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Form 1040nr Instructions

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Form 1040nr Instructions

Form 1040nr instructions Publication 510 - Introductory Material Table of Contents What's New Reminders Introduction Useful Items - You may want to see: Excise Taxes Not Covered What's New Medical device excise tax. Form 1040nr instructions  The Affordable Care Act (the “Act”) (Public Law 111-148, amended by Public Law 111-152) imposes a 2. Form 1040nr instructions 3% (. Form 1040nr instructions 023) excise tax on the sale of certain medical devices by the manufacturer, producer, or importer of the device. Form 1040nr instructions The tax applies to sales of taxable medical devices after December 31, 2012. Form 1040nr instructions See Taxable Medical Devices in chapter 5, later. Form 1040nr instructions Tax on seasonal flu vaccines. Form 1040nr instructions  Sales of all vaccines against seasonal influenza are now subject to the section 4131 excise tax at the existing rate of $. Form 1040nr instructions 75 per dose of taxable vaccine. Form 1040nr instructions Previously, only trivalent influenza vaccines were subject to this tax. Form 1040nr instructions See Vaccines in chapter 5, later. Form 1040nr instructions Patient-centered outcomes research fee. Form 1040nr instructions  The Act imposes a fee on issuers of specified health insurance policies (section 4375) and plan sponsors of applicable self-insured health plans (section 4576) to help fund the Patient-Centered Outcomes Research Institute. Form 1040nr instructions The fee, required to be reported annually on the 2nd quarter Form 720 and paid by its due date, July 31st, is based on the average number of lives covered under the policy or plan. Form 1040nr instructions The fee applies to policy or plan years ending on or after October 1, 2012. Form 1040nr instructions See chapter 11, later. Form 1040nr instructions Extension of fuel tax credits. Form 1040nr instructions  The following section 6426 credits, previously expired on December 31, 2011, are retroactively extended. Form 1040nr instructions Biodiesel or renewable diesel mixture credit. Form 1040nr instructions Alternative fuel credit. Form 1040nr instructions Alternative fuel mixture credit. Form 1040nr instructions See Notice 2013–26 (fuel tax credits) on page 984 of I. Form 1040nr instructions R. Form 1040nr instructions B. Form 1040nr instructions 2013–18 at www. Form 1040nr instructions irs. Form 1040nr instructions gov/pub/irs-irbs/irb13-18. Form 1040nr instructions pdf; also see chapter 2, later. Form 1040nr instructions Alternative fuel mixture credit can be claimed on Schedule C (Form 720) only. Form 1040nr instructions  For alternative fuel mixtures produced after December 31, 2011, the section 6426 alternative fuel mixture credit can be claimed on Schedule C (Form 720) only, not on Form 4136, Credit for Federal Tax Paid on Fuels, or Schedule 3 (Form 8849), Claim for Refund of Excise Taxes, and only to the extent of your section 4081 taxable fuel liability for gasoline, diesel, and kerosene. Form 1040nr instructions See Biodiesel or Renewable Diesel Mixture Credit, Alternative Fuel Credit, and Alternative Fuel Mixture Credit in chapter 2, later. Form 1040nr instructions Expiration of alcohol fuel mixture credit. Form 1040nr instructions  The section 6426 alcohol fuel mixture credit expired after December 31, 2011. Form 1040nr instructions Expiration of alcohol fuels credits. Form 1040nr instructions  The section 40 alcohol, alcohol mixture, and small ethanol producer credits expired after December 31, 2011. Form 1040nr instructions Second generation biofuel producer credit and excise tax. Form 1040nr instructions  The section 40 cellulosic biofuel producer credit was retroactively extended to include fuel sold or used through January 2, 2013. Form 1040nr instructions After January 2, 2013, cellulosic biofuel is renamed second generation biofuel, which adds algae-based fuel. Form 1040nr instructions The second generation biofuel producer credit is for fuel sold or used after January 2, 2013, and before January 1, 2014. Form 1040nr instructions You are liable for an excise tax on each gallon of cellulosic or second generation biofuel at the rate you used to figure the credit if you do not use the fuel for the purposes described under Qualified Cellulosic Biofuel Production or Qualified Second Generation Biofuel Production, later. Form 1040nr instructions Report the tax on Form 720. Form 1040nr instructions See Cellulosic or Second Generation Biofuel Not Used as Fuel, later; also see Form 6478, Biofuel Producer Credit, for more information. Form 1040nr instructions Extension of section 40A biodiesel fuels credit. Form 1040nr instructions  The biodiesel fuels credit, previously expired on December 31, 2011, is retroactively extended. Form 1040nr instructions Future developments. Form 1040nr instructions  The IRS has created a page on IRS. Form 1040nr instructions gov that includes information about Publication 510 at www. Form 1040nr instructions irs. Form 1040nr instructions gov/pub510. Form 1040nr instructions Information about any future developments will be posted on that page. Form 1040nr instructions Reminders Publication 510 updates. Form 1040nr instructions  Publication 510 is not updated annually. Form 1040nr instructions Instead, it will be updated only when there are major changes in the tax law. Form 1040nr instructions Use of international air travel facilities. Form 1040nr instructions  Generally, the tax on the use of international air travel facilities increases annually. Form 1040nr instructions See the Instructions for Form 720 for the tax rate. Form 1040nr instructions For more information, see Air Transportation Taxes in chapter 4. Form 1040nr instructions Aviation fuels for use in foreign trade. Form 1040nr instructions  Aviation gasoline and kerosene for use in aviation are exempt from the leaking underground storage tank (LUST) tax. Form 1040nr instructions Arrow shafts, tax rate. Form 1040nr instructions  Generally, the tax on arrow shafts increases annually. Form 1040nr instructions See Form 720 for the tax rate. Form 1040nr instructions Disregarded entities and qualified subchapter S subsidiaries. Form 1040nr instructions  Qualified subchapter S subsidiaries (QSubs) and eligible single-owner disregarded entities are treated as separate entities for excise tax and reporting purposes. Form 1040nr instructions QSubs and eligible single-owner disregarded entities must pay and report excise taxes (other than IRS Nos. Form 1040nr instructions 31, 51, and 117), register for most excise tax activities, and claim any refunds, credits, and payments under the entity's employer identification number (EIN). Form 1040nr instructions These actions cannot take place under the owner's taxpayer identification number (TIN). Form 1040nr instructions Some QSubs and disregarded entities may already have an EIN. Form 1040nr instructions However, if you are unsure, please call the IRS Business and Specialty Tax line at 1-800-829-4933. Form 1040nr instructions Generally, QSubs and eligible single-owner disregarded entities will continue to be treated as disregarded entities for other federal tax purposes (other than employment taxes). Form 1040nr instructions For more information on these regulations, see Treasury Decision (T. Form 1040nr instructions D. Form 1040nr instructions ) 9356, T. Form 1040nr instructions D. Form 1040nr instructions 9462, and T. Form 1040nr instructions D. Form 1040nr instructions 9596. Form 1040nr instructions You can find T. Form 1040nr instructions D. Form 1040nr instructions 9356 on page 675 of Internal Revenue Bulletin (I. Form 1040nr instructions R. Form 1040nr instructions B. Form 1040nr instructions ) 2007-39 at  www. Form 1040nr instructions irs. Form 1040nr instructions gov/pub/irs-irbs/irb07-39. Form 1040nr instructions pdf;  T. Form 1040nr instructions D. Form 1040nr instructions 9462 on page 504 of I. Form 1040nr instructions R. Form 1040nr instructions B. Form 1040nr instructions 2009-42 at  www. Form 1040nr instructions irs. Form 1040nr instructions gov/pub/irs-irbs/irb09-42. Form 1040nr instructions pdf;  and T. Form 1040nr instructions D. Form 1040nr instructions 9596 on page 84 of I. Form 1040nr instructions R. Form 1040nr instructions B. Form 1040nr instructions 2012-30 at  www. Form 1040nr instructions irs. Form 1040nr instructions gov/pub/irs-irbs/irb12-30. Form 1040nr instructions pdf. Form 1040nr instructions Registration for certain activities. Form 1040nr instructions  You are required to be registered for certain excise tax activities, such as blending of gasoline, diesel fuel, or kerosene outside the bulk transfer/terminal system. Form 1040nr instructions See the instructions for Form 637 for the list of activities for which you must register. Form 1040nr instructions Also see Registration Requirements under Fuel Taxes in chapter 1 for information on registration for activities related to fuel. Form 1040nr instructions Each business unit that has, or is required to have, a separate employer identification number must be registered. Form 1040nr instructions To apply for registration, complete Form 637 and provide the information requested in its instructions. Form 1040nr instructions If your application is approved, you will receive a Letter of Registration showing the activities for which you are registered, the effective date of the registration, and your registration number. Form 1040nr instructions A copy of Form 637 is not a Letter of Registration. Form 1040nr instructions Photographs of missing children. Form 1040nr instructions  The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Form 1040nr instructions Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. Form 1040nr instructions You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. Form 1040nr instructions Introduction This publication covers the excise taxes for which you may be liable and which are reported on Form 720 and other forms. Form 1040nr instructions It also covers fuel tax credits and refunds. Form 1040nr instructions For information on fuel credits against income tax (the section 40 credits for the production of cellulosic biofuel and second generation biofuel, and the section 40A credit for biodiesel and renewable diesel used as fuel) see the instructions for Form 6478 and Form 8864, Biodiesel and Renewable Diesel Fuels Credit. Form 1040nr instructions Comments and suggestions. Form 1040nr instructions   We welcome your comments about this publication and your suggestions for future editions. Form 1040nr instructions   You can write to us at the following address: Internal Revenue Service Individual and Specialty Forms and Publications Branch SE:W:CAR:MP:T:I 1111 Constitution Ave. Form 1040nr instructions NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. Form 1040nr instructions Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Form 1040nr instructions   You can email us at taxforms@irs. Form 1040nr instructions gov. Form 1040nr instructions Please put “Publications Comment” on the subject line. Form 1040nr instructions You can also send us comments from www. Form 1040nr instructions irs. Form 1040nr instructions gov/Forms-&-Pubs/More-Information/ and select “Comment on Tax Forms and Publications”. Form 1040nr instructions   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. Form 1040nr instructions Useful Items - You may want to see: Publication 509 Tax Calendars Form (and Instructions) 11-C Occupational Tax and Registration Return for Wagering 637 Application for Registration (For Certain Excise Tax Activities) 720 Quarterly Federal Excise Tax Return 720X Amended Quarterly Federal Excise Tax Return 730 Monthly Tax Return for Wagers 1363 Export Exemption Certificate 2290 Heavy Highway Vehicle Use Tax Return 2290(SP) Declaración del Impuesto sobre el Uso de Vehículos Pesados en las Carreteras 4136 Credit for Federal Tax Paid on Fuels 6197 Gas Guzzler Tax 6478 Biofuel Producer Credit 6627 Environmental Taxes 8849 Claim for Refund of Excise Taxes, and Schedules 1–3, 5, 6, and 8 8864 Biodiesel and Renewable Diesel Fuels Credit Information Returns    Form 720-TO, Terminal Operator Report Form 720-CS, Carrier Summary Report   See How To Get Tax Help in chapter 17 for information about ordering forms and publications. Form 1040nr instructions Guidance    You can find Notice 2005-4 (fuel tax guidance) on page 289 of I. Form 1040nr instructions R. Form 1040nr instructions B. Form 1040nr instructions 2005-2 at www. Form 1040nr instructions irs. Form 1040nr instructions gov/pub/irs-irbs/irb05-02. Form 1040nr instructions pdf. Form 1040nr instructions Notice 2005-62 (biodiesel and aviation-grade kerosene) on page 443 of I. Form 1040nr instructions R. Form 1040nr instructions B. Form 1040nr instructions 2005-35 at www. Form 1040nr instructions irs. Form 1040nr instructions gov/pub/irs-irbs/irb05-35. Form 1040nr instructions pdf. Form 1040nr instructions Notice 2005-80 (LUST, kerosene, claims by credit card issuers, and mechanical dye injection) on page 953 of I. Form 1040nr instructions R. Form 1040nr instructions B. Form 1040nr instructions 2005-46 at www. Form 1040nr instructions irs. Form 1040nr instructions gov/pub/irs-irbs/irb05-46. Form 1040nr instructions pdf. Form 1040nr instructions Notice 2006-92 (alternative fuels and alternative fuel mixtures) on page 774 of I. Form 1040nr instructions R. Form 1040nr instructions B. Form 1040nr instructions 2006-43 at www. Form 1040nr instructions irs. Form 1040nr instructions gov/pub/irs-irbs/irb06-43. Form 1040nr instructions pdf. Form 1040nr instructions Notice 2008-110 (biodiesel and cellulosic biofuel) on page 1298 of I. Form 1040nr instructions R. Form 1040nr instructions B. Form 1040nr instructions 2008-51 at www. Form 1040nr instructions irs. Form 1040nr instructions gov/pub/irs-irbs/irb08-51. Form 1040nr instructions pdf. Form 1040nr instructions Notice 2010-68 (Alaska dyed diesel exemption) on page 576 of I. Form 1040nr instructions R. Form 1040nr instructions B. Form 1040nr instructions 2010-44 at www. Form 1040nr instructions irs. Form 1040nr instructions gov/pub/irs-irbs/irb10-44. Form 1040nr instructions pdf. Form 1040nr instructions Notice 2012-27 (fractional aircraft ownership programs fuel surtax) on page 849 of I. Form 1040nr instructions R. Form 1040nr instructions B. Form 1040nr instructions 2012-17 at www. Form 1040nr instructions irs. Form 1040nr instructions gov/pub/irs-irbs/irb12-17. Form 1040nr instructions pdf. Form 1040nr instructions Notice 2013-26 (fuel tax credits) on page 984 of I. Form 1040nr instructions R. Form 1040nr instructions B. Form 1040nr instructions 2013-18 at www. Form 1040nr instructions irs. Form 1040nr instructions gov/pub/irs-irbs/irb13-18. Form 1040nr instructions pdf. Form 1040nr instructions T. Form 1040nr instructions D. Form 1040nr instructions 9604 and Notice 2012–77 (medical device tax) on pages 730 and 781, respectively, of I. Form 1040nr instructions R. Form 1040nr instructions B. Form 1040nr instructions 2012-52 at www. Form 1040nr instructions irs. Form 1040nr instructions gov/pub/irs-irbs/irb12-52. Form 1040nr instructions pdf. Form 1040nr instructions T. Form 1040nr instructions D. Form 1040nr instructions 9602 (patient-centered outcomes research fee) on page 746 of I. Form 1040nr instructions R. Form 1040nr instructions B. Form 1040nr instructions 2012-52 at www. Form 1040nr instructions irs. Form 1040nr instructions gov/pub/irs-irbs/irb12-52. Form 1040nr instructions pdf. Form 1040nr instructions Revenue Procedure 2012-41 (inflation adjustments) on page 539 of I. Form 1040nr instructions R. Form 1040nr instructions B. Form 1040nr instructions 2012-45 at www. Form 1040nr instructions irs. Form 1040nr instructions gov/pub/irs-irbs/irb12-45. Form 1040nr instructions pdf. Form 1040nr instructions T. Form 1040nr instructions D. Form 1040nr instructions 9621 (indoor tanning services tax) on page 49 of I. Form 1040nr instructions R. Form 1040nr instructions B. Form 1040nr instructions 2013-28 at www. Form 1040nr instructions irs. Form 1040nr instructions gov/pub/irs-irbs/irb13-28. Form 1040nr instructions pdf. Form 1040nr instructions Excise Taxes Not Covered In addition to the taxes discussed in this publication, you may have to report certain other excise taxes. Form 1040nr instructions For tax forms relating to alcohol, firearms, and tobacco, visit the Alcohol and Tobacco Tax and Trade Bureau website at www. Form 1040nr instructions ttb. Form 1040nr instructions gov. Form 1040nr instructions Heavy highway vehicle use tax. Form 1040nr instructions   You report the federal excise tax on the use of certain trucks, truck tractors, and buses used on public highways on Form 2290, Heavy Highway Vehicle Use Tax Return. Form 1040nr instructions The tax applies to highway motor vehicles with a taxable gross weight of 55,000 pounds or more. Form 1040nr instructions Vans, pickup trucks, panel trucks, and similar trucks generally are not subject to this tax. Form 1040nr instructions Note. Form 1040nr instructions A Spanish version (Formulario 2290(SP)) is also available. Form 1040nr instructions See How To Get Tax Help in chapter 17. Form 1040nr instructions Registration of vehicles. Form 1040nr instructions   Generally, you must prove that you paid your heavy highway vehicle use tax to register your taxable vehicle with your state motor vehicle department or to enter the United States in a Canadian or Mexican registered taxable vehicle. Form 1040nr instructions Generally, a copy of Schedule 1 (Form 2290) is stamped by the IRS and returned to you as proof of payment. Form 1040nr instructions    If you have questions on Form 2290, see its separate instructions, or you can call the Form 2290 call site at 1-866-699-4096 (toll free) from the United States, and 1-859-669-5733 (not toll free) from Canada and Mexico. Form 1040nr instructions The hours of service are 8:00 a. Form 1040nr instructions m. Form 1040nr instructions to 6:00 p. Form 1040nr instructions m. Form 1040nr instructions Eastern time. Form 1040nr instructions Wagering tax and occupational tax. Form 1040nr instructions   The information on wagering tax can be found in the instructions for Form 730, Tax on Wagering, and Form 11-C, Occupational Tax and Registration Return for Wagering. Form 1040nr instructions Prev  Up  Next   Home   More Online Publications
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Help for Victims of Hurricane Sandy

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The IRS is providing help to the victims of Hurricane Sandy. Special tax relief and assistance is available to taxpayers in the Presidential Disaster Areas. 

So far, the IRS filing and payment relief applies to the following localities identified by FEMA for Individual Assistance due to Hurricane Sandy:

  • In Connecticut: Fairfield, Middlesex, New Haven, and New London Counties and the Mashantucket Pequot Tribal Nation and Mohegan Tribal Nation located within New London County;

  • In Maryland: Somerset County
  • In New Jersey: Atlantic, Bergen, Burlington, Camden, Cape May, Cumberland, Essex, Gloucester, Hudson, Hunterdon, Mercer, Middlesex, Monmouth, Morris, Ocean, Passaic, Salem, Somerset, Sussex, Union and Warren;
  • In New York: Bronx, Kings, Nassau, New York, Orange, Putnam, Queens, Richmond, Rockland, Sullivan, Suffolk, Ulster and Westchester;
  • In Rhode Island: Newport and Washington counties.

The IRS also announced additional tax relief to certain affected individuals and businesses, further extending tax deadlines of that relief until April 1 for the following localities:

  • In New Jersey: Monmouth and Ocean counties.
  • In New York: Nassau, Queens, Richmond and Suffolk counties.

We are monitoring the situation closely to resolve potential tax administration issues as they are identified. The IRS often updates its information on disaster relief efforts related to Hurricane Sandy. For the latest news, check this page frequently.

News Releases

  • IR-2013-16, IRS Extends Tax Relief to Some New Jersey and New York Victims of Hurricane Sandy; Return Filing and Tax Payment Deadline Extended to April 1, 2013
  • IR-2012-96, IRS Gives Additional Time to Small, Automatically Revoked Tax-Exempt Organizations Affected by Hurricane Sandy
  • IR-2012-94, IRS Extends Hurricane Sandy Diesel Fuel Penalty Waiver to Dec. 7 for New Jersey and Parts of New York
  • IR-2012-93, Retirement Plans Can Make Loans, Hardship Distributions to Sandy Victims
  • IR-2012-91, IRS Warns Consumers of Possible Scams Relating to Hurricane Sandy Relief
  • IR-2012-91SP, IRS Advierte a Consumidores de Posibles Estafas Relacionadas a las Ayudas por el Huracán Sandy
  • IR-2012-88, Treasury, IRS Announce Special Relief to Encourage Leave-Donation Programs for Victims of Hurricane Sandy
  • IR-2012-88SP, Tesoro y IRS Anuncian Alivio Especial para Estimular Programas Que Permitan la Donación de Días de Paga a Víctimas del Huracán Sandy
  • IR-2012-87, IRS Expedites Charity Applications, Urges Use of Existing Charities
  • IR-2012-87SP, El IRS Acelera Las Solicitudes de Organizaciones Benéficas, Recomienda el Uso de Caridades Existentes
  • IR-2012-86, Treasury and IRS Expand Availability of Housing for Hurricane Sandy Victims
  • IR-2012-85, IRS Waives Diesel Fuel Penalty Due to Hurricane Sandy
  • IR-2012-84, IRS Announces Qualified Disaster Treatment of Payments to Victims of Hurricane Sandy
  • IR-2012-84SP, El IRS Anuncia el Trato de Pagos Por un Desastre Calificado para las Víctimas del Huracán Sandy
  • IR-2012-83, IRS Provides Tax Relief to Victims of Hurricane Sandy; Return Filing and Tax Payment Deadline Extended to Feb. 1, 2013
  • IR-2012-83SP, IRS Ofrece Alivio a Víctimas del Huracán Sandy; Extiende Plazo de Presentación de Declaraciones de Impuestos y Pagos al 1 de Febrero de 2013
  • IR-2012-82, IRS Gives Additional Time to Taxpayers and Preparers Affected by Hurricane Sandy; File and Pay by Nov. 7

Legal Guidance

  • Notice 2013-21, Postponement of Deadline for Making an Election to Deduct for the Preceding Taxable Year Losses Attributable to Hurricane Sandy
  • Notice 2012-71, Postponement of Deadline for Transitional Relief under Notice 2011-43 for Certain Small Organizations Affected by Hurricane Sandy
  • Notice 2012-69, Treatment of Certain Amounts Paid to Section 170(c) Organizations under Certain Employer Leave-Based Donation Programs to Aid Victims of Hurricane Sandy
  • Notice 2012-68, Low-Income Housing Credit Disaster Relief for Hurricane Sandy

Other Resources

For additional information provided by the federal government on disaster recovery, visit DisasterAssistance.gov and the Hurricane Sandy Recovery page on USA.gov. The latest Federal Emergency Management Agency disaster declarations are also available.

Related Item: Hurricane Sandy News Releases and Legal Guidance

 

Page Last Reviewed or Updated: 05-Nov-2013

The Form 1040nr Instructions

Form 1040nr instructions 1. Form 1040nr instructions   Deducting Business Expenses Table of Contents What's New Introduction Topics - This chapter discusses: Useful Items - You may want to see: What Can I Deduct?Cost of Goods Sold Capital Expenses Capital versus Deductible Expenses Personal versus Business Expenses How Much Can I Deduct?Not-for-profit limits. Form 1040nr instructions At-risk limits. Form 1040nr instructions Passive activities. Form 1040nr instructions Net operating loss. Form 1040nr instructions When Can I Deduct an Expense?Economic performance. Form 1040nr instructions Not-for-Profit ActivitiesGross Income Limit on Deductions What's New Optional safe harbor method to determine the business use of a home deduction. Form 1040nr instructions  Beginning in 2013, you can use the optional safe harbor method to determine the deduction for the business use of your home. Form 1040nr instructions See Optional safe harbor method under Business use of your home , later. Form 1040nr instructions Introduction This chapter covers the general rules for deducting business expenses. Form 1040nr instructions Business expenses are the costs of carrying on a trade or business, and they are usually deductible if the business is operated to make a profit. Form 1040nr instructions Topics - This chapter discusses: What you can deduct How much you can deduct When you can deduct Not-for-profit activities Useful Items - You may want to see: Publication 334 Tax Guide for Small Business 463 Travel, Entertainment, Gift, and Car Expenses 525 Taxable and Nontaxable Income 529 Miscellaneous Deductions 536 Net Operating Losses (NOLs) for Individuals, Estates, and Trusts 538 Accounting Periods and Methods 542 Corporations 547 Casualties, Disasters, and Thefts 587 Business Use of Your Home 925 Passive Activity and At-Risk Rules 936 Home Mortgage Interest Deduction 946 How To Depreciate Property Form (and Instructions) Sch A (Form 1040) Itemized Deductions 5213 Election To Postpone Determination as To Whether the Presumption Applies That an Activity Is Engaged in for Profit See chapter 12 for information about getting publications and forms. Form 1040nr instructions What Can I Deduct? To be deductible, a business expense must be both ordinary and necessary. Form 1040nr instructions An ordinary expense is one that is common and accepted in your industry. Form 1040nr instructions A necessary expense is one that is helpful and appropriate for your trade or business. Form 1040nr instructions An expense does not have to be indispensable to be considered necessary. Form 1040nr instructions Even though an expense may be ordinary and necessary, you may not be allowed to deduct the expense in the year you paid or incurred it. Form 1040nr instructions In some cases you may not be allowed to deduct the expense at all. Form 1040nr instructions Therefore, it is important to distinguish usual business expenses from expenses that include the following. Form 1040nr instructions The expenses used to figure cost of goods sold, Capital expenses, and Personal expenses. Form 1040nr instructions Cost of Goods Sold If your business manufactures products or purchases them for resale, you generally must value inventory at the beginning and end of each tax year to determine your cost of goods sold. Form 1040nr instructions Some of your business expenses may be included in figuring cost of goods sold. Form 1040nr instructions Cost of goods sold is deducted from your gross receipts to figure your gross profit for the year. Form 1040nr instructions If you include an expense in the cost of goods sold, you cannot deduct it again as a business expense. Form 1040nr instructions The following are types of expenses that go into figuring cost of goods sold. Form 1040nr instructions The cost of products or raw materials, including freight. Form 1040nr instructions Storage. Form 1040nr instructions Direct labor (including contributions to pension or annuity plans) for workers who produce the products. Form 1040nr instructions Factory overhead. Form 1040nr instructions Under the uniform capitalization rules, you must capitalize the direct costs and part of the indirect costs for certain production or resale activities. Form 1040nr instructions Indirect costs include rent, interest, taxes, storage, purchasing, processing, repackaging, handling, and administrative costs. Form 1040nr instructions This rule does not apply to personal property you acquire for resale if your average annual gross receipts (or those of your predecessor) for the preceding 3 tax years are not more than $10 million. Form 1040nr instructions For more information, see the following sources. Form 1040nr instructions Cost of goods sold—chapter 6 of Publication 334. Form 1040nr instructions Inventories—Publication 538. Form 1040nr instructions Uniform capitalization rules—Publication 538 and section 263A of the Internal Revenue Code and the related regulations. Form 1040nr instructions Capital Expenses You must capitalize, rather than deduct, some costs. Form 1040nr instructions These costs are a part of your investment in your business and are called “capital expenses. Form 1040nr instructions ” Capital expenses are considered assets in your business. Form 1040nr instructions In general, you capitalize three types of costs. Form 1040nr instructions Business start-up costs (See Tip below). Form 1040nr instructions Business assets. Form 1040nr instructions Improvements. Form 1040nr instructions You can elect to deduct or amortize certain business start-up costs. Form 1040nr instructions See chapters 7 and 8. Form 1040nr instructions Cost recovery. Form 1040nr instructions   Although you generally cannot take a current deduction for a capital expense, you may be able to recover the amount you spend through depreciation, amortization, or depletion. Form 1040nr instructions These recovery methods allow you to deduct part of your cost each year. Form 1040nr instructions In this way, you are able to recover your capital expense. Form 1040nr instructions See Amortization (chapter 8) and Depletion (chapter 9) in this publication. Form 1040nr instructions A taxpayer can elect to deduct a portion of the costs of certain depreciable property as a section 179 deduction. Form 1040nr instructions A greater portion of these costs can be deducted if the property is qualified disaster assistance property. Form 1040nr instructions See Publication 946 for details. Form 1040nr instructions Going Into Business The costs of getting started in business, before you actually begin business operations, are capital expenses. Form 1040nr instructions These costs may include expenses for advertising, travel, or wages for training employees. Form 1040nr instructions If you go into business. Form 1040nr instructions   When you go into business, treat all costs you had to get your business started as capital expenses. Form 1040nr instructions   Usually you recover costs for a particular asset through depreciation. Form 1040nr instructions Generally, you cannot recover other costs until you sell the business or otherwise go out of business. Form 1040nr instructions However, you can choose to amortize certain costs for setting up your business. Form 1040nr instructions See Starting a Business in chapter 8 for more information on business start-up costs. Form 1040nr instructions If your attempt to go into business is unsuccessful. Form 1040nr instructions   If you are an individual and your attempt to go into business is not successful, the expenses you had in trying to establish yourself in business fall into two categories. Form 1040nr instructions The costs you had before making a decision to acquire or begin a specific business. Form 1040nr instructions These costs are personal and nondeductible. Form 1040nr instructions They include any costs incurred during a general search for, or preliminary investigation of, a business or investment possibility. Form 1040nr instructions The costs you had in your attempt to acquire or begin a specific business. Form 1040nr instructions These costs are capital expenses and you can deduct them as a capital loss. Form 1040nr instructions   If you are a corporation and your attempt to go into a new trade or business is not successful, you may be able to deduct all investigatory costs as a loss. Form 1040nr instructions   The costs of any assets acquired during your unsuccessful attempt to go into business are a part of your basis in the assets. Form 1040nr instructions You cannot take a deduction for these costs. Form 1040nr instructions You will recover the costs of these assets when you dispose of them. Form 1040nr instructions Business Assets There are many different kinds of business assets; for example, land, buildings, machinery, furniture, trucks, patents, and franchise rights. Form 1040nr instructions You must fully capitalize the cost of these assets, including freight and installation charges. Form 1040nr instructions Certain property you produce for use in your trade or business must be capitalized under the uniform capitalization rules. Form 1040nr instructions See Regulations section 1. Form 1040nr instructions 263A-2 for information on these rules. Form 1040nr instructions Improvements Improvements are generally major expenditures. Form 1040nr instructions Some examples are: new electric wiring, a new roof, a new floor, new plumbing, bricking up windows to strengthen a wall, and lighting improvements. Form 1040nr instructions The costs of making improvements to a business asset are capital expenses if the improvements add to the value of the asset, appreciably lengthen the time you can use it, or adapt it to a different use. Form 1040nr instructions Beginning in 2014, you must capitalize as improvements costs that are for the betterment of a unit of property, restore the unit of property, or adapt the unit of property to a new or different use. Form 1040nr instructions Temporary regulations allow you to capitalize costs meeting the above criteria for tax years beginning after 2011. Form 1040nr instructions However, you can currently deduct repairs that keep your property in a normal efficient operating condition as a business expense. Form 1040nr instructions Treat as repairs amounts paid to replace parts of a machine that only keep it in a normal operating condition. Form 1040nr instructions Restoration plan. Form 1040nr instructions   Capitalize the cost of reconditioning, improving, or altering your property as part of a general restoration plan to make it suitable for your business. Form 1040nr instructions This applies even if some of the work would by itself be classified as repairs. Form 1040nr instructions Capital versus Deductible Expenses To help you distinguish between capital and deductible expenses, different examples are given below. Form 1040nr instructions Motor vehicles. Form 1040nr instructions   You usually capitalize the cost of a motor vehicle you use in your business. Form 1040nr instructions You can recover its cost through annual deductions for depreciation. Form 1040nr instructions   There are dollar limits on the depreciation you can claim each year on passenger automobiles used in your business. Form 1040nr instructions See Publication 463. Form 1040nr instructions   Generally, repairs you make to your business vehicle are currently deductible. Form 1040nr instructions However, amounts you pay to recondition and overhaul a business vehicle are capital expenses and are recovered through depreciation. Form 1040nr instructions Roads and driveways. Form 1040nr instructions    The cost of building a private road on your business property and the cost of replacing a gravel driveway with a concrete one are capital expenses you may be able to depreciate. Form 1040nr instructions The cost of maintaining a private road on your business property is a deductible expense. Form 1040nr instructions Tools. Form 1040nr instructions   Unless the uniform capitalization rules apply, amounts spent for tools used in your business are deductible expenses if the tools have a life expectancy of less than 1 year or their cost is minor. Form 1040nr instructions Machinery parts. Form 1040nr instructions   Unless the uniform capitalization rules apply, the cost of replacing short-lived parts of a machine to keep it in good working condition, but not add to its life, is a deductible expense. Form 1040nr instructions Heating equipment. Form 1040nr instructions   The cost of changing from one heating system to another is a capital expense. Form 1040nr instructions Personal versus Business Expenses Generally, you cannot deduct personal, living, or family expenses. Form 1040nr instructions However, if you have an expense for something that is used partly for business and partly for personal purposes, divide the total cost between the business and personal parts. Form 1040nr instructions You can deduct the business part. Form 1040nr instructions For example, if you borrow money and use 70% of it for business and the other 30% for a family vacation, you generally can deduct 70% of the interest as a business expense. Form 1040nr instructions The remaining 30% is personal interest and generally is not deductible. Form 1040nr instructions See chapter 4 for information on deducting interest and the allocation rules. Form 1040nr instructions Business use of your home. Form 1040nr instructions   If you use part of your home for business, you may be able to deduct expenses for the business use of your home. Form 1040nr instructions These expenses may include mortgage interest, insurance, utilities, repairs, and depreciation. Form 1040nr instructions   To qualify to claim expenses for the business use of your home, you must meet both of the following tests. Form 1040nr instructions The business part of your home must be used exclusively and regularly for your trade or business. Form 1040nr instructions The business part of your home must be: Your principal place of business, or A place where you meet or deal with patients, clients, or customers in the normal course of your trade or business, or A separate structure (not attached to your home) used in connection with your trade or business. Form 1040nr instructions   You generally do not have to meet the exclusive use test for the part of your home that you regularly use either for the storage of inventory or product samples, or as a daycare facility. Form 1040nr instructions   Your home office qualifies as your principal place of business if you meet the following requirements. Form 1040nr instructions You use the office exclusively and regularly for administrative or management activities of your trade or business. Form 1040nr instructions You have no other fixed location where you conduct substantial administrative or management activities of your trade or business. Form 1040nr instructions   If you have more than one business location, determine your principal place of business based on the following factors. Form 1040nr instructions The relative importance of the activities performed at each location. Form 1040nr instructions If the relative importance factor does not determine your principal place of business, consider the time spent at each location. Form 1040nr instructions Optional safe harbor method. Form 1040nr instructions   Beginning in 2013, individual taxpayers can use the optional safe harbor method to determine the amount of deductible expenses attributable to certain business use of a residence during the tax year. Form 1040nr instructions This method is an alternative to the calculation, allocation, and substantiation of actual expenses. Form 1040nr instructions   The deduction under the optional method is limited to $1,500 per year based on $5 a square foot for up to 300 square feet. Form 1040nr instructions Under this method, you claim your allowable mortgage interest, real estate taxes, and casualty losses on the home as itemized deductions on Schedule A (Form 1040). Form 1040nr instructions You are not required to allocate these deductions between personal and business use, as is required under the regular method. Form 1040nr instructions If you use the optional method, you cannot depreciate the portion of your home used in a trade or business. Form 1040nr instructions   Business expenses unrelated to the home, such as advertising, supplies, and wages paid to employees, are still fully deductible. Form 1040nr instructions All of the requirements discussed earlier under Business use of your home still apply. Form 1040nr instructions   For more information on the deduction for business use of your home, including the optional safe harbor method, see Publication 587. Form 1040nr instructions    If you were entitled to deduct depreciation on the part of your home used for business, you cannot exclude the part of the gain from the sale of your home that equals any depreciation you deducted (or could have deducted) for periods after May 6, 1997. Form 1040nr instructions Business use of your car. Form 1040nr instructions   If you use your car exclusively in your business, you can deduct car expenses. Form 1040nr instructions If you use your car for both business and personal purposes, you must divide your expenses based on actual mileage. Form 1040nr instructions Generally, commuting expenses between your home and your business location, within the area of your tax home, are not deductible. Form 1040nr instructions   You can deduct actual car expenses, which include depreciation (or lease payments), gas and oil, tires, repairs, tune-ups, insurance, and registration fees. Form 1040nr instructions Or, instead of figuring the business part of these actual expenses, you may be able to use the standard mileage rate to figure your deduction. Form 1040nr instructions Beginning in 2013, the standard mileage rate is 56. Form 1040nr instructions 5 cents per mile. Form 1040nr instructions   If you are self-employed, you can also deduct the business part of interest on your car loan, state and local personal property tax on the car, parking fees, and tolls, whether or not you claim the standard mileage rate. Form 1040nr instructions   For more information on car expenses and the rules for using the standard mileage rate, see Publication 463. Form 1040nr instructions How Much Can I Deduct? Generally, you can deduct the full amount of a business expense if it meets the criteria of ordinary and necessary and it is not a capital expense. Form 1040nr instructions Recovery of amount deducted (tax benefit rule). Form 1040nr instructions   If you recover part of an expense in the same tax year in which you would have claimed a deduction, reduce your current year expense by the amount of the recovery. Form 1040nr instructions If you have a recovery in a later year, include the recovered amount in income in that year. Form 1040nr instructions However, if part of the deduction for the expense did not reduce your tax, you do not have to include that part of the recovered amount in income. Form 1040nr instructions   For more information on recoveries and the tax benefit rule, see Publication 525. Form 1040nr instructions Payments in kind. Form 1040nr instructions   If you provide services to pay a business expense, the amount you can deduct is limited to your out-of-pocket costs. Form 1040nr instructions You cannot deduct the cost of your own labor. Form 1040nr instructions   Similarly, if you pay a business expense in goods or other property, you can deduct only what the property costs you. Form 1040nr instructions If these costs are included in the cost of goods sold, do not deduct them again as a business expense. Form 1040nr instructions Limits on losses. Form 1040nr instructions   If your deductions for an investment or business activity are more than the income it brings in, you have a loss. Form 1040nr instructions There may be limits on how much of the loss you can deduct. Form 1040nr instructions Not-for-profit limits. Form 1040nr instructions   If you carry on your business activity without the intention of making a profit, you cannot use a loss from it to offset other income. Form 1040nr instructions See Not-for-Profit Activities , later. Form 1040nr instructions At-risk limits. Form 1040nr instructions   Generally, a deductible loss from a trade or business or other income-producing activity is limited to the investment you have “at risk” in the activity. Form 1040nr instructions You are at risk in any activity for the following. Form 1040nr instructions The money and adjusted basis of property you contribute to the activity. Form 1040nr instructions Amounts you borrow for use in the activity if: You are personally liable for repayment, or You pledge property (other than property used in the activity) as security for the loan. Form 1040nr instructions For more information, see Publication 925. Form 1040nr instructions Passive activities. Form 1040nr instructions   Generally, you are in a passive activity if you have a trade or business activity in which you do not materially participate, or a rental activity. Form 1040nr instructions In general, deductions for losses from passive activities only offset income from passive activities. Form 1040nr instructions You cannot use any excess deductions to offset other income. Form 1040nr instructions In addition, passive activity credits can only offset the tax on net passive income. Form 1040nr instructions Any excess loss or credits are carried over to later years. Form 1040nr instructions Suspended passive losses are fully deductible in the year you completely dispose of the activity. Form 1040nr instructions For more information, see Publication 925. Form 1040nr instructions Net operating loss. Form 1040nr instructions   If your deductions are more than your income for the year, you may have a “net operating loss. Form 1040nr instructions ” You can use a net operating loss to lower your taxes in other years. Form 1040nr instructions See Publication 536 for more information. Form 1040nr instructions   See Publication 542 for information about net operating losses of corporations. Form 1040nr instructions When Can I Deduct an Expense? When you can deduct an expense depends on your accounting method. Form 1040nr instructions An accounting method is a set of rules used to determine when and how income and expenses are reported. Form 1040nr instructions The two basic methods are the cash method and the accrual method. Form 1040nr instructions Whichever method you choose must clearly reflect income. Form 1040nr instructions For more information on accounting methods, see Publication 538. Form 1040nr instructions Cash method. Form 1040nr instructions   Under the cash method of accounting, you generally deduct business expenses in the tax year you pay them. Form 1040nr instructions Accrual method. Form 1040nr instructions   Under an accrual method of accounting, you generally deduct business expenses when both of the following apply. Form 1040nr instructions The all-events test has been met. Form 1040nr instructions The test is met when: All events have occurred that fix the fact of liability, and The liability can be determined with reasonable accuracy. Form 1040nr instructions Economic performance has occurred. Form 1040nr instructions Economic performance. Form 1040nr instructions   You generally cannot deduct or capitalize a business expense until economic performance occurs. Form 1040nr instructions If your expense is for property or services provided to you, or for your use of property, economic performance occurs as the property or services are provided, or the property is used. Form 1040nr instructions If your expense is for property or services you provide to others, economic performance occurs as you provide the property or services. Form 1040nr instructions Example. Form 1040nr instructions Your tax year is the calendar year. Form 1040nr instructions In December 2013, the Field Plumbing Company did some repair work at your place of business and sent you a bill for $600. Form 1040nr instructions You paid it by check in January 2014. Form 1040nr instructions If you use the accrual method of accounting, deduct the $600 on your tax return for 2013 because all events have occurred to “fix” the fact of liability (in this case the work was completed), the liability can be determined, and economic performance occurred in that year. Form 1040nr instructions If you use the cash method of accounting, deduct the expense on your 2014 return. Form 1040nr instructions Prepayment. Form 1040nr instructions   You generally cannot deduct expenses in advance, even if you pay them in advance. Form 1040nr instructions This rule applies to both the cash and accrual methods. Form 1040nr instructions It applies to prepaid interest, prepaid insurance premiums, and any other 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. Form 1040nr instructions Example. Form 1040nr instructions In 2013, you sign a 10-year lease and immediately pay your rent for the first 3 years. Form 1040nr instructions Even though you paid the rent for 2013, 2014, and 2015, you can only deduct the rent for 2013 on your 2013 tax return. Form 1040nr instructions You can deduct the rent for 2014 and 2015 on your tax returns for those years. Form 1040nr instructions Contested liability. Form 1040nr instructions   Under the cash method, you can deduct a contested liability only in the year you pay the liability. Form 1040nr instructions Under the accrual method, you can deduct contested liabilities such as taxes (except foreign or U. Form 1040nr instructions S. Form 1040nr instructions possession income, war profits, and excess profits taxes) either in the tax year you pay the liability (or transfer money or other property to satisfy the obligation) or in the tax year you settle the contest. Form 1040nr instructions However, to take the deduction in the year of payment or transfer, you must meet certain conditions. Form 1040nr instructions See Regulations section 1. Form 1040nr instructions 461-2. Form 1040nr instructions Related person. Form 1040nr instructions   Under an accrual method of accounting, you generally deduct expenses when you incur them, even if you have not yet paid them. Form 1040nr instructions However, if you and the person you owe are related and that person uses the cash method of accounting, you must pay the expense before you can deduct it. Form 1040nr instructions Your deduction is allowed when the amount is includible in income by the related cash method payee. Form 1040nr instructions See Related Persons in Publication 538. Form 1040nr instructions Not-for-Profit Activities If you do not carry on your business or investment activity to make a profit, you cannot use a loss from the activity to offset other income. Form 1040nr instructions Activities you do as a hobby, or mainly for sport or recreation, are often not entered into for profit. Form 1040nr instructions The limit on not-for-profit losses applies to individuals, partnerships, estates, trusts, and S corporations. Form 1040nr instructions It does not apply to corporations other than S corporations. Form 1040nr instructions In determining whether you are carrying on an activity for profit, several factors are taken into account. Form 1040nr instructions No one factor alone is decisive. Form 1040nr instructions Among the factors to consider are whether: You carry on the activity in a businesslike manner, The time and effort you put into the activity indicate you intend to make it profitable, You depend on the income for your livelihood, Your losses are due to circumstances beyond your control (or are normal in the start-up phase of your type of business), You change your methods of operation in an attempt to improve profitability, You (or your advisors) have the knowledge needed to carry on the activity as a successful business, You were successful in making a profit in similar activities in the past, The activity makes a profit in some years, and You can expect to make a future profit from the appreciation of the assets used in the activity. Form 1040nr instructions Presumption of profit. Form 1040nr instructions   An activity is presumed carried on for profit if it produced a profit in at least 3 of the last 5 tax years, including the current year. Form 1040nr instructions Activities that consist primarily of breeding, training, showing, or racing horses are presumed carried on for profit if they produced a profit in at least 2 of the last 7 tax years, including the current year. Form 1040nr instructions The activity must be substantially the same for each year within this period. Form 1040nr instructions You have a profit when the gross income from an activity exceeds the deductions. Form 1040nr instructions   If a taxpayer dies before the end of the 5-year (or 7-year) period, the “test” period ends on the date of the taxpayer's death. Form 1040nr instructions   If your business or investment activity passes this 3- (or 2-) years-of-profit test, the IRS will presume it is carried on for profit. Form 1040nr instructions This means the limits discussed here will not apply. Form 1040nr instructions You can take all your business deductions from the activity, even for the years that you have a loss. Form 1040nr instructions You can rely on this presumption unless the IRS later shows it to be invalid. Form 1040nr instructions Using the presumption later. Form 1040nr instructions   If you are starting an activity and do not have 3 (or 2) years showing a profit, you can elect to have the presumption made after you have the 5 (or 7) years of experience allowed by the test. Form 1040nr instructions   You can elect to do this by filing Form 5213. Form 1040nr instructions Filing this form postpones any determination that your activity is not carried on for profit until 5 (or 7) years have passed since you started the activity. Form 1040nr instructions   The benefit gained by making this election is that the IRS will not immediately question whether your activity is engaged in for profit. Form 1040nr instructions Accordingly, it will not restrict your deductions. Form 1040nr instructions Rather, you will gain time to earn a profit in the required number of years. Form 1040nr instructions If you show 3 (or 2) years of profit at the end of this period, your deductions are not limited under these rules. Form 1040nr instructions If you do not have 3 (or 2) years of profit, the limit can be applied retroactively to any year with a loss in the 5-year (or 7-year) period. Form 1040nr instructions   Filing Form 5213 automatically extends the period of limitations on any year in the 5-year (or 7-year) period to 2 years after the due date of the return for the last year of the period. Form 1040nr instructions The period is extended only for deductions of the activity and any related deductions that might be affected. Form 1040nr instructions    You must file Form 5213 within 3 years after the due date of your return (determined without extensions) for the year in which you first carried on the activity, or, if earlier, within 60 days after receiving written notice from the Internal Revenue Service proposing to disallow deductions attributable to the activity. Form 1040nr instructions Gross Income Gross income from a not-for-profit activity includes the total of all gains from the sale, exchange, or other disposition of property, and all other gross receipts derived from the activity. Form 1040nr instructions Gross income from the activity also includes capital gains and rents received for the use of property which is held in connection with the activity. Form 1040nr instructions You can determine gross income from any not-for-profit activity by subtracting the cost of goods sold from your gross receipts. Form 1040nr instructions However, if you determine gross income by subtracting cost of goods sold from gross receipts, you must do so consistently, and in a manner that follows generally accepted methods of accounting. Form 1040nr instructions Limit on Deductions If your activity is not carried on for profit, take deductions in the following order and only to the extent stated in the three categories. Form 1040nr instructions If you are an individual, these deductions may be taken only if you itemize. Form 1040nr instructions These deductions may be taken on Schedule A (Form 1040). Form 1040nr instructions Category 1. Form 1040nr instructions   Deductions you can take for personal as well as for business activities are allowed in full. Form 1040nr instructions For individuals, all nonbusiness deductions, such as those for home mortgage interest, taxes, and casualty losses, belong in this category. Form 1040nr instructions Deduct them on the appropriate lines of Schedule A (Form 1040). Form 1040nr instructions For tax years beginning after December 31, 2008, you can deduct a casualty loss on property you own for personal use only to the extent it is more than $500 and exceeds 10% of your adjusted gross income (AGI). Form 1040nr instructions The 10% AGI limitation does not apply to net disaster losses resulting from federally declared disasters in 2008 and 2009, and individuals are allowed to claim the net disaster losses even if they do not itemize their deductions. Form 1040nr instructions The reduction amount returns to $100 for tax years beginning after December 31, 2009. Form 1040nr instructions See Publication 547 for more information on casualty losses. Form 1040nr instructions For the limits that apply to home mortgage interest, see Publication 936. Form 1040nr instructions Category 2. Form 1040nr instructions   Deductions that do not result in an adjustment to the basis of property are allowed next, but only to the extent your gross income from the activity is more than your deductions under the first category. Form 1040nr instructions Most business deductions, such as those for advertising, insurance premiums, interest, utilities, and wages, belong in this category. Form 1040nr instructions Category 3. Form 1040nr instructions   Business deductions that decrease the basis of property are allowed last, but only to the extent the gross income from the activity exceeds the deductions you take under the first two categories. Form 1040nr instructions Deductions for depreciation, amortization, and the part of a casualty loss an individual could not deduct in category (1) belong in this category. Form 1040nr instructions Where more than one asset is involved, allocate depreciation and these other deductions proportionally. Form 1040nr instructions    Individuals must claim the amounts in categories (2) and (3) as miscellaneous deductions on Schedule A (Form 1040). Form 1040nr instructions They are subject to the 2%-of-adjusted-gross-income limit. Form 1040nr instructions See Publication 529 for information on this limit. Form 1040nr instructions Example. Form 1040nr instructions Adriana is engaged in a not-for-profit activity. Form 1040nr instructions The income and expenses of the activity are as follows. Form 1040nr instructions Gross income $3,200 Subtract:     Real estate taxes $700   Home mortgage interest 900   Insurance 400   Utilities 700   Maintenance 200   Depreciation on an automobile 600   Depreciation on a machine 200 3,700 Loss $(500)   Adriana must limit her deductions to $3,200, the gross income she earned from the activity. Form 1040nr instructions The limit is reached in category (3), as follows. Form 1040nr instructions Limit on deduction $3,200 Category 1: Taxes and interest $1,600   Category 2: Insurance, utilities, and maintenance 1,300 2,900 Available for Category 3 $ 300   The $800 of depreciation is allocated between the automobile and machine as follows. Form 1040nr instructions $600 $800 x $300 = $225 depreciation for the automobile             $200 $800 x $300 = $75 depreciation for the machine The basis of each asset is reduced accordingly. Form 1040nr instructions Adriana includes the $3,200 of gross income on line 21 (other income) of Form 1040. Form 1040nr instructions The $1,600 for category (1) is deductible in full on the appropriate lines for taxes and interest on Schedule A (Form 1040). Form 1040nr instructions Adriana deducts the remaining $1,600 ($1,300 for category (2) and $300 for category (3)) as other miscellaneous deductions on Schedule A (Form 1040) subject to the 2%-of-adjusted-gross-income limit. Form 1040nr instructions Partnerships and S corporations. Form 1040nr instructions   If a partnership or S corporation carries on a not-for-profit activity, these limits apply at the partnership or S corporation level. Form 1040nr instructions They are reflected in the individual shareholder's or partner's distributive shares. Form 1040nr instructions More than one activity. Form 1040nr instructions   If you have several undertakings, each may be a separate activity or several undertakings may be combined. Form 1040nr instructions The following are the most significant facts and circumstances in making this determination. Form 1040nr instructions The degree of organizational and economic interrelationship of various undertakings. Form 1040nr instructions The business purpose that is (or might be) served by carrying on the various undertakings separately or together in a business or investment setting. Form 1040nr instructions The similarity of the undertakings. Form 1040nr instructions   The IRS will generally accept your characterization if it is supported by facts and circumstances. Form 1040nr instructions    If you are carrying on two or more different activities, keep the deductions and income from each one separate. Form 1040nr instructions Figure separately whether each is a not-for-profit activity. Form 1040nr instructions Then figure the limit on deductions and losses separately for each activity that is not for profit. Form 1040nr instructions Prev  Up  Next   Home   More Online Publications