File your Taxes for Free!
  • Get your maximum refund*
  • 100% accurate calculations guaranteed*

TurboTax Federal Free Edition - File Taxes Online

Don't let filing your taxes get you down! We'll help make it as easy as possible. With e-file and direct deposit, there's no faster way to get your refund!

Approved TurboTax Affiliate Site. TurboTax and TurboTax Online, among others, are registered trademarks and/or service marks of Intuit Inc. in the United States and other countries. Other parties' trademarks or service marks are the property of the respective owners.


© 2012 - 2018 All rights reserved.

This is an Approved TurboTax Affiliate site. TurboTax and TurboTax Online, among other are registered trademarks and/or service marks of Intuit, Inc. in the United States and other countries. Other parties' trademarks or service marks are the property of the respective owners.
When discussing "Free e-file", note that state e-file is an additional fee. E-file fees do not apply to New York state returns. Prices are subject to change without notice. E-file and get your refund faster
*If you pay an IRS or state penalty or interest because of a TurboTax calculations error, we'll pay you the penalty and interest.
*Maximum Refund Guarantee - or Your Money Back: If you get a larger refund or smaller tax due from another tax preparation method, we'll refund the applicable TurboTax federal and/or state purchase price paid. TurboTax Federal Free Edition customers are entitled to payment of $14.99 and a refund of your state purchase price paid. Claims must be submitted within sixty (60) days of your TurboTax filing date and no later than 6/15/14. E-file, Audit Defense, Professional Review, Refund Transfer and technical support fees are excluded. This guarantee cannot be combined with the TurboTax Satisfaction (Easy) Guarantee. *We're so confident your return will be done right, we guarantee it. Accurate calculations guaranteed. If you pay an IRS or state penalty or interest because of a TurboTax calculations error, we'll pay you the penalty and interest.
https://turbotax.intuit.com/corp/guarantees.jsp

Aarp Tax Aide Locations

Free State Return FilingIrs Gov EfileHow To File A 1040xIrs 1040ez File OnlineHow Do I File A Amended Tax ReturnFile 2006 Taxes Online FreeAmended FormsFederal Tax Return Forms 1040ezFile State Income Tax Online FreeWhere To File 2011 Taxes1040 Ez Tax2007 Taxes1040ez Filing InstructionsIrs For 1040xEfile 2011 Tax ReturnTax Aid2011 Irs Form 1040ezHow Can I File 2011 Taxes2011 Taxes DueFile Irs Extension2012 Amended Tax ReturnFiling An Amended Tax Return For 2013Amended State Tax FormsFree Tax CalculatorFile 2009 Taxes TurbotaxIrs Amended Form1040x Form For 2012I Need To File My 2011 Tax ReturnIrs Ez Form OnlineFree State Filing TaxesFile My State Tax Return FreeFile 1040x OnlineFillable 1040xH&rblock ComTax Credit For StudentsH&rblock TaxesDo Students Need To File TaxesFillable State Tax FormsFile 1040ez For FreeFillable Form 1040x

Aarp Tax Aide Locations

Aarp tax aide locations Publication 517 - Main Content Table of Contents Social Security CoverageCoverage of Members of the Clergy Coverage of Religious Workers (Church Employees) U. Aarp tax aide locations S. Aarp tax aide locations Citizens and Resident and Nonresident Aliens Ministerial ServicesMinisters Members of Religious Orders Christian Science Practitioners and Readers Exemption From Self-Employment (SE) TaxMembers of the Clergy Members of Recognized Religious Sects Self-Employment Tax: Figuring Net EarningsRegular Method Nonfarm Optional Method Income Tax: Income and ExpensesIncome Items Expense Items Income Tax Withholding and Estimated Tax Filing Your Return Retirement Savings ArrangementsDeducting contributions to tax-sheltered annuity plans. Aarp tax aide locations Full-time student. Aarp tax aide locations Adjusted gross income. Aarp tax aide locations More information. Aarp tax aide locations Earned Income Credit Comprehensive ExampleForm W-2 From Church Form W-2 From College Schedule C-EZ (Form 1040) Form 2106-EZ Schedule A (Form 1040) Schedule SE (Form 1040) Form 1040 Attachment 1 Attachment 2 How To Get Tax HelpLow Income Taxpayer Clinics Social Security Coverage This section gives information about which system (SECA or FICA) is used to collect social security and Medicare taxes from members of the clergy (ministers, members of a religious order, and Christian Science practitioners and readers) and religious workers (church employees). Aarp tax aide locations Coverage of Members of the Clergy The services you perform in the exercise of your ministry, of the duties required by your religious order, or of your profession as a Christian Science practitioner or reader are covered by social security and Medicare under SECA. Aarp tax aide locations Your earnings for these ministerial services (defined later) are subject to self-employment (SE) tax unless one of the following applies. Aarp tax aide locations You are a member of a religious order who has taken a vow of poverty. Aarp tax aide locations You ask the Internal Revenue Service (IRS) for an exemption from SE tax for your services and the IRS approves your request. Aarp tax aide locations See Exemption From Self-Employment (SE) Tax , later. Aarp tax aide locations You are subject only to the social security laws of a foreign country under the provisions of a social security agreement between the United States and that country. Aarp tax aide locations For more information, see Bilateral Social Security (Totalization) Agreements in Publication 54. Aarp tax aide locations Your earnings that are not from ministerial services may be subject to social security tax under FICA or SECA according to the rules that apply to taxpayers in general. Aarp tax aide locations See Ministerial Services , later. Aarp tax aide locations Ministers If you are a minister of a church, your earnings for the services you perform in your capacity as a minister are subject to SE tax, even if you perform these services as an employee of that church. Aarp tax aide locations However, you can request that the IRS grant you an exemption, as discussed under Exemption From Self-Employment (SE) Tax , later. Aarp tax aide locations For the specific services covered, see Ministerial Services , later. Aarp tax aide locations Ministers defined. Aarp tax aide locations   Ministers are individuals who are duly ordained, commissioned, or licensed by a religious body constituting a church or church denomination. Aarp tax aide locations Ministers have the authority to conduct religious worship, perform sacerdotal functions, and administer ordinances or sacraments according to the prescribed tenets and practices of that church or denomination. Aarp tax aide locations   If a church or denomination ordains some ministers and licenses or commissions others, anyone licensed or commissioned must be able to perform substantially all the religious functions of an ordained minister to be treated as a minister for social security purposes. Aarp tax aide locations Employment status for other tax purposes. Aarp tax aide locations   Even though all of your income from performing ministerial services is subject to self-employment tax for social security tax purposes, you may be an employee for income tax or retirement plan purposes in performing those same services. Aarp tax aide locations For income tax or retirement plan purposes, your income earned as an employee will be considered wages. Aarp tax aide locations Common-law employee. Aarp tax aide locations   Under common-law rules, you are considered either an employee or a self-employed person. Aarp tax aide locations Generally, you are an employee if you perform services for someone who has the legal right to control both what you do and how you do it, even if you have considerable discretion and freedom of action. Aarp tax aide locations For more information about the common-law rules, see Publication 15-A, Employer's Supplemental Tax Guide. Aarp tax aide locations   If a congregation employs you and pays you a salary, you are generally a common-law employee and income from the exercise of your ministry is wages for income tax purposes. Aarp tax aide locations However, amounts received directly from members of the congregation, such as fees for performing marriages, baptisms, or other personal services, are not wages; such amounts are self-employment income for both income tax purposes and social security tax purposes. Aarp tax aide locations Example. Aarp tax aide locations A church hires and pays you a salary to perform ministerial services subject to its control. Aarp tax aide locations Under the common-law rules, you are an employee of the church while performing those services. Aarp tax aide locations Form SS-8. Aarp tax aide locations   If you are not certain whether you are an employee or a self-employed person, you can get a determination from the IRS by filing Form SS-8. Aarp tax aide locations Members of Religious Orders If you are a member of a religious order who has not taken a vow of poverty, your earnings for ministerial services you perform as a member of the order are subject to SE tax. Aarp tax aide locations See Ministerial Services , later. Aarp tax aide locations However, you can request that the IRS grant you an exemption as discussed under Exemption From Self-Employment (SE) Tax , later. Aarp tax aide locations Vow of poverty. Aarp tax aide locations   If you are a member of a religious order and have taken a vow of poverty, you are already exempt from paying SE tax on your earnings for ministerial services you perform as an agent of your church or its agencies. Aarp tax aide locations You do not need to request a separate exemption. Aarp tax aide locations For income tax purposes, the earnings are tax free to you. Aarp tax aide locations Your earnings are considered the income of the religious order. Aarp tax aide locations Services covered under FICA at the election of the order. Aarp tax aide locations   However, even if you have taken a vow of poverty, the services you perform for your church or its agencies may be covered under social security. Aarp tax aide locations Your services are covered if your order, or an autonomous subdivision of the order, elects social security coverage for its current and future vow-of-poverty members. Aarp tax aide locations   The order or subdivision elects coverage by filing Form SS-16. Aarp tax aide locations The election may cover certain vow-of-poverty members for a retroactive period of up to 20 calendar quarters before the quarter in which it files the certificate. Aarp tax aide locations If the election is made, the order or subdivision pays both the employer's and employee's share of the tax. Aarp tax aide locations You do not pay any of the FICA tax. Aarp tax aide locations Services performed outside the order. Aarp tax aide locations   Even if you are a member of a religious order who has taken a vow of poverty and the order requires you to turn over amounts you earn, your earnings are subject to federal income tax and either SE tax or FICA tax (including estimated tax payments and/or withholding) if you: Are self-employed or an employee of an organization outside your religious community, and Perform work not required by, or done on behalf of, the order. Aarp tax aide locations   In these cases, your income from self-employment or as an employee of that outside organization is taxable to you directly. Aarp tax aide locations You may, however, be able to take a charitable deduction for the amount you turn over to the order. Aarp tax aide locations See Publication 526, Charitable Contributions. Aarp tax aide locations Rulings. Aarp tax aide locations   Organizations and individuals may request rulings from the IRS on whether they are religious orders, or members of a religious order, respectively, for FICA tax, SE tax, and federal income tax withholding purposes. Aarp tax aide locations To request a ruling, follow the procedures in Revenue Procedure 2014-1, 2014-1 I. Aarp tax aide locations R. Aarp tax aide locations B. Aarp tax aide locations 1, available at www. Aarp tax aide locations irs. Aarp tax aide locations gov/irb/2014-1_IRB/ar05. Aarp tax aide locations html. Aarp tax aide locations Christian Science Practitioners and Readers Generally, your earnings from services you perform in your profession as a Christian Science practitioner or reader are subject to SE tax. Aarp tax aide locations However, you can request an exemption as discussed under Exemption From Self-Employment (SE) Tax , later. Aarp tax aide locations Practitioners. Aarp tax aide locations   Christian Science practitioners are members in good standing of the Mother Church, The First Church of Christ, Scientist, in Boston, Massachusetts, who practice healing according to the teachings of Christian Science. Aarp tax aide locations State law specifically exempts Christian Science practitioners from licensing requirements. Aarp tax aide locations   Some Christian Science practitioners also are Christian Science teachers or lecturers. Aarp tax aide locations Income from teaching or lecturing is considered the same as income from their work as practitioners. Aarp tax aide locations Readers. Aarp tax aide locations   For tax purposes, Christian Science readers are considered the same as ordained, commissioned, or licensed ministers. Aarp tax aide locations Coverage of Religious Workers (Church Employees) If you are a religious worker (a church employee) and are not in one of the classes already discussed, your wages are generally subject to social security and Medicare tax under FICA, not SECA. Aarp tax aide locations Some exceptions are discussed next. Aarp tax aide locations Election by Church To Exclude Its Employees From FICA Coverage Churches and qualified church-controlled organizations (church organizations) that are opposed for religious reasons to the payment of social security and Medicare taxes can elect to exclude their employees from FICA coverage. Aarp tax aide locations If your employer makes this election, it does not pay the employer's portion of the FICA taxes or withhold from your pay your portion of the FICA taxes. Aarp tax aide locations Instead, your wages are subject to SECA and you must pay SE tax on your wages if they exceed $108. Aarp tax aide locations 28 during the tax year. Aarp tax aide locations However, you can request an exemption from SE tax if you are a member of a recognized religious sect, as discussed below. Aarp tax aide locations Churches and church organizations make this election by filing two copies of Form 8274. Aarp tax aide locations For more information about making this election, see Form 8274. Aarp tax aide locations Election by Certain Church Employees Who Are Opposed to Social Security and Medicare You may be able to choose to be exempt from social security and Medicare taxes, including the SE tax, if you are a member of a recognized religious sect or division and work for a church (or church-controlled nonprofit division) that does not pay the employer's part of the social security tax on wages. Aarp tax aide locations This exemption does not apply to your service, if any, as a minister of a church or as a member of a religious order. Aarp tax aide locations Make this choice by filing Form 4029. Aarp tax aide locations See Requesting Exemption—Form 4029 , later, under Members of Recognized Religious Sects. Aarp tax aide locations U. Aarp tax aide locations S. Aarp tax aide locations Citizens and Resident and Nonresident Aliens To be covered under the SE tax provisions (SECA), individuals generally must be citizens or resident aliens of the United States. Aarp tax aide locations Nonresident aliens are not covered under SECA unless a social security agreement in effect between the United States and the foreign country determines that you are covered under the U. Aarp tax aide locations S. Aarp tax aide locations social security system. Aarp tax aide locations To determine your alien status, see Publication 519, U. Aarp tax aide locations S. Aarp tax aide locations Tax Guide for Aliens. Aarp tax aide locations Residents of Puerto Rico, the U. Aarp tax aide locations S. Aarp tax aide locations Virgin Islands, Guam, the CNMI, and American Samoa. Aarp tax aide locations   If you are a resident of one of these U. Aarp tax aide locations S. Aarp tax aide locations possessions but not a U. Aarp tax aide locations S. Aarp tax aide locations citizen, for SE tax purposes you are treated the same as a citizen or resident alien of the United States. Aarp tax aide locations For information on figuring the tax, see Self-Employment Tax: Figuring Net Earnings , later. Aarp tax aide locations Ministerial Services Ministerial services, in general, are the services you perform in the exercise of your ministry, in the exercise of your duties as required by your religious order, or in the exercise of your profession as a Christian Science practitioner or reader. Aarp tax aide locations Income you receive for performing ministerial services is subject to SE tax unless you have an exemption as explained later. Aarp tax aide locations Even if you have an exemption, only the income you receive for performing ministerial services is exempt. Aarp tax aide locations The exemption does not apply to any other income. Aarp tax aide locations The following discussions provide more detailed information on ministerial services of ministers, members of a religious order, and Christian Science practitioners and readers. Aarp tax aide locations Ministers Most services you perform as a minister, priest, rabbi, etc. Aarp tax aide locations , are ministerial services. Aarp tax aide locations These services include: Performing sacerdotal functions, Conducting religious worship, and Controlling, conducting, and maintaining religious organizations (including the religious boards, societies, and other integral agencies of such organizations) that are under the authority of a religious body that is a church or denomination. Aarp tax aide locations You are considered to control, conduct, and maintain a religious organization if you direct, manage, or promote the organization's activities. Aarp tax aide locations A religious organization is under the authority of a religious body that is a church or denomination if it is organized for and dedicated to carrying out the principles of a faith according to the requirements governing the creation of institutions of the faith. Aarp tax aide locations Services for nonreligious organizations. Aarp tax aide locations   Your services for a nonreligious organization are ministerial services if the services are assigned or designated by your church. Aarp tax aide locations Assigned or designated services qualify even if they do not involve performing sacerdotal functions or conducting religious worship. Aarp tax aide locations   If your services are not assigned or designated by your church, they are ministerial services only if they involve performing sacerdotal functions or conducting religious worship. Aarp tax aide locations Services that are not part of your ministry. Aarp tax aide locations   Income from services you perform as an employee that are not ministerial services is subject to social security and Medicare tax withholding under FICA (not SECA) under the rules that apply to employees in general. Aarp tax aide locations The following are not ministerial services. Aarp tax aide locations Services you perform for nonreligious organizations other than the services stated above. Aarp tax aide locations Services you perform as a duly ordained, commissioned, or licensed minister of a church as an employee of the United States, the District of Columbia, a foreign government, or any of their political subdivisions. Aarp tax aide locations These services are not ministerial services even if you are performing sacerdotal functions or conducting religious worship. Aarp tax aide locations (For example, if you perform services as a chaplain in the Armed Forces of the United States, those services are not ministerial services. Aarp tax aide locations ) Services you perform in a government-owned and operated hospital. Aarp tax aide locations (These services are considered performed by a government employee, not by a minister as part of the ministry. Aarp tax aide locations ) However, services that you perform at a church-related hospital or health and welfare institution, or a private nonprofit hospital, are considered to be part of the ministry and are considered ministerial services. Aarp tax aide locations Books or articles. Aarp tax aide locations   Writing religious books or articles is considered to be in the exercise of your ministry and is considered a ministerial service. Aarp tax aide locations   This rule also applies to members of religious orders and to Christian Science practitioners and readers. Aarp tax aide locations Members of Religious Orders Services you perform as a member of a religious order in the exercise of duties required by the order are ministerial services. Aarp tax aide locations The services are considered ministerial because you perform them as an agent of the order. Aarp tax aide locations For example, if the order directs you to perform services for another agency of the supervising church or an associated institution, you are considered to perform the services as an agent of the order. Aarp tax aide locations However, if the order directs you to work outside the order, this employment will not be considered a duty required by the order unless: Your services are the kind that are ordinarily performed by members of the order, and Your services are part of the duties that must be exercised for, or on behalf of, the religious order as its agent. Aarp tax aide locations Effect of employee status. Aarp tax aide locations   Ordinarily, if your services are not considered directed or required of you by the order, you and the outside party for whom you work are considered employee and employer. Aarp tax aide locations In this case, your earnings from the services are taxed under the rules that apply to employees in general, not under the rules for services provided as agent for the order. Aarp tax aide locations This result is true even if you have taken a vow of poverty. Aarp tax aide locations Example. Aarp tax aide locations Pat Brown and Chris Green are members of a religious order and have taken vows of poverty. Aarp tax aide locations They renounce all claims to their earnings. Aarp tax aide locations The earnings belong to the order. Aarp tax aide locations Pat is a licensed attorney. Aarp tax aide locations The superiors of the order instructed her to get a job with a law firm. Aarp tax aide locations Pat joined a law firm as an employee and, as she requested, the firm made the salary payments directly to the order. Aarp tax aide locations Chris is a secretary. Aarp tax aide locations The superiors of the order instructed him to accept a job with the business office of the church that supervises the order. Aarp tax aide locations Chris took the job and gave all his earnings to the order. Aarp tax aide locations Pat's services are not duties required by the order. Aarp tax aide locations Her earnings are subject to social security and Medicare tax under FICA and to federal income tax. Aarp tax aide locations Chris' services are duties required by the order. Aarp tax aide locations He is acting as an agent of the order and not as an employee of a third party. Aarp tax aide locations He does not include the earnings in gross income, and they are not subject to income tax withholding or to social security and Medicare tax under FICA or SECA. Aarp tax aide locations Christian Science Practitioners and Readers Services you perform as a Christian Science practitioner or reader in the exercise of your profession are ministerial services. Aarp tax aide locations Amounts you receive for performing these services are generally subject to SE tax. Aarp tax aide locations You may request an exemption from SE tax, discussed next, which applies only to those services. Aarp tax aide locations Exemption From Self-Employment (SE) Tax You can request an exemption from SE tax if you are a member of the clergy (minister, member of a religious order, or Christian Science practitioner or reader) or a member of a recognized religious sect. Aarp tax aide locations Generally, members of religious orders who have taken a vow of poverty are already exempt from paying SE tax, as discussed earlier under Members of Religious Orders under Social Security Coverage. Aarp tax aide locations They do not have to request the exemption. Aarp tax aide locations Who cannot be exempt. Aarp tax aide locations   You cannot be exempt from SE tax if you made one of the following elections to be covered under social security. Aarp tax aide locations These elections are irrevocable. Aarp tax aide locations You elected to be covered under social security by filing Form 2031, Revocation of Exemption From Self-Employment Tax for Use by Ministers, Members of Religious Orders, and Christian Science Practitioners, for your 1986, 1987, 2000, or 2001 tax year. Aarp tax aide locations You elected before 1968 to be covered under social security for your ministerial services. Aarp tax aide locations Requesting exemption. Aarp tax aide locations    Table 2, earlier, briefly summarizes the procedure for requesting exemption from the SE tax. Aarp tax aide locations More detailed explanations follow. Aarp tax aide locations If you are a minister, member of a religious order, or Christian Science practitioner, an approved exemption only applies to earnings you receive for ministerial services, discussed earlier. Aarp tax aide locations It does not apply to any other self-employment income. Aarp tax aide locations Table 2. Aarp tax aide locations The Self-Employment Tax Exemption Application and Approval Process   Who Can Apply Members of the Clergy Members of Recognized  Religious Sects How File Form 4361 File Form 4029 When File by the due date (including extensions) of your income tax return for the second tax year in which you had at least $400 of net earnings from self-employment (at least part from ministerial services) File anytime Approval If approved, you will receive an approved copy of Form 4361 If approved, you will receive an approved copy of Form 4029 Effective Date For all tax years after 1967 in which you have at least $400 of net earnings from self-employment For all tax years beginning with the first year you meet the eligibility requirements discussed later Members of the Clergy To claim the exemption from SE tax, you must meet all of the following conditions. Aarp tax aide locations You file Form 4361, described below under Requesting Exemption—Form 4361 . Aarp tax aide locations You are conscientiously opposed to public insurance because of your individual religious considerations (not because of your general conscience), or you are opposed because of the principles of your religious denomination. Aarp tax aide locations You file for other than economic reasons. Aarp tax aide locations You inform the ordaining, commissioning, or licensing body of your church or order that you are opposed to public insurance if you are a minister or a member of a religious order (other than a vow-of-poverty member). Aarp tax aide locations This requirement does not apply to Christian Science practitioners or readers. Aarp tax aide locations You establish that the organization that ordained, commissioned, or licensed you, or your religious order, is a tax-exempt religious organization. Aarp tax aide locations You establish that the organization is a church or a convention or association of churches. Aarp tax aide locations You did not make an election discussed earlier under Who cannot be exempt . Aarp tax aide locations You sign and return the statement the IRS mails to you to certify that you are requesting an exemption based on the grounds listed on the statement. Aarp tax aide locations Requesting Exemption—Form 4361 To request exemption from SE tax, file Form 4361 in triplicate (original and two copies) with the IRS. Aarp tax aide locations The IRS will return to you a copy of the Form 4361 that you filed indicating whether it has approved your exemption. Aarp tax aide locations If it is approved, keep the approved copy of Form 4361 in your permanent records. Aarp tax aide locations When to file. Aarp tax aide locations   File Form 4361 by the date your income tax return is due, including extensions, for the second tax year in which both of the following are true. Aarp tax aide locations You have net earnings from self-employment of at least $400. Aarp tax aide locations Any part of those net earnings was from ministerial services you performed as a: Minister, Member of a religious order, or Christian Science practitioner or reader. Aarp tax aide locations The 2 years do not have to be consecutive tax years. Aarp tax aide locations    The approval process can take some time, so you should file Form 4361 as soon as possible. Aarp tax aide locations Example 1. Aarp tax aide locations Rev. Aarp tax aide locations Lawrence Jaeger, a clergyman ordained in 2013, has net self-employment earnings as a minister of $450 in 2013 and $500 in 2014. Aarp tax aide locations He must file his application for exemption by the due date, including extensions, for his 2014 income tax return. Aarp tax aide locations However, if Rev. Aarp tax aide locations Jaeger does not receive IRS approval for an exemption by April 15, 2015, his SE tax for 2014 is due by that date. Aarp tax aide locations Example 2. Aarp tax aide locations Rev. Aarp tax aide locations Louise Wolfe has only $300 in net self-employment earnings as a minister in 2013, but earned more than $400 in 2012 and expects to earn more than $400 in 2014. Aarp tax aide locations She must file her application for exemption by the due date, including extensions, for her 2014 income tax return. Aarp tax aide locations However, if she does not receive IRS approval for an exemption by April 15, 2015, her SE tax for 2014 is due by that date. Aarp tax aide locations Example 3. Aarp tax aide locations In 2011, Rev. Aarp tax aide locations David Moss was ordained a minister and had $700 in net self-employment earnings as a minister. Aarp tax aide locations In 2012, he received $1,000 as a minister, but his related expenses were over $1,000. Aarp tax aide locations Therefore, he had no net self-employment earnings as a minister in 2012. Aarp tax aide locations Also in 2012, he opened a book store and had $8,000 in net self-employment earnings from the store. Aarp tax aide locations In 2013, he had net self-employment earnings of $1,500 as a minister and $10,000 net self-employment earnings from the store. Aarp tax aide locations Rev. Aarp tax aide locations Moss had net earnings from self-employment in 2011 and 2013 that were $400 or more each year, and part of the self-employment earnings in each of those years was for his services as a minister. Aarp tax aide locations Thus, he must file his application for exemption by the due date, including extensions, for his 2013 income tax return. Aarp tax aide locations Death of individual. Aarp tax aide locations   The right to file an application for exemption ends with an individual's death. Aarp tax aide locations A surviving spouse, executor, or administrator cannot file an exemption application for a deceased clergy member. Aarp tax aide locations Effective date of exemption. Aarp tax aide locations   An approved exemption is effective for all tax years after 1967 in which you have $400 or more of net earnings from self-employment and any part of those earnings is for services as a member of the clergy. Aarp tax aide locations Once the exemption is approved, it is irrevocable. Aarp tax aide locations Example. Aarp tax aide locations Rev. Aarp tax aide locations Trudy Austin, ordained in 2010, had $400 or more in net self-employment earnings as a minister in both 2010 and 2013. Aarp tax aide locations She files an application for exemption on February 20, 2014. Aarp tax aide locations If an exemption is granted, it is effective for 2010 and the following years. Aarp tax aide locations Refunds of SE tax. Aarp tax aide locations   If, after receiving an approved Form 4361, you find that you overpaid SE tax, you can file a claim for refund on Form 1040X. Aarp tax aide locations Generally, for a refund, you must file Form 1040X within 3 years from the date you filed the return or within 2 years from the date you paid the tax, whichever is later. Aarp tax aide locations A return you filed, or tax you paid, before the due date is considered to have been filed or paid on the due date. Aarp tax aide locations   If you file a claim after the 3-year period but within 2 years from the time you paid the tax, the credit or refund will not be more than the tax you paid within the 2 years immediately before you file the claim. Aarp tax aide locations Members of Recognized Religious Sects If you are a member of a recognized religious sect, or a division of a recognized religious sect, you can apply for an exemption from payment of social security and Medicare taxes on both your self-employment income and the wages you earn from an employer who also has an exemption. Aarp tax aide locations Exception. Aarp tax aide locations   If you received social security benefits or payments, or anyone else received these benefits or payments based on your wages or self-employment income, you cannot apply. Aarp tax aide locations However, if you pay your benefits back, you may be considered for exemption. Aarp tax aide locations Contact your local Social Security Administration office to find out the amount you must pay back. Aarp tax aide locations Eligibility requirements. Aarp tax aide locations   To claim this exemption from SE tax, all the following requirements must be met. Aarp tax aide locations You must file Form 4029, discussed later under Requesting Exemption—Form 4029 . Aarp tax aide locations As a follower of the established teachings of the sect or division, you must be conscientiously opposed to accepting benefits of any private or public insurance that makes payments for death, disability, old age, retirement, or medical care, or provides services for medical care. Aarp tax aide locations You must waive all rights to receive any social security payment or benefit and agree that no benefits or payments will be made to anyone else based on your wages and self-employment income. Aarp tax aide locations The Commissioner of Social Security must determine that: Your sect or division has the established teachings as described in (2) above, It is the practice, and has been for a substantial period of time, for members of the sect or division to provide for their dependent members in a manner that is reasonable in view of the members' general level of living, and The sect or division has existed at all times since December 31, 1950. Aarp tax aide locations Requesting Exemption—Form 4029 To request the exemption, file Form 4029 in triplicate (original and two copies) with the Social Security Administration at the address shown on the form. Aarp tax aide locations The sect or division must complete part of the form. Aarp tax aide locations The IRS will return to you a copy of the Form 4029 that you filed indicating whether it has approved your exemption. Aarp tax aide locations If it is approved, keep the approved copy of Form 4029 in your permanent records. Aarp tax aide locations When to file. Aarp tax aide locations   You can file Form 4029 at any time. Aarp tax aide locations   If you have an approved exemption from SE tax and for some reason that approved exemption ended, you must file a new Form 4029 if you subsequently meet the eligibility requirements, discussed earlier. Aarp tax aide locations See Effective date of exemption next for information on when the newly approved exemption would become effective. Aarp tax aide locations    If you have a previously approved exemption from SE tax and you change membership to another recognized religious sect, without any change to your eligibility requirements, then you do not need to file a new Form 4029. Aarp tax aide locations Effective date of exemption. Aarp tax aide locations   An approved exemption from SE tax generally is effective for all tax years beginning with the first year you meet the eligibility requirements discussed earlier. Aarp tax aide locations (For example, if you meet the eligibility requirements in 2011, you file Form 4029 in 2012, and the IRS approves your exemption in 2013, your exemption is effective for tax year 2011 and all later years. Aarp tax aide locations )   The exemption will end if you fail to meet the eligibility requirements or if the Commissioner of Social Security determines that the sect or division fails to meet them. Aarp tax aide locations You must notify the IRS within 60 days if you are no longer a member of the religious group, or if you no longer follow the established teachings of this group. Aarp tax aide locations The exemption will end for the tax year where you or your sect/division first fails to meet the eligibility requirements. Aarp tax aide locations Refunds of SE tax paid. Aarp tax aide locations    To get a refund of any SE tax you paid while the exemption was in effect, file Form 1040X. Aarp tax aide locations For information on filing this form, see Refunds of SE tax under Requesting Exemption—Form 4361, earlier. Aarp tax aide locations Exemption From FICA Taxes Generally, under FICA, the employer and the employee each pay half of the social security and Medicare tax. Aarp tax aide locations Both the employee and the employer, if they meet the eligibility requirements discussed earlier, can apply to be exempt from their share of FICA taxes on wages paid by the employer to the employee. Aarp tax aide locations A partnership in which each partner holds a religious exemption from social security and Medicare is an employer for this purpose. Aarp tax aide locations If the employer's application is approved, the exemption will apply only to FICA taxes on wages paid to employees who also received an approval of identical applications. Aarp tax aide locations Information for employers. Aarp tax aide locations   If you have an approved Form 4029 and you have an employee who has an approved Form 4029, do not report wages you paid to the employee as social security and Medicare wages. Aarp tax aide locations   If you have an employee who does not have an approved Form 4029, you must withhold the employee's share of social security and Medicare taxes and pay the employer's share. Aarp tax aide locations Form W-2. Aarp tax aide locations   When preparing a Form W-2 for an employee with an approved Form 4029, enter “Form 4029” in box 14, “Other. Aarp tax aide locations ” Do not make any entries in boxes 3, 4, 5, or 6. Aarp tax aide locations Forms 941, 943, and 944. Aarp tax aide locations   If both you and your employee have received approved Forms 4029, do not include these exempt wages on the following forms. Aarp tax aide locations Instead, follow the instructions given below. Aarp tax aide locations Form 941, Employer's QUARTERLY Federal Tax Return: check the box on line 4 and enter “Form 4029” in the empty space below the check box. Aarp tax aide locations Form 943, Employer's Annual Federal Tax Return for Agricultural Employees: enter “Form 4029” on the dotted line next to the lines 2 and 4 entry spaces. Aarp tax aide locations Form 944, Employer's ANNUAL Federal Tax Return: check the box on line 3 and enter “Form 4029” in the empty space below the check box. Aarp tax aide locations Effective date. Aarp tax aide locations   An approved exemption from FICA becomes effective on the first day of the first calendar quarter after the quarter in which you file Form 4029. Aarp tax aide locations The exemption will end on the last day of the calendar quarter before the quarter in which the employer, employee, sect, or division fails to meet the requirements. Aarp tax aide locations Self-Employment Tax: Figuring Net Earnings There are two methods for figuring your net earnings from self-employment as a member of the clergy or a religious worker. Aarp tax aide locations Regular method. Aarp tax aide locations Nonfarm optional method. Aarp tax aide locations You may find Worksheets 1 through 4 helpful in figuring your net earnings from self-employment. Aarp tax aide locations Blank worksheets are in the back of this publication, after the Comprehensive Example. Aarp tax aide locations Regular Method Most people use the regular method. Aarp tax aide locations Under this method, figure your net earnings from self-employment by totaling your gross income for services you performed as a minister, a member of a religious order who has not taken a vow of poverty, or a Christian Science practitioner or reader. Aarp tax aide locations Then, subtract your allowable business deductions and multiply the difference by 92. Aarp tax aide locations 35% (. Aarp tax aide locations 9235). Aarp tax aide locations Use Schedule SE (Form 1040) to figure your net earnings and SE tax. Aarp tax aide locations If you are an employee of a church that elected to exclude you from FICA coverage, figure net earnings by multiplying your church wages shown on Form W-2 by 92. Aarp tax aide locations 35% (. Aarp tax aide locations 9235). Aarp tax aide locations Do not reduce your wages by any business deductions when making this computation. Aarp tax aide locations Use Schedule SE (Form 1040), Section B, to figure your net earnings and SE tax. Aarp tax aide locations If you have an approved exemption, or you are automatically exempt, do not include the income or deductions from ministerial services in figuring your net earnings from self-employment. Aarp tax aide locations Amounts included in gross income. Aarp tax aide locations   To figure your net earnings from self-employment (on Schedule SE (Form 1040)), include in gross income: Salaries and fees for your ministerial services (discussed earlier), Offerings you receive for marriages, baptisms, funerals, masses, etc. Aarp tax aide locations , The value of meals and lodging provided to you, your spouse, and your dependents for your employer's convenience, The fair rental value of a parsonage provided to you (including the cost of utilities that are furnished) and the rental allowance (including an amount for payment of utilities) paid to you, and Any amount a church pays toward your income tax or SE tax, other than withholding the amount from your salary. Aarp tax aide locations This amount is also subject to income tax. Aarp tax aide locations   For the income tax treatment of items (2) and (4), see Income Tax: Income and Expenses , later. Aarp tax aide locations Example. Aarp tax aide locations Pastor Roger Adams receives an annual salary of $39,000 as a full-time minister. Aarp tax aide locations The $39,000 includes $5,000 that is designated as a rental allowance to pay utilities. Aarp tax aide locations His church owns a parsonage that has a fair rental value of $12,000 per year. Aarp tax aide locations The church gives Pastor Adams the use of the parsonage. Aarp tax aide locations He is not exempt from SE tax. Aarp tax aide locations He must include $51,000 ($39,000 plus $12,000) when figuring his net earnings for SE tax purposes. Aarp tax aide locations The results would be the same if, instead of the use of the parsonage and receipt of the rental allowance for utilities, Pastor Adams had received an annual salary of $51,000 of which $17,000 ($5,000 plus $12,000) per year was designated as a rental allowance. Aarp tax aide locations Overseas duty. Aarp tax aide locations   Your net earnings from self-employment are determined without any foreign earned income exclusion or the foreign housing exclusion or deduction if you are a U. Aarp tax aide locations S. Aarp tax aide locations citizen or resident alien serving abroad and living in a foreign country. Aarp tax aide locations   For information on excluding foreign earned income or the foreign housing amount, see Publication 54. Aarp tax aide locations Example. Aarp tax aide locations Diane Jones was the minister of a U. Aarp tax aide locations S. Aarp tax aide locations church in Mexico. Aarp tax aide locations She earned $35,000 in that position and was able to exclude it all for income tax purposes under the foreign earned income exclusion. Aarp tax aide locations The United States does not have a social security agreement with Mexico, so Mrs. Aarp tax aide locations Jones is subject to U. Aarp tax aide locations S. Aarp tax aide locations SE tax and must include $35,000 when figuring net earnings from self-employment. Aarp tax aide locations Specified U. Aarp tax aide locations S. Aarp tax aide locations possessions. Aarp tax aide locations    The exclusion from gross income for amounts derived from American Samoa or Puerto Rico does not apply in computing net earnings from self-employment. Aarp tax aide locations Also see Residents of Puerto Rico, the U. Aarp tax aide locations S. Aarp tax aide locations Virgin Islands, Guam, the CNMI, and American Samoa , earlier, under U. Aarp tax aide locations S. Aarp tax aide locations Citizens and Resident and Nonresident Aliens. Aarp tax aide locations Amounts not included in gross income. Aarp tax aide locations   Do not include the following amounts in gross income when figuring your net earnings from self-employment. Aarp tax aide locations Offerings that others made to the church. Aarp tax aide locations Contributions by your church to a tax-sheltered annuity plan set up for you, including any salary reduction contributions (elective deferrals) that are not included in your gross income. Aarp tax aide locations Pension payments or retirement allowances you receive for your past ministerial services. Aarp tax aide locations The rental value of a parsonage or a parsonage allowance provided to you after you retire. Aarp tax aide locations Allowable deductions. Aarp tax aide locations   When figuring your net earnings from self-employment, deduct all your expenses related to your ministerial services performed as a self-employed person. Aarp tax aide locations These are ministerial expenses you incurred while working other than as a common-law employee of the church. Aarp tax aide locations They include expenses incurred in performing marriages and baptisms, and in delivering speeches. Aarp tax aide locations Deduct these expenses on Schedule C or C-EZ (Form 1040), and carry the net amount to line 2 of Schedule SE (Form 1040), Section A or B. Aarp tax aide locations   Wages earned as a common-law employee (explained earlier) of a church are generally subject to self-employment tax unless an exemption is requested, as discussed earlier under Exemption From Self-Employment (SE) Tax . Aarp tax aide locations Subtract any allowable expenses (including unreimbursed employee business expenses) from those wages, include the net amount on line 2 of Schedule SE (Form 1040), Section A or B, and attach an explanation. Aarp tax aide locations Do not complete Schedule C or C-EZ (Form 1040). Aarp tax aide locations However, for income tax purposes, the expenses are allowed only as an itemized deduction on Schedule A (Form 1040) to the extent they exceed 2% of adjusted gross income. Aarp tax aide locations Employee reimbursement arrangements. Aarp tax aide locations   If you received an advance, allowance, or reimbursement for your employee expenses, how you report this amount and your employee expenses depends on whether your employer reimbursed you under an accountable plan or a nonaccountable plan. Aarp tax aide locations Ask your employer if you are not sure if it reimburses you using an accountable or a nonaccountable plan. Aarp tax aide locations Accountable plans. Aarp tax aide locations   To be an accountable plan, your employer's reimbursement arrangement must include all three of the following rules. Aarp tax aide locations Your expenses must have a business connection—that is, you must have paid or incurred deductible expenses while performing services as an employee of your employer. Aarp tax aide locations You must adequately account to your employer for these expenses within a reasonable period of time. Aarp tax aide locations You must return any excess reimbursement or allowance within a reasonable period of time. Aarp tax aide locations   The reimbursement is not reported on your Form W-2. Aarp tax aide locations Generally, if your expenses equal your reimbursement, you have no deduction. Aarp tax aide locations If your expenses are more than your reimbursement, you can deduct your excess expenses for SE tax and income tax purposes. Aarp tax aide locations Nonaccountable plan. Aarp tax aide locations   A nonaccountable plan is a reimbursement arrangement that does not meet all three of the rules listed under Accountable plans above. Aarp tax aide locations In addition, even if your employer has an accountable plan, the following payments will be treated as being paid under a nonaccountable plan. Aarp tax aide locations Excess reimbursements you fail to return to your employer. Aarp tax aide locations Reimbursement of nondeductible expenses related to your employer's business. Aarp tax aide locations   Your employer will combine any reimbursement paid to you under a nonaccountable plan with your wages, salary, or other compensation and report the combined total in box 1 of your Form W-2. Aarp tax aide locations Since reimbursements under a nonaccountable plan are included in your gross income, you can deduct your related expenses (for SE tax and income tax purposes) regardless of whether they are more than, less than, or equal to your reimbursement. Aarp tax aide locations   For more information on accountable and nonaccountable plans, see Publication 463, Travel, Entertainment, Gift, and Car Expenses. Aarp tax aide locations Married Couple Missionary Team If both spouses are duly ordained, commissioned, or licensed ministers of a church and have an agreement that each will perform specific services for which they are paid jointly or separately, they must divide the self-employment income according to the agreement. Aarp tax aide locations If the agreement is with one spouse only and the other spouse is not paid for any specific duties, amounts received for their services are included only in the self-employment income of the spouse having the agreement. Aarp tax aide locations Earnings Subject to SE Tax For 2013, the maximum net earnings from self-employment subject to social security (old age, survivors, and disability insurance) tax is $113,700 minus any wages and tips you earned that were subject to social security tax. Aarp tax aide locations The tax rate for the social security part is 12. Aarp tax aide locations 4%. Aarp tax aide locations In addition, all of your net earnings are subject to the Medicare (hospital insurance) part of the SE tax. Aarp tax aide locations This tax rate is 2. Aarp tax aide locations 9%. Aarp tax aide locations The combined self-employment tax rate is 15. Aarp tax aide locations 3%. Aarp tax aide locations Additional Medicare Tax. Aarp tax aide locations   Beginning in 2013, a 0. Aarp tax aide locations 9% Additional Medicare Tax applies to Medicare wages, railroad retirement (RRTA) compensation, and self-employment income that are more than: $125,000 if married filing separately, $250,000 if married filing jointly, or $200,000 for any other filing status. Aarp tax aide locations Medicare wages and self-employment income are combined to determine if income exceeds the threshold. Aarp tax aide locations A self-employment loss is not considered for purposes of this tax. Aarp tax aide locations RRTA compensation is separately compared to the threshold. Aarp tax aide locations For more information, see Form 8959, Additional Medicare Tax, and its separate instructions. Aarp tax aide locations Nonfarm Optional Method You may be able to use the nonfarm optional method for figuring your net earnings from self-employment. Aarp tax aide locations In general, the nonfarm optional method is intended to permit continued coverage for social security and Medicare purposes when your income for the tax year is low. Aarp tax aide locations You may use the nonfarm optional method if you meet all the following tests. Aarp tax aide locations You are self-employed on a regular basis. Aarp tax aide locations You meet this test if your actual net earnings from self-employment were $400 or more in at least 2 of the 3 tax years before the one for which you use this method. Aarp tax aide locations The net earnings can be from either farm or nonfarm earnings or both. Aarp tax aide locations You have used this method less than 5 prior years. Aarp tax aide locations (There is a 5-year lifetime limit. Aarp tax aide locations ) The years do not have to be consecutive. Aarp tax aide locations Your net nonfarm profits were: Less than $5,024, and Less than 72. Aarp tax aide locations 189% of your gross nonfarm income. Aarp tax aide locations If you meet all three tests, use Table 3 to figure your net earnings from self-employment under the nonfarm optional method. Aarp tax aide locations Table 3. Aarp tax aide locations Figuring Nonfarm Net Earnings IF your gross nonfarm income is . Aarp tax aide locations . Aarp tax aide locations . Aarp tax aide locations THEN your net earnings are equal to . Aarp tax aide locations . Aarp tax aide locations . Aarp tax aide locations $6,960 or less Two-thirds of your gross nonfarm income. Aarp tax aide locations More than $6,960 $4,640. Aarp tax aide locations Actual net earnings. Aarp tax aide locations   Multiply your total earnings subject to SE tax by 92. Aarp tax aide locations 35% (. Aarp tax aide locations 9235) to get actual net earnings. Aarp tax aide locations Actual net earnings are equivalent to net earnings under the “Regular Method. Aarp tax aide locations ” More information. Aarp tax aide locations   For more information on the nonfarm optional method, see Publication 334, Tax Guide for Small Business, and the Schedule SE (Form 1040) instructions. Aarp tax aide locations Income Tax: Income and Expenses Some income and expense items are treated the same for both income tax and SE tax purposes and some are treated differently. Aarp tax aide locations Note. Aarp tax aide locations For purposes of this section, references to members of the clergy are only to ministers or members of a religious order. Aarp tax aide locations Income Items The tax treatment of offerings and fees, outside earnings, rental allowances, rental value of a parsonage, earnings of members of religious orders, and foreign earned income is discussed here. Aarp tax aide locations Offerings and Fees If you are a member of the clergy, you must include in your income offerings and fees you receive for marriages, baptisms, funerals, masses, etc. Aarp tax aide locations , in addition to your salary. Aarp tax aide locations If the offering is made to the religious institution, it is not taxable to you. Aarp tax aide locations Outside Earnings If you are a member of a religious organization and you give your outside earnings to the organization, you still must include the earnings in your income. Aarp tax aide locations However, you may be entitled to a charitable contribution deduction for the amount paid to the organization. Aarp tax aide locations For more information, see Publication 526. Aarp tax aide locations Exclusion of Rental Allowance and Fair Rental Value of a Parsonage Ordained, commissioned, or licensed ministers of the gospel may be able to exclude from income tax the rental allowance or fair rental value of a parsonage that is provided to them as pay for their services. Aarp tax aide locations Services include: Ministerial services, discussed earlier, Administrative duties and teaching at theological seminaries, and The ordinary duties of a minister performed as an employee of the United States (other than as a chaplain in the Armed Forces), a state, possession, political subdivision, or the District of Columbia. Aarp tax aide locations This exclusion applies only for income tax purposes. Aarp tax aide locations It does not apply for SE tax purposes, as discussed earlier under Amounts included in gross income under Self-Employment Tax: Figuring Net Earnings. Aarp tax aide locations Designation requirement. Aarp tax aide locations   The church or organization that employs you must officially designate the payment as a housing allowance before it makes the payment. Aarp tax aide locations It must designate a definite amount. Aarp tax aide locations It cannot determine the amount of the housing allowance at a later date. Aarp tax aide locations If the church or organization does not officially designate a definite amount as a housing allowance, you must include your total salary in your income. Aarp tax aide locations   If you are employed and paid by a local congregation, a resolution by a national church agency of your denomination does not effectively designate a housing allowance for you. Aarp tax aide locations The local congregation must officially designate the part of your salary that is a housing allowance. Aarp tax aide locations However, a resolution of a national church agency can designate your housing allowance if you are directly employed by the national agency. Aarp tax aide locations Rental allowances. Aarp tax aide locations   If you receive in your salary an amount officially designated as a rental allowance (including an amount to pay utility costs), you can exclude the allowance from your gross income if: You use the amount to provide or rent a home, and The amount is not more than reasonable pay for your services. Aarp tax aide locations   The amount you exclude cannot be more than the fair rental value of the home, including furnishings, plus the cost of utilities. Aarp tax aide locations Fair rental value of parsonage. Aarp tax aide locations   You can exclude from gross income the fair rental value of a house or parsonage, including utilities, furnished to you as part of your earnings. Aarp tax aide locations However, the exclusion cannot be more than the reasonable pay for your services. Aarp tax aide locations If you pay for the utilities, you can exclude any allowance designated for utility costs, up to your actual cost. Aarp tax aide locations Example. Aarp tax aide locations Rev. Aarp tax aide locations Joanna Baker is a full-time minister. Aarp tax aide locations The church allows her to use a parsonage that has an annual fair rental value of $24,000. Aarp tax aide locations The church pays her an annual salary of $67,000, of which $7,500 is designated for utility costs. Aarp tax aide locations Her actual utility costs during the year were $7,000. Aarp tax aide locations For income tax purposes, Rev. Aarp tax aide locations Baker excludes $31,000 from gross income ($24,000 fair rental value of the parsonage plus $7,000 from the allowance for utility costs). Aarp tax aide locations She will report $60,000 ($59,500 salary plus $500 of unused utility allowance). Aarp tax aide locations Her income for SE tax purposes, however, is $91,000 ($67,000 salary + $24,000 fair rental value of the parsonage). Aarp tax aide locations Home ownership. Aarp tax aide locations   If you own your home and you receive as part of your salary a housing or rental allowance, you may exclude from gross income the smallest of: The amount actually used to provide a home, The amount officially designated as a rental allowance, or The fair rental value of the home, including furnishings, utilities, garage, etc. Aarp tax aide locations Excess rental allowance. Aarp tax aide locations   You must include in gross income the amount of any rental allowance that is more than the smallest of: Your reasonable salary, The fair rental value of the home plus utilities, or The amount actually used to provide a home. Aarp tax aide locations   Include in the total on Form 1040, line 7. Aarp tax aide locations On the dotted line next to line 7, enter “Excess allowance” and the amount. Aarp tax aide locations You may deduct the home mortgage interest and real estate taxes paid on your home even though you pay all or part of those expenses with funds you get through a tax-free rental or parsonage allowance. Aarp tax aide locations However, you can only deduct these expenses as itemized deductions on Schedule A (Form 1040). Aarp tax aide locations Retired ministers. Aarp tax aide locations   If you are a retired minister, you can exclude from your gross income the rental value of a home (plus utilities) furnished to you by your church as a part of your pay for past services, or the part of your pension that was designated as a rental allowance. Aarp tax aide locations However, a minister's surviving spouse cannot exclude the rental value unless the rental value is for ministerial services he or she performs or performed. Aarp tax aide locations Teachers or administrators. Aarp tax aide locations   If you are a minister employed as a teacher or administrator by a church school, college, or university, you are performing ministerial services for purposes of the housing exclusion. Aarp tax aide locations However, if you perform services as a teacher or administrator on the faculty of a nonchurch college, you cannot exclude from your income a housing allowance or the value of a home that the college provides to you. Aarp tax aide locations    If you live in faculty lodging as an employee of an educational institution or academic health center, all or part of the value of that lodging may be nontaxable under a different rule. Aarp tax aide locations In Publication 525, see Faculty lodging in the discussion on meals and lodging under Fringe Benefits. Aarp tax aide locations   If you serve as a minister of music or minister of education, or serve in an administrative or other function of your religious organization, but are not authorized to perform substantially all of the religious duties of an ordained minister in your church (even if you are commissioned as a minister of the gospel), the housing exclusion does not apply to you. Aarp tax aide locations Theological students. Aarp tax aide locations   If you are a theological student serving a required internship as a part-time or assistant pastor, you cannot exclude a parsonage or rental allowance from your income unless you are ordained, commissioned, or licensed as a minister. Aarp tax aide locations Traveling evangelists. Aarp tax aide locations   You can exclude a designated rental allowance from out-of-town churches if you meet all of the following requirements. Aarp tax aide locations You are an ordained minister. Aarp tax aide locations You perform ministerial services at churches located away from your community. Aarp tax aide locations You actually use the rental allowance to maintain your permanent home. Aarp tax aide locations Cantors. Aarp tax aide locations   If you have a bona fide commission and your congregation employs you on a full-time basis to perform substantially all the religious functions of the Jewish faith, you can exclude a rental allowance from your gross income. Aarp tax aide locations Earnings—Members of Religious Orders Your earnings may be exempt from both income tax and SE tax if you are a member of a religious order who: Has taken a vow of poverty, Receives earnings for services performed as an agent of the order and in the exercise of duties required by the order, and Renounces the earnings and gives them to the order. Aarp tax aide locations See Members of Religious Orders , earlier, under Social Security Coverage. Aarp tax aide locations Foreign Earned Income Certain income may be exempt from income tax if you work in a foreign country or in a specified U. Aarp tax aide locations S. Aarp tax aide locations possession. Aarp tax aide locations Publication 54 discusses the foreign earned income exclusion. Aarp tax aide locations Publication 570, Tax Guide for Individuals With Income From U. Aarp tax aide locations S. Aarp tax aide locations Possessions, covers the rules for taxpayers with income from U. Aarp tax aide locations S. Aarp tax aide locations possessions. Aarp tax aide locations You can get these free publications from the Internal Revenue Service at IRS. Aarp tax aide locations gov or from most U. Aarp tax aide locations S. Aarp tax aide locations Embassies or consulates. Aarp tax aide locations Expense Items The tax treatment of ministerial trade or business expenses, expenses allocable to tax-free income, and health insurance costs is discussed here. Aarp tax aide locations Ministerial Trade or Business Expenses as an Employee When you figure your income tax, you must itemize your deductions on Schedule A (Form 1040) to claim allowable deductions for ministerial trade or business expenses incurred while working as an employee. Aarp tax aide locations You also may have to file Form 2106, Employee Business Expenses (or Form 2106-EZ, Unreimbursed Employee Business Expenses). Aarp tax aide locations You claim these expenses as miscellaneous itemized deductions that are subject to the 2%-of-adjusted-gross-income (AGI) limit. Aarp tax aide locations See Publication 529 for more information on this limit. Aarp tax aide locations However, you cannot deduct any of your employee business expenses that are allocable to tax-free income (discussed next). Aarp tax aide locations Expenses Allocable to Tax-Free Income If you receive a rental or parsonage allowance that is exempt from income tax (tax free), you must allocate a portion of the expenses of operating your ministry to that tax-free income. Aarp tax aide locations You cannot deduct the portion of your expenses that you allocate to your tax-free rental or parsonage allowance. Aarp tax aide locations Exception. Aarp tax aide locations   This rule does not apply to your deductions for home mortgage interest or real estate taxes on your home. Aarp tax aide locations Figuring the allocation. Aarp tax aide locations   Figure the portion of your otherwise deductible expenses that you cannot deduct (because you must allocate that portion to tax-free income) by multiplying the expenses by the following fraction:      Tax-free rental or parsonage allowance     All income (taxable and tax free) earned from your ministry           When figuring the allocation, include the income and expenses related to the ministerial duties you perform both as an employee and as a self-employed person. Aarp tax aide locations    Reduce your otherwise deductible expenses only in figuring your income tax, not your SE tax. Aarp tax aide locations Example. Aarp tax aide locations Rev. Aarp tax aide locations Charles Ashford received $40,000 in earnings for ministerial services consisting of a $28,000 salary for ministerial services performed as an employee, $2,000 for weddings and baptisms performed as a self-employed person, and a $10,000 tax-free parsonage allowance. Aarp tax aide locations He incurred $4,000 of unreimbursed expenses connected with his earnings for ministerial services. Aarp tax aide locations $3,500 of the $4,000 is for employee expenses related to his ministerial salary, and $500 is related to the weddings and baptisms he performed as a self-employed person. Aarp tax aide locations Rev. Aarp tax aide locations Ashford figures the nondeductible (tax-free) portion of expenses related to his ministerial salary as follows: ($10,000 ÷ $40,000) x $3,500 = $875   Rev. Aarp tax aide locations Ashford figures the nondeductible (tax-free) portion of expenses related to his wedding and baptism income as follows: ($10,000 ÷ $40,000) x $500 = $125 Required statement. Aarp tax aide locations   If you receive a tax-free rental or parsonage allowance and have ministerial expenses, attach a statement to your tax return. Aarp tax aide locations The statement must contain all of the following information. Aarp tax aide locations A list of each item of taxable ministerial income by source (such as wages, salary, weddings, baptisms, etc. Aarp tax aide locations ) plus the amount. Aarp tax aide locations A list of each item of tax-free ministerial income by source (parsonage allowance) plus the amount. Aarp tax aide locations A list of each item of otherwise deductible ministerial expenses plus the amount. Aarp tax aide locations How you figured the nondeductible part of your otherwise deductible expenses. Aarp tax aide locations A statement that the other deductions claimed on your tax return are not allocable to your tax-free income. Aarp tax aide locations   See the attachments prepared for the Comprehensive Example , later. Aarp tax aide locations Following the example, you will find blank worksheets for your own use. Aarp tax aide locations Health Insurance Costs of Self-Employed Ministers If you are self-employed, you may be able to deduct the amount you paid in 2013 for medical and dental insurance and qualified long-term care insurance for you, your spouse, and your dependents. Aarp tax aide locations If you qualify, you can take this deduction as an adjustment to income on Form 1040, line 29. Aarp tax aide locations See the Instructions for Form 1040 to figure your deduction. Aarp tax aide locations The following special rules apply to the self-employed health insurance deduction. Aarp tax aide locations You cannot take a medical expense deduction on Schedule A (Form 1040) for any expenses you claim for purposes of the self-employed health insurance deduction. Aarp tax aide locations You cannot take the deduction for any month you are eligible to participate in a subsidized plan of your (or your spouse's) employer. Aarp tax aide locations The deduction cannot exceed your net earnings from the business under which the insurance plan is established. Aarp tax aide locations Your net earnings under this rule do not include the income you earned as a common-law employee (discussed earlier) of a church. Aarp tax aide locations More information. Aarp tax aide locations   For more information about the self-employed health insurance deduction, see chapter 6 in Publication 535. Aarp tax aide locations Deduction for SE Tax You can deduct one-half of your SE tax in figuring adjusted gross income. Aarp tax aide locations This is an income tax deduction only, on Form 1040, line 27. Aarp tax aide locations Do not claim this deduction in figuring net earnings from self-employment subject to SE tax. Aarp tax aide locations Income Tax Withholding and Estimated Tax The federal income tax is a pay-as-you-go tax. Aarp tax aide locations You must pay the tax as you earn or receive income during the year. Aarp tax aide locations An employee usually has income tax withheld from his or her wages or salary. Aarp tax aide locations However, your salary is not subject to federal income tax withholding if both of the following conditions apply. Aarp tax aide locations You are a duly ordained, commissioned, or licensed minister, a member of a religious order (who has not taken a vow of poverty), or a Christian Science practitioner or reader. Aarp tax aide locations Your salary is for ministerial services (see Ministerial Services , earlier). Aarp tax aide locations If your salary is not subject to withholding, or if you do not pay enough tax through withholding, you may need to make estimated tax payments to avoid penalties for not paying enough tax as you earn your income. Aarp tax aide locations You generally must make estimated tax payments if you expect to owe taxes, including SE tax, of $1,000 or more, when you file your return. Aarp tax aide locations Determine your estimated tax by using the worksheets in Publication 505, Tax Withholding and Estimated Tax. Aarp tax aide locations Pay the entire estimated tax for 2014 or the first installment by April 15, 2014. Aarp tax aide locations See Form 1040-ES for the different payment methods. Aarp tax aide locations The April 15 date applies whether or not your tax home and your abode are outside the United States and Puerto Rico. Aarp tax aide locations For more information, see chapter 2 of Publication 505. Aarp tax aide locations If you perform your services as a common-law employee of the church and your salary is not subject to income tax withholding, you can enter into a voluntary withholding agreement with the church to cover any income and SE tax that may be due. Aarp tax aide locations Filing Your Return You must file an income tax return for 2013 if your gross income was at least the amount shown in the third column of Table 4 above. Aarp tax aide locations Table 4. Aarp tax aide locations 2013 Filing Requirements for Most Taxpayers IF your filing status is . Aarp tax aide locations . Aarp tax aide locations . Aarp tax aide locations AND at the end of 2013 you were* . Aarp tax aide locations . Aarp tax aide locations . Aarp tax aide locations THEN file a return if your gross income** was at least . Aarp tax aide locations . Aarp tax aide locations . Aarp tax aide locations single under age 65 65 or older   $10,000 $11,500   married filing jointly*** under 65 (both spouses) 65 or older (one spouse) 65 or older (both spouses)   $20,000  $21,200  $22,400   married filing separately any age   $3,900   head of household under 65 65 or older   $12,850 $14,350   qualifying widow(er) with dependent child under 65 65 or older   $16,100  $17,300   * If you were born on January 1, 1949, you are considered to be age 65 at the end of 2013. Aarp tax aide locations ** Gross income means all income you received in the form of money, goods, property, and services that is not exempt from tax, including any income from sources outside the United States or from the sale of your main home (even if you can exclude part or all of it). Aarp tax aide locations Do not include any social security benefits unless (a) you are married filing a separate return and you lived with your spouse at any time in 2013, or (b) one-half of your social security benefits plus your other gross income and any tax-exempt interest is more than $25,000 ($32,000 if married filing jointly). Aarp tax aide locations If (a) or (b) applies, see the instructions for Form 1040, lines 20a and 20b, to figure the taxable part of social security benefits you must include in gross income. Aarp tax aide locations Gross income includes gains, but not losses, reported on Form 8949 or Schedule D (Form 1040). Aarp tax aide locations Gross income from a business means, for example, the amount on Schedule C (Form 1040), line 7, or Schedule F (Form 1040), line 9. Aarp tax aide locations But, in figuring gross income, do not reduce your income by any losses, including any loss on Schedule C (Form 1040), line 7, or Schedule F (Form 1040), line 9. Aarp tax aide locations *** If you did not live with your spouse at the end of 2013 (or on the date your spouse died) and your gross income was at least $3,900, you must file a return regardless of your age. Aarp tax aide locations Additional requirements. Aarp tax aide locations   Even if your income was less than the amount shown in Table 4, you must file an income tax return on Form 1040, and attach a completed Schedule SE (Form 1040), if:    You are not exempt from SE tax, and you have net earnings from self-employment (discussed earlier under Self-Employment Tax: Figuring Net Earnings ) of $400 or more in the tax year, You are exempt from SE tax on earnings from ministerial services and you have $400 or more of other net earnings subject to SE tax, or You had wages of $108. Aarp tax aide locations 28 or more from an electing church or church-controlled organization (see Coverage of Religious Workers (Church Employees) , earlier, under Social Security Coverage). Aarp tax aide locations Self-employment tax. Aarp tax aide locations   If you are liable for SE tax, you must file Schedule SE (Form 1040) with your return. Aarp tax aide locations   If you filed Form 4361 and did not receive approval from the IRS, you must pay SE tax on your ministerial earnings, as explained earlier. Aarp tax aide locations You should report ministerial earnings and expenses from nonemployee ministerial services on Schedule C or C-EZ (Form 1040). Aarp tax aide locations You should then carry the net amount over to line 2 of Schedule SE (Form 1040), Section A or B. Aarp tax aide locations However, if you were a duly ordained minister who was an employee of a church and you must pay SE tax on the wages you earned for those services, do not report those wages on Schedule C or C-EZ (Form 1040). Aarp tax aide locations Instead, report those wages less any allowable expenses (including any unreimbursed employee business expenses), on line 2 of Schedule SE (Form 1040), Section A or B, and attach an explanation. Aarp tax aide locations Note. Aarp tax aide locations For income tax purposes, the unreimbursed employee business expenses that you incurred as an employee of the church and subtracted from your wages on line 2 of Schedule SE (Form 1040) are allowed only as an itemized deduction on Schedule A (Form 1040) if they exceed 2% of your adjusted gross income. Aarp tax aide locations You cannot deduct these expenses on Schedule C or C-EZ (Form 1040) as a trade or business expense. Aarp tax aide locations Exemption from SE tax. Aarp tax aide locations   If you filed Form 4361 and received IRS approval not to be taxed on your ministerial earnings, and you do not have any other income subject to SE tax, do not file Schedule SE (Form 1040). Aarp tax aide locations Instead, enter “Exempt—Form 4361” on the dotted line next to Form 1040, line 56. Aarp tax aide locations However, if you had net earnings from another trade or business of $400 or more subject to SE tax, see line A at the top of Schedule SE (Form 1040), Section B. Aarp tax aide locations    If you filed Form 4029 and received IRS approval not to be taxed on those earnings, and you do not have any other income subject to SE tax, do not file Schedule SE (Form 1040). Aarp tax aide locations Instead, enter “Exempt—Form 4029” on the dotted line next to Form 1040, line 56. Aarp tax aide locations More information. Aarp tax aide locations   For more information on filing your return, including when and where to file it, see the Instructions for Form 1040. Aarp tax aide locations Retirement Savings Arrangements Retirement savings arrangements are plans that offer you a tax-favored way to save for your retirement. Aarp tax aide locations You generally can deduct your contributions to the plan. Aarp tax aide locations Your contributions and the earnings on them are not taxed until they are distributed. Aarp tax aide locations Retirement plans for the self-employed. Aarp tax aide locations   To set up one of the following plans you must be self-employed. Aarp tax aide locations SEP (simplified employee pension) plan. Aarp tax aide locations SIMPLE (savings incentive match plan for employees) plan. Aarp tax aide locations Qualified retirement plan (also called a Keogh or H. Aarp tax aide locations R. Aarp tax aide locations 10 plan). Aarp tax aide locations   The common-law rules determine whether you are an employee or a self-employed person for purposes of setting up a retirement plan. Aarp tax aide locations See Employment status for other tax purposes under Coverage of Members of the Clergy, earlier. Aarp tax aide locations This result is true even if your compensation for ministerial services (defined earlier) is subject to SE tax. Aarp tax aide locations   For example, if a congregation pays you a salary for performing ministerial services and you are subject to the congregation's control, you generally are a common-law employee. Aarp tax aide locations You are not a self-employed person for purposes of setting up a retirement plan. Aarp tax aide locations This result is true even if your salary is subject to SE tax. Aarp tax aide locations   On the other hand, amounts received directly from members of the congregation, such as fees for performing marriages, baptisms, or other personal services that you report on Schedule C or C-EZ (Form 1040), are earnings from self-employment for all tax purposes. Aarp tax aide locations   For more information on establishing a SEP, SIMPLE, or qualified retirement plan, see Publication 560, Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans). Aarp tax aide locations Individual retirement arrangements (IRAs). Aarp tax aide locations   The traditional IRA and the Roth IRA are two individual retirement arrangements you can use to save money for your retirement. Aarp tax aide locations Generally, your maximum contribution for 2013 to either of these plans (or to a combination of the two) is the smaller of your taxable compensation or $5,500 ($6,500 if you are age 50 or older). Aarp tax aide locations   However, your maximum contribution to a Roth IRA will be further reduced or eliminated if your adjusted gross income is above a certain amount. Aarp tax aide locations You cannot deduct Roth IRA contributions, but if you satisfy certain requirements, all earnings in the Roth IRA are tax free and neither your nondeductible contributions nor any earnings on them are taxable when distributed. Aarp tax aide locations   If you contribute to a traditional IRA, your contribution may be deductible. Aarp tax aide locations However, your deduction may be reduced or eliminated if you or your spouse is covered by an employer retirement plan (including, but not limited to, a SEP, SIMPLE, or qualified retirement plan). Aarp tax aide locations   For more information on IRAs, see Publication 590. Aarp tax aide locations Tax-sheltered annuity plans. Aarp tax aide locations   Church employees, members of religious orders, and duly ordained, commissioned, or licensed ministers working as ministers or chaplains can participate in tax-sheltered annuity (403(b)) plans. Aarp tax aide locations For more
Print - Click this link to Print this page

Understanding your CP13R Notice

We made changes to your return involving the Recovery Rebate Credit. You're not due a refund nor do you owe an additional amount because of our changes. Your account balance is zero.

Printable samples of this notice (PDF)

Tax publications you may find useful

How to get help

Calling the 1-800 number listed on the top right corner of your notice is the fastest way to get your questions answered.

You can also authorize someone (such as an accountant) to contact the IRS on your behalf using this Power of Attorney and Declaration of Representative (Form 2848).

Or you may qualify for help from a Low Income Taxpayer Clinic.
 


What you need to do

  • Read your notice carefully — it will explain how the Recovery Rebate Credit relates to the changes we made.
  • Review the notice and compare our changes to the information on your tax return.
  • Correct the copy of your tax return that you kept for your records.
  • You don't need to do anything if you agree with the notice.
  • If you disagree with the notice, please contact us at the toll-free number listed on its top right corner (within 60 days of its date).

You may want to...


Answers to Common Questions

What is the Recovery Rebate Credit?
It is a refundable credit that relates to the 2008 economic stimulus payment. Generally, a refundable credit increases the amount of a refund received or it reduces the amount of taxes owed.

What should I do if I disagree with the changes you made?
Contact us at the toll free number listed on the top right corner of your notice if you disagree with the changes we made.

What should I do if I need to make another correction to my tax return?
You'll need to file an amended return to make a correction.


Tips for next year

Consider filing your taxes electronically. Filing online can help you avoid mistakes and find credits and deductions that you may qualify for. In many cases you can file for free. Learn more about e-file.

Perform a quick check on the amount you have withheld to make sure you won't owe money next year. You can use this IRS withholding calculator.

Page Last Reviewed or Updated: 20-Feb-2014

The Aarp Tax Aide Locations

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