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Hrblock freefile 7. Hrblock freefile   Costs You Can Deduct or Capitalize Table of Contents What's New Introduction Topics - This chapter discusses: Useful Items - You may want to see: Carrying Charges Research and Experimental CostsProduct. Hrblock freefile Costs not included. Hrblock freefile Intangible Drilling Costs Exploration CostsPartnerships and S corporations. Hrblock freefile Development Costs Circulation Costs Business Start-Up and Organizational Costs Reforestation Costs Retired Asset Removal Costs Barrier Removal CostsOther barrier removals. Hrblock freefile Film and Television Production Costs What's New Film and television productions costs. Hrblock freefile  The election to expense film and television production costs does not apply to productions that begin after December 31, 2013. Hrblock freefile See Film and Television Production Costs , later. Hrblock freefile Introduction This chapter discusses costs you can elect to deduct or capitalize. Hrblock freefile You generally deduct a cost as a current business expense by subtracting it from your income in either the year you incur it or the year you pay it. Hrblock freefile If you capitalize a cost, you may be able to recover it over a period of years through periodic deductions for amortization, depletion, or depreciation. Hrblock freefile When you capitalize a cost, you add it to the basis of property to which it relates. Hrblock freefile A partnership, corporation, estate, or trust makes the election to deduct or capitalize the costs discussed in this chapter except for exploration costs for mineral deposits. Hrblock freefile Each individual partner, shareholder, or beneficiary elects whether to deduct or capitalize exploration costs. Hrblock freefile You may be subject to the alternative minimum tax (AMT) if you deduct research and experimental, intangible drilling, exploration, development, circulation, or business organizational costs. Hrblock freefile For more information on the alternative minimum tax, see the instructions for the following forms. Hrblock freefile Form 6251, Alternative Minimum Tax—Individuals. Hrblock freefile Form 4626, Alternative Minimum Tax—Corporations. Hrblock freefile Topics - This chapter discusses: Carrying charges Research and experimental costs Intangible drilling costs Exploration costs Development costs Circulation costs Qualified disaster expenses Business start-up and organizational costs Reforestation costs Retired asset removal costs Barrier removal costs Film and television production costs Useful Items - You may want to see: Publication 544 Sales and Other Dispositions of Assets Form (and Instructions) 3468 Investment Credit 8826 Disabled Access Credit See chapter 12 for information about getting publications and forms. Hrblock freefile Carrying Charges Carrying charges include the taxes and interest you pay to carry or develop real property or to carry, transport, or install personal property. Hrblock freefile Certain carrying charges must be capitalized under the uniform capitalization rules. Hrblock freefile (For information on capitalization of interest, see chapter 4 . Hrblock freefile ) You can elect to capitalize carrying charges not subject to the uniform capitalization rules, but only if they are otherwise deductible. Hrblock freefile You can elect to capitalize carrying charges separately for each project you have and for each type of carrying charge. Hrblock freefile For unimproved and unproductive real property, your election is good for only 1 year. Hrblock freefile You must decide whether to capitalize carrying charges each year the property remains unimproved and unproductive. Hrblock freefile For other real property, your election to capitalize carrying charges remains in effect until construction or development is completed. Hrblock freefile For personal property, your election is effective until the date you install or first use it, whichever is later. Hrblock freefile How to make the election. Hrblock freefile   To make the election to capitalize a carrying charge, attach a statement to your original tax return for the year the election is to be effective indicating which charges you are electing to capitalize. Hrblock freefile However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Hrblock freefile Attach the statement to the amended return and write “Filed pursuant to section 301. Hrblock freefile 9100-2” on the statement. Hrblock freefile File the amended return at the same address you filed the original return. Hrblock freefile Research and Experimental Costs The costs of research and experimentation are generally capital expenses. Hrblock freefile However, you can elect to deduct these costs as a current business expense. Hrblock freefile Your election to deduct these costs is binding for the year it is made and for all later years unless you get IRS approval to make a change. Hrblock freefile If you meet certain requirements, you may elect to defer and amortize research and experimental costs. Hrblock freefile For information on electing to defer and amortize these costs, see Research and Experimental Costs in chapter 8. Hrblock freefile Research and experimental costs defined. Hrblock freefile   Research and experimental costs are reasonable costs you incur in your trade or business for activities intended to provide information that would eliminate uncertainty about the development or improvement of a product. Hrblock freefile Uncertainty exists if the information available to you does not establish how to develop or improve a product or the appropriate design of a product. Hrblock freefile Whether costs qualify as research and experimental costs depends on the nature of the activity to which the costs relate rather than on the nature of the product or improvement being developed or the level of technological advancement. Hrblock freefile      The costs of obtaining a patent, including attorneys' fees paid or incurred in making and perfecting a patent application, are research and experimental costs. Hrblock freefile However, costs paid or incurred to obtain another's patent are not research and experimental costs. Hrblock freefile Product. Hrblock freefile   The term “product” includes any of the following items. Hrblock freefile Formula. Hrblock freefile Invention. Hrblock freefile Patent. Hrblock freefile Pilot model. Hrblock freefile Process. Hrblock freefile Technique. Hrblock freefile Property similar to the items listed above. Hrblock freefile It also includes products used by you in your trade or business or held for sale, lease, or license. Hrblock freefile Costs not included. Hrblock freefile   Research and experimental costs do not include expenses for any of the following activities. Hrblock freefile Advertising or promotions. Hrblock freefile Consumer surveys. Hrblock freefile Efficiency surveys. Hrblock freefile Management studies. Hrblock freefile Quality control testing. Hrblock freefile Research in connection with literary, historical, or similar projects. Hrblock freefile The acquisition of another's patent, model, production, or process. Hrblock freefile When and how to elect. Hrblock freefile   You make the election to deduct research and experimental costs by deducting them on your tax return for the year in which you first pay or incur research and experimental costs. Hrblock freefile If you do not make the election to deduct research and experimental costs in the first year in which you pay or incur the costs, you can deduct the costs in a later year only with approval from the IRS. Hrblock freefile Deducting or Amortizing Research and Experimentation Costs IF you . Hrblock freefile . Hrblock freefile . Hrblock freefile THEN . Hrblock freefile . Hrblock freefile . Hrblock freefile Elect to deduct research and experimental costs as a current business expense Deduct all research and experimental costs in the first year you pay or incur the costs and all later years. Hrblock freefile Do not deduct research and experimental costs as a current business expense If you meet the requirements, amortize them over at least 60 months, starting with the month you first receive an economic benefit from the research. Hrblock freefile See Research and Experimental Costs in chapter 8. Hrblock freefile Research credit. Hrblock freefile   If you pay or incur qualified research expenses, you may be able to take the research credit. Hrblock freefile For more information see Form 6765, Credit for Increasing Research Activities and its instructions. Hrblock freefile Intangible Drilling Costs The costs of developing oil, gas, or geothermal wells are ordinarily capital expenditures. Hrblock freefile You can usually recover them through depreciation or depletion. Hrblock freefile However, you can elect to deduct intangible drilling costs (IDCs) as a current business expense. Hrblock freefile These are certain drilling and development costs for wells in the United States in which you hold an operating or working interest. Hrblock freefile You can deduct only costs for drilling or preparing a well for the production of oil, gas, or geothermal steam or hot water. Hrblock freefile You can elect to deduct only the costs of items with no salvage value. Hrblock freefile These include wages, fuel, repairs, hauling, and supplies related to drilling wells and preparing them for production. Hrblock freefile Your cost for any drilling or development work done by contractors under any form of contract is also an IDC. Hrblock freefile However, see Amounts paid to contractor that must be capitalized , later. Hrblock freefile You can also elect to deduct the cost of drilling exploratory bore holes to determine the location and delineation of offshore hydrocarbon deposits if the shaft is capable of conducting hydrocarbons to the surface on completion. Hrblock freefile It does not matter whether there is any intent to produce hydrocarbons. Hrblock freefile If you do not elect to deduct your IDCs as a current business expense, you can elect to deduct them over the 60-month period beginning with the month they were paid or incurred. Hrblock freefile Amounts paid to contractor that must be capitalized. Hrblock freefile   Amounts paid to a contractor must be capitalized if they are either: Amounts properly allocable to the cost of depreciable property, or Amounts paid only out of production or proceeds from production if these amounts are depletable income to the recipient. Hrblock freefile How to make the election. Hrblock freefile   You elect to deduct IDCs as a current business expense by taking the deduction on your income tax return for the first tax year you have eligible costs. Hrblock freefile No formal statement is required. Hrblock freefile If you file Schedule C (Form 1040), enter these costs under “Other expenses. Hrblock freefile ”   For oil and gas wells, your election is binding for the year it is made and for all later years. Hrblock freefile For geothermal wells, your election can be revoked by the filing of an amended return on which you do not take the deduction. Hrblock freefile You can file the amended return for the year up to the normal time of expiration for filing a claim for credit or refund, generally, within 3 years after the date you filed the original return or within 2 years after the date you paid the tax, whichever is later. Hrblock freefile Energy credit for costs of geothermal wells. Hrblock freefile   If you capitalize the drilling and development costs of geothermal wells that you place in service during the tax year, you may be able to claim a business energy credit. Hrblock freefile See the Instructions for Form 3468 for more information. Hrblock freefile Nonproductive well. Hrblock freefile   If you capitalize your IDCs, you have another option if the well is nonproductive. Hrblock freefile You can deduct the IDCs of the nonproductive well as an ordinary loss. Hrblock freefile You must indicate and clearly state your election on your tax return for the year the well is completed. Hrblock freefile Once made, the election for oil and gas wells is binding for all later years. Hrblock freefile You can revoke your election for a geothermal well by filing an amended return that does not claim the loss. Hrblock freefile Costs incurred outside the United States. Hrblock freefile   You cannot deduct as a current business expense all the IDCs paid or incurred for an oil, gas, or geothermal well located outside the United States. Hrblock freefile However, you can elect to include the costs in the adjusted basis of the well to figure depletion or depreciation. Hrblock freefile If you do not make this election, you can deduct the costs over the 10-year period beginning with the tax year in which you paid or incurred them. Hrblock freefile These rules do not apply to a nonproductive well. Hrblock freefile Exploration Costs The costs of determining the existence, location, extent, or quality of any mineral deposit are ordinarily capital expenditures if the costs lead to the development of a mine. Hrblock freefile You recover these costs through depletion as the mineral is removed from the ground. Hrblock freefile However, you can elect to deduct domestic exploration costs paid or incurred before the beginning of the development stage of the mine (except those for oil and gas wells). Hrblock freefile How to make the election. Hrblock freefile   You elect to deduct exploration costs by taking the deduction on your income tax return, or on an amended income tax return, for the first tax year for which you wish to deduct the costs paid or incurred during the tax year. Hrblock freefile Your return must adequately describe and identify each property or mine, and clearly state how much is being deducted for each one. Hrblock freefile The election applies to the tax year you make this election and all later tax years. Hrblock freefile Partnerships and S corporations. Hrblock freefile   Each partner, not the partnership, elects whether to capitalize or to deduct that partner's share of exploration costs. Hrblock freefile Each shareholder, not the S corporation, elects whether to capitalize or to deduct that shareholder's share of exploration costs. Hrblock freefile Reduced corporate deductions for exploration costs. Hrblock freefile   A corporation (other than an S corporation) can deduct only 70% of its domestic exploration costs. Hrblock freefile It must capitalize the remaining 30% of costs and amortize them over the 60-month period starting with the month the exploration costs are paid or incurred. Hrblock freefile A corporation may also elect to capitalize and amortize mining exploration costs over a 10-year period. Hrblock freefile For more information on this method of amortization, see Internal Revenue Code section 59(e). Hrblock freefile   The 30% the corporation capitalizes cannot be added to its basis in the property to figure cost depletion. Hrblock freefile However, the amount amortized is treated as additional depreciation and is subject to recapture as ordinary income on a disposition of the property. Hrblock freefile See Section 1250 Property under Depreciation Recapture in chapter 3 of Publication 544. Hrblock freefile   These rules also apply to the deduction of development costs by corporations. Hrblock freefile See Development Costs , later. Hrblock freefile Recapture of exploration expenses. Hrblock freefile   When your mine reaches the producing stage, you must recapture any exploration costs you elected to deduct. Hrblock freefile Use either of the following methods. Hrblock freefile Method 1—Include the deducted costs in gross income for the tax year the mine reaches the producing stage. Hrblock freefile Your election must be clearly indicated on the return. Hrblock freefile Increase your adjusted basis in the mine by the amount included in income. Hrblock freefile Generally, you must elect this recapture method by the due date (including extensions) of your return. Hrblock freefile However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Hrblock freefile Make the election on your amended return and write “Filed pursuant to section 301. Hrblock freefile 9100-2” on the form where you are including the income. Hrblock freefile File the amended return at the same address you filed the original return. Hrblock freefile Method 2—Do not claim any depletion deduction for the tax year the mine reaches the producing stage and any later tax years until the depletion you would have deducted equals the exploration costs you deducted. Hrblock freefile   You also must recapture deducted exploration costs if you receive a bonus or royalty from mine property before it reaches the producing stage. Hrblock freefile Do not claim any depletion deduction for the tax year you receive the bonus or royalty and any later tax years until the depletion you would have deducted equals the exploration costs you deducted. Hrblock freefile   Generally, if you dispose of the mine before you have fully recaptured the exploration costs you deducted, recapture the balance by treating all or part of your gain as ordinary income. Hrblock freefile Under these circumstances, you generally treat as ordinary income all of your gain if it is less than your adjusted exploration costs with respect to the mine. Hrblock freefile If your gain is more than your adjusted exploration costs, treat as ordinary income only a part of your gain, up to the amount of your adjusted exploration costs. Hrblock freefile Foreign exploration costs. Hrblock freefile   If you pay or incur exploration costs for a mine or other natural deposit located outside the United States, you cannot deduct all the costs in the current year. Hrblock freefile You can elect to include the costs (other than for an oil, gas, or geothermal well) in the adjusted basis of the mineral property to figure cost depletion. Hrblock freefile (Cost depletion is discussed in chapter 9 . Hrblock freefile ) If you do not make this election, you must deduct the costs over the 10-year period beginning with the tax year in which you pay or incur them. Hrblock freefile These rules also apply to foreign development costs. Hrblock freefile Development Costs You can deduct costs paid or incurred during the tax year for developing a mine or any other natural deposit (other than an oil or gas well) located in the United States. Hrblock freefile These costs must be paid or incurred after the discovery of ores or minerals in commercially marketable quantities. Hrblock freefile Development costs also include depreciation on improvements used in the development of ores or minerals and costs incurred for you by a contractor. Hrblock freefile Development costs do not include the costs for the acquisition or improvement of depreciable property. Hrblock freefile Instead of deducting development costs in the year paid or incurred, you can elect to treat the cost as deferred expenses and deduct them ratably as the units of produced ores or minerals benefited by the expenses are sold. Hrblock freefile This election applies each tax year to expenses paid or incurred in that year. Hrblock freefile Once made, the election is binding for the year and cannot be revoked for any reason. Hrblock freefile How to make the election. Hrblock freefile   The election to deduct development costs ratably as the ores or minerals are sold must be made for each mine or other natural deposit by a clear indication on your return or by a statement filed with the IRS office where you file your return. Hrblock freefile Generally, you must make the election by the due date of the return (including extensions). Hrblock freefile However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Hrblock freefile Clearly indicate the election on your amended return and write “Filed pursuant to section 301. Hrblock freefile 9100-2. Hrblock freefile ” File the amended return at the same address you filed the original return. Hrblock freefile Foreign development costs. Hrblock freefile   The rules discussed earlier for foreign exploration costs apply to foreign development costs. Hrblock freefile Reduced corporate deductions for development costs. Hrblock freefile   The rules discussed earlier for reduced corporate deductions for exploration costs also apply to corporate deductions for development costs. Hrblock freefile Circulation Costs A publisher can deduct as a current business expense the costs of establishing, maintaining, or increasing the circulation of a newspaper, magazine, or other periodical. Hrblock freefile For example, a publisher can deduct the cost of hiring extra employees for a limited time to get new subscriptions through telephone calls. Hrblock freefile Circulation costs are deductible even if they normally would be capitalized. Hrblock freefile This rule does not apply to the following costs that must be capitalized. Hrblock freefile The purchase of land or depreciable property. Hrblock freefile The acquisition of circulation through the purchase of any part of the business of another publisher of a newspaper, magazine, or other periodical, including the purchase of another publisher's list of subscribers. Hrblock freefile Other treatment of circulation costs. Hrblock freefile   If you do not want to deduct circulation costs as a current business expense, you can elect one of the following ways to recover these costs. Hrblock freefile Capitalize all circulation costs that are properly chargeable to a capital account (see chapter 1 ). Hrblock freefile Amortize circulation costs over the 3-year period beginning with the tax year they were paid or incurred. Hrblock freefile How to make the election. Hrblock freefile   You elect to capitalize circulation costs by attaching a statement to your return for the first tax year the election applies. Hrblock freefile Your election is binding for the year it is made and for all later years, unless you get IRS approval to revoke it. Hrblock freefile Business Start-Up and Organizational Costs Business start-up and organizational costs are generally capital expenditures. Hrblock freefile However, you can elect to deduct up to $5,000 of business start-up and $5,000 of organizational costs paid or incurred after October 22, 2004. Hrblock freefile The $5,000 deduction is reduced by the amount your total start-up or organizational costs exceed $50,000. Hrblock freefile Any remaining costs must be amortized. Hrblock freefile For information about amortizing start-up and organizational costs, see chapter 8 . Hrblock freefile Start-up costs include any amounts paid or incurred in connection with creating an active trade or business or investigating the creation or acquisition of an active trade or business. Hrblock freefile Organizational costs include the costs of creating a corporation. Hrblock freefile For more information on start-up and organizational costs, see chapter 8 . Hrblock freefile How to make the election. Hrblock freefile   You elect to deduct the start-up or organizational costs by claiming the deduction on your income tax return (filed by the due date including extensions) for the tax year in which the active trade or business begins. Hrblock freefile However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Hrblock freefile Clearly indicate the election on your amended return and write “Filed pursuant to section 301. Hrblock freefile 9100-2. Hrblock freefile ” File the amended return at the same address you filed the original return. Hrblock freefile The election applies when computing taxable income for the current tax year and all subsequent years. Hrblock freefile Reforestation Costs Reforestation costs are generally capital expenditures. Hrblock freefile However, you can elect to deduct up to $10,000 ($5,000 if married filing separately; $0 for a trust) of qualifying reforestation costs paid or incurred after October 22, 2004, for each qualified timber property. Hrblock freefile The remaining costs can be amortized over an 84-month period. Hrblock freefile For information about amortizing reforestation costs, see chapter 8 . Hrblock freefile Qualifying reforestation costs are the direct costs of planting or seeding for forestation or reforestation. Hrblock freefile Qualified timber property is property that contains trees in significant commercial quantities. Hrblock freefile See chapter 8 for more information on qualifying reforestation costs and qualified timber property. Hrblock freefile If you elect to deduct qualified reforestation costs, create and maintain separate timber accounts for each qualified timber property and include all reforestation costs and the dates each was applied. Hrblock freefile Do not include this qualified timber property in any account (for example, depletion block) for which depletion is allowed. Hrblock freefile How to make the election. Hrblock freefile   You elect to deduct qualifying reforestation costs by claiming the deduction on your timely filed income tax return (including extensions) for the tax year the expenses were paid or incurred. Hrblock freefile If Form T (Timber), Forest Activities Schedule, is required, complete Part IV of Form T. Hrblock freefile If Form T is not required, attach a statement containing the following information for each qualified timber property for which an election is being made. Hrblock freefile The unique stand identification numbers. Hrblock freefile The total number of acres reforested during the tax year. Hrblock freefile The nature of the reforestation treatments. Hrblock freefile The total amounts of qualified reforestation expenditures eligible to be amortized or deducted. Hrblock freefile   If you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Hrblock freefile Clearly indicate the election on your amended return and write “Filed pursuant to section 301. Hrblock freefile 9100-2. Hrblock freefile ” File the amended return at the same address you filed the original return. Hrblock freefile The election applies when computing taxable income for the current tax year and all subsequent years. Hrblock freefile   For additional information on reforestation costs, see chapter 8 . Hrblock freefile Recapture. Hrblock freefile   This deduction may have to be recaptured as ordinary income under section 1245 when you sell or otherwise dispose of the property that would have received an addition to basis if you had not elected to deduct the expenditure. Hrblock freefile For more information on recapturing the deduction, see Depreciation Recapture in Publication 544. Hrblock freefile Retired Asset Removal Costs If you retire and remove a depreciable asset in connection with the installation or production of a replacement asset, you can deduct the costs of removing the retired asset. Hrblock freefile However, if you replace a component (part) of a depreciable asset, capitalize the removal costs if the replacement is an improvement and deduct the costs if the replacement is a repair. Hrblock freefile Barrier Removal Costs The cost of an improvement to a business asset is normally a capital expense. Hrblock freefile However, you can elect to deduct the costs of making a facility or public transportation vehicle more accessible to and usable by those who are disabled or elderly. Hrblock freefile You must own or lease the facility or vehicle for use in connection with your trade or business. Hrblock freefile A facility is all or any part of buildings, structures, equipment, roads, walks, parking lots, or similar real or personal property. Hrblock freefile A public transportation vehicle is a vehicle, such as a bus or railroad car, that provides transportation service to the public (including service for your customers, even if you are not in the business of providing transportation services). Hrblock freefile You cannot deduct any costs that you paid or incurred to completely renovate or build a facility or public transportation vehicle or to replace depreciable property in the normal course of business. Hrblock freefile Deduction limit. Hrblock freefile   The most you can deduct as a cost of removing barriers to the disabled and the elderly for any tax year is $15,000. Hrblock freefile However, you can add any costs over this limit to the basis of the property and depreciate these excess costs. Hrblock freefile Partners and partnerships. Hrblock freefile   The $15,000 limit applies to a partnership and also to each partner in the partnership. Hrblock freefile A partner can allocate the $15,000 limit in any manner among the partner's individually incurred costs and the partner's distributive share of partnership costs. Hrblock freefile If the partner cannot deduct the entire share of partnership costs, the partnership can add any costs not deducted to the basis of the improved property. Hrblock freefile   A partnership must be able to show that any amount added to basis was not deducted by the partner and that it was over a partner's $15,000 limit (as determined by the partner). Hrblock freefile If the partnership cannot show this, it is presumed that the partner was able to deduct the distributive share of the partnership's costs in full. Hrblock freefile Example. Hrblock freefile Emilio Azul's distributive share of ABC partnership's deductible expenses for the removal of architectural barriers was $14,000. Hrblock freefile Emilio had $12,000 of similar expenses in his sole proprietorship. Hrblock freefile He elected to deduct $7,000 of them. Hrblock freefile Emilio allocated the remaining $8,000 of the $15,000 limit to his share of ABC's expenses. Hrblock freefile Emilio can add the excess $5,000 of his own expenses to the basis of the property used in his business. Hrblock freefile Also, if ABC can show that Emilio could not deduct $6,000 ($14,000 – $8,000) of his share of the partnership's expenses because of how Emilio applied the limit, ABC can add $6,000 to the basis of its property. Hrblock freefile Qualification standards. Hrblock freefile   You can deduct your costs as a current expense only if the barrier removal meets the guidelines and requirements issued by the Architectural and Transportation Barriers Compliance Board under the Americans with Disabilities Act (ADA) of 1990. Hrblock freefile You can view the Americans with Disabilities Act at www. Hrblock freefile ada. Hrblock freefile gov/pubs/ada. Hrblock freefile htm. Hrblock freefile   The following is a list of some architectural barrier removal costs that can be deducted. Hrblock freefile Ground and floor surfaces. Hrblock freefile Walks. Hrblock freefile Parking lots. Hrblock freefile Ramps. Hrblock freefile Entrances. Hrblock freefile Doors and doorways. Hrblock freefile Stairs. Hrblock freefile Floors. Hrblock freefile Toilet rooms. Hrblock freefile Water fountains. Hrblock freefile Public telephones. Hrblock freefile Elevators. Hrblock freefile Controls. Hrblock freefile Signage. Hrblock freefile Alarms. Hrblock freefile Protruding objects. Hrblock freefile Symbols of accessibility. Hrblock freefile You can find the ADA guidelines and requirements for architectural barrier removal at www. Hrblock freefile usdoj. Hrblock freefile gov/crt/ada/reg3a. Hrblock freefile html. Hrblock freefile   The costs for removal of transportation barriers from rail facilities, buses, and rapid and light rail vehicles are deductible. Hrblock freefile You can find the guidelines and requirements for transportation barrier removal at www. Hrblock freefile fta. Hrblock freefile dot. Hrblock freefile gov. Hrblock freefile   Also, you can access the ADA website at www. Hrblock freefile ada. Hrblock freefile gov for additional information. Hrblock freefile Other barrier removals. Hrblock freefile   To be deductible, expenses of removing any barrier not covered by the above standards must meet all three of the following tests. Hrblock freefile The removed barrier must be a substantial barrier to access or use of a facility or public transportation vehicle by persons who have a disability or are elderly. Hrblock freefile The removed barrier must have been a barrier for at least one major group of persons who have a disability or are elderly (such as people who are blind, deaf, or wheelchair users). Hrblock freefile The barrier must be removed without creating any new barrier that significantly impairs access to or use of the facility or vehicle by a major group of persons who have a disability or are elderly. Hrblock freefile How to make the election. Hrblock freefile   If you elect to deduct your costs for removing barriers to the disabled or the elderly, claim the deduction on your income tax return (partnership return for partnerships) for the tax year the expenses were paid or incurred. Hrblock freefile Identify the deduction as a separate item. Hrblock freefile The election applies to all the qualifying costs you have during the year, up to the $15,000 limit. Hrblock freefile If you make this election, you must maintain adequate records to support your deduction. Hrblock freefile   For your election to be valid, you generally must file your return by its due date, including extensions. Hrblock freefile However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Hrblock freefile Clearly indicate the election on your amended return and write “Filed pursuant to section 301. Hrblock freefile 9100-2. Hrblock freefile ” File the amended return at the same address you filed the original return. Hrblock freefile Your election is irrevocable after the due date, including extensions, of your return. Hrblock freefile Disabled access credit. Hrblock freefile   If you make your business accessible to persons with disabilities and your business is an eligible small business, you may be able to claim the disabled access credit. Hrblock freefile If you choose to claim the credit, you must reduce the amount you deduct or capitalize by the amount of the credit. Hrblock freefile   For more information, see Form 8826, Disabled Access Credit. Hrblock freefile Film and Television Production Costs Film and television production costs are generally capital expenses. Hrblock freefile However, you can elect to deduct costs paid or incurred for certain productions commencing before January 1, 2014. Hrblock freefile For more information, see section 181 of the Internal Revenue Code and the related Treasury Regulations. Hrblock freefile Prev  Up  Next   Home   More Online Publications
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Hrblock freefile 3. Hrblock freefile   Reporting Rental Income, Expenses, and Losses Table of Contents Which Forms To UseSchedule E (Form 1040) Schedule C (Form 1040), Profit or Loss From Business Qualified Joint Venture Limits on Rental LossesAt-Risk Rules Passive Activity Limits Casualties and Thefts Example Figuring the net income or loss for a residential rental activity may involve more than just listing the income and deductions on Schedule E (Form 1040). Hrblock freefile There are activities which do not qualify to use Schedule E, such as when the activity is not engaged in to make a profit or when you provide substantial services in conjunction with the property. Hrblock freefile There are also the limitations which may need to be applied if you have a net loss on Schedule E. Hrblock freefile There are two: (1) the limitation based on the amount of investment you have at risk in your rental activity, and (2) the special limits imposed on passive activities. Hrblock freefile You may also have a gain or loss related to your rental property from a casualty or theft. Hrblock freefile This is considered separately from the income and expense information you report on Schedule E. Hrblock freefile Which Forms To Use The basic form for reporting residential rental income and expenses is Schedule E (Form 1040). Hrblock freefile However, do not use that schedule to report a not-for-profit activity. Hrblock freefile See Not Rented for Profit , in chapter 4. Hrblock freefile There are also other rental situations in which forms other than Schedule E would be used. Hrblock freefile Schedule E (Form 1040) If you rent buildings, rooms, or apartments, and provide basic services such as heat and light, trash collection, etc. Hrblock freefile , you normally report your rental income and expenses on Schedule E, Part I. Hrblock freefile List your total income, expenses, and depreciation for each rental property. Hrblock freefile Be sure to enter the number of fair rental and personal use days on line 2. Hrblock freefile If you have more than three rental or royalty properties, complete and attach as many Schedules E as are needed to list the properties. Hrblock freefile Complete lines 1 and 2 for each property. Hrblock freefile However, fill in lines 23a through 26 on only one Schedule E. Hrblock freefile On Schedule E, page 1, line 18, enter the depreciation you are claiming for each property. Hrblock freefile To find out if you need to attach Form 4562, see Form 4562 , later. Hrblock freefile If you have a loss from your rental real estate activity, you also may need to complete one or both of the following forms. Hrblock freefile Form 6198, At-Risk Limitations. Hrblock freefile See At-Risk Rules , later. Hrblock freefile Also see Publication 925. Hrblock freefile Form 8582, Passive Activity Loss Limitations. Hrblock freefile See Passive Activity Limits , later. Hrblock freefile Page 2 of Schedule E is used to report income or loss from partnerships, S corporations, estates, trusts, and real estate mortgage investment conduits. Hrblock freefile 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. Hrblock freefile Also, include the amount from line 26 (Part I) in the “Total income or (loss)” on line 41 (Part V). Hrblock freefile Form 4562. Hrblock freefile   You must complete and attach Form 4562 for rental activities only if you are claiming: Depreciation, including the special depreciation allowance, on property placed in service during 2013; Depreciation on listed property (such as a car), regardless of when it was placed in service; or Any other car expenses, including the standard mileage rate or lease expenses. Hrblock freefile Otherwise, figure your depreciation on your own worksheet. Hrblock freefile You do not have to attach these computations to your return, but you should keep them in your records for future reference. Hrblock freefile   See Publication 946 for information on preparing Form 4562. Hrblock freefile Schedule C (Form 1040), Profit or Loss From Business Generally, Schedule C is used when you provide substantial services in conjunction with the property or the rental is part of a trade or business as a real estate dealer. Hrblock freefile Providing substantial services. Hrblock freefile   If you provide substantial services that are primarily for your tenant's convenience, such as regular cleaning, changing linen, or maid service, you 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. Hrblock freefile Use Form 1065, U. Hrblock freefile S. Hrblock freefile Return of Partnership Income, if your rental activity is a partnership (including a partnership with your spouse unless it is a qualified joint venture). Hrblock freefile Substantial services do not include the furnishing of heat and light, cleaning of public areas, trash collection, etc. Hrblock freefile For information, see Publication 334, Tax Guide for Small Business. Hrblock freefile Also, you may have to pay self-employment tax on your rental income using Schedule SE (Form 1040), Self-Employment Tax. Hrblock freefile For a discussion of “substantial services,” see Real Estate Rents in Publication 334, chapter 5. Hrblock freefile Qualified Joint Venture If you and your spouse each materially participate (see Material participation under Passive Activity Limits, later) 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. Hrblock freefile 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. Hrblock freefile If you make this election, you must report rental real estate income on Schedule E (or Schedule C if you provide substantial services). Hrblock freefile You will not be required to file Form 1065 for any year the election is in effect. Hrblock freefile Rental real estate income generally is not included in net earnings from self-employment subject to self-employment tax and generally is subject to the passive activity limits. Hrblock freefile If you and your spouse filed a Form 1065 for the year prior to the election, the partnership terminates at the end of the tax year immediately preceding the year the election takes effect. Hrblock freefile For more information on qualified joint ventures, go to IRS. Hrblock freefile gov and enter “qualified joint venture” in the search box. Hrblock freefile 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. Hrblock freefile You must consider these rules in the order shown below. Hrblock freefile Both are discussed in this section. Hrblock freefile At-risk rules. Hrblock freefile These rules are applied first if there is investment in your rental real estate activity for which you are not at risk. Hrblock freefile This applies only if the real property was placed in service after 1986. Hrblock freefile Passive activity limits. Hrblock freefile 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. Hrblock freefile However, there are exceptions. Hrblock freefile 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. Hrblock freefile Losses from holding real property (other than mineral property) placed in service before 1987 are not subject to the at-risk rules. Hrblock freefile 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. Hrblock freefile 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. Hrblock freefile Any loss that is disallowed because of the at-risk limits is treated as a deduction from the same activity in the next tax year. Hrblock freefile See Publication 925 for a discussion of the at-risk rules. Hrblock freefile Form 6198. Hrblock freefile   If you are subject to the at-risk rules, file Form 6198, At-Risk Limitations, with your tax return. Hrblock freefile Passive Activity Limits In most cases, all rental real estate activities (except those of certain real estate professionals, discussed later) are passive activities. Hrblock freefile 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. Hrblock freefile For a discussion of activities that are not considered rental activities, see Rental Activities in Publication 925. Hrblock freefile Deductions or losses from passive activities are limited. Hrblock freefile You generally cannot offset income, other than passive income, with losses from passive activities. Hrblock freefile Nor can you offset taxes on income, other than passive income, with credits resulting from passive activities. Hrblock freefile Any excess loss or credit is carried forward to the next tax year. Hrblock freefile Exceptions to the rules for figuring passive activity limits for personal use of a dwelling unit and for rental real estate with active participation are discussed later. Hrblock freefile For a detailed discussion of these rules, see Publication 925. Hrblock freefile Real estate professionals. Hrblock freefile   If you are a real estate professional, complete line 43 of Schedule E. Hrblock freefile      You qualify as a real estate professional for the tax year if you meet both of the following requirements. Hrblock freefile More than half of the personal services you perform in all trades or businesses during the tax year are performed in real property trades or businesses in which you materially participate. Hrblock freefile You perform more than 750 hours of services during the tax year in real property trades or businesses in which you materially participate. Hrblock freefile If you qualify as a real estate professional, rental real estate activities in which you materially participated are not passive activities. Hrblock freefile For purposes of determining whether you materially participated in your rental real estate activities, each interest in rental real estate is a separate activity unless you elect to treat all your interests in rental real estate as one activity. Hrblock freefile   Do not count personal services you perform as an employee in real property trades or businesses unless you are a 5% owner of your employer. Hrblock freefile You are a 5% owner if you own (or are considered to own) more than 5% of your employer's outstanding stock, or capital or profits interest. Hrblock freefile   Do not count your spouse's personal services to determine whether you met the requirements listed earlier to qualify as a real estate professional. Hrblock freefile However, you can count your spouse's participation in an activity in determining if you materially participated. Hrblock freefile Real property trades or businesses. Hrblock freefile   A real property trade or business is a trade or business that does any of the following with real property. Hrblock freefile Develops or redevelops it. Hrblock freefile Constructs or reconstructs it. Hrblock freefile Acquires it. Hrblock freefile Converts it. Hrblock freefile Rents or leases it. Hrblock freefile Operates or manages it. Hrblock freefile Brokers it. Hrblock freefile Choice to treat all interests as one activity. Hrblock freefile   If you were a real estate professional and had more than one rental real estate interest during the year, you can choose to treat all the interests as one activity. Hrblock freefile You can make this choice for any year that you qualify as a real estate professional. Hrblock freefile If you forgo making the choice for one year, you can still make it for a later year. Hrblock freefile   If you make the choice, it is binding for the tax year you make it and for any later year that you are a real estate professional. Hrblock freefile This is true even if you are not a real estate professional in any intervening year. Hrblock freefile (For that year, the exception for real estate professionals will not apply in determining whether your activity is subject to the passive activity rules. Hrblock freefile )   See the Instructions for Schedule E for information about making this choice. Hrblock freefile Material participation. Hrblock freefile   Generally, you materially participated in an activity for the tax year if you were involved in its operations on a regular, continuous, and substantial basis during the year. Hrblock freefile For details, see Publication 925 or the Instructions for Schedule C. Hrblock freefile Participating spouse. Hrblock freefile   If you are married, determine whether you materially participated in an activity by also counting any participation in the activity by your spouse during the year. Hrblock freefile Do this even if your spouse owns no interest in the activity or files a separate return for the year. Hrblock freefile Form 8582. Hrblock freefile    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. Hrblock freefile See Form 8582 not required , later in this chapter, to determine if you must complete Form 8582. Hrblock freefile   If you are required to complete Form 8582 and are also subject to the at-risk rules, include the amount from Form 6198, line 21 (deductible loss) in column (b) of Form 8582, Worksheet 1 or 3, as required. Hrblock freefile 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. Hrblock freefile Instead, follow the rules explained in chapter 5, Personal Use of Dwelling Unit (Including Vacation Home). Hrblock freefile Exception for Rental Real Estate 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. Hrblock freefile This special allowance is an exception to the general rule disallowing losses in excess of income from passive activities. Hrblock freefile 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. Hrblock freefile Example. Hrblock freefile Jane is single and has $40,000 in wages, $2,000 of passive income from a limited partnership, and $3,500 of passive loss from a rental real estate activity in which she actively participated. Hrblock freefile $2,000 of Jane's $3,500 loss offsets her passive income. Hrblock freefile The remaining $1,500 loss can be deducted from her $40,000 wages. Hrblock freefile The special allowance is not available if you were married, lived with your spouse at any time during the year, and are filing a separate return. Hrblock freefile Active participation. Hrblock freefile   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. Hrblock freefile Management decisions that may count as active participation include approving new tenants, deciding on rental terms, approving expenditures, and other similar decisions. Hrblock freefile Example. Hrblock freefile Mike is single and had the following income and losses during the tax year:   Salary $42,300     Dividends 300     Interest 1,400     Rental loss (4,000)   The rental loss was from the rental of a house Mike owned. Hrblock freefile Mike had advertised and rented the house to the current tenant himself. Hrblock freefile He also collected the rents, which usually came by mail. Hrblock freefile All repairs were either made or contracted out by Mike. Hrblock freefile Although the rental loss is from a passive activity, because Mike actively participated in the rental property management he can use the entire $4,000 loss to offset his other income. Hrblock freefile Maximum special allowance. Hrblock freefile   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. Hrblock freefile   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. Hrblock freefile 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. Hrblock freefile   Generally, if your MAGI is $150,000 or more ($75,000 or more if you are married filing separately), there is no special allowance. Hrblock freefile Modified adjusted gross income (MAGI). Hrblock freefile   This is your adjusted gross income from Form 1040, U. Hrblock freefile S. Hrblock freefile Individual Income Tax Return, line 38, or Form 1040NR, U. Hrblock freefile S. Hrblock freefile Nonresident Alien Income Tax Return, line 37, figured without taking into account: The taxable amount of social security or equivalent tier 1 railroad retirement benefits, The deductible contributions to traditional individual retirement accounts (IRAs) and section 501(c)(18) pension plans, The exclusion from income of interest from Series EE and I U. Hrblock freefile S. Hrblock freefile savings bonds used to pay higher educational expenses, The exclusion of amounts received under an employer's adoption assistance program, Any passive activity income or loss included on Form 8582, Any rental real estate loss allowed to real estate professionals, Any overall loss from a publicly traded partnership (see Publicly Traded Partnerships (PTPs) in the Instructions for Form 8582), The deduction allowed for one-half of self-employment tax, The deduction allowed for interest paid on student loans, The deduction for qualified tuition and related fees, and The domestic production activities deduction (see the Instructions for Form 8903). Hrblock freefile Form 8582 not required. Hrblock freefile   Do not complete Form 8582 if you meet all of the following conditions. Hrblock freefile Your only passive activities were rental real estate activities in which you actively participated. Hrblock freefile Your overall net loss from these activities is $25,000 or less ($12,500 or less if married filing separately and you lived apart from your spouse all year). Hrblock freefile If married filing separately, you lived apart from your spouse all year. Hrblock freefile You have no prior year unallowed losses from these (or any other passive) activities. Hrblock freefile You have no current or prior year unallowed credits from passive activities. Hrblock freefile Your MAGI is $100,000 or less ($50,000 or less if married filing separately and you lived apart from your spouse all year). Hrblock freefile You do not hold any interest in a rental real estate activity as a limited partner or as a beneficiary of an estate or a trust. Hrblock freefile   If you meet all of the conditions listed above, your rental real estate activities are not limited by the passive activity rules and you do not have to complete Form 8582. Hrblock freefile On lines 23a through 23e of your Schedule E, enter the applicable amounts. Hrblock freefile Casualties and Thefts As a result of a casualty or theft, you may have a loss related to your rental property. Hrblock freefile You may be able to deduct the loss on your income tax return. Hrblock freefile Casualty. Hrblock freefile   This is the damage, destruction, or loss of property resulting from an identifiable event that is sudden, unexpected, or unusual. Hrblock freefile Such events include a storm, fire, or earthquake. Hrblock freefile Theft. Hrblock freefile   This is defined as the unlawful taking and removing of your money or property with the intent to deprive you of it. Hrblock freefile Gain from casualty or theft. Hrblock freefile   It is also possible to have a gain from a casualty or theft if you receive money, including insurance, that is more than your adjusted basis in the property. Hrblock freefile Generally, you must report this gain. Hrblock freefile However, under certain circumstances, you may defer paying tax by choosing to postpone reporting the gain. Hrblock freefile To do this, you generally must buy replacement property within 2 years after the close of the first tax year in which any part of your gain is realized. Hrblock freefile In certain circumstances, the replacement period can be greater than 2 years; see Replacement Period in Publication 547 for more information. Hrblock freefile The cost of the replacement property must be equal to or more than the net insurance or other payment you received. Hrblock freefile More information. Hrblock freefile   For information on business and nonbusiness casualty and theft losses, see Publication 547. Hrblock freefile How to report. Hrblock freefile    If you had a casualty or theft that involved property used in your rental activity, figure the net gain or loss in Section B of Form 4684, Casualties and Thefts. Hrblock freefile Follow the Instructions for Form 4684 for where to carry your net gain or loss. Hrblock freefile Example In February 2008, Marie Pfister bought a rental house for $135,000 (house $120,000 and land $15,000) and immediately began renting it out. Hrblock freefile In 2013, she rented it all 12 months for a monthly rental fee of $1,125. Hrblock freefile In addition to her rental income of $13,500 (12 x $1,125), Marie had the following expenses. Hrblock freefile Mortgage interest $8,000 Fire insurance (1-year policy) 250 Miscellaneous repairs 400 Real estate taxes imposed and paid 500 Maintenance 200 Marie depreciates the residential rental property under MACRS GDS. Hrblock freefile This means using the straight line method over a recovery period of 27. Hrblock freefile 5 years. Hrblock freefile She uses Table 2-2d to find her depreciation percentage. Hrblock freefile Because she placed the property in service in February 2008, she continues to use that row of Table 2-2d. Hrblock freefile For year 6, the rate is 3. Hrblock freefile 636%. Hrblock freefile Marie figures her net rental income or loss for the house as follows: Total rental income received  ($1,125 × 12) $13,500 Minus: Expenses     Mortgage interest $8,000   Fire insurance 250   Miscellaneous repairs 400   Real estate taxes 500   Maintenance 200   Total expenses 9,350 Balance $4,150 Minus: Depreciation ($120,000 x 3. Hrblock freefile 636%) 4,363 Net rental (loss) for house ($213)       Marie had a net loss for the year. Hrblock freefile Because she actively participated in her passive rental real estate activity and her loss was less than $25,000, she can deduct the loss on her return. Hrblock freefile Marie also meets all of the requirements for not having to file Form 8582. Hrblock freefile She uses Schedule E, Part I, to report her rental income and expenses. Hrblock freefile She enters her income, expenses, and depreciation for the house in the column for Property A and enters her loss on line 22. Hrblock freefile Form 4562 is not required. Hrblock freefile Prev  Up  Next   Home   More Online Publications