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Taxact login Publication 51 - Introductory Material Table of Contents Future Developments What's New Reminders Calendar Introduction Useful Items - You may want to see: Future Developments For the latest information about developments related to Publication 51 (Circular A), such as legislation enacted after it was published, go to www. Taxact login irs. Taxact login gov/pub51. Taxact login What's New Social security and Medicare tax for 2014. Taxact login  The social security tax rate is 6. Taxact login 2% each for the employee and employer, unchanged from 2013. Taxact login The social security wage base limit is $117,000. Taxact login The Medicare tax rate is 1. Taxact login 45% each for the employee and employer, unchanged from 2013. Taxact login There is no wage base limit for Medicare tax. Taxact login Social security and Medicare taxes apply to the wages of household workers you pay $1,900 or more in cash or an equivalent form of compensation. Taxact login Withholding allowance. Taxact login  The 2014 amount for one withholding allowance on an annual basis is $3,950. Taxact login Change of responsible party. Taxact login  Beginning January 1, 2014, any entity with an employer identification number (EIN) must file Form 8822-B, Change of Address or Responsible Party—Business, to report the latest change to its responsible party. Taxact login Form 8822-B must be filed within 60 days of the change. Taxact login If the change in the identity of your responsible party occurred before 2014, and you have not previously notified the IRS of the change, file Form 8822-B before March 1, 2014, reporting only the most recent change. Taxact login For a definition of "responsible party", see the Form 8822-B instructions. Taxact login Same-sex marriage. Taxact login  For federal tax purposes, individuals of the same sex are considered married if they were lawfully married in a state (or foreign country) whose laws authorize the marriage of two individuals of the same sex, even if the state (or foreign country) in which they now live does not recognize same-sex marriage. Taxact login For more information, see Revenue Ruling 2013-17, 2013-38 I. Taxact login R. Taxact login B. Taxact login 201, available at www. Taxact login irs. Taxact login gov/irb/2013-38_IRB/ar07. Taxact login html. Taxact login Notice 2013-61 provides special administrative procedures for employers to make claims for refund or adjustments of overpayments of social security and Medicare taxes with respect to certain same-sex spouse benefits before expiration of the period of limitations. Taxact login Notice 2013-61, 2013-44 I. Taxact login R. Taxact login B. Taxact login 432, is available at www. Taxact login irs. Taxact login gov/irb/2013-44_IRB/ar10. Taxact login html. Taxact login Reminders Additional Medicare Tax withholding. Taxact login  In addition to withholding Medicare tax at 1. Taxact login 45%, you must withhold a 0. Taxact login 9% Additional Medicare Tax from wages you pay to an employee in excess of $200,000 in a calendar year. Taxact login You are required to begin withholding Additional Medicare Tax in the pay period in which you pay wages in excess of $200,000 to an employee and continue to withhold it each pay period until the end of the calendar year. Taxact login Additional Medicare Tax is only imposed on the employee. Taxact login There is no employer share of Additional Medicare Tax. Taxact login All wages that are subject to Medicare tax are subject to Additional Medicare Tax withholding if paid in excess of the $200,000 withholding threshold. Taxact login For more information on what wages are subject to Medicare tax, see the chart, Special Rules for Various Types of Services and Payments, in section 15 of Publication 15 (Circular E), Employer's Tax Guide. Taxact login For more information on Additional Medicare Tax, visit IRS. Taxact login gov and enter “Additional Medicare Tax” in the search box. Taxact login Work opportunity tax credit for qualified tax-exempt organizations hiring qualified veterans. Taxact login  The work opportunity tax credit is available for eligible unemployed veterans who begin work on or after November 22, 2011, and before January 1, 2014. Taxact login Qualified tax-exempt organizations that hire eligible unemployed veterans can claim the work opportunity tax credit against their payroll tax liability using Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans. Taxact login For more information, visit IRS. Taxact login gov and enter “work opportunity tax credit” in the search box. Taxact login Outsourcing payroll duties. Taxact login  Employers are responsible to ensure that tax returns are filed and deposits and payments are made, even if the employer contracts with a third party to perform these acts. Taxact login The employer remains responsible if the third party fails to perform any required action. Taxact login If you choose to outsource any of your payroll and related tax duties (that is, withholding, reporting, and paying over social security, Medicare, FUTA, and income taxes) to a third-party payer such as a payroll service provider or reporting agent, visit IRS. Taxact login gov and enter “outsourcing payroll duties” in the search box for helpful information on this topic. Taxact login COBRA premium assistance credit. Taxact login  The credit for COBRA premium assistance payments applies to premiums paid for employees involuntarily terminated between September 1, 2008, and May 31, 2010, and to premiums paid for up to 15 months. Taxact login For more information, see COBRA premium assistance credit under Introduction. Taxact login Compensation paid to H-2A foreign agricultural workers. Taxact login  Report compensation of $600 or more paid to foreign agricultural workers who entered the country on H-2A visas in box 1 of Form W-2, Wage and Tax Statement. Taxact login Compensation paid to H-2A workers for agricultural labor performed in connection with this visa is not subject to social security and Medicare taxes, and therefore should not be reported as wages subject to social security tax (line 2), Medicare tax (line 4), or Additional Medicare Tax withholding (line 6) on Form 943, Employer's Annual Federal Tax Return for Agricultural Employees, and should not be reported as social security wages (box 3) or Medicare wages (box 5) on Form W-2. Taxact login On Form W-2, do not check box 13 (Statutory employee), as H-2A workers are not statutory employees. Taxact login An employer is not required to withhold federal income tax from compensation it pays an H-2A worker for agricultural labor performed in connection with this visa unless the worker asks for withholding and the employer agrees. Taxact login In that case, the worker must give the employer a completed Form W-4, Employee's Withholding Allowance Certificate. Taxact login Federal income tax withheld should be reported on Form 943, line 8, and in box 2 of Form W-2. Taxact login These reporting rules apply when the H-2A worker provides his or her taxpayer identification number (TIN) to the employer. Taxact login For the rules relating to backup withholding and reporting when the H-2A worker does not provide a TIN, see the Instructions for Form 1099-MISC and the Instructions for Form 945. Taxact login Additional employment tax information. Taxact login  Visit the IRS website at www. Taxact login irs. Taxact login gov/businesses and click on Employment Taxes under Businesses Topics. Taxact login For employment tax information by telephone, call 1-800-829-4933 or 1-800-829-4059 (TDD/TTY for persons who are deaf, hard of hearing, or have a speech disability) Monday–Friday from 7:00 a. Taxact login m. Taxact login –7:00 p. Taxact login m. Taxact login local time (Alaska and Hawaii follow Pacific time). Taxact login Additionally, you can call IRS TeleTax at 1-800-829-4477 for recorded information by topic. Taxact login Disregarded entities and qualified subchapter S subsidiaries (QSubs). Taxact login  Eligible single-owner disregarded entities and QSubs are treated as separate entities for employment tax purposes. Taxact login Eligible single-member entities that have not elected to be taxed as corporations must report and pay employment taxes on wages paid to their employees using the entities' own names and EINs. Taxact login See Regulations sections 1. Taxact login 1361-4(a)(7) and 301. Taxact login 7701-2(c)(2)(iv). Taxact login Differential wage payments. Taxact login  Qualified differential wage payments made by employers to individuals serving in the Armed Forces after 2008 are subject to income tax withholding but not social security, Medicare, or FUTA taxes. Taxact login For more information, see Publication 15 (Circular E). Taxact login Federal tax deposits must be made by electronic funds transfer. Taxact login  You must use electronic funds transfer to make all federal tax deposits. Taxact login Generally, electronic fund transfers are made using the Electronic Federal Tax Payment System (EFTPS). Taxact login If you do not want to use EFTPS, you can arrange for your tax professional, financial institution, payroll service, or other trusted third party to make electronic deposits on your behalf. Taxact login Also, you may arrange for your financial institution to initiate a same-day wire payment on your behalf. Taxact login EFTPS is a free service provided by the Department of Treasury. Taxact login Services provided by your tax professional, financial institution, payroll service, or other third party may have a fee. Taxact login For more information on making federal tax deposits, see How To Deposit in section 7. Taxact login To get more information about EFTPS or to enroll in EFTPS, visit www. Taxact login eftps. Taxact login gov or call 1-800-555-4477 or 1-800-733-4829 (TDD). Taxact login Additional information about EFTPS is also available in Publication 966, Electronic Federal Tax Payment System: A Guide To Getting Started. Taxact login Electronic filing and payment. Taxact login  Now, more than ever before, businesses can enjoy the benefits of filing tax returns and paying their taxes electronically. Taxact login Whether you rely on a tax professional or handle your own taxes, the IRS offers you convenient programs to make it easier. Taxact login Spend less time and worry on taxes and more time running your business. Taxact login Use e-file and the Electronic Federal Tax Payment System (EFTPS) to your benefit. Taxact login For e-file, visit the IRS website at www. Taxact login irs. Taxact login gov/efile for additional information. Taxact login For EFTPS, visit www. Taxact login eftps. Taxact login gov or call EFTPS Customer Service at 1-800-555-4477 (business), 1-800-316-6541 (individual), or 1-800-733-4829 (TDD) for additional information. Taxact login For electronic filing of Form W-2, visit www. Taxact login socialsecurity. Taxact login gov/employer. Taxact login If you are filing your tax return or paying your federal taxes electronically, a valid EIN is required. Taxact login If a valid EIN is not provided, the return or payment will not be processed. Taxact login This may result in penalties and delays in processing your return or payment. Taxact login Electronic funds withdrawal (EFW). Taxact login  If you file Form 943 electronically, you can e-file and e-pay (electronic funds withdrawal) the balance due in a single step using tax preparation software or through a tax professional. Taxact login However, do not use EFW to make federal tax deposits. Taxact login For more information on paying your taxes using EFW, visit the IRS website at www. Taxact login irs. Taxact login gov/e-pay. Taxact login A fee may be charged to file electronically. Taxact login Credit or debit card payments. Taxact login   Employers can pay the balance due shown on Form 943 by credit or debit card. Taxact login Do not use a credit or debit card to make federal tax deposits. Taxact login For more information on paying your taxes with a credit or debit card, visit the IRS website at www. Taxact login irs. Taxact login gov/e-pay. Taxact login When you hire a new employee. Taxact login  Ask each new employee to complete the 2014 Form W-4 or its Spanish version, Formulario W-4(SP), Certificado de Exención de Retenciones del Empleado. Taxact login Also, ask the employee to show you his or her social security card so that you can record the employee's name and social security number accurately. Taxact login If the employee has lost the card or recently changed names, have the employee apply for a duplicate or corrected card. Taxact login If the employee does not have a card, have the employee apply for one on Form SS-5, Application for a Social Security Card. Taxact login See section 1 for more information. Taxact login Eligibility for employment. Taxact login  You must verify that each new employee is legally eligible to work in the United States. Taxact login This includes completing the U. Taxact login S. Taxact login Citizenship and Immigration Services (USCIS) Form I-9, Employment Eligibility Verification. Taxact login You can get the form from USCIS offices or by calling 1-800-870-3676. Taxact login Contact the USCIS at 1-800-375-5283, or visit the USCIS website at www. Taxact login uscis. Taxact login gov for more information. Taxact login New hire reporting. Taxact login   You are required to report any new employee to a designated state new-hire registry. Taxact login A new employee is an employee who has not previously been employed by you or was previously employed by you but has been separated from such prior employment for at least 60 consecutive days. Taxact login Many states accept a copy of Form W-4 with employer information added. Taxact login Visit the Office of Child Support Enforcement's website at www. Taxact login acf. Taxact login hhs. Taxact login gov/programs/cse/newhire for more information. Taxact login Dishonored payments. Taxact login  Any form of payment that is dishonored and returned from a financial institution is subject to a penalty. Taxact login The penalty is $25 or 2% of the payment, whichever is more. Taxact login However, the penalty on dishonored payments of $24. Taxact login 99 or less is an amount equal to the payment. Taxact login For example, a dishonored payment of $18 is charged a penalty of $18. Taxact login Forms in Spanish. Taxact login  You can provide Formulario W-4(SP) in place of Form W-4 to your Spanish-speaking employees. Taxact login For more information, see Publicación 17(SP), El Impuesto Federal sobre los Ingresos (Para Personas Físicas). Taxact login For nonemployees, Formulario W-9(SP), Solicitud y Certificación del Número de Identificación del Contribuyente, may be used in place of Form W-9, Request for Taxpayer Identification Number and Certification. Taxact login References in this publication to Form W-4 or Form W-9 also apply to their equivalent Spanish translations—Formulario W-4(SP) or Formulario W-9(SP). Taxact login Information returns. Taxact login  You may be required to file information returns to report certain types of payments made during the year. Taxact login For example, you must file Form 1099-MISC, Miscellaneous Income, to report payments of $600 or more to persons not treated as employees (for example, independent contractors) for services performed for your trade or business. Taxact login For details about filing Forms 1099 and for information about required electronic filing, see the General Instructions for Certain Information Returns for general information and the separate, specific instructions for each information return that you file (for example, Instructions for Form 1099-MISC). Taxact login Generally, do not use Forms 1099 to report wages or other compensation that you paid to employees; report these amounts on Form W-2. Taxact login See the General Instructions for Forms W-2 and W-3 for details about filing Forms W-2 and for information about required electronic filing. Taxact login If you file 250 or more Forms W-2, you must file them electronically. Taxact login SSA will not accept Forms W-2 and W-3 filed on any magnetic media. Taxact login Information reporting customer service site. Taxact login  The IRS operates the Enterprise Computing Center—Martinsburg, a centralized customer service site, to answer questions about reporting on Forms W-2, W-3, 1099, and other information returns. Taxact login If you have questions related to reporting on information returns, you may call 1-866-455-7438 (toll free), 304-263-8700 (toll call), or 304-267-3367 (TDD/TTY for persons who are deaf, heard of hearing, or have a speech disability). Taxact login The call site can also be reached by email at mccirp@irs. Taxact login gov. Taxact login Do not include tax identification numbers (TINs) or attachments in email correspondence because electronic mail is not secure. Taxact login Web-based application for an employer identification number (EIN). Taxact login  You can apply for an employer identification number (EIN) online by visiting IRS. Taxact login gov and clicking on the Apply for an EIN Online link under Tools. Taxact login When a crew leader furnishes workers to you. Taxact login  Record the crew leader's name, address, and EIN. Taxact login See sections 2 and 10. Taxact login Change of address. Taxact login  Use Form 8822-B to notify the IRS of an address change. Taxact login Do not mail form 8822-B with your employment tax return. Taxact login Ordering forms and publications. Taxact login  You can order your 2013 and 2014 employment tax and information return forms, instructions, and publications online at www. Taxact login irs. Taxact login gov/businesses. Taxact login Click on the Online Ordering for Information Returns and Employer Returns. Taxact login You can also visit www. Taxact login irs. Taxact login gov/formspubs to download other forms and publications. Taxact login Instead of ordering paper Forms W-2 and W-3, consider filing them electronically using the Social Security Administration's (SSA) free e-file service. Taxact login Visit the SSA's Employer W-2 Filing Instructions & Information website at  www. Taxact login socialsecurity. Taxact login gov/employer, to register for Business Services Online. Taxact login You will be able to create and file “fill-in” versions of Forms W-2 with SSA and can print out completed copies of Forms W-2 for filing with state and local governments, distribution to your employees, and for your records. Taxact login Form W-3 will be created for you based on your Forms W-2. Taxact login Tax Questions. Taxact login   If you have a tax question, check the information available on IRS. Taxact login gov or call 1-800-829-4933 (businesses), 1-800-829-1040 (individuals), or 1-800-829-4059 (TDD/TTY for persons who are deaf, hard of hearing, or have a speech disability) Monday–Friday from 7:00 a. Taxact login m. Taxact login –7:00 p. Taxact login m. Taxact login local time (Alaska and Hawaii follow Pacific time). Taxact login We cannot answer tax questions sent to the address provided later for comments and suggestions. Taxact login Recordkeeping. Taxact login  Keep all records of employment taxes for at least 4 years. Taxact login These should be available for IRS review. Taxact login Your records should include the following information. Taxact login Your employer identification number (EIN). Taxact login Amounts and dates of all wage, annuity, and pension payments. Taxact login Names, addresses, social security numbers, and occupations of employees and recipients. Taxact login Any employee copies of Forms W-2 and W-2c returned to you as undeliverable. Taxact login Dates of employment for each employee. Taxact login Periods for which employees and recipients were paid while absent due to sickness or injury and the amount and weekly rate of payments you or third-party payers made to them. Taxact login Copies of employees' and recipients' income tax withholding allowance certificates (Forms W-4, W-4(SP), W-4P, and W-4S). Taxact login Dates and amounts of tax deposits you made and acknowledgment numbers for deposits made by EFTPS. Taxact login Copies of returns filed and confirmation numbers. Taxact login Records of fringe benefits and expense reimbursements provided to your employees, including substantiation. Taxact login If a crew leader furnished you with farmworkers, you must keep a record of the name, permanent mailing address, and EIN of the crew leader. Taxact login If the crew leader has no permanent mailing address, record his or her present address. Taxact login Private delivery services. Taxact login  You can use certain private delivery services designated by the IRS to send tax returns and payments. Taxact login The list includes only the following. Taxact login DHL Express (DHL): DHL Same Day Service. Taxact login Federal Express (FedEx): FedEx Priority Overnight, FedEx Standard Overnight, FedEx 2Day, FedEx International Priority, and FedEx International First. Taxact login United Parcel Service (UPS): UPS Next Day Air, UPS Next Day Air Saver, UPS 2nd Day Air, UPS 2nd Day Air A. Taxact login M. Taxact login , UPS Worldwide Express Plus, and UPS Worldwide Express. Taxact login For the IRS mailing address to use if you are using a private delivery service, go to IRS. Taxact login gov and enter "private delivery service" in the search box. Taxact login Your private delivery service can tell you how to get written proof of the mailing date. Taxact login Private delivery services cannot deliver items to P. Taxact login O. Taxact login boxes. Taxact login You must use the U. Taxact login S. Taxact login Postal Service to mail any item to an IRS P. Taxact login O. Taxact login box address. Taxact login Photographs of missing children. Taxact login  The IRS is a proud partner with the National Center for Missing and Exploited Children. Taxact login Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. Taxact login 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. Taxact login Calendar The following are important dates and responsibilities. Taxact login See section 7 for information about depositing taxes reported on Forms 941, 943, 944, and 945. Taxact login Also see Publication 509, Tax Calendars. Taxact login   If any date shown below for filing a return, furnishing a form, or depositing taxes falls on a Saturday, Sunday, or legal holiday, the due date is the next business day. Taxact login A statewide legal holiday delays a filing due date only if the IRS office where you are required to file is located in that state. Taxact login However, a statewide legal holiday does not delay the due date of federal tax deposits. Taxact login See Deposits on Business Days Only in section 7. Taxact login For any filing due date, you will meet the “file” or “furnish” requirement if the envelope containing the return or form is properly addressed, contains sufficient postage, and is postmarked by the U. Taxact login S. Taxact login Postal Service on or before the due date, or sent by an IRS-designated delivery service on or before the due date. Taxact login See Private delivery services under Reminders. Taxact login By January 31 . Taxact login   File Form 943. Taxact login See section 8 for more information on Form 943. Taxact login If you deposited all Form 943 taxes when due, you have 10 additional calendar days to file. Taxact login Furnish each employee with a completed Form W-2. Taxact login Furnish each recipient to whom you paid $600 or more in nonemployee compensation with a completed Form 1099 (for example, Form 1099-MISC). Taxact login File Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return. Taxact login See section 10 for more information on FUTA. Taxact login If you deposited all the FUTA tax when due, you have 10 additional calendar days to file. Taxact login File Form 945, Annual Return of Withheld Federal Income Tax, to report any nonpayroll federal income tax withheld in 2013. Taxact login If you deposited all Form 945 taxes when due, you have 10 additional calendar days to file. Taxact login By February 15. Taxact login  Ask for a new Form W-4 or Formulario W-4(SP) from each employee who claimed exemption from federal income tax withholding last year. Taxact login On February 16. Taxact login  Any Form W-4 claiming exemption from withholding for the previous year has now expired. Taxact login Begin withholding for any employee who previously claimed exemption from withholding but has not given you a new Form W-4 for the current year. Taxact login If the employee does not give you a new Form W-4, withhold tax based on the last valid Form W-4 you have for the employee that does not claim exemption from withholding or, if one does not exist, as if he or she is single with zero withholding allowances. Taxact login See section 5 for more information. Taxact login If the employee furnishes a new Form W-4 claiming exemption from withholding after February 15, you may apply the exemption to future wages, but do not refund taxes withheld while the exempt status was not in place. Taxact login By February 28. Taxact login   File paper Forms 1099 and 1096. Taxact login File Copy A of all paper Forms 1099 with Form 1096, Annual Summary and Transmittal of U. Taxact login S. Taxact login Information Returns, with the IRS. Taxact login For electronically filed returns, see By March 31 below. Taxact login File paper Forms W-2 and W-3. Taxact login File Copy A of all paper Forms W-2 with Form W-3, Transmittal of Wage and Tax Statements, with the SSA. Taxact login For electronically filed returns, see By March 31 next. Taxact login By March 31. Taxact login   File electronic Forms W-2 and 1099. Taxact login File electronic Forms W-2 with the SSA and Forms 1099 with the IRS. Taxact login For more information on reporting Form W-2 information to the SSA electronically, visit the SSA's Employer W-2 Filing Instructions & Information webpage at www. Taxact login socialsecurity. Taxact login gov/employer. Taxact login For information on filing information returns electronically with the IRS, see Publication 1220, Specifications for Electronic Filing of Forms 1097, 1098, 1099, 3921, 3922, 5498, 8935, and W-2G. Taxact login By April 30, July 31, October 31, and January 31. Taxact login   Deposit FUTA taxes. Taxact login Deposit FUTA tax if the undeposited amount is over $500. Taxact login Before December 1. Taxact login  Remind employees to submit a new Form W-4 if their marital status or withholding allowances have changed or will change for the next year. Taxact login Introduction This publication is for employers of agricultural workers (farmworkers). Taxact login It contains information that you may need to comply with the laws for agricultural labor (farmwork) relating to social security and Medicare taxes, FUTA tax, and withheld federal income tax (employment taxes). Taxact login Agricultural employers report social security and Medicare taxes and withheld federal income tax on Form 943 and report FUTA tax on Form 940. Taxact login If you have nonfarm employees, see Publication 15 (Circular E). Taxact login If you have employees in the U. Taxact login S. Taxact login Virgin Islands, Guam, American Samoa, or the Commonwealth of the Northern Mariana Islands, see Publication 80 (Circular SS). Taxact login Publication 15-A, Employer's Supplemental Tax Guide, contains more employment-related information, including information about sick pay and pension income. Taxact login Publication 15-B, Employer's Tax Guide to Fringe Benefits, contains information about the employment tax treatment and valuation of various types of noncash compensation. Taxact login Comments and suggestions. Taxact login   We welcome your comments about this publication and your suggestions for future editions. Taxact login   You can write to us at the following address:  Internal Revenue Service Tax Forms and Publications Division  1111 Constitution Ave. Taxact login NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. Taxact login Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Taxact login   You can also send us comments from www. Taxact login irs. Taxact login gov/formspubs. Taxact login Click on More Information and then click on Comment on Tax Forms and Publications. Taxact login   Although we cannot respond individually to each email, we do appreciate your feedback and will consider your comments as we revise our tax forms, instructions, and publications. Taxact login COBRA premium assistance credit. Taxact login   The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) provides certain former employees, retirees, spouses, former spouses, and dependent children the right to temporary continuation of health coverage at group rates. Taxact login COBRA generally covers multiemployer health plans and health plans maintained by private-sector employers (other than churches) with 20 or more full and part-time employees. Taxact login Parallel requirements apply to these plans under the Employee Retirement Income Security Act of 1974 (ERISA). Taxact login Under the Public Health Service Act, COBRA requirements apply also to health plans covering state or local government employees. Taxact login Similar requirements apply under the Federal Employees Health Benefits Program and under some state laws. Taxact login For the premium assistance (or subsidy) discussed below, these requirements are all referred to as COBRA requirements. Taxact login   Under the American Recovery and Reinvestment Act of 2009 (ARRA), employers are allowed a credit against “payroll taxes” (referred to in this publication as “employment taxes”) for providing COBRA premium assistance to assistance eligible individuals. Taxact login For periods of COBRA continuation coverage beginning after February 16, 2009, a group health plan must treat an assistance eligible individual as having paid the required COBRA continuation coverage premium if the individual elects COBRA coverage and pays 35% of the amount of the premium. Taxact login   An assistance eligible individual is a qualified beneficiary of an employer's group health plan who is eligible for COBRA continuation coverage during the period beginning September 1, 2008, and ending May 31, 2010, due to the involuntarily termination from employment of a covered employee during the period and elects continuation COBRA coverage. Taxact login The assistance for the coverage can last up to 15 months. Taxact login   Employees terminated during the period beginning September 1, 2008, and ending May 31, 2010, who received a severance package that delayed the start of the COBRA continuation coverage, may still be eligible for premium assistance for COBRA continuation coverage. Taxact login For more information, see Notice 2009-27, 2009-16 I. Taxact login R. Taxact login B. Taxact login 838, available at www. Taxact login irs. Taxact login gov/irb/2009-16_irb/ar09. Taxact login html. Taxact login   Administrators of the group health plans (or other entities) that provide or administer COBRA continuation coverage must provide notice to assistance eligible individuals of the COBRA premium assistance. Taxact login   The 65% of the premium not paid by the assistance eligible individual is reimbursed to the employer maintaining the group health plan. Taxact login The reimbursement is made through a credit against the employer's employment tax liabilities. Taxact login For information on how to claim the credit, see the Instructions for Form 943. Taxact login The credit is treated as a deposit made on the first day of the return period. Taxact login In the case of a multiemployer plan, the credit is claimed by the plan, rather than the employer. Taxact login In the case of an insured plan subject to state law continuation coverage requirements, the credit is claimed by the insurance company, rather than the employer. Taxact login   Anyone claiming the credit for COBRA premium assistance payments must maintain the following information to support their claim, including the following. Taxact login Information on the receipt of the assistance eligible individuals' 35% share of the premium including dates and amounts. Taxact login In the case of an insurance plan, a copy of invoice or other supporting statement from the insurance carrier and proof of timely payment of the full premium to the insurance carrier required under COBRA. Taxact login In the case of a self-insured plan, proof of the premium amount and proof of the coverage provided to the assistance eligible individuals. Taxact login Attestation of involuntary termination, including the date of the involuntary termination for each covered employee whose involuntary termination is the basis for eligibility for the subsidy. Taxact login Proof of each assistance eligible individual's eligibility for COBRA coverage and the election of COBRA coverage. Taxact login A record of the social security numbers (SSNs) of all covered employees, the amount of the subsidy reimbursed with respect to each covered employee, and whether the subsidy was for one individual or two or more individuals. Taxact login   For more information, visit IRS. Taxact login gov and enter “COBRA” in the search box. Taxact login Useful Items - You may want to see: Publication 15 (Circular E), Employer's Tax Guide 15-A Employer's Supplemental Tax Guide 15-B Employer's Tax Guide to Fringe Benefits 225 Farmer's Tax Guide 535 Business Expenses 583 Starting a Business and Keeping Records 1635 Employer Identification Number: Understanding Your EIN Prev  Up  Next   Home   More Online Publications
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The Railroad Retirement Board administers retirement and survivor, unemployment and sickness benefits for U.S. railroad workers and their families.

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Website: Railroad Retirement Board (RRB)

Contact In-Person: Railroad Retirement Board Local Offices

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Taxact login 1. Taxact login   Rental Income and Expenses (If No Personal Use of Dwelling) Table of Contents Rental IncomeWhen To Report Types of Income Rental ExpensesWhen To Deduct Types of Expenses This chapter discusses the various types of rental income and expenses for a residential rental activity with no personal use of the dwelling. Taxact login Generally, each year you will report all income and deduct all out-of-pocket expenses in full. Taxact login The deduction to recover the cost of your rental property—depreciation—is taken over a prescribed number of years, and is discussed in chapter 2, Depreciation of Rental Property. Taxact login If your rental income is from property you also use personally or rent to someone at less than a fair rental price, first read the information in chapter 5 , Personal Use of Dwelling Unit (Including Vacation Home). Taxact login Rental Income In most cases, you must include in your gross income all amounts you receive as rent. Taxact login Rental income is any payment you receive for the use or occupation of property. Taxact login In addition to amounts you receive as normal rental payments, there are other amounts that may be rental income. Taxact login When To Report When you report rental income on your tax return generally depends on whether you are a cash basis taxpayer or use an accrual method. Taxact login Most individual taxpayers use the cash method. Taxact login Cash method. Taxact login   You are a cash basis taxpayer if you report income on your return in the year you actually or constructively receive it, regardless of when it was earned. Taxact login You constructively receive income when it is made available to you, for example, by being credited to your bank account. Taxact login Accrual method. Taxact login    If you are an accrual basis taxpayer, you generally report income when you earn it, rather than when you receive it. Taxact login You generally deduct your expenses when you incur them, rather than when you pay them. Taxact login More information. Taxact login   See Publication 538, Accounting Periods and Methods, for more information about when you constructively receive income and accrual methods of accounting. Taxact login Types of Income The following are common types of rental income. Taxact login Advance rent. Taxact login   Advance rent is any amount you receive before the period that it covers. Taxact login Include advance rent in your rental income in the year you receive it regardless of the period covered or the method of accounting you use. Taxact login Example. Taxact login On March 18, 2013, you signed a 10-year lease to rent your property. Taxact login During 2013, you received $9,600 for the first year's rent and $9,600 as rent for the last year of the lease. Taxact login You must include $19,200 in your rental income in the first year. Taxact login Canceling a lease. Taxact login   If your tenant pays you to cancel a lease, the amount you receive is rent. Taxact login Include the payment in your income in the year you receive it regardless of your method of accounting. Taxact login Expenses paid by tenant. Taxact login   If your tenant pays any of your expenses, those payments are rental income. Taxact login Because you must include this amount in income, you can also deduct the expenses if they are deductible rental expenses. Taxact login For more information, see Rental Expenses , later. Taxact login Example 1. Taxact login Your tenant pays the water and sewage bill for your rental property and deducts the amount from the normal rent payment. Taxact login Under the terms of the lease, your tenant does not have to pay this bill. Taxact login Include the utility bill paid by the tenant and any amount received as a rent payment in your rental income. Taxact login You can deduct the utility payment made by your tenant as a rental expense. Taxact login Example 2. Taxact login While you are out of town, the furnace in your rental property stops working. Taxact login Your tenant pays for the necessary repairs and deducts the repair bill from the rent payment. Taxact login Include the repair bill paid by the tenant and any amount received as a rent payment in your rental income. Taxact login You can deduct the repair payment made by your tenant as a rental expense. Taxact login Property or services. Taxact login   If you receive property or services as rent, instead of money, include the fair market value of the property or services in your rental income. Taxact login   If the services are provided at an agreed upon or specified price, that price is the fair market value unless there is evidence to the contrary. Taxact login Example. Taxact login Your tenant is a house painter. Taxact login He offers to paint your rental property instead of paying 2 months rent. Taxact login You accept his offer. Taxact login Include in your rental income the amount the tenant would have paid for 2 months rent. Taxact login You can deduct that same amount as a rental expense for painting your property. Taxact login Security deposits. Taxact login   Do not include a security deposit in your income when you receive it if you plan to return it to your tenant at the end of the lease. Taxact login But if you keep part or all of the security deposit during any year because your tenant does not live up to the terms of the lease, include the amount you keep in your income in that year. Taxact login    If an amount called a security deposit is to be used as a final payment of rent, it is advance rent. Taxact login Include it in your income when you receive it. Taxact login Other Sources of Rental Income Lease with option to buy. Taxact login   If the rental agreement gives your tenant the right to buy your rental property, the payments you receive under the agreement are generally rental income. Taxact login If your tenant exercises the right to buy the property, the payments you receive for the period after the date of sale are considered part of the selling price. Taxact login Part interest. Taxact login   If you own a part interest in rental property, you must report your part of the rental income from the property. Taxact login Rental of property also used as your home. Taxact login   If you rent property that you also use as your home and you rent it less than 15 days during the tax year, do not include the rent you receive in your income and do not deduct rental expenses. Taxact login However, you can deduct on Schedule A (Form 1040), Itemized Deductions, the interest, taxes, and casualty and theft losses that are allowed for nonrental property. Taxact login See chapter 5, Personal Use of Dwelling Unit (Including Vacation Home). Taxact login Rental Expenses In most cases, the expenses of renting your property, such as maintenance, insurance, taxes, and interest, can be deducted from your rental income. Taxact login Personal use of rental property. Taxact login   If you sometimes use your rental property for personal purposes, you must divide your expenses between rental and personal use. Taxact login Also, your rental expense deductions may be limited. Taxact login See chapter 5, Personal Use of Dwelling Unit (Including Vacation Home). Taxact login Part interest. Taxact login   If you own a part interest in rental property, you can deduct expenses you paid according to your percentage of ownership. Taxact login Example. Taxact login Roger owns a one-half undivided interest in a rental house. Taxact login Last year he paid $968 for necessary repairs on the property. Taxact login Roger can deduct $484 (50% × $968) as a rental expense. Taxact login He is entitled to reimbursement for the remaining half from the co-owner. Taxact login When To Deduct You generally deduct your rental expenses in the year you pay them. Taxact login If you use the accrual method, see Publication 538 for more information. Taxact login Types of Expenses Listed below are the most common rental expenses. Taxact login Advertising. Taxact login Auto and travel expenses. Taxact login Cleaning and maintenance. Taxact login Commissions. Taxact login Depreciation. Taxact login Insurance. Taxact login Interest (other). Taxact login Legal and other professional fees. Taxact login Local transportation expenses. Taxact login Management fees. Taxact login Mortgage interest paid to banks, etc. Taxact login Points. Taxact login Rental payments. Taxact login Repairs. Taxact login Taxes. Taxact login Utilities. Taxact login Some of these expenses, as well as other less common ones, are discussed below. Taxact login Depreciation. Taxact login   Depreciation is a capital expense. Taxact login It is the mechanism for recovering your cost in an income producing property and must be taken over the expected life of the property. Taxact login   You can begin to depreciate rental property when it is ready and available for rent. Taxact login See Placed in Service under When Does Depreciation Begin and End in chapter 2. Taxact login Insurance premiums paid in advance. Taxact login   If you pay an insurance premium for more than one year in advance, for each year of coverage you can deduct the part of the premium payment that will apply to that year. Taxact login You cannot deduct the total premium in the year you pay it. Taxact login See chapter 6 of Publication 535 for information on deductible premiums. Taxact login Interest expense. Taxact login   You can deduct mortgage interest you pay on your rental property. Taxact login When you refinance a rental property for more than the previous outstanding balance, the portion of the interest allocable to loan proceeds not related to rental use generally cannot be deducted as a rental expense. Taxact login Chapter 4 of Publication 535 explains mortgage interest in detail. Taxact login Expenses paid to obtain a mortgage. Taxact login   Certain expenses you pay to obtain a mortgage on your rental property cannot be deducted as interest. Taxact login These expenses, which include mortgage commissions, abstract fees, and recording fees, are capital expenses that are part of your basis in the property. Taxact login Form 1098, Mortgage Interest Statement. Taxact login   If you paid $600 or more of mortgage interest on your rental property to any one person, you should receive a Form 1098 or similar statement showing the interest you paid for the year. Taxact login If you and at least one other person (other than your spouse if you file a joint return) were liable for, and paid interest on, the mortgage, and the other person received the Form 1098, report your share of the interest on Schedule E (Form 1040), line 13. Taxact login Attach a statement to your return showing the name and address of the other person. Taxact login On the dotted line next to line 13, enter “See attached. Taxact login ” Legal and other professional fees. Taxact login   You can deduct, as a rental expense, legal and other professional expenses such as tax return preparation fees you paid to prepare Schedule E, Part I. Taxact login For example, on your 2013 Schedule E you can deduct fees paid in 2013 to prepare Part I of your 2012 Schedule E. Taxact login You can also deduct, as a rental expense, any expense (other than federal taxes and penalties) you paid to resolve a tax underpayment related to your rental activities. Taxact login Local benefit taxes. Taxact login   In most cases, you cannot deduct charges for local benefits that increase the value of your property, such as charges for putting in streets, sidewalks, or water and sewer systems. Taxact login These charges are nondepreciable capital expenditures and must be added to the basis of your property. Taxact login However, you can deduct local benefit taxes that are for maintaining, repairing, or paying interest charges for the benefits. Taxact login Local transportation expenses. Taxact login   You may be able to deduct your ordinary and necessary local transportation expenses if you incur them to collect rental income or to manage, conserve, or maintain your rental property. Taxact login However, transportation expenses incurred to travel between your home and a rental property generally constitute nondeductible commuting costs unless you use your home as your principal place of business. Taxact login See Publication 587, Business Use of Your Home, for information on determining if your home office qualifies as a principal place of business. Taxact login   Generally, if you use your personal car, pickup truck, or light van for rental activities, you can deduct the expenses using one of two methods: actual expenses or the standard mileage rate. Taxact login For 2013, the standard mileage rate for business use is 56. Taxact login 5 cents per mile. Taxact login For more information, see chapter 4 of Publication 463. Taxact login    To deduct car expenses under either method, you must keep records that follow the rules in chapter 5 of Publication 463. Taxact login In addition, you must complete Form 4562, Part V, and attach it to your tax return. Taxact login Pre-rental expenses. Taxact login   You can deduct your ordinary and necessary expenses for managing, conserving, or maintaining rental property from the time you make it available for rent. Taxact login Rental of equipment. Taxact login   You can deduct the rent you pay for equipment that you use for rental purposes. Taxact login However, in some cases, lease contracts are actually purchase contracts. Taxact login If so, you cannot deduct these payments. Taxact login You can recover the cost of purchased equipment through depreciation. Taxact login Rental of property. Taxact login   You can deduct the rent you pay for property that you use for rental purposes. Taxact login If you buy a leasehold for rental purposes, you can deduct an equal part of the cost each year over the term of the lease. Taxact login Travel expenses. Taxact login   You can deduct the ordinary and necessary expenses of traveling away from home if the primary purpose of the trip is to collect rental income or to manage, conserve, or maintain your rental property. Taxact login You must properly allocate your expenses between rental and nonrental activities. Taxact login You cannot deduct the cost of traveling away from home if the primary purpose of the trip is to improve the property. Taxact login The cost of improvements is recovered by taking depreciation. Taxact login For information on travel expenses, see chapter 1 of Publication 463. Taxact login    To deduct travel expenses, you must keep records that follow the rules in chapter 5 of Publication 463. Taxact login Uncollected rent. Taxact login   If you are a cash basis taxpayer, do not deduct uncollected rent. Taxact login Because you have not included it in your income, it is not deductible. Taxact login   If you use an accrual method, report income when you earn it. Taxact login If you are unable to collect the rent, you may be able to deduct it as a business bad debt. Taxact login See chapter 10 of Publication 535 for more information about business bad debts. Taxact login Vacant rental property. Taxact login   If you hold property for rental purposes, you may be able to deduct your ordinary and necessary expenses (including depreciation) for managing, conserving, or maintaining the property while the property is vacant. Taxact login However, you cannot deduct any loss of rental income for the period the property is vacant. Taxact login Vacant while listed for sale. Taxact login   If you sell property you held for rental purposes, you can deduct the ordinary and necessary expenses for managing, conserving, or maintaining the property until it is sold. Taxact login If the property is not held out and available for rent while listed for sale, the expenses are not deductible rental expenses. Taxact login Points The term “points” is often used to describe some of the charges paid, or treated as paid, by a borrower to take out a loan or a mortgage. Taxact login These charges are also called loan origination fees, maximum loan charges, or premium charges. Taxact login Any of these charges (points) that are solely for the use of money are interest. Taxact login Because points are prepaid interest, you generally cannot deduct the full amount in the year paid, but must deduct the interest over the term of the loan. Taxact login The method used to figure the amount of points you can deduct each year follows the original issue discount (OID) rules. Taxact login In this case, points are equivalent to OID, which is the difference between: The amount borrowed (redemption price at maturity, or principal) and The proceeds (issue price). Taxact login The first step is to determine whether your total OID (which you may have on bonds or other investments in addition to the mortgage loan), including the OID resulting from the points, is insignificant or de minimis. Taxact login If the OID is not de minimis, you must use the constant-yield method to figure how much you can deduct. Taxact login De minimis OID. Taxact login   The OID is de minimis if it is less than one-fourth of 1% (. Taxact login 0025) of the stated redemption price at maturity (principal amount of the loan) multiplied by the number of full years from the date of original issue to maturity (term of the loan). Taxact login   If the OID is de minimis, you can choose one of the following ways to figure the amount of points you can deduct each year. Taxact login On a constant-yield basis over the term of the loan. Taxact login On a straight line basis over the term of the loan. Taxact login In proportion to stated interest payments. Taxact login In its entirety at maturity of the loan. Taxact login You make this choice by deducting the OID (points) in a manner consistent with the method chosen on your timely filed tax return for the tax year in which the loan is issued. Taxact login Example. Taxact login Carol Madison took out a $100,000 mortgage loan on January 1, 2013, to buy a house she will use as a rental during 2013. Taxact login The loan is to be repaid over 30 years. Taxact login During 2013, Carol paid $10,000 of mortgage interest (stated interest) to the lender. Taxact login When the loan was made, she paid $1,500 in points to the lender. Taxact login The points reduced the principal amount of the loan from $100,000 to $98,500, resulting in $1,500 of OID. Taxact login Carol determines that the points (OID) she paid are de minimis based on the following computation. Taxact login Redemption price at maturity (principal amount of the loan) $100,000 Multiplied by: The term of the  loan in complete years ×30 Multiplied by ×. Taxact login 0025 De minimis amount $7,500 The points (OID) she paid ($1,500) are less than the de minimis amount ($7,500). Taxact login Therefore, Carol has de minimis OID and she can choose one of the four ways discussed earlier to figure the amount she can deduct each year. Taxact login Under the straight line method, she can deduct $50 each year for 30 years. Taxact login Constant-yield method. Taxact login   If the OID is not de minimis, you must use the constant-yield method to figure how much you can deduct each year. Taxact login   You figure your deduction for the first year in the following manner. Taxact login Determine the issue price of the loan. Taxact login If you paid points on the loan, the issue price generally is the difference between the principal and the points. Taxact login Multiply the result in (1) by the yield to maturity (defined later). Taxact login Subtract any qualified stated interest payments (defined later) from the result in (2). Taxact login This is the OID you can deduct in the first year. Taxact login Yield to maturity (YTM). Taxact login   This rate is generally shown in the literature you receive from your lender. Taxact login If you do not have this information, consult your lender or tax advisor. Taxact login In general, the YTM is the discount rate that, when used in computing the present value of all principal and interest payments, produces an amount equal to the principal amount of the loan. Taxact login Qualified stated interest (QSI). Taxact login   In general, this is the stated interest that is unconditionally payable in cash or property (other than another loan of the issuer) at least annually over the term of the loan at a fixed rate. Taxact login Example—Year 1. Taxact login The facts are the same as in the previous example. Taxact login The yield to maturity on Carol's loan is 10. Taxact login 2467%, compounded annually. Taxact login She figured the amount of points (OID) she could deduct in 2013 as follows. Taxact login Principal amount of the loan $100,000 Minus: Points (OID) –1,500 Issue price of the loan $98,500 Multiplied by: YTM × . Taxact login 102467 Total 10,093 Minus: QSI –10,000 Points (OID) deductible in 2013 $93 To figure your deduction in any subsequent year, you start with the adjusted issue price. Taxact login To get the adjusted issue price, add to the issue price figured in Year 1 any OID previously deducted. Taxact login Then follow steps (2) and (3), earlier. Taxact login Example—Year 2. Taxact login Carol figured the deduction for 2014 as follows. Taxact login Issue price $98,500 Plus: Points (OID) deducted  in 2013 +93 Adjusted issue price $98,593 Multiplied by: YTM × . Taxact login 102467 Total 10,103 Minus: QSI –10,000 Points (OID) deductible in 2014 $103 Loan or mortgage ends. Taxact login    If your loan or mortgage ends, you may be able to deduct any remaining points (OID) in the tax year in which the loan or mortgage ends. Taxact login A loan or mortgage may end due to a refinancing, prepayment, foreclosure, or similar event. Taxact login However, if the refinancing is with the same lender, the remaining points (OID) generally are not deductible in the year in which the refinancing occurs, but may be deductible over the term of the new mortgage or loan. Taxact login Points when loan refinance is more than the previous outstanding balance. Taxact login   When you refinance a rental property for more than the previous outstanding balance, the portion of the points allocable to loan proceeds not related to rental use generally cannot be deducted as a rental expense. Taxact login For example, if an individual refinanced a loan with a balance of $100,000, the amount of the new loan was $120,000, and the taxpayer used $20,000 to purchase a car, points allocable to the $20,000 would be treated as nondeductible personal interest. Taxact login Repairs and Improvements Generally, an expense for repairing or maintaining your rental property may be deducted if you are not required to capitalize the expense. Taxact login Improvements. Taxact login   You must capitalize any expense you pay to improve your rental property. Taxact login An expense is for an improvement if it results in a betterment to your property, restores your property, or adapts your property to a new or different use. Taxact login Betterments. Taxact login   Expenses that may result in a betterment to your property include expenses for fixing a pre-existing defect or condition, enlarging or expanding your property, or increasing the capacity, strength, or quality of your property. Taxact login Restoration. Taxact login   Expenses that may be for restoration include expenses for replacing a substantial structural part of your property, repairing damage to your property after you properly adjusted the basis of your property as a result of a casualty loss, or rebuilding your property to a like-new condition. Taxact login Adaptation. Taxact login   Expenses that may be for adaptation include expenses for altering your property to a use that is not consistent with the intended ordinary use of your property when you began renting the property. Taxact login Separate the costs of repairs and improvements, and keep accurate records. Taxact login You will need to know the cost of improvements when you sell or depreciate your property. Taxact login The expenses you capitalize for improving your property can generally be depreciated as if the improvement were separate property. Taxact login Table 1-1. Taxact login Examples of Improvements Additions Bedroom Bathroom Deck Garage Porch Patio  Lawn & Grounds Landscaping Driveway Walkway Fence Retaining wall Sprinkler system Swimming pool Miscellaneous Storm windows, doors New roof Central vacuum Wiring upgrades Satellite dish Security system   Heating & Air Conditioning Heating system Central air conditioning Furnace Duct work Central humidifier Filtration system Plumbing Septic system Water heater Soft water system Filtration system  Interior Improvements Built-in appliances Kitchen modernization Flooring Wall-to-wall carpeting  Insulation Attic Walls, floor Pipes, duct work Prev  Up  Next   Home   More Online Publications