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2012 Amended Tax Return

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2012 Amended Tax Return

2012 amended tax return Publication 971 - Main Content Table of Contents How To Request ReliefException for agreements relating to TEFRA partnership proceedings. 2012 amended tax return The IRS Must Contact Your Spouse or Former Spouse Tax Court Review of Request Community Property LawsRelief for Married Persons Who Did Not File Joint Returns Innocent Spouse ReliefUnderstated Tax Erroneous Items Actual Knowledge or Reason To Know Indications of Unfairness for Innocent Spouse Relief Separation of Liability ReliefLimitations on Relief Equitable ReliefConditions for Getting Equitable Relief Factors for Determining Whether To Grant Equitable Relief RefundsProof Required Refunds Under Equitable Relief Limit on Amount of Refund Filled-in Form 8857 Flowcharts How To Request Relief File Form 8857 to ask the IRS for the types of relief discussed in this publication. 2012 amended tax return If you are requesting relief for more than three tax years, you must file an additional Form 8857. 2012 amended tax return The IRS will review your Form 8857 and let you know if you qualify. 2012 amended tax return A completed Form 8857 is shown later. 2012 amended tax return When to file Form 8857. 2012 amended tax return   You should file Form 8857 as soon as you become aware of a tax liability for which you believe only your spouse or former spouse should be held responsible. 2012 amended tax return The following are some of the ways you may become aware of such a liability. 2012 amended tax return The IRS is examining your tax return and proposing to increase your tax liability. 2012 amended tax return The IRS sends you a notice. 2012 amended tax return   You must file Form 8857 no later than two years after the date on which the IRS first attempted to collect the tax from you that occurs after July 22, 1998. 2012 amended tax return (But see the exceptions below for different filing deadlines that apply. 2012 amended tax return ) For this reason, do not delay filing because you do not have all the documentation. 2012 amended tax return   Collection activities that may start the 2-year period are: The IRS offset your income tax refund against an amount you owed on a joint return for another year and the IRS informed you about your right to file Form 8857. 2012 amended tax return The filing of a claim by the IRS in a court proceeding in which you were a party or the filing of a claim in a proceeding that involves your property. 2012 amended tax return This includes the filing of a proof of claim in a bankruptcy proceeding. 2012 amended tax return The filing of a suit by the United States against you to collect the joint liability. 2012 amended tax return The issuance of a section 6330 notice, which notifies you of the IRS' intent to levy and your right to a collection due process (CDP) hearing. 2012 amended tax return The collection-related notices include, but are not limited to, Letter 11 and Letter 1058. 2012 amended tax return Exception for equitable relief. 2012 amended tax return   On July 25, 2011, the IRS issued Notice 2011-70 (available at www. 2012 amended tax return irs. 2012 amended tax return gov/irb/2011-32_IRB/ar11. 2012 amended tax return html) expanding the amount of time to request equitable relief. 2012 amended tax return The amount of time to request equitable relief depends on whether you are seeking relief from a balance due, seeking a credit or refund, or both: Balance Due – Generally, you must file your request within the time period the IRS has to collect the tax. 2012 amended tax return Generally, the IRS has 10 years from the date the tax liability was assessed to collect the tax. 2012 amended tax return In certain cases, the 10-year period is suspended. 2012 amended tax return The amount of time the suspension is in effect will extend the time the IRS has to collect the tax. 2012 amended tax return See Pub. 2012 amended tax return 594, The IRS Collection Process, for details. 2012 amended tax return Credit or Refund – Generally, you must file your request within 3 years after the date the original return was filed or within 2 years after the date the tax was paid, whichever is later. 2012 amended tax return But you may have more time to file if you live in a federally declared disaster area or you are physically or mentally unable to manage your financial affairs. 2012 amended tax return See Pub. 2012 amended tax return 556, Examination of Returns, Appeal Rights, and Claims for Refund, for details. 2012 amended tax return Both a Balance Due and a Credit or Refund – If you are seeking a refund of amounts you paid and relief from a balance due over and above what you have paid, the time period for credit or refund will apply to any payments you have made, and the time period for collection of a balance due amount will apply to any unpaid liability. 2012 amended tax return Exception for relief based on community property laws. 2012 amended tax return   If you are requesting relief based on community property laws, a different filing deadline applies. 2012 amended tax return See Relief from liability arising from community property law discussed later under Community Property Laws . 2012 amended tax return Form 8857 filed by or on behalf of a decedent. 2012 amended tax return   An executor (including any other duly appointed representative) may pursue a Form 8857 filed during the decedent's lifetime. 2012 amended tax return An executor (including any other duly appointed representative) may also file Form 8857 as long as the decedent satisfied the eligibility requirements while alive. 2012 amended tax return For purposes of separation of liability relief (discussed later), the decedent's marital status is determined on the earlier of the date relief was requested or the date of death. 2012 amended tax return Situations in which you are not entitled to relief. 2012 amended tax return   You are not entitled to innocent spouse relief for any tax year to which the following situations apply. 2012 amended tax return In a final decision dated after July 22, 1998, a court considered whether to grant you relief from joint liability and decided not to do so. 2012 amended tax return In a final decision dated after July 22, 1998, a court did not consider whether to grant you relief from joint liability, but you meaningfully participated in the proceeding and could have asked for relief. 2012 amended tax return You entered into an offer in compromise with the IRS. 2012 amended tax return You entered into a closing agreement with the IRS that disposed of the same liability for which you want to seek relief. 2012 amended tax return Exception for agreements relating to TEFRA partnership proceedings. 2012 amended tax return   You may be entitled to relief, discussed in (4) earlier, if you entered into a closing agreement for both partnership items and nonpartnership items, while you were a party to a pending TEFRA partnership proceeding. 2012 amended tax return (TEFRA is an acronym that refers to the “Tax Equity and Fiscal Responsibility Act of 1982” that prescribed the tax treatment of partnership items. 2012 amended tax return ) You are not entitled to relief for the nonpartnership items, but you will be entitled to relief for the partnership items (if you otherwise qualify). 2012 amended tax return Transferee liability not affected by innocent spouse relief provisions. 2012 amended tax return   The innocent spouse relief provisions do not affect tax liabilities that arise under federal or state transferee liability or property laws. 2012 amended tax return Therefore, even if you are relieved of the tax liability under the innocent spouse relief provisions, you may remain liable for the unpaid tax, interest, and penalties to the extent provided by these laws. 2012 amended tax return Example. 2012 amended tax return Herb and Wanda timely filed their 2008 joint income tax return on April 15, 2009. 2012 amended tax return Herb died in March 2010, and the executor of Herb's will transferred all of the estate's assets to Wanda. 2012 amended tax return In August 2010, the IRS assessed a deficiency for the 2008 return. 2012 amended tax return The items causing the deficiency belong to Herb. 2012 amended tax return Wanda is relieved of the deficiency under the innocent spouse relief provisions, and Herb's estate remains solely liable for it. 2012 amended tax return However, the IRS may collect the deficiency from Wanda to the extent permitted under federal or state transferee liability or property laws. 2012 amended tax return The IRS Must Contact Your Spouse or Former Spouse By law, the IRS must contact your spouse or former spouse. 2012 amended tax return There are no exceptions, even for victims of spousal abuse or domestic violence. 2012 amended tax return We will inform your spouse or former spouse that you filed Form 8857 and will allow him or her to participate in the process. 2012 amended tax return If you are requesting relief from joint and several liability on a joint return, the IRS must also inform him or her of its preliminary and final determinations regarding your request for relief. 2012 amended tax return However, to protect your privacy, the IRS will not disclose your personal information (for example, your current name, address, phone number(s), information about your employer, your income or assets) or any other information that does not relate to making a determination about your request for relief from liability. 2012 amended tax return If you petition the Tax Court (explained below), your spouse or former spouse may see your personal information. 2012 amended tax return Tax Court Review of Request After you file Form 8857, you may be able to petition (ask) the United States Tax Court to review your request for relief in the following two situations. 2012 amended tax return The IRS sends you a final determination letter regarding your request for relief. 2012 amended tax return You do not receive a final determination letter from the IRS within six months from the date you filed Form 8857. 2012 amended tax return If you seek equitable relief for an underpaid tax, you will be able to get a Tax Court review of your request only if the tax arose or remained unpaid on or after December 20, 2006. 2012 amended tax return The United States Tax Court is an independent judicial body and is not part of the IRS. 2012 amended tax return You must file a petition with the United States Tax Court in order for it to review your request for relief. 2012 amended tax return You must file the petition no later than the 90th day after the date the IRS mails its final determination notice to you. 2012 amended tax return If you do not file a petition, or you file it late, the Tax Court cannot review your request for relief. 2012 amended tax return You can get a copy of the rules for filing a petition by writing to the Tax Court at the following address:    United States Tax Court 400 Second Street, NW Washington, DC 20217 Or you can visit the Tax Court's website at www. 2012 amended tax return ustaxcourt. 2012 amended tax return gov Community Property Laws You must generally follow community property laws when filing a tax return if you are married and live in a community property state. 2012 amended tax return Community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. 2012 amended tax return Generally, community property laws require you to allocate community income and expenses equally between both spouses. 2012 amended tax return However, community property laws are not taken into account in determining whether an item belongs to you or to your spouse (or former spouse) for purposes of requesting any relief from liability. 2012 amended tax return Relief for Married Persons Who Did Not File Joint Returns Married persons who live in community property states, but who did not file joint returns, have two ways to get relief. 2012 amended tax return Relief From Liability Arising From Community Property Law You are not responsible for the tax relating to an item of community income if all the following conditions exist. 2012 amended tax return You did not file a joint return for the tax year. 2012 amended tax return You did not include the item of community income in gross income. 2012 amended tax return The item of community income you did not include is one of the following: Wages, salaries, and other compensation your spouse (or former spouse) received for services he or she performed as an employee. 2012 amended tax return Income your spouse (or former spouse) derived from a trade or business he or she operated as a sole proprietor. 2012 amended tax return Your spouse's (or former spouse's) distributive share of partnership income. 2012 amended tax return Income from your spouse's (or former spouse's) separate property (other than income described in (a), (b), or (c)). 2012 amended tax return Use the appropriate community property law to determine what is separate property. 2012 amended tax return Any other income that belongs to your spouse (or former spouse) under community property law. 2012 amended tax return You establish that you did not know of, and had no reason to know of, that community income. 2012 amended tax return See  Actual Knowledge or Reason To Know , below. 2012 amended tax return Under all facts and circumstances, it would not be fair to include the item of community income in your gross income. 2012 amended tax return See Indications of unfairness for liability arising from community property law, later. 2012 amended tax return Actual knowledge or reason to know. 2012 amended tax return   You knew or had reason to know of an item of community income if: You actually knew of the item of community income, or A reasonable person in similar circumstances would have known of the item of community income. 2012 amended tax return Amount of community income unknown. 2012 amended tax return   If you are aware of the source of the item of community income or the income-producing activity, but are unaware of the specific amount, you are considered to know or have reason to know of the item of community income. 2012 amended tax return Not knowing the specific amount is not a basis for relief. 2012 amended tax return Reason to know. 2012 amended tax return   The IRS will consider all facts and circumstances in determining whether you had reason to know of an item of community income. 2012 amended tax return The facts and circumstances include: The nature of the item of community income and the amount of the item relative to other income items. 2012 amended tax return The financial situation of you and your spouse (or former spouse). 2012 amended tax return Your educational background and business experience. 2012 amended tax return Whether the item of community income represented a departure from a recurring pattern reflected in prior years' returns (for example, omitted income from an investment regularly reported on prior years' returns). 2012 amended tax return Indications of unfairness for liability arising from community property law. 2012 amended tax return   The IRS will consider all of the facts and circumstances of the case in order to determine whether it is unfair to hold you responsible for the understated tax due to the item of community income. 2012 amended tax return   The following are examples of factors the IRS will consider. 2012 amended tax return Whether you received a benefit, either directly or indirectly, from the omitted item of community income (defined below). 2012 amended tax return Whether your spouse (or former spouse) deserted you. 2012 amended tax return Whether you and your spouse have been divorced or separated. 2012 amended tax return  For other factors see Factors for Determining Whether To Grant Equitable Relief later. 2012 amended tax return Benefit from omitted item of community income. 2012 amended tax return   A benefit includes normal support, but does not include de minimis (small) amounts. 2012 amended tax return Evidence of a direct or indirect benefit may consist of transfers of property or rights to property, including transfers received several years after the filing of the return. 2012 amended tax return   For example, if you receive property, including life insurance proceeds, from your spouse (or former spouse) and the property is traceable to omitted items of community income attributable to your spouse (or former spouse), you are considered to have benefitted from those omitted items of community income. 2012 amended tax return Equitable Relief If you do not qualify for the relief described above and are now liable for an underpaid or understated tax you believe should be paid only by your spouse (or former spouse), you may request equitable relief (discussed later). 2012 amended tax return How and When To Request Relief You request relief by filing Form 8857, as discussed earlier. 2012 amended tax return Fill in Form 8857 according to the instructions. 2012 amended tax return For relief from liability arising from community property law, you must file Form 8857 no later than 6 months before the expiration of the period of limitations on assessment (including extensions) against your spouse for the tax year for which you are requesting relief. 2012 amended tax return However, if the IRS begins an examination of your return during that 6-month period, the latest time for requesting relief is 30 days after the date the IRS' initial contact letter to you. 2012 amended tax return The period of limitation on assessment is the amount of time, generally three years, that the IRS has from the date you filed the return to assess taxes that you owe. 2012 amended tax return Innocent Spouse Relief By requesting innocent spouse relief, you can be relieved of responsibility for paying tax, interest, and penalties if your spouse (or former spouse) improperly reported items or omitted items on your tax return. 2012 amended tax return Generally, the tax, interest, and penalties that qualify for relief can only be collected from your spouse (or former spouse). 2012 amended tax return However, you are jointly and individually responsible for any tax, interest, and penalties that do not qualify for relief. 2012 amended tax return The IRS can collect these amounts from either you or your spouse (or former spouse). 2012 amended tax return You must meet all of the following conditions to qualify for innocent spouse relief. 2012 amended tax return You filed a joint return. 2012 amended tax return There is an understated tax on the return that is due to erroneous items (defined later) of your spouse (or former spouse). 2012 amended tax return You can show that when you signed the joint return you did not know, and had no reason to know, that the understated tax existed (or the extent to which the understated tax existed). 2012 amended tax return See Actual Knowledge or Reason To Know, later. 2012 amended tax return Taking into account all the facts and circumstances, it would be unfair to hold you liable for the understated tax. 2012 amended tax return See Indications of Unfairness for Innocent Spouse Relief , later. 2012 amended tax return Innocent spouse relief will not be granted if the IRS proves that you and your spouse (or former spouse) transferred property to one another as part of a fraudulent scheme. 2012 amended tax return A fraudulent scheme includes a scheme to defraud the IRS or another third party, such as a creditor, former spouse, or business partner. 2012 amended tax return Understated Tax You have an understated tax if the IRS determined that your total tax should be more than the amount that was actually shown on your return. 2012 amended tax return Erroneous Items Erroneous items are either of the following. 2012 amended tax return Unreported income. 2012 amended tax return This is any gross income item received by your spouse (or former spouse) that is not reported. 2012 amended tax return Incorrect deduction, credit, or basis. 2012 amended tax return This is any improper deduction, credit, or property basis claimed by your spouse (or former spouse). 2012 amended tax return The following are examples of erroneous items. 2012 amended tax return The expense for which the deduction is taken was never paid or incurred. 2012 amended tax return For example, your spouse, a cash-basis taxpayer, deducted $10,000 of advertising expenses on Schedule C of your joint Form 1040, but never paid for any advertising. 2012 amended tax return The expense does not qualify as a deductible expense. 2012 amended tax return For example, your spouse claimed a business fee deduction of $10,000 that was for the payment of state fines. 2012 amended tax return Fines are not deductible. 2012 amended tax return No factual argument can be made to support the deductibility of the expense. 2012 amended tax return For example, your spouse claimed $4,000 for security costs related to a home office, which were actually veterinary and food costs for your family's two dogs. 2012 amended tax return Actual Knowledge or Reason To Know You knew or had reason to know of an understated tax if: You actually knew of the understated tax, or A reasonable person in similar circumstances would have known of the understated tax. 2012 amended tax return Actual knowledge. 2012 amended tax return   If you actually knew about an erroneous item that belongs to your spouse (or former spouse), the relief discussed here does not apply to any part of the understated tax due to that item. 2012 amended tax return You and your spouse (or former spouse) remain jointly liable for that part of the understated tax. 2012 amended tax return For information about the criteria for determining whether you actually knew about an erroneous item, see Actual Knowledge later under Separation of Liability Relief. 2012 amended tax return Reason to know. 2012 amended tax return   If you had reason to know about an erroneous item that belongs to your spouse (or former spouse), the relief discussed here does not apply to any part of the understated tax due to that item. 2012 amended tax return You and your spouse (or former spouse) remain jointly liable for that part of the understated tax. 2012 amended tax return   The IRS will consider all facts and circumstances in determining whether you had reason to know of an understated tax due to an erroneous item. 2012 amended tax return The facts and circumstances include: The nature of the erroneous item and the amount of the erroneous item relative to other items. 2012 amended tax return The financial situation of you and your spouse (or former spouse). 2012 amended tax return Your educational background and business experience. 2012 amended tax return The extent of your participation in the activity that resulted in the erroneous item. 2012 amended tax return Whether you failed to ask, at or before the time the return was signed, about items on the return or omitted from the return that a reasonable person would question. 2012 amended tax return Whether the erroneous item represented a departure from a recurring pattern reflected in prior years' returns (for example, omitted income from an investment regularly reported on prior years' returns). 2012 amended tax return Partial relief when a portion of erroneous item is unknown. 2012 amended tax return   You may qualify for partial relief if, at the time you filed your return, you had no knowledge or reason to know of only a portion of an erroneous item. 2012 amended tax return You will be relieved of the understated tax due to that portion of the item if all other requirements are met for that portion. 2012 amended tax return Example. 2012 amended tax return At the time you signed your joint return, you knew that your spouse did not report $5,000 of gambling winnings. 2012 amended tax return The IRS examined your tax return several months after you filed it and determined that your spouse's unreported gambling winnings were actually $25,000. 2012 amended tax return You established that you did not know about, and had no reason to know about, the additional $20,000 because of the way your spouse handled gambling winnings. 2012 amended tax return The understated tax due to the $20,000 will qualify for innocent spouse relief if you meet the other requirements. 2012 amended tax return The understated tax due to the $5,000 of gambling winnings you knew about will not qualify for relief. 2012 amended tax return Indications of Unfairness for Innocent Spouse Relief The IRS will consider all of the facts and circumstances of the case in order to determine whether it is unfair to hold you responsible for the understated tax. 2012 amended tax return The following are examples of factors the IRS will consider. 2012 amended tax return Whether you received a significant benefit (defined below), either directly or indirectly, from the understated tax. 2012 amended tax return Whether your spouse (or former spouse) deserted you. 2012 amended tax return Whether you and your spouse have been divorced or separated. 2012 amended tax return Whether you received a benefit on the return from the understated tax. 2012 amended tax return For other factors, see Factors for Determining Whether To Grant Equitable Relief later under Equitable Relief. 2012 amended tax return Significant benefit. 2012 amended tax return   A significant benefit is any benefit in excess of normal support. 2012 amended tax return Normal support depends on your particular circumstances. 2012 amended tax return Evidence of a direct or indirect benefit may consist of transfers of property or rights to property, including transfers that may be received several years after the year of the understated tax. 2012 amended tax return Example. 2012 amended tax return You receive money from your spouse that is beyond normal support. 2012 amended tax return The money can be traced to your spouse's lottery winnings that were not reported on your joint return. 2012 amended tax return You will be considered to have received a significant benefit from that income. 2012 amended tax return This is true even if your spouse gives you the money several years after he or she received it. 2012 amended tax return Separation of Liability Relief Under this type of relief, the understated tax (plus interest and penalties) on your joint return is allocated between you and your spouse (or former spouse). 2012 amended tax return The understated tax allocated to you is generally the amount you are responsible for. 2012 amended tax return This type of relief is available only for unpaid liabilities resulting from the understated tax. 2012 amended tax return Refunds are not allowed. 2012 amended tax return To request separation of liability relief, you must have filed a joint return and meet either of the following requirements at the time you file Form 8857. 2012 amended tax return You are no longer married to, or are legally separated from, the spouse with whom you filed the joint return for which you are requesting relief. 2012 amended tax return (Under this rule, you are no longer married if you are widowed. 2012 amended tax return ) You were not a member of the same household (explained below) as the spouse with whom you filed the joint return at any time during the 12-month per- iod ending on the date you file Form 8857. 2012 amended tax return Members of the same household. 2012 amended tax return   You and your spouse are not members of the same household if you are living apart and are estranged. 2012 amended tax return However, you and your spouse are considered members of the same household if any of the following conditions are met. 2012 amended tax return You and your spouse reside in the same dwelling. 2012 amended tax return You and your spouse reside in separate dwellings but are not estranged, and one of you is temporarily absent from the other's household as explained in (3) below. 2012 amended tax return Either spouse is temporarily absent from the household and it is reasonable to assume that the absent spouse will return to the household, and the household or a substantially equivalent household is maintained in anticipation of the absent spouse's return. 2012 amended tax return Examples of temporary absences include absence due to imprisonment, illness, business, vacation, military service, or education. 2012 amended tax return Burden of proof. 2012 amended tax return   You must be able to prove that you meet all of the requirements for separation of liability relief (except actual knowledge) and that you did not transfer property to avoid tax (discussed later). 2012 amended tax return You must also establish the basis for allocating the erroneous items. 2012 amended tax return Limitations on Relief Even if you meet the requirements discussed previously, separation of liability relief will not be granted in the following situations. 2012 amended tax return The IRS proves that you and your spouse (or former spouse) transferred assets to one another as part of a fraudulent scheme. 2012 amended tax return A fraudulent scheme includes a scheme to defraud the IRS or another third party, such as a creditor, former spouse, or business partner. 2012 amended tax return The IRS proves that at the time you signed your joint return, you had actual knowledge (explained below) of any erroneous items giving rise to the deficiency that were allocable to your spouse (or former spouse). 2012 amended tax return For the definition of erroneous items, see Erroneous Items earlier under Innocent Spouse Relief. 2012 amended tax return Your spouse (or former spouse) transferred property to you to avoid tax or the payment of tax. 2012 amended tax return See Transfers of Property To Avoid Tax , later. 2012 amended tax return Actual Knowledge The relief discussed here does not apply to any part of the understated tax due to your spouse's (or former spouse's) erroneous items of which you had actual knowledge. 2012 amended tax return You and your spouse (or former spouse) remain jointly and severally liable for this part of the understated tax. 2012 amended tax return If you had actual knowledge of only a portion of an erroneous item, the IRS will not grant relief for that portion of the item. 2012 amended tax return You had actual knowledge of an erroneous item if: You knew that an item of unreported income was received. 2012 amended tax return (This rule applies whether or not there was a receipt of cash. 2012 amended tax return ) You knew of the facts that made an incorrect deduction or credit unallowable. 2012 amended tax return For a false or inflated deduction, you knew that the expense was not incurred, or not incurred to the extent shown on the tax return. 2012 amended tax return Knowledge of the source of an erroneous item is not sufficient to establish actual knowledge. 2012 amended tax return Also, your actual knowledge may not be inferred when you merely had a reason to know of the erroneous item. 2012 amended tax return Similarly, the IRS does not have to establish that you knew of the source of an erroneous item in order to establish that you had actual knowledge of the item itself. 2012 amended tax return Your actual knowledge of the proper tax treatment of an erroneous item is not relevant for purposes of demonstrating that you had actual knowledge of that item. 2012 amended tax return Neither is your actual knowledge of how the erroneous item was treated on the tax return. 2012 amended tax return For example, if you knew that your spouse received dividend income, relief is not available for that income even if you did not know it was taxable. 2012 amended tax return Example. 2012 amended tax return Bill and Karen Green filed a joint return showing Karen's wages of $50,000 and Bill's self-employment income of $10,000. 2012 amended tax return The IRS audited their return and found that Bill did not report $20,000 of self-employment income. 2012 amended tax return The additional income resulted in a $6,000 understated tax, plus interest and penalties. 2012 amended tax return After obtaining a legal separation from Bill, Karen filed Form 8857 to request separation of liability relief. 2012 amended tax return The IRS proved that Karen actually knew about the $20,000 of additional income at the time she signed the joint return. 2012 amended tax return Bill is liable for all of the understated tax, interest, and penalties because all of it was due to his unreported income. 2012 amended tax return Karen is also liable for the understated tax, interest, and penalties due to the $20,000 of unreported income because she actually knew of the item. 2012 amended tax return The IRS can collect the entire $6,000 plus interest and penalties from either Karen or Bill because they are jointly and individually liable for it. 2012 amended tax return Factors supporting actual knowledge. 2012 amended tax return   The IRS may rely on all facts and circumstances in determining whether you actually knew of an erroneous item at the time you signed the return. 2012 amended tax return The following are examples of factors the IRS may use. 2012 amended tax return Whether you made a deliberate effort to avoid learning about the item in order to be shielded from liability. 2012 amended tax return Whether you and your spouse (or former spouse) jointly owned the property that resulted in the erroneous item. 2012 amended tax return Exception for spousal abuse or domestic violence. 2012 amended tax return   Even if you had actual knowledge, you may still qualify for relief if you establish that: You were the victim of spousal abuse or domestic violence before signing the return, and Because of that abuse, you did not challenge the treatment of any items on the return because you were afraid your spouse (or former spouse) would retaliate against you. 2012 amended tax return   If you establish that you signed your joint return under duress (threat of harm or other form of coercion), then it is not a joint return, and you are not liable for any tax shown on that return or any tax deficiency for that return. 2012 amended tax return However, you may be required to file a separate return for that tax year. 2012 amended tax return For more information about duress, see the instructions for Form 8857. 2012 amended tax return Transfers of Property To Avoid Tax If your spouse (or former spouse) transfers property (or the right to property) to you for the main purpose of avoiding tax or payment of tax, the tax liability allocated to you will be increased by the fair market value of the property on the date of the transfer. 2012 amended tax return The increase may not be more than the entire amount of the liability. 2012 amended tax return A transfer will be presumed to have as its main purpose the avoidance of tax or payment of tax if the transfer is made after the date that is 1 year before the date on which the IRS sent its first letter of proposed deficiency. 2012 amended tax return This presumption will not apply if: The transfer was made under a divorce decree, separate maintenance agreement, or a written instrument incident to such an agreement, or You establish that the transfer did not have as its main purpose the avoidance of tax or payment of tax. 2012 amended tax return If the presumption does not apply, but the IRS can establish that the purpose of the transfer was the avoidance of tax or payment of tax, the tax liability allocated to you will be increased as explained above. 2012 amended tax return Equitable Relief If you do not qualify for innocent spouse relief, separation of liability relief, or relief from liability arising from community property law, you may still be relieved of responsibility for tax, interest, and penalties through equitable relief. 2012 amended tax return Unlike innocent spouse relief or separation of liability relief, you can get equitable relief from an understated tax (defined earlier under Innocent Spouse Relief ) or an underpaid tax. 2012 amended tax return An underpaid tax is an amount of tax you properly reported on your return but you have not paid. 2012 amended tax return For example, your joint 2009 return shows that you and your spouse owed $5,000. 2012 amended tax return You paid $2,000 with the return. 2012 amended tax return You have an underpaid tax of $3,000. 2012 amended tax return Conditions for Getting Equitable Relief You may qualify for equitable relief if you meet all of the following conditions. 2012 amended tax return You are not eligible for innocent spouse relief, separation of liability relief, or relief from liability arising from community property law. 2012 amended tax return You have an understated tax or an underpaid tax. 2012 amended tax return You did not pay the tax. 2012 amended tax return However, see Refunds , later, for situations in which you are entitled to a refund of payments you made. 2012 amended tax return You establish that, taking into account all the facts and circumstances, it would be unfair to hold you liable for the understated or underpaid tax. 2012 amended tax return See Factors for Determining Whether To Grant Equitable Relief, later. 2012 amended tax return You and your spouse (or former spouse) did not transfer assets to one another as a part of a fraudulent scheme. 2012 amended tax return A fraudulent scheme includes a scheme to defraud the IRS or another third party, such as a creditor, former spouse, or business partner. 2012 amended tax return Your spouse (or former spouse) did not transfer property to you for the main purpose of avoiding tax or the payment of tax. 2012 amended tax return See Transfers of Property To Avoid Tax, earlier, under Separation of Liability Relief. 2012 amended tax return You did not file or fail to file your return with the intent to commit fraud. 2012 amended tax return The income tax liability from which you seek relief must be attributable to an item of the spouse (or former spouse) with whom you filed the joint return, unless one of the following exceptions applies: The item is attributable or partially attributable to you solely due to the operation of community property law. 2012 amended tax return If you meet this exception, that item will be considered attributable to your spouse (or former spouse) for purposes of equitable relief. 2012 amended tax return If the item is titled in your name, the item is presumed to be attributable to you. 2012 amended tax return However, you can rebut this presumption based on the facts and circumstances. 2012 amended tax return You did not know, and had no reason to know, that funds intended for the payment of tax were misappropriated by your spouse (or former spouse) for his or her benefit. 2012 amended tax return If you meet this exception, the IRS will consider granting equitable relief although the underpaid tax may be attributable in part or in full to your item, and only to the extent the funds intended for payment were taken by your spouse (or former spouse). 2012 amended tax return You establish that you were the victim of spousal abuse or domestic violence before signing the return, and that, as a result of the prior abuse, you did not challenge the treatment of any items on the return for fear of your spouse's (or former spouse's) retaliation. 2012 amended tax return If you meet this exception, relief will be considered although the understated tax or underpaid tax may be attributable in part or in full to your item. 2012 amended tax return Factors for Determining Whether To Grant Equitable Relief The IRS will consider all of the facts and circumstances in order to determine whether it is unfair to hold you responsible for the understated or underpaid tax. 2012 amended tax return The following are examples of factors that the IRS will consider to determine whether to grant equitable relief. 2012 amended tax return The IRS will consider all factors and weigh them appropriately. 2012 amended tax return Relevant Factors The following are examples of factors that may be relevant to whether the IRS will grant equitable relief. 2012 amended tax return Whether you are separated (whether legally or not) or divorced from your spouse. 2012 amended tax return A temporary absence, such as an absence due to imprisonment, illness, business, vacation, military service, or education, is not considered separation for this purpose. 2012 amended tax return A temporary absence is one where it is reasonable to assume that the absent spouse will return to the household, and the household or a substantially equivalent household is maintained in anticipation of the absent spouse's return. 2012 amended tax return Whether you would suffer a significant economic hardship if relief is not granted. 2012 amended tax return (In other words, you would not be able to pay your reasonable basic living expenses. 2012 amended tax return ) Whether you have a legal obligation under a divorce decree or agreement to pay the tax. 2012 amended tax return This factor will not weigh in favor of relief if you knew or had reason to know, when entering into the divorce decree or agreement, that your former spouse would not pay the income tax liability. 2012 amended tax return Whether you received a significant benefit (beyond normal support) from the underpaid tax or item causing the understated tax. 2012 amended tax return (For a definition of significant benefit, see Indications of Unfairness for Innocent Spouse Relief earlier. 2012 amended tax return ) Whether you have made a good faith effort to comply with federal income tax laws for the tax year for which you are requesting relief or the following years. 2012 amended tax return Whether you knew or had reason to know about the items causing the understated tax or that the tax would not be paid, as explained next. 2012 amended tax return Knowledge or reason to know. 2012 amended tax return   In the case of an underpaid tax, the IRS will consider whether you did not know and had no reason to know that your spouse (or former spouse) would not pay the income tax liability. 2012 amended tax return   In the case of an income tax liability that arose from an understated tax, the IRS will consider whether you did not know and had no reason to know of the item causing the understated tax. 2012 amended tax return Reason to know of the item giving rise to the understated tax will not be weighed more heavily than other factors. 2012 amended tax return Actual knowledge of the item giving rise to the understated tax, however, is a strong factor weighing against relief. 2012 amended tax return This strong factor may be overcome if the factors in favor of equitable relief are particularly compelling. 2012 amended tax return Reason to know. 2012 amended tax return   In determining whether you had reason to know, the IRS will consider your level of education, any deceit or evasiveness of your spouse (or former spouse), your degree of involvement in the activity generating the income tax liability, your involvement in business and household financial matters, your business or financial expertise, and any lavish or unusual expenditures compared with past spending levels. 2012 amended tax return Example. 2012 amended tax return You and your spouse filed a joint 2009 return. 2012 amended tax return That return showed you owed $10,000. 2012 amended tax return You had $5,000 of your own money and you took out a loan to pay the other $5,000. 2012 amended tax return You gave 2 checks for $5,000 each to your spouse to pay the $10,000 liability. 2012 amended tax return Without telling you, your spouse took the $5,000 loan and spent it on himself. 2012 amended tax return You and your spouse were divorced in 2010. 2012 amended tax return In addition, you had no knowledge or reason to know at the time you signed the return that the tax would not be paid. 2012 amended tax return These facts indicate to the IRS that it may be unfair to hold you liable for the $5,000 underpaid tax. 2012 amended tax return The IRS will consider these facts, together with all of the other facts and circumstances, to determine whether to grant you equitable relief from the $5,000 underpaid tax. 2012 amended tax return Factors Weighing in Favor of Equitable Relief The following are examples of factors that will weigh in favor of equitable relief, but will not weigh against equitable relief. 2012 amended tax return Whether your spouse (or former spouse) abused you. 2012 amended tax return Whether you were in poor mental or physical health on the date you signed the return or at the time you requested relief. 2012 amended tax return Refunds If you are granted relief, refunds are: Permitted under innocent spouse relief as explained later under Limit on Amount of Refund . 2012 amended tax return Not permitted under separation of liability relief. 2012 amended tax return Permitted in limited circumstances under equitable relief, as explained under Refunds Under Equitable Relief. 2012 amended tax return Proof Required The IRS will only refund payments you made with your own money. 2012 amended tax return However, you must provide proof that you made the payments with your own money. 2012 amended tax return Examples of proof are a copy of your bank statement or a canceled check. 2012 amended tax return No proof is required if your individual refund was used by the IRS to pay a tax you owed on a joint tax return for another year. 2012 amended tax return Refunds Under Equitable Relief In the following situations, you are eligible to receive a refund of certain payments you made. 2012 amended tax return Underpaid tax. 2012 amended tax return   If you are granted relief for an underpaid tax, you are eligible for a refund of separate payments that you made after July 22, 1998. 2012 amended tax return However, you are not eligible for refunds of payments made with the joint return, joint payments, or payments that your spouse (or former spouse) made. 2012 amended tax return For example, withholding tax and estimated tax payments cannot be refunded because they are considered made with the joint return. 2012 amended tax return   The amount of the refund is subject to the limit discussed later under Limit on Amount of Refund. 2012 amended tax return Understated tax. 2012 amended tax return   If you are granted relief for an understated tax, you are eligible for a refund of certain payments made under an installment agreement that you entered into with the IRS, if you have not defaulted on the installment agreement. 2012 amended tax return You are not in default if the IRS did not issue you a notice of default or take any action to end the installment agreement. 2012 amended tax return Only installment payments made after the date you filed Form 8857 are eligible for a refund. 2012 amended tax return   The amount of the refund is subject to the limit discussed next. 2012 amended tax return Limit on Amount of Refund The amount of your refund is limited. 2012 amended tax return Read the following chart to find out the limit. 2012 amended tax return IF you file Form 8857. 2012 amended tax return . 2012 amended tax return . 2012 amended tax return THEN the refund cannot be more than. 2012 amended tax return . 2012 amended tax return . 2012 amended tax return Within 3 years after filing your return The part of the tax paid within 3 years (plus any extension of time for filing your return) before you filed Form 8857. 2012 amended tax return After the 3-year period, but within 2 years from the time you paid the tax The tax you paid within 2 years immediately before you filed Form 8857. 2012 amended tax return Filled-in Form 8857 This part explains how Janie Boulder fills out Form 8857 to request innocent spouse relief. 2012 amended tax return Janie and Joe Boulder filed a joint tax return for 2007. 2012 amended tax return They claimed one dependency exemption for their son Michael. 2012 amended tax return Their return was adjusted by the IRS because Joe did not report a $5,000 award he won that year. 2012 amended tax return Janie did not know about the award when the return was filed. 2012 amended tax return They agreed to the adjustment but could not pay the additional amount due of $815 ($650 tax + $165 penalty and interest). 2012 amended tax return Janie and Joe were divorced on May 13, 2009. 2012 amended tax return In February 2010, Janie filed her 2009 federal income tax return as head of household. 2012 amended tax return She expected a refund of $1,203. 2012 amended tax return In May 2010, she received a notice informing her that the IRS had offset her refund against the $815 owed on her joint 2007 income tax return and that she had a right to file Form 8857. 2012 amended tax return Janie applies the conditions listed earlier under Innocent Spouse Relief to see if she qualifies for relief. 2012 amended tax return Janie meets the first and second conditions because the joint tax return they filed has an understated tax due to Joe's erroneous item. 2012 amended tax return Janie believes she meets the third condition. 2012 amended tax return She did not know about the award and had no reason to know about it because of the secretive way Joe conducted his financial affairs. 2012 amended tax return Janie believes she meets the fourth condition. 2012 amended tax return She believes it would be unfair to be held liable for the tax because she did not benefit from the award. 2012 amended tax return Joe spent it on personal items for his use only. 2012 amended tax return Because Janie believes she qualifies for innocent spouse relief, she first completes Part I of Form 8857 to determine if she should file the form. 2012 amended tax return In Part I, she makes all entries under the Tax Year 1 column because she is requesting relief for only one year. 2012 amended tax return Part I Line 1. 2012 amended tax return   She enters “2007” on line 1 because this is the tax year for which she is requesting relief. 2012 amended tax return Line 2. 2012 amended tax return   She checks the box because she wants a refund. 2012 amended tax return Note. 2012 amended tax return Because the IRS used her individual refund to pay the tax owed on the joint tax return, she does not need to provide proof of payment. 2012 amended tax return Line 3. 2012 amended tax return   She checks the “No” box because the IRS did not use her share of a joint refund to pay Joe's past-due debts. 2012 amended tax return Line 4. 2012 amended tax return   She checks the “Yes” box because she filed a joint tax return for tax year 2007. 2012 amended tax return Line 5. 2012 amended tax return   She skips this line because she checked the “Yes” box on line 4. 2012 amended tax return Part II Line 6. 2012 amended tax return   She enters her name, address, social security number, county, and best daytime phone number. 2012 amended tax return Part III Line 7. 2012 amended tax return   She enters Joe's name, address, social security number, and best daytime phone number. 2012 amended tax return Line 8. 2012 amended tax return   She checks the “divorced since” box and enters the date she was divorced as “05/13/2009. 2012 amended tax return ” She attaches a copy of her entire divorce decree (not Illustrated) to the form. 2012 amended tax return Line 9. 2012 amended tax return   She checks the box for “High school diploma, equivalent, or less,” because she had completed high school when her 2007 joint tax return was filed. 2012 amended tax return Line 10. 2012 amended tax return   She checks the “No” box because she was not a victim of spousal abuse or domestic violence. 2012 amended tax return Line 11. 2012 amended tax return   She checks the “No” box because neither she nor Joe incurred any large expenses during the year for which she wants relief. 2012 amended tax return Line 12. 2012 amended tax return   She checks the “Yes” box because she signed the 2007 joint tax return. 2012 amended tax return Line 13. 2012 amended tax return   She checks the “No” box because she did not have a mental or physical condition when the return was filed and does not have one now. 2012 amended tax return Part IV Line 14. 2012 amended tax return   Because she was not involved in preparing the return, she checks the box, “You were not involved in preparing the returns. 2012 amended tax return ” Line 15. 2012 amended tax return   She checks the box, “You did not know anything was incorrect or missing” because she did not know that Joe had received a $5,000 award. 2012 amended tax return She explains this in the space provided. 2012 amended tax return Line 16. 2012 amended tax return   She checks the box, “You knew that person had income” because she knew Joe had income from wages. 2012 amended tax return She also lists Joe's income. 2012 amended tax return Under “Type of Income” she enters “wages. 2012 amended tax return ” Under “Who paid it to that person,” she enters the name of Joe's employer, “Allied. 2012 amended tax return ” Under “Tax Year 1” she enters the amount of Joe's wages, “$40,000. 2012 amended tax return ” Because she is only requesting relief for one tax year, she leaves the entry spaces for “Tax Year 2” and “Tax Year 3” blank. 2012 amended tax return Line 17. 2012 amended tax return   She checks the “No” box because she did not know any amount was owed to the IRS when the 2007 return was signed. 2012 amended tax return Line 18. 2012 amended tax return   She checks the “No” box because, when the return was signed, she was not having financial problems. 2012 amended tax return Line 19. 2012 amended tax return   She checks the box, “You were not involved in handling money for the household” because Joe handled all the money for the household. 2012 amended tax return She provides additional information in the space provided. 2012 amended tax return Line 20. 2012 amended tax return   She checks the “No” box because Joe has never transferred money or property to her. 2012 amended tax return Part V Line 21. 2012 amended tax return   She enters the number “1” on both the line for “Adults” and the line for “Children” because her current household consists of herself and her son. 2012 amended tax return Line 22. 2012 amended tax return   She enters her average monthly income for her entire household. 2012 amended tax return Line 23. 2012 amended tax return   She lists her assets, which are $500 for the fair market value of a car, $450 in her checking account, and $100 in her savings account. 2012 amended tax return Signing and mailing Form 8857. 2012 amended tax return    Janie signs and dates the form. 2012 amended tax return She attaches the copy of her divorce decree (not illustrated) required by line 8. 2012 amended tax return Finally, she sends the form to the IRS address or fax number shown in the instructions for Form 8857. 2012 amended tax return This image is too large to be displayed in the current screen. 2012 amended tax return Please click the link to view the image. 2012 amended tax return Boulder's filled-in Form 8857 page 1 This image is too large to be displayed in the current screen. 2012 amended tax return Please click the link to view the image. 2012 amended tax return Boulder's filled-in Form 8857 page 2 This image is too large to be displayed in the current screen. 2012 amended tax return Please click the link to view the image. 2012 amended tax return Boulder's filled-in Form 8857 page 3 This image is too large to be displayed in the current screen. 2012 amended tax return Please click the link to view the image. 2012 amended tax return Boulder's filled-in Form 8857 page 4 Flowcharts The following flowcharts provide a quick way for determining whether you may qualify for relief. 2012 amended tax return But do not rely on these flowcharts alone. 2012 amended tax return Also read the earlier discussions. 2012 amended tax return Figure A. 2012 amended tax return Do You Qualify for Innocent Spouse Relief? Please click here for the text description of the image. 2012 amended tax return "Do You Qualify for Innocent Spouse Relief?" Figure B. 2012 amended tax return Do You Qualify for Separation of Liability Relief? Please click here for the text description of the image. 2012 amended tax return "Do You Qualify for Separation of Liability Relief?" Figure C. 2012 amended tax return Do You Qualify for Equitable Relief? This image is too large to be displayed in the current screen. 2012 amended tax return Please click the link to view the image. 2012 amended tax return "Do You Qualify for Equitable Relief?" Prev  Up  Next   Home   More Online Publications
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U.S. Citizens and Resident Aliens Abroad

If you are a U.S. citizen or resident alien, the rules for filing income, estate, and gift tax returns and paying estimated tax are generally the same whether you are in the United States or abroad. Your worldwide income is subject to U.S. income tax, regardless of where you reside.

When to File

If you are a U.S. citizen or resident alien residing overseas, or are in the military on duty outside the U.S., on the regular due date of your return, you are allowed an automatic 2-month extension to file your return and pay any amount due without requesting an extension. For a calendar year return, the automatic 2-month extension is to June 15.

If you are unable to file your return by the automatic 2-month extension date, you can request an additional extension to October 15 by filing Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return, before the automatic 2-month extension date. However, any tax due payments made after June 15 will be subject to both interest charges and failure to pay penalties.

Where to File

If you are a U.S. citizen or resident alien (Green Card Holder) and you live in a foreign country, mail your U.S. tax return to:

Department of the Treasury
Internal Revenue Service Center
Austin, TX 73301-0215
USA

Estimated tax payments should be mailed with form 1040-ES to:

Internal Revenue Service
P.O. Box 1300
Charlotte, NC 28201-1300
USA

Taxpayers with an AGI (Adjusted Gross Income) of $58,000 or less can electronically file their tax return for free using freefile. Taxpayers with an AGI greater than $58,000 can either use the Free File Fillable Forms or efile by purchasing commercial software. A limited number of companies provide software that can accommodate foreign addresses. To determine which will work best for you, view the complete Free File Software list and the services provided.

Taxpayer Identification Number

Each taxpayer who files, or is claimed as a dependent on, a U.S. tax return will need a social security number (SSN) or individual taxpayer identification number (ITIN). To obtain a SSN, use form SS-5, Application for a Social Security Card. To get form SS-5, or to find out if you are eligible for a social security card, contact a Social Security Office or visit Social Security International Operations. If you, or your spouse, are not eligible for a SSN, you can obtain an ITIN by filing form W-7 along with appropriate documentation.

Exchange Rates

You must express the amounts you report on your U.S. tax return in U.S. dollars. If you receive all or part of your income or pay some or all of your expenses in foreign currency, you must translate the foreign currency into U.S. dollars. Taxpayers generally use the yearly average exchange rate to report foreign-earned income that was received regularly throughout the year. However, if you had foreign transactions on specific days, you may also use the exchange rates for those days. Exchange rates can be found at Foreign Currency and Currency Exchange Rates. Yearly average currency exchange rates for most countries can be found at Yearly Average Currency Exchange Rates.

How to Get Tax Help

The IRS Office in Philadelphia provides international tax assistance. This office is open Monday through Friday from 6:00 a.m. to 11:00 p.m. EST and can be contacted by:

  • Phone: 1 (267) 941-1000 (not toll-free)
  • FAX:1 (267) 941-1055
  • Email: Email the IRS
    (e-mail is for general tax questions; NOT questions regarding your tax account)
  • Mail: Internal Revenue Service
    Philadelphia, Pa 19255-0725

The IRS has customer service personnel available to provide tax assistance in the following Embassies and Consulates abroad:

 

Permanent IRS Offices Outside the United States
Office Address Office Phone Numbers and Email

U.S. Consulate
Internal Revenue Service
Frankfurt
Giessener Str.
30
60435 Frankfurt am Main
Germany

Walk-in assistance by appointment only
Tuesdays 9:00 a.m.-12:30 p.m.
Call (49) (69) 7535-3811 to request an appointment.

Phone Service
Tel: [49] (69) 7535-3823
9:00 a.m.-12:30 p.m. and 1:30 p.m.-3:30 p.m.
Monday through Thursday
U.S. Embassy
Internal Revenue Service
London
24/31 Grosvenor Square
London W1A 1 AE
England
Walk-in assistance
Tuesday through Thursday
9:00 a.m. - 1:00 p.m. and 2:00 p.m. - 4:00 p.m.

Phone Service
Tel: [44] (207) 894-0477
Monday 9 a.m. to 4 p.m.
Tuesday through Thursday 9 a.m. to 12:00 noon.
Fax: [44] (207) 495-4224
U.S. Embassy
Internal Revenue Service
2 Avenue Gabriel
75382 Paris Cedex 08
France
Walk-in assistance
Monday through Friday
9:00 a.m.- 12:00 noon

Phone Service
Tel. [33] (1) 4312-2555
Monday - Friday 9:00 a.m. - 12:00 noon and 1:30 p.m. - 3:30 p.m.
Fax: +33-1-4312-2303
Email: irs.paris@irs.gov
U.S. Embassy Beijing
Internal Revenue Service
No. 55 An Jia Lou Lu
Beijing 100600
Peoples Republic of China
Walk-in assistance by appointment only.
Wednesdays 1:00 p.m. – 4:00 p.m.
Call or email to request an appointment.

Phone Service
Tel: [86] (10) 8531-3983
Fax: [86] (10) 8531-4287
Email: irs.beijing@irs.gov (for all inquiries)

 

Help with Unresolved Tax Problems

If you are experiencing a tax problem that is causing you economic harm or has not been resolved through normal channels, you can contact the Taxpayer Advocate.

References/Related Topics

Page Last Reviewed or Updated: 31-Jan-2014

The 2012 Amended Tax Return

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