and $25,000 for the house. 1040ez tax Before changing it to rental property, Eileen added several improvements to the house. 1040ez tax She figures her adjusted basis as follows: Improvements Cost House $25,000 Remodeled kitchen 4,200 Recreation room 5,800 New roof 1,600 Patio and deck 2,400 Adjusted basis $39,000 On February 1, when Eileen changed her house to rental property, the property had a fair market value of $152,000. 1040ez tax Of this amount, $35,000 was for the land and $117,000 was for the house. 1040ez tax Because Eileen's adjusted basis is less than the fair market value on the date of the change, Eileen uses $39,000 as her basis for depreciation. 1040ez tax As specified for residential rental property, Eileen must use the straight line method of depreciation over the GDS or ADS recovery period. 1040ez tax She chooses the GDS recovery period of 27. 1040ez tax 5 years. 1040ez tax She uses Table 2-2d to find her depreciation percentage. 1040ez tax Since she placed the property in service in February, the percentage is 3. 1040ez tax 182%. 1040ez tax On April 1, Eileen bought a new dishwasher for the rental property at a cost of $425. 1040ez tax The dishwasher is personal property used in a rental real estate activity, which has a 5-year recovery period. 1040ez tax She uses Table 2-2a to find the percentage for Year 1 under “Half-year convention” (20%) to figure her depreciation deduction. 1040ez tax On May 1, Eileen paid $4,000 to have a furnace installed in the house. 1040ez tax The furnace is residential rental property. 1040ez tax Because she placed the property in service in May, the percentage from Table 2-2d is 2. 1040ez tax 273%. 1040ez tax Eileen figures her net rental income or loss for the house as follows: Total rental income received ($750 × 11) $8,250 Minus: Expenses Mortgage interest ($1,800 × 11/12) $1,650 Fire insurance ($100 × 11/12) 92 Miscellaneous repairs 297 Real estate taxes ($1,200 × 11/12) 1,100 Total expenses 3,139 Balance $5,111 Minus: Depreciation House ($39,000 × . 1040ez tax 03182) $1,241 Dishwasher ($425 × . 1040ez tax 20) 85 Furnace ($4,000 × . 1040ez tax 02273) 91 Total depreciation 1,417 Net rental income for house $3,694 Eileen uses Schedule E, Part I, to report her rental income and expenses. 1040ez tax She enters her income, expenses, and depreciation for the house in the column for Property A. 1040ez tax Since all property was placed in service this year, Eileen must use Form 4562 to figure the depreciation. 1040ez tax See the Instructions for Form 4562 for more information on preparing the form. 1040ez tax Prev Up Next Home More Online 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