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1040 Form

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1040 Form

1040 form Index A Archer MSAs, Archer MSAs, Employment taxes. 1040 form Assistance (see Tax help) C Contributions to FSA, Contributions to an FSA HRA, Contributions to an HRA HSA, Contributions to an HSA MSA, Contributions to an MSA D Death of HSA holder, Death of HSA Holder MSA holder, Death of the Archer MSA Holder Distributions from FSA, Distributions From an FSA HRA, Distributions From an HRA HSA, Distributions From an HSA MSA, Distributions From an MSA E Employer participation FSA, Employer Participation HRA, Employer Participation HSA, Employer Participation MSA, Employer Participation F Flexible Spending Arrangements Grace Period, Health FSA – grace period. 1040 form Flexible spending arrangements, Flexible Spending Arrangements (FSAs), Employer Participation Balance in, Balance in an FSA Contributions to, Contributions to an FSA Distributions from, Distributions From an FSA Qualifying for, Qualifying for an FSA When to contribute, When To Contribute Form 5329, Excess contributions. 1040 form , Excess contributions. 1040 form 5498–SA, Form 8889. 1040 form , Reporting Contributions on Your Return 8853, Additional tax. 1040 form , Filing Form 8853 8889, Form 8889. 1040 form , Additional tax. 1040 form , Filing Form 8889 Free tax services, Free help with your tax return. 1040 form H Health plans, high deductible, High deductible health plan (HDHP). 1040 form , High deductible health plan (HDHP). 1040 form Health reimbursement arrangements, Health Reimbursement Arrangements (HRAs), Employer Participation Balance in, Balance in an HRA Contributions to, Contributions to an HRA Distributions from, Distributions From an HRA Qualifying for, Qualifying for an HRA Health savings accounts, Health Savings Accounts (HSAs), Employment taxes. 1040 form Balance in, Balance in an HSA Contributions to, Contributions to an HSA Deemed distributions, Deemed distributions from HSAs. 1040 form Distributions from, Distributions From an HSA Last-month rule, Last-month rule. 1040 form Partnerships, Reporting Contributions on Your Return Qualifying for, Qualifying for an HSA Rollovers, Rollovers S corporations, Reporting Contributions on Your Return When to contribute, When To Contribute Help (see Tax help) High deductible health plan, High deductible health plan (HDHP). 1040 form , High deductible health plan (HDHP). 1040 form M Medical expenses, qualified, Qualified medical expenses. 1040 form , Qualified medical expenses. 1040 form , Qualified medical expenses. 1040 form , Qualified medical expenses. 1040 form Medical savings accounts, Medical Savings Accounts (MSAs), Medicare Advantage MSAs Balance in, Balance in an Archer MSA Contributions to, Contributions to an MSA Deemed distributions, Deemed distributions from Archer MSAs. 1040 form Distributions from, Distributions From an MSA Medicare Advantage MSAs, Medicare Advantage MSAs Qualifying for, Qualifying for an Archer MSA When to contribute, When To Contribute Medicare Advantage MSAs, Medicare Advantage MSAs P Preventive care, High deductible health plan (HDHP). 1040 form Publications (see Tax help) Q Qualified HSA funding distribution, Qualified HSA funding distribution. 1040 form T Tax help, How To Get Tax Help Testing period Last-month rule, Testing period. 1040 form Qualified HSA funding distribution, Funding distribution – testing period. 1040 form TTY/TDD information, How To Get Tax Help Prev  Up     Home   More Online Publications
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The 1040 Form

1040 form 9. 1040 form   Rental Income and Expenses Table of Contents Introduction Useful Items - You may want to see: Rental Income Rental ExpensesVacant while listed for sale. 1040 form Repairs and Improvements Other Expenses Property Changed to Rental Use Renting Part of Property Not Rented for Profit Personal Use of Dwelling Unit (Including Vacation Home)Example. 1040 form Dividing Expenses Dwelling Unit Used as a Home Reporting Income and Deductions DepreciationChanging your accounting method to deduct unclaimed depreciation. 1040 form Limits on Rental LossesAt-Risk Rules Passive Activity Limits How To Report Rental Income and ExpensesSchedule E (Form 1040) Introduction This chapter discusses rental income and expenses. 1040 form It also covers the following topics. 1040 form Personal use of dwelling unit (including vacation home). 1040 form Depreciation. 1040 form Limits on rental losses. 1040 form How to report your rental income and expenses. 1040 form If you sell or otherwise dispose of your rental property, see Publication 544, Sales and Other Dispositions of Assets. 1040 form If you have a loss from damage to, or theft of, rental property, see Publication 547, Casualties, Disasters, and Thefts. 1040 form If you rent a condominium or a cooperative apartment, some special rules apply to you even though you receive the same tax treatment as other owners of rental property. 1040 form See Publication 527, Residential Rental Property, for more information. 1040 form Useful Items - You may want to see: Publication 527 Residential Rental Property 534 Depreciating Property Placed in Service Before 1987 535 Business Expenses 925 Passive Activity and At-Risk Rules 946 How To Depreciate Property Form (and Instructions) 4562 Depreciation and Amortization 6251 Alternative Minimum Tax—Individuals 8582 Passive Activity Loss Limitations Schedule E (Form 1040) Supplemental Income and Loss Rental Income In most cases, you must include in your gross income all amounts you receive as rent. 1040 form Rental income is any payment you receive for the use or occupation of property. 1040 form In addition to amounts you receive as normal rent payments, there are other amounts that may be rental income. 1040 form When to report. 1040 form   If you are a cash-basis taxpayer, you report rental income on your return for the year you actually or constructively receive it. 1040 form You are a cash-basis taxpayer if you report income in the year you receive it, regardless of when it was earned. 1040 form You constructively receive income when it is made available to you, for example, by being credited to your bank account. 1040 form   For more information about when you constructively receive income, see Accounting Methods in chapter 1. 1040 form Advance rent. 1040 form   Advance rent is any amount you receive before the period that it covers. 1040 form 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. 1040 form Example. 1040 form You sign a 10-year lease to rent your property. 1040 form In the first year, you receive $5,000 for the first year's rent and $5,000 as rent for the last year of the lease. 1040 form You must include $10,000 in your income in the first year. 1040 form Canceling a lease. 1040 form   If your tenant pays you to cancel a lease, the amount you receive is rent. 1040 form Include the payment in your income in the year you receive it regardless of your method of accounting. 1040 form Expenses paid by tenant. 1040 form   If your tenant pays any of your expenses, the payments are rental income. 1040 form Because you must include this amount in income, you can deduct the expenses if they are deductible rental expenses. 1040 form See Rental Expenses , later, for more information. 1040 form Property or services. 1040 form   If you receive property or services, instead of money, as rent, include the fair market value of the property or services in your rental income. 1040 form   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. 1040 form Security deposits. 1040 form   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. 1040 form 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. 1040 form   If an amount called a security deposit is to be used as a final payment of rent, it is advance rent. 1040 form Include it in your income when you receive it. 1040 form Part interest. 1040 form   If you own a part interest in rental property, you must report your part of the rental income from the property. 1040 form Rental of property also used as your home. 1040 form   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. 1040 form However, you can deduct on Schedule A (Form 1040) the interest, taxes, and casualty and theft losses that are allowed for nonrental property. 1040 form See Personal Use of Dwelling Unit (Including Vacation Home) , later. 1040 form Rental Expenses This part discusses expenses of renting property that you ordinarily can deduct from your rental income. 1040 form It includes information on the expenses you can deduct if you rent part of your property, or if you change your property to rental use. 1040 form Depreciation , which you can also deduct from your rental income, is discussed later. 1040 form Personal use of rental property. 1040 form   If you sometimes use your rental property for personal purposes, you must divide your expenses between rental and personal use. 1040 form Also, your rental expense deductions may be limited. 1040 form See Personal Use of Dwelling Unit (Including Vacation Home) , later. 1040 form Part interest. 1040 form   If you own a part interest in rental property, you can deduct expenses that you paid according to your percentage of ownership. 1040 form When to deduct. 1040 form   If you are a cash-basis taxpayer, you generally deduct your rental expenses in the year you pay them. 1040 form Depreciation. 1040 form   You can begin to depreciate rental property when it is ready and available for rent. 1040 form See Placed-in-Service under When Does Depreciation Begin and End in chapter 2 of Publication 527. 1040 form Pre-rental expenses. 1040 form   You can deduct your ordinary and necessary expenses for managing, conserving, or maintaining rental property from the time you make it available for rent. 1040 form Uncollected rent. 1040 form   If you are a cash-basis taxpayer, do not deduct uncollected rent. 1040 form Because you have not included it in your income, it is not deductible. 1040 form Vacant rental property. 1040 form   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. 1040 form However, you cannot deduct any loss of rental income for the period the property is vacant. 1040 form Vacant while listed for sale. 1040 form   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. 1040 form If the property is not held out and available for rent while listed for sale, the expenses are not deductible rental expenses. 1040 form 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. 1040 form Improvements. 1040 form   You must capitalize any expense you pay to improve your rental property. 1040 form 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. 1040 form Betterments. 1040 form   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. 1040 form Restoration. 1040 form   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. 1040 form Adaptation. 1040 form   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. 1040 form Separate the costs of repairs and improvements, and keep accurate records. 1040 form You will need to know the cost of improvements when you sell or depreciate your property. 1040 form The expenses you capitalize for improving your property can generally be depreciated as if the improvement were separate property. 1040 form Other Expenses Other expenses you can deduct from your rental income include advertising, cleaning and maintenance, utilities, fire and liability insurance, taxes, interest, commissions for the collection of rent, ordinary and necessary travel and transportation, and other expenses, discussed next. 1040 form Insurance premiums paid in advance. 1040 form   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. 1040 form You cannot deduct the total premium in the year you pay it. 1040 form Legal and other professional fees. 1040 form   You can deduct, as a rental expense, legal and other professional expenses, such as tax return preparation fees you paid to prepare Schedule E (Form 1040), Part I. 1040 form For example, on your 2013 Schedule E, you can deduct fees paid in 2013 to prepare your 2012 Schedule E, Part I. 1040 form 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. 1040 form Local benefit taxes. 1040 form   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. 1040 form These charges are nondepreciable capital expenditures, and must be added to the basis of your property. 1040 form However, you can deduct local benefit taxes that are for maintaining, repairing, or paying interest charges for the benefits. 1040 form Local transportation expenses. 1040 form    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. 1040 form 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. 1040 form See Publication 587, Business Use of Your Home, for information on determining if your home office qualifies as a principal place of business. 1040 form   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. 1040 form For 2013, the standard mileage rate for business use is 56. 1040 form 5 cents per mile. 1040 form For more information, see chapter 26. 1040 form    To deduct car expenses under either method, you must keep records that follow the rules in chapter 26. 1040 form In addition, you must complete Form 4562, Part V, and attach it to your tax return. 1040 form Rental of equipment. 1040 form   You can deduct the rent you pay for equipment that you use for rental purposes. 1040 form However, in some cases, lease contracts are actually purchase contracts. 1040 form If so, you cannot deduct these payments. 1040 form You can recover the cost of purchased equipment through depreciation. 1040 form Rental of property. 1040 form   You can deduct the rent you pay for property that you use for rental purposes. 1040 form 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. 1040 form Travel expenses. 1040 form   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. 1040 form You must properly allocate your expenses between rental and nonrental activities. 1040 form You cannot deduct the cost of traveling away from home if the primary purpose of the trip was to improve your property. 1040 form You recover the cost of improvements by taking depreciation. 1040 form For information on travel expenses, see chapter 26. 1040 form    To deduct travel expenses, you must keep records that follow the rules in chapter 26. 1040 form   See Rental Expenses in Publication 527 for more information. 1040 form 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. 1040 form 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. 1040 form You cannot deduct depreciation or insurance for the part of the year the property was held for personal use. 1040 form 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). 1040 form Example. 1040 form Your tax year is the calendar year. 1040 form You moved from your home in May and started renting it out on June 1. 1040 form You can deduct as rental expenses seven-twelfths of your yearly expenses, such as taxes and insurance. 1040 form Starting with June, you can deduct as rental expenses the amounts you pay for items generally billed monthly, such as utilities. 1040 form 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. 1040 form 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). 1040 form You can also deduct as rental expenses a portion of other expenses that normally are nondeductible personal expenses, such as expenses for electricity or painting the outside of your house. 1040 form There is no change in the types of expenses deductible for the personal-use part of your property. 1040 form Generally, these expenses may be deducted only if you itemize your deductions on Schedule A (Form 1040). 1040 form You cannot deduct any part of the cost of the first phone line even if your tenants have unlimited use of it. 1040 form You do not have to divide the expenses that belong only to the rental part of your property. 1040 form 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. 1040 form If you install a second phone line strictly for your tenants' use, all of the cost of the second line is deductible as a rental expense. 1040 form You can deduct depreciation, discussed later, on the part of the house used for rental purposes as well as on the furniture and equipment you use for rental purposes. 1040 form How to divide expenses. 1040 form   If an expense is for both rental use and personal use, such as mortgage interest or heat for the entire house, you must divide the expense between the rental use and the personal use. 1040 form You can use any reasonable method for dividing the expense. 1040 form It may be reasonable to divide the cost of some items (for example, water) based on the number of people using them. 1040 form The two most common methods for dividing an expense are based on (1) the number of rooms in your home, and (2) the square footage of your home. 1040 form 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. 1040 form 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. 1040 form 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. 1040 form Where to report. 1040 form   Report your not-for-profit rental income on Form 1040, line 21. 1040 form For example, you can include your mortgage interest and any qualified mortgage insurance premiums (if you use the property as your main home or second home), real estate taxes, and casualty losses on the appropriate lines of Schedule A (Form 1040) if you itemize your deductions. 1040 form   If you itemize your deductions, claim your other rental expenses, subject to the rules explained in chapter 1 of Publication 535, as miscellaneous itemized deductions on Form 1040, Schedule A, line 23. 1040 form You can deduct these expenses only if they, together with certain other miscellaneous itemized deductions, total more than 2% of your adjusted gross income. 1040 form Personal Use of Dwelling Unit (Including Vacation Home) If you have any personal use of a dwelling unit (including a vacation home) that you rent, you must divide your expenses between rental use and personal use. 1040 form In general, your rental expenses will be no more than your total expenses multiplied by a fraction; the denominator of which is the total number of days the dwelling unit is used and the numerator of which is the total number of days actually rented at a fair rental price. 1040 form Only your rental expenses may be deducted on Schedule E (Form 1040). 1040 form Some of your personal expenses may be deductible if you itemize your deductions on Schedule A (Form 1040). 1040 form You must also determine if the dwelling unit is considered a home. 1040 form The amount of rental expenses that you can deduct may be limited if the dwelling unit is considered a home. 1040 form Whether a dwelling unit is considered a home depends on how many days during the year are considered to be days of personal use. 1040 form There is a special rule if you used the dwelling unit as a home and you rented it for less than 15 days during the year. 1040 form Dwelling unit. 1040 form   A dwelling unit includes a house, apartment, condominium, mobile home, boat, vacation home, or similar property. 1040 form It also includes all structures or other property belonging to the dwelling unit. 1040 form A dwelling unit has basic living accommodations, such as sleeping space, a toilet, and cooking facilities. 1040 form   A dwelling unit does not include property used solely as a hotel, motel, inn, or similar establishment. 1040 form Property is used solely as a hotel, motel, inn, or similar establishment if it is regularly available for occupancy by paying customers and is not used by an owner as a home during the year. 1040 form Example. 1040 form   You rent a room in your home that is always available for short-term occupancy by paying customers. 1040 form You do not use the room yourself, and you allow only paying customers to use the room. 1040 form The room is used solely as a hotel, motel, inn, or similar establishment and is not a dwelling unit. 1040 form Dividing Expenses If you use a dwelling unit for both rental and personal purposes, divide your expenses between the rental use and the personal use based on the number of days used for each purpose. 1040 form When dividing your expenses, follow these rules. 1040 form Any day that the unit is rented at a fair rental price is a day of rental use even if you used the unit for personal purposes that day. 1040 form This rule does not apply when determining whether you used the unit as a home. 1040 form Any day that the unit is available for rent but not actually rented is not a day of rental use. 1040 form Example. 1040 form Your beach cottage was available for rent from June 1 through August 31 (92 days). 1040 form During that time, except for the first week in August (7 days) when you were unable to find a renter, you rented the cottage at a fair rental price. 1040 form The person who rented the cottage for July allowed you to use it over the weekend (2 days) without any reduction in or refund of rent. 1040 form Your family also used the cottage during the last 2 weeks of May (14 days). 1040 form The cottage was not used at all before May 17 or after August 31. 1040 form You figure the part of the cottage expenses to treat as rental expenses as follows. 1040 form The cottage was used for rental a total of 85 days (92 − 7). 1040 form The days it was available for rent but not rented (7 days) are not days of rental use. 1040 form The July weekend (2 days) you used it is rental use because you received a fair rental price for the weekend. 1040 form You used the cottage for personal purposes for 14 days (the last 2 weeks in May). 1040 form The total use of the cottage was 99 days (14 days personal use + 85 days rental use). 1040 form Your rental expenses are 85/99 (86%) of the cottage expenses. 1040 form Note. 1040 form When determining whether you used the cottage as a home, the July weekend (2 days) you used it is considered personal use even though you received a fair rental price for the weekend. 1040 form Therefore, you had 16 days of personal use and 83 days of rental use for this purpose. 1040 form Because you used the cottage for personal purposes more than 14 days and more than 10% of the days of rental use (8 days), you used it as a home. 1040 form If you have a net loss, you may not be able to deduct all of the rental expenses. 1040 form See Dwelling Unit Used as a Home, next. 1040 form Dwelling Unit Used as a Home If you use a dwelling unit for both rental and personal purposes, the tax treatment of the rental expenses you figured earlier under Dividing Expenses and rental income depends on whether you are considered to be using the dwelling unit as a home. 1040 form You use a dwelling unit as a home during the tax year if you use it for personal purposes more than the greater of: 14 days, or 10% of the total days it is rented to others at a fair rental price. 1040 form See What is a day of personal use , later. 1040 form Fair rental price. 1040 form   A fair rental price for your property generally is the amount of rent that a person who is not related to you would be willing to pay. 1040 form The rent you charge is not a fair rental price if it is substantially less than the rents charged for other properties that are similar to your property in your area. 1040 form   If a dwelling unit is used for personal purposes on a day it is rented at a fair rental price, do not count that day as a day of rental use in applying (2) above. 1040 form Instead, count it as a day of personal use in applying both (1) and (2) above. 1040 form What is a day of personal use?   A day of personal use of a dwelling unit is any day that the unit is used by any of the following persons. 1040 form You or any other person who has an interest in the unit, unless you rent it to another owner as his or her main home under a shared equity financing agreement (defined later). 1040 form However, see Days used as a main home before or after renting , later. 1040 form A member of your family or a member of the family of any other person who owns an interest in the unit, unless the family member uses the dwelling unit as his or her main home and pays a fair rental price. 1040 form Family includes only your spouse, brothers and sisters, half-brothers and half-sisters, ancestors (parents, grandparents, etc. 1040 form ), and lineal descendants (children, grandchildren, etc. 1040 form ). 1040 form Anyone under an arrangement that lets you use some other dwelling unit. 1040 form Anyone at less than a fair rental price. 1040 form Main home. 1040 form   If the other person or member of the family in (1) or (2) above has more than one home, his or her main home is ordinarily the one he or she lived in most of the time. 1040 form Shared equity financing agreement. 1040 form   This is an agreement under which two or more persons acquire undivided interests for more than 50 years in an entire dwelling unit, including the land, and one or more of the co-owners is entitled to occupy the unit as his or her main home upon payment of rent to the other co-owner or owners. 1040 form Donation of use of property. 1040 form   You use a dwelling unit for personal purposes if: You donate the use of the unit to a charitable organization, The organization sells the use of the unit at a fund-raising event, and The “purchaser” uses the unit. 1040 form Examples. 1040 form   The following examples show how to determine days of personal use. 1040 form Example 1. 1040 form You and your neighbor are co-owners of a condominium at the beach. 1040 form Last year, you rented the unit to vacationers whenever possible. 1040 form The unit was not used as a main home by anyone. 1040 form Your neighbor used the unit for 2 weeks last year; you did not use it at all. 1040 form Because your neighbor has an interest in the unit, both of you are considered to have used the unit for personal purposes during those 2 weeks. 1040 form Example 2. 1040 form You and your neighbors are co-owners of a house under a shared equity financing agreement. 1040 form Your neighbors live in the house and pay you a fair rental price. 1040 form Even though your neighbors have an interest in the house, the days your neighbors live there are not counted as days of personal use by you. 1040 form This is because your neighbors rent the house as their main home under a shared equity financing agreement. 1040 form Example 3. 1040 form You own a rental property that you rent to your son. 1040 form Your son does not own any interest in this property. 1040 form He uses it as his main home and pays you a fair rental price. 1040 form Your son's use of the property is not personal use by you because your son is using it as his main home, he owns no interest in the property, and he is paying you a fair rental price. 1040 form Example 4. 1040 form You rent your beach house to Joshua. 1040 form Joshua rents his cabin in the mountains to you. 1040 form You each pay a fair rental price. 1040 form You are using your house for personal purposes on the days that Joshua uses it because your house is used by Joshua under an arrangement that allows you to use his house. 1040 form Days used for repairs and maintenance. 1040 form   Any day that you spend working substantially full time repairing and maintaining (not improving) your property is not counted as a day of personal use. 1040 form Do not count such a day as a day of personal use even if family members use the property for recreational purposes on the same day. 1040 form Days used as a main home before or after renting. 1040 form   For purposes of determining whether a dwelling unit was used as a home, you may not have to count days you used the property as your main home before or after renting it or offering it for rent as days of personal use. 1040 form Do not count them as days of personal use if: You rented or tried to rent the property for 12 or more consecutive months. 1040 form You rented or tried to rent the property for a period of less than 12 consecutive months and the period ended because you sold or exchanged the property. 1040 form However, this special rule does not apply when dividing expenses between rental and personal use. 1040 form Examples. 1040 form   The following examples show how to determine whether you used your rental property as a home. 1040 form Example 1. 1040 form You converted the basement of your home into an apartment with a bedroom, a bathroom, and a small kitchen. 1040 form You rented the basement apartment at a fair rental price to college students during the regular school year. 1040 form You rented to them on a 9-month lease (273 days). 1040 form You figured 10% of the total days rented to others at a fair rental price is 27 days. 1040 form During June (30 days), your brothers stayed with you and lived in the basement apartment rent free. 1040 form Your basement apartment was used as a home because you used it for personal purposes for 30 days. 1040 form Rent-free use by your brothers is considered personal use. 1040 form Your personal use (30 days) is more than the greater of 14 days or 10% of the total days it was rented (27 days). 1040 form Example 2. 1040 form You rented the guest bedroom in your home at a fair rental price during the local college's homecoming, commencement, and football weekends (a total of 27 days). 1040 form Your sister-in-law stayed in the room, rent free, for the last 3 weeks (21 days) in July. 1040 form You figured 10% of the total days rented to others at a fair rental price is 3 days. 1040 form The room was used as a home because you used it for personal purposes for 21 days. 1040 form That is more than the greater of 14 days or 10% of the 27 days it was rented (3 days). 1040 form Example 3. 1040 form You own a condominium apartment in a resort area. 1040 form You rented it at a fair rental price for a total of 170 days during the year. 1040 form For 12 of those days, the tenant was not able to use the apartment and allowed you to use it even though you did not refund any of the rent. 1040 form Your family actually used the apartment for 10 of those days. 1040 form Therefore, the apartment is treated as having been rented for 160 (170 − 10) days. 1040 form You figured 10% of the total days rented to others at a fair rental price is 16 days. 1040 form Your family also used the apartment for 7 other days during the year. 1040 form You used the apartment as a home because you used it for personal purposes for 17 days. 1040 form That is more than the greater of 14 days or 10% of the 160 days it was rented (16 days). 1040 form Minimal rental use. 1040 form   If you use the dwelling unit as a home and you rent it less than 15 days during the year, that period is not treated as rental activity. 1040 form See Used as a home but rented less than 15 days , later, for more information. 1040 form Limit on deductions. 1040 form   Renting a dwelling unit that is considered a home is not a passive activity. 1040 form Instead, if your rental expenses are more than your rental income, some or all of the excess expenses cannot be used to offset income from other sources. 1040 form The excess expenses that cannot be used to offset income from other sources are carried forward to the next year and treated as rental expenses for the same property. 1040 form Any expenses carried forward to the next year will be subject to any limits that apply for that year. 1040 form This limitation will apply to expenses carried forward to another year even if you do not use the property as your home for that subsequent year. 1040 form   To figure your deductible rental expenses for this year and any carryover to next year, use Worksheet 9-1. 1040 form Reporting Income and Deductions Property not used for personal purposes. 1040 form   If you do not use a dwelling unit for personal purposes, see How To Report Rental Income and Expenses , later, for how to report your rental income and expenses. 1040 form Property used for personal purposes. 1040 form   If you do use a dwelling unit for personal purposes, then how you report your rental income and expenses depends on whether you used the dwelling unit as a home. 1040 form Not used as a home. 1040 form   If you use a dwelling unit for personal purposes, but not as a home, report all the rental income in your income. 1040 form Since you used the dwelling unit for personal purposes, you must divide your expenses between the rental use and the personal use as described earlier in Dividing Expenses . 1040 form The expenses for personal use are not deductible as rental expenses. 1040 form   Your deductible rental expenses can be more than your gross rental income; however, see Limits on Rental Losses , later. 1040 form Used as a home but rented less than 15 days. 1040 form   If you use a dwelling unit as a home and you rent it less than 15 days during the year, its primary function is not considered to be rental and it should not be reported on Schedule E (Form 1040). 1040 form You are not required to report the rental income and rental expenses from this activity. 1040 form The expenses, including qualified mortgage interest, property taxes, and any qualified casualty loss will be reported as normally allowed on Schedule A (Form 1040). 1040 form See the Instructions for Schedule A (Form 1040) for more information on deducting these expenses. 1040 form Used as a home and rented 15 days or more. 1040 form   If you use a dwelling unit as a home and rent it 15 days or more during the year, include all your rental income in your income. 1040 form Since you used the dwelling unit for personal purposes, you must divide your expenses between the rental use and the personal use as described earlier in Dividing Expenses . 1040 form The expenses for personal use are not deductible as rental expenses. 1040 form   If you had a net profit from renting the dwelling unit for the year (that is, if your rental income is more than the total of your rental expenses, including depreciation), deduct all of your rental expenses. 1040 form You do not need to use Worksheet 9-1. 1040 form   However, if you had a net loss from renting the dwelling unit for the year, your deduction for certain rental expenses is limited. 1040 form To figure your deductible rental expenses and any carryover to next year, use Worksheet 9-1. 1040 form Depreciation You recover the cost of income-producing property through yearly tax deductions. 1040 form You do this by depreciating the property; that is, by deducting some of the cost each year on your tax return. 1040 form Three factors determine how much depreciation you can deduct each year: (1) your basis in the property, (2) the recovery period for the property, and (3) the depreciation method used. 1040 form You cannot simply deduct your mortgage or principal payments, or the cost of furniture, fixtures, and equipment, as an expense. 1040 form You can deduct depreciation only on the part of your property used for rental purposes. 1040 form Depreciation reduces your basis for figuring gain or loss on a later sale or exchange. 1040 form You may have to use Form 4562 to figure and report your depreciation. 1040 form See How To Report Rental Income and Expenses , later. 1040 form Alternative minimum tax (AMT). 1040 form    If you use accelerated depreciation, you may be subject to the AMT. 1040 form Accelerated depreciation allows you to deduct more depreciation earlier in the recovery period than you could deduct using a straight line method (same deduction each year). 1040 form Claiming the correct amount of depreciation. 1040 form   You should claim the correct amount of depreciation each tax year. 1040 form If you did not claim all the depreciation you were entitled to deduct, you must still reduce your basis in the property by the full amount of depreciation that you could have deducted. 1040 form   If you deducted an incorrect amount of depreciation for property in any year, you may be able to make a correction by filing Form 1040X, Amended U. 1040 form S Individual Income Tax Return. 1040 form If you are not allowed to make the correction on an amended return, you can change your accounting method to claim the correct amount of depreciation. 1040 form See Claiming the correct amount of depreciation in chapter 2 of Publication 527 for more information. 1040 form Changing your accounting method to deduct unclaimed depreciation. 1040 form   To change your accounting method, you generally must file Form 3115, Application for Change in Accounting Method, to get the consent of the IRS. 1040 form In some instances, that consent is automatic. 1040 form For more information, see chapter 1 of Publication 946. 1040 form Land. 1040 form   You cannot depreciate the cost of land because land generally does not wear out, become obsolete, or get used up. 1040 form The costs of clearing, grading, planting, and landscaping are usually all part of the cost of land and cannot be depreciated. 1040 form More information. 1040 form   See Publication 527 for more information about depreciating rental property and see Publication 946 for more information about depreciation. 1040 form 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. 1040 form You must consider these rules in the order shown below. 1040 form At-risk rules. 1040 form These rules are applied first if there is investment in your rental real estate activity for which you are not at risk. 1040 form This applies only if the real property was placed in service after 1986. 1040 form Passive activity limits. 1040 form 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. 1040 form However, there are exceptions. 1040 form 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. 1040 form Losses from holding real property (other than mineral property) placed in service before 1987 are not subject to the at-risk rules. 1040 form 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. 1040 form 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. 1040 form See Publication 925 for more information. 1040 form Passive Activity Limits In most cases, all rental real estate activities (except those of certain real estate professionals, discussed later) are passive activities. 1040 form 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. 1040 form Limits on passive activity deductions and credits. 1040 form    Deductions or losses from passive activities are limited. 1040 form You generally cannot offset income, other than passive income, with losses from passive activities. 1040 form Nor can you offset taxes on income, other than passive income, with credits resulting from passive activities. 1040 form Any excess loss or credit is carried forward to the next tax year. 1040 form   For a detailed discussion of these rules, see Publication 925. 1040 form    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. 1040 form Real estate professionals. 1040 form   Rental activities in which you materially participated during the year are not passive activities if, for that year, you were a real estate professional. 1040 form For a detailed discussion of the requirements, see Publication 527. 1040 form For a detailed discussion of material participation, see Publication 925. 1040 form 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. 1040 form Instead, follow the rules explained in Personal Use of Dwelling Unit (Including Vacation Home), earlier. 1040 form Exception for Rental Real Estate Activities With Active Participation If you or your spouse actively participated in a passive rental real estate activity, you may be able to deduct up to $25,000 of loss from the activity from your nonpassive income. 1040 form This special allowance is an exception to the general rule disallowing losses in excess of income from passive activities. 1040 form 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. 1040 form Active participation. 1040 form   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. 1040 form Management decisions that may count as active participation include approving new tenants, deciding on rental terms, approving expenditures, and similar decisions. 1040 form Maximum special allowance. 1040 form   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. 1040 form   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. 1040 form 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. 1040 form   Generally, if your MAGI is $150,000 or more ($75,000 or more if you are married filing separately), there is no special allowance. 1040 form More information. 1040 form   See Publication 925 for more information on the passive loss limits, including information on the treatment of unused disallowed passive losses and credits and the treatment of gains and losses realized on the disposition of a passive activity. 1040 form How To Report Rental Income and Expenses The basic form for reporting residential rental income and expenses is Schedule E (Form 1040). 1040 form However, do not use that schedule to report a not-for-profit activity. 1040 form See Not Rented for Profit, earlier. 1040 form Providing substantial services. 1040 form   If you provide substantial services that are primarily for your tenant's convenience, such as regular cleaning, changing linen, or maid service, report your rental income and expenses on Schedule C (Form 1040), Profit or Loss From Business, or Schedule C-EZ (Form 1040), Net Profit From Business (Sole Proprietorship). 1040 form Substantial services do not include the furnishing of heat and light, cleaning of public areas, trash collection, etc. 1040 form For information, see Publication 334, Tax Guide for Small Business. 1040 form You also may have to pay self-employment tax on your rental income using Schedule SE (Form 1040), Self-Employment Tax. 1040 form   Use Form 1065, U. 1040 form S. 1040 form Return of Partnership Income, if your rental activity is a partnership (including a partnership with your spouse unless it is a qualified joint venture). 1040 form Qualified joint venture. 1040 form   If you and your spouse each materially participate as the only members of a jointly owned and operated real estate business, and you file a joint return for the tax year, you can make a joint election to be treated as a qualified joint venture instead of a partnership. 1040 form 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. 1040 form For more information, see Publication 527. 1040 form Form 1098, Mortgage Interest Statement. 1040 form    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. 1040 form 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. 1040 form Attach a statement to your return showing the name and address of the other person. 1040 form In the left margin of Schedule E, next to line 13, enter “See attached. 1040 form ” Schedule E (Form 1040) If you rent buildings, rooms, or apartments, and provide basic services such as heat and light, trash collection, etc. 1040 form , you normally report your rental income and expenses on Schedule E, Part I. 1040 form List your total income, expenses, and depreciation for each rental property. 1040 form Be sure to enter the number of fair rental and personal use days on line 2. 1040 form If you have more than three rental or royalty properties, complete and attach as many Schedules E as are needed to list the properties. 1040 form Complete lines 1 and 2 for each property. 1040 form However, fill in lines 23a through 26 on only one Schedule E. 1040 form On Schedule E, page 1, line 18, enter the depreciation you are claiming for each property. 1040 form To find out if you need to attach Form 4562, see Form 4562, in chapter 3 of Publication 527. 1040 form If you have a loss from your rental real estate activity, you also may need to complete one or both of the following forms. 1040 form Form 6198, At-Risk Limitations. 1040 form See At-Risk Rules , earlier. 1040 form Also see Publication 925. 1040 form Form 8582, Passive Activity Loss Limitations. 1040 form See Passive Activity Limits , earlier. 1040 form Page 2 of Schedule E is used to report income or loss from partnerships, S corporations, estates, trusts, and real estate mortgage investment conduits. 1040 form 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. 1040 form Also, include the amount from line 26 (Part I) in the “Total income or (loss)” on line 41 (Part V). 1040 form Worksheet 9-1. 1040 form Worksheet for Figuring Rental Deductions for a Dwelling Unit Used as a Home Use this worksheet only if you answer “yes” to all of the following questions. 1040 form Did you use the dwelling unit as a home this year? (See Dwelling Unit Used as a Home . 1040 form ) Did you rent the dwelling unit at a fair rental price 15 days or more this year? Is the total of your rental expenses and depreciation more than your rental income? PART I. 1040 form Rental Use Percentage A. 1040 form Total days available for rent at fair rental price A. 1040 form       B. 1040 form Total days available for rent (line A) but not rented B. 1040 form       C. 1040 form Total days of rental use. 1040 form Subtract line B from line A C. 1040 form       D. 1040 form Total days of personal use (including days rented at less than fair rental price) D. 1040 form       E. 1040 form Total days of rental and personal use. 1040 form Add lines C and D E. 1040 form       F. 1040 form Percentage of expenses allowed for rental. 1040 form Divide line C by line E     F. 1040 form   PART II. 1040 form Allowable Rental Expenses 1. 1040 form Enter rents received 1. 1040 form   2a. 1040 form Enter the rental portion of deductible home mortgage interest and qualified mortgage insurance premiums (see instructions) 2a. 1040 form       b. 1040 form Enter the rental portion of real estate taxes b. 1040 form       c. 1040 form Enter the rental portion of deductible casualty and theft losses (see instructions) c. 1040 form       d. 1040 form Enter direct rental expenses (see instructions) d. 1040 form       e. 1040 form Fully deductible rental expenses. 1040 form Add lines 2a–2d. 1040 form Enter here and  on the appropriate lines on Schedule E (see instructions) 2e. 1040 form   3. 1040 form Subtract line 2e from line 1. 1040 form If zero or less, enter -0- 3. 1040 form   4a. 1040 form Enter the rental portion of expenses directly related to operating or maintaining  the dwelling unit (such as repairs, insurance, and utilities) 4a. 1040 form       b. 1040 form Enter the rental portion of excess mortgage interest and qualified mortgage insurance premiums (see instructions) b. 1040 form       c. 1040 form Carryover of operating expenses from 2012 worksheet c. 1040 form       d. 1040 form Add lines 4a–4c d. 1040 form       e. 1040 form Allowable expenses. 1040 form Enter the smaller of line 3 or line 4d (see instructions) 4e. 1040 form   5. 1040 form Subtract line 4e from line 3. 1040 form If zero or less, enter -0- 5. 1040 form   6a. 1040 form Enter the rental portion of excess casualty and theft losses (see instructions) 6a. 1040 form       b. 1040 form Enter the rental portion of depreciation of the dwelling unit b. 1040 form       c. 1040 form Carryover of excess casualty losses and depreciation from 2012 worksheet c. 1040 form       d. 1040 form Add lines 6a–6c d. 1040 form       e. 1040 form Allowable excess casualty and theft losses and depreciation. 1040 form Enter the smaller of  line 5 or line 6d (see instructions) 6e. 1040 form   PART III. 1040 form Carryover of Unallowed Expenses to Next Year 7a. 1040 form Operating expenses to be carried over to next year. 1040 form Subtract line 4e from line 4d 7a. 1040 form   b. 1040 form Excess casualty and theft losses and depreciation to be carried over to next year. 1040 form  Subtract line 6e from line 6d b. 1040 form   Worksheet 9-1 Instructions. 1040 form Worksheet for Figuring Rental Deductions for a Dwelling Unit Used as a Home Caution. 1040 form Use the percentage determined in Part I, line F, to figure the rental portions to enter on lines 2a–2c, 4a–4b, and 6a–6b of  Part II. 1040 form Line 2a. 1040 form Figure the mortgage interest on the dwelling unit that you could deduct on Schedule A as if you had not rented the unit. 1040 form Do not include interest on a loan that did not benefit the dwelling unit. 1040 form For example, do not include interest on a home equity loan used to pay off credit cards or other personal loans, buy a car, or pay college tuition. 1040 form Include interest on a loan used to buy, build, or improve the dwelling unit, or to refinance such a loan. 1040 form Include the rental portion of this interest in the total you enter on line 2a of the worksheet. 1040 form   Figure the qualified mortgage insurance premiums on the dwelling unit that you could deduct on line 13 of Schedule A as if you had not rented the unit. 1040 form See the Schedule A instructions. 1040 form However, figure your adjusted gross income (Form 1040, line 38) without your rental income and expenses from the dwelling unit. 1040 form See Line 4b to deduct the part of the qualified mortgage insurance premiums not allowed because of the adjusted gross income limit. 1040 form Include the rental portion of the amount from Schedule A, line 13, in the total you enter on line 2a of the worksheet. 1040 form   Note. 1040 form Do not file this Schedule A or use it to figure the amount to deduct on line 13 of that schedule. 1040 form Instead, figure the personal portion on a separate Schedule A. 1040 form If you have deducted mortgage interest or qualified mortgage insurance premiums on the dwelling unit on other forms, such as Schedule C or F, remember to reduce your Schedule A deduction by that amount. 1040 form           Line 2c. 1040 form Figure the casualty and theft losses related to the dwelling unit that you could deduct on Schedule A as if you had not rented the dwelling unit. 1040 form To do this, complete Section A of Form 4684, Casualties and Thefts, treating the losses as personal losses. 1040 form If any of the loss is due to a federally declared disaster, see the Instructions for Form 4684. 1040 form On Form 4684, line 17, enter 10% of your adjusted gross income figured without your rental income and expenses from the dwelling unit. 1040 form Enter the rental portion of the result from Form 4684, line 18, on line 2c of this worksheet. 1040 form   Note. 1040 form Do not file this Form 4684 or use it to figure your personal losses on Schedule A. 1040 form Instead, figure the personal portion on a separate Form 4684. 1040 form           Line 2d. 1040 form Enter the total of your rental expenses that are directly related only to the rental activity. 1040 form These include interest on loans used for rental activities other than to buy, build, or improve the dwelling unit. 1040 form Also include rental agency fees, advertising, office supplies, and depreciation on office equipment used in your rental activity. 1040 form           Line 2e. 1040 form You can deduct the amounts on lines 2a, 2b, 2c, and 2d as rental expenses on Schedule E even if your rental expenses are more than your rental income. 1040 form Enter the amounts on lines 2a, 2b, 2c, and 2d on the appropriate lines of Schedule E. 1040 form           Line 4b. 1040 form On line 2a, you entered the rental portion of the mortgage interest and qualified mortgage insurance premiums you could deduct on Schedule A if you had not rented the dwelling unit. 1040 form If you had additional mortgage interest and qualified mortgage insurance premiums that would not be deductible on Schedule A because of limits imposed on them, enter on line 4b of this worksheet the rental portion of those excess amounts. 1040 form Do not include interest on a loan that did not benefit the dwelling unit (as explained in the line 2a instructions). 1040 form           Line 4e. 1040 form You can deduct the amounts on lines 4a, 4b, and 4c as rental expenses on Schedule E only to the extent they are not more than the amount on line 4e. 1040 form *           Line 6a. 1040 form To find the rental portion of excess casualty and theft losses, use the Form 4684 you prepared for line 2c of this worksheet. 1040 form   A. 1040 form Enter the amount from Form 4684, line 10       B. 1040 form Enter the rental portion of line A       C. 1040 form Enter the amount from line 2c of this worksheet       D. 1040 form Subtract line C from line B. 1040 form Enter the result here and on line 6a of this worksheet               Line 6e. 1040 form You can deduct the amounts on lines 6a, 6b, and 6c as rental expenses on Schedule E only to the extent they are not more than the amount on line 6e. 1040 form * *Allocating the limited deduction. 1040 form If you cannot deduct all of the amount on line 4d or 6d this year, you can allocate the allowable deduction in any way you wish among the expenses included on line 4d or 6d. 1040 form Enter the amount you allocate to each expense on the appropriate line of Schedule E, Part I. 1040 form Prev  Up  Next   Home   More Online Publications