Fillable Form 1040x

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Fillable Form 1040x

Fillable form 1040x 9. Fillable form 1040x   Rental Income and Expenses Table of Contents Introduction Useful Items - You may want to see: Rental Income Rental ExpensesVacant while listed for sale. Fillable form 1040x 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. Fillable form 1040x Dividing Expenses Dwelling Unit Used as a Home Reporting Income and Deductions DepreciationChanging your accounting method to deduct unclaimed depreciation. Fillable form 1040x 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. Fillable form 1040x It also covers the following topics. Fillable form 1040x Personal use of dwelling unit (including vacation home). Fillable form 1040x Depreciation. Fillable form 1040x Limits on rental losses. Fillable form 1040x How to report your rental income and expenses. Fillable form 1040x If you sell or otherwise dispose of your rental property, see Publication 544, Sales and Other Dispositions of Assets. Fillable form 1040x If you have a loss from damage to, or theft of, rental property, see Publication 547, Casualties, Disasters, and Thefts. Fillable form 1040x 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. Fillable form 1040x See Publication 527, Residential Rental Property, for more information. Fillable form 1040x 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. Fillable form 1040x Rental income is any payment you receive for the use or occupation of property. Fillable form 1040x In addition to amounts you receive as normal rent payments, there are other amounts that may be rental income. Fillable form 1040x When to report. Fillable form 1040x   If you are a cash-basis taxpayer, you report rental income on your return for the year you actually or constructively receive it. Fillable form 1040x You are a cash-basis taxpayer if you report income in the year you receive it, regardless of when it was earned. Fillable form 1040x You constructively receive income when it is made available to you, for example, by being credited to your bank account. Fillable form 1040x   For more information about when you constructively receive income, see Accounting Methods in chapter 1. Fillable form 1040x Advance rent. Fillable form 1040x   Advance rent is any amount you receive before the period that it covers. Fillable form 1040x 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. Fillable form 1040x Example. Fillable form 1040x You sign a 10-year lease to rent your property. Fillable form 1040x 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. Fillable form 1040x You must include $10,000 in your income in the first year. Fillable form 1040x Canceling a lease. Fillable form 1040x   If your tenant pays you to cancel a lease, the amount you receive is rent. Fillable form 1040x Include the payment in your income in the year you receive it regardless of your method of accounting. Fillable form 1040x Expenses paid by tenant. Fillable form 1040x   If your tenant pays any of your expenses, the payments are rental income. Fillable form 1040x Because you must include this amount in income, you can deduct the expenses if they are deductible rental expenses. Fillable form 1040x See Rental Expenses , later, for more information. Fillable form 1040x Property or services. Fillable form 1040x   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. Fillable form 1040x   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. Fillable form 1040x Security deposits. Fillable form 1040x   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. Fillable form 1040x 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. Fillable form 1040x   If an amount called a security deposit is to be used as a final payment of rent, it is advance rent. Fillable form 1040x Include it in your income when you receive it. Fillable form 1040x Part interest. Fillable form 1040x   If you own a part interest in rental property, you must report your part of the rental income from the property. Fillable form 1040x Rental of property also used as your home. Fillable form 1040x   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. Fillable form 1040x However, you can deduct on Schedule A (Form 1040) the interest, taxes, and casualty and theft losses that are allowed for nonrental property. Fillable form 1040x See Personal Use of Dwelling Unit (Including Vacation Home) , later. Fillable form 1040x Rental Expenses This part discusses expenses of renting property that you ordinarily can deduct from your rental income. Fillable form 1040x 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. Fillable form 1040x Depreciation , which you can also deduct from your rental income, is discussed later. Fillable form 1040x Personal use of rental property. Fillable form 1040x   If you sometimes use your rental property for personal purposes, you must divide your expenses between rental and personal use. Fillable form 1040x Also, your rental expense deductions may be limited. Fillable form 1040x See Personal Use of Dwelling Unit (Including Vacation Home) , later. Fillable form 1040x Part interest. Fillable form 1040x   If you own a part interest in rental property, you can deduct expenses that you paid according to your percentage of ownership. Fillable form 1040x When to deduct. Fillable form 1040x   If you are a cash-basis taxpayer, you generally deduct your rental expenses in the year you pay them. Fillable form 1040x Depreciation. Fillable form 1040x   You can begin to depreciate rental property when it is ready and available for rent. Fillable form 1040x See Placed-in-Service under When Does Depreciation Begin and End in chapter 2 of Publication 527. Fillable form 1040x Pre-rental expenses. Fillable form 1040x   You can deduct your ordinary and necessary expenses for managing, conserving, or maintaining rental property from the time you make it available for rent. Fillable form 1040x Uncollected rent. Fillable form 1040x   If you are a cash-basis taxpayer, do not deduct uncollected rent. Fillable form 1040x Because you have not included it in your income, it is not deductible. Fillable form 1040x Vacant rental property. Fillable form 1040x   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. Fillable form 1040x However, you cannot deduct any loss of rental income for the period the property is vacant. Fillable form 1040x Vacant while listed for sale. Fillable form 1040x   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. Fillable form 1040x If the property is not held out and available for rent while listed for sale, the expenses are not deductible rental expenses. Fillable form 1040x 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. Fillable form 1040x Improvements. Fillable form 1040x   You must capitalize any expense you pay to improve your rental property. Fillable form 1040x 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. Fillable form 1040x Betterments. Fillable form 1040x   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. Fillable form 1040x Restoration. Fillable form 1040x   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. Fillable form 1040x Adaptation. Fillable form 1040x   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. Fillable form 1040x Separate the costs of repairs and improvements, and keep accurate records. Fillable form 1040x You will need to know the cost of improvements when you sell or depreciate your property. Fillable form 1040x The expenses you capitalize for improving your property can generally be depreciated as if the improvement were separate property. Fillable form 1040x 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. Fillable form 1040x Insurance premiums paid in advance. Fillable form 1040x   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. Fillable form 1040x You cannot deduct the total premium in the year you pay it. Fillable form 1040x Legal and other professional fees. Fillable form 1040x   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. Fillable form 1040x For example, on your 2013 Schedule E, you can deduct fees paid in 2013 to prepare your 2012 Schedule E, Part I. Fillable form 1040x 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. Fillable form 1040x Local benefit taxes. Fillable form 1040x   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. Fillable form 1040x These charges are nondepreciable capital expenditures, and must be added to the basis of your property. Fillable form 1040x However, you can deduct local benefit taxes that are for maintaining, repairing, or paying interest charges for the benefits. Fillable form 1040x Local transportation expenses. Fillable form 1040x    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. Fillable form 1040x 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. Fillable form 1040x See Publication 587, Business Use of Your Home, for information on determining if your home office qualifies as a principal place of business. Fillable form 1040x   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. Fillable form 1040x For 2013, the standard mileage rate for business use is 56. Fillable form 1040x 5 cents per mile. Fillable form 1040x For more information, see chapter 26. Fillable form 1040x    To deduct car expenses under either method, you must keep records that follow the rules in chapter 26. Fillable form 1040x In addition, you must complete Form 4562, Part V, and attach it to your tax return. Fillable form 1040x Rental of equipment. Fillable form 1040x   You can deduct the rent you pay for equipment that you use for rental purposes. Fillable form 1040x However, in some cases, lease contracts are actually purchase contracts. Fillable form 1040x If so, you cannot deduct these payments. Fillable form 1040x You can recover the cost of purchased equipment through depreciation. Fillable form 1040x Rental of property. Fillable form 1040x   You can deduct the rent you pay for property that you use for rental purposes. Fillable form 1040x 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. Fillable form 1040x Travel expenses. Fillable form 1040x   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. Fillable form 1040x You must properly allocate your expenses between rental and nonrental activities. Fillable form 1040x You cannot deduct the cost of traveling away from home if the primary purpose of the trip was to improve your property. Fillable form 1040x You recover the cost of improvements by taking depreciation. Fillable form 1040x For information on travel expenses, see chapter 26. Fillable form 1040x    To deduct travel expenses, you must keep records that follow the rules in chapter 26. Fillable form 1040x   See Rental Expenses in Publication 527 for more information. Fillable form 1040x 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. Fillable form 1040x 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. Fillable form 1040x You cannot deduct depreciation or insurance for the part of the year the property was held for personal use. Fillable form 1040x 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). Fillable form 1040x Example. Fillable form 1040x Your tax year is the calendar year. Fillable form 1040x You moved from your home in May and started renting it out on June 1. Fillable form 1040x You can deduct as rental expenses seven-twelfths of your yearly expenses, such as taxes and insurance. Fillable form 1040x Starting with June, you can deduct as rental expenses the amounts you pay for items generally billed monthly, such as utilities. Fillable form 1040x 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. Fillable form 1040x 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). Fillable form 1040x 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. Fillable form 1040x There is no change in the types of expenses deductible for the personal-use part of your property. Fillable form 1040x Generally, these expenses may be deducted only if you itemize your deductions on Schedule A (Form 1040). Fillable form 1040x You cannot deduct any part of the cost of the first phone line even if your tenants have unlimited use of it. Fillable form 1040x You do not have to divide the expenses that belong only to the rental part of your property. Fillable form 1040x 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. Fillable form 1040x 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. Fillable form 1040x 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. Fillable form 1040x How to divide expenses. Fillable form 1040x   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. Fillable form 1040x You can use any reasonable method for dividing the expense. Fillable form 1040x It may be reasonable to divide the cost of some items (for example, water) based on the number of people using them. Fillable form 1040x 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. Fillable form 1040x 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. Fillable form 1040x 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. Fillable form 1040x 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. Fillable form 1040x Where to report. Fillable form 1040x   Report your not-for-profit rental income on Form 1040, line 21. Fillable form 1040x 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. Fillable form 1040x   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. Fillable form 1040x You can deduct these expenses only if they, together with certain other miscellaneous itemized deductions, total more than 2% of your adjusted gross income. Fillable form 1040x 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. Fillable form 1040x 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. Fillable form 1040x Only your rental expenses may be deducted on Schedule E (Form 1040). Fillable form 1040x Some of your personal expenses may be deductible if you itemize your deductions on Schedule A (Form 1040). Fillable form 1040x You must also determine if the dwelling unit is considered a home. Fillable form 1040x The amount of rental expenses that you can deduct may be limited if the dwelling unit is considered a home. Fillable form 1040x Whether a dwelling unit is considered a home depends on how many days during the year are considered to be days of personal use. Fillable form 1040x 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. Fillable form 1040x Dwelling unit. Fillable form 1040x   A dwelling unit includes a house, apartment, condominium, mobile home, boat, vacation home, or similar property. Fillable form 1040x It also includes all structures or other property belonging to the dwelling unit. Fillable form 1040x A dwelling unit has basic living accommodations, such as sleeping space, a toilet, and cooking facilities. Fillable form 1040x   A dwelling unit does not include property used solely as a hotel, motel, inn, or similar establishment. Fillable form 1040x 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. Fillable form 1040x Example. Fillable form 1040x   You rent a room in your home that is always available for short-term occupancy by paying customers. Fillable form 1040x You do not use the room yourself, and you allow only paying customers to use the room. Fillable form 1040x The room is used solely as a hotel, motel, inn, or similar establishment and is not a dwelling unit. Fillable form 1040x 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. Fillable form 1040x When dividing your expenses, follow these rules. Fillable form 1040x 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. Fillable form 1040x This rule does not apply when determining whether you used the unit as a home. Fillable form 1040x Any day that the unit is available for rent but not actually rented is not a day of rental use. Fillable form 1040x Example. Fillable form 1040x Your beach cottage was available for rent from June 1 through August 31 (92 days). Fillable form 1040x 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. Fillable form 1040x 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. Fillable form 1040x Your family also used the cottage during the last 2 weeks of May (14 days). Fillable form 1040x The cottage was not used at all before May 17 or after August 31. Fillable form 1040x You figure the part of the cottage expenses to treat as rental expenses as follows. Fillable form 1040x The cottage was used for rental a total of 85 days (92 − 7). Fillable form 1040x The days it was available for rent but not rented (7 days) are not days of rental use. Fillable form 1040x The July weekend (2 days) you used it is rental use because you received a fair rental price for the weekend. Fillable form 1040x You used the cottage for personal purposes for 14 days (the last 2 weeks in May). Fillable form 1040x The total use of the cottage was 99 days (14 days personal use + 85 days rental use). Fillable form 1040x Your rental expenses are 85/99 (86%) of the cottage expenses. Fillable form 1040x Note. Fillable form 1040x 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. Fillable form 1040x Therefore, you had 16 days of personal use and 83 days of rental use for this purpose. Fillable form 1040x 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. Fillable form 1040x If you have a net loss, you may not be able to deduct all of the rental expenses. Fillable form 1040x See Dwelling Unit Used as a Home, next. Fillable form 1040x 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. Fillable form 1040x 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. Fillable form 1040x See What is a day of personal use , later. Fillable form 1040x Fair rental price. Fillable form 1040x   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. Fillable form 1040x 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. Fillable form 1040x   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. Fillable form 1040x Instead, count it as a day of personal use in applying both (1) and (2) above. Fillable form 1040x 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. Fillable form 1040x 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). Fillable form 1040x However, see Days used as a main home before or after renting , later. Fillable form 1040x 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. Fillable form 1040x Family includes only your spouse, brothers and sisters, half-brothers and half-sisters, ancestors (parents, grandparents, etc. Fillable form 1040x ), and lineal descendants (children, grandchildren, etc. Fillable form 1040x ). Fillable form 1040x Anyone under an arrangement that lets you use some other dwelling unit. Fillable form 1040x Anyone at less than a fair rental price. Fillable form 1040x Main home. Fillable form 1040x   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. Fillable form 1040x Shared equity financing agreement. Fillable form 1040x   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. Fillable form 1040x Donation of use of property. Fillable form 1040x   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. Fillable form 1040x Examples. Fillable form 1040x   The following examples show how to determine days of personal use. Fillable form 1040x Example 1. Fillable form 1040x You and your neighbor are co-owners of a condominium at the beach. Fillable form 1040x Last year, you rented the unit to vacationers whenever possible. Fillable form 1040x The unit was not used as a main home by anyone. Fillable form 1040x Your neighbor used the unit for 2 weeks last year; you did not use it at all. Fillable form 1040x 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. Fillable form 1040x Example 2. Fillable form 1040x You and your neighbors are co-owners of a house under a shared equity financing agreement. Fillable form 1040x Your neighbors live in the house and pay you a fair rental price. Fillable form 1040x 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. Fillable form 1040x This is because your neighbors rent the house as their main home under a shared equity financing agreement. Fillable form 1040x Example 3. Fillable form 1040x You own a rental property that you rent to your son. Fillable form 1040x Your son does not own any interest in this property. Fillable form 1040x He uses it as his main home and pays you a fair rental price. Fillable form 1040x 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. Fillable form 1040x Example 4. Fillable form 1040x You rent your beach house to Joshua. Fillable form 1040x Joshua rents his cabin in the mountains to you. Fillable form 1040x You each pay a fair rental price. Fillable form 1040x 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. Fillable form 1040x Days used for repairs and maintenance. Fillable form 1040x   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. Fillable form 1040x 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. Fillable form 1040x Days used as a main home before or after renting. Fillable form 1040x   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. Fillable form 1040x Do not count them as days of personal use if: You rented or tried to rent the property for 12 or more consecutive months. Fillable form 1040x 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. Fillable form 1040x However, this special rule does not apply when dividing expenses between rental and personal use. Fillable form 1040x Examples. Fillable form 1040x   The following examples show how to determine whether you used your rental property as a home. Fillable form 1040x Example 1. Fillable form 1040x You converted the basement of your home into an apartment with a bedroom, a bathroom, and a small kitchen. Fillable form 1040x You rented the basement apartment at a fair rental price to college students during the regular school year. Fillable form 1040x You rented to them on a 9-month lease (273 days). Fillable form 1040x You figured 10% of the total days rented to others at a fair rental price is 27 days. Fillable form 1040x During June (30 days), your brothers stayed with you and lived in the basement apartment rent free. Fillable form 1040x Your basement apartment was used as a home because you used it for personal purposes for 30 days. Fillable form 1040x Rent-free use by your brothers is considered personal use. Fillable form 1040x Your personal use (30 days) is more than the greater of 14 days or 10% of the total days it was rented (27 days). Fillable form 1040x Example 2. Fillable form 1040x 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). Fillable form 1040x Your sister-in-law stayed in the room, rent free, for the last 3 weeks (21 days) in July. Fillable form 1040x You figured 10% of the total days rented to others at a fair rental price is 3 days. Fillable form 1040x The room was used as a home because you used it for personal purposes for 21 days. Fillable form 1040x That is more than the greater of 14 days or 10% of the 27 days it was rented (3 days). Fillable form 1040x Example 3. Fillable form 1040x You own a condominium apartment in a resort area. Fillable form 1040x You rented it at a fair rental price for a total of 170 days during the year. Fillable form 1040x 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. Fillable form 1040x Your family actually used the apartment for 10 of those days. Fillable form 1040x Therefore, the apartment is treated as having been rented for 160 (170 − 10) days. Fillable form 1040x You figured 10% of the total days rented to others at a fair rental price is 16 days. Fillable form 1040x Your family also used the apartment for 7 other days during the year. Fillable form 1040x You used the apartment as a home because you used it for personal purposes for 17 days. Fillable form 1040x That is more than the greater of 14 days or 10% of the 160 days it was rented (16 days). Fillable form 1040x Minimal rental use. Fillable form 1040x   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. Fillable form 1040x See Used as a home but rented less than 15 days , later, for more information. Fillable form 1040x Limit on deductions. Fillable form 1040x   Renting a dwelling unit that is considered a home is not a passive activity. Fillable form 1040x 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. Fillable form 1040x 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. Fillable form 1040x Any expenses carried forward to the next year will be subject to any limits that apply for that year. Fillable form 1040x 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. Fillable form 1040x   To figure your deductible rental expenses for this year and any carryover to next year, use Worksheet 9-1. Fillable form 1040x Reporting Income and Deductions Property not used for personal purposes. Fillable form 1040x   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. Fillable form 1040x Property used for personal purposes. Fillable form 1040x   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. Fillable form 1040x Not used as a home. Fillable form 1040x   If you use a dwelling unit for personal purposes, but not as a home, report all the rental income in your income. Fillable form 1040x 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 . Fillable form 1040x The expenses for personal use are not deductible as rental expenses. Fillable form 1040x   Your deductible rental expenses can be more than your gross rental income; however, see Limits on Rental Losses , later. Fillable form 1040x Used as a home but rented less than 15 days. Fillable form 1040x   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). Fillable form 1040x You are not required to report the rental income and rental expenses from this activity. Fillable form 1040x The expenses, including qualified mortgage interest, property taxes, and any qualified casualty loss will be reported as normally allowed on Schedule A (Form 1040). Fillable form 1040x See the Instructions for Schedule A (Form 1040) for more information on deducting these expenses. Fillable form 1040x Used as a home and rented 15 days or more. Fillable form 1040x   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. Fillable form 1040x 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 . Fillable form 1040x The expenses for personal use are not deductible as rental expenses. Fillable form 1040x   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. Fillable form 1040x You do not need to use Worksheet 9-1. Fillable form 1040x   However, if you had a net loss from renting the dwelling unit for the year, your deduction for certain rental expenses is limited. Fillable form 1040x To figure your deductible rental expenses and any carryover to next year, use Worksheet 9-1. Fillable form 1040x Depreciation You recover the cost of income-producing property through yearly tax deductions. Fillable form 1040x You do this by depreciating the property; that is, by deducting some of the cost each year on your tax return. Fillable form 1040x 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. Fillable form 1040x You cannot simply deduct your mortgage or principal payments, or the cost of furniture, fixtures, and equipment, as an expense. Fillable form 1040x You can deduct depreciation only on the part of your property used for rental purposes. Fillable form 1040x Depreciation reduces your basis for figuring gain or loss on a later sale or exchange. Fillable form 1040x You may have to use Form 4562 to figure and report your depreciation. Fillable form 1040x See How To Report Rental Income and Expenses , later. Fillable form 1040x Alternative minimum tax (AMT). Fillable form 1040x    If you use accelerated depreciation, you may be subject to the AMT. Fillable form 1040x 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). Fillable form 1040x Claiming the correct amount of depreciation. Fillable form 1040x   You should claim the correct amount of depreciation each tax year. Fillable form 1040x 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. Fillable form 1040x   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. Fillable form 1040x S Individual Income Tax Return. Fillable form 1040x 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. Fillable form 1040x See Claiming the correct amount of depreciation in chapter 2 of Publication 527 for more information. Fillable form 1040x Changing your accounting method to deduct unclaimed depreciation. Fillable form 1040x   To change your accounting method, you generally must file Form 3115, Application for Change in Accounting Method, to get the consent of the IRS. Fillable form 1040x In some instances, that consent is automatic. Fillable form 1040x For more information, see chapter 1 of Publication 946. Fillable form 1040x Land. Fillable form 1040x   You cannot depreciate the cost of land because land generally does not wear out, become obsolete, or get used up. Fillable form 1040x The costs of clearing, grading, planting, and landscaping are usually all part of the cost of land and cannot be depreciated. Fillable form 1040x More information. Fillable form 1040x   See Publication 527 for more information about depreciating rental property and see Publication 946 for more information about depreciation. Fillable form 1040x 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. Fillable form 1040x You must consider these rules in the order shown below. Fillable form 1040x At-risk rules. Fillable form 1040x These rules are applied first if there is investment in your rental real estate activity for which you are not at risk. Fillable form 1040x This applies only if the real property was placed in service after 1986. Fillable form 1040x Passive activity limits. Fillable form 1040x 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. Fillable form 1040x However, there are exceptions. Fillable form 1040x 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. Fillable form 1040x Losses from holding real property (other than mineral property) placed in service before 1987 are not subject to the at-risk rules. Fillable form 1040x 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. Fillable form 1040x 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. Fillable form 1040x See Publication 925 for more information. Fillable form 1040x Passive Activity Limits In most cases, all rental real estate activities (except those of certain real estate professionals, discussed later) are passive activities. Fillable form 1040x 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. Fillable form 1040x Limits on passive activity deductions and credits. Fillable form 1040x    Deductions or losses from passive activities are limited. Fillable form 1040x You generally cannot offset income, other than passive income, with losses from passive activities. Fillable form 1040x Nor can you offset taxes on income, other than passive income, with credits resulting from passive activities. Fillable form 1040x Any excess loss or credit is carried forward to the next tax year. Fillable form 1040x   For a detailed discussion of these rules, see Publication 925. Fillable form 1040x    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. Fillable form 1040x Real estate professionals. Fillable form 1040x   Rental activities in which you materially participated during the year are not passive activities if, for that year, you were a real estate professional. Fillable form 1040x For a detailed discussion of the requirements, see Publication 527. Fillable form 1040x For a detailed discussion of material participation, see Publication 925. Fillable form 1040x 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. Fillable form 1040x Instead, follow the rules explained in Personal Use of Dwelling Unit (Including Vacation Home), earlier. Fillable form 1040x 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. Fillable form 1040x This special allowance is an exception to the general rule disallowing losses in excess of income from passive activities. Fillable form 1040x 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. Fillable form 1040x Active participation. Fillable form 1040x   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. Fillable form 1040x Management decisions that may count as active participation include approving new tenants, deciding on rental terms, approving expenditures, and similar decisions. Fillable form 1040x Maximum special allowance. Fillable form 1040x   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. Fillable form 1040x   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. Fillable form 1040x 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. Fillable form 1040x   Generally, if your MAGI is $150,000 or more ($75,000 or more if you are married filing separately), there is no special allowance. Fillable form 1040x More information. Fillable form 1040x   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. Fillable form 1040x How To Report Rental Income and Expenses The basic form for reporting residential rental income and expenses is Schedule E (Form 1040). Fillable form 1040x However, do not use that schedule to report a not-for-profit activity. Fillable form 1040x See Not Rented for Profit, earlier. Fillable form 1040x Providing substantial services. Fillable form 1040x   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). Fillable form 1040x Substantial services do not include the furnishing of heat and light, cleaning of public areas, trash collection, etc. Fillable form 1040x For information, see Publication 334, Tax Guide for Small Business. Fillable form 1040x You also may have to pay self-employment tax on your rental income using Schedule SE (Form 1040), Self-Employment Tax. Fillable form 1040x   Use Form 1065, U. Fillable form 1040x S. Fillable form 1040x Return of Partnership Income, if your rental activity is a partnership (including a partnership with your spouse unless it is a qualified joint venture). Fillable form 1040x Qualified joint venture. Fillable form 1040x   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. Fillable form 1040x 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. Fillable form 1040x For more information, see Publication 527. Fillable form 1040x Form 1098, Mortgage Interest Statement. Fillable form 1040x    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. Fillable form 1040x 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. Fillable form 1040x Attach a statement to your return showing the name and address of the other person. Fillable form 1040x In the left margin of Schedule E, next to line 13, enter “See attached. Fillable form 1040x ” Schedule E (Form 1040) If you rent buildings, rooms, or apartments, and provide basic services such as heat and light, trash collection, etc. Fillable form 1040x , you normally report your rental income and expenses on Schedule E, Part I. Fillable form 1040x List your total income, expenses, and depreciation for each rental property. Fillable form 1040x Be sure to enter the number of fair rental and personal use days on line 2. Fillable form 1040x If you have more than three rental or royalty properties, complete and attach as many Schedules E as are needed to list the properties. Fillable form 1040x Complete lines 1 and 2 for each property. Fillable form 1040x However, fill in lines 23a through 26 on only one Schedule E. Fillable form 1040x On Schedule E, page 1, line 18, enter the depreciation you are claiming for each property. Fillable form 1040x To find out if you need to attach Form 4562, see Form 4562, in chapter 3 of Publication 527. Fillable form 1040x If you have a loss from your rental real estate activity, you also may need to complete one or both of the following forms. Fillable form 1040x Form 6198, At-Risk Limitations. Fillable form 1040x See At-Risk Rules , earlier. Fillable form 1040x Also see Publication 925. Fillable form 1040x Form 8582, Passive Activity Loss Limitations. Fillable form 1040x See Passive Activity Limits , earlier. Fillable form 1040x Page 2 of Schedule E is used to report income or loss from partnerships, S corporations, estates, trusts, and real estate mortgage investment conduits. Fillable form 1040x 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. Fillable form 1040x Also, include the amount from line 26 (Part I) in the “Total income or (loss)” on line 41 (Part V). Fillable form 1040x Worksheet 9-1. Fillable form 1040x 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. Fillable form 1040x Did you use the dwelling unit as a home this year? (See Dwelling Unit Used as a Home . Fillable form 1040x ) 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. Fillable form 1040x Rental Use Percentage A. Fillable form 1040x Total days available for rent at fair rental price A. Fillable form 1040x       B. Fillable form 1040x Total days available for rent (line A) but not rented B. Fillable form 1040x       C. Fillable form 1040x Total days of rental use. Fillable form 1040x Subtract line B from line A C. Fillable form 1040x       D. Fillable form 1040x Total days of personal use (including days rented at less than fair rental price) D. Fillable form 1040x       E. Fillable form 1040x Total days of rental and personal use. Fillable form 1040x Add lines C and D E. Fillable form 1040x       F. Fillable form 1040x Percentage of expenses allowed for rental. Fillable form 1040x Divide line C by line E     F. Fillable form 1040x   PART II. Fillable form 1040x Allowable Rental Expenses 1. Fillable form 1040x Enter rents received 1. Fillable form 1040x   2a. Fillable form 1040x Enter the rental portion of deductible home mortgage interest and qualified mortgage insurance premiums (see instructions) 2a. Fillable form 1040x       b. Fillable form 1040x Enter the rental portion of real estate taxes b. Fillable form 1040x       c. Fillable form 1040x Enter the rental portion of deductible casualty and theft losses (see instructions) c. Fillable form 1040x       d. Fillable form 1040x Enter direct rental expenses (see instructions) d. Fillable form 1040x       e. Fillable form 1040x Fully deductible rental expenses. Fillable form 1040x Add lines 2a–2d. Fillable form 1040x Enter here and  on the appropriate lines on Schedule E (see instructions) 2e. Fillable form 1040x   3. Fillable form 1040x Subtract line 2e from line 1. Fillable form 1040x If zero or less, enter -0- 3. Fillable form 1040x   4a. Fillable form 1040x Enter the rental portion of expenses directly related to operating or maintaining  the dwelling unit (such as repairs, insurance, and utilities) 4a. Fillable form 1040x       b. Fillable form 1040x Enter the rental portion of excess mortgage interest and qualified mortgage insurance premiums (see instructions) b. Fillable form 1040x       c. Fillable form 1040x Carryover of operating expenses from 2012 worksheet c. Fillable form 1040x       d. Fillable form 1040x Add lines 4a–4c d. Fillable form 1040x       e. Fillable form 1040x Allowable expenses. Fillable form 1040x Enter the smaller of line 3 or line 4d (see instructions) 4e. Fillable form 1040x   5. Fillable form 1040x Subtract line 4e from line 3. Fillable form 1040x If zero or less, enter -0- 5. Fillable form 1040x   6a. Fillable form 1040x Enter the rental portion of excess casualty and theft losses (see instructions) 6a. Fillable form 1040x       b. Fillable form 1040x Enter the rental portion of depreciation of the dwelling unit b. Fillable form 1040x       c. Fillable form 1040x Carryover of excess casualty losses and depreciation from 2012 worksheet c. Fillable form 1040x       d. Fillable form 1040x Add lines 6a–6c d. Fillable form 1040x       e. Fillable form 1040x Allowable excess casualty and theft losses and depreciation. Fillable form 1040x Enter the smaller of  line 5 or line 6d (see instructions) 6e. Fillable form 1040x   PART III. Fillable form 1040x Carryover of Unallowed Expenses to Next Year 7a. Fillable form 1040x Operating expenses to be carried over to next year. Fillable form 1040x Subtract line 4e from line 4d 7a. Fillable form 1040x   b. Fillable form 1040x Excess casualty and theft losses and depreciation to be carried over to next year. Fillable form 1040x  Subtract line 6e from line 6d b. Fillable form 1040x   Worksheet 9-1 Instructions. Fillable form 1040x Worksheet for Figuring Rental Deductions for a Dwelling Unit Used as a Home Caution. Fillable form 1040x 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. Fillable form 1040x Line 2a. Fillable form 1040x Figure the mortgage interest on the dwelling unit that you could deduct on Schedule A as if you had not rented the unit. Fillable form 1040x Do not include interest on a loan that did not benefit the dwelling unit. Fillable form 1040x 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. Fillable form 1040x Include interest on a loan used to buy, build, or improve the dwelling unit, or to refinance such a loan. Fillable form 1040x Include the rental portion of this interest in the total you enter on line 2a of the worksheet. Fillable form 1040x   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. Fillable form 1040x See the Schedule A instructions. Fillable form 1040x However, figure your adjusted gross income (Form 1040, line 38) without your rental income and expenses from the dwelling unit. Fillable form 1040x See Line 4b to deduct the part of the qualified mortgage insurance premiums not allowed because of the adjusted gross income limit. Fillable form 1040x Include the rental portion of the amount from Schedule A, line 13, in the total you enter on line 2a of the worksheet. Fillable form 1040x   Note. Fillable form 1040x Do not file this Schedule A or use it to figure the amount to deduct on line 13 of that schedule. Fillable form 1040x Instead, figure the personal portion on a separate Schedule A. Fillable form 1040x 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. Fillable form 1040x           Line 2c. Fillable form 1040x 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. Fillable form 1040x To do this, complete Section A of Form 4684, Casualties and Thefts, treating the losses as personal losses. Fillable form 1040x If any of the loss is due to a federally declared disaster, see the Instructions for Form 4684. Fillable form 1040x On Form 4684, line 17, enter 10% of your adjusted gross income figured without your rental income and expenses from the dwelling unit. Fillable form 1040x Enter the rental portion of the result from Form 4684, line 18, on line 2c of this worksheet. Fillable form 1040x   Note. Fillable form 1040x Do not file this Form 4684 or use it to figure your personal losses on Schedule A. Fillable form 1040x Instead, figure the personal portion on a separate Form 4684. Fillable form 1040x           Line 2d. Fillable form 1040x Enter the total of your rental expenses that are directly related only to the rental activity. Fillable form 1040x These include interest on loans used for rental activities other than to buy, build, or improve the dwelling unit. Fillable form 1040x Also include rental agency fees, advertising, office supplies, and depreciation on office equipment used in your rental activity. Fillable form 1040x           Line 2e. Fillable form 1040x 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. Fillable form 1040x Enter the amounts on lines 2a, 2b, 2c, and 2d on the appropriate lines of Schedule E. Fillable form 1040x           Line 4b. Fillable form 1040x 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. Fillable form 1040x 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. Fillable form 1040x Do not include interest on a loan that did not benefit the dwelling unit (as explained in the line 2a instructions). Fillable form 1040x           Line 4e. Fillable form 1040x 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. Fillable form 1040x *           Line 6a. Fillable form 1040x To find the rental portion of excess casualty and theft losses, use the Form 4684 you prepared for line 2c of this worksheet. Fillable form 1040x   A. Fillable form 1040x Enter the amount from Form 4684, line 10       B. Fillable form 1040x Enter the rental portion of line A       C. Fillable form 1040x Enter the amount from line 2c of this worksheet       D. Fillable form 1040x Subtract line C from line B. Fillable form 1040x Enter the result here and on line 6a of this worksheet               Line 6e. Fillable form 1040x 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. Fillable form 1040x * *Allocating the limited deduction. Fillable form 1040x 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. Fillable form 1040x Enter the amount you allocate to each expense on the appropriate line of Schedule E, Part I. Fillable form 1040x Prev  Up  Next   Home   More Online Publications

The Fillable Form 1040x

Fillable form 1040x 6. Fillable form 1040x   Insurance Table of Contents What's New Introduction Topics - This chapter discusses: Useful Items - You may want to see: Deductible PremiumsSelf-Employed Health Insurance Deduction Nondeductible Premiums Capitalized Premiums When To Deduct Premiums What's New Retiree drug subsidy. Fillable form 1040x  Beginning in 2013, sponsors of certain qualified retiree prescription drug plans must account for the subsidy received by reducing the amount of qualified retiree prescription drug plans expense by the subsidy received (taking into account the taxpayer's accounting method). Fillable form 1040x For more information, see the retiree drug subsidy frequently asked questions on IRS. Fillable form 1040x gov. Fillable form 1040x Introduction You generally can deduct the ordinary and necessary cost of insurance as a business expense if it is for your trade, business, or profession. Fillable form 1040x However, you may have to capitalize certain insurance costs under the uniform capitalization rules. Fillable form 1040x For more information, see Capitalized Premiums , later. Fillable form 1040x Topics - This chapter discusses: Deductible premiums Nondeductible premiums Capitalized premiums When to deduct premiums Useful Items - You may want to see: Publication 15-B Employer's Tax Guide to Fringe Benefits 525 Taxable and Nontaxable Income 538 Accounting Periods and Methods 547 Casualties, Disasters, and Thefts Form (and Instructions) 1040 U. Fillable form 1040x S. Fillable form 1040x Individual Income Tax Return See chapter 12 for information about getting publications and forms. Fillable form 1040x Deductible Premiums You generally can deduct premiums you pay for the following kinds of insurance related to your trade or business. Fillable form 1040x Insurance that covers fire, storm, theft, accident, or similar losses. Fillable form 1040x Credit insurance that covers losses from business bad debts. Fillable form 1040x Group hospitalization and medical insurance for employees, including long-term care insurance. Fillable form 1040x If a partnership pays accident and health insurance premiums for its partners, it generally can deduct them as guaranteed payments to partners. Fillable form 1040x If an S corporation pays accident and health insurance premiums for its more-than-2% shareholder-employees, it generally can deduct them, but must also include them in the shareholder's wages subject to federal income tax withholding. Fillable form 1040x See Publication 15-B. Fillable form 1040x Liability insurance. Fillable form 1040x Malpractice insurance that covers your personal liability for professional negligence resulting in injury or damage to patients or clients. Fillable form 1040x Workers' compensation insurance set by state law that covers any claims for bodily injuries or job-related diseases suffered by employees in your business, regardless of fault. Fillable form 1040x If a partnership pays workers' compensation premiums for its partners, it generally can deduct them as guaranteed payments to partners. Fillable form 1040x If an S corporation pays workers' compensation premiums for its more-than-2% shareholder-employees, it generally can deduct them, but must also include them in the shareholder's wages. Fillable form 1040x Contributions to a state unemployment insurance fund are deductible as taxes if they are considered taxes under state law. Fillable form 1040x Overhead insurance that pays for business overhead expenses you have during long periods of disability caused by your injury or sickness. Fillable form 1040x Car and other vehicle insurance that covers vehicles used in your business for liability, damages, and other losses. Fillable form 1040x If you operate a vehicle partly for personal use, deduct only the part of the insurance premium that applies to the business use of the vehicle. Fillable form 1040x If you use the standard mileage rate to figure your car expenses, you cannot deduct any car insurance premiums. Fillable form 1040x Life insurance covering your officers and employees if you are not directly or indirectly a beneficiary under the contract. Fillable form 1040x Business interruption insurance that pays for lost profits if your business is shut down due to a fire or other cause. Fillable form 1040x Self-Employed Health Insurance Deduction You may be able to deduct premiums paid for medical and dental insurance and qualified long-term care insurance for yourself, your spouse, and your dependents. Fillable form 1040x The insurance can also cover your child who was under age 27 at the end of 2013, even if the child was not your dependent. Fillable form 1040x A child includes your son, daughter, stepchild, adopted child, or foster child. Fillable form 1040x A foster child is any child placed with you by an authorized placement agency or by judgment, decree, or other order of any court of competent jurisdiction. Fillable form 1040x One of the following statements must be true. Fillable form 1040x You were self-employed and had a net profit for the year reported on Schedule C (Form 1040), Profit or Loss From Business; Schedule C-EZ (Form 1040), Net Profit From Business; or Schedule F (Form 1040), Profit or Loss From Farming. Fillable form 1040x You were a partner with net earnings from self-employment for the year reported on Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc. Fillable form 1040x , box 14, code A. Fillable form 1040x You used one of the optional methods to figure your net earnings from self-employment on Schedule SE. Fillable form 1040x You received wages in 2013 from an S corporation in which you were a more-than-2% shareholder. Fillable form 1040x Health insurance premiums paid or reimbursed by the S corporation are shown as wages on Form W-2, Wage and Tax Statement. Fillable form 1040x The insurance plan must be established, or considered to be established as discussed in the following bullets, under your business. Fillable form 1040x For self-employed individuals filing a Schedule C, C-EZ, or F, a policy can be either in the name of the business or in the name of the individual. Fillable form 1040x For partners, a policy can be either in the name of the partnership or in the name of the partner. Fillable form 1040x You can either pay the premiums yourself or your partnership can pay them and report the premium amounts on Schedule K-1 (Form 1065) as guaranteed payments to be included in your gross income. Fillable form 1040x However, if the policy is in your name and you pay the premiums yourself, the partnership must reimburse you and report the premium amounts on Schedule K-1 (Form 1065) as guaranteed payments to be included in your gross income. Fillable form 1040x Otherwise, the insurance plan will not be considered to be established under your business. Fillable form 1040x For more-than-2% shareholders, a policy can be either in the name of the S corporation or in the name of the shareholder. Fillable form 1040x You can either pay the premiums yourself or your S corporation can pay them and report the premium amounts on Form W-2 as wages to be included in your gross income. Fillable form 1040x However, if the policy is in your name and you pay the premiums yourself, the S corporation must reimburse you and report the premium amounts on Form W-2 as wages to be included in your gross income. Fillable form 1040x Otherwise, the insurance plan will not be considered to be established under your business. Fillable form 1040x Medicare premiums you voluntarily pay to obtain insurance in your name that is similar to qualifying private health insurance can be used to figure the deduction. Fillable form 1040x If you previously filed returns without using Medicare premiums to figure the deduction, you can file timely amended returns to refigure the deduction. Fillable form 1040x For more information, see Form 1040X, Amended U. Fillable form 1040x S. Fillable form 1040x Individual Income Tax Return. Fillable form 1040x Amounts paid for health insurance coverage from retirement plan distributions that were nontaxable because you are a retired public safety officer cannot be used to figure the deduction. Fillable form 1040x Take the deduction on Form 1040, line 29. Fillable form 1040x Qualified long-term care insurance. Fillable form 1040x   You can include premiums paid on a qualified long-term care insurance contract when figuring your deduction. Fillable form 1040x But, for each person covered, you can include only the smaller of the following amounts. Fillable form 1040x The amount paid for that person. Fillable form 1040x The amount shown below. Fillable form 1040x Use the person's age at the end of the tax year. Fillable form 1040x Age 40 or younger–$360 Age 41 to 50–$680 Age 51 to 60–$1,360 Age 61 to 70–$3,640 Age 71 or older–$4,550 Qualified long-term care insurance contract. Fillable form 1040x   A qualified long-term care insurance contract is an insurance contract that only provides coverage of qualified long-term care services. Fillable form 1040x The contract must meet all the following requirements. Fillable form 1040x It must be guaranteed renewable. Fillable form 1040x It must provide that refunds, other than refunds on the death of the insured or complete surrender or cancellation of the contract, and dividends under the contract may be used only to reduce future premiums or increase future benefits. Fillable form 1040x It must not provide for a cash surrender value or other money that can be paid, assigned, pledged, or borrowed. Fillable form 1040x It generally must not pay or reimburse expenses incurred for services or items that would be reimbursed under Medicare, except where Medicare is a secondary payer or the contract makes per diem or other periodic payments without regard to expenses. Fillable form 1040x Qualified long-term care services. Fillable form 1040x   Qualified long-term care services are: Necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, and rehabilitative services, and Maintenance or personal care services. Fillable form 1040x The services must be required by a chronically ill individual and prescribed by a licensed health care practitioner. Fillable form 1040x Worksheet 6-A. Fillable form 1040x Self-Employed Health Insurance Deduction Worksheet Note. Fillable form 1040x Use a separate worksheet for each trade or business under which an insurance plan is established. Fillable form 1040x 1. Fillable form 1040x Enter the total amount paid in 2013 for health insurance coverage established under your business for 2013 for you, your spouse, and your dependents. Fillable form 1040x Your insurance can also cover your child who was under age 27 at the end of 2013, even if the child was not your dependent. Fillable form 1040x But do not include the following. Fillable form 1040x   Amounts for any month you were eligible to participate in a health plan subsidized by your or your spouse's employer or the employer of either your dependent or your child who was under the age of 27 at the end of 2013. Fillable form 1040x Any amounts paid from retirement plan distributions that were nontaxable because you are a retired public safety officer. Fillable form 1040x Any amounts you included on Form 8885, line 4. Fillable form 1040x Any qualified health insurance premiums you paid to “U. Fillable form 1040x S. Fillable form 1040x Treasury-HCTC. Fillable form 1040x ” Any health coverage tax credit advance payments shown in box 1 of Form 1099-H. Fillable form 1040x Any payments for qualified long-term care insurance (see line 2) 1. Fillable form 1040x   2. Fillable form 1040x For coverage under a qualified long-term care insurance contract, enter for each person covered the smaller of the following amounts. Fillable form 1040x       a) Total payments made for that person during the year. Fillable form 1040x       b) The amount shown below. Fillable form 1040x Use the person's age at the end of the tax year. Fillable form 1040x         $360— if that person is age 40 or younger          $680— if age 41 to 50         $1,360— if age 51 to 60         $3,640— if age 61 to 70         $4,550— if age 71 or older         Do not include payments for any month you were eligible to participate in a long-term care insurance plan subsidized by your or your spouse’s employer or the employer of either your dependent or your child who was under the age of 27 at the end of 2013. Fillable form 1040x If more than one person is covered, figure separately the amount to enter for each person. Fillable form 1040x Then enter the total of those amounts 2. Fillable form 1040x   3. Fillable form 1040x Add lines 1 and 2 3. Fillable form 1040x   4. Fillable form 1040x Enter your net profit* and any other earned income** from the trade or business under which the insurance plan is established. Fillable form 1040x Do not include Conservation Reserve Program payments exempt from self-employment tax. Fillable form 1040x If the business is an S corporation, skip to line 11 4. Fillable form 1040x   5. Fillable form 1040x Enter the total of all net profits* from: Schedule C (Form 1040), line 31; Schedule C-EZ (Form 1040), line 3; Schedule F (Form 1040), line 34; or Schedule K-1 (Form 1065), box 14, code A; plus any other income allocable to the profitable businesses. Fillable form 1040x Do not include Conservation Reserve Program payments exempt from self-employment tax. Fillable form 1040x See the Instructions for Schedule SE (Form 1040). Fillable form 1040x Do not include any net losses shown on these schedules. Fillable form 1040x 5. Fillable form 1040x   6. Fillable form 1040x Divide line 4 by line 5 6. Fillable form 1040x   7. Fillable form 1040x Multiply Form 1040, line 27, by the percentage on line 6 7. Fillable form 1040x   8. Fillable form 1040x Subtract line 7 from line 4 8. Fillable form 1040x   9. Fillable form 1040x Enter the amount, if any, from Form 1040, line 28, attributable to the same trade or business in which the insurance plan is established 9. Fillable form 1040x   10. Fillable form 1040x Subtract line 9 from line 8 10. Fillable form 1040x   11. Fillable form 1040x Enter your Medicare wages (Form W-2, box 5) from an S corporation in which you are a more-than-2% shareholder and in which the insurance plan is established 11. Fillable form 1040x   12. Fillable form 1040x Enter any amount from Form 2555, line 45, attributable to the amount entered on line 4 or 11 above, or any amount from Form 2555-EZ, line 18, attributable to the amount entered on line 11 above 12. Fillable form 1040x   13. Fillable form 1040x Subtract line 12 from line 10 or 11, whichever applies 13. Fillable form 1040x   14. Fillable form 1040x Enter the smaller of line 3 or line 13 here and on Form 1040, line 29. Fillable form 1040x Do not include this amount when figuring any medical expense deduction on Schedule A (Form 1040). Fillable form 1040x 14. Fillable form 1040x   * If you used either optional method to figure your net earnings from self-employment from any business, do not enter your net profit from the business. Fillable form 1040x Instead, enter the amount attributable to that business from Schedule SE (Form 1040), Section B, line 4b. Fillable form 1040x * *Earned income includes net earnings and gains from the sale, transfer, or licensing of property you created. Fillable form 1040x However, it does not include capital gain income. Fillable form 1040x Chronically ill individual. Fillable form 1040x   A chronically ill individual is a person who has been certified as one of the following. Fillable form 1040x An individual who has been unable, due to loss of functional capacity for at least 90 days, to perform at least two activities of daily living without substantial assistance from another individual. Fillable form 1040x Activities of daily living are eating, toileting, transferring (general mobility), bathing, dressing, and continence. Fillable form 1040x An individual who requires substantial supervision to be protected from threats to health and safety due to severe cognitive impairment. Fillable form 1040x The certification must have been made by a licensed health care practitioner within the previous 12 months. Fillable form 1040x Benefits received. Fillable form 1040x   For information on excluding benefits you receive from a long-term care contract from gross income, see Publication 525. Fillable form 1040x Other coverage. Fillable form 1040x   You cannot take the deduction for any month you were eligible to participate in any employer (including your spouse's) subsidized health plan at any time during that month, even if you did not actually participate. Fillable form 1040x In addition, if you were eligible for any month or part of a month to participate in any subsidized health plan maintained by the employer of either your dependent or your child who was under age 27 at the end of 2013, do not use amounts paid for coverage for that month to figure the deduction. Fillable form 1040x   These rules are applied separately to plans that provide long-term care insurance and plans that do not provide long-term care insurance. Fillable form 1040x However, any medical insurance payments not deductible on Form 1040, line 29, can be included as medical expenses on Schedule A (Form 1040), Itemized Deductions, if you itemize deductions. Fillable form 1040x Effect on itemized deductions. Fillable form 1040x   Subtract the health insurance deduction from your medical insurance when figuring medical expenses on Schedule A (Form 1040) if you itemize deductions. Fillable form 1040x Effect on self-employment tax. Fillable form 1040x   For tax years beginning before or after 2010, you cannot subtract the self-employed health insurance deduction when figuring net earnings for your self-employment tax from the business under which the insurance plan is established, or considered to be established as discussed earlier. Fillable form 1040x For more information, see Schedule SE (Form 1040). Fillable form 1040x How to figure the deduction. Fillable form 1040x   Generally, you can use the worksheet in the Form 1040 instructions to figure your deduction. Fillable form 1040x However, if any of the following apply, you must use Worksheet 6-A in this chapter. Fillable form 1040x You had more than one source of income subject to self-employment tax. Fillable form 1040x You file Form 2555, Foreign Earned Income, or Form 2555-EZ, Foreign Earned Income Exclusion. Fillable form 1040x You are using amounts paid for qualified long-term care insurance to figure the deduction. Fillable form 1040x If you are claiming the health coverage tax credit, complete Form 8885, Health Coverage Tax Credit, before you figure this deduction. Fillable form 1040x Health coverage tax credit. Fillable form 1040x   You may be able to take this credit only if you were an eligible trade adjustment assistance (TAA) recipient, alternative TAA (ATAA) recipient, reemployment trade adjustment assistance (RTAA) recipient, or Pension Benefit Guaranty Corporation (PBGC) pension recipient. Fillable form 1040x Use Form 8885 to figure the amount, if any, of this credit. Fillable form 1040x   When figuring the amount to enter on line 1 of Worksheet 6-A, do not include the following. Fillable form 1040x Any amounts you included on Form 8885, line 4. Fillable form 1040x Any qualified health insurance premiums you paid to “U. Fillable form 1040x S. Fillable form 1040x Treasury-HCTC. Fillable form 1040x ” Any health coverage tax credit advance payments shown in box 1 of Form 1099-H, Health Coverage Tax Credit (HCTC) Advance Payments. Fillable form 1040x More than one health plan and business. Fillable form 1040x   If you have more than one health plan during the year and each plan is established under a different business, you must use separate worksheets (Worksheet 6-A) to figure each plan's net earnings limit. Fillable form 1040x Include the premium you paid under each plan on line 1 or line 2 of that separate worksheet and your net profit (or wages) from that business on line 4 (or line 11). Fillable form 1040x For a plan that provides long-term care insurance, the total of the amounts entered for each person on line 2 of all worksheets cannot be more than the appropriate limit shown on line 2 for that person. Fillable form 1040x Nondeductible Premiums You cannot deduct premiums on the following kinds of insurance. Fillable form 1040x Self-insurance reserve funds. Fillable form 1040x You cannot deduct amounts credited to a reserve set up for self-insurance. Fillable form 1040x This applies even if you cannot get business insurance coverage for certain business risks. Fillable form 1040x However, your actual losses may be deductible. Fillable form 1040x See Publication 547. Fillable form 1040x Loss of earnings. Fillable form 1040x You cannot deduct premiums for a policy that pays for lost earnings due to sickness or disability. Fillable form 1040x However, see the discussion on overhead insurance, item (8), under Deductible Premiums , earlier. Fillable form 1040x Certain life insurance and annuities. Fillable form 1040x For contracts issued before June 9, 1997, you cannot deduct the premiums on a life insurance policy covering you, an employee, or any person with a financial interest in your business if you are directly or indirectly a beneficiary of the policy. Fillable form 1040x You are included among possible beneficiaries of the policy if the policy owner is obligated to repay a loan from you using the proceeds of the policy. Fillable form 1040x A person has a financial interest in your business if the person is an owner or part owner of the business or has lent money to the business. Fillable form 1040x For contracts issued after June 8, 1997, you generally cannot deduct the premiums on any life insurance policy, endowment contract, or annuity contract if you are directly or indirectly a beneficiary. Fillable form 1040x The disallowance applies without regard to whom the policy covers. Fillable form 1040x Partners. Fillable form 1040x If, as a partner in a partnership, you take out an insurance policy on your own life and name your partners as beneficiaries to induce them to retain their investments in the partnership, you are considered a beneficiary. Fillable form 1040x You cannot deduct the insurance premiums. Fillable form 1040x Insurance to secure a loan. Fillable form 1040x If you take out a policy on your life or on the life of another person with a financial interest in your business to get or protect a business loan, you cannot deduct the premiums as a business expense. Fillable form 1040x Nor can you deduct the premiums as interest on business loans or as an expense of financing loans. Fillable form 1040x In the event of death, the proceeds of the policy are generally not taxed as income even if they are used to liquidate the debt. Fillable form 1040x Capitalized Premiums Under the uniform capitalization rules, you must capitalize the direct costs and part of the indirect costs for certain production or resale activities. Fillable form 1040x Include these costs in the basis of property you produce or acquire for resale, rather than claiming them as a current deduction. Fillable form 1040x You recover the costs through depreciation, amortization, or cost of goods sold when you use, sell, or otherwise dispose of the property. Fillable form 1040x Indirect costs include premiums for insurance on your plant or facility, machinery, equipment, materials, property produced, or property acquired for resale. Fillable form 1040x Uniform capitalization rules. Fillable form 1040x   You may be subject to the uniform capitalization rules if you do any of the following, unless the property is produced for your use other than in a business or an activity carried on for profit. Fillable form 1040x Produce real property or tangible personal property. Fillable form 1040x For this purpose, tangible personal property includes a film, sound recording, video tape, book, or similar property. Fillable form 1040x Acquire property for resale. Fillable form 1040x However, these rules do not apply to the following property. Fillable form 1040x Personal property you acquire for resale if your average annual gross receipts are $10 million or less for the 3 prior tax years. Fillable form 1040x Property you produce if you meet either of the following conditions. Fillable form 1040x Your indirect costs of producing the property are $200,000 or less. Fillable form 1040x You use the cash method of accounting and do not account for inventories. Fillable form 1040x More information. Fillable form 1040x   For more information on these rules, see Uniform Capitalization Rules in Publication 538 and the regulations under Internal Revenue Code section 263A. Fillable form 1040x When To Deduct Premiums You can usually deduct insurance premiums in the tax year to which they apply. Fillable form 1040x Cash method. Fillable form 1040x   If you use the cash method of accounting, you generally deduct insurance premiums in the tax year you actually paid them, even if you incurred them in an earlier year. Fillable form 1040x However, see Prepayment , later. Fillable form 1040x Accrual method. Fillable form 1040x   If you use an accrual method of accounting, you cannot deduct insurance premiums before the tax year in which you incur a liability for them. Fillable form 1040x In addition, you cannot deduct insurance premiums before the tax year in which you actually pay them (unless the exception for recurring items applies). Fillable form 1040x For more information about the accrual method of accounting, see chapter 1. Fillable form 1040x For information about the exception for recurring items, see Publication 538. Fillable form 1040x Prepayment. Fillable form 1040x   You cannot deduct expenses in advance, even if you pay them in advance. Fillable form 1040x This rule applies to any expense paid far enough in advance to, in effect, create an asset with a useful life extending substantially beyond the end of the current tax year. Fillable form 1040x   Expenses such as insurance are generally allocable to a period of time. Fillable form 1040x You can deduct insurance expenses for the year to which they are allocable. Fillable form 1040x Example. Fillable form 1040x In 2013, you signed a 3-year insurance contract. Fillable form 1040x Even though you paid the premiums for 2013, 2014, and 2015 when you signed the contract, you can only deduct the premium for 2013 on your 2013 tax return. Fillable form 1040x You can deduct in 2014 and 2015 the premium allocable to those years. Fillable form 1040x Dividends received. Fillable form 1040x   If you receive dividends from business insurance and you deducted the premiums in prior years, at least part of the dividends generally are income. Fillable form 1040x For more information, see Recovery of amount deducted (tax benefit rule) in chapter 1 under How Much Can I Deduct. Fillable form 1040x Prev  Up  Next   Home   More Online Publications