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Amend 2011 Tax Return Online

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Amend 2011 Tax Return Online

Amend 2011 tax return online 4. Amend 2011 tax return online   Qualified Plans Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: Kinds of PlansDefined Contribution Plan Defined Benefit Plan Qualification RulesEarly retirement. Amend 2011 tax return online Loan secured by benefits. Amend 2011 tax return online Waiver of survivor benefits. Amend 2011 tax return online Waiver of 30-day waiting period before annuity starting date. Amend 2011 tax return online Involuntary cash-out of benefits not more than dollar limit. Amend 2011 tax return online Exception for certain loans. Amend 2011 tax return online Exception for QDRO. Amend 2011 tax return online SIMPLE and safe harbor 401(k) plan exception. Amend 2011 tax return online Setting Up a Qualified PlanAdopting a Written Plan Investing Plan Assets Minimum Funding RequirementDue dates. Amend 2011 tax return online Installment percentage. Amend 2011 tax return online Extended period for making contributions. Amend 2011 tax return online ContributionsEmployer Contributions Employee Contributions When Contributions Are Considered Made Employer DeductionDeduction Limits Deduction Limit for Self-Employed Individuals Where To Deduct Contributions Carryover of Excess Contributions Excise Tax for Nondeductible (Excess) Contributions Elective Deferrals (401(k) Plans)Limit on Elective Deferrals Automatic Enrollment Treatment of Excess Deferrals Qualified Roth Contribution ProgramElective Deferrals Qualified Distributions Reporting Requirements DistributionsRequired Distributions Distributions From 401(k) Plans Tax Treatment of Distributions Tax on Early Distributions Tax on Excess Benefits Excise Tax on Reversion of Plan Assets Notification of Significant Benefit Accrual Reduction Prohibited TransactionsTax on Prohibited Transactions Reporting RequirementsOne-participant plan. Amend 2011 tax return online Caution: Form 5500-EZ not required. Amend 2011 tax return online Form 5500. Amend 2011 tax return online Electronic filing of Forms 5500 and 5500-SF. Amend 2011 tax return online Topics - This chapter discusses: Kinds of plans Qualification rules Setting up a qualified plan Minimum funding requirement Contributions Employer deduction Elective deferrals (401(k) plans) Qualified Roth contribution program Distributions Prohibited transactions Reporting requirements Useful Items - You may want to see: Publications 575 Pension and Annuity Income 590 Individual Retirement Arrangements (IRAs) 3066 Have you had your Check-up this year? for Retirement Plans 3998 Choosing A Retirement Solution for Your Small Business 4222 401(k) Plans for Small Businesses 4530 Designated Roth Accounts under a 401(k), 403(b), or governmental 457(b) plans 4531 401(k) Plan Checklist 4674 Automatic Enrollment 401(k) Plans for Small Businesses 4806 Profit Sharing Plans for Small Businesses Forms (and Instructions) www. Amend 2011 tax return online dol. Amend 2011 tax return online gov/ebsa/pdf/2013-5500. Amend 2011 tax return online pdf www. Amend 2011 tax return online dol. Amend 2011 tax return online gov/ebsa/pdf/2013-5500-SF. Amend 2011 tax return online pdf W-2 Wage and Tax Statement Schedule K-1 (Form 1065) Partner's Share of Income, Deductions, Credits, etc. Amend 2011 tax return online 1099-R Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. Amend 2011 tax return online 1040 U. Amend 2011 tax return online S. Amend 2011 tax return online Individual Income Tax Return Schedule C (Form 1040) Profit or Loss From Business Schedule F (Form 1040) Profit or Loss From Farming 5300 Application for Determination for Employee Benefit Plan 5310 Application for Determination for Terminating Plan 5329 Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts 5330 Return of Excise Taxes Related to Employee Benefit Plans 5500 Annual Return/Report of Employee Benefit Plan. Amend 2011 tax return online For copies of this form, go to: 5500-EZ Annual Return of One-Participant (Owners and Their Spouses) Retirement Plan 5500-SF Short Form Annual Return/Report of Small Employee Benefit Plan. Amend 2011 tax return online For copies of this form, go to: 8717 User Fee for Employee Plan Determination Letter Request 8880 Credit for Qualified Retirement Savings Contributions 8881 Credit for Small Employer Pension Plan Startup Costs 8955-SSA Annual Registration Statement Identifying Separated Participants With Deferred Vested Benefits These qualified retirement plans set up by self-employed individuals are sometimes called Keogh or H. Amend 2011 tax return online R. Amend 2011 tax return online 10 plans. Amend 2011 tax return online A sole proprietor or a partnership can set up one of these plans. Amend 2011 tax return online A common-law employee or a partner cannot set up one of these plans. Amend 2011 tax return online The plans described here can also be set up and maintained by employers that are corporations. Amend 2011 tax return online All the rules discussed here apply to corporations except where specifically limited to the self-employed. Amend 2011 tax return online The plan must be for the exclusive benefit of employees or their beneficiaries. Amend 2011 tax return online These qualified plans can include coverage for a self-employed individual. Amend 2011 tax return online As an employer, you can usually deduct, subject to limits, contributions you make to a qualified plan, including those made for your own retirement. Amend 2011 tax return online The contributions (and earnings and gains on them) are generally tax free until distributed by the plan. Amend 2011 tax return online Kinds of Plans There are two basic kinds of qualified plans—defined contribution plans and defined benefit plans—and different rules apply to each. Amend 2011 tax return online You can have more than one qualified plan, but your contributions to all the plans must not total more than the overall limits discussed under Contributions and Employer Deduction, later. Amend 2011 tax return online Defined Contribution Plan A defined contribution plan provides an individual account for each participant in the plan. Amend 2011 tax return online It provides benefits to a participant largely based on the amount contributed to that participant's account. Amend 2011 tax return online Benefits are also affected by any income, expenses, gains, losses, and forfeitures of other accounts that may be allocated to an account. Amend 2011 tax return online A defined contribution plan can be either a profit-sharing plan or a money purchase pension plan. Amend 2011 tax return online Profit-sharing plan. Amend 2011 tax return online   Although it is called a “profit-sharing plan,” you do not actually have to make a business profit for the year in order to make a contribution (except for yourself if you are self-employed as discussed under Self-employed Individual, later). Amend 2011 tax return online A profit-sharing plan can be set up to allow for discretionary employer contributions, meaning the amount contributed each year to the plan is not fixed. Amend 2011 tax return online An employer may even make no contribution to the plan for a given year. Amend 2011 tax return online   The plan must provide a definite formula for allocating the contribution among the participants and for distributing the accumulated funds to the employees after they reach a certain age, after a fixed number of years, or upon certain other occurrences. Amend 2011 tax return online   In general, you can be more flexible in making contributions to a profit-sharing plan than to a money purchase pension plan (discussed next) or a defined benefit plan (discussed later). Amend 2011 tax return online Money purchase pension plan. Amend 2011 tax return online   Contributions to a money purchase pension plan are fixed and are not based on your business profits. Amend 2011 tax return online For example, if the plan requires that contributions be 10% of the participants' compensation without regard to whether you have profits (or the self-employed person has earned income), the plan is a money purchase pension plan. Amend 2011 tax return online This applies even though the compensation of a self-employed individual as a participant is based on earned income derived from business profits. Amend 2011 tax return online Defined Benefit Plan A defined benefit plan is any plan that is not a defined contribution plan. Amend 2011 tax return online Contributions to a defined benefit plan are based on what is needed to provide definitely determinable benefits to plan participants. Amend 2011 tax return online Actuarial assumptions and computations are required to figure these contributions. Amend 2011 tax return online Generally, you will need continuing professional help to have a defined benefit plan. Amend 2011 tax return online Qualification Rules To qualify for the tax benefits available to qualified plans, a plan must meet certain requirements (qualification rules) of the tax law. Amend 2011 tax return online Generally, unless you write your own plan, the financial institution that provided your plan will take the continuing responsibility for meeting qualification rules that are later changed. Amend 2011 tax return online The following is a brief overview of important qualification rules that generally have not yet been discussed. Amend 2011 tax return online It is not intended to be all-inclusive. Amend 2011 tax return online See Setting Up a Qualified Plan , later. Amend 2011 tax return online Generally, the following qualification rules also apply to a SIMPLE 401(k) retirement plan. Amend 2011 tax return online A SIMPLE 401(k) plan is, however, not subject to the top-heavy plan rules and nondiscrimination rules if the plan satisfies the provisions discussed in chapter 3 under SIMPLE 401(k) Plan. Amend 2011 tax return online Plan assets must not be diverted. Amend 2011 tax return online   Your plan must make it impossible for its assets to be used for, or diverted to, purposes other than the benefit of employees and their beneficiaries. Amend 2011 tax return online As a general rule, the assets cannot be diverted to the employer. Amend 2011 tax return online Minimum coverage requirement must be met. Amend 2011 tax return online   To be a qualified plan, a defined benefit plan must benefit at least the lesser of the following. Amend 2011 tax return online 50 employees, or The greater of: 40% of all employees, or Two employees. Amend 2011 tax return online If there is only one employee, the plan must benefit that employee. Amend 2011 tax return online Contributions or benefits must not discriminate. Amend 2011 tax return online   Under the plan, contributions or benefits to be provided must not discriminate in favor of highly compensated employees. Amend 2011 tax return online Contributions and benefits must not be more than certain limits. Amend 2011 tax return online   Your plan must not provide for contributions or benefits that are more than certain limits. Amend 2011 tax return online The limits apply to the annual contributions and other additions to the account of a participant in a defined contribution plan and to the annual benefit payable to a participant in a defined benefit plan. Amend 2011 tax return online These limits are discussed later in this chapter under Contributions. Amend 2011 tax return online Minimum vesting standard must be met. Amend 2011 tax return online   Your plan must satisfy certain requirements regarding when benefits vest. Amend 2011 tax return online A benefit is vested (you have a fixed right to it) when it becomes nonforfeitable. Amend 2011 tax return online A benefit is nonforfeitable if it cannot be lost upon the happening, or failure to happen, of any event. Amend 2011 tax return online Special rules apply to forfeited benefit amounts. Amend 2011 tax return online In defined contribution plans, forfeitures can be allocated to the accounts of remaining participants in a nondiscriminatory way, or they can be used to reduce your contributions. Amend 2011 tax return online   Forfeitures under a defined benefit plan cannot be used to increase the benefits any employee would otherwise receive under the plan. Amend 2011 tax return online Forfeitures must be used instead to reduce employer contributions. Amend 2011 tax return online Participation. Amend 2011 tax return online   In general, an employee must be allowed to participate in your plan if he or she meets both the following requirements. Amend 2011 tax return online Has reached age 21. Amend 2011 tax return online Has at least 1 year of service (2 years if the plan is not a 401(k) plan and provides that after not more than 2 years of service the employee has a nonforfeitable right to all his or her accrued benefit). Amend 2011 tax return online A plan cannot exclude an employee because he or she has reached a specified age. Amend 2011 tax return online Leased employee. Amend 2011 tax return online   A leased employee, defined in chapter 1, who performs services for you (recipient of the services) is treated as your employee for certain plan qualification rules. Amend 2011 tax return online These rules include those in all the following areas. Amend 2011 tax return online Nondiscrimination in coverage, contributions, and benefits. Amend 2011 tax return online Minimum age and service requirements. Amend 2011 tax return online Vesting. Amend 2011 tax return online Limits on contributions and benefits. Amend 2011 tax return online Top-heavy plan requirements. Amend 2011 tax return online Contributions or benefits provided by the leasing organization for services performed for you are treated as provided by you. Amend 2011 tax return online Benefit payment must begin when required. Amend 2011 tax return online   Your plan must provide that, unless the participant chooses otherwise, the payment of benefits to the participant must begin within 60 days after the close of the latest of the following periods. Amend 2011 tax return online The plan year in which the participant reaches the earlier of age 65 or the normal retirement age specified in the plan. Amend 2011 tax return online The plan year in which the 10th anniversary of the year in which the participant began participating in the plan occurs. Amend 2011 tax return online The plan year in which the participant separates from service. Amend 2011 tax return online Early retirement. Amend 2011 tax return online   Your plan can provide for payment of retirement benefits before the normal retirement age. Amend 2011 tax return online If your plan offers an early retirement benefit, a participant who separates from service before satisfying the early retirement age requirement is entitled to that benefit if he or she meets both the following requirements. Amend 2011 tax return online Satisfies the service requirement for the early retirement benefit. Amend 2011 tax return online Separates from service with a nonforfeitable right to an accrued benefit. Amend 2011 tax return online The benefit, which may be actuarially reduced, is payable when the early retirement age requirement is met. Amend 2011 tax return online Required minimum distributions. Amend 2011 tax return online   Special rules require minimum annual distributions from qualified plans, generally beginning after age  70½. Amend 2011 tax return online See Required Distributions , under Distributions, later. Amend 2011 tax return online Survivor benefits. Amend 2011 tax return online   Defined benefit and money purchase pension plans must provide automatic survivor benefits in both the following forms. Amend 2011 tax return online A qualified joint and survivor annuity for a vested participant who does not die before the annuity starting date. Amend 2011 tax return online A qualified pre-retirement survivor annuity for a vested participant who dies before the annuity starting date and who has a surviving spouse. Amend 2011 tax return online   The automatic survivor benefit also applies to any participant under a profit-sharing plan unless all the following conditions are met. Amend 2011 tax return online The participant does not choose benefits in the form of a life annuity. Amend 2011 tax return online The plan pays the full vested account balance to the participant's surviving spouse (or other beneficiary if the surviving spouse consents or if there is no surviving spouse) if the participant dies. Amend 2011 tax return online The plan is not a direct or indirect transferee of a plan that must provide automatic survivor benefits. Amend 2011 tax return online Loan secured by benefits. Amend 2011 tax return online   If automatic survivor benefits are required for a spouse under a plan, he or she must consent to a loan that uses as security the accrued benefits in the plan. Amend 2011 tax return online Waiver of survivor benefits. Amend 2011 tax return online   Each plan participant may be permitted to waive the joint and survivor annuity or the pre-retirement survivor annuity (or both), but only if the participant has the written consent of the spouse. Amend 2011 tax return online The plan also must allow the participant to withdraw the waiver. Amend 2011 tax return online The spouse's consent must be witnessed by a plan representative or notary public. Amend 2011 tax return online Waiver of 30-day waiting period before annuity starting date. Amend 2011 tax return online    A plan may permit a participant to waive (with spousal consent) the 30-day minimum waiting period after a written explanation of the terms and conditions of a joint and survivor annuity is provided to each participant. Amend 2011 tax return online   The waiver is allowed only if the distribution begins more than 7 days after the written explanation is provided. Amend 2011 tax return online Involuntary cash-out of benefits not more than dollar limit. Amend 2011 tax return online   A plan may provide for the immediate distribution of the participant's benefit under the plan if the present value of the benefit is not greater than $5,000. Amend 2011 tax return online   However, the distribution cannot be made after the annuity starting date unless the participant and the spouse or surviving spouse of a participant who died (if automatic survivor benefits are required for a spouse under the plan) consents in writing to the distribution. Amend 2011 tax return online If the present value is greater than $5,000, the plan must have the written consent of the participant and the spouse or surviving spouse (if automatic survivor benefits are required for a spouse under the plan) for any immediate distribution of the benefit. Amend 2011 tax return online   Benefits attributable to rollover contributions and earnings on them can be ignored in determining the present value of these benefits. Amend 2011 tax return online   A plan must provide for the automatic rollover of any cash-out distribution of more than $1,000 to an individual retirement account or annuity, unless the participant chooses otherwise. Amend 2011 tax return online A section 402(f) notice must be sent prior to an involuntary cash-out of an eligible rollover distribution. Amend 2011 tax return online See Section 402(f) Notice under Distributions, later, for more details. Amend 2011 tax return online Consolidation, merger, or transfer of assets or liabilities. Amend 2011 tax return online   Your plan must provide that, in the case of any merger or consolidation with, or transfer of assets or liabilities to, any other plan, each participant would (if the plan then terminated) receive a benefit equal to or more than the benefit he or she would have been entitled to just before the merger, etc. Amend 2011 tax return online (if the plan had then terminated). Amend 2011 tax return online Benefits must not be assigned or alienated. Amend 2011 tax return online   Your plan must provide that a participant's or beneficiary's benefits under the plan cannot be taken away by any legal or equitable proceeding except as provided below or pursuant to certain judgements or settlements against the participant for violations of plan rules. Amend 2011 tax return online Exception for certain loans. Amend 2011 tax return online   A loan from the plan (not from a third party) to a participant or beneficiary is not treated as an assignment or alienation if the loan is secured by the participant's accrued nonforfeitable benefit and is exempt from the tax on prohibited transactions under section 4975(d)(1) or would be exempt if the participant were a disqualified person. Amend 2011 tax return online A disqualified person is defined later in this chapter under Prohibited Transactions. Amend 2011 tax return online Exception for QDRO. Amend 2011 tax return online   Compliance with a QDRO (qualified domestic relations order) does not result in a prohibited assignment or alienation of benefits. Amend 2011 tax return online   Payments to an alternate payee under a QDRO before the participant attains age 59½ are not subject to the 10% additional tax that would otherwise apply under certain circumstances. Amend 2011 tax return online Benefits distributed to an alternate payee under a QDRO can be rolled over tax free to an individual retirement account or to an individual retirement annuity. Amend 2011 tax return online No benefit reduction for social security increases. Amend 2011 tax return online   Your plan must not permit a benefit reduction for a post-separation increase in the social security benefit level or wage base for any participant or beneficiary who is receiving benefits under your plan, or who is separated from service and has nonforfeitable rights to benefits. Amend 2011 tax return online This rule also applies to plans supplementing the benefits provided by other federal or state laws. Amend 2011 tax return online Elective deferrals must be limited. Amend 2011 tax return online   If your plan provides for elective deferrals, it must limit those deferrals to the amount in effect for that particular year. Amend 2011 tax return online See Limit on Elective Deferrals later in this chapter. Amend 2011 tax return online Top-heavy plan requirements. Amend 2011 tax return online   A top-heavy plan is one that mainly favors partners, sole proprietors, and other key employees. Amend 2011 tax return online   A plan is top-heavy for a plan year if, for the preceding plan year, the total value of accrued benefits or account balances of key employees is more than 60% of the total value of accrued benefits or account balances of all employees. Amend 2011 tax return online Additional requirements apply to a top-heavy plan primarily to provide minimum benefits or contributions for non-key employees covered by the plan. Amend 2011 tax return online   Most qualified plans, whether or not top-heavy, must contain provisions that meet the top-heavy requirements and will take effect in plan years in which the plans are top-heavy. Amend 2011 tax return online These qualification requirements for top-heavy plans are explained in section 416 and its regulations. Amend 2011 tax return online SIMPLE and safe harbor 401(k) plan exception. Amend 2011 tax return online   The top-heavy plan requirements do not apply to SIMPLE 401(k) plans, discussed earlier in chapter 3, or to safe harbor 401(k) plans that consist solely of safe harbor contributions, discussed later in this chapter. Amend 2011 tax return online QACAs (discussed later) also are not subject to top-heavy requirements. Amend 2011 tax return online Setting Up a Qualified Plan There are two basic steps in setting up a qualified plan. Amend 2011 tax return online First you adopt a written plan. Amend 2011 tax return online Then you invest the plan assets. Amend 2011 tax return online You, the employer, are responsible for setting up and maintaining the plan. Amend 2011 tax return online If you are self-employed, it is not necessary to have employees besides yourself to sponsor and set up a qualified plan. Amend 2011 tax return online If you have employees, see Participation, under Qualification Rules, earlier. Amend 2011 tax return online Set-up deadline. Amend 2011 tax return online   To take a deduction for contributions for a tax year, your plan must be set up (adopted) by the last day of that year (December 31 for calendar-year employers). Amend 2011 tax return online Credit for startup costs. Amend 2011 tax return online   You may be able to claim a tax credit for part of the ordinary and necessary costs of starting a qualified plan that first became effective in 2013. Amend 2011 tax return online For more information, see Credit for startup costs under Reminders, earlier. Amend 2011 tax return online Adopting a Written Plan You must adopt a written plan. Amend 2011 tax return online The plan can be an IRS-approved master or prototype plan offered by a sponsoring organization. Amend 2011 tax return online Or it can be an individually designed plan. Amend 2011 tax return online Written plan requirement. Amend 2011 tax return online   To qualify, the plan you set up must be in writing and must be communicated to your employees. Amend 2011 tax return online The plan's provisions must be stated in the plan. Amend 2011 tax return online It is not sufficient for the plan to merely refer to a requirement of the Internal Revenue Code. Amend 2011 tax return online Master or prototype plans. Amend 2011 tax return online   Most qualified plans follow a standard form of plan (a master or prototype plan) approved by the IRS. Amend 2011 tax return online Master and prototype plans are plans made available by plan providers for adoption by employers (including self-employed individuals). Amend 2011 tax return online Under a master plan, a single trust or custodial account is established, as part of the plan, for the joint use of all adopting employers. Amend 2011 tax return online Under a prototype plan, a separate trust or custodial account is established for each employer. Amend 2011 tax return online Plan providers. Amend 2011 tax return online   The following organizations generally can provide IRS-approved master or prototype plans. Amend 2011 tax return online Banks (including some savings and loan associations and federally insured credit unions). Amend 2011 tax return online Trade or professional organizations. Amend 2011 tax return online Insurance companies. Amend 2011 tax return online Mutual funds. Amend 2011 tax return online Individually designed plan. Amend 2011 tax return online   If you prefer, you can set up an individually designed plan to meet specific needs. Amend 2011 tax return online Although advance IRS approval is not required, you can apply for approval by paying a fee and requesting a determination letter. Amend 2011 tax return online You may need professional help for this. Amend 2011 tax return online See Rev. Amend 2011 tax return online Proc. Amend 2011 tax return online 2014-6, 2014-1 I. Amend 2011 tax return online R. Amend 2011 tax return online B. Amend 2011 tax return online 198, available at www. Amend 2011 tax return online irs. Amend 2011 tax return online gov/irb/2014-1_IRB/ar10. Amend 2011 tax return online html, as annually updated, that may help you decide whether to apply for approval. Amend 2011 tax return online Internal Revenue Bulletins are available on the IRS website at IRS. Amend 2011 tax return online gov They are also available at most IRS offices and at certain libraries. Amend 2011 tax return online User fee. Amend 2011 tax return online   The fee mentioned earlier for requesting a determination letter does not apply to employers who have 100 or fewer employees who received at least $5,000 of compensation from the employer for the preceding year. Amend 2011 tax return online At least one of them must be a non-highly compensated employee participating in the plan. Amend 2011 tax return online The fee does not apply to requests made by the later of the following dates. Amend 2011 tax return online The end of the 5th plan year the plan is in effect. Amend 2011 tax return online The end of any remedial amendment period for the plan that begins within the first 5 plan years. Amend 2011 tax return online The request cannot be made by the sponsor of a prototype or similar plan the sponsor intends to market to participating employers. Amend 2011 tax return online   For more information about whether the user fee applies, see Rev. Amend 2011 tax return online Proc. Amend 2011 tax return online 2014-8, 2014-1 I. Amend 2011 tax return online R. Amend 2011 tax return online B. Amend 2011 tax return online 242, available at www. Amend 2011 tax return online irs. Amend 2011 tax return online gov/irb/2014-1_IRB/ar12. Amend 2011 tax return online html, as may be annually updated; Notice 2003-49, 2003-32 I. Amend 2011 tax return online R. Amend 2011 tax return online B. Amend 2011 tax return online 294, available at www. Amend 2011 tax return online irs. Amend 2011 tax return online gov/irb/2003-32_IRB/ar13. Amend 2011 tax return online html; and Notice 2011-86, 2011-45 I. Amend 2011 tax return online R. Amend 2011 tax return online B. Amend 2011 tax return online 698, available at www. Amend 2011 tax return online irs. Amend 2011 tax return online gov/irb/2011-45_IRB/ar11. Amend 2011 tax return online html. Amend 2011 tax return online Investing Plan Assets In setting up a qualified plan, you arrange how the plan's funds will be used to build its assets. Amend 2011 tax return online You can establish a trust or custodial account to invest the funds. Amend 2011 tax return online You, the trust, or the custodial account can buy an annuity contract from an insurance company. Amend 2011 tax return online Life insurance can be included only if it is incidental to the retirement benefits. Amend 2011 tax return online You set up a trust by a legal instrument (written document). Amend 2011 tax return online You may need professional help to do this. Amend 2011 tax return online You can set up a custodial account with a bank, savings and loan association, credit union, or other person who can act as the plan trustee. Amend 2011 tax return online You do not need a trust or custodial account, although you can have one, to invest the plan's funds in annuity contracts or face-amount certificates. Amend 2011 tax return online If anyone other than a trustee holds them, however, the contracts or certificates must state they are not transferable. Amend 2011 tax return online Other plan requirements. Amend 2011 tax return online   For information on other important plan requirements, see Qualification Rules , earlier in this chapter. Amend 2011 tax return online Minimum Funding Requirement In general, if your plan is a money purchase pension plan or a defined benefit plan, you must actually pay enough into the plan to satisfy the minimum funding standard for each year. Amend 2011 tax return online Determining the amount needed to satisfy the minimum funding standard for a defined benefit plan is complicated, and you should seek professional help in order to meet these contribution requirements. Amend 2011 tax return online For information on this funding requirement, see section 412 and its regulations. Amend 2011 tax return online Quarterly installments of required contributions. Amend 2011 tax return online   If your plan is a defined benefit plan subject to the minimum funding requirements, you generally must make quarterly installment payments of the required contributions. Amend 2011 tax return online If you do not pay the full installments timely, you may have to pay interest on any underpayment for the period of the underpayment. Amend 2011 tax return online Due dates. Amend 2011 tax return online   The due dates for the installments are 15 days after the end of each quarter. Amend 2011 tax return online For a calendar-year plan, the installments are due April 15, July 15, October 15, and January 15 (of the following year). Amend 2011 tax return online Installment percentage. Amend 2011 tax return online   Each quarterly installment must be 25% of the required annual payment. Amend 2011 tax return online Extended period for making contributions. Amend 2011 tax return online   Additional contributions required to satisfy the minimum funding requirement for a plan year will be considered timely if made by 8½ months after the end of that year. Amend 2011 tax return online Contributions A qualified plan is generally funded by your contributions. Amend 2011 tax return online However, employees participating in the plan may be permitted to make contributions, and you may be permitted to make contributions on your own behalf. Amend 2011 tax return online See Employee Contributions and Elective Deferrals later. Amend 2011 tax return online Contributions deadline. Amend 2011 tax return online   You can make deductible contributions for a tax year up to the due date of your return (plus extensions) for that year. Amend 2011 tax return online Self-employed individual. Amend 2011 tax return online   You can make contributions on behalf of yourself only if you have net earnings (compensation) from self-employment in the trade or business for which the plan was set up. Amend 2011 tax return online Your net earnings must be from your personal services, not from your investments. Amend 2011 tax return online If you have a net loss from self-employment, you cannot make contributions for yourself for the year, even if you can contribute for common-law employees based on their compensation. Amend 2011 tax return online Employer Contributions There are certain limits on the contributions and other annual additions you can make each year for plan participants. Amend 2011 tax return online There are also limits on the amount you can deduct. Amend 2011 tax return online See Deduction Limits , later. Amend 2011 tax return online Limits on Contributions and Benefits Your plan must provide that contributions or benefits cannot exceed certain limits. Amend 2011 tax return online The limits differ depending on whether your plan is a defined contribution plan or a defined benefit plan. Amend 2011 tax return online Defined benefit plan. Amend 2011 tax return online   For 2013, the annual benefit for a participant under a defined benefit plan cannot exceed the lesser of the following amounts. Amend 2011 tax return online 100% of the participant's average compensation for his or her highest 3 consecutive calendar years. Amend 2011 tax return online $205,000 ($210,000 for 2014). Amend 2011 tax return online Defined contribution plan. Amend 2011 tax return online   For 2013, a defined contribution plan's annual contributions and other additions (excluding earnings) to the account of a participant cannot exceed the lesser of the following amounts. Amend 2011 tax return online 100% of the participant's compensation. Amend 2011 tax return online $51,000 ($52,000 for 2014). Amend 2011 tax return online   Catch-up contributions (discussed later under Limit on Elective Deferrals) are not subject to the above limit. Amend 2011 tax return online Employee Contributions Participants may be permitted to make nondeductible contributions to a plan in addition to your contributions. Amend 2011 tax return online Even though these employee contributions are not deductible, the earnings on them are tax free until distributed in later years. Amend 2011 tax return online Also, these contributions must satisfy the actual contribution percentage (ACP) test of section 401(m)(2), a nondiscrimination test that applies to employee contributions and matching contributions. Amend 2011 tax return online See Regulations sections 1. Amend 2011 tax return online 401(k)-2 and 1. Amend 2011 tax return online 401(m)-2 for further guidance relating to the nondiscrimination rules under sections 401(k) and 401(m). Amend 2011 tax return online When Contributions Are Considered Made You generally apply your plan contributions to the year in which you make them. Amend 2011 tax return online But you can apply them to the previous year if all the following requirements are met. Amend 2011 tax return online You make them by the due date of your tax return for the previous year (plus extensions). Amend 2011 tax return online The plan was established by the end of the previous year. Amend 2011 tax return online The plan treats the contributions as though it had received them on the last day of the previous year. Amend 2011 tax return online You do either of the following. Amend 2011 tax return online You specify in writing to the plan administrator or trustee that the contributions apply to the previous year. Amend 2011 tax return online You deduct the contributions on your tax return for the previous year. Amend 2011 tax return online A partnership shows contributions for partners on Form 1065. Amend 2011 tax return online Employer's promissory note. Amend 2011 tax return online   Your promissory note made out to the plan is not a payment that qualifies for the deduction. Amend 2011 tax return online Also, issuing this note is a prohibited transaction subject to tax. Amend 2011 tax return online See Prohibited Transactions , later. Amend 2011 tax return online Employer Deduction You can usually deduct, subject to limits, contributions you make to a qualified plan, including those made for your own retirement. Amend 2011 tax return online The contributions (and earnings and gains on them) are generally tax free until distributed by the plan. Amend 2011 tax return online Deduction Limits The deduction limit for your contributions to a qualified plan depends on the kind of plan you have. Amend 2011 tax return online Defined contribution plans. Amend 2011 tax return online   The deduction for contributions to a defined contribution plan (profit-sharing plan or money purchase pension plan) cannot be more than 25% of the compensation paid (or accrued) during the year to your eligible employees participating in the plan. Amend 2011 tax return online If you are self-employed, you must reduce this limit in figuring the deduction for contributions you make for your own account. Amend 2011 tax return online See Deduction Limit for Self-Employed Individuals , later. Amend 2011 tax return online   When figuring the deduction limit, the following rules apply. Amend 2011 tax return online Elective deferrals (discussed later) are not subject to the limit. Amend 2011 tax return online Compensation includes elective deferrals. Amend 2011 tax return online The maximum compensation that can be taken into account for each employee in 2013 is $255,000 ($260,000 for 2014). Amend 2011 tax return online Defined benefit plans. Amend 2011 tax return online   The deduction for contributions to a defined benefit plan is based on actuarial assumptions and computations. Amend 2011 tax return online Consequently, an actuary must figure your deduction limit. Amend 2011 tax return online    In figuring the deduction for contributions, you cannot take into account any contributions or benefits that are more than the limits discussed earlier under Limits on Contributions and Benefits, earlier. Amend 2011 tax return online Table 4–1. Amend 2011 tax return online Carryover of Excess Contributions Illustrated—Profit-Sharing Plan (000's omitted) Year Participants' compensation Participants' share of required contribution (10% of annual profit) Deductible  limit for current year (25% of compensation) Contribution Excess contribution carryover used1 Total  deduction including carryovers Excess contribution carryover available at end of year 2010 $1,000 $100 $250 $100 $ 0 $100 $ 0 2011 400 165 100 165 0 100 65 2012 500 100 125 100 25 125 40 2013 600 100 150 100 40 140 0  1There were no carryovers from years before 2010. Amend 2011 tax return online Deduction Limit for Self-Employed Individuals If you make contributions for yourself, you need to make a special computation to figure your maximum deduction for these contributions. Amend 2011 tax return online Compensation is your net earnings from self-employment, defined in chapter 1. Amend 2011 tax return online This definition takes into account both the following items. Amend 2011 tax return online The deduction for the deductible part of your self-employment tax. Amend 2011 tax return online The deduction for contributions on your behalf to the plan. Amend 2011 tax return online The deduction for your own contributions and your net earnings depend on each other. Amend 2011 tax return online For this reason, you determine the deduction for your own contributions indirectly by reducing the contribution rate called for in your plan. Amend 2011 tax return online To do this, use either the Rate Table for Self-Employed or the Rate Worksheet for Self-Employed in chapter 5. Amend 2011 tax return online Then figure your maximum deduction by using the Deduction Worksheet for Self-Employed in chapter 5. Amend 2011 tax return online Where To Deduct Contributions Deduct the contributions you make for your common-law employees on your tax return. Amend 2011 tax return online For example, sole proprietors deduct them on Schedule C (Form 1040) or Schedule F (Form 1040); partnerships deduct them on Form 1065; and corporations deduct them on Form 1120, or Form 1120S. Amend 2011 tax return online Sole proprietors and partners deduct contributions for themselves on line 28 of Form 1040. Amend 2011 tax return online (If you are a partner, contributions for yourself are shown on the Schedule K-1 (Form 1065) you get from the partnership. Amend 2011 tax return online ) Carryover of Excess Contributions If you contribute more to the plans than you can deduct for the year, you can carry over and deduct the difference in later years, combined with your contributions for those years. Amend 2011 tax return online Your combined deduction in a later year is limited to 25% of the participating employees' compensation for that year. Amend 2011 tax return online For purposes of this limit, a SEP is treated as a profit-sharing (defined contribution) plan. Amend 2011 tax return online However, this percentage limit must be reduced to figure your maximum deduction for contributions you make for yourself. Amend 2011 tax return online See Deduction Limit for Self-Employed Individuals, earlier. Amend 2011 tax return online The amount you carry over and deduct may be subject to the excise tax discussed next. Amend 2011 tax return online Table 4-1, earlier, illustrates the carryover of excess contributions to a profit-sharing plan. Amend 2011 tax return online Excise Tax for Nondeductible (Excess) Contributions If you contribute more than your deduction limit to a retirement plan, you have made nondeductible contributions and you may be liable for an excise tax. Amend 2011 tax return online In general, a 10% excise tax applies to nondeductible contributions made to qualified pension and profit-sharing plans and to SEPs. Amend 2011 tax return online Special rule for self-employed individuals. Amend 2011 tax return online   The 10% excise tax does not apply to any contribution made to meet the minimum funding requirements in a money purchase pension plan or a defined benefit plan. Amend 2011 tax return online Even if that contribution is more than your earned income from the trade or business for which the plan is set up, the difference is not subject to this excise tax. Amend 2011 tax return online See Minimum Funding Requirement , earlier. Amend 2011 tax return online Reporting the tax. Amend 2011 tax return online   You must report the tax on your nondeductible contributions on Form 5330. Amend 2011 tax return online Form 5330 includes a computation of the tax. Amend 2011 tax return online See the separate instructions for completing the form. Amend 2011 tax return online Elective Deferrals (401(k) Plans) Your qualified plan can include a cash or deferred arrangement under which participants can choose to have you contribute part of their before-tax compensation to the plan rather than receive the compensation in cash. Amend 2011 tax return online A plan with this type of arrangement is popularly known as a “401(k) plan. Amend 2011 tax return online ” (As a self-employed individual participating in the plan, you can contribute part of your before-tax net earnings from the business. Amend 2011 tax return online ) This contribution is called an “elective deferral” because participants choose (elect) to defer receipt of the money. Amend 2011 tax return online In general, a qualified plan can include a cash or deferred arrangement only if the qualified plan is one of the following plans. Amend 2011 tax return online A profit-sharing plan. Amend 2011 tax return online A money purchase pension plan in existence on June 27, 1974, that included a salary reduction arrangement on that date. Amend 2011 tax return online Partnership. Amend 2011 tax return online   A partnership can have a 401(k) plan. Amend 2011 tax return online Restriction on conditions of participation. Amend 2011 tax return online   The plan cannot require, as a condition of participation, that an employee complete more than 1 year of service. Amend 2011 tax return online Matching contributions. Amend 2011 tax return online   If your plan permits, you can make matching contributions for an employee who makes an elective deferral to your 401(k) plan. Amend 2011 tax return online For example, the plan might provide that you will contribute 50 cents for each dollar your participating employees choose to defer under your 401(k) plan. Amend 2011 tax return online Matching contributions are generally subject to the ACP test discussed earlier under Employee Contributions. Amend 2011 tax return online Nonelective contributions. Amend 2011 tax return online   You can also make contributions (other than matching contributions) for your participating employees without giving them the choice to take cash instead. Amend 2011 tax return online These are called nonelective contributions. Amend 2011 tax return online Employee compensation limit. Amend 2011 tax return online   No more than $255,000 of the employee's compensation can be taken into account when figuring contributions other than elective deferrals in 2013. Amend 2011 tax return online This limit is $260,000 in 2014. Amend 2011 tax return online SIMPLE 401(k) plan. Amend 2011 tax return online   If you had 100 or fewer employees who earned $5,000 or more in compensation during the preceding year, you may be able to set up a SIMPLE 401(k) plan. Amend 2011 tax return online A SIMPLE 401(k) plan is not subject to the nondiscrimination and top-heavy plan requirements discussed earlier under Qualification Rules. Amend 2011 tax return online For details about SIMPLE 401(k) plans, see SIMPLE 401(k) Plan in chapter 3. Amend 2011 tax return online Distributions. Amend 2011 tax return online   Certain rules apply to distributions from 401(k) plans. Amend 2011 tax return online See Distributions From 401(k) Plans , later. Amend 2011 tax return online Limit on Elective Deferrals There is a limit on the amount an employee can defer each year under these plans. Amend 2011 tax return online This limit applies without regard to community property laws. Amend 2011 tax return online Your plan must provide that your employees cannot defer more than the limit that applies for a particular year. Amend 2011 tax return online For 2013 and 2014, the basic limit on elective deferrals is $17,500. Amend 2011 tax return online This limit applies to all salary reduction contributions and elective deferrals. Amend 2011 tax return online If, in conjunction with other plans, the deferral limit is exceeded, the difference is included in the employee's gross income. Amend 2011 tax return online Catch-up contributions. Amend 2011 tax return online   A 401(k) plan can permit participants who are age 50 or over at the end of the calendar year to also make catch-up contributions. Amend 2011 tax return online The catch-up contribution limit for 2013 and 2014 is $5,500. Amend 2011 tax return online Elective deferrals are not treated as catch-up contributions for 2013 until they exceed the $17,500 limit, the actual deferral percentage (ADP) test limit of section 401(k)(3), or the plan limit (if any). Amend 2011 tax return online However, the catch-up contribution a participant can make for a year cannot exceed the lesser of the following amounts. Amend 2011 tax return online The catch-up contribution limit. Amend 2011 tax return online The excess of the participant's compensation over the elective deferrals that are not catch-up contributions. Amend 2011 tax return online Treatment of contributions. Amend 2011 tax return online   Your contributions to your own 401(k) plan are generally deductible by you for the year they are contributed to the plan. Amend 2011 tax return online Matching or nonelective contributions made to the plan are also deductible by you in the year of contribution. Amend 2011 tax return online Your employees' elective deferrals other than designated Roth contributions are tax free until distributed from the plan. Amend 2011 tax return online Elective deferrals are included in wages for social security, Medicare, and federal unemployment (FUTA) tax. Amend 2011 tax return online Forfeiture. Amend 2011 tax return online   Employees have a nonforfeitable right at all times to their accrued benefit attributable to elective deferrals. Amend 2011 tax return online Reporting on Form W-2. Amend 2011 tax return online   Do not include elective deferrals in the “Wages, tips, other compensation” box of Form W-2. Amend 2011 tax return online You must, however, include them in the “Social security wages” and “Medicare wages and tips” boxes. Amend 2011 tax return online You must also include them in box 12. Amend 2011 tax return online Mark the “Retirement plan” checkbox in box 13. Amend 2011 tax return online For more information, see the Form W-2 instructions. Amend 2011 tax return online Automatic Enrollment Your 401(k) plan can have an automatic enrollment feature. Amend 2011 tax return online Under this feature, you can automatically reduce an employee's pay by a fixed percentage and contribute that amount to the 401(k) plan on his or her behalf unless the employee affirmatively chooses not to have his or her pay reduced or chooses to have it reduced by a different percentage. Amend 2011 tax return online These contributions are elective deferrals. Amend 2011 tax return online An automatic enrollment feature will encourage employees' saving for retirement and will help your plan pass nondiscrimination testing (if applicable). Amend 2011 tax return online For more information, see Publication 4674, Automatic Enrollment 401(k) Plans for Small Businesses. Amend 2011 tax return online Eligible automatic contribution arrangement. Amend 2011 tax return online   Under an eligible automatic contribution arrangement (EACA), a participant is treated as having elected to have the employer make contributions in an amount equal to a uniform percentage of compensation. Amend 2011 tax return online This automatic election will remain in place until the participant specifically elects not to have such deferral percentage made (or elects a different percentage). Amend 2011 tax return online There is no required deferral percentage. Amend 2011 tax return online Withdrawals. Amend 2011 tax return online   Under an EACA, you may allow participants to withdraw their automatic contributions to the plan if certain conditions are met. Amend 2011 tax return online The participant must elect the withdrawal no later than 90 days after the date of the first elective contributions under the EACA. Amend 2011 tax return online The participant must withdraw the entire amount of EACA default contributions, including any earnings thereon. Amend 2011 tax return online   If the plan allows withdrawals under the EACA, the amount of the withdrawal other than the amount of any designated Roth contributions must be included in the employee's gross income for the tax year in which the distribution is made. Amend 2011 tax return online The additional 10% tax on early distributions will not apply to the distribution. Amend 2011 tax return online Notice requirement. Amend 2011 tax return online   Under an EACA, employees must be given written notice of the terms of the EACA within a reasonable period of time before each plan year. Amend 2011 tax return online The notice must be written in a manner calculated to be understood by the average employee and be sufficiently accurate and comprehensive in order to apprise the employee of his or her rights and obligations under the EACA. Amend 2011 tax return online The notice must include an explanation of the employee's right to elect not to have elective contributions made on his or her behalf, or to elect a different percentage, and the employee must be given a reasonable period of time after receipt of the notice before the first elective contribution is made. Amend 2011 tax return online The notice also must explain how contributions will be invested in the absence of an investment election by the employee. Amend 2011 tax return online Qualified automatic contribution arrangement. Amend 2011 tax return online    A qualified automatic contribution arrangement (QACA) is a type of safe harbor plan. Amend 2011 tax return online It contains an automatic enrollment feature, and mandatory employer contributions are required. Amend 2011 tax return online If your plan includes a QACA, it will not be subject to the ADP test (discussed later) nor the top-heavy requirements (discussed earlier). Amend 2011 tax return online Additionally, your plan will not be subject to the actual contribution percentage (ACP) test if certain additional requirements are met. Amend 2011 tax return online Under a QACA, each employee who is eligible to participate in the plan will be treated as having elected to make elective deferral contributions equal to a certain default percentage of compensation. Amend 2011 tax return online In order to not have default elective deferrals made, an employee must make an affirmative election specifying a deferral percentage (including zero, if desired). Amend 2011 tax return online If an employee does not make an affirmative election, the default deferral percentage must meet the following conditions. Amend 2011 tax return online It must be applied uniformly. Amend 2011 tax return online It must not exceed 10%. Amend 2011 tax return online It must be at least 3% in the first plan year it applies to an employee and through the end of the following year. Amend 2011 tax return online It must increase to at least 4% in the following plan year. Amend 2011 tax return online It must increase to at least 5% in the following plan year. Amend 2011 tax return online It must increase to at least 6% in subsequent plan years. Amend 2011 tax return online Matching or nonelective contributions. Amend 2011 tax return online   Under the terms of the QACA, you must make either matching or nonelective contributions according to the following terms. Amend 2011 tax return online Matching contributions. Amend 2011 tax return online You must make matching contributions on behalf of each non-highly compensated employee in the following amounts. Amend 2011 tax return online An amount equal to 100% of elective deferrals, up to 1% of compensation. Amend 2011 tax return online An amount equal to 50% of elective deferrals, from 1% up to 6% of compensation. Amend 2011 tax return online Other formulas may be used as long as they are at least as favorable to non-highly compensated employees. Amend 2011 tax return online The rate of matching contributions for highly compensated employees, including yourself, must not exceed the rates for non-highly compensated employees. Amend 2011 tax return online Nonelective contributions. Amend 2011 tax return online You must make nonelective contributions on behalf of every non-highly compensated employee eligible to participate in the plan, regardless of whether they elected to participate, in an amount equal to at least 3% of their compensation. Amend 2011 tax return online Vesting requirements. Amend 2011 tax return online   All accrued benefits attributed to matching or nonelective contributions under the QACA must be 100% vested for all employees who complete 2 years of service. Amend 2011 tax return online These contributions are subject to special withdrawal restrictions, discussed later. Amend 2011 tax return online Notice requirements. Amend 2011 tax return online   Each employee eligible to participate in the QACA must receive written notice of their rights and obligations under the QACA, within a reasonable period before each plan year. Amend 2011 tax return online The notice must be written in a manner calculated to be understood by the average employee, and it must be accurate and comprehensive. Amend 2011 tax return online The notice must explain their right to elect not to have elective contributions made on their behalf, or to have contributions made at a different percentage than the default percentage. Amend 2011 tax return online Additionally, the notice must explain how contributions will be invested in the absence of any investment election by the employee. Amend 2011 tax return online The employee must have a reasonable period of time after receiving the notice to make such contribution and investment elections prior to the first contributions under the QACA. Amend 2011 tax return online Treatment of Excess Deferrals If the total of an employee's deferrals is more than the limit for 2013, the employee can have the difference (called an excess deferral) paid out of any of the plans that permit these distributions. Amend 2011 tax return online He or she must notify the plan by April 15, 2014 (or an earlier date specified in the plan), of the amount to be paid from each plan. Amend 2011 tax return online The plan must then pay the employee that amount, plus earnings on the amount through the end of 2013, by April 15, 2014. Amend 2011 tax return online Excess withdrawn by April 15. Amend 2011 tax return online   If the employee takes out the excess deferral by April 15, 2014, it is not reported again by including it in the employee's gross income for 2014. Amend 2011 tax return online However, any income earned in 2013 on the excess deferral taken out is taxable in the tax year in which it is taken out. Amend 2011 tax return online The distribution is not subject to the additional 10% tax on early distributions. Amend 2011 tax return online   If the employee takes out part of the excess deferral and the income on it, the distribution is treated as made proportionately from the excess deferral and the income. Amend 2011 tax return online   Even if the employee takes out the excess deferral by April 15, the amount will be considered for purposes of nondiscrimination testing requirements of the plan, unless the distributed amount is for a non-highly compensated employee who participates in only one employer's 401(k) plan or plans. Amend 2011 tax return online Excess not withdrawn by April 15. Amend 2011 tax return online   If the employee does not take out the excess deferral by April 15, 2014, the excess, though taxable in 2013, is not included in the employee's cost basis in figuring the taxable amount of any eventual distributions under the plan. Amend 2011 tax return online In effect, an excess deferral left in the plan is taxed twice, once when contributed and again when distributed. Amend 2011 tax return online Also, if the employee's excess deferral is allowed to stay in the plan and the employee participates in no other employer's plan, the plan can be disqualified. Amend 2011 tax return online Reporting corrective distributions on Form 1099-R. Amend 2011 tax return online   Report corrective distributions of excess deferrals (including any earnings) on Form 1099-R. Amend 2011 tax return online For specific information about reporting corrective distributions, see the Instructions for Forms 1099-R and 5498. Amend 2011 tax return online Tax on excess contributions of highly compensated employees. Amend 2011 tax return online   The law provides tests to detect discrimination in a plan. Amend 2011 tax return online If tests, such as the actual deferral percentage test (ADP test) (see section 401(k)(3)) and the actual contribution percentage test (ACP test) (see section 401(m)(2)), show that contributions for highly compensated employees are more than the test limits for these contributions, the employer may have to pay a 10% excise tax. Amend 2011 tax return online Report the tax on Form 5330. Amend 2011 tax return online The ADP test does not apply to a safe harbor 401(k) plan (discussed next) nor to a QACA. Amend 2011 tax return online Also, the ACP test does not apply to these plans if certain additional requirements are met. Amend 2011 tax return online   The tax for the year is 10% of the excess contributions for the plan year ending in your tax year. Amend 2011 tax return online Excess contributions are elective deferrals, employee contributions, or employer matching or nonelective contributions that are more than the amount permitted under the ADP test or the ACP test. Amend 2011 tax return online   See Regulations sections 1. Amend 2011 tax return online 401(k)-2 and 1. Amend 2011 tax return online 401(m)-2 for further guidance relating to the nondiscrimination rules under sections 401(k) and 401(m). Amend 2011 tax return online    If the plan fails the ADP or ACP testing, and the failure is not corrected by the end of the next plan year, the plan can be disqualified. Amend 2011 tax return online Safe harbor 401(k) plan. Amend 2011 tax return online If you meet the requirements for a safe harbor 401(k) plan, you do not have to satisfy the ADP test, nor the ACP test, if certain additional requirements are met. Amend 2011 tax return online For your plan to be a safe harbor plan, you must meet the following conditions. Amend 2011 tax return online Matching or nonelective contributions. Amend 2011 tax return online You must make matching or nonelective contributions according to one of the following formulas. Amend 2011 tax return online Matching contributions. Amend 2011 tax return online You must make matching contributions according to the following rules. Amend 2011 tax return online You must contribute an amount equal to 100% of each non-highly compensated employee's elective deferrals, up to 3% of compensation. Amend 2011 tax return online You must contribute an amount equal to 50% of each non-highly compensated employee's elective deferrals, from 3% up to 5% of compensation. Amend 2011 tax return online The rate of matching contributions for highly compensated employees, including yourself, must not exceed the rates for non-highly compensated employees. Amend 2011 tax return online Nonelective contributions. Amend 2011 tax return online You must make nonelective contributions, without regard to whether the employee made elective deferrals, on behalf of all non-highly compensated employees eligible to participate in the plan, equal to at least 3% of the employee's compensation. Amend 2011 tax return online These mandatory matching and nonelective contributions must be immediately 100% vested and are subject to special withdrawal restrictions. Amend 2011 tax return online Notice requirement. Amend 2011 tax return online You must give eligible employees written notice of their rights and obligations with regard to contributions under the plan, within a reasonable period before the plan year. Amend 2011 tax return online The other requirements for a 401(k) plan, including withdrawal and vesting rules, must also be met for your plan to qualify as a safe harbor 401(k) plan. Amend 2011 tax return online Qualified Roth Contribution Program Under this program an eligible employee can designate all or a portion of his or her elective deferrals as after-tax Roth contributions. Amend 2011 tax return online Elective deferrals designated as Roth contributions must be maintained in a separate Roth account. Amend 2011 tax return online However, unlike other elective deferrals, designated Roth contributions are not excluded from employees' gross income, but qualified distributions from a Roth account are excluded from employees' gross income. Amend 2011 tax return online Elective Deferrals Under a qualified Roth contribution program, the amount of elective deferrals that an employee may designate as a Roth contribution is limited to the maximum amount of elective deferrals excludable from gross income for the year (for 2013 and 2014, $17,500 if under age 50 and $23,000 if age 50 or over) less the total amount of the employee's elective deferrals not designated as Roth contributions. Amend 2011 tax return online Designated Roth deferrals are treated the same as pre-tax elective deferrals for most purposes, including: The annual individual elective deferral limit (total of all designated Roth contributions and traditional, pre-tax elective deferrals) of $17,500 for 2013 and 2014, with an additional $5,500 if age 50 or over for 2013 and 2014, Determining the maximum employee and employer annual contributions of the lesser of 100% of compensation or $51,000 for 2013 ($52,000 for 2014), Nondiscrimination testing, Required distributions, and Elective deferrals not taken into account for purposes of deduction limits. Amend 2011 tax return online Qualified Distributions A qualified distribution is a distribution that is made after the employee's nonexclusion period and: On or after the employee attains age   59½, On account of the employee's being disabled, or On or after the employee's death. Amend 2011 tax return online An employee's nonexclusion period for a plan is the 5-tax-year period beginning with the earlier of the following tax years. Amend 2011 tax return online The first tax year in which the employee made a contribution to his or her Roth account in the plan, or If a rollover contribution was made to the employee's designated Roth account from a designated Roth account previously established for the employee under another plan, then the first tax year the employee made a designated Roth contribution to the previously established account. Amend 2011 tax return online Rollover. Amend 2011 tax return online   Beginning September 28, 2010, a rollover from another account can be made to a designated Roth account in the same plan. Amend 2011 tax return online For additional information on these in-plan Roth rollovers, see Notice 2010-84, 2010-51 I. Amend 2011 tax return online R. Amend 2011 tax return online B. Amend 2011 tax return online 872, available at www. Amend 2011 tax return online irs. Amend 2011 tax return online gov/irb/2010-51_IRB/ar11. Amend 2011 tax return online html, and Notice 2013-74. Amend 2011 tax return online A distribution from a designated Roth account can only be rolled over to another designated Roth account or a Roth IRA. Amend 2011 tax return online Rollover amounts do not apply toward the annual deferral limit. Amend 2011 tax return online Reporting Requirements You must report a contribution to a Roth account on Form W-2 and a distribution from a Roth account on Form 1099-R. Amend 2011 tax return online See the Form W-2 and 1099-R instructions for detailed information. Amend 2011 tax return online Distributions Amounts paid to plan participants from a qualified plan are called distributions. Amend 2011 tax return online Distributions may be nonperiodic, such as lump-sum distributions, or periodic, such as annuity payments. Amend 2011 tax return online Also, certain loans may be treated as distributions. Amend 2011 tax return online See Loans Treated as Distributions in Publication 575. Amend 2011 tax return online Required Distributions A qualified plan must provide that each participant will either: Receive his or her entire interest (benefits) in the plan by the required beginning date (defined later), or Begin receiving regular periodic distributions by the required beginning date in annual amounts calculated to distribute the participant's entire interest (benefits) over his or her life expectancy or over the joint life expectancy of the participant and the designated beneficiary (or over a shorter period). Amend 2011 tax return online These distribution rules apply individually to each qualified plan. Amend 2011 tax return online You cannot satisfy the requirement for one plan by taking a distribution from another. Amend 2011 tax return online The plan must provide that these rules override any inconsistent distribution options previously offered. Amend 2011 tax return online Minimum distribution. Amend 2011 tax return online   If the account balance of a qualified plan participant is to be distributed (other than as an annuity), the plan administrator must figure the minimum amount required to be distributed each distribution calendar year. Amend 2011 tax return online This minimum is figured by dividing the account balance by the applicable life expectancy. Amend 2011 tax return online The plan administrator can use the life expectancy tables in Appendix C of Publication 590 for this purpose. Amend 2011 tax return online For more information on figuring the minimum distribution, see Tax on Excess Accumulation in Publication 575. Amend 2011 tax return online Required beginning date. Amend 2011 tax return online   Generally, each participant must receive his or her entire benefits in the plan or begin to receive periodic distributions of benefits from the plan by the required beginning date. Amend 2011 tax return online   A participant must begin to receive distributions from his or her qualified retirement plan by April 1 of the first year after the later of the following years. Amend 2011 tax return online Calendar year in which he or she reaches age 70½. Amend 2011 tax return online Calendar year in which he or she retires from employment with the employer maintaining the plan. Amend 2011 tax return online However, the plan may require the participant to begin receiving distributions by April 1 of the year after the participant reaches age 70½ even if the participant has not retired. Amend 2011 tax return online   If the participant is a 5% owner of the employer maintaining the plan, the participant must begin receiving distributions by April 1 of the first year after the calendar year in which the participant reached age 70½. Amend 2011 tax return online For more information, see Tax on Excess Accumulation in Publication 575. Amend 2011 tax return online Distributions after the starting year. Amend 2011 tax return online   The distribution required to be made by April 1 is treated as a distribution for the starting year. Amend 2011 tax return online (The starting year is the year in which the participant meets (1) or (2) above, whichever applies. Amend 2011 tax return online ) After the starting year, the participant must receive the required distribution for each year by December 31 of that year. Amend 2011 tax return online If no distribution is made in the starting year, required distributions for 2 years must be made in the next year (one by April 1 and one by December 31). Amend 2011 tax return online Distributions after participant's death. Amend 2011 tax return online   See Publication 575 for the special rules covering distributions made after the death of a participant. Amend 2011 tax return online Distributions From 401(k) Plans Generally, distributions cannot be made until one of the following occurs. Amend 2011 tax return online The employee retires, dies, becomes disabled, or otherwise severs employment. Amend 2011 tax return online The plan ends and no other defined contribution plan is established or continued. Amend 2011 tax return online In the case of a 401(k) plan that is part of a profit-sharing plan, the employee reaches age 59½ or suffers financial hardship. Amend 2011 tax return online For the rules on hardship distributions, including the limits on them, see Regulations section 1. Amend 2011 tax return online 401(k)-1(d). Amend 2011 tax return online The employee becomes eligible for a qualified reservist distribution (defined next). Amend 2011 tax return online Certain distributions listed above may be subject to the tax on early distributions discussed later. Amend 2011 tax return online Qualified reservist distributions. Amend 2011 tax return online   A qualified reservist distribution is a distribution from an IRA or an elective deferral account made after September 11, 2001, to a military reservist or a member of the National Guard who has been called to active duty for at least 180 days or for an indefinite period. Amend 2011 tax return online All or part of a qualified reservist distribution can be recontributed to an IRA. Amend 2011 tax return online The additional 10% tax on early distributions does not apply to a qualified reservist distribution. Amend 2011 tax return online Tax Treatment of Distributions Distributions from a qualified plan minus a prorated part of any cost basis are subject to income tax in the year they are distributed. Amend 2011 tax return online Since most recipients have no cost basis, a distribution is generally fully taxable. Amend 2011 tax return online An exception is a distribution that is properly rolled over as discussed under Rollover, next. Amend 2011 tax return online The tax treatment of distributions depends on whether they are made periodically over several years or life (periodic distributions) or are nonperiodic distributions. Amend 2011 tax return online See Taxation of Periodic Payments and Taxation of Nonperiodic Payments in Publication 575 for a detailed description of how distributions are taxed, including the 10-year tax option or capital gain treatment of a lump-sum distribution. Amend 2011 tax return online Note. Amend 2011 tax return online A recipient of a distribution from a designated Roth account will have a cost basis since designated Roth contributions are made on an after-tax basis. Amend 2011 tax return online Also, a distribution from a designated Roth account is entirely tax-free if certain conditions are met. Amend 2011 tax return online See Qualified distributions under Qualified Roth Contribution Program, earlier. Amend 2011 tax return online Rollover. Amend 2011 tax return online   The recipient of an eligible rollover distribution from a qualified plan can defer the tax on it by rolling it over into a traditional IRA or another eligible retirement plan. Amend 2011 tax return online However, it may be subject to withholding as discussed under Withholding requirement, later. Amend 2011 tax return online A rollover can also be made to a Roth IRA, in which case, any previously untaxed amounts are includible in gross income unless the rollover is from a designated Roth account. Amend 2011 tax return online Eligible rollover distribution. Amend 2011 tax return online   This is a distribution of all or any part of an employee's balance in a qualified retirement plan that is not any of the following. Amend 2011 tax return online A required minimum distribution. Amend 2011 tax return online See Required Distributions , earlier. Amend 2011 tax return online Any of a series of substantially equal payments made at least once a year over any of the following periods. Amend 2011 tax return online The employee's life or life expectancy. Amend 2011 tax return online The joint lives or life expectancies of the employee and beneficiary. Amend 2011 tax return online A period of 10 years or longer. Amend 2011 tax return online A hardship distribution. Amend 2011 tax return online The portion of a distribution that represents the return of an employee's nondeductible contributions to the plan. Amend 2011 tax return online See Employee Contributions , earlier, and Rollover of nontaxable amounts, next. Amend 2011 tax return online Loans treated as distributions. Amend 2011 tax return online Dividends on employer securities. Amend 2011 tax return online The cost of any life insurance coverage provided under a qualified retirement plan. Amend 2011 tax return online Similar items designated by the IRS in published guidance. Amend 2011 tax return online See, for example, the Instructions for Forms 1099-R and 5498. Amend 2011 tax return online Rollover of nontaxable amounts. Amend 2011 tax return online   You may be able to roll over the nontaxable part of a distribution to another qualified retirement plan or a section 403(b) plan, or to an IRA. Amend 2011 tax return online If the rollover is to a qualified retirement plan or a section 403(b) plan that separately accounts for the taxable and nontaxable parts of the rollover, the transfer must be made through a direct (trustee-to-trustee) rollover. Amend 2011 tax return online If the rollover is to an IRA, the transfer can be made by any rollover method. Amend 2011 tax return online Note. Amend 2011 tax return online A distribution from a designated Roth account can be rolled over to another designated Roth account or to a Roth IRA. Amend 2011 tax return online If the rollover is to a Roth IRA, it can be rolled over by any rollover method, but if the rollover is to another designated Roth account, it must be rolled over directly (trustee-to-trustee). Amend 2011 tax return online More information. Amend 2011 tax return online   For more information about rollovers, see Rollovers in Pubs. Amend 2011 tax return online 575 and 590. Amend 2011 tax return online Withholding requirement. Amend 2011 tax return online   If, during a year, a qualified plan pays to a participant one or more eligible rollover distributions (defined earlier) that are reasonably expected to total $200 or more, the payor must withhold 20% of the taxable portion of each distribution for federal income tax. Amend 2011 tax return online Exceptions. Amend 2011 tax return online   If, instead of having the distribution paid to him or her, the participant chooses to have the plan pay it directly to an IRA or another eligible retirement plan (a direct rollover), no withholding is required. Amend 2011 tax return online   If the distribution is not an eligible rollover distribution, defined earlier, the 20% withholding requirement does not apply. Amend 2011 tax return online Other withholding rules apply to distributions that are not eligible rollover distributions, such as long-term periodic distributions and required distributions (periodic or nonperiodic). Amend 2011 tax return online However, the participant can choose not to have tax withheld from these distributions. Amend 2011 tax return online If the participant does not make this choice, the following withholding rules apply. Amend 2011 tax return online For periodic distributions, withholding is based on their treatment as wages. Amend 2011 tax return online For nonperiodic distributions, 10% of the taxable part is withheld. Amend 2011 tax return online Estimated tax payments. Amend 2011 tax return online   If no income tax is withheld or not enough tax is withheld, the recipient of a distribution may have to make estimated tax payments. Amend 2011 tax return online For more information, see Withholding Tax and Estimated Tax in Publication 575. Amend 2011 tax return online Section 402(f) Notice. Amend 2011 tax return online   If a distribution is an eligible rollover distribution, as defined earlier, you must provide a written notice to the recipient that explains the following rules regarding such distributions. Amend 2011 tax return online That the distribution may be directly transferred to an eligible retirement plan and information about which distributions are eligible for this direct transfer. Amend 2011 tax return online That tax will be withheld from the distribution if it is not directly transferred to an eligible retirement plan. Amend 2011 tax return online That the distribution will not be subject to tax if transferred to an eligible retirement plan within 60 days after the date the recipient receives the distribution. Amend 2011 tax return online Certain other rules that may be applicable. Amend 2011 tax return online   Notice 2009-68, 2009-39 I. Amend 2011 tax return online R. Amend 2011 tax return online B. Amend 2011 tax return online 423, available at www. Amend 2011 tax return online irs. Amend 2011 tax return online gov/irb/2009-39_IRB/ar14. Amend 2011 tax return online html, contains two updated safe harbor section 402(f) notices that plan administrators may provide recipients of eligible rollover distributions. Amend 2011 tax return online If the plan allows in-plan Roth rollovers, the 402(f) notice must be amended to reflect this. Amend 2011 tax return online Notice 2010-84 contains guidance on how to modify a 402(f) notice for in-plan Roth rollovers. Amend 2011 tax return online Timing of notice. Amend 2011 tax return online   The notice generally must be provided no less than 30 days and no more than 180 days before the date of a distribution. Amend 2011 tax return online Method of notice. Amend 2011 tax return online   The written notice must be provided individually to each distributee of an eligible rollover distribution. Amend 2011 tax return online Posting of the notice is not sufficient. Amend 2011 tax return online However, the written requirement may be satisfied through the use of electronic media if certain additional conditions are met. Amend 2011 tax return online See Regulations section 1. Amend 2011 tax return online 401(a)-21. Amend 2011 tax return online Tax on failure to give notice. Amend 2011 tax return online   Failure to give a 402(f) notice will result in a tax of $100 for each failure, with a total not exceeding $50,000 per calendar year. Amend 2011 tax return online The tax will not be imposed if it is shown that such failure is due to reasonable cause and not to willful neglect. Amend 2011 tax return online Tax on Early Distributions If a distribution is made to an employee under the plan before he or she reaches age 59½, the employee may have to pay a 10% additional tax on the distribution. Amend 2011 tax return online This tax applies to the amount received that the employee must include in income. Amend 2011 tax return online Exceptions. Amend 2011 tax return online   The 10% tax will not apply if distributions before age 59½ are made in any of the following circumstances. Amend 2011 tax return online Made to a beneficiary (or to the estate of the employee) on or after the death of the employee. Amend 2011 tax return online Made due to the employee having a qualifying disability. Amend 2011 tax return online Made as part of a series of substantially equal periodic payments beginning after separation from service and made at least annually for the life or life expectancy of the employee or the joint lives or life expectancies of the employee and his or her designated beneficiary. Amend 2011 tax return online (The payments under this exception, except in the case of death or disability, must continue for at least 5 years or until the employee reaches age 59½, whichever is the longer period. Amend 2011 tax return online ) Made to an employee after separation from service if the separation occurred during o
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Amend 2011 tax return online 9. Amend 2011 tax return online   Rental Income and Expenses Table of Contents Introduction Useful Items - You may want to see: Rental Income Rental ExpensesVacant while listed for sale. Amend 2011 tax return online 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. Amend 2011 tax return online Dividing Expenses Dwelling Unit Used as a Home Reporting Income and Deductions DepreciationChanging your accounting method to deduct unclaimed depreciation. Amend 2011 tax return online 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. Amend 2011 tax return online It also covers the following topics. Amend 2011 tax return online Personal use of dwelling unit (including vacation home). Amend 2011 tax return online Depreciation. Amend 2011 tax return online Limits on rental losses. Amend 2011 tax return online How to report your rental income and expenses. Amend 2011 tax return online If you sell or otherwise dispose of your rental property, see Publication 544, Sales and Other Dispositions of Assets. Amend 2011 tax return online If you have a loss from damage to, or theft of, rental property, see Publication 547, Casualties, Disasters, and Thefts. Amend 2011 tax return online 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. Amend 2011 tax return online See Publication 527, Residential Rental Property, for more information. Amend 2011 tax return online 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. Amend 2011 tax return online Rental income is any payment you receive for the use or occupation of property. Amend 2011 tax return online In addition to amounts you receive as normal rent payments, there are other amounts that may be rental income. Amend 2011 tax return online When to report. Amend 2011 tax return online   If you are a cash-basis taxpayer, you report rental income on your return for the year you actually or constructively receive it. Amend 2011 tax return online You are a cash-basis taxpayer if you report income in the year you receive it, regardless of when it was earned. Amend 2011 tax return online You constructively receive income when it is made available to you, for example, by being credited to your bank account. Amend 2011 tax return online   For more information about when you constructively receive income, see Accounting Methods in chapter 1. Amend 2011 tax return online Advance rent. Amend 2011 tax return online   Advance rent is any amount you receive before the period that it covers. Amend 2011 tax return online 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. Amend 2011 tax return online Example. Amend 2011 tax return online You sign a 10-year lease to rent your property. Amend 2011 tax return online 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. Amend 2011 tax return online You must include $10,000 in your income in the first year. Amend 2011 tax return online Canceling a lease. Amend 2011 tax return online   If your tenant pays you to cancel a lease, the amount you receive is rent. Amend 2011 tax return online Include the payment in your income in the year you receive it regardless of your method of accounting. Amend 2011 tax return online Expenses paid by tenant. Amend 2011 tax return online   If your tenant pays any of your expenses, the payments are rental income. Amend 2011 tax return online Because you must include this amount in income, you can deduct the expenses if they are deductible rental expenses. Amend 2011 tax return online See Rental Expenses , later, for more information. Amend 2011 tax return online Property or services. Amend 2011 tax return online   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. Amend 2011 tax return online   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. Amend 2011 tax return online Security deposits. Amend 2011 tax return online   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. Amend 2011 tax return online 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. Amend 2011 tax return online   If an amount called a security deposit is to be used as a final payment of rent, it is advance rent. Amend 2011 tax return online Include it in your income when you receive it. Amend 2011 tax return online Part interest. Amend 2011 tax return online   If you own a part interest in rental property, you must report your part of the rental income from the property. Amend 2011 tax return online Rental of property also used as your home. Amend 2011 tax return online   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. Amend 2011 tax return online However, you can deduct on Schedule A (Form 1040) the interest, taxes, and casualty and theft losses that are allowed for nonrental property. Amend 2011 tax return online See Personal Use of Dwelling Unit (Including Vacation Home) , later. Amend 2011 tax return online Rental Expenses This part discusses expenses of renting property that you ordinarily can deduct from your rental income. Amend 2011 tax return online 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. Amend 2011 tax return online Depreciation , which you can also deduct from your rental income, is discussed later. Amend 2011 tax return online Personal use of rental property. Amend 2011 tax return online   If you sometimes use your rental property for personal purposes, you must divide your expenses between rental and personal use. Amend 2011 tax return online Also, your rental expense deductions may be limited. Amend 2011 tax return online See Personal Use of Dwelling Unit (Including Vacation Home) , later. Amend 2011 tax return online Part interest. Amend 2011 tax return online   If you own a part interest in rental property, you can deduct expenses that you paid according to your percentage of ownership. Amend 2011 tax return online When to deduct. Amend 2011 tax return online   If you are a cash-basis taxpayer, you generally deduct your rental expenses in the year you pay them. Amend 2011 tax return online Depreciation. Amend 2011 tax return online   You can begin to depreciate rental property when it is ready and available for rent. Amend 2011 tax return online See Placed-in-Service under When Does Depreciation Begin and End in chapter 2 of Publication 527. Amend 2011 tax return online Pre-rental expenses. Amend 2011 tax return online   You can deduct your ordinary and necessary expenses for managing, conserving, or maintaining rental property from the time you make it available for rent. Amend 2011 tax return online Uncollected rent. Amend 2011 tax return online   If you are a cash-basis taxpayer, do not deduct uncollected rent. Amend 2011 tax return online Because you have not included it in your income, it is not deductible. Amend 2011 tax return online Vacant rental property. Amend 2011 tax return online   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. Amend 2011 tax return online However, you cannot deduct any loss of rental income for the period the property is vacant. Amend 2011 tax return online Vacant while listed for sale. Amend 2011 tax return online   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. Amend 2011 tax return online If the property is not held out and available for rent while listed for sale, the expenses are not deductible rental expenses. Amend 2011 tax return online 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. Amend 2011 tax return online Improvements. Amend 2011 tax return online   You must capitalize any expense you pay to improve your rental property. Amend 2011 tax return online 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. Amend 2011 tax return online Betterments. Amend 2011 tax return online   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. Amend 2011 tax return online Restoration. Amend 2011 tax return online   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. Amend 2011 tax return online Adaptation. Amend 2011 tax return online   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. Amend 2011 tax return online Separate the costs of repairs and improvements, and keep accurate records. Amend 2011 tax return online You will need to know the cost of improvements when you sell or depreciate your property. Amend 2011 tax return online The expenses you capitalize for improving your property can generally be depreciated as if the improvement were separate property. Amend 2011 tax return online 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. Amend 2011 tax return online Insurance premiums paid in advance. Amend 2011 tax return online   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. Amend 2011 tax return online You cannot deduct the total premium in the year you pay it. Amend 2011 tax return online Legal and other professional fees. Amend 2011 tax return online   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. Amend 2011 tax return online For example, on your 2013 Schedule E, you can deduct fees paid in 2013 to prepare your 2012 Schedule E, Part I. Amend 2011 tax return online 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. Amend 2011 tax return online Local benefit taxes. Amend 2011 tax return online   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. Amend 2011 tax return online These charges are nondepreciable capital expenditures, and must be added to the basis of your property. Amend 2011 tax return online However, you can deduct local benefit taxes that are for maintaining, repairing, or paying interest charges for the benefits. Amend 2011 tax return online Local transportation expenses. Amend 2011 tax return online    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. Amend 2011 tax return online 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. Amend 2011 tax return online See Publication 587, Business Use of Your Home, for information on determining if your home office qualifies as a principal place of business. Amend 2011 tax return online   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. Amend 2011 tax return online For 2013, the standard mileage rate for business use is 56. Amend 2011 tax return online 5 cents per mile. Amend 2011 tax return online For more information, see chapter 26. Amend 2011 tax return online    To deduct car expenses under either method, you must keep records that follow the rules in chapter 26. Amend 2011 tax return online In addition, you must complete Form 4562, Part V, and attach it to your tax return. Amend 2011 tax return online Rental of equipment. Amend 2011 tax return online   You can deduct the rent you pay for equipment that you use for rental purposes. Amend 2011 tax return online However, in some cases, lease contracts are actually purchase contracts. Amend 2011 tax return online If so, you cannot deduct these payments. Amend 2011 tax return online You can recover the cost of purchased equipment through depreciation. Amend 2011 tax return online Rental of property. Amend 2011 tax return online   You can deduct the rent you pay for property that you use for rental purposes. Amend 2011 tax return online 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. Amend 2011 tax return online Travel expenses. Amend 2011 tax return online   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. Amend 2011 tax return online You must properly allocate your expenses between rental and nonrental activities. Amend 2011 tax return online You cannot deduct the cost of traveling away from home if the primary purpose of the trip was to improve your property. Amend 2011 tax return online You recover the cost of improvements by taking depreciation. Amend 2011 tax return online For information on travel expenses, see chapter 26. Amend 2011 tax return online    To deduct travel expenses, you must keep records that follow the rules in chapter 26. Amend 2011 tax return online   See Rental Expenses in Publication 527 for more information. Amend 2011 tax return online 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. Amend 2011 tax return online 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. Amend 2011 tax return online You cannot deduct depreciation or insurance for the part of the year the property was held for personal use. Amend 2011 tax return online 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). Amend 2011 tax return online Example. Amend 2011 tax return online Your tax year is the calendar year. Amend 2011 tax return online You moved from your home in May and started renting it out on June 1. Amend 2011 tax return online You can deduct as rental expenses seven-twelfths of your yearly expenses, such as taxes and insurance. Amend 2011 tax return online Starting with June, you can deduct as rental expenses the amounts you pay for items generally billed monthly, such as utilities. Amend 2011 tax return online 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. Amend 2011 tax return online 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). Amend 2011 tax return online 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. Amend 2011 tax return online There is no change in the types of expenses deductible for the personal-use part of your property. Amend 2011 tax return online Generally, these expenses may be deducted only if you itemize your deductions on Schedule A (Form 1040). Amend 2011 tax return online You cannot deduct any part of the cost of the first phone line even if your tenants have unlimited use of it. Amend 2011 tax return online You do not have to divide the expenses that belong only to the rental part of your property. Amend 2011 tax return online 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. Amend 2011 tax return online 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. Amend 2011 tax return online 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. Amend 2011 tax return online How to divide expenses. Amend 2011 tax return online   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. Amend 2011 tax return online You can use any reasonable method for dividing the expense. Amend 2011 tax return online It may be reasonable to divide the cost of some items (for example, water) based on the number of people using them. Amend 2011 tax return online 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. Amend 2011 tax return online 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. Amend 2011 tax return online 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. Amend 2011 tax return online 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. Amend 2011 tax return online Where to report. Amend 2011 tax return online   Report your not-for-profit rental income on Form 1040, line 21. Amend 2011 tax return online 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. Amend 2011 tax return online   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. Amend 2011 tax return online You can deduct these expenses only if they, together with certain other miscellaneous itemized deductions, total more than 2% of your adjusted gross income. Amend 2011 tax return online 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. Amend 2011 tax return online 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. Amend 2011 tax return online Only your rental expenses may be deducted on Schedule E (Form 1040). Amend 2011 tax return online Some of your personal expenses may be deductible if you itemize your deductions on Schedule A (Form 1040). Amend 2011 tax return online You must also determine if the dwelling unit is considered a home. Amend 2011 tax return online The amount of rental expenses that you can deduct may be limited if the dwelling unit is considered a home. Amend 2011 tax return online Whether a dwelling unit is considered a home depends on how many days during the year are considered to be days of personal use. Amend 2011 tax return online 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. Amend 2011 tax return online Dwelling unit. Amend 2011 tax return online   A dwelling unit includes a house, apartment, condominium, mobile home, boat, vacation home, or similar property. Amend 2011 tax return online It also includes all structures or other property belonging to the dwelling unit. Amend 2011 tax return online A dwelling unit has basic living accommodations, such as sleeping space, a toilet, and cooking facilities. Amend 2011 tax return online   A dwelling unit does not include property used solely as a hotel, motel, inn, or similar establishment. Amend 2011 tax return online 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. Amend 2011 tax return online Example. Amend 2011 tax return online   You rent a room in your home that is always available for short-term occupancy by paying customers. Amend 2011 tax return online You do not use the room yourself, and you allow only paying customers to use the room. Amend 2011 tax return online The room is used solely as a hotel, motel, inn, or similar establishment and is not a dwelling unit. Amend 2011 tax return online 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. Amend 2011 tax return online When dividing your expenses, follow these rules. Amend 2011 tax return online 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. Amend 2011 tax return online This rule does not apply when determining whether you used the unit as a home. Amend 2011 tax return online Any day that the unit is available for rent but not actually rented is not a day of rental use. Amend 2011 tax return online Example. Amend 2011 tax return online Your beach cottage was available for rent from June 1 through August 31 (92 days). Amend 2011 tax return online 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. Amend 2011 tax return online 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. Amend 2011 tax return online Your family also used the cottage during the last 2 weeks of May (14 days). Amend 2011 tax return online The cottage was not used at all before May 17 or after August 31. Amend 2011 tax return online You figure the part of the cottage expenses to treat as rental expenses as follows. Amend 2011 tax return online The cottage was used for rental a total of 85 days (92 − 7). Amend 2011 tax return online The days it was available for rent but not rented (7 days) are not days of rental use. Amend 2011 tax return online The July weekend (2 days) you used it is rental use because you received a fair rental price for the weekend. Amend 2011 tax return online You used the cottage for personal purposes for 14 days (the last 2 weeks in May). Amend 2011 tax return online The total use of the cottage was 99 days (14 days personal use + 85 days rental use). Amend 2011 tax return online Your rental expenses are 85/99 (86%) of the cottage expenses. Amend 2011 tax return online Note. Amend 2011 tax return online 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. Amend 2011 tax return online Therefore, you had 16 days of personal use and 83 days of rental use for this purpose. Amend 2011 tax return online 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. Amend 2011 tax return online If you have a net loss, you may not be able to deduct all of the rental expenses. Amend 2011 tax return online See Dwelling Unit Used as a Home, next. Amend 2011 tax return online 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. Amend 2011 tax return online 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. Amend 2011 tax return online See What is a day of personal use , later. Amend 2011 tax return online Fair rental price. Amend 2011 tax return online   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. Amend 2011 tax return online 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. Amend 2011 tax return online   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. Amend 2011 tax return online Instead, count it as a day of personal use in applying both (1) and (2) above. Amend 2011 tax return online 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. Amend 2011 tax return online 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). Amend 2011 tax return online However, see Days used as a main home before or after renting , later. Amend 2011 tax return online 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. Amend 2011 tax return online Family includes only your spouse, brothers and sisters, half-brothers and half-sisters, ancestors (parents, grandparents, etc. Amend 2011 tax return online ), and lineal descendants (children, grandchildren, etc. Amend 2011 tax return online ). Amend 2011 tax return online Anyone under an arrangement that lets you use some other dwelling unit. Amend 2011 tax return online Anyone at less than a fair rental price. Amend 2011 tax return online Main home. Amend 2011 tax return online   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. Amend 2011 tax return online Shared equity financing agreement. Amend 2011 tax return online   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. Amend 2011 tax return online Donation of use of property. Amend 2011 tax return online   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. Amend 2011 tax return online Examples. Amend 2011 tax return online   The following examples show how to determine days of personal use. Amend 2011 tax return online Example 1. Amend 2011 tax return online You and your neighbor are co-owners of a condominium at the beach. Amend 2011 tax return online Last year, you rented the unit to vacationers whenever possible. Amend 2011 tax return online The unit was not used as a main home by anyone. Amend 2011 tax return online Your neighbor used the unit for 2 weeks last year; you did not use it at all. Amend 2011 tax return online 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. Amend 2011 tax return online Example 2. Amend 2011 tax return online You and your neighbors are co-owners of a house under a shared equity financing agreement. Amend 2011 tax return online Your neighbors live in the house and pay you a fair rental price. Amend 2011 tax return online 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. Amend 2011 tax return online This is because your neighbors rent the house as their main home under a shared equity financing agreement. Amend 2011 tax return online Example 3. Amend 2011 tax return online You own a rental property that you rent to your son. Amend 2011 tax return online Your son does not own any interest in this property. Amend 2011 tax return online He uses it as his main home and pays you a fair rental price. Amend 2011 tax return online 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. Amend 2011 tax return online Example 4. Amend 2011 tax return online You rent your beach house to Joshua. Amend 2011 tax return online Joshua rents his cabin in the mountains to you. Amend 2011 tax return online You each pay a fair rental price. Amend 2011 tax return online 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. Amend 2011 tax return online Days used for repairs and maintenance. Amend 2011 tax return online   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. Amend 2011 tax return online 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. Amend 2011 tax return online Days used as a main home before or after renting. Amend 2011 tax return online   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. Amend 2011 tax return online Do not count them as days of personal use if: You rented or tried to rent the property for 12 or more consecutive months. Amend 2011 tax return online 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. Amend 2011 tax return online However, this special rule does not apply when dividing expenses between rental and personal use. Amend 2011 tax return online Examples. Amend 2011 tax return online   The following examples show how to determine whether you used your rental property as a home. Amend 2011 tax return online Example 1. Amend 2011 tax return online You converted the basement of your home into an apartment with a bedroom, a bathroom, and a small kitchen. Amend 2011 tax return online You rented the basement apartment at a fair rental price to college students during the regular school year. Amend 2011 tax return online You rented to them on a 9-month lease (273 days). Amend 2011 tax return online You figured 10% of the total days rented to others at a fair rental price is 27 days. Amend 2011 tax return online During June (30 days), your brothers stayed with you and lived in the basement apartment rent free. Amend 2011 tax return online Your basement apartment was used as a home because you used it for personal purposes for 30 days. Amend 2011 tax return online Rent-free use by your brothers is considered personal use. Amend 2011 tax return online Your personal use (30 days) is more than the greater of 14 days or 10% of the total days it was rented (27 days). Amend 2011 tax return online Example 2. Amend 2011 tax return online 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). Amend 2011 tax return online Your sister-in-law stayed in the room, rent free, for the last 3 weeks (21 days) in July. Amend 2011 tax return online You figured 10% of the total days rented to others at a fair rental price is 3 days. Amend 2011 tax return online The room was used as a home because you used it for personal purposes for 21 days. Amend 2011 tax return online That is more than the greater of 14 days or 10% of the 27 days it was rented (3 days). Amend 2011 tax return online Example 3. Amend 2011 tax return online You own a condominium apartment in a resort area. Amend 2011 tax return online You rented it at a fair rental price for a total of 170 days during the year. Amend 2011 tax return online 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. Amend 2011 tax return online Your family actually used the apartment for 10 of those days. Amend 2011 tax return online Therefore, the apartment is treated as having been rented for 160 (170 − 10) days. Amend 2011 tax return online You figured 10% of the total days rented to others at a fair rental price is 16 days. Amend 2011 tax return online Your family also used the apartment for 7 other days during the year. Amend 2011 tax return online You used the apartment as a home because you used it for personal purposes for 17 days. Amend 2011 tax return online That is more than the greater of 14 days or 10% of the 160 days it was rented (16 days). Amend 2011 tax return online Minimal rental use. Amend 2011 tax return online   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. Amend 2011 tax return online See Used as a home but rented less than 15 days , later, for more information. Amend 2011 tax return online Limit on deductions. Amend 2011 tax return online   Renting a dwelling unit that is considered a home is not a passive activity. Amend 2011 tax return online 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. Amend 2011 tax return online 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. Amend 2011 tax return online Any expenses carried forward to the next year will be subject to any limits that apply for that year. Amend 2011 tax return online 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. Amend 2011 tax return online   To figure your deductible rental expenses for this year and any carryover to next year, use Worksheet 9-1. Amend 2011 tax return online Reporting Income and Deductions Property not used for personal purposes. Amend 2011 tax return online   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. Amend 2011 tax return online Property used for personal purposes. Amend 2011 tax return online   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. Amend 2011 tax return online Not used as a home. Amend 2011 tax return online   If you use a dwelling unit for personal purposes, but not as a home, report all the rental income in your income. Amend 2011 tax return online 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 . Amend 2011 tax return online The expenses for personal use are not deductible as rental expenses. Amend 2011 tax return online   Your deductible rental expenses can be more than your gross rental income; however, see Limits on Rental Losses , later. Amend 2011 tax return online Used as a home but rented less than 15 days. Amend 2011 tax return online   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). Amend 2011 tax return online You are not required to report the rental income and rental expenses from this activity. Amend 2011 tax return online The expenses, including qualified mortgage interest, property taxes, and any qualified casualty loss will be reported as normally allowed on Schedule A (Form 1040). Amend 2011 tax return online See the Instructions for Schedule A (Form 1040) for more information on deducting these expenses. Amend 2011 tax return online Used as a home and rented 15 days or more. Amend 2011 tax return online   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. Amend 2011 tax return online 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 . Amend 2011 tax return online The expenses for personal use are not deductible as rental expenses. Amend 2011 tax return online   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. Amend 2011 tax return online You do not need to use Worksheet 9-1. Amend 2011 tax return online   However, if you had a net loss from renting the dwelling unit for the year, your deduction for certain rental expenses is limited. Amend 2011 tax return online To figure your deductible rental expenses and any carryover to next year, use Worksheet 9-1. Amend 2011 tax return online Depreciation You recover the cost of income-producing property through yearly tax deductions. Amend 2011 tax return online You do this by depreciating the property; that is, by deducting some of the cost each year on your tax return. Amend 2011 tax return online 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. Amend 2011 tax return online You cannot simply deduct your mortgage or principal payments, or the cost of furniture, fixtures, and equipment, as an expense. Amend 2011 tax return online You can deduct depreciation only on the part of your property used for rental purposes. Amend 2011 tax return online Depreciation reduces your basis for figuring gain or loss on a later sale or exchange. Amend 2011 tax return online You may have to use Form 4562 to figure and report your depreciation. Amend 2011 tax return online See How To Report Rental Income and Expenses , later. Amend 2011 tax return online Alternative minimum tax (AMT). Amend 2011 tax return online    If you use accelerated depreciation, you may be subject to the AMT. Amend 2011 tax return online 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). Amend 2011 tax return online Claiming the correct amount of depreciation. Amend 2011 tax return online   You should claim the correct amount of depreciation each tax year. Amend 2011 tax return online 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. Amend 2011 tax return online   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. Amend 2011 tax return online S Individual Income Tax Return. Amend 2011 tax return online 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. Amend 2011 tax return online See Claiming the correct amount of depreciation in chapter 2 of Publication 527 for more information. Amend 2011 tax return online Changing your accounting method to deduct unclaimed depreciation. Amend 2011 tax return online   To change your accounting method, you generally must file Form 3115, Application for Change in Accounting Method, to get the consent of the IRS. Amend 2011 tax return online In some instances, that consent is automatic. Amend 2011 tax return online For more information, see chapter 1 of Publication 946. Amend 2011 tax return online Land. Amend 2011 tax return online   You cannot depreciate the cost of land because land generally does not wear out, become obsolete, or get used up. Amend 2011 tax return online The costs of clearing, grading, planting, and landscaping are usually all part of the cost of land and cannot be depreciated. Amend 2011 tax return online More information. Amend 2011 tax return online   See Publication 527 for more information about depreciating rental property and see Publication 946 for more information about depreciation. Amend 2011 tax return online 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. Amend 2011 tax return online You must consider these rules in the order shown below. Amend 2011 tax return online At-risk rules. Amend 2011 tax return online These rules are applied first if there is investment in your rental real estate activity for which you are not at risk. Amend 2011 tax return online This applies only if the real property was placed in service after 1986. Amend 2011 tax return online Passive activity limits. Amend 2011 tax return online 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. Amend 2011 tax return online However, there are exceptions. Amend 2011 tax return online 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. Amend 2011 tax return online Losses from holding real property (other than mineral property) placed in service before 1987 are not subject to the at-risk rules. Amend 2011 tax return online 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. Amend 2011 tax return online 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. Amend 2011 tax return online See Publication 925 for more information. Amend 2011 tax return online Passive Activity Limits In most cases, all rental real estate activities (except those of certain real estate professionals, discussed later) are passive activities. Amend 2011 tax return online 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. Amend 2011 tax return online Limits on passive activity deductions and credits. Amend 2011 tax return online    Deductions or losses from passive activities are limited. Amend 2011 tax return online You generally cannot offset income, other than passive income, with losses from passive activities. Amend 2011 tax return online Nor can you offset taxes on income, other than passive income, with credits resulting from passive activities. Amend 2011 tax return online Any excess loss or credit is carried forward to the next tax year. Amend 2011 tax return online   For a detailed discussion of these rules, see Publication 925. Amend 2011 tax return online    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. Amend 2011 tax return online Real estate professionals. Amend 2011 tax return online   Rental activities in which you materially participated during the year are not passive activities if, for that year, you were a real estate professional. Amend 2011 tax return online For a detailed discussion of the requirements, see Publication 527. Amend 2011 tax return online For a detailed discussion of material participation, see Publication 925. Amend 2011 tax return online 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. Amend 2011 tax return online Instead, follow the rules explained in Personal Use of Dwelling Unit (Including Vacation Home), earlier. Amend 2011 tax return online 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. Amend 2011 tax return online This special allowance is an exception to the general rule disallowing losses in excess of income from passive activities. Amend 2011 tax return online 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. Amend 2011 tax return online Active participation. Amend 2011 tax return online   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. Amend 2011 tax return online Management decisions that may count as active participation include approving new tenants, deciding on rental terms, approving expenditures, and similar decisions. Amend 2011 tax return online Maximum special allowance. Amend 2011 tax return online   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. Amend 2011 tax return online   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. Amend 2011 tax return online 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. Amend 2011 tax return online   Generally, if your MAGI is $150,000 or more ($75,000 or more if you are married filing separately), there is no special allowance. Amend 2011 tax return online More information. Amend 2011 tax return online   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. Amend 2011 tax return online How To Report Rental Income and Expenses The basic form for reporting residential rental income and expenses is Schedule E (Form 1040). Amend 2011 tax return online However, do not use that schedule to report a not-for-profit activity. Amend 2011 tax return online See Not Rented for Profit, earlier. Amend 2011 tax return online Providing substantial services. Amend 2011 tax return online   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). Amend 2011 tax return online Substantial services do not include the furnishing of heat and light, cleaning of public areas, trash collection, etc. Amend 2011 tax return online For information, see Publication 334, Tax Guide for Small Business. Amend 2011 tax return online You also may have to pay self-employment tax on your rental income using Schedule SE (Form 1040), Self-Employment Tax. Amend 2011 tax return online   Use Form 1065, U. Amend 2011 tax return online S. Amend 2011 tax return online Return of Partnership Income, if your rental activity is a partnership (including a partnership with your spouse unless it is a qualified joint venture). Amend 2011 tax return online Qualified joint venture. Amend 2011 tax return online   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. Amend 2011 tax return online 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. Amend 2011 tax return online For more information, see Publication 527. Amend 2011 tax return online Form 1098, Mortgage Interest Statement. Amend 2011 tax return online    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. Amend 2011 tax return online 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. Amend 2011 tax return online Attach a statement to your return showing the name and address of the other person. Amend 2011 tax return online In the left margin of Schedule E, next to line 13, enter “See attached. Amend 2011 tax return online ” Schedule E (Form 1040) If you rent buildings, rooms, or apartments, and provide basic services such as heat and light, trash collection, etc. Amend 2011 tax return online , you normally report your rental income and expenses on Schedule E, Part I. Amend 2011 tax return online List your total income, expenses, and depreciation for each rental property. Amend 2011 tax return online Be sure to enter the number of fair rental and personal use days on line 2. Amend 2011 tax return online If you have more than three rental or royalty properties, complete and attach as many Schedules E as are needed to list the properties. Amend 2011 tax return online Complete lines 1 and 2 for each property. Amend 2011 tax return online However, fill in lines 23a through 26 on only one Schedule E. Amend 2011 tax return online On Schedule E, page 1, line 18, enter the depreciation you are claiming for each property. Amend 2011 tax return online To find out if you need to attach Form 4562, see Form 4562, in chapter 3 of Publication 527. Amend 2011 tax return online If you have a loss from your rental real estate activity, you also may need to complete one or both of the following forms. Amend 2011 tax return online Form 6198, At-Risk Limitations. Amend 2011 tax return online See At-Risk Rules , earlier. Amend 2011 tax return online Also see Publication 925. Amend 2011 tax return online Form 8582, Passive Activity Loss Limitations. Amend 2011 tax return online See Passive Activity Limits , earlier. Amend 2011 tax return online Page 2 of Schedule E is used to report income or loss from partnerships, S corporations, estates, trusts, and real estate mortgage investment conduits. Amend 2011 tax return online 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. Amend 2011 tax return online Also, include the amount from line 26 (Part I) in the “Total income or (loss)” on line 41 (Part V). Amend 2011 tax return online Worksheet 9-1. Amend 2011 tax return online 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. Amend 2011 tax return online Did you use the dwelling unit as a home this year? (See Dwelling Unit Used as a Home . Amend 2011 tax return online ) 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. Amend 2011 tax return online Rental Use Percentage A. Amend 2011 tax return online Total days available for rent at fair rental price A. Amend 2011 tax return online       B. Amend 2011 tax return online Total days available for rent (line A) but not rented B. Amend 2011 tax return online       C. Amend 2011 tax return online Total days of rental use. Amend 2011 tax return online Subtract line B from line A C. Amend 2011 tax return online       D. Amend 2011 tax return online Total days of personal use (including days rented at less than fair rental price) D. Amend 2011 tax return online       E. Amend 2011 tax return online Total days of rental and personal use. Amend 2011 tax return online Add lines C and D E. Amend 2011 tax return online       F. Amend 2011 tax return online Percentage of expenses allowed for rental. Amend 2011 tax return online Divide line C by line E     F. Amend 2011 tax return online   PART II. Amend 2011 tax return online Allowable Rental Expenses 1. Amend 2011 tax return online Enter rents received 1. Amend 2011 tax return online   2a. Amend 2011 tax return online Enter the rental portion of deductible home mortgage interest and qualified mortgage insurance premiums (see instructions) 2a. Amend 2011 tax return online       b. Amend 2011 tax return online Enter the rental portion of real estate taxes b. Amend 2011 tax return online       c. Amend 2011 tax return online Enter the rental portion of deductible casualty and theft losses (see instructions) c. Amend 2011 tax return online       d. Amend 2011 tax return online Enter direct rental expenses (see instructions) d. Amend 2011 tax return online       e. Amend 2011 tax return online Fully deductible rental expenses. Amend 2011 tax return online Add lines 2a–2d. Amend 2011 tax return online Enter here and  on the appropriate lines on Schedule E (see instructions) 2e. Amend 2011 tax return online   3. Amend 2011 tax return online Subtract line 2e from line 1. Amend 2011 tax return online If zero or less, enter -0- 3. Amend 2011 tax return online   4a. Amend 2011 tax return online Enter the rental portion of expenses directly related to operating or maintaining  the dwelling unit (such as repairs, insurance, and utilities) 4a. Amend 2011 tax return online       b. Amend 2011 tax return online Enter the rental portion of excess mortgage interest and qualified mortgage insurance premiums (see instructions) b. Amend 2011 tax return online       c. Amend 2011 tax return online Carryover of operating expenses from 2012 worksheet c. Amend 2011 tax return online       d. Amend 2011 tax return online Add lines 4a–4c d. Amend 2011 tax return online       e. Amend 2011 tax return online Allowable expenses. Amend 2011 tax return online Enter the smaller of line 3 or line 4d (see instructions) 4e. Amend 2011 tax return online   5. Amend 2011 tax return online Subtract line 4e from line 3. Amend 2011 tax return online If zero or less, enter -0- 5. Amend 2011 tax return online   6a. Amend 2011 tax return online Enter the rental portion of excess casualty and theft losses (see instructions) 6a. Amend 2011 tax return online       b. Amend 2011 tax return online Enter the rental portion of depreciation of the dwelling unit b. Amend 2011 tax return online       c. Amend 2011 tax return online Carryover of excess casualty losses and depreciation from 2012 worksheet c. Amend 2011 tax return online       d. Amend 2011 tax return online Add lines 6a–6c d. Amend 2011 tax return online       e. Amend 2011 tax return online Allowable excess casualty and theft losses and depreciation. Amend 2011 tax return online Enter the smaller of  line 5 or line 6d (see instructions) 6e. Amend 2011 tax return online   PART III. Amend 2011 tax return online Carryover of Unallowed Expenses to Next Year 7a. Amend 2011 tax return online Operating expenses to be carried over to next year. Amend 2011 tax return online Subtract line 4e from line 4d 7a. Amend 2011 tax return online   b. Amend 2011 tax return online Excess casualty and theft losses and depreciation to be carried over to next year. Amend 2011 tax return online  Subtract line 6e from line 6d b. Amend 2011 tax return online   Worksheet 9-1 Instructions. Amend 2011 tax return online Worksheet for Figuring Rental Deductions for a Dwelling Unit Used as a Home Caution. Amend 2011 tax return online 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. Amend 2011 tax return online Line 2a. Amend 2011 tax return online Figure the mortgage interest on the dwelling unit that you could deduct on Schedule A as if you had not rented the unit. Amend 2011 tax return online Do not include interest on a loan that did not benefit the dwelling unit. Amend 2011 tax return online 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. Amend 2011 tax return online Include interest on a loan used to buy, build, or improve the dwelling unit, or to refinance such a loan. Amend 2011 tax return online Include the rental portion of this interest in the total you enter on line 2a of the worksheet. Amend 2011 tax return online   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. Amend 2011 tax return online See the Schedule A instructions. Amend 2011 tax return online However, figure your adjusted gross income (Form 1040, line 38) without your rental income and expenses from the dwelling unit. Amend 2011 tax return online See Line 4b to deduct the part of the qualified mortgage insurance premiums not allowed because of the adjusted gross income limit. Amend 2011 tax return online Include the rental portion of the amount from Schedule A, line 13, in the total you enter on line 2a of the worksheet. Amend 2011 tax return online   Note. Amend 2011 tax return online Do not file this Schedule A or use it to figure the amount to deduct on line 13 of that schedule. Amend 2011 tax return online Instead, figure the personal portion on a separate Schedule A. Amend 2011 tax return online 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. Amend 2011 tax return online           Line 2c. Amend 2011 tax return online 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. Amend 2011 tax return online To do this, complete Section A of Form 4684, Casualties and Thefts, treating the losses as personal losses. Amend 2011 tax return online If any of the loss is due to a federally declared disaster, see the Instructions for Form 4684. Amend 2011 tax return online On Form 4684, line 17, enter 10% of your adjusted gross income figured without your rental income and expenses from the dwelling unit. Amend 2011 tax return online Enter the rental portion of the result from Form 4684, line 18, on line 2c of this worksheet. Amend 2011 tax return online   Note. Amend 2011 tax return online Do not file this Form 4684 or use it to figure your personal losses on Schedule A. Amend 2011 tax return online Instead, figure the personal portion on a separate Form 4684. Amend 2011 tax return online           Line 2d. Amend 2011 tax return online Enter the total of your rental expenses that are directly related only to the rental activity. Amend 2011 tax return online These include interest on loans used for rental activities other than to buy, build, or improve the dwelling unit. Amend 2011 tax return online Also include rental agency fees, advertising, office supplies, and depreciation on office equipment used in your rental activity. Amend 2011 tax return online           Line 2e. Amend 2011 tax return online 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. Amend 2011 tax return online Enter the amounts on lines 2a, 2b, 2c, and 2d on the appropriate lines of Schedule E. Amend 2011 tax return online           Line 4b. Amend 2011 tax return online 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. Amend 2011 tax return online 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. Amend 2011 tax return online Do not include interest on a loan that did not benefit the dwelling unit (as explained in the line 2a instructions). Amend 2011 tax return online           Line 4e. Amend 2011 tax return online 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. Amend 2011 tax return online *           Line 6a. Amend 2011 tax return online To find the rental portion of excess casualty and theft losses, use the Form 4684 you prepared for line 2c of this worksheet. Amend 2011 tax return online   A. Amend 2011 tax return online Enter the amount from Form 4684, line 10       B. Amend 2011 tax return online Enter the rental portion of line A       C. Amend 2011 tax return online Enter the amount from line 2c of this worksheet       D. Amend 2011 tax return online Subtract line C from line B. Amend 2011 tax return online Enter the result here and on line 6a of this worksheet               Line 6e. Amend 2011 tax return online 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. Amend 2011 tax return online * *Allocating the limited deduction. Amend 2011 tax return online 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. Amend 2011 tax return online Enter the amount you allocate to each expense on the appropriate line of Schedule E, Part I. Amend 2011 tax return online Prev  Up  Next   Home   More Online Publications