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

TurboTax Federal Free Edition - File Taxes Online

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

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


© 2012 - 2018 All rights reserved.

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

Free Income Tax

Www Aarp Org TaxaideHow To Fill Out A 1040x AmendmentCan I Efile My 2012 Taxes2014 1040ezIrs E File ExtensionFile Tax 1040ez Free OnlineFederal Tax Return FormsH And R Block Active DutyI Need To Amend My TaxesHow To File Free State TaxesHow Do I File My 2011 Taxes1040 Nr2006 Tax ReturnH & R Block Free Tax Calculator1040ez 2014Irs 1040ezForm 1040ez More:label_form_201040ez More:taxesTax Planning Us 1040Http Freeb Free1040taxreturn Com2010 Form 1040ez InstructionsAmend My TaxesIrs Form 1040 Ez Instructions1040ez Tax BookletIrs Extension Form 2012How Do I File My 2011 Taxes NowWhere To Get 2012 Tax FormsWww Hr Block ComAmend A Federal Tax ReturnH&r Block At Home FreeFile 2007 Fed Income TaxCan You E File 2012 Taxes NowFiling 2012 TaxesHow To File 2011 TaxesMilitary Tax Calculator1040x Form 20122010 1040xTax Form 1040 EzFree Tax Filing For UnemployedCan College Students File For TaxesHow Do I Amend My 2012 Taxes

Free Income Tax

Free income tax Publication 556 - Additional Material Prev  Up  Next   Home   More Online Publications
Español

Independent Agencies and Government Corporations

Independent establishments are created by Congress to address concerns that go beyond the scope of ordinary legislation. These agencies are responsible for keeping the government and economy running smoothly.



A

B

C

D

E

F

G

I

M

N

O

P

R

S

T

U

The Free Income Tax

Free income tax 1. Free income tax   Rental Income and Expenses (If No Personal Use of Dwelling) Table of Contents Rental IncomeWhen To Report Types of Income Rental ExpensesWhen To Deduct Types of Expenses This chapter discusses the various types of rental income and expenses for a residential rental activity with no personal use of the dwelling. Free income tax Generally, each year you will report all income and deduct all out-of-pocket expenses in full. Free income tax The deduction to recover the cost of your rental property—depreciation—is taken over a prescribed number of years, and is discussed in chapter 2, Depreciation of Rental Property. Free income tax If your rental income is from property you also use personally or rent to someone at less than a fair rental price, first read the information in chapter 5 , Personal Use of Dwelling Unit (Including Vacation Home). Free income tax Rental Income In most cases, you must include in your gross income all amounts you receive as rent. Free income tax Rental income is any payment you receive for the use or occupation of property. Free income tax In addition to amounts you receive as normal rental payments, there are other amounts that may be rental income. Free income tax When To Report When you report rental income on your tax return generally depends on whether you are a cash basis taxpayer or use an accrual method. Free income tax Most individual taxpayers use the cash method. Free income tax Cash method. Free income tax   You are a cash basis taxpayer if you report income on your return in the year you actually or constructively receive it, regardless of when it was earned. Free income tax You constructively receive income when it is made available to you, for example, by being credited to your bank account. Free income tax Accrual method. Free income tax    If you are an accrual basis taxpayer, you generally report income when you earn it, rather than when you receive it. Free income tax You generally deduct your expenses when you incur them, rather than when you pay them. Free income tax More information. Free income tax   See Publication 538, Accounting Periods and Methods, for more information about when you constructively receive income and accrual methods of accounting. Free income tax Types of Income The following are common types of rental income. Free income tax Advance rent. Free income tax   Advance rent is any amount you receive before the period that it covers. Free income tax 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. Free income tax Example. Free income tax On March 18, 2013, you signed a 10-year lease to rent your property. Free income tax During 2013, you received $9,600 for the first year's rent and $9,600 as rent for the last year of the lease. Free income tax You must include $19,200 in your rental income in the first year. Free income tax Canceling a lease. Free income tax   If your tenant pays you to cancel a lease, the amount you receive is rent. Free income tax Include the payment in your income in the year you receive it regardless of your method of accounting. Free income tax Expenses paid by tenant. Free income tax   If your tenant pays any of your expenses, those payments are rental income. Free income tax Because you must include this amount in income, you can also deduct the expenses if they are deductible rental expenses. Free income tax For more information, see Rental Expenses , later. Free income tax Example 1. Free income tax Your tenant pays the water and sewage bill for your rental property and deducts the amount from the normal rent payment. Free income tax Under the terms of the lease, your tenant does not have to pay this bill. Free income tax Include the utility bill paid by the tenant and any amount received as a rent payment in your rental income. Free income tax You can deduct the utility payment made by your tenant as a rental expense. Free income tax Example 2. Free income tax While you are out of town, the furnace in your rental property stops working. Free income tax Your tenant pays for the necessary repairs and deducts the repair bill from the rent payment. Free income tax Include the repair bill paid by the tenant and any amount received as a rent payment in your rental income. Free income tax You can deduct the repair payment made by your tenant as a rental expense. Free income tax Property or services. Free income tax   If you receive property or services as rent, instead of money, include the fair market value of the property or services in your rental income. Free income tax   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. Free income tax Example. Free income tax Your tenant is a house painter. Free income tax He offers to paint your rental property instead of paying 2 months rent. Free income tax You accept his offer. Free income tax Include in your rental income the amount the tenant would have paid for 2 months rent. Free income tax You can deduct that same amount as a rental expense for painting your property. Free income tax Security deposits. Free income tax   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. Free income tax 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. Free income tax    If an amount called a security deposit is to be used as a final payment of rent, it is advance rent. Free income tax Include it in your income when you receive it. Free income tax Other Sources of Rental Income Lease with option to buy. Free income tax   If the rental agreement gives your tenant the right to buy your rental property, the payments you receive under the agreement are generally rental income. Free income tax If your tenant exercises the right to buy the property, the payments you receive for the period after the date of sale are considered part of the selling price. Free income tax Part interest. Free income tax   If you own a part interest in rental property, you must report your part of the rental income from the property. Free income tax Rental of property also used as your home. Free income tax   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. Free income tax However, you can deduct on Schedule A (Form 1040), Itemized Deductions, the interest, taxes, and casualty and theft losses that are allowed for nonrental property. Free income tax See chapter 5, Personal Use of Dwelling Unit (Including Vacation Home). Free income tax Rental Expenses In most cases, the expenses of renting your property, such as maintenance, insurance, taxes, and interest, can be deducted from your rental income. Free income tax Personal use of rental property. Free income tax   If you sometimes use your rental property for personal purposes, you must divide your expenses between rental and personal use. Free income tax Also, your rental expense deductions may be limited. Free income tax See chapter 5, Personal Use of Dwelling Unit (Including Vacation Home). Free income tax Part interest. Free income tax   If you own a part interest in rental property, you can deduct expenses you paid according to your percentage of ownership. Free income tax Example. Free income tax Roger owns a one-half undivided interest in a rental house. Free income tax Last year he paid $968 for necessary repairs on the property. Free income tax Roger can deduct $484 (50% × $968) as a rental expense. Free income tax He is entitled to reimbursement for the remaining half from the co-owner. Free income tax When To Deduct You generally deduct your rental expenses in the year you pay them. Free income tax If you use the accrual method, see Publication 538 for more information. Free income tax Types of Expenses Listed below are the most common rental expenses. Free income tax Advertising. Free income tax Auto and travel expenses. Free income tax Cleaning and maintenance. Free income tax Commissions. Free income tax Depreciation. Free income tax Insurance. Free income tax Interest (other). Free income tax Legal and other professional fees. Free income tax Local transportation expenses. Free income tax Management fees. Free income tax Mortgage interest paid to banks, etc. Free income tax Points. Free income tax Rental payments. Free income tax Repairs. Free income tax Taxes. Free income tax Utilities. Free income tax Some of these expenses, as well as other less common ones, are discussed below. Free income tax Depreciation. Free income tax   Depreciation is a capital expense. Free income tax It is the mechanism for recovering your cost in an income producing property and must be taken over the expected life of the property. Free income tax   You can begin to depreciate rental property when it is ready and available for rent. Free income tax See Placed in Service under When Does Depreciation Begin and End in chapter 2. Free income tax Insurance premiums paid in advance. Free income tax   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. Free income tax You cannot deduct the total premium in the year you pay it. Free income tax See chapter 6 of Publication 535 for information on deductible premiums. Free income tax Interest expense. Free income tax   You can deduct mortgage interest you pay on your rental property. Free income tax When you refinance a rental property for more than the previous outstanding balance, the portion of the interest allocable to loan proceeds not related to rental use generally cannot be deducted as a rental expense. Free income tax Chapter 4 of Publication 535 explains mortgage interest in detail. Free income tax Expenses paid to obtain a mortgage. Free income tax   Certain expenses you pay to obtain a mortgage on your rental property cannot be deducted as interest. Free income tax These expenses, which include mortgage commissions, abstract fees, and recording fees, are capital expenses that are part of your basis in the property. Free income tax Form 1098, Mortgage Interest Statement. Free income tax   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. Free income tax 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. Free income tax Attach a statement to your return showing the name and address of the other person. Free income tax On the dotted line next to line 13, enter “See attached. Free income tax ” Legal and other professional fees. Free income tax   You can deduct, as a rental expense, legal and other professional expenses such as tax return preparation fees you paid to prepare Schedule E, Part I. Free income tax For example, on your 2013 Schedule E you can deduct fees paid in 2013 to prepare Part I of your 2012 Schedule E. Free income tax 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. Free income tax Local benefit taxes. Free income tax   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. Free income tax These charges are nondepreciable capital expenditures and must be added to the basis of your property. Free income tax However, you can deduct local benefit taxes that are for maintaining, repairing, or paying interest charges for the benefits. Free income tax Local transportation expenses. Free income tax   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. Free income tax 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. Free income tax See Publication 587, Business Use of Your Home, for information on determining if your home office qualifies as a principal place of business. Free income tax   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. Free income tax For 2013, the standard mileage rate for business use is 56. Free income tax 5 cents per mile. Free income tax For more information, see chapter 4 of Publication 463. Free income tax    To deduct car expenses under either method, you must keep records that follow the rules in chapter 5 of Publication 463. Free income tax In addition, you must complete Form 4562, Part V, and attach it to your tax return. Free income tax Pre-rental expenses. Free income tax   You can deduct your ordinary and necessary expenses for managing, conserving, or maintaining rental property from the time you make it available for rent. Free income tax Rental of equipment. Free income tax   You can deduct the rent you pay for equipment that you use for rental purposes. Free income tax However, in some cases, lease contracts are actually purchase contracts. Free income tax If so, you cannot deduct these payments. Free income tax You can recover the cost of purchased equipment through depreciation. Free income tax Rental of property. Free income tax   You can deduct the rent you pay for property that you use for rental purposes. Free income tax 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. Free income tax Travel expenses. Free income tax   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. Free income tax You must properly allocate your expenses between rental and nonrental activities. Free income tax You cannot deduct the cost of traveling away from home if the primary purpose of the trip is to improve the property. Free income tax The cost of improvements is recovered by taking depreciation. Free income tax For information on travel expenses, see chapter 1 of Publication 463. Free income tax    To deduct travel expenses, you must keep records that follow the rules in chapter 5 of Publication 463. Free income tax Uncollected rent. Free income tax   If you are a cash basis taxpayer, do not deduct uncollected rent. Free income tax Because you have not included it in your income, it is not deductible. Free income tax   If you use an accrual method, report income when you earn it. Free income tax If you are unable to collect the rent, you may be able to deduct it as a business bad debt. Free income tax See chapter 10 of Publication 535 for more information about business bad debts. Free income tax Vacant rental property. Free income tax   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. Free income tax However, you cannot deduct any loss of rental income for the period the property is vacant. Free income tax Vacant while listed for sale. Free income tax   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. Free income tax If the property is not held out and available for rent while listed for sale, the expenses are not deductible rental expenses. Free income tax Points The term “points” is often used to describe some of the charges paid, or treated as paid, by a borrower to take out a loan or a mortgage. Free income tax These charges are also called loan origination fees, maximum loan charges, or premium charges. Free income tax Any of these charges (points) that are solely for the use of money are interest. Free income tax Because points are prepaid interest, you generally cannot deduct the full amount in the year paid, but must deduct the interest over the term of the loan. Free income tax The method used to figure the amount of points you can deduct each year follows the original issue discount (OID) rules. Free income tax In this case, points are equivalent to OID, which is the difference between: The amount borrowed (redemption price at maturity, or principal) and The proceeds (issue price). Free income tax The first step is to determine whether your total OID (which you may have on bonds or other investments in addition to the mortgage loan), including the OID resulting from the points, is insignificant or de minimis. Free income tax If the OID is not de minimis, you must use the constant-yield method to figure how much you can deduct. Free income tax De minimis OID. Free income tax   The OID is de minimis if it is less than one-fourth of 1% (. Free income tax 0025) of the stated redemption price at maturity (principal amount of the loan) multiplied by the number of full years from the date of original issue to maturity (term of the loan). Free income tax   If the OID is de minimis, you can choose one of the following ways to figure the amount of points you can deduct each year. Free income tax On a constant-yield basis over the term of the loan. Free income tax On a straight line basis over the term of the loan. Free income tax In proportion to stated interest payments. Free income tax In its entirety at maturity of the loan. Free income tax You make this choice by deducting the OID (points) in a manner consistent with the method chosen on your timely filed tax return for the tax year in which the loan is issued. Free income tax Example. Free income tax Carol Madison took out a $100,000 mortgage loan on January 1, 2013, to buy a house she will use as a rental during 2013. Free income tax The loan is to be repaid over 30 years. Free income tax During 2013, Carol paid $10,000 of mortgage interest (stated interest) to the lender. Free income tax When the loan was made, she paid $1,500 in points to the lender. Free income tax The points reduced the principal amount of the loan from $100,000 to $98,500, resulting in $1,500 of OID. Free income tax Carol determines that the points (OID) she paid are de minimis based on the following computation. Free income tax Redemption price at maturity (principal amount of the loan) $100,000 Multiplied by: The term of the  loan in complete years ×30 Multiplied by ×. Free income tax 0025 De minimis amount $7,500 The points (OID) she paid ($1,500) are less than the de minimis amount ($7,500). Free income tax Therefore, Carol has de minimis OID and she can choose one of the four ways discussed earlier to figure the amount she can deduct each year. Free income tax Under the straight line method, she can deduct $50 each year for 30 years. Free income tax Constant-yield method. Free income tax   If the OID is not de minimis, you must use the constant-yield method to figure how much you can deduct each year. Free income tax   You figure your deduction for the first year in the following manner. Free income tax Determine the issue price of the loan. Free income tax If you paid points on the loan, the issue price generally is the difference between the principal and the points. Free income tax Multiply the result in (1) by the yield to maturity (defined later). Free income tax Subtract any qualified stated interest payments (defined later) from the result in (2). Free income tax This is the OID you can deduct in the first year. Free income tax Yield to maturity (YTM). Free income tax   This rate is generally shown in the literature you receive from your lender. Free income tax If you do not have this information, consult your lender or tax advisor. Free income tax In general, the YTM is the discount rate that, when used in computing the present value of all principal and interest payments, produces an amount equal to the principal amount of the loan. Free income tax Qualified stated interest (QSI). Free income tax   In general, this is the stated interest that is unconditionally payable in cash or property (other than another loan of the issuer) at least annually over the term of the loan at a fixed rate. Free income tax Example—Year 1. Free income tax The facts are the same as in the previous example. Free income tax The yield to maturity on Carol's loan is 10. Free income tax 2467%, compounded annually. Free income tax She figured the amount of points (OID) she could deduct in 2013 as follows. Free income tax Principal amount of the loan $100,000 Minus: Points (OID) –1,500 Issue price of the loan $98,500 Multiplied by: YTM × . Free income tax 102467 Total 10,093 Minus: QSI –10,000 Points (OID) deductible in 2013 $93 To figure your deduction in any subsequent year, you start with the adjusted issue price. Free income tax To get the adjusted issue price, add to the issue price figured in Year 1 any OID previously deducted. Free income tax Then follow steps (2) and (3), earlier. Free income tax Example—Year 2. Free income tax Carol figured the deduction for 2014 as follows. Free income tax Issue price $98,500 Plus: Points (OID) deducted  in 2013 +93 Adjusted issue price $98,593 Multiplied by: YTM × . Free income tax 102467 Total 10,103 Minus: QSI –10,000 Points (OID) deductible in 2014 $103 Loan or mortgage ends. Free income tax    If your loan or mortgage ends, you may be able to deduct any remaining points (OID) in the tax year in which the loan or mortgage ends. Free income tax A loan or mortgage may end due to a refinancing, prepayment, foreclosure, or similar event. Free income tax However, if the refinancing is with the same lender, the remaining points (OID) generally are not deductible in the year in which the refinancing occurs, but may be deductible over the term of the new mortgage or loan. Free income tax Points when loan refinance is more than the previous outstanding balance. Free income tax   When you refinance a rental property for more than the previous outstanding balance, the portion of the points allocable to loan proceeds not related to rental use generally cannot be deducted as a rental expense. Free income tax For example, if an individual refinanced a loan with a balance of $100,000, the amount of the new loan was $120,000, and the taxpayer used $20,000 to purchase a car, points allocable to the $20,000 would be treated as nondeductible personal interest. Free income tax 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. Free income tax Improvements. Free income tax   You must capitalize any expense you pay to improve your rental property. Free income tax 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. Free income tax Betterments. Free income tax   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. Free income tax Restoration. Free income tax   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. Free income tax Adaptation. Free income tax   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. Free income tax Separate the costs of repairs and improvements, and keep accurate records. Free income tax You will need to know the cost of improvements when you sell or depreciate your property. Free income tax The expenses you capitalize for improving your property can generally be depreciated as if the improvement were separate property. Free income tax Table 1-1. Free income tax Examples of Improvements Additions Bedroom Bathroom Deck Garage Porch Patio  Lawn & Grounds Landscaping Driveway Walkway Fence Retaining wall Sprinkler system Swimming pool Miscellaneous Storm windows, doors New roof Central vacuum Wiring upgrades Satellite dish Security system   Heating & Air Conditioning Heating system Central air conditioning Furnace Duct work Central humidifier Filtration system Plumbing Septic system Water heater Soft water system Filtration system  Interior Improvements Built-in appliances Kitchen modernization Flooring Wall-to-wall carpeting  Insulation Attic Walls, floor Pipes, duct work Prev  Up  Next   Home   More Online Publications