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Ez 1040 Online

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Ez 1040 Online

Ez 1040 online 9. Ez 1040 online   Rental Income and Expenses Table of Contents Introduction Useful Items - You may want to see: Rental Income Rental ExpensesVacant while listed for sale. Ez 1040 online Repairs and Improvements Other Expenses Property Changed to Rental Use Renting Part of Property Not Rented for Profit Personal Use of Dwelling Unit (Including Vacation Home)Example. Ez 1040 online Dividing Expenses Dwelling Unit Used as a Home Reporting Income and Deductions DepreciationChanging your accounting method to deduct unclaimed depreciation. Ez 1040 online Limits on Rental LossesAt-Risk Rules Passive Activity Limits How To Report Rental Income and ExpensesSchedule E (Form 1040) Introduction This chapter discusses rental income and expenses. Ez 1040 online It also covers the following topics. Ez 1040 online Personal use of dwelling unit (including vacation home). Ez 1040 online Depreciation. Ez 1040 online Limits on rental losses. Ez 1040 online How to report your rental income and expenses. Ez 1040 online If you sell or otherwise dispose of your rental property, see Publication 544, Sales and Other Dispositions of Assets. Ez 1040 online If you have a loss from damage to, or theft of, rental property, see Publication 547, Casualties, Disasters, and Thefts. Ez 1040 online If you rent a condominium or a cooperative apartment, some special rules apply to you even though you receive the same tax treatment as other owners of rental property. Ez 1040 online See Publication 527, Residential Rental Property, for more information. Ez 1040 online Useful Items - You may want to see: Publication 527 Residential Rental Property 534 Depreciating Property Placed in Service Before 1987 535 Business Expenses 925 Passive Activity and At-Risk Rules 946 How To Depreciate Property Form (and Instructions) 4562 Depreciation and Amortization 6251 Alternative Minimum Tax—Individuals 8582 Passive Activity Loss Limitations Schedule E (Form 1040) Supplemental Income and Loss Rental Income In most cases, you must include in your gross income all amounts you receive as rent. Ez 1040 online Rental income is any payment you receive for the use or occupation of property. Ez 1040 online In addition to amounts you receive as normal rent payments, there are other amounts that may be rental income. Ez 1040 online When to report. Ez 1040 online   If you are a cash-basis taxpayer, you report rental income on your return for the year you actually or constructively receive it. Ez 1040 online You are a cash-basis taxpayer if you report income in the year you receive it, regardless of when it was earned. Ez 1040 online You constructively receive income when it is made available to you, for example, by being credited to your bank account. Ez 1040 online   For more information about when you constructively receive income, see Accounting Methods in chapter 1. Ez 1040 online Advance rent. Ez 1040 online   Advance rent is any amount you receive before the period that it covers. Ez 1040 online Include advance rent in your rental income in the year you receive it regardless of the period covered or the method of accounting you use. Ez 1040 online Example. Ez 1040 online You sign a 10-year lease to rent your property. Ez 1040 online In the first year, you receive $5,000 for the first year's rent and $5,000 as rent for the last year of the lease. Ez 1040 online You must include $10,000 in your income in the first year. Ez 1040 online Canceling a lease. Ez 1040 online   If your tenant pays you to cancel a lease, the amount you receive is rent. Ez 1040 online Include the payment in your income in the year you receive it regardless of your method of accounting. Ez 1040 online Expenses paid by tenant. Ez 1040 online   If your tenant pays any of your expenses, the payments are rental income. Ez 1040 online Because you must include this amount in income, you can deduct the expenses if they are deductible rental expenses. Ez 1040 online See Rental Expenses , later, for more information. Ez 1040 online Property or services. Ez 1040 online   If you receive property or services, instead of money, as rent, include the fair market value of the property or services in your rental income. Ez 1040 online   If the services are provided at an agreed upon or specified price, that price is the fair market value unless there is evidence to the contrary. Ez 1040 online Security deposits. Ez 1040 online   Do not include a security deposit in your income when you receive it if you plan to return it to your tenant at the end of the lease. Ez 1040 online But if you keep part or all of the security deposit during any year because your tenant does not live up to the terms of the lease, include the amount you keep in your income in that year. Ez 1040 online   If an amount called a security deposit is to be used as a final payment of rent, it is advance rent. Ez 1040 online Include it in your income when you receive it. Ez 1040 online Part interest. Ez 1040 online   If you own a part interest in rental property, you must report your part of the rental income from the property. Ez 1040 online Rental of property also used as your home. Ez 1040 online   If you rent property that you also use as your home and you rent it less than 15 days during the tax year, do not include the rent you receive in your income and do not deduct rental expenses. Ez 1040 online However, you can deduct on Schedule A (Form 1040) the interest, taxes, and casualty and theft losses that are allowed for nonrental property. Ez 1040 online See Personal Use of Dwelling Unit (Including Vacation Home) , later. Ez 1040 online Rental Expenses This part discusses expenses of renting property that you ordinarily can deduct from your rental income. Ez 1040 online It includes information on the expenses you can deduct if you rent part of your property, or if you change your property to rental use. Ez 1040 online Depreciation , which you can also deduct from your rental income, is discussed later. Ez 1040 online Personal use of rental property. Ez 1040 online   If you sometimes use your rental property for personal purposes, you must divide your expenses between rental and personal use. Ez 1040 online Also, your rental expense deductions may be limited. Ez 1040 online See Personal Use of Dwelling Unit (Including Vacation Home) , later. Ez 1040 online Part interest. Ez 1040 online   If you own a part interest in rental property, you can deduct expenses that you paid according to your percentage of ownership. Ez 1040 online When to deduct. Ez 1040 online   If you are a cash-basis taxpayer, you generally deduct your rental expenses in the year you pay them. Ez 1040 online Depreciation. Ez 1040 online   You can begin to depreciate rental property when it is ready and available for rent. Ez 1040 online See Placed-in-Service under When Does Depreciation Begin and End in chapter 2 of Publication 527. Ez 1040 online Pre-rental expenses. Ez 1040 online   You can deduct your ordinary and necessary expenses for managing, conserving, or maintaining rental property from the time you make it available for rent. Ez 1040 online Uncollected rent. Ez 1040 online   If you are a cash-basis taxpayer, do not deduct uncollected rent. Ez 1040 online Because you have not included it in your income, it is not deductible. Ez 1040 online Vacant rental property. Ez 1040 online   If you hold property for rental purposes, you may be able to deduct your ordinary and necessary expenses (including depreciation) for managing, conserving, or maintaining the property while the property is vacant. Ez 1040 online However, you cannot deduct any loss of rental income for the period the property is vacant. Ez 1040 online Vacant while listed for sale. Ez 1040 online   If you sell property you held for rental purposes, you can deduct the ordinary and necessary expenses for managing, conserving, or maintaining the property until it is sold. Ez 1040 online If the property is not held out and available for rent while listed for sale, the expenses are not deductible rental expenses. Ez 1040 online Repairs and Improvements Generally, an expense for repairing or maintaining your rental property may be deducted if you are not required to capitalize the expense. Ez 1040 online Improvements. Ez 1040 online   You must capitalize any expense you pay to improve your rental property. Ez 1040 online An expense is for an improvement if it results in a betterment to your property, restores your property, or adapts your property to a new or different use. Ez 1040 online Betterments. Ez 1040 online   Expenses that may result in a betterment to your property include expenses for fixing a pre-existing defect or condition, enlarging or expanding your property, or increasing the capacity, strength, or quality of your property. Ez 1040 online Restoration. Ez 1040 online   Expenses that may be for restoration include expenses for replacing a substantial structural part of your property, repairing damage to your property after you properly adjusted the basis of your property as a result of a casualty loss, or rebuilding your property to a like-new condition. Ez 1040 online Adaptation. Ez 1040 online   Expenses that may be for adaptation include expenses for altering your property to a use that is not consistent with the intended ordinary use of your property when you began renting the property. Ez 1040 online Separate the costs of repairs and improvements, and keep accurate records. Ez 1040 online You will need to know the cost of improvements when you sell or depreciate your property. Ez 1040 online The expenses you capitalize for improving your property can generally be depreciated as if the improvement were separate property. Ez 1040 online Other Expenses Other expenses you can deduct from your rental income include advertising, cleaning and maintenance, utilities, fire and liability insurance, taxes, interest, commissions for the collection of rent, ordinary and necessary travel and transportation, and other expenses, discussed next. Ez 1040 online Insurance premiums paid in advance. Ez 1040 online   If you pay an insurance premium for more than one year in advance, for each year of coverage you can deduct the part of the premium payment that will apply to that year. Ez 1040 online You cannot deduct the total premium in the year you pay it. Ez 1040 online Legal and other professional fees. Ez 1040 online   You can deduct, as a rental expense, legal and other professional expenses, such as tax return preparation fees you paid to prepare Schedule E (Form 1040), Part I. Ez 1040 online For example, on your 2013 Schedule E, you can deduct fees paid in 2013 to prepare your 2012 Schedule E, Part I. Ez 1040 online You can also deduct, as a rental expense, any expense (other than federal taxes and penalties) you paid to resolve a tax underpayment related to your rental activities. Ez 1040 online Local benefit taxes. Ez 1040 online   In most cases, you cannot deduct charges for local benefits that increase the value of your property, such as charges for putting in streets, sidewalks, or water and sewer systems. Ez 1040 online These charges are nondepreciable capital expenditures, and must be added to the basis of your property. Ez 1040 online However, you can deduct local benefit taxes that are for maintaining, repairing, or paying interest charges for the benefits. Ez 1040 online Local transportation expenses. Ez 1040 online    You may be able to deduct your ordinary and necessary local transportation expenses if you incur them to collect rental income or to manage, conserve, or maintain your rental property. Ez 1040 online However, transportation expenses incurred to travel between your home and a rental property generally constitute nondeductible commuting costs unless you use your home as your principal place of business. Ez 1040 online See Publication 587, Business Use of Your Home, for information on determining if your home office qualifies as a principal place of business. Ez 1040 online   Generally, if you use your personal car, pickup truck, or light van for rental activities, you can deduct the expenses using one of two methods: actual expenses or the standard mileage rate. Ez 1040 online For 2013, the standard mileage rate for business use is 56. Ez 1040 online 5 cents per mile. Ez 1040 online For more information, see chapter 26. Ez 1040 online    To deduct car expenses under either method, you must keep records that follow the rules in chapter 26. Ez 1040 online In addition, you must complete Form 4562, Part V, and attach it to your tax return. Ez 1040 online Rental of equipment. Ez 1040 online   You can deduct the rent you pay for equipment that you use for rental purposes. Ez 1040 online However, in some cases, lease contracts are actually purchase contracts. Ez 1040 online If so, you cannot deduct these payments. Ez 1040 online You can recover the cost of purchased equipment through depreciation. Ez 1040 online Rental of property. Ez 1040 online   You can deduct the rent you pay for property that you use for rental purposes. Ez 1040 online If you buy a leasehold for rental purposes, you can deduct an equal part of the cost each year over the term of the lease. Ez 1040 online Travel expenses. Ez 1040 online   You can deduct the ordinary and necessary expenses of traveling away from home if the primary purpose of the trip is to collect rental income or to manage, conserve, or maintain your rental property. Ez 1040 online You must properly allocate your expenses between rental and nonrental activities. Ez 1040 online You cannot deduct the cost of traveling away from home if the primary purpose of the trip was to improve your property. Ez 1040 online You recover the cost of improvements by taking depreciation. Ez 1040 online For information on travel expenses, see chapter 26. Ez 1040 online    To deduct travel expenses, you must keep records that follow the rules in chapter 26. Ez 1040 online   See Rental Expenses in Publication 527 for more information. Ez 1040 online 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. Ez 1040 online 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. Ez 1040 online You cannot deduct depreciation or insurance for the part of the year the property was held for personal use. Ez 1040 online 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). Ez 1040 online Example. Ez 1040 online Your tax year is the calendar year. Ez 1040 online You moved from your home in May and started renting it out on June 1. Ez 1040 online You can deduct as rental expenses seven-twelfths of your yearly expenses, such as taxes and insurance. Ez 1040 online Starting with June, you can deduct as rental expenses the amounts you pay for items generally billed monthly, such as utilities. Ez 1040 online 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. Ez 1040 online 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). Ez 1040 online You can also deduct as rental expenses a portion of other expenses that normally are nondeductible personal expenses, such as expenses for electricity or painting the outside of your house. Ez 1040 online There is no change in the types of expenses deductible for the personal-use part of your property. Ez 1040 online Generally, these expenses may be deducted only if you itemize your deductions on Schedule A (Form 1040). Ez 1040 online You cannot deduct any part of the cost of the first phone line even if your tenants have unlimited use of it. Ez 1040 online You do not have to divide the expenses that belong only to the rental part of your property. Ez 1040 online 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. Ez 1040 online If you install a second phone line strictly for your tenants' use, all of the cost of the second line is deductible as a rental expense. Ez 1040 online You can deduct depreciation, discussed later, on the part of the house used for rental purposes as well as on the furniture and equipment you use for rental purposes. Ez 1040 online How to divide expenses. Ez 1040 online   If an expense is for both rental use and personal use, such as mortgage interest or heat for the entire house, you must divide the expense between the rental use and the personal use. Ez 1040 online You can use any reasonable method for dividing the expense. Ez 1040 online It may be reasonable to divide the cost of some items (for example, water) based on the number of people using them. Ez 1040 online The two most common methods for dividing an expense are based on (1) the number of rooms in your home, and (2) the square footage of your home. Ez 1040 online 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. Ez 1040 online 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. Ez 1040 online 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. Ez 1040 online Where to report. Ez 1040 online   Report your not-for-profit rental income on Form 1040, line 21. Ez 1040 online For example, you can include your mortgage interest and any qualified mortgage insurance premiums (if you use the property as your main home or second home), real estate taxes, and casualty losses on the appropriate lines of Schedule A (Form 1040) if you itemize your deductions. Ez 1040 online   If you itemize your deductions, claim your other rental expenses, subject to the rules explained in chapter 1 of Publication 535, as miscellaneous itemized deductions on Form 1040, Schedule A, line 23. Ez 1040 online You can deduct these expenses only if they, together with certain other miscellaneous itemized deductions, total more than 2% of your adjusted gross income. Ez 1040 online Personal Use of Dwelling Unit (Including Vacation Home) If you have any personal use of a dwelling unit (including a vacation home) that you rent, you must divide your expenses between rental use and personal use. Ez 1040 online 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. Ez 1040 online Only your rental expenses may be deducted on Schedule E (Form 1040). Ez 1040 online Some of your personal expenses may be deductible if you itemize your deductions on Schedule A (Form 1040). Ez 1040 online You must also determine if the dwelling unit is considered a home. Ez 1040 online The amount of rental expenses that you can deduct may be limited if the dwelling unit is considered a home. Ez 1040 online Whether a dwelling unit is considered a home depends on how many days during the year are considered to be days of personal use. Ez 1040 online 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. Ez 1040 online Dwelling unit. Ez 1040 online   A dwelling unit includes a house, apartment, condominium, mobile home, boat, vacation home, or similar property. Ez 1040 online It also includes all structures or other property belonging to the dwelling unit. Ez 1040 online A dwelling unit has basic living accommodations, such as sleeping space, a toilet, and cooking facilities. Ez 1040 online   A dwelling unit does not include property used solely as a hotel, motel, inn, or similar establishment. Ez 1040 online 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. Ez 1040 online Example. Ez 1040 online   You rent a room in your home that is always available for short-term occupancy by paying customers. Ez 1040 online You do not use the room yourself, and you allow only paying customers to use the room. Ez 1040 online The room is used solely as a hotel, motel, inn, or similar establishment and is not a dwelling unit. Ez 1040 online 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. Ez 1040 online When dividing your expenses, follow these rules. Ez 1040 online 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. Ez 1040 online This rule does not apply when determining whether you used the unit as a home. Ez 1040 online Any day that the unit is available for rent but not actually rented is not a day of rental use. Ez 1040 online Example. Ez 1040 online Your beach cottage was available for rent from June 1 through August 31 (92 days). Ez 1040 online During that time, except for the first week in August (7 days) when you were unable to find a renter, you rented the cottage at a fair rental price. Ez 1040 online 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. Ez 1040 online Your family also used the cottage during the last 2 weeks of May (14 days). Ez 1040 online The cottage was not used at all before May 17 or after August 31. Ez 1040 online You figure the part of the cottage expenses to treat as rental expenses as follows. Ez 1040 online The cottage was used for rental a total of 85 days (92 − 7). Ez 1040 online The days it was available for rent but not rented (7 days) are not days of rental use. Ez 1040 online The July weekend (2 days) you used it is rental use because you received a fair rental price for the weekend. Ez 1040 online You used the cottage for personal purposes for 14 days (the last 2 weeks in May). Ez 1040 online The total use of the cottage was 99 days (14 days personal use + 85 days rental use). Ez 1040 online Your rental expenses are 85/99 (86%) of the cottage expenses. Ez 1040 online Note. Ez 1040 online 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. Ez 1040 online Therefore, you had 16 days of personal use and 83 days of rental use for this purpose. Ez 1040 online 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. Ez 1040 online If you have a net loss, you may not be able to deduct all of the rental expenses. Ez 1040 online See Dwelling Unit Used as a Home, next. Ez 1040 online 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. Ez 1040 online 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. Ez 1040 online See What is a day of personal use , later. Ez 1040 online Fair rental price. Ez 1040 online   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. Ez 1040 online 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. Ez 1040 online   If a dwelling unit is used for personal purposes on a day it is rented at a fair rental price, do not count that day as a day of rental use in applying (2) above. Ez 1040 online Instead, count it as a day of personal use in applying both (1) and (2) above. Ez 1040 online 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. Ez 1040 online You or any other person who has an interest in the unit, unless you rent it to another owner as his or her main home under a shared equity financing agreement (defined later). Ez 1040 online However, see Days used as a main home before or after renting , later. Ez 1040 online A member of your family or a member of the family of any other person who owns an interest in the unit, unless the family member uses the dwelling unit as his or her main home and pays a fair rental price. Ez 1040 online Family includes only your spouse, brothers and sisters, half-brothers and half-sisters, ancestors (parents, grandparents, etc. Ez 1040 online ), and lineal descendants (children, grandchildren, etc. Ez 1040 online ). Ez 1040 online Anyone under an arrangement that lets you use some other dwelling unit. Ez 1040 online Anyone at less than a fair rental price. Ez 1040 online Main home. Ez 1040 online   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. Ez 1040 online Shared equity financing agreement. Ez 1040 online   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. Ez 1040 online Donation of use of property. Ez 1040 online   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. Ez 1040 online Examples. Ez 1040 online   The following examples show how to determine days of personal use. Ez 1040 online Example 1. Ez 1040 online You and your neighbor are co-owners of a condominium at the beach. Ez 1040 online Last year, you rented the unit to vacationers whenever possible. Ez 1040 online The unit was not used as a main home by anyone. Ez 1040 online Your neighbor used the unit for 2 weeks last year; you did not use it at all. Ez 1040 online 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. Ez 1040 online Example 2. Ez 1040 online You and your neighbors are co-owners of a house under a shared equity financing agreement. Ez 1040 online Your neighbors live in the house and pay you a fair rental price. Ez 1040 online 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. Ez 1040 online This is because your neighbors rent the house as their main home under a shared equity financing agreement. Ez 1040 online Example 3. Ez 1040 online You own a rental property that you rent to your son. Ez 1040 online Your son does not own any interest in this property. Ez 1040 online He uses it as his main home and pays you a fair rental price. Ez 1040 online 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. Ez 1040 online Example 4. Ez 1040 online You rent your beach house to Joshua. Ez 1040 online Joshua rents his cabin in the mountains to you. Ez 1040 online You each pay a fair rental price. Ez 1040 online You are using your house for personal purposes on the days that Joshua uses it because your house is used by Joshua under an arrangement that allows you to use his house. Ez 1040 online Days used for repairs and maintenance. Ez 1040 online   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. Ez 1040 online 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. Ez 1040 online Days used as a main home before or after renting. Ez 1040 online   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. Ez 1040 online Do not count them as days of personal use if: You rented or tried to rent the property for 12 or more consecutive months. Ez 1040 online 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. Ez 1040 online However, this special rule does not apply when dividing expenses between rental and personal use. Ez 1040 online Examples. Ez 1040 online   The following examples show how to determine whether you used your rental property as a home. Ez 1040 online Example 1. Ez 1040 online You converted the basement of your home into an apartment with a bedroom, a bathroom, and a small kitchen. Ez 1040 online You rented the basement apartment at a fair rental price to college students during the regular school year. Ez 1040 online You rented to them on a 9-month lease (273 days). Ez 1040 online You figured 10% of the total days rented to others at a fair rental price is 27 days. Ez 1040 online During June (30 days), your brothers stayed with you and lived in the basement apartment rent free. Ez 1040 online Your basement apartment was used as a home because you used it for personal purposes for 30 days. Ez 1040 online Rent-free use by your brothers is considered personal use. Ez 1040 online Your personal use (30 days) is more than the greater of 14 days or 10% of the total days it was rented (27 days). Ez 1040 online Example 2. Ez 1040 online 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). Ez 1040 online Your sister-in-law stayed in the room, rent free, for the last 3 weeks (21 days) in July. Ez 1040 online You figured 10% of the total days rented to others at a fair rental price is 3 days. Ez 1040 online The room was used as a home because you used it for personal purposes for 21 days. Ez 1040 online That is more than the greater of 14 days or 10% of the 27 days it was rented (3 days). Ez 1040 online Example 3. Ez 1040 online You own a condominium apartment in a resort area. Ez 1040 online You rented it at a fair rental price for a total of 170 days during the year. Ez 1040 online For 12 of those days, the tenant was not able to use the apartment and allowed you to use it even though you did not refund any of the rent. Ez 1040 online Your family actually used the apartment for 10 of those days. Ez 1040 online Therefore, the apartment is treated as having been rented for 160 (170 − 10) days. Ez 1040 online You figured 10% of the total days rented to others at a fair rental price is 16 days. Ez 1040 online Your family also used the apartment for 7 other days during the year. Ez 1040 online You used the apartment as a home because you used it for personal purposes for 17 days. Ez 1040 online That is more than the greater of 14 days or 10% of the 160 days it was rented (16 days). Ez 1040 online Minimal rental use. Ez 1040 online   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. Ez 1040 online See Used as a home but rented less than 15 days , later, for more information. Ez 1040 online Limit on deductions. Ez 1040 online   Renting a dwelling unit that is considered a home is not a passive activity. Ez 1040 online 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. Ez 1040 online 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. Ez 1040 online Any expenses carried forward to the next year will be subject to any limits that apply for that year. Ez 1040 online 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. Ez 1040 online   To figure your deductible rental expenses for this year and any carryover to next year, use Worksheet 9-1. Ez 1040 online Reporting Income and Deductions Property not used for personal purposes. Ez 1040 online   If you do not use a dwelling unit for personal purposes, see How To Report Rental Income and Expenses , later, for how to report your rental income and expenses. Ez 1040 online Property used for personal purposes. Ez 1040 online   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. Ez 1040 online Not used as a home. Ez 1040 online   If you use a dwelling unit for personal purposes, but not as a home, report all the rental income in your income. Ez 1040 online Since you used the dwelling unit for personal purposes, you must divide your expenses between the rental use and the personal use as described earlier in Dividing Expenses . Ez 1040 online The expenses for personal use are not deductible as rental expenses. Ez 1040 online   Your deductible rental expenses can be more than your gross rental income; however, see Limits on Rental Losses , later. Ez 1040 online Used as a home but rented less than 15 days. Ez 1040 online   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). Ez 1040 online You are not required to report the rental income and rental expenses from this activity. Ez 1040 online The expenses, including qualified mortgage interest, property taxes, and any qualified casualty loss will be reported as normally allowed on Schedule A (Form 1040). Ez 1040 online See the Instructions for Schedule A (Form 1040) for more information on deducting these expenses. Ez 1040 online Used as a home and rented 15 days or more. Ez 1040 online   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. Ez 1040 online Since you used the dwelling unit for personal purposes, you must divide your expenses between the rental use and the personal use as described earlier in Dividing Expenses . Ez 1040 online The expenses for personal use are not deductible as rental expenses. Ez 1040 online   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. Ez 1040 online You do not need to use Worksheet 9-1. Ez 1040 online   However, if you had a net loss from renting the dwelling unit for the year, your deduction for certain rental expenses is limited. Ez 1040 online To figure your deductible rental expenses and any carryover to next year, use Worksheet 9-1. Ez 1040 online Depreciation You recover the cost of income-producing property through yearly tax deductions. Ez 1040 online You do this by depreciating the property; that is, by deducting some of the cost each year on your tax return. Ez 1040 online Three factors determine how much depreciation you can deduct each year: (1) your basis in the property, (2) the recovery period for the property, and (3) the depreciation method used. Ez 1040 online You cannot simply deduct your mortgage or principal payments, or the cost of furniture, fixtures, and equipment, as an expense. Ez 1040 online You can deduct depreciation only on the part of your property used for rental purposes. Ez 1040 online Depreciation reduces your basis for figuring gain or loss on a later sale or exchange. Ez 1040 online You may have to use Form 4562 to figure and report your depreciation. Ez 1040 online See How To Report Rental Income and Expenses , later. Ez 1040 online Alternative minimum tax (AMT). Ez 1040 online    If you use accelerated depreciation, you may be subject to the AMT. Ez 1040 online Accelerated depreciation allows you to deduct more depreciation earlier in the recovery period than you could deduct using a straight line method (same deduction each year). Ez 1040 online Claiming the correct amount of depreciation. Ez 1040 online   You should claim the correct amount of depreciation each tax year. Ez 1040 online If you did not claim all the depreciation you were entitled to deduct, you must still reduce your basis in the property by the full amount of depreciation that you could have deducted. Ez 1040 online   If you deducted an incorrect amount of depreciation for property in any year, you may be able to make a correction by filing Form 1040X, Amended U. Ez 1040 online S Individual Income Tax Return. Ez 1040 online If you are not allowed to make the correction on an amended return, you can change your accounting method to claim the correct amount of depreciation. Ez 1040 online See Claiming the correct amount of depreciation in chapter 2 of Publication 527 for more information. Ez 1040 online Changing your accounting method to deduct unclaimed depreciation. Ez 1040 online   To change your accounting method, you generally must file Form 3115, Application for Change in Accounting Method, to get the consent of the IRS. Ez 1040 online In some instances, that consent is automatic. Ez 1040 online For more information, see chapter 1 of Publication 946. Ez 1040 online Land. Ez 1040 online   You cannot depreciate the cost of land because land generally does not wear out, become obsolete, or get used up. Ez 1040 online The costs of clearing, grading, planting, and landscaping are usually all part of the cost of land and cannot be depreciated. Ez 1040 online More information. Ez 1040 online   See Publication 527 for more information about depreciating rental property and see Publication 946 for more information about depreciation. Ez 1040 online Limits on Rental Losses If you have a loss from your rental real estate activity, two sets of rules may limit the amount of loss you can deduct. Ez 1040 online You must consider these rules in the order shown below. Ez 1040 online At-risk rules. Ez 1040 online These rules are applied first if there is investment in your rental real estate activity for which you are not at risk. Ez 1040 online This applies only if the real property was placed in service after 1986. Ez 1040 online Passive activity limits. Ez 1040 online Generally, rental real estate activities are considered passive activities and losses are not deductible unless you have income from other passive activities to offset them. Ez 1040 online However, there are exceptions. Ez 1040 online At-Risk Rules You may be subject to the at-risk rules if you have: A loss from an activity carried on as a trade or business or for the production of income, and Amounts invested in the activity for which you are not fully at risk. Ez 1040 online Losses from holding real property (other than mineral property) placed in service before 1987 are not subject to the at-risk rules. Ez 1040 online In most cases, any loss from an activity subject to the at-risk rules is allowed only to the extent of the total amount you have at risk in the activity at the end of the tax year. Ez 1040 online You are considered at risk in an activity to the extent of cash and the adjusted basis of other property you contributed to the activity and certain amounts borrowed for use in the activity. Ez 1040 online See Publication 925 for more information. Ez 1040 online Passive Activity Limits In most cases, all rental real estate activities (except those of certain real estate professionals, discussed later) are passive activities. Ez 1040 online For this purpose, a rental activity is an activity from which you receive income mainly for the use of tangible property, rather than for services. Ez 1040 online Limits on passive activity deductions and credits. Ez 1040 online    Deductions or losses from passive activities are limited. Ez 1040 online You generally cannot offset income, other than passive income, with losses from passive activities. Ez 1040 online Nor can you offset taxes on income, other than passive income, with credits resulting from passive activities. Ez 1040 online Any excess loss or credit is carried forward to the next tax year. Ez 1040 online   For a detailed discussion of these rules, see Publication 925. Ez 1040 online    You may have to complete Form 8582 to figure the amount of any passive activity loss for the current tax year for all activities and the amount of the passive activity loss allowed on your tax return. Ez 1040 online Real estate professionals. Ez 1040 online   Rental activities in which you materially participated during the year are not passive activities if, for that year, you were a real estate professional. Ez 1040 online For a detailed discussion of the requirements, see Publication 527. Ez 1040 online For a detailed discussion of material participation, see Publication 925. Ez 1040 online Exception for Personal Use of Dwelling Unit If you used the rental property as a home during the year, any income, deductions, gain, or loss allocable to such use shall not be taken into account for purposes of the passive activity loss limitation. Ez 1040 online Instead, follow the rules explained in Personal Use of Dwelling Unit (Including Vacation Home), earlier. Ez 1040 online Exception for Rental Real Estate Activities With Active Participation If you or your spouse actively participated in a passive rental real estate activity, you may be able to deduct up to $25,000 of loss from the activity from your nonpassive income. Ez 1040 online This special allowance is an exception to the general rule disallowing losses in excess of income from passive activities. Ez 1040 online Similarly, you may be able to offset credits from the activity against the tax on up to $25,000 of nonpassive income after taking into account any losses allowed under this exception. Ez 1040 online Active participation. Ez 1040 online   You actively participated in a rental real estate activity if you (and your spouse) owned at least 10% of the rental property and you made management decisions or arranged for others to provide services (such as repairs) in a significant and bona fide sense. Ez 1040 online Management decisions that may count as active participation include approving new tenants, deciding on rental terms, approving expenditures, and similar decisions. Ez 1040 online Maximum special allowance. Ez 1040 online   The maximum special allowance is: $25,000 for single individuals and married individuals filing a joint return for the tax year, $12,500 for married individuals who file separate returns for the tax year and lived apart from their spouses at all times during the tax year, and $25,000 for a qualifying estate reduced by the special allowance for which the surviving spouse qualified. Ez 1040 online   If your modified adjusted gross income (MAGI) is $100,000 or less ($50,000 or less if married filing separately), you can deduct your loss up to the amount specified above. Ez 1040 online If your MAGI is more than $100,000 (more than $50,000 if married filing separately), your special allowance is limited to 50% of the difference between $150,000 ($75,000 if married filing separately) and your MAGI. Ez 1040 online   Generally, if your MAGI is $150,000 or more ($75,000 or more if you are married filing separately), there is no special allowance. Ez 1040 online More information. Ez 1040 online   See Publication 925 for more information on the passive loss limits, including information on the treatment of unused disallowed passive losses and credits and the treatment of gains and losses realized on the disposition of a passive activity. Ez 1040 online How To Report Rental Income and Expenses The basic form for reporting residential rental income and expenses is Schedule E (Form 1040). Ez 1040 online However, do not use that schedule to report a not-for-profit activity. Ez 1040 online See Not Rented for Profit, earlier. Ez 1040 online Providing substantial services. Ez 1040 online   If you provide substantial services that are primarily for your tenant's convenience, such as regular cleaning, changing linen, or maid service, report your rental income and expenses on Schedule C (Form 1040), Profit or Loss From Business, or Schedule C-EZ (Form 1040), Net Profit From Business (Sole Proprietorship). Ez 1040 online Substantial services do not include the furnishing of heat and light, cleaning of public areas, trash collection, etc. Ez 1040 online For information, see Publication 334, Tax Guide for Small Business. Ez 1040 online You also may have to pay self-employment tax on your rental income using Schedule SE (Form 1040), Self-Employment Tax. Ez 1040 online   Use Form 1065, U. Ez 1040 online S. Ez 1040 online Return of Partnership Income, if your rental activity is a partnership (including a partnership with your spouse unless it is a qualified joint venture). Ez 1040 online Qualified joint venture. Ez 1040 online   If you and your spouse each materially participate as the only members of a jointly owned and operated real estate business, and you file a joint return for the tax year, you can make a joint election to be treated as a qualified joint venture instead of a partnership. Ez 1040 online This election, in most cases, will not increase the total tax owed on the joint return, but it does give each of you credit for social security earnings on which retirement benefits are based and for Medicare coverage if your rental income is subject to self-employment tax. Ez 1040 online For more information, see Publication 527. Ez 1040 online Form 1098, Mortgage Interest Statement. Ez 1040 online    If you paid $600 or more of mortgage interest on your rental property to any one person, you should receive a Form 1098, or similar statement showing the interest you paid for the year. Ez 1040 online If you and at least one other person (other than your spouse if you file a joint return) were liable for, and paid interest on the mortgage, and the other person received the Form 1098, report your share of the interest on Schedule E (Form 1040), line 13. Ez 1040 online Attach a statement to your return showing the name and address of the other person. Ez 1040 online In the left margin of Schedule E, next to line 13, enter “See attached. Ez 1040 online ” Schedule E (Form 1040) If you rent buildings, rooms, or apartments, and provide basic services such as heat and light, trash collection, etc. Ez 1040 online , you normally report your rental income and expenses on Schedule E, Part I. Ez 1040 online List your total income, expenses, and depreciation for each rental property. Ez 1040 online Be sure to enter the number of fair rental and personal use days on line 2. Ez 1040 online If you have more than three rental or royalty properties, complete and attach as many Schedules E as are needed to list the properties. Ez 1040 online Complete lines 1 and 2 for each property. Ez 1040 online However, fill in lines 23a through 26 on only one Schedule E. Ez 1040 online On Schedule E, page 1, line 18, enter the depreciation you are claiming for each property. Ez 1040 online To find out if you need to attach Form 4562, see Form 4562, in chapter 3 of Publication 527. Ez 1040 online If you have a loss from your rental real estate activity, you also may need to complete one or both of the following forms. Ez 1040 online Form 6198, At-Risk Limitations. Ez 1040 online See At-Risk Rules , earlier. Ez 1040 online Also see Publication 925. Ez 1040 online Form 8582, Passive Activity Loss Limitations. Ez 1040 online See Passive Activity Limits , earlier. Ez 1040 online Page 2 of Schedule E is used to report income or loss from partnerships, S corporations, estates, trusts, and real estate mortgage investment conduits. Ez 1040 online If you need to use page 2 of Schedule E, be sure to use page 2 of the same Schedule E you used to enter your rental activity on page 1. Ez 1040 online Also, include the amount from line 26 (Part I) in the “Total income or (loss)” on line 41 (Part V). Ez 1040 online Worksheet 9-1. Ez 1040 online 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. Ez 1040 online Did you use the dwelling unit as a home this year? (See Dwelling Unit Used as a Home . Ez 1040 online ) 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. Ez 1040 online Rental Use Percentage A. Ez 1040 online Total days available for rent at fair rental price A. Ez 1040 online       B. Ez 1040 online Total days available for rent (line A) but not rented B. Ez 1040 online       C. Ez 1040 online Total days of rental use. Ez 1040 online Subtract line B from line A C. Ez 1040 online       D. Ez 1040 online Total days of personal use (including days rented at less than fair rental price) D. Ez 1040 online       E. Ez 1040 online Total days of rental and personal use. Ez 1040 online Add lines C and D E. Ez 1040 online       F. Ez 1040 online Percentage of expenses allowed for rental. Ez 1040 online Divide line C by line E     F. Ez 1040 online   PART II. Ez 1040 online Allowable Rental Expenses 1. Ez 1040 online Enter rents received 1. Ez 1040 online   2a. Ez 1040 online Enter the rental portion of deductible home mortgage interest and qualified mortgage insurance premiums (see instructions) 2a. Ez 1040 online       b. Ez 1040 online Enter the rental portion of real estate taxes b. Ez 1040 online       c. Ez 1040 online Enter the rental portion of deductible casualty and theft losses (see instructions) c. Ez 1040 online       d. Ez 1040 online Enter direct rental expenses (see instructions) d. Ez 1040 online       e. Ez 1040 online Fully deductible rental expenses. Ez 1040 online Add lines 2a–2d. Ez 1040 online Enter here and  on the appropriate lines on Schedule E (see instructions) 2e. Ez 1040 online   3. Ez 1040 online Subtract line 2e from line 1. Ez 1040 online If zero or less, enter -0- 3. Ez 1040 online   4a. Ez 1040 online Enter the rental portion of expenses directly related to operating or maintaining  the dwelling unit (such as repairs, insurance, and utilities) 4a. Ez 1040 online       b. Ez 1040 online Enter the rental portion of excess mortgage interest and qualified mortgage insurance premiums (see instructions) b. Ez 1040 online       c. Ez 1040 online Carryover of operating expenses from 2012 worksheet c. Ez 1040 online       d. Ez 1040 online Add lines 4a–4c d. Ez 1040 online       e. Ez 1040 online Allowable expenses. Ez 1040 online Enter the smaller of line 3 or line 4d (see instructions) 4e. Ez 1040 online   5. Ez 1040 online Subtract line 4e from line 3. Ez 1040 online If zero or less, enter -0- 5. Ez 1040 online   6a. Ez 1040 online Enter the rental portion of excess casualty and theft losses (see instructions) 6a. Ez 1040 online       b. Ez 1040 online Enter the rental portion of depreciation of the dwelling unit b. Ez 1040 online       c. Ez 1040 online Carryover of excess casualty losses and depreciation from 2012 worksheet c. Ez 1040 online       d. Ez 1040 online Add lines 6a–6c d. Ez 1040 online       e. Ez 1040 online Allowable excess casualty and theft losses and depreciation. Ez 1040 online Enter the smaller of  line 5 or line 6d (see instructions) 6e. Ez 1040 online   PART III. Ez 1040 online Carryover of Unallowed Expenses to Next Year 7a. Ez 1040 online Operating expenses to be carried over to next year. Ez 1040 online Subtract line 4e from line 4d 7a. Ez 1040 online   b. Ez 1040 online Excess casualty and theft losses and depreciation to be carried over to next year. Ez 1040 online  Subtract line 6e from line 6d b. Ez 1040 online   Worksheet 9-1 Instructions. Ez 1040 online Worksheet for Figuring Rental Deductions for a Dwelling Unit Used as a Home Caution. Ez 1040 online 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. Ez 1040 online Line 2a. Ez 1040 online Figure the mortgage interest on the dwelling unit that you could deduct on Schedule A as if you had not rented the unit. Ez 1040 online Do not include interest on a loan that did not benefit the dwelling unit. Ez 1040 online 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. Ez 1040 online Include interest on a loan used to buy, build, or improve the dwelling unit, or to refinance such a loan. Ez 1040 online Include the rental portion of this interest in the total you enter on line 2a of the worksheet. Ez 1040 online   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. Ez 1040 online See the Schedule A instructions. Ez 1040 online However, figure your adjusted gross income (Form 1040, line 38) without your rental income and expenses from the dwelling unit. Ez 1040 online See Line 4b to deduct the part of the qualified mortgage insurance premiums not allowed because of the adjusted gross income limit. Ez 1040 online Include the rental portion of the amount from Schedule A, line 13, in the total you enter on line 2a of the worksheet. Ez 1040 online   Note. Ez 1040 online Do not file this Schedule A or use it to figure the amount to deduct on line 13 of that schedule. Ez 1040 online Instead, figure the personal portion on a separate Schedule A. Ez 1040 online 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. Ez 1040 online           Line 2c. Ez 1040 online 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. Ez 1040 online To do this, complete Section A of Form 4684, Casualties and Thefts, treating the losses as personal losses. Ez 1040 online If any of the loss is due to a federally declared disaster, see the Instructions for Form 4684. Ez 1040 online On Form 4684, line 17, enter 10% of your adjusted gross income figured without your rental income and expenses from the dwelling unit. Ez 1040 online Enter the rental portion of the result from Form 4684, line 18, on line 2c of this worksheet. Ez 1040 online   Note. Ez 1040 online Do not file this Form 4684 or use it to figure your personal losses on Schedule A. Ez 1040 online Instead, figure the personal portion on a separate Form 4684. Ez 1040 online           Line 2d. Ez 1040 online Enter the total of your rental expenses that are directly related only to the rental activity. Ez 1040 online These include interest on loans used for rental activities other than to buy, build, or improve the dwelling unit. Ez 1040 online Also include rental agency fees, advertising, office supplies, and depreciation on office equipment used in your rental activity. Ez 1040 online           Line 2e. Ez 1040 online 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. Ez 1040 online Enter the amounts on lines 2a, 2b, 2c, and 2d on the appropriate lines of Schedule E. Ez 1040 online           Line 4b. Ez 1040 online On line 2a, you entered the rental portion of the mortgage interest and qualified mortgage insurance premiums you could deduct on Schedule A if you had not rented the dwelling unit. Ez 1040 online 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. Ez 1040 online Do not include interest on a loan that did not benefit the dwelling unit (as explained in the line 2a instructions). Ez 1040 online           Line 4e. Ez 1040 online 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. Ez 1040 online *           Line 6a. Ez 1040 online To find the rental portion of excess casualty and theft losses, use the Form 4684 you prepared for line 2c of this worksheet. Ez 1040 online   A. Ez 1040 online Enter the amount from Form 4684, line 10       B. Ez 1040 online Enter the rental portion of line A       C. Ez 1040 online Enter the amount from line 2c of this worksheet       D. Ez 1040 online Subtract line C from line B. Ez 1040 online Enter the result here and on line 6a of this worksheet               Line 6e. Ez 1040 online 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. Ez 1040 online * *Allocating the limited deduction. Ez 1040 online 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. Ez 1040 online Enter the amount you allocate to each expense on the appropriate line of Schedule E, Part I. Ez 1040 online Prev  Up  Next   Home   More Online Publications
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Letter 3030C Frequently Asked Questions (FAQs)

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The letter is providing you an explanation of the tax, penalty and interest still due on your account.

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Pay the balance due in the letter as soon as possible.

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The letter provides you the full pay amount to a specified date.

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The Ez 1040 Online

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