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1040x Amended Return

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1040x Amended Return

1040x amended return 11. 1040x amended return   Other Expenses Table of Contents What's New Introduction Topics - This chapter discusses: Useful Items - You may want to see: Reimbursement of Travel, Meals, and EntertainmentReimbursements Miscellaneous ExpensesMeaning of generally enforced. 1040x amended return Kickbacks. 1040x amended return Form 1099-MISC. 1040x amended return Exception. 1040x amended return Tax preparation fees. 1040x amended return Covered executive branch official. 1040x amended return Exceptions to denial of deduction. 1040x amended return Indirect political contributions. 1040x amended return Type of deduction. 1040x amended return Repayment—$3,000 or less. 1040x amended return Repayment—over $3,000. 1040x amended return Method 1. 1040x amended return Method 2. 1040x amended return Repayment does not apply. 1040x amended return Year of deduction (or credit). 1040x amended return Telephone. 1040x amended return What's New Standard mileage rate. 1040x amended return  Beginning in 2013, the standard mileage rate for the cost of operating your car, van, pickup, or panel truck for business use is 56. 1040x amended return 5 cents per mile. 1040x amended return For more information, see Car and truck expenses under Miscellaneous Expenses. 1040x amended return Introduction This chapter covers business expenses that may not have been explained to you, as a business owner, in previous chapters of this publication. 1040x amended return Topics - This chapter discusses: Travel, meals, and entertainment Bribes and kickbacks Charitable contributions Education expenses Lobbying expenses Penalties and fines Repayments (claim of right) Other miscellaneous expenses Useful Items - You may want to see: Publication 15-B Employer's Tax Guide to Fringe Benefits 463 Travel, Entertainment, Gift, and Car Expenses 526 Charitable Contributions 529 Miscellaneous Deductions 544 Sales and Other Dispositions of Assets 970 Tax Benefits for Education 1542 Per Diem Rates See chapter 12 for information about getting publications and forms. 1040x amended return Reimbursement of Travel, Meals, and Entertainment The following discussion explains how to handle any reimbursements or allowances you may provide to your employees under a reimbursement or allowance arrangement for travel, meals, and entertainment expenses. 1040x amended return If you are self-employed and report your income and expenses on Schedule C or C-EZ (Form 1040), see Publication 463. 1040x amended return To be deductible for tax purposes, expenses incurred for travel, meals, and entertainment must be ordinary and necessary expenses incurred while carrying on your trade or business. 1040x amended return Generally, you also must show that entertainment expenses (including meals) are directly related to, or associated with, the conduct of your trade or business. 1040x amended return For more information on travel, meals, and entertainment, including deductibility, see Publication 463. 1040x amended return Reimbursements A “reimbursement or allowance arrangement” provides for payment of advances, reimbursements, and allowances for travel, meals, and entertainment expenses incurred by your employees during the ordinary course of business. 1040x amended return If the expenses are substantiated, you can deduct the allowable amount on your tax return. 1040x amended return Because of differences between accounting methods and tax law, the amount you can deduct for tax purposes may not be the same as the amount you deduct on your business books and records. 1040x amended return For example, you can deduct 100% of the cost of meals on your business books and records. 1040x amended return However, only 50% of these costs are allowed by law as a tax deduction. 1040x amended return How you deduct a business expense under a reimbursement or allowance arrangement depends on whether you have: An accountable plan, or A nonaccountable plan. 1040x amended return If you reimburse these expenses under an accountable plan, deduct them as travel, meals, or entertainment expenses. 1040x amended return If you reimburse these expenses under a nonaccountable plan, report the reimbursements as wages on Form W-2, Wage and Tax Statement, and deduct them as wages on the appropriate line of your tax return. 1040x amended return If you make a single payment to your employees and it includes both wages and an expense reimbursement, you must specify the amount of the reimbursement and report it accordingly. 1040x amended return See Table 11-1 , Reporting Reimbursements. 1040x amended return Accountable Plans An accountable plan requires your employees to meet all of the following requirements. 1040x amended return Each employee must: Have paid or incurred deductible expenses while performing services as your employee, Adequately account to you for these expenses within a reasonable period of time, and Return any excess reimbursement or allowance within a reasonable period of time. 1040x amended return An arrangement under which you advance money to employees is treated as meeting (3) above only if the following requirements are also met. 1040x amended return The advance is reasonably calculated not to exceed the amount of anticipated expenses. 1040x amended return You make the advance within a reasonable period of time of your employee paying or incurring the expense. 1040x amended return If any expenses reimbursed under this arrangement are not substantiated, or an excess reimbursement is not returned within a reasonable period of time by an employee, you cannot treat these expenses as reimbursed under an accountable plan. 1040x amended return Instead, treat the reimbursed expenses as paid under a nonaccountable plan, discussed later. 1040x amended return Adequate accounting. 1040x amended return   Your employees must adequately account to you for their travel, meals, and entertainment expenses. 1040x amended return They must give you documentary evidence of their travel, mileage, and other employee business expenses. 1040x amended return This evidence should include items such as receipts, along with either a statement of expenses, an account book, a day-planner, or similar record in which the employee entered each expense at or near the time the expense was incurred. 1040x amended return Excess reimbursement or allowance. 1040x amended return   An excess reimbursement or allowance is any amount you pay to an employee that is more than the business-related expenses for which the employee adequately accounted. 1040x amended return The employee must return any excess reimbursement or other expense allowance to you within a reasonable period of time. 1040x amended return Reasonable period of time. 1040x amended return   A reasonable period of time depends on the facts and circumstances. 1040x amended return Generally, actions that take place within the times specified in the following list will be treated as taking place within a reasonable period of time. 1040x amended return You give an advance within 30 days of the time the employee pays or incurs the expense. 1040x amended return Your employees adequately account for their expenses within 60 days after the expenses were paid or incurred. 1040x amended return Your employees return any excess reimbursement within 120 days after the expenses were paid or incurred. 1040x amended return You give a periodic statement (at least quarterly) to your employees that asks them to either return or adequately account for outstanding advances and they comply within 120 days of the date of the statement. 1040x amended return How to deduct. 1040x amended return   You can claim a deduction for travel, meals, and entertainment expenses if you reimburse your employees for these expenses under an accountable plan. 1040x amended return Generally, the amount you can deduct for meals and entertainment is subject to a 50% limit, discussed later. 1040x amended return If you are a sole proprietor, or are filing as a single member limited liability company, deduct the travel reimbursement on line 24a and the deductible part of the meals and entertainment reimbursement on line 24b, Schedule C (Form 1040) or line 2, Schedule C-EZ (Form 1040). 1040x amended return   If you are filing an income tax return for a corporation, include the reimbursement on the Other deductions line of Form 1120, U. 1040x amended return S. 1040x amended return Corporation Income Tax Return. 1040x amended return If you are filing any other business income tax return, such as a partnership or S corporation return, deduct the reimbursement on the appropriate line of the return as provided in the instructions for that return. 1040x amended return Table 11-1. 1040x amended return Reporting Reimbursements IF the type of reimbursement (or other expense allowance) arrangement is under THEN the employer reports on Form W-2 An accountable plan with: Actual expense reimbursement:  Adequate accounting made and excess returned No amount. 1040x amended return Actual expense reimbursement:  Adequate accounting and return of excess both required but excess not returned The excess amount as wages in box 1. 1040x amended return Per diem or mileage allowance up to the federal rate:  Adequate accounting made and excess returned No amount. 1040x amended return Per diem or mileage allowance up to the federal rate:  Adequate accounting and return of excess both required but excess not returned The excess amount as wages in box 1. 1040x amended return The amount up to the federal rate is reported only in box 12—it is not reported in box 1. 1040x amended return Per diem or mileage allowance exceeds the federal rate:  Adequate accounting made up to the federal rate only and excess not returned The excess amount as wages in box 1. 1040x amended return The amount up to the federal rate is reported only in box 12—it is not reported in box 1. 1040x amended return A nonaccountable plan with: Either adequate accounting or return of excess, or both, not required by plan The entire amount as wages in box 1. 1040x amended return No reimbursement plan The entire amount as wages in box 1. 1040x amended return Per Diem and Car Allowances You can reimburse your employees under an accountable plan based on travel days, miles, or some other fixed allowance. 1040x amended return In these cases, your employee is considered to have accounted to you for the amount of the expense that does not exceed the rates established by the federal government. 1040x amended return Your employee must actually substantiate to you the other elements of the expense, such as time, place, and business purpose. 1040x amended return Federal rate. 1040x amended return   The federal rate can be figured using any one of the following methods. 1040x amended return For car expenses: The standard mileage rate. 1040x amended return A fixed and variable rate (FAVR). 1040x amended return For per diem amounts: The regular federal per diem rate. 1040x amended return The standard meal allowance. 1040x amended return The high-low rate. 1040x amended return Car allowance. 1040x amended return   Your employee is considered to have accounted to you for car expenses that do not exceed the standard mileage rate. 1040x amended return Beginning in 2013, the standard business mileage rate is 56. 1040x amended return 5 cents per mile. 1040x amended return   You can choose to reimburse your employees using a fixed and variable rate (FAVR) allowance. 1040x amended return This is an allowance that includes a combination of payments covering fixed and variable costs, such as a cents-per-mile rate to cover your employees' variable operating costs (such as gas, oil, etc. 1040x amended return ) plus a flat amount to cover your employees' fixed costs (such as depreciation, insurance, etc. 1040x amended return ). 1040x amended return For information on using a FAVR allowance, see Revenue Procedure 2010-51, available at www. 1040x amended return irs. 1040x amended return gov/irb/2010-51_IRB/ar14. 1040x amended return html and Notice 2012-72, available at www. 1040x amended return irs. 1040x amended return gov/irb/2012-50_IRB/ar10. 1040x amended return html. 1040x amended return Per diem allowance. 1040x amended return   If your employee actually substantiates to you the other elements (discussed earlier) of the expenses reimbursed using the per diem allowance, how you report and deduct the allowance depends on whether the allowance is for lodging and meal expenses or for meal expenses only and whether the allowance is more than the federal rate. 1040x amended return Regular federal per diem rate. 1040x amended return   The regular federal per diem rate is the highest amount the federal government will pay to its employees while away from home on travel. 1040x amended return It has two components: Lodging expense, and Meal and incidental expense (M&IE). 1040x amended return The rates are different for different locations. 1040x amended return Publication 1542 lists the rates in the continental United States. 1040x amended return Standard meal allowance. 1040x amended return   The federal rate for meal and incidental expenses (M&IE) is the standard meal allowance. 1040x amended return You can pay only an M&IE allowance to employees who travel away from home if: You pay the employee for actual expenses for lodging based on receipts submitted to you, You provide for the lodging, You pay for the actual expense of the lodging directly to the provider, You do not have a reasonable belief that lodging expenses were incurred by the employee, or The allowance is computed on a basis similar to that used in computing the employee's wages (that is, number of hours worked or miles traveled). 1040x amended return Internet access. 1040x amended return    Per diem rates are available on the Internet. 1040x amended return You can access per diem rates at www. 1040x amended return gsa. 1040x amended return gov/perdiemrates. 1040x amended return High-low method. 1040x amended return   This is a simplified method of computing the federal per diem rate for travel within the continental United States. 1040x amended return It eliminates the need to keep a current list of the per diem rate for each city. 1040x amended return   Under the high-low method, the per diem amount for travel during January through September of 2013 is $242 ($65 for M&IE) for certain high-cost locations. 1040x amended return All other areas have a per diem amount of $163 ($52 for M&IE). 1040x amended return The high-cost locations eligible for the higher per diem amount under the high-low method are listed in Publication 1542. 1040x amended return   Effective October 1, 2013, the per diem rate for high-cost locations increased to $251 ($65 for M&IE). 1040x amended return The rate for all other locations increased to $170 ($52 for M&IE). 1040x amended return For October, November, and December 2013, you can either continue to use the rates described in the preceding paragraph or change to the new rates. 1040x amended return However, you must use the same rate for all employees reimbursed under the high-low method. 1040x amended return   For more information about the high-low method, see Notice 2013-65, available at www. 1040x amended return irs. 1040x amended return gov/irb/2013-44_IRB/ar13. 1040x amended return html. 1040x amended return See Publication 1542 (available on the Internet at IRS. 1040x amended return gov) for the current per diem rates for all locations. 1040x amended return Reporting per diem and car allowances. 1040x amended return   The following discussion explains how to report per diem and car allowances. 1040x amended return The manner in which you report them depends on how the allowance compares to the federal rate. 1040x amended return See Table 11-1. 1040x amended return Allowance less than or equal to the federal rate. 1040x amended return   If your allowance for the employee is less than or equal to the appropriate federal rate, that allowance is not included as part of the employee's pay in box 1 of the employee's Form W-2. 1040x amended return Deduct the allowance as travel expenses (including meals that may be subject to the 50% limit, discussed later). 1040x amended return See How to deduct under Accountable Plans, earlier. 1040x amended return Allowance more than the federal rate. 1040x amended return   If your employee's allowance is more than the appropriate federal rate, you must report the allowance as two separate items. 1040x amended return   Include the allowance amount up to the federal rate in box 12 (code L) of the employee's Form W-2. 1040x amended return Deduct it as travel expenses (as explained above). 1040x amended return This part of the allowance is treated as reimbursed under an accountable plan. 1040x amended return   Include the amount that is more than the federal rate in box 1 (and in boxes 3 and 5 if they apply) of the employee's Form W-2. 1040x amended return Deduct it as wages subject to income tax withholding, social security, Medicare, and federal unemployment taxes. 1040x amended return This part of the allowance is treated as reimbursed under a nonaccountable plan as explained later under Nonaccountable Plans. 1040x amended return Meals and Entertainment Under an accountable plan, you can generally deduct only 50% of any otherwise deductible business-related meal and entertainment expenses you reimburse your employees. 1040x amended return The deduction limit applies even if you reimburse them for 100% of the expenses. 1040x amended return Application of the 50% limit. 1040x amended return   The 50% deduction limit applies to reimbursements you make to your employees for expenses they incur for meals while traveling away from home on business and for entertaining business customers at your place of business, a restaurant, or another location. 1040x amended return It applies to expenses incurred at a business convention or reception, business meeting, or business luncheon at a club. 1040x amended return The deduction limit may also apply to meals you furnish on your premises to your employees. 1040x amended return Related expenses. 1040x amended return   Taxes and tips relating to a meal or entertainment activity you reimburse to your employee under an accountable plan are included in the amount subject to the 50% limit. 1040x amended return Reimbursements you make for expenses, such as cover charges for admission to a nightclub, rent paid for a room to hold a dinner or cocktail party, or the amount you pay for parking at a sports arena, are all subject to the 50% limit. 1040x amended return However, the cost of transportation to and from an otherwise allowable business meal or a business-related entertainment activity is not subject to the 50% limit. 1040x amended return Amount subject to 50% limit. 1040x amended return   If you provide your employees with a per diem allowance only for meal and incidental expenses, the amount treated as an expense for food and beverages is the lesser of the following. 1040x amended return The per diem allowance. 1040x amended return The federal rate for M&IE. 1040x amended return   If you provide your employees with a per diem allowance that covers lodging, meals, and incidental expenses, you must treat an amount equal to the federal M&IE rate for the area of travel as an expense for food and beverages. 1040x amended return If the per diem allowance you provide is less than the federal per diem rate for the area of travel, you can treat 40% of the per diem allowance as the amount for food and beverages. 1040x amended return Meal expenses when subject to “hours of service” limits. 1040x amended return   You can deduct 80% of the cost of reimbursed meals your employees consume while away from their tax home on business during, or incident to, any period subject to the Department of Transportation's “hours of service” limits. 1040x amended return   See Publication 463 for a detailed discussion of individuals subject to the Department of Transportation's “hours of service” limits. 1040x amended return De minimis (minimal) fringe benefit. 1040x amended return   The 50% limit does not apply to an expense for food or beverage that is excluded from the gross income of an employee because it is a de minimis fringe benefit. 1040x amended return See Publication 15-B for additional information on de minimis fringe benefits. 1040x amended return Company cafeteria or executive dining room. 1040x amended return   The cost of food and beverages you provide primarily to your employees on your business premises is deductible. 1040x amended return This includes the cost of maintaining the facilities for providing the food and beverages. 1040x amended return These expenses are subject to the 50% limit unless they qualify as a de minimis fringe benefit, as just discussed, or unless they are compensation to your employees (explained later). 1040x amended return Employee activities. 1040x amended return   The expense of providing recreational, social, or similar activities (including the use of a facility) for your employees is deductible and is not subject to the 50% limit. 1040x amended return The benefit must be primarily for your employees who are not highly compensated. 1040x amended return   For this purpose, a highly compensated employee is an employee who meets either of the following requirements. 1040x amended return Owned a 10% or more interest in the business during the year or the preceding year. 1040x amended return An employee is treated as owning any interest owned by his or her brother, sister, spouse, ancestors, and lineal descendants. 1040x amended return Received more than $115,000 in pay for the preceding year. 1040x amended return You can choose to include only employees who were also in the top 20% of employees when ranked by pay for the preceding year. 1040x amended return   For example, the expenses for food, beverages, and entertainment for a company-wide picnic are not subject to the 50% limit. 1040x amended return Meals or entertainment treated as compensation. 1040x amended return   The 50% limit does not apply to either of the following. 1040x amended return Expenses for meals or entertainment that you treat as: Compensation to an employee who was the recipient of the meals or entertainment, and Wages subject to withholding of federal income tax. 1040x amended return Expenses for meals or entertainment if: A recipient of the meals or entertainment who is not your employee has to include the expenses in gross income as compensation for services or as a prize or award, and You include that amount on a Form 1099 issued to the recipient, if a Form 1099 is required. 1040x amended return Sales of meals or entertainment. 1040x amended return   You can deduct the cost of meals or entertainment (including the use of facilities) you sell to the public. 1040x amended return For example, if you run a nightclub, your expense for the entertainment you furnish to your customers, such as a floor show, is a business expense that is fully deductible. 1040x amended return The 50% limit does not apply to this expense. 1040x amended return Providing meals or entertainment to general public to promote goodwill. 1040x amended return   You can deduct the cost of providing meals, entertainment, or recreational facilities to the general public as a means of advertising or promoting goodwill in the community. 1040x amended return The 50% limit does not apply to this expense. 1040x amended return Director, stockholder, or employee meetings. 1040x amended return   You can deduct entertainment expenses directly related to business meetings of your employees, partners, stockholders, agents, or directors. 1040x amended return You can provide some minor social activities, but the main purpose of the meeting must be your company's business. 1040x amended return These expenses are subject to the 50% limit. 1040x amended return Trade association meetings. 1040x amended return   You can deduct expenses directly related to and necessary for attending business meetings or conventions of certain tax-exempt organizations. 1040x amended return These organizations include business leagues, chambers of commerce, real estate boards, and trade and professional associations. 1040x amended return Nonaccountable Plans A nonaccountable plan is an arrangement that does not meet the requirements for an accountable plan. 1040x amended return All amounts paid, or treated as paid, under a nonaccountable plan are reported as wages on Form W-2. 1040x amended return The payments are subject to income tax withholding, social security, Medicare, and federal unemployment taxes. 1040x amended return You can deduct the reimbursement as compensation or wages only to the extent it meets the deductibility tests for employees' pay in chapter 2. 1040x amended return Deduct the allowable amount as compensation or wages on the appropriate line of your income tax return, as provided in its instructions. 1040x amended return Miscellaneous Expenses In addition to travel, meal, and entertainment expenses, there are other expenses you can deduct. 1040x amended return Advertising expenses. 1040x amended return   You generally can deduct reasonable advertising expenses that are directly related to your business activities. 1040x amended return Generally, you cannot deduct amounts paid to influence legislation (i. 1040x amended return e. 1040x amended return , lobbying). 1040x amended return See Lobbying expenses , later. 1040x amended return   You can usually deduct as a business expense the cost of institutional or goodwill advertising to keep your name before the public if it relates to business you reasonably expect to gain in the future. 1040x amended return For example, the cost of advertising that encourages people to contribute to the Red Cross, to buy U. 1040x amended return S. 1040x amended return Savings Bonds, or to participate in similar causes is usually deductible. 1040x amended return Anticipated liabilities. 1040x amended return   Anticipated liabilities or reserves for anticipated liabilities are not deductible. 1040x amended return For example, assume you sold 1-year TV service contracts this year totaling $50,000. 1040x amended return From experience, you know you will have expenses of about $15,000 in the coming year for these contracts. 1040x amended return You cannot deduct any of the $15,000 this year by charging expenses to a reserve or liability account. 1040x amended return You can deduct your expenses only when you actually pay or accrue them, depending on your accounting method. 1040x amended return Bribes and kickbacks. 1040x amended return   Engaging in the payment of bribes or kickbacks is a serious criminal matter. 1040x amended return Such activity could result in criminal prosecution. 1040x amended return Any payments that appear to have been made, either directly or indirectly, to an official or employee of any government or an agency or instrumentality of any government are not deductible for tax purposes and are in violation of the law. 1040x amended return   Payments paid directly or indirectly to a person in violation of any federal or state law (but only if that state law is generally enforced, defined below) that provides for a criminal penalty or for the loss of a license or privilege to engage in a trade or business are also not allowed as a deduction for tax purposes. 1040x amended return Meaning of “generally enforced. 1040x amended return ”   A state law is considered generally enforced unless it is never enforced or enforced only for infamous persons or persons whose violations are extraordinarily flagrant. 1040x amended return For example, a state law is generally enforced unless proper reporting of a violation of the law results in enforcement only under unusual circumstances. 1040x amended return Kickbacks. 1040x amended return   A kickback is a payment for referring a client, patient, or customer. 1040x amended return The common kickback situation occurs when money or property is given to someone as payment for influencing a third party to purchase from, use the services of, or otherwise deal with the person who pays the kickback. 1040x amended return In many cases, the person whose business is being sought or enjoyed by the person who pays the kickback is not aware of the payment. 1040x amended return   For example, the Yard Corporation is in the business of repairing ships. 1040x amended return It returns 10% of the repair bills as kickbacks to the captains and chief officers of the vessels it repairs. 1040x amended return Although this practice is considered an ordinary and necessary expense of getting business, it is clearly a violation of a state law that is generally enforced. 1040x amended return These expenditures are not deductible for tax purposes, whether or not the owners of the shipyard are subsequently prosecuted. 1040x amended return Form 1099-MISC. 1040x amended return   It does not matter whether any kickbacks paid during the tax year are deductible on your income tax return in regards to information reporting. 1040x amended return See Form 1099-MISC for more information. 1040x amended return Car and truck expenses. 1040x amended return   The costs of operating a car, truck, or other vehicle in your business are deductible. 1040x amended return For more information on how to figure your deduction, see Publication 463. 1040x amended return Charitable contributions. 1040x amended return   Cash payments to an organization, charitable or otherwise, may be deductible as business expenses if the payments are not charitable contributions or gifts and are directly related to your business. 1040x amended return If the payments are charitable contributions or gifts, you cannot deduct them as business expenses. 1040x amended return However, corporations (other than S corporations) can deduct charitable contributions on their income tax returns, subject to limitations. 1040x amended return See the Instructions for Form 1120 for more information. 1040x amended return Sole proprietors, partners in a partnership, or shareholders in an S corporation may be able to deduct charitable contributions made by their business on Schedule A (Form 1040). 1040x amended return Example. 1040x amended return You paid $15 to a local church for a half-page ad in a program for a concert it is sponsoring. 1040x amended return The purpose of the ad was to encourage readers to buy your products. 1040x amended return Your payment is not a charitable contribution. 1040x amended return You can deduct it as an advertising expense. 1040x amended return Example. 1040x amended return You made a $100,000 donation to a committee organized by the local Chamber of Commerce to bring a convention to your city, intended to increase business activity, including yours. 1040x amended return Your payment is not a charitable contribution. 1040x amended return You can deduct it as a business expense. 1040x amended return See Publication 526 for a discussion of donated inventory, including capital gain property. 1040x amended return Club dues and membership fees. 1040x amended return   Generally, you cannot deduct amounts paid or incurred for membership in any club organized for business, pleasure, recreation, or any other social purpose. 1040x amended return This includes country clubs, golf and athletic clubs, hotel clubs, sporting clubs, airline clubs, and clubs operated to provide meals under circumstances generally considered to be conducive to business discussions. 1040x amended return Exception. 1040x amended return   The following organizations are not treated as clubs organized for business, pleasure, recreation, or other social purpose unless one of the main purposes is to conduct entertainment activities for members or their guests or to provide members or their guests with access to entertainment facilities. 1040x amended return Boards of trade. 1040x amended return Business leagues. 1040x amended return Chambers of commerce. 1040x amended return Civic or public service organizations. 1040x amended return Professional organizations such as bar associations and medical associations. 1040x amended return Real estate boards. 1040x amended return Trade associations. 1040x amended return Credit card convenience fees. 1040x amended return   Credit card companies charge a fee to businesses who accept their cards. 1040x amended return This fee when paid or incurred by the business can be deducted as a business expense. 1040x amended return Damages recovered. 1040x amended return   Special rules apply to compensation you receive for damages sustained as a result of patent infringement, breach of contract or fiduciary duty, or antitrust violations. 1040x amended return You must include this compensation in your income. 1040x amended return However, you may be able to take a special deduction. 1040x amended return The deduction applies only to amounts recovered for actual economic injury, not any additional amount. 1040x amended return The deduction is the smaller of the following. 1040x amended return The amount you received or accrued for damages in the tax year reduced by the amount you paid or incurred in the year to recover that amount. 1040x amended return Your losses from the injury you have not deducted. 1040x amended return Demolition expenses or losses. 1040x amended return   Amounts paid or incurred to demolish a structure are not deductible. 1040x amended return These amounts are added to the basis of the land where the demolished structure was located. 1040x amended return Any loss for the remaining undepreciated basis of a demolished structure would not be recognized until the property is disposed of. 1040x amended return Education expenses. 1040x amended return   Ordinary and necessary expenses paid for the cost of the education and training of your employees are deductible. 1040x amended return See Education Expenses in chapter 2. 1040x amended return   You can also deduct the cost of your own education (including certain related travel) related to your trade or business. 1040x amended return You must be able to show the education maintains or improves skills required in your trade or business, or that it is required by law or regulations, for keeping your license to practice, status, or job. 1040x amended return For example, an attorney can deduct the cost of attending Continuing Legal Education (CLE) classes that are required by the state bar association to maintain his or her license to practice law. 1040x amended return   Education expenses you incur to meet the minimum requirements of your present trade or business, or those that qualify you for a new trade or business, are not deductible. 1040x amended return This is true even if the education maintains or improves skills presently required in your business. 1040x amended return For more information on education expenses, see Publication 970. 1040x amended return Franchise, trademark, trade name. 1040x amended return   If you buy a franchise, trademark, or trade name, you can deduct the amount you pay or incur as a business expense only if your payments are part of a series of payments that are: Contingent on productivity, use, or disposition of the item, Payable at least annually for the entire term of the transfer agreement, and Substantially equal in amount (or payable under a fixed formula). 1040x amended return   When determining the term of the transfer agreement, include all renewal options and any other period for which you and the transferrer reasonably expect the agreement to be renewed. 1040x amended return   A franchise includes an agreement that gives one of the parties to the agreement the right to distribute, sell, or provide goods, services, or facilities within a specified area. 1040x amended return Impairment-related expenses. 1040x amended return   If you are disabled, you can deduct expenses necessary for you to be able to work (impairment-related expenses) as a business expense, rather than as a medical expense. 1040x amended return   You are disabled if you have either of the following. 1040x amended return A physical or mental disability (for example, blindness or deafness) that functionally limits your being employed. 1040x amended return A physical or mental impairment that substantially limits one or more of your major life activities. 1040x amended return   The expense qualifies as a business expense if all the following apply. 1040x amended return Your work clearly requires the expense for you to satisfactorily perform that work. 1040x amended return The goods or services purchased are clearly not needed or used, other than incidentally, in your personal activities. 1040x amended return Their treatment is not specifically provided for under other tax law provisions. 1040x amended return Example. 1040x amended return You are blind. 1040x amended return You must use a reader to do your work, both at and away from your place of work. 1040x amended return The reader's services are only for your work. 1040x amended return You can deduct your expenses for the reader as a business expense. 1040x amended return Internet-related expenses. 1040x amended return   Generally, you can deduct internet-related expenses including domain registrations fees and webmaster consulting costs. 1040x amended return If you are starting a business you may have to amortize these expenses as start-up costs. 1040x amended return For more information about amortizing start-up and organizational costs, see chapter 8. 1040x amended return Interview expense allowances. 1040x amended return   Reimbursements you make to job candidates for transportation or other expenses related to interviews for possible employment are not wages. 1040x amended return You can deduct the reimbursements as a business expense. 1040x amended return However, expenses for food, beverages, and entertainment are subject to the 50% limit discussed earlier under Meals and Entertainment. 1040x amended return Legal and professional fees. 1040x amended return   Fees charged by accountants and attorneys that are ordinary and necessary expenses directly related to operating your business are deductible as business expenses. 1040x amended return However, usually legal fees you pay to acquire business assets are not deductible. 1040x amended return These costs are added to the basis of the property. 1040x amended return   Fees that include payments for work of a personal nature (such as drafting a will, or damages arising from a personal injury) are not allowed as a business deduction on Schedule C or C-EZ. 1040x amended return If the invoice includes both business and personal charges, compute the business portion as follows: multiply the total amount of the bill by a fraction, the numerator of which is the amount attributable to business matters, the denominator of which is the total amount paid. 1040x amended return The result is the portion of the invoice attributable to business expenses. 1040x amended return The portion attributable to personal matters is the difference between the total amount and the business portion (computed above). 1040x amended return   Legal fees relating to personal tax advice may be deductible on Schedule A (Form 1040), if you itemize deductions. 1040x amended return However, the deduction is subject to the 2% limitation on miscellaneous itemized deductions. 1040x amended return See Publication 529, Miscellaneous Deductions. 1040x amended return Tax preparation fees. 1040x amended return   The cost of hiring a tax professional, such as a C. 1040x amended return P. 1040x amended return A. 1040x amended return , to prepare that part of your tax return relating to your business as a sole proprietor is deductible on Schedule C or Schedule C-EZ. 1040x amended return Any remaining cost may be deductible on Schedule A (Form 1040) if you itemize deductions. 1040x amended return   You can also claim a business deduction for amounts paid or incurred in resolving asserted tax deficiencies for your business operated as a sole proprietor. 1040x amended return Licenses and regulatory fees. 1040x amended return   Licenses and regulatory fees for your trade or business paid annually to state or local governments generally are deductible. 1040x amended return Some licenses and fees may have to be amortized. 1040x amended return See chapter 8 for more information. 1040x amended return Lobbying expenses. 1040x amended return   Generally, lobbying expenses are not deductible. 1040x amended return Lobbying expenses include amounts paid or incurred for any of the following activities. 1040x amended return Influencing legislation. 1040x amended return Participating in or intervening in any political campaign for, or against, any candidate for public office. 1040x amended return Attempting to influence the general public, or segments of the public, about elections, legislative matters, or referendums. 1040x amended return Communicating directly with covered executive branch officials (defined later) in any attempt to influence the official actions or positions of those officials. 1040x amended return Researching, preparing, planning, or coordinating any of the preceding activities. 1040x amended return   Your expenses for influencing legislation and communicating directly with a covered executive branch official include a portion of your labor costs and general and administrative costs of your business. 1040x amended return For information on making this allocation, see section 1. 1040x amended return 162-28 of the regulations. 1040x amended return   You cannot claim a charitable or business expense deduction for amounts paid to an organization if both of the following apply. 1040x amended return The organization conducts lobbying activities on matters of direct financial interest to your business. 1040x amended return A principal purpose of your contribution is to avoid the rules discussed earlier that prohibit a business deduction for lobbying expenses. 1040x amended return   If a tax-exempt organization, other than a section 501(c)(3) organization, provides you with a notice on the part of dues that is allocable to nondeductible lobbying and political expenses, you cannot deduct that part of the dues. 1040x amended return Covered executive branch official. 1040x amended return   For purposes of this discussion, a covered executive branch official is any of the following. 1040x amended return The President. 1040x amended return The Vice President. 1040x amended return Any officer or employee of the White House Office of the Executive Office of the President and the two most senior level officers of each of the other agencies in the Executive Office. 1040x amended return Any individual who: Is serving in a position in Level I of the Executive Schedule under section 5312 of title 5, United States Code, Has been designated by the President as having Cabinet-level status, or Is an immediate deputy of an individual listed in item (a) or (b). 1040x amended return Exceptions to denial of deduction. 1040x amended return   The general denial of the deduction does not apply to the following. 1040x amended return Expenses of appearing before, or communicating with, any committee or member of any local council or similar governing body concerning its legislation (local legislation) if the legislation is of direct interest to you or to you and an organization of which you are a member. 1040x amended return An Indian tribal government is treated as a local council or similar governing body. 1040x amended return Any in-house expenses for influencing legislation and communicating directly with a covered executive branch official if those expenses for the tax year do not exceed $2,000 (excluding overhead expenses). 1040x amended return Expenses incurred by taxpayers engaged in the trade or business of lobbying (professional lobbyists) on behalf of another person (but does apply to payments by the other person to the lobbyist for lobbying activities). 1040x amended return Moving machinery. 1040x amended return   Generally, the cost of moving machinery from one city to another is a deductible expense. 1040x amended return So is the cost of moving machinery from one plant to another, or from one part of your plant to another. 1040x amended return You can deduct the cost of installing the machinery in the new location. 1040x amended return However, you must capitalize the costs of installing or moving newly purchased machinery. 1040x amended return Outplacement services. 1040x amended return   The costs of outplacement services you provide to your employees to help them find new employment, such as career counseling, résumé assistance, skills assessment, etc. 1040x amended return are deductible. 1040x amended return   The costs of outplacement services may cover more than one deduction category. 1040x amended return For example, deduct as a utilities expense the cost of telephone calls made under this service and deduct as rental expense the cost of renting machinery and equipment for this service. 1040x amended return   For information on whether the value of outplacement services is includable in your employees' income, see Publication 15-B. 1040x amended return Penalties and fines. 1040x amended return   Penalties paid for late performance or nonperformance of a contract are generally deductible. 1040x amended return For instance, you own and operate a construction company. 1040x amended return Under a contract, you are to finish construction of a building by a certain date. 1040x amended return Due to construction delays, the building is not completed and ready for occupancy on the date stipulated in the contract. 1040x amended return You are now required to pay an additional amount for each day that completion is delayed beyond the completion date stipulated in the contract. 1040x amended return These additional costs are deductible business expenses. 1040x amended return   On the other hand, penalties or fines paid to any government agency or instrumentality because of a violation of any law are not deductible. 1040x amended return These fines or penalties include the following amounts. 1040x amended return Paid because of a conviction for a crime or after a plea of guilty or no contest in a criminal proceeding. 1040x amended return Paid as a penalty imposed by federal, state, or local law in a civil action, including certain additions to tax and additional amounts and assessable penalties imposed by the Internal Revenue Code. 1040x amended return Paid in settlement of actual or possible liability for a fine or penalty, whether civil or criminal. 1040x amended return Forfeited as collateral posted for a proceeding that could result in a fine or penalty. 1040x amended return   Examples of nondeductible penalties and fines include the following. 1040x amended return Fines for violating city housing codes. 1040x amended return Fines paid by truckers for violating state maximum highway weight laws. 1040x amended return Fines for violating air quality laws. 1040x amended return Civil penalties for violating federal laws regarding mining safety standards and discharges into navigable waters. 1040x amended return   A fine or penalty does not include any of the following. 1040x amended return Legal fees and related expenses to defend yourself in a prosecution or civil action for a violation of the law imposing the fine or civil penalty. 1040x amended return Court costs or stenographic and printing charges. 1040x amended return Compensatory damages paid to a government. 1040x amended return Political contributions. 1040x amended return   Contributions or gifts paid to political parties or candidates are not deductible. 1040x amended return In addition, expenses paid or incurred to take part in any political campaign of a candidate for public office are not deductible. 1040x amended return Indirect political contributions. 1040x amended return   You cannot deduct indirect political contributions and costs of taking part in political activities as business expenses. 1040x amended return Examples of nondeductible expenses include the following. 1040x amended return Advertising in a convention program of a political party, or in any other publication if any of the proceeds from the publication are for, or intended for, the use of a political party or candidate. 1040x amended return Admission to a dinner or program (including, but not limited to, galas, dances, film presentations, parties, and sporting events) if any of the proceeds from the function are for, or intended for, the use of a political party or candidate. 1040x amended return Admission to an inaugural ball, gala, parade, concert, or similar event if identified with a political party or candidate. 1040x amended return Repairs. 1040x amended return   The cost of repairing or improving property used in your trade or business is either a deductible or capital expense. 1040x amended return Routine maintenance that keeps your property in a normal efficient operating condition, but that does not materially increase the value or substantially prolong the useful life of the property, is deductible in the year that it is incurred. 1040x amended return Otherwise, the cost must be capitalized and depreciated. 1040x amended return See Form 4562 and its instructions for how to compute and claim the depreciation deduction. 1040x amended return   The cost of repairs includes the costs of labor, supplies, and certain other items. 1040x amended return The value of your own labor is not deductible. 1040x amended return Examples of repairs include: Reconditioning floors (but not replacement), Repainting the interior and exterior walls of a building, Cleaning and repairing roofs and gutters, and Fixing plumbing leaks (but not replacement of fixtures). 1040x amended return Repayments. 1040x amended return   If you had to repay an amount you included in your income in an earlier year, you may be able to deduct the amount repaid for the year in which you repaid it. 1040x amended return Or, if the amount you repaid is more than $3,000, you may be able to take a credit against your tax for the year in which you repaid it. 1040x amended return Type of deduction. 1040x amended return   The type of deduction you are allowed in the year of repayment depends on the type of income you included in the earlier year. 1040x amended return For instance, if you repay an amount you previously reported as a capital gain, deduct the repayment as a capital loss on Form 8949. 1040x amended return If you reported it as self-employment income, deduct it as a business deduction on Schedule C or Schedule C-EZ (Form 1040) or Schedule F (Form 1040). 1040x amended return   If you reported the amount as wages, unemployment compensation, or other nonbusiness ordinary income, enter it on Schedule A (Form 1040) as a miscellaneous itemized deduction that is subject to the 2% limitation. 1040x amended return However, if the repayment is over $3,000 and Method 1 (discussed later) applies, deduct it on Schedule A (Form 1040) as a miscellaneous itemized deduction that is not subject to the 2% limitation. 1040x amended return Repayment—$3,000 or less. 1040x amended return   If the amount you repaid was $3,000 or less, deduct it from your income in the year you repaid it. 1040x amended return Repayment—over $3,000. 1040x amended return   If the amount you repaid was more than $3,000, you can deduct the repayment, as described earlier. 1040x amended return However, you can instead choose to take a tax credit for the year of repayment if you included the income under a “claim of right. 1040x amended return ” This means that at the time you included the income, it appeared that you had an unrestricted right to it. 1040x amended return If you qualify for this choice, figure your tax under both methods and use the method that results in less tax. 1040x amended return Method 1. 1040x amended return   Figure your tax for 2013 claiming a deduction for the repaid amount. 1040x amended return Method 2. 1040x amended return   Figure your tax for 2013 claiming a credit for the repaid amount. 1040x amended return Follow these steps. 1040x amended return Figure your tax for 2013 without deducting the repaid amount. 1040x amended return Refigure your tax from the earlier year without including in income the amount you repaid in 2013. 1040x amended return Subtract the tax in (2) from the tax shown on your return for the earlier year. 1040x amended return This is the amount of your credit. 1040x amended return Subtract the answer in (3) from the tax for 2013 figured without the deduction (step 1). 1040x amended return   If Method 1 results in less tax, deduct the amount repaid as discussed earlier under Type of deduction. 1040x amended return   If Method 2 results in less tax, claim the credit on line 71 of Form 1040, and write “I. 1040x amended return R. 1040x amended return C. 1040x amended return 1341” next to line 71. 1040x amended return Example. 1040x amended return For 2012, you filed a return and reported your income on the cash method. 1040x amended return In 2013, you repaid $5,000 included in your 2012 gross income under a claim of right. 1040x amended return Your filing status in 2013 and 2012 is single. 1040x amended return Your income and tax for both years are as follows:   2012  With Income 2012  Without Income Taxable Income $15,000 $10,000 Tax $ 1,819 $ 1,069   2013  Without Deduction 2013  With Deduction Taxable Income $49,950 $44,950 Tax $8,423 $7,173 Your tax under Method 1 is $7,173. 1040x amended return Your tax under Method 2 is $7,673, figured as follows: Tax previously determined for 2012 $ 1,819 Less: Tax as refigured − 1,069 Decrease in 2012 tax $ 750 Regular tax liability for 2013 $8,423 Less: Decrease in 2012 tax − 750 Refigured tax for 2013 $ 7,673 Because you pay less tax under Method 1, you should take a deduction for the repayment in 2013. 1040x amended return Repayment does not apply. 1040x amended return   This discussion does not apply to the following. 1040x amended return Deductions for bad debts. 1040x amended return Deductions from sales to customers, such as returns and allowances, and similar items. 1040x amended return Deductions for legal and other expenses of contesting the repayment. 1040x amended return Year of deduction (or credit). 1040x amended return   If you use the cash method of accounting, you can take the deduction (or credit, if applicable) for the tax year in which you actually make the repayment. 1040x amended return If you use any other accounting method, you can deduct the repayment or claim a credit for it only for the tax year in which it is a proper deduction under your accounting method. 1040x amended return For example, if you use the accrual method, you are entitled to the deduction or credit in the tax year in which the obligation for the repayment accrues. 1040x amended return Subscriptions. 1040x amended return   Subscriptions to professional, technical, and trade journals that deal with your business field are deductible. 1040x amended return Supplies and materials. 1040x amended return   Unless you have deducted the cost in any earlier year, you generally can deduct the cost of materials and supplies actually consumed and used during the tax year. 1040x amended return   If you keep incidental materials and supplies on hand, you can deduct the cost of the incidental materials and supplies you bought during the tax year if all the following requirements are met. 1040x amended return You do not keep a record of when they are used. 1040x amended return You do not take an inventory of the amount on hand at the beginning and end of the tax year. 1040x amended return This method does not distort your income. 1040x amended return   You can also deduct the cost of books, professional instruments, equipment, etc. 1040x amended return , if you normally use them within a year. 1040x amended return However, if the usefulness of these items extends substantially beyond the year they are placed in service, you generally must recover their costs through depreciation. 1040x amended return For more information regarding depreciation see Publication 946, How To Depreciate Property. 1040x amended return Utilities. 1040x amended return   Business expenses for heat, lights, power, telephone service, and water and sewerage are deductible. 1040x amended return However, any part due to personal use is not deductible. 1040x amended return Telephone. 1040x amended return   You cannot deduct the cost of basic local telephone service (including any taxes) for the first telephone line you have in your home, even if you have an office in your home. 1040x amended return However, charges for business long-distance phone calls on that line, as well as the cost of a second line into your home used exclusively for business, are deductible business expenses. 1040x amended return Prev  Up  Next   Home   More Online Publications
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The 1040x Amended Return

1040x amended return 5. 1040x amended return   Personal Use of Dwelling Unit (Including Vacation Home) Table of Contents Dividing Expenses Dwelling Unit Used as a HomeMain home. 1040x amended return Shared equity financing agreement. 1040x amended return Donation of use of the property. 1040x amended return Examples. 1040x amended return Days used for repairs and maintenance. 1040x amended return Days used as a main home before or after renting. 1040x amended return Reporting Income and DeductionsNot used as a home. 1040x amended return Used as a home but rented less than 15 days. 1040x amended return Used as a home and rented 15 days or more. 1040x amended return If you have any personal use of a dwelling unit (including a vacation home) that you rent, you must divide your expenses between rental use and personal use. 1040x amended return In general, your rental expenses will be no more than your total expenses multiplied by a fraction; the denominator of which is the total number of days the dwelling unit is used and the numerator of which is the total number of days actually rented at a fair rental price. 1040x amended return Only your rental expenses may deducted on Schedule E (Form 1040). 1040x amended return Some of your personal expenses may be deductible if you itemize your deductions on Schedule A (Form 1040). 1040x amended return You must also determine if the dwelling unit is considered a home. 1040x amended return The amount of rental expenses that you can deduct may be limited if the dwelling unit is considered a home. 1040x amended return Whether a dwelling unit is considered a home depends on how many days during the year are considered to be days of personal use. 1040x amended return There is a special rule if you used the dwelling unit as a home and you rented it for less than 15 days during the year. 1040x amended return Dwelling unit. 1040x amended return   A dwelling unit includes a house, apartment, condominium, mobile home, boat, vacation home, or similar property. 1040x amended return It also includes all structures or other property belonging to the dwelling unit. 1040x amended return A dwelling unit has basic living accommodations, such as sleeping space, a toilet, and cooking facilities. 1040x amended return   A dwelling unit does not include property (or part of the property) used solely as a hotel, motel, inn, or similar establishment. 1040x amended return Property is used solely as a hotel, motel, inn, or similar establishment if it is regularly available for occupancy by paying customers and is not used by an owner as a home during the year. 1040x amended return Example. 1040x amended return You rent a room in your home that is always available for short-term occupancy by paying customers. 1040x amended return You do not use the room yourself and you allow only paying customers to use the room. 1040x amended return This room is used solely as a hotel, motel, inn, or similar establishment and is not a dwelling unit. 1040x amended return Dividing Expenses If you use a dwelling unit for both rental and personal purposes, divide your expenses between the rental use and the personal use based on the number of days used for each purpose. 1040x amended return When dividing your expenses, follow these rules. 1040x amended return Any day that the unit is rented at a fair rental price is a day of rental use even if you used the unit for personal purposes that day. 1040x amended return (This rule does not apply when determining whether you used the unit as a home. 1040x amended return ) Any day that the unit is available for rent but not actually rented is not a day of rental use. 1040x amended return Fair rental price. 1040x amended return   A fair rental price for your property generally is the amount of rent that a person who is not related to you would be willing to pay. 1040x amended return The rent you charge is not a fair rental price if it is substantially less than the rents charged for other properties that are similar to your property in your area. 1040x amended return   Ask yourself the following questions when comparing another property with yours. 1040x amended return Is it used for the same purpose? Is it approximately the same size? Is it in approximately the same condition? Does it have similar furnishings? Is it in a similar location? If any of the answers are no, the properties probably are not similar. 1040x amended return Example. 1040x amended return Your beach cottage was available for rent from June 1 through August 31 (92 days). 1040x amended return Except for the first week in August (7 days), when you were unable to find a renter, you rented the cottage at a fair rental price during that time. 1040x amended return The person who rented the cottage for July allowed you to use it over the weekend (2 days) without any reduction in or refund of rent. 1040x amended return Your family also used the cottage during the last 2 weeks of May (14 days). 1040x amended return The cottage was not used at all before May 17 or after August 31. 1040x amended return You figure the part of the cottage expenses to treat as rental expenses as follows. 1040x amended return The cottage was used for rental a total of 85 days (92 − 7). 1040x amended return The days it was available for rent but not rented (7 days) are not days of rental use. 1040x amended return The July weekend (2 days) you used it is rental use because you received a fair rental price for the weekend. 1040x amended return You used the cottage for personal purposes for 14 days (the last 2 weeks in May). 1040x amended return The total use of the cottage was 99 days (14 days personal use + 85 days rental use). 1040x amended return Your rental expenses are 85/99 (86%) of the cottage expenses. 1040x amended return Note. 1040x amended return When determining whether you used the cottage as a home, the July weekend (2 days) you used it is considered personal use even though you received a fair rental price for the weekend. 1040x amended return Therefore, you had 16 days of personal use and 83 days of rental use for this purpose. 1040x amended return Because you used the cottage for personal purposes more than 14 days and more than 10% of the days of rental use (8 days), you used it as a home. 1040x amended return If you have a net loss, you may not be able to deduct all of the rental expenses. 1040x amended return See Dwelling Unit Used as a Home, next. 1040x amended return Dwelling Unit Used as a Home If you use a dwelling unit for both rental and personal purposes, the tax treatment of the rental expenses you figured earlier under Dividing Expenses and rental income depends on whether you are considered to be using the dwelling unit as a home. 1040x amended return You use a dwelling unit as a home during the tax year if you use it for personal purposes more than the greater of: 14 days, or 10% of the total days it is rented to others at a fair rental price. 1040x amended return See What is a day of personal use , later. 1040x amended return If a dwelling unit is used for personal purposes on a day it is rented at a fair rental price (discussed earlier), do not count that day as a day of rental use in applying (2) above. 1040x amended return Instead, count it as a day of personal use in applying both (1) and (2) above. 1040x amended return What is a day of personal use?   A day of personal use of a dwelling unit is any day that the unit is used by any of the following persons. 1040x amended return You or any other person who owns an interest in it, unless you rent it to another owner as his or her main home under a shared equity financing agreement (defined later). 1040x amended return However, see Days used as a main home before or after renting , later. 1040x amended return A member of your family or a member of the family of any other person who owns an interest in it, unless the family member uses the dwelling unit as his or her main home and pays a fair rental price. 1040x amended return Family includes only your spouse, brothers and sisters, half-brothers and half-sisters, ancestors (parents, grandparents, etc. 1040x amended return ), and lineal descendants (children, grandchildren, etc. 1040x amended return ). 1040x amended return Anyone under an arrangement that lets you use some other dwelling unit. 1040x amended return Anyone at less than a fair rental price. 1040x amended return Main home. 1040x amended return   If the other person or member of the family in (1) or (2) above has more than one home, his or her main home is ordinarily the one he or she lived in most of the time. 1040x amended return Shared equity financing agreement. 1040x amended return   This is an agreement under which two or more persons acquire undivided interests for more than 50 years in an entire dwelling unit, including the land, and one or more of the co-owners is entitled to occupy the unit as his or her main home upon payment of rent to the other co-owner or owners. 1040x amended return Donation of use of the property. 1040x amended return   You use a dwelling unit for personal purposes if: You donate the use of the unit to a charitable organization, The organization sells the use of the unit at a fund-raising event, and The “purchaser” uses the unit. 1040x amended return Examples. 1040x amended return   The following examples show how to determine if you have days of personal use. 1040x amended return Example 1. 1040x amended return You and your neighbor are co-owners of a condominium at the beach. 1040x amended return Last year, you rented the unit to vacationers whenever possible. 1040x amended return The unit was not used as a main home by anyone. 1040x amended return Your neighbor used the unit for 2 weeks last year; you did not use it at all. 1040x amended return Because your neighbor has an interest in the unit, both of you are considered to have used the unit for personal purposes during those 2 weeks. 1040x amended return Example 2. 1040x amended return You and your neighbors are co-owners of a house under a shared equity financing agreement. 1040x amended return Your neighbors live in the house and pay you a fair rental price. 1040x amended return Even though your neighbors have an interest in the house, the days your neighbors live there are not counted as days of personal use by you. 1040x amended return This is because your neighbors rent the house as their main home under a shared equity financing agreement. 1040x amended return Example 3. 1040x amended return You own a rental property that you rent to your son. 1040x amended return Your son does not own any interest in this property. 1040x amended return He uses it as his main home and pays you a fair rental price. 1040x amended return Your son's use of the property is not personal use by you because your son is using it as his main home, he owns no interest in the property, and he is paying you a fair rental price. 1040x amended return Example 4. 1040x amended return You rent your beach house to Rosa. 1040x amended return Rosa rents her cabin in the mountains to you. 1040x amended return You each pay a fair rental price. 1040x amended return You are using your beach house for personal purposes on the days that Rosa uses it because your house is used by Rosa under an arrangement that allows you to use her cabin. 1040x amended return Example 5. 1040x amended return You rent an apartment to your mother at less than a fair rental price. 1040x amended return You are using the apartment for personal purposes on the days that your mother rents it because you rent it for less than a fair rental price. 1040x amended return Days used for repairs and maintenance. 1040x amended return   Any day that you spend working substantially full time repairing and maintaining (not improving) your property is not counted as a day of personal use. 1040x amended return Do not count such a day as a day of personal use even if family members use the property for recreational purposes on the same day. 1040x amended return Example. 1040x amended return Corey owns a cabin in the mountains that he rents for most of the year. 1040x amended return He spends a week at the cabin with family members. 1040x amended return Corey works on maintenance of the cabin 3 or 4 hours each day during the week and spends the rest of the time fishing, hiking, and relaxing. 1040x amended return Corey's family members, however, work substantially full time on the cabin each day during the week. 1040x amended return The main purpose of being at the cabin that week is to do maintenance work. 1040x amended return Therefore, the use of the cabin during the week by Corey and his family will not be considered personal use by Corey. 1040x amended return Days used as a main home before or after renting. 1040x amended return   For purposes of determining whether a dwelling unit was used as a home, you may not have to count days you used the property as your main home before or after renting it or offering it for rent as days of personal use. 1040x amended return Do not count them as days of personal use if: You rented or tried to rent the property for 12 or more consecutive months. 1040x amended return You rented or tried to rent the property for a period of less than 12 consecutive months and the period ended because you sold or exchanged the property. 1040x amended return However, this special rule does not apply when dividing expenses between rental and personal use. 1040x amended return See Property Changed to Rental Use in chapter 4. 1040x amended return Example 1. 1040x amended return On February 29, 2012, you moved out of the house you had lived in for 6 years because you accepted a job in another town. 1040x amended return You rented your house at a fair rental price from March 15, 2012, to May 14, 2013 (14 months). 1040x amended return On June 1, 2013, you moved back into your old house. 1040x amended return The days you used the house as your main home from January 1 to February 29, 2012, and from June 1 to December 31, 2013, are not counted as days of personal use. 1040x amended return Therefore, you would use the rules in chapter 1 when figuring your rental income and expenses. 1040x amended return Example 2. 1040x amended return On January 31, you moved out of the condominium where you had lived for 3 years. 1040x amended return You offered it for rent at a fair rental price beginning on February 1. 1040x amended return You were unable to rent it until April. 1040x amended return On September 15, you sold the condominium. 1040x amended return The days you used the condominium as your main home from January 1 to January 31 are not counted as days of personal use when determining whether you used it as a home. 1040x amended return Examples. 1040x amended return   The following examples show how to determine whether you used your rental property as a home. 1040x amended return Example 1. 1040x amended return You converted the basement of your home into an apartment with a bedroom, a bathroom, and a small kitchen. 1040x amended return You rented the basement apartment at a fair rental price to college students during the regular school year. 1040x amended return You rented to them on a 9-month lease (273 days). 1040x amended return You figured 10% of the total days rented to others at a fair rental price is 27 days. 1040x amended return During June (30 days), your brothers stayed with you and lived in the basement apartment rent free. 1040x amended return Your basement apartment was used as a home because you used it for personal purposes for 30 days. 1040x amended return Rent-free use by your brothers is considered personal use. 1040x amended return Your personal use (30 days) is more than the greater of 14 days or 10% of the total days it was rented (27 days). 1040x amended return Example 2. 1040x amended return You rented the guest bedroom in your home at a fair rental price during the local college's homecoming, commencement, and football weekends (a total of 27 days). 1040x amended return Your sister-in-law stayed in the room, rent free, for the last 3 weeks (21 days) in July. 1040x amended return You figured 10% of the total days rented to others at a fair rental price is 3 days. 1040x amended return The room was used as a home because you used it for personal purposes for 21 days. 1040x amended return That is more than the greater of 14 days or 10% of the 27 days it was rented (3 days). 1040x amended return Example 3. 1040x amended return You own a condominium apartment in a resort area. 1040x amended return You rented it at a fair rental price for a total of 170 days during the year. 1040x amended return For 12 of these days, the tenant was not able to use the apartment and allowed you to use it even though you did not refund any of the rent. 1040x amended return Your family actually used the apartment for 10 of those days. 1040x amended return Therefore, the apartment is treated as having been rented for 160 (170 – 10) days. 1040x amended return You figured 10% of the total days rented to others at a fair rental price is 16 days. 1040x amended return Your family also used the apartment for 7 other days during the year. 1040x amended return You used the apartment as a home because you used it for personal purposes for 17 days. 1040x amended return That is more than the greater of 14 days or 10% of the 160 days it was rented (16 days). 1040x amended return Minimal rental use. 1040x amended return   If you use the dwelling unit as a home and you rent it less than 15 days during the year, that period is not treated as rental activity. 1040x amended return See Used as a home but rented less than 15 days, later, for more information. 1040x amended return Limit on deductions. 1040x amended return   Renting a dwelling unit that is considered a home is not a passive activity. 1040x amended return Instead, if your rental expenses are more than your rental income, some or all of the excess expenses cannot be used to offset income from other sources. 1040x amended return The excess expenses that cannot be used to offset income from other sources are carried forward to the next year and treated as rental expenses for the same property. 1040x amended return Any expenses carried forward to the next year will be subject to any limits that apply for that year. 1040x amended return This limitation will apply to expenses carried forward to another year even if you do not use the property as your home for that subsequent year. 1040x amended return   To figure your deductible rental expenses for this year and any carryover to next year, use Worksheet 5–1. 1040x amended return Reporting Income and Deductions Property not used for personal purposes. 1040x amended return   If you do not use a dwelling unit for personal purposes, see chapter 3 for how to report your rental income and expenses. 1040x amended return Property used for personal purposes. 1040x amended return   If you do use a dwelling unit for personal purposes, then how you report your rental income and expenses depends on whether you used the dwelling unit as a home. 1040x amended return Not used as a home. 1040x amended return   If you use a dwelling unit for personal purposes, but not as a home, report all the rental income in your income. 1040x amended return Since you used the dwelling unit for personal purposes, you must divide your expenses between the rental use and the personal use as described earlier in this chapter under Dividing Expenses . 1040x amended return The expenses for personal use are not deductible as rental expenses. 1040x amended return   Your deductible rental expenses can be more than your gross rental income; however, see Limits on Rental Losses in chapter 3. 1040x amended return Used as a home but rented less than 15 days. 1040x amended return   If you use a dwelling unit as a home and you rent it less than 15 days during the year, its primary function is not considered to be rental and it should not be reported on Schedule E (Form 1040). 1040x amended return You are not required to report the rental income and rental expenses from this activity. 1040x amended return The expenses, including qualified mortgage interest, property taxes, and any qualified casualty loss will be reported as normally allowed on Schedule A (Form 1040). 1040x amended return See the Instructions for Schedule A (Form 1040) for more information on deducting these expenses. 1040x amended return Used as a home and rented 15 days or more. 1040x amended return   If you use a dwelling unit as a home and rent it 15 days or more during the year, include all your rental income in your income. 1040x amended return Since you used the dwelling unit for personal purposes, you must divide your expenses between the rental use and the personal use as described earlier in this chapter under Dividing Expenses . 1040x amended return The expenses for personal use are not deductible as rental expenses. 1040x amended return   If you had a net profit from renting the dwelling unit for the year (that is, if your rental income is more than the total of your rental expenses, including depreciation), deduct all of your rental expenses. 1040x amended return You do not need to use Worksheet 5-1. 1040x amended return   However, if you had a net loss from renting the dwelling unit for the year, your deduction for certain rental expenses is limited. 1040x amended return To figure your deductible rental expenses and any carryover to next year, use Worksheet 5–1. 1040x amended return Worksheet 5-1. 1040x amended return Worksheet for Figuring Rental Deductions for a Dwelling Unit Used as a Home Use this worksheet only if you answer “yes” to all of the following questions. 1040x amended return Did you use the dwelling unit as a home this year? (See Dwelling Unit Used as a Home . 1040x amended return ) Did you rent the dwelling unit at a fair rental price 15 days or more this year? Is the total of your rental expenses and depreciation more than your rental income? PART I. 1040x amended return Rental Use Percentage A. 1040x amended return Total days available for rent at fair rental price A. 1040x amended return       B. 1040x amended return Total days available for rent (line A) but not rented B. 1040x amended return       C. 1040x amended return Total days of rental use. 1040x amended return Subtract line B from line A C. 1040x amended return       D. 1040x amended return Total days of personal use (including days rented at less than fair rental price) D. 1040x amended return       E. 1040x amended return Total days of rental and personal use. 1040x amended return Add lines C and D E. 1040x amended return       F. 1040x amended return Percentage of expenses allowed for rental. 1040x amended return Divide line C by line E     F. 1040x amended return . 1040x amended return PART II. 1040x amended return Allowable Rental Expenses 1. 1040x amended return Enter rents received 1. 1040x amended return   2a. 1040x amended return Enter the rental portion of deductible home mortgage interest and qualified mortgage insurance premiums (see instructions) 2a. 1040x amended return       b. 1040x amended return Enter the rental portion of real estate taxes b. 1040x amended return       c. 1040x amended return Enter the rental portion of deductible casualty and theft losses (see instructions) c. 1040x amended return       d. 1040x amended return Enter direct rental expenses (see instructions) d. 1040x amended return       e. 1040x amended return Fully deductible rental expenses. 1040x amended return Add lines 2a–2d. 1040x amended return Enter here and  on the appropriate lines on Schedule E (see instructions) 2e. 1040x amended return   3. 1040x amended return Subtract line 2e from line 1. 1040x amended return If zero or less, enter -0- 3. 1040x amended return   4a. 1040x amended return Enter the rental portion of expenses directly related to operating or maintaining  the dwelling unit (such as repairs, insurance, and utilities) 4a. 1040x amended return       b. 1040x amended return Enter the rental portion of excess mortgage interest and qualified mortgage insurance premiums (see instructions) b. 1040x amended return       c. 1040x amended return Carryover of operating expenses from 2012 worksheet c. 1040x amended return       d. 1040x amended return Add lines 4a–4c d. 1040x amended return       e. 1040x amended return Allowable expenses. 1040x amended return Enter the smaller of line 3 or line 4d (see instructions) 4e. 1040x amended return   5. 1040x amended return Subtract line 4e from line 3. 1040x amended return If zero or less, enter -0- 5. 1040x amended return   6a. 1040x amended return Enter the rental portion of excess casualty and theft losses (see instructions) 6a. 1040x amended return       b. 1040x amended return Enter the rental portion of depreciation of the dwelling unit b. 1040x amended return       c. 1040x amended return Carryover of excess casualty losses and depreciation from 2012 worksheet c. 1040x amended return       d. 1040x amended return Add lines 6a–6c d. 1040x amended return       e. 1040x amended return Allowable excess casualty and theft losses and depreciation. 1040x amended return Enter the smaller of  line 5 or line 6d (see instructions) 6e. 1040x amended return   PART III. 1040x amended return Carryover of Unallowed Expenses to Next Year 7a. 1040x amended return Operating expenses to be carried over to next year. 1040x amended return Subtract line 4e from line 4d 7a. 1040x amended return   b. 1040x amended return Excess casualty and theft losses and depreciation to be carried over to next year. 1040x amended return  Subtract line 6e from line 6d b. 1040x amended return   Worksheet 5-1 Instructions. 1040x amended return Worksheet for Figuring Rental Deductions for a Dwelling Unit Used as a Home Caution. 1040x amended return Use the percentage determined in Part I, line F, to figure the rental portions to enter on lines 2a–2c, 4a–4b, and 6a–6b of  Part II. 1040x amended return Line 2a. 1040x amended return Figure the mortgage interest on the dwelling unit that you could deduct on Schedule A as if you had not rented the unit. 1040x amended return Do not include interest on a loan that did not benefit the dwelling unit. 1040x amended return For example, do not include interest on a home equity loan used to pay off credit cards or other personal loans, buy a car, or pay college tuition. 1040x amended return Include interest on a loan used to buy, build, or improve the dwelling unit, or to refinance such a loan. 1040x amended return Include the rental portion of this interest in the total you enter on line 2a of the worksheet. 1040x amended return   Figure the qualified mortgage insurance premiums on the dwelling unit that you could deduct on line 13 of Schedule A as if you had not rented the unit. 1040x amended return See the Schedule A instructions. 1040x amended return However, figure your adjusted gross income (Form 1040, line 38) without your rental income and expenses from the dwelling unit. 1040x amended return See Line 4b to deduct the part of the qualified mortgage insurance premiums not allowed because of the adjusted gross income limit. 1040x amended return Include the rental portion of the amount from Schedule A, line 13, in the total you enter on line 2a of the worksheet. 1040x amended return   Note. 1040x amended return Do not file this Schedule A or use it to figure the amount to deduct on line 13 of that schedule. 1040x amended return Instead, figure the personal portion on a separate Schedule A. 1040x amended return If you have deducted mortgage interest or qualified mortgage insurance premiums on the dwelling unit on other forms, such as Schedule C or F, remember to reduce your Schedule A deduction by that amount. 1040x amended return           Line 2c. 1040x amended return Figure the casualty and theft losses related to the dwelling unit that you could deduct on Schedule A as if you had not rented the dwelling unit. 1040x amended return To do this, complete Section A of Form 4684, Casualties and Thefts, treating the losses as personal losses. 1040x amended return If any of the loss is due to a federally declared disaster, see the Instructions for Form 4684. 1040x amended return On Form 4684, line 17, enter 10% of your adjusted gross income figured without your rental income and expenses from the dwelling unit. 1040x amended return Enter the rental portion of the result from Form 4684, line 18, on line 2c of this worksheet. 1040x amended return   Note. 1040x amended return Do not file this Form 4684 or use it to figure your personal losses on Schedule A. 1040x amended return Instead, figure the personal portion on a separate Form 4684. 1040x amended return           Line 2d. 1040x amended return Enter the total of your rental expenses that are directly related only to the rental activity. 1040x amended return These include interest on loans used for rental activities other than to buy, build, or improve the dwelling unit. 1040x amended return Also include rental agency fees, advertising, office supplies, and depreciation on office equipment used in your rental activity. 1040x amended return           Line 2e. 1040x amended return You can deduct the amounts on lines 2a, 2b, 2c, and 2d as rental expenses on Schedule E even if your rental expenses are more than your rental income. 1040x amended return Enter the amounts on lines 2a, 2b, 2c, and 2d on the appropriate lines of Schedule E. 1040x amended return           Line 4b. 1040x amended return On line 2a, you entered the rental portion of the mortgage interest or qualified mortgage insurance premiums you could deduct on Schedule A if you had not rented the dwelling unit. 1040x amended return If you had additional mortgage interest and qualified mortgage insurance premiums that would not be deductible on Schedule A because of limits imposed on them, enter on line 4b of this worksheet the rental portion of those excess amounts. 1040x amended return Do not include interest on a loan that did not benefit the dwelling unit  (as explained in the line 2a instructions). 1040x amended return           Line 4e. 1040x amended return You can deduct the amounts on lines 4a, 4b, and 4c as rental expenses on Schedule E only to the extent they are not more than the amount on line 4e. 1040x amended return *           Line 6a. 1040x amended return To find the rental portion of excess casualty and theft losses, use the Form 4684 you prepared for line 2c of this worksheet. 1040x amended return   A. 1040x amended return Enter the amount from Form 4684, line 10       B. 1040x amended return Enter the rental portion of line A       C. 1040x amended return Enter the amount from line 2c of this worksheet       D. 1040x amended return Subtract line C from line B. 1040x amended return Enter the result here and on line 6a of this worksheet               Line 6e. 1040x amended return You can deduct the amounts on lines 6a, 6b, and 6c as rental expenses on Schedule E only to the extent they are not more than the amount on line 6e. 1040x amended return * *Allocating the limited deduction. 1040x amended return If you cannot deduct all of the amount on line 4d or 6d this year, you can allocate the allowable deduction in any way you wish among the expenses included on line 4d or 6d. 1040x amended return Enter the amount you allocate to each expense on the appropriate line of Schedule E, Part I. 1040x amended return Prev  Up  Next   Home   More Online Publications