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H&r Block Military Free File

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H&r Block Military Free File

H&r block military free file Internal Revenue Bulletin:  2009-17  April 27, 2009  Rev. H&r block military free file Proc. H&r block military free file 2009-24 Table of Contents SECTION 1. H&r block military free file PURPOSE SECTION 2. H&r block military free file BACKGROUND SECTION 3. H&r block military free file SCOPE SECTION 4. H&r block military free file APPLICATION. H&r block military free file 01 In General. H&r block military free file . H&r block military free file 02 Limitations on Depreciation Deductions for Certain Automobiles. H&r block military free file . H&r block military free file 03 Inclusions in Income of Lessees of Passenger Automobiles. H&r block military free file SECTION 5. H&r block military free file EFFECTIVE DATE SECTION 6. H&r block military free file DRAFTING INFORMATION SECTION 1. H&r block military free file PURPOSE . H&r block military free file 01 This revenue procedure provides: (1) limitations on depreciation deductions for owners of passenger automobiles first placed in service by the taxpayer during calendar year 2009, including a separate table of limitations on depreciation deductions for trucks and vans; and (2) the amounts to be included in income by lessees of passenger automobiles first leased by the taxpayer during calendar year 2009, including a separate table of inclusion amounts for lessees of trucks and vans. H&r block military free file . H&r block military free file 02 The tables detailing these depreciation limitations and lessee inclusion amounts reflect the automobile price inflation adjustments required by § 280F(d)(7) of the Internal Revenue Code. H&r block military free file SECTION 2. H&r block military free file BACKGROUND . H&r block military free file 01 For owners of passenger automobiles, § 280F(a) imposes dollar limitations on the depreciation deduction for the year that the passenger automobile is placed in service by the taxpayer and each succeeding year. H&r block military free file Section 280F(d)(7) requires the amounts allowable as depreciation deductions to be increased by a price inflation adjustment amount for passenger automobiles placed in service after 1988. H&r block military free file The method of calculating this price inflation amount for trucks and vans placed in service in or after calendar year 2003 uses a different CPI “automobile component” (the “new trucks” component) than that used in the price inflation amount calculation for other passenger automobiles (the “new cars” component), resulting in somewhat higher depreciation deductions for trucks and vans. H&r block military free file This change reflects the higher rate of price inflation that trucks and vans have been subject to since 1988. H&r block military free file . H&r block military free file 02 Section 168(k)(1)(A) provides a 50 percent additional first year depreciation deduction for certain new property acquired by a taxpayer after December 31, 2007, and before January 1, 2010, if no written binding contract for the acquisition of the property existed before January 1, 2008. H&r block military free file Section 168(k)(2)(F)(i) increases the first year depreciation allowed under § 280F(a)(1)(A) by $8,000 for passenger automobiles to which the 50 percent additional first year depreciation deduction applies. H&r block military free file . H&r block military free file 03 Section 168(k)(2)(D)(i) provides that the 50 percent additional first year depreciation deduction does not apply to any property required to be depreciated under the alternative depreciation system of § 168(g), including property described in § 280F(b)(1). H&r block military free file Section 168(k)(2)(D)(iii) permits a taxpayer to elect to not claim the 50 percent additional first year depreciation deduction for any class of property. H&r block military free file Section 168(k)(4) permits a corporation to elect to not claim the 50 percent additional first year depreciation deduction for all eligible qualified property (that is extension property or that is not extension property, as applicable) and instead to increase the business credit limitation under § 38(c) or the alternative minimum tax credit limitation under § 53(c). H&r block military free file Accordingly, this revenue procedure provides tables for passenger automobiles for which the 50 percent additional depreciation deduction applies and tables for passenger automobiles for which the 50 percent additional first year depreciation deduction does not apply, including passenger automobiles in a class of property for which the taxpayer “elects out” of the 50 percent additional first year depreciation deduction or passenger automobiles that are eligible qualified property to which the § 168(k)(4) election applies. H&r block military free file . H&r block military free file 04 For leased passenger automobiles, § 280F(c) requires a reduction in the deduction allowed to the lessee of the passenger automobile. H&r block military free file The reduction must be substantially equivalent to the limitations on the depreciation deductions imposed on owners of passenger automobiles. H&r block military free file Under § 1. H&r block military free file 280F-7(a) of the Income Tax Regulations, this reduction requires a lessee to include in gross income an inclusion amount determined by applying a formula to the amount obtained from a table. H&r block military free file One table applies to lessees of trucks and vans and another table applies to all other passenger automobiles. H&r block military free file Each table shows inclusion amounts for a range of fair market values for each taxable year after the passenger automobile is first leased. H&r block military free file SECTION 3. H&r block military free file SCOPE . H&r block military free file 01 The limitations on depreciation deductions in section 4. H&r block military free file 02(2) of this revenue procedure apply to passenger automobiles (other than leased passenger automobiles) that are placed in service by the taxpayer in calendar year 2009, and continue to apply for each taxable year that the passenger automobile remains in service. H&r block military free file . H&r block military free file 02 The tables in section 4. H&r block military free file 03 of this revenue procedure apply to leased passenger automobiles for which the lease term begins during calendar year 2009. H&r block military free file Lessees of these passenger automobiles must use these tables to determine the inclusion amount for each taxable year during which the passenger automobile is leased. H&r block military free file See Rev. H&r block military free file Proc. H&r block military free file 2002-14, 2002-1 C. H&r block military free file B. H&r block military free file 450, for passenger automobiles first leased before January 1, 2003, Rev. H&r block military free file Proc. H&r block military free file 2003-75, 2003-2 C. H&r block military free file B. H&r block military free file 1018, for passenger automobiles first leased during calendar year 2003, Rev. H&r block military free file Proc. H&r block military free file 2004-20, 2004-1 C. H&r block military free file B. H&r block military free file 642, for passenger automobiles first leased during calendar year 2004, Rev. H&r block military free file Proc. H&r block military free file 2005-13, 2005-1 C. H&r block military free file B. H&r block military free file 759, for passenger automobiles first leased during calendar year 2005, Rev. H&r block military free file Proc. H&r block military free file 2006-18, 2006-1 C. H&r block military free file B. H&r block military free file 645, for passenger automobiles first leased during calendar year 2006, Rev. H&r block military free file Proc. H&r block military free file 2007-30, 2007-1 C. H&r block military free file B. H&r block military free file 1104, for passenger automobiles first leased during calendar year 2007, and Rev. H&r block military free file Proc. H&r block military free file 2008-22, 2008-12 I. H&r block military free file R. H&r block military free file B. H&r block military free file 658, for passenger automobiles first leased during calendar year 2008. H&r block military free file SECTION 4. H&r block military free file APPLICATION . H&r block military free file 01 In General. H&r block military free file (1) Limitations on depreciation deductions for certain automobiles. H&r block military free file The limitations on depreciation deductions for passenger automobiles placed in service by the taxpayer for the first time during calendar year 2009 are in Tables 1 through 4 in section 4. H&r block military free file 02(2) of this revenue procedure. H&r block military free file (2) Inclusions in income of lessees of passenger automobiles. H&r block military free file A taxpayer first leasing a passenger automobile during calendar year 2009 must determine the inclusion amount that is added to gross income using Tables 5 and 6 in section 4. H&r block military free file 03 of this revenue procedure. H&r block military free file In addition, the taxpayer must follow the procedures of § 1. H&r block military free file 280F-7(a). H&r block military free file . H&r block military free file 02 Limitations on Depreciation Deductions for Certain Automobiles. H&r block military free file (1) Amount of the inflation adjustment. H&r block military free file (a) Passenger automobiles (other than trucks or vans). H&r block military free file Under § 280F(d)(7)(B)(i), the automobile price inflation adjustment for any calendar year is the percentage (if any) by which the CPI automobile component for October of the preceding calendar year exceeds the CPI automobile component for October 1987. H&r block military free file The term “CPI automobile component” is defined in § 280F(d)(7)(B)(ii) as the “automobile component” of the Consumer Price Index for all Urban Consumers published by the Department of Labor. H&r block military free file The new car component of the CPI was 115. H&r block military free file 2 for October 1987 and 134. H&r block military free file 837 for October 2008. H&r block military free file The October 2008 index exceeded the October 1987 index by 19. H&r block military free file 637. H&r block military free file The Internal Revenue Service has, therefore, determined that the automobile price inflation adjustment for 2009 for passenger automobiles (other than trucks and vans) is 17. H&r block military free file 05 percent (19. H&r block military free file 637/115. H&r block military free file 2 x 100%). H&r block military free file This adjustment is applicable to all passenger automobiles (other than trucks and vans) that are first placed in service in calendar year 2009. H&r block military free file The dollar limitations in § 280F(a) therefore must be multiplied by a factor of 0. H&r block military free file 1705, and the resulting increases, after rounding to the nearest $100, are added to the 1988 limitations to give the depreciation limitations applicable to passenger automobiles (other than trucks and vans) for calendar year 2009. H&r block military free file (b) Trucks and vans. H&r block military free file To determine the dollar limitations applicable to trucks and vans first placed in service during calendar year 2009, the new truck component of the CPI is used instead of the new car component. H&r block military free file The new truck component of the CPI was 112. H&r block military free file 4 for October 1987 and 133. H&r block military free file 640 for October 2008. H&r block military free file The October 2008 index exceeded the October 1987 index by 21. H&r block military free file 24. H&r block military free file The Service has, therefore, determined that the automobile price inflation adjustment for 2009 for trucks and vans is 18. H&r block military free file 90 percent (21. H&r block military free file 24/112. H&r block military free file 4 x 100%). H&r block military free file This adjustment is applicable to all trucks and vans that are first placed in service in calendar year 2009. H&r block military free file The dollar limitations in § 280F(a) therefore must be multiplied by a factor of 0. H&r block military free file 1890, and the resulting increases, after rounding to the nearest $100, are added to the 1988 limitations to give the depreciation limitations applicable to trucks and vans. H&r block military free file (2) Amount of the limitation. H&r block military free file For passenger automobiles placed in service by the taxpayer in calendar year 2009, Tables 1 through 4 contain the dollar amount of the depreciation limitation for each taxable year. H&r block military free file Use Table 1 for a passenger automobile (other than a truck or van) placed in service by the taxpayer in calendar year 2009, for which the 50 percent additional first year depreciation deduction does not apply, including a passenger automobile (other than a truck or van) in a class of property for which the taxpayer elects out of the 50 percent additional first year depreciation deduction or a passenger automobile that is eligible qualified property to which the § 168(k)(4) election applies. H&r block military free file Use Table 2 for a passenger automobile (other than a truck or van) placed in service by the taxpayer in calendar year 2009, for which the 50 percent additional first year depreciation deduction applies. H&r block military free file Use Table 3 for a truck or van placed in service by the taxpayer in calendar year 2009, for which the 50 percent additional first year depreciation deduction does not apply, including a truck or van in a class of property for which the taxpayer elects out of the 50 percent additional first year depreciation deduction or a truck or van that is eligible qualified property to which the § 168(k)(4) election applies. H&r block military free file Use Table 4 for a truck or van placed in service by the taxpayer in calendar year 2009, for which the 50 percent additional first year depreciation deduction applies. H&r block military free file REV. H&r block military free file PROC. H&r block military free file 2009-24 TABLE 1 DEPRECIATION LIMITATIONS FOR PASSENGER AUTOMOBILES (THAT ARE NOT TRUCKS OR VANS) PLACED IN SERVICE BY THE TAXPAYER IN CALENDAR YEAR 2009, FOR WHICH THE 50 PERCENT ADDITIONAL FIRST YEAR DEPRECIATION DEDUCTION DOES NOT APPLY Tax Year Amount 1st Tax Year $2,960 2nd Tax Year $4,800 3rd Tax Year $2,850 Each Succeeding Year $1,775 REV. H&r block military free file PROC. H&r block military free file 2009-24 TABLE 2 DEPRECIATION LIMITATIONS FOR PASSENGER AUTOMOBILES (THAT ARE NOT TRUCKS OR VANS) PLACED IN SERVICE BY THE TAXPAYER IN CALENDAR YEAR 2009, FOR WHICH THE 50 PERCENT ADDITIONAL FIRST YEAR DEPRECIATION DEDUCTION APPLIES Tax Year Amount 1st Tax Year $10,960 2nd Tax Year $4,800 3rd Tax Year $2,850 Each Succeeding Year $1,775 REV. H&r block military free file PROC. H&r block military free file 2009-24 TABLE 3 DEPRECIATION LIMITATIONS FOR TRUCKS AND VANS PLACED IN SERVICE BY THE TAXPAYER IN CALENDAR YEAR 2009, FOR WHICH THE 50 PERCENT ADDITIONAL FIRST YEAR DEPRECIATION DEDUCTION DOES NOT APPLY Tax Year Amount 1st Tax Year $3,060 2nd Tax Year $4,900 3rd Tax Year $2,950 Each Succeeding Year $1,775 REV. H&r block military free file PROC. H&r block military free file 2009-24 TABLE 4 DEPRECIATION LIMITATIONS FOR TRUCKS AND VANS PLACED IN SERVICE BY THE TAXPAYER IN CALENDAR YEAR 2009, FOR WHICH THE 50 PERCENT ADDITIONAL FIRST YEAR DEPRECIATION DEDUCTION APPLIES Tax Year Amount 1st Tax Year $11,060 2nd Tax Year $4,900 3rd Tax Year $2,950 Each Succeeding Year $1,775 . H&r block military free file 03 Inclusions in Income of Lessees of Passenger Automobiles. H&r block military free file The inclusion amounts for passenger automobiles first leased in calendar year 2009 are calculated under the procedures described in § 1. H&r block military free file 280F-7(a). H&r block military free file Lessees of passenger automobiles other than trucks and vans should use Table 5 of this revenue procedure in applying these procedures, while lessees of trucks and vans should use Table 6 of this revenue procedure. H&r block military free file REV. H&r block military free file PROC. H&r block military free file 2009-24 TABLE 5 DOLLAR AMOUNTS FOR PASSENGER AUTOMOBILES (THAT ARE NOT TRUCKS OR VANS) WITH A LEASE TERM BEGINNING IN CALENDAR YEAR 2009 Fair Market Value of Passenger Automobile Tax Year During Lease Over Not Over 1st 2nd 3rd 4th 5th & Later $18,500 $19,000 9 19 28 34 38 19,000 19,500 10 21 32 38 43 19,500 20,000 11 24 36 42 48 20,000 20,500 12 27 39 46 54 20,500 21,000 13 29 43 51 58 21,000 21,500 15 31 47 55 64 21,500 22,000 16 34 50 60 68 22,000 23,000 17 38 56 66 76 23,000 24,000 20 42 64 75 86 24,000 25,000 22 47 71 84 96 25,000 26,000 24 52 78 93 107 26,000 27,000 26 58 85 101 117 27,000 28,000 29 62 93 110 127 28,000 29,000 31 67 100 119 138 29,000 30,000 33 72 108 128 147 30,000 31,000 35 77 115 137 157 31,000 32,000 38 82 122 146 167 32,000 33,000 40 87 129 155 178 33,000 34,000 42 92 137 163 188 34,000 35,000 44 97 144 172 199 35,000 36,000 47 102 151 181 208 36,000 37,000 49 107 159 189 219 37,000 38,000 51 112 166 199 228 38,000 39,000 53 117 173 208 239 39,000 40,000 56 122 180 216 250 40,000 41,000 58 127 188 225 259 41,000 42,000 60 132 195 234 269 42,000 43,000 62 137 203 242 280 43,000 44,000 65 141 210 252 290 44,000 45,000 67 146 218 260 300 45,000 46,000 69 151 225 269 311 46,000 47,000 71 157 232 278 320 47,000 48,000 74 161 240 286 331 48,000 49,000 76 166 247 296 340 49,000 50,000 78 171 255 304 351 50,000 51,000 80 176 262 313 361 51,000 52,000 83 181 269 322 371 52,000 53,000 85 186 276 331 381 53,000 54,000 87 191 284 339 392 54,000 55,000 89 196 291 349 401 55,000 56,000 92 201 298 357 412 56,000 57,000 94 206 306 365 423 57,000 58,000 96 211 313 375 432 58,000 59,000 98 216 320 384 442 59,000 60,000 101 221 327 393 452 60,000 62,000 104 228 339 406 467 62,000 64,000 109 238 353 424 488 64,000 66,000 113 248 368 441 509 66,000 68,000 118 258 382 459 529 68,000 70,000 122 268 397 476 550 70,000 72,000 127 277 413 493 570 72,000 74,000 131 288 427 511 590 74,000 76,000 136 297 442 529 610 76,000 78,000 140 307 457 546 631 78,000 80,000 145 317 471 564 651 80,000 85,000 152 335 497 595 686 85,000 90,000 164 359 534 639 737 90,000 95,000 175 384 570 683 789 95,000 100,000 186 409 607 727 839 100,000 110,000 203 446 662 793 916 110,000 120,000 226 495 736 881 1,018 120,000 130,000 248 545 809 970 1,119 130,000 140,000 271 594 883 1,058 1,220 140,000 150,000 293 644 956 1,146 1,322 150,000 160,000 316 693 1,030 1,234 1,424 160,000 170,000 338 743 1,103 1,322 1,526 170,000 180,000 361 792 1,177 1,410 1,628 180,000 190,000 383 842 1,250 1,498 1,730 190,000 200,000 406 891 1,324 1,586 1,831 200,000 210,000 428 941 1,397 1,675 1,932 210,000 220,000 451 990 1,471 1,762 2,035 220,000 230,000 473 1,040 1,544 1,851 2,136 230,000 240,000 496 1,089 1,618 1,939 2,238 240,000 And up 518 1,139 1,691 2,027 2,340 REV. H&r block military free file PROC. H&r block military free file 2009-24 TABLE 6 DOLLAR AMOUNTS FOR TRUCKS AND VANS WITH A LEASE TERM BEGINNING IN CALENDAR YEAR 2009 Fair Market Value of Electric Automobile Tax Year During Lease Over Not Over 1st 2nd 3rd 4th 5th and Later $18,500 $19,000 8 17 25 30 35 19,000 19,500 9 19 29 35 40 19,500 20,000 10 22 33 38 45 20,000 20,500 11 25 36 43 50 20,500 21,000 12 27 40 48 55 21,000 21,500 13 30 43 52 60 21,500 22,000 15 32 47 56 66 22,000 23,000 16 36 52 64 72 23,000 24,000 18 41 60 72 83 24,000 25,000 21 45 68 81 93 25,000 26,000 23 50 75 90 103 26,000 27,000 25 56 82 98 114 27,000 28,000 27 61 89 107 124 28,000 29,000 30 65 97 116 134 29,000 30,000 32 70 104 125 144 30,000 31,000 34 75 112 134 154 31,000 32,000 36 80 119 143 164 32,000 33,000 39 85 126 151 175 33,000 34,000 41 90 134 160 184 34,000 35,000 43 95 141 169 195 35,000 36,000 45 100 148 178 205 36,000 37,000 48 105 155 187 215 37,000 38,000 50 110 163 195 226 38,000 39,000 52 115 170 204 236 39,000 40,000 55 120 177 213 246 40,000 41,000 57 125 185 221 256 41,000 42,000 59 130 192 231 266 42,000 43,000 61 135 199 240 276 43,000 44,000 64 139 207 249 286 44,000 45,000 66 144 215 257 296 45,000 46,000 68 149 222 266 307 46,000 47,000 70 155 229 274 317 47,000 48,000 73 159 237 283 327 48,000 49,000 75 164 244 292 338 49,000 50,000 77 169 251 301 348 50,000 51,000 79 174 259 310 357 51,000 52,000 82 179 266 318 368 52,000 53,000 84 184 273 328 378 53,000 54,000 86 189 281 336 388 54,000 55,000 88 194 288 345 399 55,000 56,000 91 199 295 354 408 56,000 57,000 93 204 302 363 419 57,000 58,000 95 209 310 371 429 58,000 59,000 97 214 317 381 439 59,000 60,000 100 219 324 389 450 60,000 62,000 103 226 336 402 465 62,000 64,000 107 236 351 420 485 64,000 66,000 112 246 365 438 505 66,000 68,000 116 256 380 455 526 68,000 70,000 121 266 394 473 546 70,000 72,000 125 276 409 491 566 72,000 74,000 130 286 423 509 586 74,000 76,000 134 296 438 526 607 76,000 78,000 139 305 454 543 627 78,000 80,000 143 316 467 561 648 80,000 85,000 151 333 493 592 684 85,000 90,000 163 357 531 635 735 90,000 95,000 174 382 567 680 785 95,000 100,000 185 407 604 724 836 100,000 110,000 202 444 659 790 912 110,000 120,000 225 493 733 878 1,014 120,000 130,000 247 543 806 966 1,116 130,000 140,000 270 592 880 1,054 1,218 140,000 150,000 292 642 953 1,143 1,319 150,000 160,000 315 691 1,027 1,230 1,421 160,000 170,000 337 741 1,100 1,319 1,522 170,000 180,000 360 790 1,174 1,407 1,624 180,000 190,000 382 840 1,247 1,495 1,726 190,000 200,000 405 889 1,321 1,583 1,828 200,000 210,000 427 939 1,394 1,671 1,930 210,000 220,000 450 988 1,468 1,759 2,031 220,000 230,000 472 1,038 1,541 1,847 2,134 230,000 240,000 495 1,087 1,615 1,935 2,235 240,000 and up 517 1,137 1,688 2,024 2,336 SECTION 5. H&r block military free file EFFECTIVE DATE This revenue procedure applies to passenger automobiles (other than leased passenger automobiles) that are first placed in service by a taxpayer during calendar year 2009, and to leased passenger automobiles that are first leased by a taxpayer during calendar year 2009. H&r block military free file SECTION 6. H&r block military free file DRAFTING INFORMATION The principal author of this revenue procedure is Bernard P. H&r block military free file Harvey of the Office of Associate Chief Counsel (Income Tax & Accounting). H&r block military free file For further information regarding this revenue procedure, contact Mr. H&r block military free file Harvey at (202) 622-4930 (not a toll-free call). H&r block military free file Prev  Up  Next   Home   More Internal Revenue Bulletins
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Online Scams that Impersonate the IRS

Video: Phishing-Malware:  English

FS-2010-9, January 2010

WASHINGTON — Consumers should protect themselves against online identity theft and other scams that increase during and linger after the filing season. Such scams may appropriate the name, logo or other appurtenances of the IRS or U.S. Department of the Treasury to mislead taxpayers into believing that the scam is legitimate.
    
Scams involving the impersonation of the IRS usually take the form of e-mails, tweets or other online messages to consumers. Scammers may also use phones and faxes to reach intended victims. Some scammers set up phony Web sites.

The IRS and E-mail

Generally, the IRS does not send unsolicited e-mails to taxpayers. Further, the IRS does not discuss tax account information with taxpayers via e-mail or use e-mail to solicit sensitive financial and personal information from taxpayers. The IRS does not request financial account security information, such as PIN numbers, from taxpayers.     

Object of Scams

Most scams impersonating the IRS are identity theft schemes. In this type of scam, the scammer poses as a legitimate institution to trick consumers into revealing personal and financial information — such as passwords and Social Security, PIN, bank account and credit card numbers — that can be used to gain access to and steal their bank, credit card or other financial accounts. Attempted identity theft scams that take place via e-mail are known as phishing. Other scams may try to persuade a victim to advance sums of money in the hope of realizing a larger gain. These are known as advance fee scams. 

Who Is Targeted

Anyone with a computer, phone or fax machine could receive a scam message or unknowingly visit a phony or misleading Web site. Individuals, businesses, educators, charities and others have been targeted by e-mails that claim to come from the IRS or Treasury Department. Scam e-mails are generally sent out in bulk, based on e-mail addresses (urls), similar to spam.

How an Identity Theft Scam Works

Most of the scams that impersonate the IRS are identity theft scams. Typically, a consumer will receive an e-mail that claims to come from the IRS or Treasury Department. The message will contain an enticing or intimidating subject line, such as tax refund, inherited funds or IRS notice. Usually, the message will state that the recipient needs to provide the IRS with information to obtain the refund or avoid some penalty. The message will instruct the consumer to open an attachment or click on a link in the e-mail. This may lead to an official-looking form to be filled out online or send the taxpayer to a seemingly genuine but bogus IRS Web site. The look-alike site will then contain a phony but genuine-looking online form or interactive application that requires the personal and financial information the scammer can use to commit identity theft. 

Alternatively, the clicked link may secretly download malware to the consumer’s computer. Malware is malicious code that can take over the computer’s hard drive, giving the scammer remote access to the computer, or it could look for passwords and other information and send them to the scammer.

Phony Web or Commercial Sites

In many IRS-impersonation scams, the scammer sends the consumer to a phony Web site that mimics the appearance of the genuine IRS Web site, IRS.gov. This allows the scammer to steer victims to phony interactive forms or applications that appear genuine but require the targeted victim to enter personal and financial information that will be used to commit identity theft.  

The official Web site for the Internal Revenue Service is IRS.gov, and all IRS.gov Web page addresses begin with http://www.irs.gov/

In addition to Web sites established by scammers, there are commercial Internet sites that often resemble the authentic IRS site or contain some form of the IRS name in the address but end with a .com, .net, .org or other designation instead of .gov. These sites have no connection to the IRS. Consumers may unknowingly visit these sites when searching the Internet to retrieve tax forms, publications and other information from the IRS.

Frequent or Recent Scams

There are a number of scams that impersonate the IRS. Some of them appear with great frequency, particularly during and right after filing season, and recur annually. Others are new.   

  • Refund Scam — This is the most frequent IRS-impersonation scam seen by the IRS. In this phishing scam, a bogus e-mail claiming to come from the IRS tells the consumer that he or she is eligible to receive a tax refund for a specified amount. It may use the phrase “last annual calculations of your fiscal activity.” To claim the tax refund, the consumer must open an attachment or click on a link contained in the e-mail to access and complete a claim form. The form requires the entry of personal and financial information. Several variations on the refund scam have claimed to come from the Exempt Organizations area of the IRS or the name and signature of a genuine or made-up IRS executive. In reality, taxpayers do not complete a special form to obtain their federal tax refund — refunds are triggered by the tax return they submitted to the IRS.
  • Lottery winnings or cash consignment — These advance fee scam e-mails claim to come from the Treasury Department to notify recipients that they’ll receive millions of dollars in recovered funds or lottery winnings or cash consignment if they provide certain personal information, including phone numbers, via return e-mail. The e-mail may be just the first step in a multi-step scheme, in which the victim is later contacted by telephone or further e-mail and instructed to deposit taxes on the funds or winnings before they can receive any of it. Alternatively, they may be sent a phony check of the funds or winnings and told to deposit it but pay 10 percent in taxes or fees. Thinking that the check must have cleared the bank and is genuine, some people comply. However, the scammers, not the Treasury Department, will get the taxes or fees. In reality, the Treasury Department does not become involved in notification of inheritances or lottery or other winnings.
  • Beneficial Owner Form — This fax-based phishing scam, which generally targets foreign nationals, recurs periodically. It’s based on a genuine IRS form, the W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding. The scammer, though, invents his or her own number and name for the form. The scammer modifies the form to request passport numbers, information that is often used for account security purposes (such as mother’s maiden name) and similar detailed personal and financial information, and states that the recipient may have to pay additional tax if he or she fails to immediately fax back the completed form. In reality, the real W-8BEN is completed by banks, not individuals.

Other Known Scams

The contents of other IRS-impersonation scams vary but may claim that the recipient will be paid for participating in an online survey or is under investigation or audit. Some scam e-mails have referenced Recovery-related tax provisions, such as Making Work Pay, or solicited for charitable donations to victims of natural disasters. Taxpayers should beware of an e-mail scam that references underreported income and the recipient’s “tax statement,” since clicking on a link or opening an attachment is known to download malware onto the recipient’s computer.

How to Spot a Scam

Many e-mail scams are fairly sophisticated and hard to detect. However, there are signs to watch for, such as an e-mail that:

  •  Requests detailed or an unusual amount of personal and/or financial information, such as name, SSN, bank or credit card account numbers or security-related information, such as mother’s maiden name, either in the e-mail itself or on another site to which a link in the e-mail sends the recipient.
  • Dangles bait to get the recipient to respond to the e-mail, such as mentioning a tax refund or offering to pay the recipient to participate in an IRS survey.
  • Threatens a consequence for not responding to the e-mail, such as additional taxes or blocking access to the recipient’s funds.
  • Gets the Internal Revenue Service or other federal agency names wrong.
  • Uses incorrect grammar or odd phrasing (many of the e-mail scams originate overseas and are written by non-native English speakers).
  • Uses a really long address in any link contained in the e-mail message or one that does not start with the actual IRS Web site address (http://www.irs.gov). The actual link’s address, or url, is revealed by moving the mouse over the link included in the text of the e-mail.

What to Do

Taxpayers who receive a suspicious e-mail claiming to come from the IRS should take the following steps:

  • Avoid opening any attachments to the e-mail, in case they contain malicious code that will infect your computer.
  • Avoid clicking on any links, for the same reason. Alternatively, the links may connect to a phony IRS Web site that appears authentic and then prompts for personal identifiers, bank or credit card account numbers or PINs.
  • Visit the IRS Web site, www.irs.gov, to use the “Where’s My Refund?” interactive tool to determine if they are really getting a refund, rather than responding to the e-mail message.
  • Forward the suspicious e-mail or url address to the IRS mailbox phishing@irs.gov, then delete the e-mail from their inbox.

Consumers who believe they are or may be victims of identity theft or other scams may visit the U.S. Federal Trade Commission’s Web site for identity theft, www.OnGuardOnline.gov, for guidance in what to do. The IRS is one of the sponsors of this site.

More information on IRS-impersonation scams, identity theft and suspicious e-mail is available on IRS.gov.

 

Page Last Reviewed or Updated: 08-Jan-2014

The H&r Block Military Free File

H&r block military free file Publication 925 - Main Content Table of Contents Passive Activity LimitsWho Must Use These Rules? Passive Activity Loss Passive Activity Credit Publicly Traded Partnership Excess Farm Loss Passive Activities Activities That Are Not Passive Activities Passive Activity Income and Deductions Grouping Your Activities Recharacterization of Passive Income Dispositions How To Report Your Passive Activity Loss Comprehensive ExampleGeneral Information At-Risk LimitsWho Is Affected? Activities Covered by the At-Risk Rules At-Risk Amounts Amounts Not At Risk Reductions of Amounts At Risk Recapture Rule How To Get Tax HelpLow Income Taxpayer Clinics Passive Activity Limits Who Must Use These Rules? The passive activity rules apply to: Individuals, Estates, Trusts (other than grantor trusts), Personal service corporations, and Closely held corporations. H&r block military free file Even though the rules do not apply to grantor trusts, partnerships, and S corporations directly, they do apply to the owners of these entities. H&r block military free file For information about personal service corporations and closely held corporations, including definitions and how the passive activity rules apply to these corporations, see Form 8810 and its instructions. H&r block military free file Before applying the passive activity limits, you must first determine the amount of the deductions disallowed under the basis, excess farm loss, or at-risk rules. H&r block military free file See Passive Activity Deductions, later. H&r block military free file Passive Activity Loss Generally, the passive activity loss for the tax year is not allowed. H&r block military free file However, there is a special allowance under which some or all of your passive activity loss may be allowed. H&r block military free file See Special $25,000 allowance , later. H&r block military free file Definition of passive activity loss. H&r block military free file    Generally, your passive activity loss for the tax year is the excess of your passive activity deductions over your passive activity gross income. H&r block military free file See Passive Activity Income and Deductions , later. H&r block military free file   For a closely held corporation, the passive activity loss is the excess of passive activity deductions over the sum of passive activity gross income and net active income. H&r block military free file For details on net active income, see the Instructions for Form 8810. H&r block military free file For the definition of passive activity gross income, see Passive Activity Income , later. H&r block military free file For the definition of passive activity deductions, see Passive Activity Deductions , later. H&r block military free file Identification of Disallowed Passive Activity Deductions If all or a part of your passive activity loss is disallowed for the tax year, you may need to allocate the disallowed passive activity loss among different passive activities and among different deductions within a passive activity. H&r block military free file Allocation of disallowed passive activity loss among activities. H&r block military free file   If all or any part of your passive activity loss is disallowed for the tax year, a ratable portion of the loss (if any) from each of your passive activities is disallowed. H&r block military free file The ratable portion of a loss from an activity is computed by multiplying the passive activity loss that is disallowed for the tax year by the fraction obtained by dividing: The loss from the activity for the tax year; by The sum of the losses for the tax year from all activities having losses for the tax year. H&r block military free file Use Worksheet 5 of Form 8582 to figure the ratable portion of the loss from each activity that is disallowed. H&r block military free file Loss from an activity. H&r block military free file   The term “loss from an activity” means: The amount by which the passive activity deductions (defined later) from the activity for the tax year exceed the passive activity gross income (defined later) from the activity for the tax year; reduced by Any part of such amount that is allowed under the Special $25,000 Allowance , later. H&r block military free file   If your passive activity gross income from significant participation passive activities (defined later) for the tax year is more than your passive activity deductions from those activities for the tax year, those activities shall be treated, solely for purposes of figuring your loss from the activity, as a single activity that does not have a loss for such taxable year. H&r block military free file See Significant Participation Passive Activities , later. H&r block military free file Example. H&r block military free file John Pine holds interests in three passive activities, A, B, and C. H&r block military free file The gross income and deductions from these activities for the taxable year are as follows:   A B C Total Gross income $7,000 $4,000 $12,000 $23,000 Deductions (16,000) (20,000) (8,000) (44,000)           Net income (loss) ($9,000) ($16,000) $4,000 ($21,000)   John Pine’s $21,000 passive activity loss for the taxable year is disallowed. H&r block military free file Therefore, a ratable portion of the losses from activities A and B is disallowed. H&r block military free file He figures the disallowed portion of each loss as follows: A: $21,000 x $9,000/$25,000 $7,560 B: $21,000 x $16,000/$25,000 13,440     Total $21,000 Allocation within loss activities. H&r block military free file   If all or any part of your loss from an activity is disallowed under Allocation of disallowed passive activity loss among activities for the tax year, a ratable portion of each of your passive activity deductions (defined later), other than an excluded deduction (defined below) from such activity is disallowed. H&r block military free file The ratable portion of a passive activity deduction is the amount of the disallowed portion of the loss from the activity for the tax year multiplied by the fraction obtained by dividing: The amount of such deduction; by The sum of all of your passive activity deductions (other than excluded deductions) from that activity from the tax year. H&r block military free file Excluded deductions. H&r block military free file    “Excluded deduction” means any passive activity deduction that is taken into account in computing your net income from an item of property for a taxable year in which an amount of the taxpayer's gross income from such item of property is treated as not from a passive activity. H&r block military free file See Recharacterization of Passive Income , later. H&r block military free file Separately identified deductions. H&r block military free file   In identifying the deductions from an activity that are disallowed, you do not need to account separately for a deduction unless such deduction may, if separately taken into account, result in an income tax liability for any tax year different from that which would result were such deduction not taken into account separately. H&r block military free file   Use Form 8582, Worksheet 7, for any activity if you have passive activity deductions for that activity that must be separately identified. H&r block military free file   Deductions that must be accounted for separately include (but are not limited to) the following deductions. H&r block military free file Deductions that arise in a rental real estate activity in tax years in which you actively participate in such activity. H&r block military free file See Active participation , later. H&r block military free file Deductions that arise in a rental real estate activity in tax years in which you do not actively participate in such activity. H&r block military free file See Active participation , later. H&r block military free file Losses from sales or exchanges of capital assets. H&r block military free file Section 1231 losses. H&r block military free file See Section 1231 Gains and Losses in Publication 544, Sales and Other Disposition of Assets, for more information. H&r block military free file Carryover of Disallowed Deductions In the case of an activity with respect to which any deductions or credits are disallowed for a taxable year (the loss activity), the disallowed deductions are allocated among your activities for the next tax year in a manner that reasonably reflects the extent to which each activity continues the loss activity. H&r block military free file The disallowed deductions or credits allocated to an activity under the preceding sentence are treated as deductions or credits from the activity for the next tax year. H&r block military free file For more information, see Regulations section 1. H&r block military free file 469-1(f)(4). H&r block military free file Passive Activity Credit Generally, the passive activity credit for the tax year is disallowed. H&r block military free file The passive activity credit is the amount by which the sum of all your credits subject to the passive activity rules exceed your regular tax liability allocable to all passive activities for the tax year. H&r block military free file Credits that are included in figuring the general business credit are subject to the passive activity rules. H&r block military free file See the Instructions for Form 8582-CR for more information. H&r block military free file Publicly Traded Partnership You must apply the rules in this part separately to your income or loss from a passive activity held through a publicly traded partnership (PTP). H&r block military free file You also must apply the limit on passive activity credits separately to your credits from a passive activity held through a PTP. H&r block military free file You can offset deductions from passive activities of a PTP only against income or gain from passive activities of the same PTP. H&r block military free file Likewise, you can offset credits from passive activities of a PTP only against the tax on the net passive income from the same PTP. H&r block military free file This separate treatment rule also applies to a regulated investment company holding an interest in a PTP for the items attributable to that interest. H&r block military free file For more information on how to apply the passive activity loss rules to PTPs, and on how to apply the limit on passive activity credits to PTPs, see Publicly Traded Partnerships (PTPs) in the Instructions for Forms 8582 and 8582-CR, respectively. H&r block military free file Excess Farm Loss If you receive an applicable subsidy for any tax year and you have an excess farm loss for the tax year, special rules apply. H&r block military free file These rules do not apply to C corporations. H&r block military free file For information, see the Instructions for Schedule F (Form 1040), Profit or Loss From Farming. H&r block military free file Passive Activities There are two kinds of passive activities. H&r block military free file Trade or business activities in which you do not materially participate during the year. H&r block military free file Rental activities, even if you do materially participate in them, unless you are a real estate professional. H&r block military free file Material participation in a trade or business is discussed later, under Activities That Are Not Passive Activities . H&r block military free file Treatment of former passive activities. H&r block military free file   A former passive activity is an activity that was a passive activity in any earlier tax year, but is not a passive activity in the current tax year. H&r block military free file You can deduct a prior year's unallowed loss from the activity up to the amount of your current year net income from the activity. H&r block military free file Treat any remaining prior year unallowed loss like you treat any other passive loss. H&r block military free file   In addition, any prior year unallowed passive activity credits from a former passive activity offset the allocable part of your current year tax liability. H&r block military free file The allocable part of your current year tax liability is that part of this year's tax liability that is allocable to the current year net income from the former passive activity. H&r block military free file You figure this after you reduce your net income from the activity by any prior year unallowed loss from that activity (but not below zero). H&r block military free file Trade or Business Activities A trade or business activity is an activity that: Involves the conduct of a trade or business (that is, deductions would be allowable under section 162 of the Internal Revenue Code if other limitations, such as the passive activity rules, did not apply), Is conducted in anticipation of starting a trade or business, or Involves research or experimental expenditures that are deductible under Internal Revenue Code section 174 (or that would be deductible if you chose to deduct rather than capitalize them). H&r block military free file A trade or business activity does not include a rental activity or the rental of property that is incidental to an activity of holding the property for investment. H&r block military free file You generally report trade or business activities on Schedule C, C-EZ, F, or in Part II or III of Schedule E. H&r block military free file Rental Activities A rental activity is a passive activity even if you materially participated in that activity, unless you materially participated as a real estate professional. H&r block military free file See Real Estate Professional under Activities That Are Not Passive Activities, later. H&r block military free file An activity is a rental activity if tangible property (real or personal) is used by customers or held for use by customers, and the gross income (or expected gross income) from the activity represents amounts paid (or to be paid) mainly for the use of the property. H&r block military free file It does not matter whether the use is under a lease, a service contract, or some other arrangement. H&r block military free file Exceptions. H&r block military free file   Your activity is not a rental activity if any of the following apply. H&r block military free file The average period of customer use of the property is 7 days or less. H&r block military free file You figure the average period of customer use by dividing the total number of days in all rental periods by the number of rentals during the tax year. H&r block military free file If the activity involves renting more than one class of property, multiply the average period of customer use of each class by a fraction. H&r block military free file The numerator of the fraction is the gross rental income from that class of property and the denominator is the activity's total gross rental income. H&r block military free file The activity's average period of customer use will equal the sum of the amounts for each class. H&r block military free file The average period of customer use of the property, as figured in (1) above, is 30 days or less and you provide significant personal services with the rentals. H&r block military free file Significant personal services include only services performed by individuals. H&r block military free file To determine if personal services are significant, all relevant facts and circumstances are taken into consideration, including the frequency of the services, the type and amount of labor required to perform the services, and the value of the services relative to the amount charged for use of the property. H&r block military free file Significant personal services do not include the following. H&r block military free file Services needed to permit the lawful use of the property, Services to repair or improve property that would extend its useful life for a period substantially longer than the average rental, and Services that are similar to those commonly provided with long-term rentals of real estate, such as cleaning and maintenance of common areas or routine repairs. H&r block military free file You provide extraordinary personal services in making the rental property available for customer use. H&r block military free file Services are extraordinary personal services if they are performed by individuals and the customers' use of the property is incidental to their receipt of the services. H&r block military free file The rental is incidental to a nonrental activity. H&r block military free file The rental of property is incidental to an activity of holding property for investment if the main purpose of holding the property is to realize a gain from its appreciation and the gross rental income from the property is less than 2% of the smaller of the property's unadjusted basis or fair market value. H&r block military free file The unadjusted basis of property is its cost not reduced by depreciation or any other basis adjustment. H&r block military free file The rental of property is incidental to a trade or business activity if all of the following apply. H&r block military free file You own an interest in the trade or business activity during the year. H&r block military free file The rental property was used mainly in that trade or business activity during the current year, or during at least 2 of the 5 preceding tax years. H&r block military free file Your gross rental income from the property is less than 2% of the smaller of its unadjusted basis or fair market value. H&r block military free file Lodging provided to an employee or the employee's spouse or dependents is incidental to the activity or activities in which the employee performs services if the lodging is furnished for the employer's convenience. H&r block military free file You customarily make the rental property available during defined business hours for nonexclusive use by various customers. H&r block military free file You provide the property for use in a nonrental activity in your capacity as an owner of an interest in the partnership, S corporation, or joint venture conducting that activity. H&r block military free file    If you meet any of the exceptions listed above, see the instructions for Form 8582 for information about how to report any income or loss from the activity. H&r block military free file Special $25,000 allowance. H&r block military free file   If you or your spouse actively participated in a passive rental real estate activity, the amount of the passive activity loss that is disallowed is decreased and you therefore can deduct up to $25,000 of loss from the activity from your nonpassive income. H&r block military free file This special allowance is an exception to the general rule disallowing the passive activity loss. H&r block military free file Similarly, you can 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. H&r block military free file   If you are married, filing a separate return, and lived apart from your spouse for the entire tax year, your special allowance cannot be more than $12,500. H&r block military free file If you lived with your spouse at any time during the year and are filing a separate return, you cannot use the special allowance to reduce your nonpassive income or tax on nonpassive income. H&r block military free file   The maximum special allowance is reduced if your modified adjusted gross income exceeds certain amounts. H&r block military free file See Phaseout rule , later. H&r block military free file Example. H&r block military free file Kate, a single taxpayer, has $70,000 in wages, $15,000 income from a limited partnership, a $26,000 loss from rental real estate activities in which she actively participated, and is not subject to the modified adjusted gross income phaseout rule. H&r block military free file She can use $15,000 of her $26,000 loss to offset her $15,000 passive income from the partnership. H&r block military free file She actively participated in her rental real estate activities, so she can use the remaining $11,000 rental real estate loss to offset $11,000 of her nonpassive income (wages). H&r block military free file Commercial revitalization deduction (CRD). H&r block military free file   The special allowance must first be applied to losses from rental real estate activities figured without the CRD. H&r block military free file Any remaining part of the special allowance is available for the CRD from the rental real estate activities and is not subject to the active participation rules or the phaseout based on modified adjusted gross income. H&r block military free file You cannot claim a CRD for a building placed in service after December 31, 2009. H&r block military free file Active participation. H&r block military free file   Active participation is not the same as material participation (defined later). H&r block military free file Active participation is a less stringent standard than material participation. H&r block military free file For example, you may be treated as actively participating if you make management decisions in a significant and bona fide sense. H&r block military free file Management decisions that count as active participation include approving new tenants, deciding on rental terms, approving expenditures, and similar decisions. H&r block military free file   Only individuals can actively participate in rental real estate activities. H&r block military free file However, a decedent's estate is treated as actively participating for its tax years ending less than 2 years after the decedent's death, if the decedent would have satisfied the active participation requirement for the activity for the tax year the decedent died. H&r block military free file   A decedent's qualified revocable trust can also be treated as actively participating if both the trustee and the executor (if any) of the estate choose to treat the trust as part of the estate. H&r block military free file The choice applies to tax years ending after the decedent's death and before: 2 years after the decedent's death if no estate tax return is required, or 6 months after the estate tax liability is finally determined if an estate tax return is required. H&r block military free file   The choice is irrevocable and cannot be made later than the due date for the estate's first income tax return (including any extensions). H&r block military free file   Limited partners are not treated as actively participating in a partnership's rental real estate activities. H&r block military free file   You are not treated as actively participating in a rental real estate activity unless your interest in the activity (including your spouse's interest) was at least 10% (by value) of all interests in the activity throughout the year. H&r block military free file   Active participation is not required to take the low-income housing credit, the rehabilitation investment credit, or CRD from rental real estate activities. H&r block military free file Example. H&r block military free file Mike, a single taxpayer, had the following income and loss during the tax year: Salary $42,300 Dividends 300 Interest 1,400 Rental loss (4,000) The rental loss came from a house Mike owned. H&r block military free file He advertised and rented the house to the current tenant himself. H&r block military free file He also collected the rents and did the repairs or hired someone to do them. H&r block military free file Even though the rental loss is a loss from a passive activity, Mike can use the entire $4,000 loss to offset his other income because he actively participated. H&r block military free file Phaseout rule. H&r block military free file   The maximum special allowance of $25,000 ($12,500 for married individuals filing separate returns and living apart at all times during the year) is reduced by 50% of the amount of your modified adjusted gross income that is more than $100,000 ($50,000 if you are married filing separately). H&r block military free file If your modified adjusted gross income is $150,000 or more ($75,000 or more if you are married filing separately), you generally cannot use the special allowance. H&r block military free file    Modified adjusted gross income for this purpose is your adjusted gross income figured without the following. H&r block military free file Taxable social security and tier 1 railroad retirement benefits. H&r block military free file Deductible contributions to individual retirement accounts (IRAs) and section 501(c)(18) pension plans. H&r block military free file The exclusion from income of interest from qualified U. H&r block military free file S. H&r block military free file savings bonds used to pay qualified higher education expenses. H&r block military free file The exclusion from income of amounts received from an employer's adoption assistance program. H&r block military free file Passive activity income or loss included on Form 8582. H&r block military free file Any rental real estate loss allowed because you materially participated in the rental activity as a Real Estate Professional (as discussed later, under Activities That Are Not Passive Activities). H&r block military free file Any overall loss from a publicly traded partnership (see Publicly Traded Partnerships (PTPs) in the instructions for Form 8582). H&r block military free file The deduction for the employer-equivalent portion of self-employment tax. H&r block military free file The deduction for domestic production activities. H&r block military free file The deduction allowed for interest on student loans. H&r block military free file The deduction for qualified tuition and related expenses. H&r block military free file Example. H&r block military free file During 2013, John was unmarried and was not a real estate professional. H&r block military free file For 2013, he had $120,000 in salary and a $31,000 loss from his rental real estate activities in which he actively participated. H&r block military free file His modified adjusted gross income is $120,000. H&r block military free file When he files his 2013 return, he can deduct only $15,000 of his passive activity loss. H&r block military free file He must carry over the remaining $16,000 passive activity loss to 2014. H&r block military free file He figures his deduction and carryover as follows: Adjusted gross income, modified as required $120,000       Minus amount not subject to phaseout 100,000 Amount subject to phaseout rule $20,000 Multiply by 50% × 50% Required reduction to special allowance $10,000 Maximum special allowance $25,000 Minus required reduction (see above) 10,000 Adjusted special allowance $15,000 Passive loss from rental real estate $31,000 Deduction allowable/Adjusted  special allowance (see above) 15,000       Amount that must be carried forward $16,000 Exceptions to the phaseout rules. H&r block military free file   A higher phaseout range applies to rehabilitation investment credits from rental real estate activities. H&r block military free file For those credits, the phaseout of the $25,000 special allowance starts when your modified adjusted gross income exceeds $200,000 ($100,000 if you are a married individual filing a separate return and living apart at all times during the year). H&r block military free file   There is no phaseout of the $25,000 special allowance for low-income housing credits or for the CRD. H&r block military free file Ordering rules. H&r block military free file   If you have more than one of the exceptions to the phaseout rules in the same tax year, you must apply the $25,000 phaseout against your passive activity losses and credits in the following order. H&r block military free file The portion of passive activity losses not attributable to the CRD. H&r block military free file The portion of passive activity losses attributable to the CRD. H&r block military free file The portion of passive activity credits attributable to credits other than the rehabilitation and low-income housing credits. H&r block military free file The portion of passive activity credits attributable to the rehabilitation credit. H&r block military free file The portion of passive activity credits attributable to the low-income housing credit. H&r block military free file Activities That Are Not Passive Activities The following are not passive activities. H&r block military free file Trade or business activities in which you materially participated for the tax year. H&r block military free file A working interest in an oil or gas well which you hold directly or through an entity that does not limit your liability (such as a general partner interest in a partnership). H&r block military free file It does not matter whether you materially participated in the activity for the tax year. H&r block military free file However, if your liability was limited for part of the year (for example, you converted your general partner interest to a limited partner interest during the year) and you had a net loss from the well for the year, some of your income and deductions from the working interest may be treated as passive activity gross income and passive activity deductions. H&r block military free file  See Temporary Regulations section 1. H&r block military free file 469-1T(e)(4)(ii). H&r block military free file The rental of a dwelling unit that you also used for personal purposes during the year for more than the greater of 14 days or 10% of the number of days during the year that the home was rented at a fair rental. H&r block military free file An activity of trading personal property for the account of those who own interests in the activity. H&r block military free file See Temporary Regulations section 1. H&r block military free file 469-1T(e)(6). H&r block military free file Rental real estate activities in which you materially participated as a real estate professional. H&r block military free file See Real Estate Professional , later. H&r block military free file You should not enter income and losses from these activities on Form 8582. H&r block military free file Instead, enter them on the forms or schedules you would normally use. H&r block military free file Material Participation A trade or business activity is not a passive activity if you materially participated in the activity. H&r block military free file Material participation tests. H&r block military free file    You materially participated in a trade or business activity for a tax year if you satisfy any of the following tests. H&r block military free file You participated in the activity for more than 500 hours. H&r block military free file Your participation was substantially all the participation in the activity of all individuals for the tax year, including the participation of individuals who did not own any interest in the activity. H&r block military free file You participated in the activity for more than 100 hours during the tax year, and you participated at least as much as any other individual (including individuals who did not own any interest in the activity) for the year. H&r block military free file The activity is a significant participation activity, and you participated in all significant participation activities for more than 500 hours. H&r block military free file A significant participation activity is any trade or business activity in which you participated for more than 100 hours during the year and in which you did not materially participate under any of the material participation tests, other than this test. H&r block military free file See Significant Participation Passive Activities , under Recharacterization of Passive Income, later. H&r block military free file You materially participated in the activity for any 5 (whether or not consecutive) of the 10 immediately preceding tax years. H&r block military free file The activity is a personal service activity in which you materially participated for any 3 (whether or not consecutive) preceding tax years. H&r block military free file An activity is a personal service activity if it involves the performance of personal services in the fields of health (including veterinary services), law, engineering, architecture, accounting, actuarial science, performing arts, consulting, or any other trade or business in which capital is not a material income-producing factor. H&r block military free file Based on all the facts and circumstances, you participated in the activity on a regular, continuous, and substantial basis during the year. H&r block military free file   You did not materially participate in the activity under test (7) if you participated in the activity for 100 hours or less during the year. H&r block military free file Your participation in managing the activity does not count in determining whether you materially participated under this test if: Any person other than you received compensation for managing the activity, or Any individual spent more hours during the tax year managing the activity than you did (regardless of whether the individual was compensated for the management services). H&r block military free file Participation. H&r block military free file   In general, any work you do in connection with an activity in which you own an interest is treated as participation in the activity. H&r block military free file Work not usually performed by owners. H&r block military free file   You do not treat the work you do in connection with an activity as participation in the activity if both of the following are true. H&r block military free file The work is not work that is customarily done by the owner of that type of activity. H&r block military free file One of your main reasons for doing the work is to avoid the disallowance of any loss or credit from the activity under the passive activity rules. H&r block military free file Participation as an investor. H&r block military free file   You do not treat the work you do in your capacity as an investor in an activity as participation unless you are directly involved in the day-to-day management or operations of the activity. H&r block military free file Work you do as an investor includes: Studying and reviewing financial statements or reports on operations of the activity, Preparing or compiling summaries or analyses of the finances or operations of the activity for your own use, and Monitoring the finances or operations of the activity in a nonmanagerial capacity. H&r block military free file Spouse's participation. H&r block military free file   Your participation in an activity includes your spouse's participation. H&r block military free file This applies even if your spouse did not own any interest in the activity and you and your spouse do not file a joint return for the year. H&r block military free file Proof of participation. H&r block military free file You can use any reasonable method to prove your participation in an activity for the year. H&r block military free file You do not have to keep contemporaneous daily time reports, logs, or similar documents if you can establish your participation in some other way. H&r block military free file For example, you can show the services you performed and the approximate number of hours spent by using an appointment book, calendar, or narrative summary. H&r block military free file Limited partners. H&r block military free file   If you owned an activity as a limited partner, you generally are not treated as materially participating in the activity. H&r block military free file However, you are treated as materially participating in the activity if you met test (1), (5), or (6) under Material participation tests , discussed earlier, for the tax year. H&r block military free file   You are not treated as a limited partner, however, if you also were a general partner in the partnership at all times during the partnership's tax year ending with or within your tax year (or, if shorter, during that part of the partnership's tax year in which you directly or indirectly owned your limited partner interest). H&r block military free file Retired or disabled farmer and surviving spouse of a farmer. H&r block military free file   If you are a retired or disabled farmer, you are treated as materially participating in a farming activity if you materially participated for 5 or more of the 8 years before your retirement or disability. H&r block military free file Similarly, if you are a surviving spouse of a farmer, you are treated as materially participating in a farming activity if the real property used in the activity meets the estate tax rules for special valuation of farm property passed from a qualifying decedent, and you actively manage the farm. H&r block military free file Corporations. H&r block military free file   A closely held corporation or a personal service corporation is treated as materially participating in an activity only if one or more shareholders holding more than 50% by value of the outstanding stock of the corporation materially participate in the activity. H&r block military free file   A closely held corporation can also satisfy the material participation standard by meeting the first two requirements for the qualifying business exception from the at-risk limits. H&r block military free file See Special exception for qualified corporations under Activities Covered by the At-Risk Rules, later. H&r block military free file Real Estate Professional Generally, rental activities are passive activities even if you materially participated in them. H&r block military free file However, if you qualified as a real estate professional, rental real estate activities in which you materially participated are not passive activities. H&r block military free file For this purpose, each interest you have in a rental real estate activity is a separate activity, unless you choose to treat all interests in rental real estate activities as one activity. H&r block military free file See the Instructions for Schedule E (Form 1040), Supplemental Income and Loss, for information about making this choice. H&r block military free file If you qualified as a real estate professional for 2013, report income or losses from rental real estate activities in which you materially participated as nonpassive income or losses, and complete line 43 of Schedule E (Form 1040). H&r block military free file If you also have an unallowed loss from these activities from an earlier year when you did not qualify, see Treatment of former passive activities under Passive Activities, earlier. H&r block military free file Qualifications. H&r block military free file   You qualified as a real estate professional for the year if you met both of the following requirements. H&r block military free file More than half of the personal services you performed in all trades or businesses during the tax year were performed in real property trades or businesses in which you materially participated. H&r block military free file You performed more than 750 hours of services during the tax year in real property trades or businesses in which you materially participated. H&r block military free file   Do not count personal services you performed as an employee in real property trades or businesses unless you were a 5% owner of your employer. H&r block military free file You were a 5% owner if you owned (or are considered to have owned) more than 5% of your employer's outstanding stock, outstanding voting stock, or capital or profits interest. H&r block military free file   If you file a joint return, do not count your spouse's personal services to determine whether you met the preceding requirements. H&r block military free file However, you can count your spouse's participation in an activity in determining if you materially participated. H&r block military free file Real property trades or businesses. H&r block military free file   A real property trade or business is a trade or business that does any of the following with real property. H&r block military free file Develops or redevelops it. H&r block military free file Constructs or reconstructs it. H&r block military free file Acquires it. H&r block military free file Converts it. H&r block military free file Rents or leases it. H&r block military free file Operates or manages it. H&r block military free file Brokers it. H&r block military free file Closely held corporations. H&r block military free file   A closely held corporation can qualify as a real estate professional if more than 50% of the gross receipts for its tax year came from real property trades or businesses in which it materially participated. H&r block military free file Passive Activity Income and Deductions In figuring your net income or loss from a passive activity, take into account only passive activity income and passive activity deductions. H&r block military free file Self-charged interest. H&r block military free file   Certain self-charged interest income or deductions may be treated as passive activity gross income or passive activity deductions if the loan proceeds are used in a passive activity. H&r block military free file   Generally, self-charged interest income and deductions result from loans between you and a partnership or S corporation in which you had a direct or indirect ownership interest. H&r block military free file This includes both loans you made to the partnership or S corporation and loans the partnership or S corporation made to you. H&r block military free file   It also includes loans from one partnership or S corporation to another partnership or S corporation if each owner in the borrowing entity has the same proportional ownership interest in the lending entity. H&r block military free file    Exception. H&r block military free file The self-charged interest rules do not apply to your interest in a partnership or S corporation if the entity made an election under Regulations section 1. H&r block military free file 469-7(g) to avoid the application of these rules. H&r block military free file For more details on the self-charged interest rules, see Regulations section 1. H&r block military free file 469-7. H&r block military free file Passive Activity Income Passive activity income includes all income from passive activities and generally includes gain from disposition of an interest in a passive activity or property used in a passive activity. H&r block military free file Passive activity income does not include the following items. H&r block military free file Income from an activity that is not a passive activity. H&r block military free file These activities are discussed under Activities That Are Not Passive Activities , earlier. H&r block military free file Portfolio income. H&r block military free file This includes interest, dividends, annuities, and royalties not derived in the ordinary course of a trade or business. H&r block military free file It includes gain or loss from the disposition of property that produces these types of income or that is held for investment. H&r block military free file The exclusion for portfolio income does not apply to self-charged interest treated as passive activity income. H&r block military free file For more information on self-charged interest, see Self-charged interest , earlier. H&r block military free file Personal service income. H&r block military free file This includes salaries, wages, commissions, self-employment income from trade or business activities in which you materially participated, deferred compensation, taxable social security and other retirement benefits, and payments from partnerships to partners for personal services. H&r block military free file Income from positive section 481 adjustments allocated to activities other than passive activities. H&r block military free file (Section 481 adjustments are adjustments that must be made due to changes in your accounting method. H&r block military free file ) Income or gain from investments of working capital. H&r block military free file Income from an oil or gas property if you treated any loss from a working interest in the property for any tax year beginning after 1986 as a nonpassive loss, as discussed in item (2) under Activities That Are Not Passive Activities , earlier. H&r block military free file This also applies to income from other oil and gas property the basis of which is determined wholly or partly by the basis of the property in the preceding sentence. H&r block military free file Any income from intangible property, such as a patent, copyright, or literary, musical, or artistic composition, if your personal efforts significantly contributed to the creation of the property. H&r block military free file Any other income that must be treated as nonpassive income. H&r block military free file See Recharacterization of Passive Income , later. H&r block military free file Overall gain from any interest in a publicly traded partnership. H&r block military free file See Publicly Traded Partnerships (PTPs) in the instructions for Form 8582. H&r block military free file State, local, and foreign income tax refunds. H&r block military free file Income from a covenant not to compete. H&r block military free file Reimbursement of a casualty or theft loss included in gross income to recover all or part of a prior year loss deduction, if the loss deduction was not a passive activity deduction. H&r block military free file Alaska Permanent Fund dividends. H&r block military free file Cancellation of debt income, if at the time the debt is discharged the debt is not allocated to passive activities under the interest expense allocation rules. H&r block military free file See chapter 4 of Publication 535, Business Expenses, for information about the rules for allocating interest. H&r block military free file Disposition of property interests. H&r block military free file   Gain on the disposition of an interest in property generally is passive activity income if, at the time of the disposition, the property was used in an activity that was a passive activity in the year of disposition. H&r block military free file The gain generally is not passive activity income if, at the time of disposition, the property was used in an activity that was not a passive activity in the year of disposition. H&r block military free file An exception to this general rule may apply if you previously used the property in a different activity. H&r block military free file Exception for more than one use in the preceding 12 months. H&r block military free file   If you used the property in more than one activity during the 12-month period before its disposition, you must allocate the gain between the activities on a basis that reasonably reflects the property's use during that period. H&r block military free file Any gain allocated to a passive activity is passive activity income. H&r block military free file   For this purpose, an allocation of the gain solely to the activity in which the property was mainly used during that period reasonably reflects the property's use if the fair market value of your interest in the property is not more than the lesser of: $10,000, or 10% of the total of the fair market value of your interest in the property and the fair market value of all other property used in that activity immediately before the disposition. H&r block military free file Exception for substantially appreciated property. H&r block military free file   The gain is passive activity income if the fair market value of the property at disposition was more than 120% of its adjusted basis and either of the following conditions applies. H&r block military free file You used the property in a passive activity for 20% of the time you held your interest in the property. H&r block military free file You used the property in a passive activity for the entire 24-month period before its disposition. H&r block military free file If neither condition applies, the gain is not passive activity income. H&r block military free file However, it is treated as portfolio income only if you held the property for investment for more than half of the time you held it in nonpassive activities. H&r block military free file   For this purpose, treat property you held through a corporation (other than an S corporation) or other entity whose owners receive only portfolio income as property held in a nonpassive activity and as property held for investment. H&r block military free file Also, treat the date you agree to transfer your interest for a fixed or determinable amount as the disposition date. H&r block military free file   If you used the property in more than one activity during the 12-month period before its disposition, this exception applies only to the part of the gain allocated to a passive activity under the rules described in the preceding discussion. H&r block military free file Disposition of property converted to inventory. H&r block military free file   If you disposed of property that you had converted to inventory from its use in another activity (for example, you sold condominium units you previously held for use in a rental activity), a special rule may apply. H&r block military free file Under this rule, you disregard the property's use as inventory and treat it as if it were still used in that other activity at the time of disposition. H&r block military free file This rule applies only if you meet all of the following conditions. H&r block military free file At the time of disposition, you held your interest in the property in a dealing activity (an activity that involves holding the property or similar property mainly for sale to customers in the ordinary course of a trade or business). H&r block military free file Your other activities included a nondealing activity (an activity that does not involve holding similar property for sale to customers in the ordinary course of a trade or business) in which you used the property for more than 80% of the period you held it. H&r block military free file You did not acquire or hold your interest in the property for the main purpose of selling it to customers in the ordinary course of a trade or business. H&r block military free file Passive Activity Deductions Generally, a deduction is a passive activity deduction for a taxable year if and only if such deduction either: Arises in connection with the conduct of an activity that is a passive activity for the tax year; or Is treated as a deduction from an activity for the tax year because it was disallowed by the passive activity rules in the preceding year and carried forward to the tax year. H&r block military free file For purposes of item (1), above, an item of deduction arises in the taxable year in which the item would be allowable as a deduction under the taxpayer's method of accounting if taxable income for all taxable years were determined without regard to the passive activity rules and without regard to the basis, excess farm loss, and at-risk limits. H&r block military free file See Coordination with other limitations on deductions that apply before the passive activity rules , later. H&r block military free file Passive activity deductions generally include losses from dispositions of property used in a passive activity at the time of the disposition and losses from a disposition of less than your entire interest in a passive activity. H&r block military free file Exceptions. H&r block military free file   Passive activity deductions do not include the following items. H&r block military free file Deductions for expenses (other than interest expense) that are clearly and directly allocable to portfolio income. H&r block military free file Qualified home mortgage interest, capitalized interest expenses, and other interest expenses (other than self-charged interest) properly allocable to passive activities. H&r block military free file For more information on self-charged interest, see Self-charged interest under Passive Activity Income and Deductions, earlier. H&r block military free file Losses from dispositions of property that produce portfolio income or property held for investment. H&r block military free file State, local, and foreign income taxes. H&r block military free file Miscellaneous itemized deductions that may be disallowed because of the 2%-of-adjusted-gross-income limit. H&r block military free file Charitable contribution deductions. H&r block military free file Net operating loss deductions. H&r block military free file Percentage depletion carryovers for oil and gas wells. H&r block military free file Capital loss carrybacks and carryovers. H&r block military free file Items of deduction from a passive activity that are disallowed under the limits on deductions that apply before the passive activity rules. H&r block military free file See Coordination with other limitations on deductions that apply before the passive activity rules , later. H&r block military free file Deductions and losses that would have been allowed for tax years beginning before 1987 but for basis or at-risk limits. H&r block military free file Net negative section 481 adjustments allocated to activities other than passive activities. H&r block military free file (Section 481 adjustments are adjustments required due to changes in accounting methods. H&r block military free file ) Casualty and theft losses, unless losses similar in cause and severity recur regularly in the activity. H&r block military free file The deduction for the employer-equivalent portion of self-employment tax. H&r block military free file Coordination with other limitations on deductions that apply before the passive activity rules. H&r block military free file   An item of deduction from a passive activity that is disallowed for a tax year under the basis or at-risk limitations is not a passive activity deduction for the tax year. H&r block military free file The following sections provide rules for figuring the extent to which items of deduction from a passive activity are disallowed for a tax year under the basis or at-risk limitations. H&r block military free file Proration of deductions disallowed under basis limitations. H&r block military free file   If any amount of your distributive share of a partnership's loss for the tax year is disallowed under the basis limitation, a ratable portion of your distributive share of each item of deduction or loss of the partnership is disallowed for the tax year. H&r block military free file For this purpose, the ratable portion of an item of deduction or loss is the amount of such item multiplied by the fraction obtained by dividing: The amount of your distributive share of partnership loss that is disallowed for the taxable year; by The sum of your distributive shares of all items of deduction and loss of the partnership for the tax year. H&r block military free file   If any amount of your pro rata share of an S corporation's loss for the tax year is disallowed under the basis limitation, a ratable portion of your pro rata share of each item of deduction or loss of the S corporation is disallowed for the tax year. H&r block military free file For this purpose, the ratable portion of an item of deduction or loss is the amount of such item multiplied by the fraction obtained by dividing: The amount of your share of S corporation loss that is disallowed for the tax year; by The sum of your pro rata shares of all items of deduction and loss of the corporation for the tax year. H&r block military free file Proration of deductions disallowed under at-risk limitation. H&r block military free file   If any amount of your loss from an activity (as defined in Activities Covered by the At-Risk Rules , later) is disallowed under the at-risk rules for the tax year, a ratable portion of each item of deduction or loss from the activity is disallowed for the tax year. H&r block military free file For this purpose, the ratable portion of an item of deduction or loss is the amount of such item multiplied by the fraction obtained by dividing: The amount of the loss from the activity that is disallowed for the tax year; by The sum of all deductions from the activity for the taxable year. H&r block military free file Coordination of basis and at-risk limitations. H&r block military free file   The portion of any item of deduction or loss that is disallowed for the tax year under the basis limitations is not taken into account for the taxable year in determining the loss from an activity (as defined in Activities Covered by the At-Risk Rules , later) for purposes of applying the at-risk rules. H&r block military free file Separately identified items of deduction and loss. H&r block military free file   In identifying the items of deduction and loss from an activity that are not disallowed under the basis and at-risk limitations (and that therefore may be treated as passive activity deductions), you need not account separately for any item of deduction or loss unless such item may, if separately taken into account, result in an income tax liability different from that which would result were such item of deduction or loss taken into account separately. H&r block military free file   Items of deduction or loss that must be accounted for separately include (but are not limited to) items of deduction or loss that: Are attributable to separate activities. H&r block military free file See Grouping Your Activities , later. H&r block military free file Arise in a rental real estate activity in tax years in which you actively participate in such activity; Arise in a rental real estate activity in taxable years in which you do not actively participate in such activity; Arose in a taxable year beginning before 1987 and were not allowed for such taxable year under the basis or at-risk limitations; Are taken into account under section 613A(d) (relating to limitations on certain depletion deductions); Are taken into account under section 1211 (relating to the limitation on capital losses); Are taken into account under section 1231 (relating to property used in a trade or business and involuntary conversions). H&r block military free file See Section 1231 Gains and Losses in Publication 544 for more information. H&r block military free file Are attributable to pre-enactment interests in activities. H&r block military free file See Regulations section 1. H&r block military free file 469-11T(c). H&r block military free file Grouping Your Activities You can treat one or more trade or business activities, or rental activities, as a single activity if those activities form an appropriate economic unit for measuring gain or loss under the passive activity rules. H&r block military free file Grouping is important for a number of reasons. H&r block military free file If you group two activities into one larger activity, you need only show material participation in the activity as a whole. H&r block military free file But if the two activities are separate, you must show material participation in each one. H&r block military free file On the other hand, if you group two activities into one larger activity and you dispose of one of the two, then you have disposed of only part of your entire interest in the activity. H&r block military free file But if the two activities are separate and you dispose of one of them, then you have disposed of your entire interest in that activity. H&r block military free file Grouping can also be important in determining whether you meet the 10% ownership requirement for actively participating in a rental real estate activity. H&r block military free file Appropriate Economic Units Generally, to determine if activities form an appropriate economic unit, you must consider all the relevant facts and circumstances. H&r block military free file You can use any reasonable method of applying the relevant facts and circumstances in grouping activities. H&r block military free file The following factors have the greatest weight in determining whether activities form an appropriate economic unit. H&r block military free file All of the factors do not have to apply to treat more than one activity as a single activity. H&r block military free file The factors that you should consider are: The similarities and differences in the types of trades or businesses, The extent of common control, The extent of common ownership, The geographical location, and The interdependencies between or among activities, which may include the extent to which the activities: Buy or sell goods between or among themselves, Involve products or services that are generally provided together, Have the same customers, Have the same employees, or Use a single set of books and records to account for the activities. H&r block military free file Example 1. H&r block military free file John Jackson owns a bakery and a movie theater at a shopping mall in Baltimore and a bakery and movie theater in Philadelphia. H&r block military free file Based on all the relevant facts and circumstances, there may be more than one reasonable method for grouping John's activities. H&r block military free file For example, John may be able to group the movie theaters and the bakeries into: One activity, A movie theater activity and a bakery activity, A Baltimore activity and a Philadelphia activity, or Four separate activities. H&r block military free file Example 2. H&r block military free file Betty is a partner in ABC partnership, which sells nonfood items to grocery stores. H&r block military free file Betty is also a partner in DEF (a trucking business). H&r block military free file ABC and DEF are under common control. H&r block military free file The main part of DEF's business is transporting goods for ABC. H&r block military free file DEF is the only trucking business in which Betty is involved. H&r block military free file Based on the rules of this section, Betty treats ABC's wholesale activity and DEF's trucking activity as a single activity. H&r block military free file Consistency and disclosure requirement. H&r block military free file   Generally, when you group activities into appropriate economic units, you may not regroup those activities in a later tax year. H&r block military free file You must meet any disclosure requirements of the IRS when you first group your activities and when you add or dispose of any activities in your groupings. H&r block military free file   However, if the original grouping is clearly inappropriate or there is a material change in the facts and circumstances that makes the original grouping clearly inappropriate, you must regroup the activities and comply with any disclosure requirements of the IRS. H&r block military free file   See Disclosure Requirement , later. H&r block military free file Regrouping by the IRS. H&r block military free file   If any of the activities resulting from your grouping is not an appropriate economic unit and one of the primary purposes of your grouping (or failure to regroup) is to avoid the passive activity rules, the IRS may regroup your activities. H&r block military free file Rental activities. H&r block military free file   In general, you cannot group a rental activity with a trade or business activity. H&r block military free file However, you can group them together if the activities form an appropriate economic unit and: The rental activity is insubstantial in relation to the trade or business activity, The trade or business activity is insubstantial in relation to the rental activity, or Each owner of the trade or business activity has the same ownership interest in the rental activity, in which case the part of the rental activity that involves the rental of items of property for use in the trade or business activity may be grouped with the trade or business activity. H&r block military free file Example. H&r block military free file Herbert and Wilma are married and file a joint return. H&r block military free file Healthy Food, an S corporation, is a grocery store business. H&r block military free file Herbert is Healthy Food's only shareholder. H&r block military free file Plum Tower, an S corporation, owns and rents out the building. H&r block military free file Wilma is Plum Tower's only shareholder. H&r block military free file Plum Tower rents part of its building to Healthy Food. H&r block military free file Plum Tower's grocery store rental business and Healthy Food's grocery business are not insubstantial in relation to each other. H&r block military free file Herbert and Wilma file a joint return, so they are treated as one taxpayer for purposes of the passive activity rules. H&r block military free file The same owner (Herbert and Wilma) owns both Healthy Food and Plum Tower with the same ownership interest (100% in each). H&r block military free file If the grouping forms an appropriate economic unit, as discussed earlier, Herbert and Wilma can group Plum Tower's grocery store rental and Healthy Food's grocery business into a single trade or business activity. H&r block military free file Grouping of real and personal property rentals. H&r block military free file   In general, you cannot treat an activity involving the rental of real property and an activity involving the rental of personal property as a single activity. H&r block military free file However, you can treat them as a single activity if you provide the personal property in connection with the real property or the real property in connection with the personal property. H&r block military free file Certain activities may not be grouped. H&r block military free file   In general, if you own an interest as a limited partner or a limited entrepreneur in one of the following activities, you may not group that activity with any other activity in another type of business. H&r block military free file Holding, producing, or distributing motion picture films or video tapes. H&r block military free file Farming. H&r block military free file Leasing any section 1245 property (as defined in section 1245(a)(3) of the Internal Revenue Code). H&r block military free file For a list of section 1245 property, see Section 1245 property under Activities Covered by the At-Risk Rules , later. H&r block military free file Exploring for, or exploiting, oil and gas resources. H&r block military free file Exploring for, or exploiting, geothermal deposits. H&r block military free file   If you own an interest as a limited partner or a limited entrepreneur in an activity described in the list above, you may group that activity with another activity in the same type of business if the grouping forms an appropriate economic unit as discussed earlier. H&r block military free file Limited entrepreneur. H&r block military free file   A limited entrepreneur is a person who: Has an interest in an enterprise other than as a limited partner, and Does not actively participate in the management of the enterprise. H&r block military free file Activities conducted through another entity. H&r block military free file   A personal service corporation, closely held corporation, partnership, or S corporation must group its activities using the rules discussed in this section. H&r block military free file Once the entity groups its activities, you, as the partner or shareholder of the entity, may group those activities (following the rules of this section): With each other, With activities conducted directly by you, or With activities conducted through other entities. H&r block military free file    You may not treat activities grouped together by the entity as separate activities. H&r block military free file Personal service and closely held corporations. H&r block military free file   You may group an activity conducted through a personal service or closely held corporation with your other activities only to determine whether you materially or significantly participated in those other activities. H&r block military free file See Material Participation , earlier, and Significant Participation Passive Activities , later. H&r block military free file Publicly traded partnership (PTP). H&r block military free file   You may not group activities conducted through a PTP with any other activity, including an activity conducted through another PTP. H&r block military free file Partial dispositions. H&r block military free file   If you dispose of substantially all of an activity during your tax year, you may treat the part disposed of as a separate activity. H&r block military free file However, you can do this only if you can show with reasonable certainty: The amount of deductions and credits disallowed in prior years under the passive activity rules that is allocable to the part of the activity disposed of, and The amount of gross income and any other deductions and credits for the current tax year that is allocable to the part of the activity disposed of. H&r block military free file Disclosure Requirement For tax years beginning after January 24, 2010, the following disclosure requirements for groupings apply. H&r block military free file You are required to report certain changes to your groupings that occur during the tax year to the IRS. H&r block military free file If you fail to report these changes, each trade or business activity or rental activity will be treated as a separate activity. H&r block military free file You will be considered to have made a timely disclosure if you filed all affected income tax returns consistent with the claimed grouping and make the required disclosure on the income tax return for the year in which you first discovered the failure to disclose. H&r block military free file If the IRS discovered the failure to disclose, you must have reasonable cause for not making the required disclosure. H&r block military free file New grouping. H&r block military free file   You must file a written statement with your original income tax return for the first tax year in which two or more activities are originally grouped into a single activity. H&r block military free file The statement must provide the names, addresses, and employer identification numbers (EINs), if applicable, for the activities being grouped as a single activity. H&r block military free file In addition, the statement must contain a declaration that the grouped activities make up an appropriate economic unit for the measurement of gain or loss under the passive activity rules. H&r block military free file Addition to an existing grouping. H&r block military free file   You must file a written statement with your original income tax return for the tax year in which you add a new activity to an existing group. H&r block military free file The statement must provide the name, address, and EIN, if applicable, for the activity that is being added and for the activities in the existing group. H&r block military free file In addition, the statement must contain a declaration that the activities make up an appropriate economic unit for the measurement of gain or loss under the passive activity rules. H&r block military free file Regrouping. H&r block military free file   You must file a written statement with your original income tax return for the tax year in which you regroup the activities. H&r block military free file The statement must provide the names, addresses, and EINs, if applicable, for the activities that are being regrouped. H&r block military free file If two or more activities are being regrouped into a single activity, the statement must contain a declaration that the regrouped activities make up an appropriate economic unit for the measurement of gain or loss under the passive activity rules. H&r block military free file In addition, the statement must contain an explanation of the material change in the facts and circumstances that made the original grouping clearly inappropriate. H&r block military free file Groupings by partnerships and S corporations. H&r block military free file   Partnerships and S corporations are not subject to the rules for new grouping, addition to an existing grouping, or regrouping. H&r block military free file Instead, they must comply with the disclosure instructions for grouping activities provided in their Form 1065, U. H&r block military free file S. H&r block military free file Return of Partnership Income, or Form 1120S, U. H&r block military free file S. H&r block military free file Income Tax Return for an S Corporation, whichever is applicable. H&r block military free file   The partner or shareholder is not required to make a separate disclosure of the groupings disclosed by the entity unless the partner or shareholder: Groups together any of the activities that the entity does not group together, Groups the entity's activities with activities conducted directly by the partner or shareholder, or Groups an entity's activities with activities conducted through another entity. H&r block military free file   A partner or shareholder may not treat activities grouped together by the entity as separate activities. H&r block military free file Recharacterization of Passive Income Net income from the following passive activities may have to be recharacterized and excluded from passive activity income. H&r block military free file Significant participation passive activities, Rental of property when less than 30% of the unadjusted basis of the property is subject to depreciation, Equity-financed lending activities, Rental of property incidental to development activities, Rental of property to nonpassive activities, and Licensing of intangible property by  pass-through entities. H&r block military free file If you are engaged in or have an interest in one of these activities during the tax year (either directly or through a partnership or an S corporation), combine the income and losses from the activity to determine if you have a net loss or net income from that activity. H&r block military free file If the result is a net loss, treat the income and losses the same as any other income or losses from that type of passive activity (trade or business activity or rental activity). H&r block military free file If the result is net income, do not enter any of the income or losses from the activity or property on Form 8582 or its worksheets. H&r block military free file Instead, enter income or losses on the form and schedules you normally use. H&r block military free file However, see Significant Participation Passive Activities , later, if the activity is a significant participation passive activity and you also have a net loss from a different significant participation passive activity. H&r block military free file Limit on recharacterized passive income. H&r block military free file   The total amount that you treat as nonpassive income under the rules described later in this discussion for significant participation passive activities, rental of nondepreciable property, and equity-financed lending activities cannot exceed the greatest amount that you treat as nonpassive income under any one of these rules. H&r block military free file Investment income and investment expense. H&r block military free file   To figure your investment interest expense limitation on Form 4952, treat as investment income any net passive income recharacterized as nonpassive income from rental of nondepreciable property, equity-financed lending activity, or licensing of intangible property by a pass-through entity. H&r block military free file Significant Participation Passive Activities A significant participation passive activity is any trade or business activity in which you participated for more than 100 hours during the tax year but did not materially participate. H&r block military free file If your gross income from all significant participation passive activities is more than your deductions from those activities, a part of your net income from each significant participation passive activity is treated as nonpassive income. H&r block military free file Corporations. H&r block military free file   An activity of a personal service corporation or closely held corporation is a significant participation passive activity if both of the following statements are true. H&r block military free file The corporation is not treated as materially participating in the activity for the year. H&r block military free file One or more individuals, each of whom is treated as significantly participating in the activity, directly or indirectly hold (in total) more than 50% (by value) of the corporation's outstanding stock. H&r block military free file Worksheet A. H&r block military free file   Complete Worksheet A. H&r block military free file Significant Participation Passive Activities , below, if you have income or losses from any significant participation activity. H&r block military free file Begin by entering the name of each activity in the left column. H&r block military free file Column (a). H&r block military free file   Enter the number of hours you participated in each activity and total the column. H&r block military free file   If the total is more than 500, do not complete Worksheet A or B. H&r block military free file None of the activities are passive activities because you satisfy test 4 for material participation. H&r block military free file (See Material participation tests , earlier. H&r block military free file ) Report all the income and losses from these activities on the forms and schedules you normally use. H&r block military free file Do not include the income and losses on Form 8582. H&r block military free file Column (b). H&r block military free file   Enter the net loss, if any, from the activity. H&r block military free file Net loss from an activity means either: The activity's current year net loss (if any) plus prior year unallowed losses (if any), or The excess of prior year unallowed losses over the current year net income (if any). H&r block military free file Enter -0- here if the prior year unallowed loss is the same as the current year net income. H&r block military free file Column (c). H&r block military free file   Enter net income (if any) from the activity. H&r block military free file Net income means the excess of the current year's net income from the activity over any prior year unallowed losses from the activity. H&r block military free file Column (d). H&r block military free file   Combine amounts in the Totals row for columns (b) and (c) and enter the total net income or net loss in the Totals row of column (d). H&r block military free file If column (d) is a net loss, skip Worksheet B, Significant Participation Activities With Net Income. H&r block military free file Include the income and losses in Worksheet 3 of Form 8582 (or Worksheet 2 in the Form 88