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Www myfreetaxes com springfieldmo Index A Allowances, Foreign areas allowances. Www myfreetaxes com springfieldmo American Institute in Taiwan, American Institute in Taiwan. Www myfreetaxes com springfieldmo Away from home, Traveling away from home. Www myfreetaxes com springfieldmo B Business expenses, how to report, How To Report Business Expenses C Combat zone, Reminders Commuting expenses, Commuting. Www myfreetaxes com springfieldmo Contributions, Contributions. Www myfreetaxes com springfieldmo Cost-of-living allowances, Cost-of-living allowances. Www myfreetaxes com springfieldmo Credit for foreign taxes, Foreign tax credit. Www myfreetaxes com springfieldmo Currency conversion, loss on, Loss on conversion of U. Www myfreetaxes com springfieldmo S. Www myfreetaxes com springfieldmo dollars into foreign currency. Www myfreetaxes com springfieldmo D Danger pay (see Pay differentials) Death due to terrorist action, Reminders Deduction for foreign taxes, Foreign tax deduction. Www myfreetaxes com springfieldmo , Deduction for other foreign taxes. Www myfreetaxes com springfieldmo Differential pay, Pay differentials. Www myfreetaxes com springfieldmo Dues, Membership dues. Www myfreetaxes com springfieldmo E Educational expenses, Educational expenses. Www myfreetaxes com springfieldmo Employee business expenses, Other Employee Business Expenses Entertainment expenses, Limit on meals and entertainment. Www myfreetaxes com springfieldmo Expenses, deductible, Other Employee Business Expenses Extension of time to file return, When To File and Pay F Federal court employees, Federal court employees. Www myfreetaxes com springfieldmo Federal crime investigations, Exception for federal crime investigations or prosecutions. Www myfreetaxes com springfieldmo Filing information, Filing Information, When To File and Pay Foreign areas allowances, Foreign areas allowances. Www myfreetaxes com springfieldmo Foreign bank accounts, Foreign Bank Accounts Foreign earned income and housing exclusions, Foreign Earned Income Exclusion Foreign income, U. Www myfreetaxes com springfieldmo S. Www myfreetaxes com springfieldmo Government Payments Foreign service representation expenses, Foreign service representation expenses. Www myfreetaxes com springfieldmo Foreign taxes, Foreign Taxes Forms 1116, Foreign tax credit. Www myfreetaxes com springfieldmo 2106, Form 2106 or Form 2106-EZ. Www myfreetaxes com springfieldmo 2106-EZ, Form 2106 or Form 2106-EZ. Www myfreetaxes com springfieldmo 3903, How to report moving expenses. Www myfreetaxes com springfieldmo TD F 90-22. Www myfreetaxes com springfieldmo 1, Foreign Bank Accounts H Home leave, Home leave. Www myfreetaxes com springfieldmo Home mortgage interest, Real estate tax and home mortgage interest. Www myfreetaxes com springfieldmo Home, sale of, Sale of your home. Www myfreetaxes com springfieldmo Hours of service limits, Individuals subject to hours of service limits. Www myfreetaxes com springfieldmo I Impairment-related work expenses, Impairment-related work expenses. Www myfreetaxes com springfieldmo Interest on home mortgage, Real estate tax and home mortgage interest. Www myfreetaxes com springfieldmo International organization, U. Www myfreetaxes com springfieldmo S. Www myfreetaxes com springfieldmo reemployment after serving with, Federal reemployment payments after serving with an international organization. Www myfreetaxes com springfieldmo Itemized deductions Contributions, Contributions. Www myfreetaxes com springfieldmo Employee business expenses, Other Employee Business Expenses Home mortgage interest, Real estate tax and home mortgage interest. Www myfreetaxes com springfieldmo Real estate tax, Real estate tax and home mortgage interest. Www myfreetaxes com springfieldmo L Lodging, Lodging furnished to a principal representative of the United States. Www myfreetaxes com springfieldmo Loss on currency conversion, Loss on conversion of U. Www myfreetaxes com springfieldmo S. Www myfreetaxes com springfieldmo dollars into foreign currency. Www myfreetaxes com springfieldmo M Meal expenses, Limit on meals and entertainment. Www myfreetaxes com springfieldmo More information (see Tax help) Mortgage interest, Real estate tax and home mortgage interest. Www myfreetaxes com springfieldmo Moving expenses, Moving Expenses, Closely related to the start of work. Www myfreetaxes com springfieldmo , Distance test. Www myfreetaxes com springfieldmo , Time test. Www myfreetaxes com springfieldmo , Reimbursements. Www myfreetaxes com springfieldmo P Pay differentials, Pay differentials. Www myfreetaxes com springfieldmo Peace Corps volunteers, Peace Corps. Www myfreetaxes com springfieldmo Personal property, sale of, Sale of personal property. Www myfreetaxes com springfieldmo Post differentials (see Pay differentials) Post exchanges, Employees of post exchanges, etc. Www myfreetaxes com springfieldmo Principal representative, Lodging furnished to a principal representative of the United States. Www myfreetaxes com springfieldmo Proving expenses, Recordkeeping Rules R Real estate tax, Real estate tax and home mortgage interest. Www myfreetaxes com springfieldmo Recordkeeping, business expenses, Recordkeeping Rules Reemployed by federal agency, Federal reemployment payments after serving with an international organization. Www myfreetaxes com springfieldmo Reporting Business expenses, How To Report Business Expenses Moving expenses, Moving Expenses, How to report moving expenses. Www myfreetaxes com springfieldmo Representation expenses, Foreign service representation expenses. Www myfreetaxes com springfieldmo S Sale of home, Sale of your home. Www myfreetaxes com springfieldmo Sale of personal property, Sale of personal property. Www myfreetaxes com springfieldmo Subscriptions, Subscriptions. Www myfreetaxes com springfieldmo T Taiwan, American Institute in, American Institute in Taiwan. Www myfreetaxes com springfieldmo Tax credit for foreign taxes, Foreign tax credit. Www myfreetaxes com springfieldmo Taxpayer Advocate, Taxpayer Advocate Service. Www myfreetaxes com springfieldmo Temporary assignment, Temporary assignment. Www myfreetaxes com springfieldmo Terrorist action, Reminders Transportation expenses, Transportation Expenses Travel expenses, Travel Expenses W When to file return, When To File and Pay Prev  Up     Home   More Online Publications
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Www myfreetaxes com springfieldmo 4. Www myfreetaxes com springfieldmo   Special Situations Table of Contents Condominiums CooperativesDepreciation Property Changed to Rental UseBasis of Property Changed to Rental Use Figuring the Depreciation Deduction Renting Part of Property Not Rented for ProfitPostponing decision. Www myfreetaxes com springfieldmo Example—Property Changed to Rental Use This chapter discusses some rental real estate activities that are subject to additional rules. Www myfreetaxes com springfieldmo Condominiums A condominium is most often a dwelling unit in a multi-unit building, but can also take other forms, such as a townhouse or garden apartment. Www myfreetaxes com springfieldmo If you own a condominium, you also own a share of the common elements, such as land, lobbies, elevators, and service areas. Www myfreetaxes com springfieldmo You and the other condominium owners may pay dues or assessments to a special corporation that is organized to take care of the common elements. Www myfreetaxes com springfieldmo Special rules apply if you rent your condominium to others. Www myfreetaxes com springfieldmo You can deduct as rental expenses all the expenses discussed in chapters 1 and 2. Www myfreetaxes com springfieldmo In addition, you can deduct any dues or assessments paid for maintenance of the common elements. Www myfreetaxes com springfieldmo You cannot deduct special assessments you pay to a condominium management corporation for improvements. Www myfreetaxes com springfieldmo However, you may be able to recover your share of the cost of any improvement by taking depreciation. Www myfreetaxes com springfieldmo Cooperatives If you live in a cooperative, you do not own your apartment. Www myfreetaxes com springfieldmo Instead, a corporation owns the apartments and you are a tenant-stockholder in the cooperative housing corporation. Www myfreetaxes com springfieldmo If you rent your apartment to others, you usually can deduct, as a rental expense, all the maintenance fees you pay to the cooperative housing corporation. Www myfreetaxes com springfieldmo In addition to the maintenance fees paid to the cooperative housing corporation, you can deduct your direct payments for repairs, upkeep, and other rental expenses, including interest paid on a loan used to buy your stock in the corporation. Www myfreetaxes com springfieldmo Depreciation You will be depreciating your stock in the corporation rather than the apartment itself. Www myfreetaxes com springfieldmo Figure your depreciation deduction as follows. Www myfreetaxes com springfieldmo Figure the depreciation for all the depreciable real property owned by the corporation. Www myfreetaxes com springfieldmo (Depreciation methods are discussed in chapter 2 of this publication and Publication 946. Www myfreetaxes com springfieldmo ) If you bought your cooperative stock after its first offering, figure the depreciable basis of this property as follows. Www myfreetaxes com springfieldmo Multiply your cost per share by the total number of outstanding shares. Www myfreetaxes com springfieldmo Add to the amount figured in (a) any mortgage debt on the property on the date you bought the stock. Www myfreetaxes com springfieldmo Subtract from the amount figured in (b) any mortgage debt that is not for the depreciable real property, such as the part for the land. Www myfreetaxes com springfieldmo Subtract from the amount figured in (1) any depreciation for space owned by the corporation that can be rented but cannot be lived in by tenant-stockholders. Www myfreetaxes com springfieldmo Divide the number of your shares of stock by the total number of shares outstanding, including any shares held by the corporation. Www myfreetaxes com springfieldmo Multiply the result of (2) by the percentage you figured in (3). Www myfreetaxes com springfieldmo This is your depreciation on the stock. Www myfreetaxes com springfieldmo Your depreciation deduction for the year cannot be more than the part of your adjusted basis (defined in chapter 2) in the stock of the corporation that is allocable to your rental property. Www myfreetaxes com springfieldmo Payments added to capital account. Www myfreetaxes com springfieldmo   Payments earmarked for a capital asset or improvement, or otherwise charged to the corporation's capital account are added to the basis of your stock in the corporation. Www myfreetaxes com springfieldmo For example, you cannot deduct a payment used to pave a community parking lot, install a new roof, or pay the principal of the corporation's mortgage. Www myfreetaxes com springfieldmo   Treat as a capital cost the amount you were assessed for capital items. Www myfreetaxes com springfieldmo This cannot be more than the amount by which your payments to the corporation exceeded your share of the corporation's mortgage interest and real estate taxes. Www myfreetaxes com springfieldmo   Your share of interest and taxes is the amount the corporation elected to allocate to you, if it reasonably reflects those expenses for your apartment. Www myfreetaxes com springfieldmo Otherwise, figure your share in the following manner. Www myfreetaxes com springfieldmo Divide the number of your shares of stock by the total number of shares outstanding, including any shares held by the corporation. Www myfreetaxes com springfieldmo Multiply the corporation's deductible interest by the number you figured in (1). Www myfreetaxes com springfieldmo This is your share of the interest. Www myfreetaxes com springfieldmo Multiply the corporation's deductible taxes by the number you figured in (1). Www myfreetaxes com springfieldmo This is your share of the taxes. Www myfreetaxes com springfieldmo Property Changed to Rental Use If you change your home or other property (or a part of it) to rental use at any time other than the beginning of your tax year, you must divide yearly expenses, such as taxes and insurance, between rental use and personal use. Www myfreetaxes com springfieldmo You can deduct as rental expenses only the part of the expense that is for the part of the year the property was used or held for rental purposes. Www myfreetaxes com springfieldmo You cannot deduct depreciation or insurance for the part of the year the property was held for personal use. Www myfreetaxes com springfieldmo However, you can include the home mortgage interest, qualified mortgage insurance premiums, and real estate tax expenses for the part of the year the property was held for personal use as an itemized deduction on Schedule A (Form 1040). Www myfreetaxes com springfieldmo Example. Www myfreetaxes com springfieldmo Your tax year is the calendar year. Www myfreetaxes com springfieldmo You moved from your home in May and started renting it out on June 1. Www myfreetaxes com springfieldmo You can deduct as rental expenses seven-twelfths of your yearly expenses, such as taxes and insurance. Www myfreetaxes com springfieldmo Starting with June, you can deduct as rental expenses the amounts you pay for items generally billed monthly, such as utilities. Www myfreetaxes com springfieldmo When figuring depreciation, treat the property as placed in service on June 1. Www myfreetaxes com springfieldmo Basis of Property Changed to Rental Use When you change property you held for personal use to rental use (for example, you rent your former home), the basis for depreciation will be the lesser of fair market value or adjusted basis on the date of conversion. Www myfreetaxes com springfieldmo Fair market value. Www myfreetaxes com springfieldmo   This is the price at which the property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all the relevant facts. Www myfreetaxes com springfieldmo Sales of similar property, on or about the same date, may be helpful in figuring the fair market value of the property. Www myfreetaxes com springfieldmo Figuring the basis. Www myfreetaxes com springfieldmo   The basis for depreciation is the lesser of: The fair market value of the property on the date you changed it to rental use, or Your adjusted basis on the date of the change—that is, your original cost or other basis of the property, plus the cost of permanent additions or improvements since you acquired it, minus deductions for any casualty or theft losses claimed on earlier years' income tax returns and other decreases to basis. Www myfreetaxes com springfieldmo For other increases and decreases to basis, see Adjusted Basis in chapter 2. Www myfreetaxes com springfieldmo Example. Www myfreetaxes com springfieldmo Several years ago you built your home for $140,000 on a lot that cost you $14,000. Www myfreetaxes com springfieldmo Before changing the property to rental use this year, you added $28,000 of permanent improvements to the house and claimed a $3,500 casualty loss deduction for damage to the house. Www myfreetaxes com springfieldmo Part of the improvements qualified for a $500 residential energy credit, which you claimed on your 2010 tax return. Www myfreetaxes com springfieldmo Because land is not depreciable, you can only include the cost of the house when figuring the basis for depreciation. Www myfreetaxes com springfieldmo The adjusted basis of the house at the time of the change in its use was $164,000 ($140,000 + $28,000 − $3,500 − $500). Www myfreetaxes com springfieldmo On the date of the change in use, your property had a fair market value of $168,000, of which $21,000 was for the land and $147,000 was for the house. Www myfreetaxes com springfieldmo The basis for depreciation on the house is the fair market value on the date of the change ($147,000), because it is less than your adjusted basis ($164,000). Www myfreetaxes com springfieldmo Cooperatives If you change your cooperative apartment to rental use, figure your allowable depreciation as explained earlier. Www myfreetaxes com springfieldmo (Depreciation methods are discussed in chapter 2 of this publication and Publication 946. Www myfreetaxes com springfieldmo ) The basis of all the depreciable real property owned by the cooperative housing corporation is the smaller of the following amounts. Www myfreetaxes com springfieldmo The fair market value of the property on the date you change your apartment to rental use. Www myfreetaxes com springfieldmo This is considered to be the same as the corporation's adjusted basis minus straight line depreciation, unless this value is unrealistic. Www myfreetaxes com springfieldmo The corporation's adjusted basis in the property on that date. Www myfreetaxes com springfieldmo Do not subtract depreciation when figuring the corporation's adjusted basis. Www myfreetaxes com springfieldmo If you bought the stock after its first offering, the corporation's adjusted basis in the property is the amount figured in (1) under Depreciation (under Cooperatives, near the beginning of this chapter). Www myfreetaxes com springfieldmo The fair market value of the property is considered to be the same as the corporation's adjusted basis figured in this way minus straight line depreciation, unless the value is unrealistic. Www myfreetaxes com springfieldmo Figuring the Depreciation Deduction To figure the deduction, use the depreciation system in effect when you convert your residence to rental use. Www myfreetaxes com springfieldmo Generally, that will be MACRS for any conversion after 1986. Www myfreetaxes com springfieldmo Treat the property as placed in service on the conversion date. Www myfreetaxes com springfieldmo Example. Www myfreetaxes com springfieldmo Your converted residence (see previous example under Figuring the basis) was available for rent on August 1. Www myfreetaxes com springfieldmo Using Table 2-2d (see chapter 2), the percentage for Year 1 beginning in August is 1. Www myfreetaxes com springfieldmo 364% and the depreciation deduction for Year 1 is $2,005 ($147,000 × . Www myfreetaxes com springfieldmo 01364). Www myfreetaxes com springfieldmo Renting Part of Property If you rent part of your property, you must divide certain expenses between the part of the property used for rental purposes and the part of the property used for personal purposes, as though you actually had two separate pieces of property. Www myfreetaxes com springfieldmo You can deduct the expenses related to the part of the property used for rental purposes, such as home mortgage interest, qualified mortgage insurance premiums, and real estate taxes, as rental expenses on Schedule E (Form 1040). Www myfreetaxes com springfieldmo You can also deduct as rental expenses a portion of other expenses that normally are nondeductible personal expenses, such as expenses for electricity, or painting the outside of the house. Www myfreetaxes com springfieldmo There is no change in the types of expenses deductible for the personal-use part of your property. Www myfreetaxes com springfieldmo Generally, these expenses may be deducted only if you itemize your deductions on Schedule A (Form 1040). Www myfreetaxes com springfieldmo You cannot deduct any part of the cost of the first phone line even if your tenants have unlimited use of it. Www myfreetaxes com springfieldmo You do not have to divide the expenses that belong only to the rental part of your property. Www myfreetaxes com springfieldmo For example, if you paint a room that you rent, or if you pay premiums for liability insurance in connection with renting a room in your home, your entire cost is a rental expense. Www myfreetaxes com springfieldmo If you install a second phone line strictly for your tenant's use, all of the cost of the second line is deductible as a rental expense. Www myfreetaxes com springfieldmo You can deduct depreciation on the part of the house used for rental purposes as well as on the furniture and equipment you use for rental purposes. Www myfreetaxes com springfieldmo How to divide expenses. Www myfreetaxes com springfieldmo   If an expense is for both rental use and personal use, such as mortgage interest or heat for the entire house, you must divide the expense between rental use and personal use. Www myfreetaxes com springfieldmo You can use any reasonable method for dividing the expense. Www myfreetaxes com springfieldmo It may be reasonable to divide the cost of some items (for example, water) based on the number of people using them. Www myfreetaxes com springfieldmo The two most common methods for dividing an expense are (1) the number of rooms in your home, and (2) the square footage of your home. Www myfreetaxes com springfieldmo Example. Www myfreetaxes com springfieldmo You rent a room in your house. Www myfreetaxes com springfieldmo The room is 12 × 15 feet, or 180 square feet. Www myfreetaxes com springfieldmo Your entire house has 1,800 square feet of floor space. Www myfreetaxes com springfieldmo You can deduct as a rental expense 10% of any expense that must be divided between rental use and personal use. Www myfreetaxes com springfieldmo If your heating bill for the year for the entire house was $600, $60 ($600 × . Www myfreetaxes com springfieldmo 10) is a rental expense. Www myfreetaxes com springfieldmo The balance, $540, is a personal expense that you cannot deduct. Www myfreetaxes com springfieldmo Duplex. Www myfreetaxes com springfieldmo   A common situation is the duplex where you live in one unit and rent out the other. Www myfreetaxes com springfieldmo Certain expenses apply to the entire property, such as mortgage interest and real estate taxes, and must be split to determine rental and personal expenses. Www myfreetaxes com springfieldmo Example. Www myfreetaxes com springfieldmo You own a duplex and live in one half, renting the other half. Www myfreetaxes com springfieldmo Both units are approximately the same size. Www myfreetaxes com springfieldmo Last year, you paid a total of $10,000 mortgage interest and $2,000 real estate taxes for the entire property. Www myfreetaxes com springfieldmo You can deduct $5,000 mortgage interest and $1,000 real estate taxes on Schedule E (Form 1040), and if you itemize your deductions, you can deduct the other $5,000 mortgage interest and $1,000 real estate taxes on Schedule A (Form 1040). Www myfreetaxes com springfieldmo Not Rented for Profit If you do not rent your property to make a profit, you can deduct your rental expenses only up to the amount of your rental income. Www myfreetaxes com springfieldmo You cannot deduct a loss or carry forward to the next year any rental expenses that are more than your rental income for the year. Www myfreetaxes com springfieldmo Where to report. Www myfreetaxes com springfieldmo   Report your not-for-profit rental income on Form 1040 or 1040NR, line 21. Www myfreetaxes com springfieldmo For example, if you are filing Form 1040, you can include your mortgage interest and any qualified mortgage insurance premiums (if you use the property as your main home or second home), real estate taxes, and casualty losses on the appropriate lines of Schedule A (Form 1040) if you itemize your deductions. Www myfreetaxes com springfieldmo   If you itemize your deductions, claim your other rental expenses, subject to the rules explained in chapter 1 of Publication 535, as miscellaneous itemized deductions on Schedule A (Form 1040), line 23, or Schedule A (Form 1040NR), line 9. Www myfreetaxes com springfieldmo You can deduct these expenses only if they, together with certain other miscellaneous itemized deductions, total more than 2% of your adjusted gross income. Www myfreetaxes com springfieldmo Presumption of profit. Www myfreetaxes com springfieldmo   If your rental income is more than your rental expenses for at least 3 years out of a period of 5 consecutive years, you are presumed to be renting your property to make a profit. Www myfreetaxes com springfieldmo Postponing decision. Www myfreetaxes com springfieldmo   If you are starting your rental activity and do not have 3 years showing a profit, you can elect to have the presumption made after you have the 5 years of experience required by the test. Www myfreetaxes com springfieldmo You may choose to postpone the decision of whether the rental is for profit by filing Form 5213. Www myfreetaxes com springfieldmo You must file Form 5213 within 3 years after the due date of your return (determined without extensions) for the year in which you first carried on the activity or, if earlier, within 60 days after receiving written notice from the Internal Revenue Service proposing to disallow deductions attributable to the activity. Www myfreetaxes com springfieldmo More information. Www myfreetaxes com springfieldmo   For more information about the rules for an activity not engaged in for profit, see Not-for-Profit Activities in chapter 1 of Publication 535. Www myfreetaxes com springfieldmo Example—Property Changed to Rental Use In January, Eileen Johnson bought a condominium apartment to live in. Www myfreetaxes com springfieldmo Instead of selling the house she had been living in, she decided to change it to rental property. Www myfreetaxes com springfieldmo Eileen selected a tenant and started renting the house on February 1. Www myfreetaxes com springfieldmo Eileen charges $750 a month for rent and collects it herself. Www myfreetaxes com springfieldmo Eileen also received a $750 security deposit from her tenant. Www myfreetaxes com springfieldmo Because she plans to return it to her tenant at the end of the lease, she does not include it in her income. Www myfreetaxes com springfieldmo Her rental expenses for the year are as follows. Www myfreetaxes com springfieldmo   Mortgage interest $1,800     Fire insurance (1-year policy) 100     Miscellaneous repairs (after renting) 297     Real estate taxes imposed and paid 1,200   Eileen must divide the real estate taxes, mortgage interest, and fire insurance between the personal use of the property and the rental use of the property. Www myfreetaxes com springfieldmo She can deduct eleven-twelfths of these expenses as rental expenses. Www myfreetaxes com springfieldmo She can include the balance of the allowable taxes and mortgage interest on Schedule A (Form 1040) if she itemizes. Www myfreetaxes com springfieldmo She cannot deduct the balance of the fire insurance because it is a personal expense. Www myfreetaxes com springfieldmo Eileen bought this house in 1984 for $35,000. Www myfreetaxes com springfieldmo Her property tax was based on assessed values of $10,000 for the land and $25,000 for the house. Www myfreetaxes com springfieldmo Before changing it to rental property, Eileen added several improvements to the house. Www myfreetaxes com springfieldmo She figures her adjusted basis as follows:   Improvements Cost     House $25,000     Remodeled kitchen 4,200     Recreation room 5,800     New roof 1,600     Patio and deck 2,400     Adjusted basis $39,000   On February 1, when Eileen changed her house to rental property, the property had a fair market value of $152,000. Www myfreetaxes com springfieldmo Of this amount, $35,000 was for the land and $117,000 was for the house. Www myfreetaxes com springfieldmo Because Eileen's adjusted basis is less than the fair market value on the date of the change, Eileen uses $39,000 as her basis for depreciation. Www myfreetaxes com springfieldmo As specified for residential rental property, Eileen must use the straight line method of depreciation over the GDS or ADS recovery period. Www myfreetaxes com springfieldmo She chooses the GDS recovery period of 27. Www myfreetaxes com springfieldmo 5 years. Www myfreetaxes com springfieldmo She uses Table 2-2d to find her depreciation percentage. Www myfreetaxes com springfieldmo Since she placed the property in service in February, the percentage is 3. Www myfreetaxes com springfieldmo 182%. Www myfreetaxes com springfieldmo On April 1, Eileen bought a new dishwasher for the rental property at a cost of $425. Www myfreetaxes com springfieldmo The dishwasher is personal property used in a rental real estate activity, which has a 5-year recovery period. Www myfreetaxes com springfieldmo She uses Table 2-2a to find the percentage for Year 1 under “Half-year convention” (20%) to figure her depreciation deduction. Www myfreetaxes com springfieldmo On May 1, Eileen paid $4,000 to have a furnace installed in the house. Www myfreetaxes com springfieldmo The furnace is residential rental property. Www myfreetaxes com springfieldmo Because she placed the property in service in May, the percentage from Table 2-2d is 2. Www myfreetaxes com springfieldmo 273%. Www myfreetaxes com springfieldmo Eileen figures her net rental income or loss for the house as follows: Total rental income received  ($750 × 11) $8,250 Minus: Expenses     Mortgage interest ($1,800 × 11/12) $1,650   Fire insurance ($100 × 11/12) 92   Miscellaneous repairs 297   Real estate taxes ($1,200 × 11/12) 1,100   Total expenses 3,139 Balance $5,111 Minus: Depreciation     House ($39,000 × . Www myfreetaxes com springfieldmo 03182) $1,241   Dishwasher ($425 × . Www myfreetaxes com springfieldmo 20) 85   Furnace ($4,000 × . Www myfreetaxes com springfieldmo 02273) 91   Total depreciation 1,417 Net rental income for house   $3,694       Eileen uses Schedule E, Part I, to report her rental income and expenses. Www myfreetaxes com springfieldmo She enters her income, expenses, and depreciation for the house in the column for Property A. Www myfreetaxes com springfieldmo Since all property was placed in service this year, Eileen must use Form 4562 to figure the depreciation. Www myfreetaxes com springfieldmo See the Instructions for Form 4562 for more information on preparing the form. Www myfreetaxes com springfieldmo Prev  Up  Next   Home   More Online Publications