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Hrblockfree com Publication 587 - Main Content Table of Contents Qualifying for a DeductionExclusive Use Regular Use Trade or Business Use Principal Place of Business Place To Meet Patients, Clients, or Customers Separate Structure Figuring the DeductionUsing Actual Expenses Using the Simplified Method Daycare Facility Standard meal and snack rates. Hrblockfree com Sale or Exchange of Your HomeGain on Sale Depreciation Basis Adjustment Reporting the Sale More Information Business Furniture and EquipmentListed Property Property Bought for Business Use Personal Property Converted to Business Use Recordkeeping Where To DeductSelf-Employed Persons Employees Partners How To Get Tax HelpLow Income Taxpayer Clinics Worksheet To Figure the Deduction for Business Use of Your HomeInstructions for the Worksheet Worksheets To Figure the Deduction for Business Use of Your Home (Simplified Method) Instructions for the Simplified Method Worksheet Instructions for the Daycare Facility Worksheet Instructions for the Area Adjustment Worksheet Qualifying for a Deduction Generally, you cannot deduct items related to your home, such as mortgage interest, real estate taxes, utilities, maintenance, rent, depreciation, or property insurance, as business expenses. Hrblockfree com However, you may be able to deduct expenses related to the business use of part of your home if you meet specific requirements. Hrblockfree com Even then, the deductible amount of these types of expenses may be limited. Hrblockfree com Use this section and Figure A, later, to decide if you can deduct expenses for the business use of your home. Hrblockfree com To qualify to deduct expenses for business use of your home, you must use part of your home: Exclusively and regularly as your principal place of business (defined later), Exclusively and regularly as a place where you meet or deal with patients, clients, or customers in the normal course of your trade or business, In the case of a separate structure which is not attached to your home, in connection with your trade or business, On a regular basis for certain storage use (see Storage of inventory or product samples , later), For rental use (see Publication 527), or As a daycare facility (see Daycare Facility , later). Hrblockfree com Additional tests for employee use. Hrblockfree com   If you are an employee and you use a part of your home for business, you may qualify for a deduction for its business use. Hrblockfree com You must meet the tests discussed earlier plus: Your business use must be for the convenience of your employer, and You must not rent any part of your home to your employer and use the rented portion to perform services as an employee for that employer. Hrblockfree com If the use of the home office is merely appropriate and helpful, you cannot deduct expenses for the business use of your home. Hrblockfree com Exclusive Use To qualify under the exclusive use test, you must use a specific area of your home only for your trade or business. Hrblockfree com The area used for business can be a room or other separately identifiable space. Hrblockfree com The space does not need to be marked off by a permanent partition. Hrblockfree com You do not meet the requirements of the exclusive use test if you use the area in question both for business and for personal purposes. Hrblockfree com Example. Hrblockfree com You are an attorney and use a den in your home to write legal briefs and prepare clients' tax returns. Hrblockfree com Your family also uses the den for recreation. Hrblockfree com The den is not used exclusively in your trade or business, so you cannot claim a deduction for the business use of the den. Hrblockfree com Exceptions to Exclusive Use You do not have to meet the exclusive use test if either of the following applies. Hrblockfree com You use part of your home for the storage of inventory or product samples (discussed next). Hrblockfree com You use part of your home as a daycare facility, discussed later under Daycare Facility . Hrblockfree com Note. Hrblockfree com With the exception of these two uses, any portion of the home used for business purposes must meet the exclusive use test. Hrblockfree com Storage of inventory or product samples. Hrblockfree com    If you use part of your home for storage of inventory or product samples, you can deduct expenses for the business use of your home without meeting the exclusive use test. Hrblockfree com However, you must meet all the following tests. Hrblockfree com You sell products at wholesale or retail as your trade or business. Hrblockfree com You keep the inventory or product samples in your home for use in your trade or business. Hrblockfree com Your home is the only fixed location of your trade or business. Hrblockfree com You use the storage space on a regular basis. Hrblockfree com The space you use is a separately identifiable space suitable for storage. Hrblockfree com Example. Hrblockfree com Your home is the only fixed location of your business of selling mechanics' tools at retail. Hrblockfree com You regularly use half of your basement for storage of inventory and product samples. Hrblockfree com You sometimes use the area for personal purposes. Hrblockfree com The expenses for the storage space are deductible even though you do not use this part of your basement exclusively for business. Hrblockfree com Regular Use To qualify under the regular use test, you must use a specific area of your home for business on a regular basis. Hrblockfree com Incidental or occasional business use is not regular use. Hrblockfree com You must consider all facts and circumstances in determining whether your use is on a regular basis. Hrblockfree com Trade or Business Use To qualify under the trade-or-business-use test, you must use part of your home in connection with a trade or business. Hrblockfree com If you use your home for a profit-seeking activity that is not a trade or business, you cannot take a deduction for its business use. Hrblockfree com Example. Hrblockfree com You use part of your home exclusively and regularly to read financial periodicals and reports, clip bond coupons, and carry out similar activities related to your own investments. Hrblockfree com You do not make investments as a broker or dealer. Hrblockfree com So, your activities are not part of a trade or business and you cannot take a deduction for the business use of your home. Hrblockfree com Principal Place of Business You can have more than one business location, including your home, for a single trade or business. Hrblockfree com To qualify to deduct the expenses for the business use of your home under the principal place of business test, your home must be your principal place of business for that trade or business. Hrblockfree com To determine whether your home is your principal place of business, you must consider: The relative importance of the activities performed at each place where you conduct business, and The amount of time spent at each place where you conduct business. Hrblockfree com Your home office will qualify as your principal place of business if you meet the following requirements. Hrblockfree com You use it exclusively and regularly for administrative or management activities of your trade or business. Hrblockfree com You have no other fixed location where you conduct substantial administrative or management activities of your trade or business. Hrblockfree com If, after considering your business locations, your home cannot be identified as your principal place of business, you cannot deduct home office expenses. Hrblockfree com However, see the later discussions under Place To Meet Patients, Clients, or Customers and Separate Structure for other ways to qualify to deduct home office expenses. Hrblockfree com Administrative or management activities. Hrblockfree com   There are many activities that are administrative or managerial in nature. Hrblockfree com The following are a few examples. Hrblockfree com Billing customers, clients, or patients. Hrblockfree com Keeping books and records. Hrblockfree com Ordering supplies. Hrblockfree com Setting up appointments. Hrblockfree com Forwarding orders or writing reports. Hrblockfree com Administrative or management activities performed at other locations. Hrblockfree com   The following activities performed by you or others will not disqualify your home office from being your principal place of business. Hrblockfree com You have others conduct your administrative or management activities at locations other than your home. Hrblockfree com (For example, another company does your billing from its place of business. Hrblockfree com ) You conduct administrative or management activities at places that are not fixed locations of your business, such as in a car or a hotel room. Hrblockfree com You occasionally conduct minimal administrative or management activities at a fixed location outside your home. Hrblockfree com You conduct substantial nonadministrative or nonmanagement business activities at a fixed location outside your home. Hrblockfree com (For example, you meet with or provide services to customers, clients, or patients at a fixed location of the business outside your home. Hrblockfree com ) You have suitable space to conduct administrative or management activities outside your home, but choose to use your home office for those activities instead. Hrblockfree com Please click here for the text description of the image. Hrblockfree com Can you deduct business use of the home expenses? Example 1. Hrblockfree com John is a self-employed plumber. Hrblockfree com Most of John's time is spent at customers' homes and offices installing and repairing plumbing. Hrblockfree com He has a small office in his home that he uses exclusively and regularly for the administrative or management activities of his business, such as phoning customers, ordering supplies, and keeping his books. Hrblockfree com John writes up estimates and records of work completed at his customers' premises. Hrblockfree com He does not conduct any substantial administrative or management activities at any fixed location other than his home office. Hrblockfree com John does not do his own billing. Hrblockfree com He uses a local bookkeeping service to bill his customers. Hrblockfree com John's home office qualifies as his principal place of business for deducting expenses for its use. Hrblockfree com He uses the home office for the administrative or managerial activities of his plumbing business and he has no other fixed location where he conducts these administrative or managerial activities. Hrblockfree com His choice to have his billing done by another company does not disqualify his home office from being his principal place of business. Hrblockfree com He meets all the qualifications, including principal place of business, so he can deduct expenses (subject to certain limitations, explained later) for the business use of his home. Hrblockfree com Example 2. Hrblockfree com Pamela is a self-employed sales representative for several different product lines. Hrblockfree com She has an office in her home that she uses exclusively and regularly to set up appointments and write up orders and other reports for the companies whose products she sells. Hrblockfree com She occasionally writes up orders and sets up appointments from her hotel room when she is away on business overnight. Hrblockfree com Pamela's business is selling products to customers at various locations throughout her territory. Hrblockfree com To make these sales, she regularly visits customers to explain the available products and take orders. Hrblockfree com Pamela's home office qualifies as her principal place of business for deducting expenses for its use. Hrblockfree com She conducts administrative or management activities there and she has no other fixed location where she conducts substantial administrative or management activities. Hrblockfree com The fact that she conducts some administrative or management activities in her hotel room (not a fixed location) does not disqualify her home office from being her principal place of business. Hrblockfree com She meets all the qualifications, including principal place of business, so she can deduct expenses (subject to certain limitations, explained later) for the business use of her home. Hrblockfree com Example 3. Hrblockfree com Paul is a self-employed anesthesiologist. Hrblockfree com He spends the majority of his time administering anesthesia and postoperative care in three local hospitals. Hrblockfree com One of the hospitals provides him with a small shared office where he could conduct administrative or management activities. Hrblockfree com Paul very rarely uses the office the hospital provides. Hrblockfree com He uses a room in his home that he has converted to an office. Hrblockfree com He uses this room exclusively and regularly to conduct all the following activities. Hrblockfree com Contacting patients, surgeons, and hospitals regarding scheduling. Hrblockfree com Preparing for treatments and presentations. Hrblockfree com Maintaining billing records and patient logs. Hrblockfree com Satisfying continuing medical education requirements. Hrblockfree com Reading medical journals and books. Hrblockfree com Paul's home office qualifies as his principal place of business for deducting expenses for its use. Hrblockfree com He conducts administrative or management activities for his business as an anesthesiologist there and he has no other fixed location where he conducts substantial administrative or management activities for this business. Hrblockfree com His choice to use his home office instead of the one provided by the hospital does not disqualify his home office from being his principal place of business. Hrblockfree com His performance of substantial nonadministrative or nonmanagement activities at fixed locations outside his home also does not disqualify his home office from being his principal place of business. Hrblockfree com He meets all the qualifications, including principal place of business, so he can deduct expenses (subject to certain limitations, explained later) for the business use of his home. Hrblockfree com Example 4. Hrblockfree com Kathleen is employed as a teacher. Hrblockfree com She is required to teach and meet with students at the school and to grade papers and tests. Hrblockfree com The school provides her with a small office where she can work on her lesson plans, grade papers and tests, and meet with parents and students. Hrblockfree com The school does not require her to work at home. Hrblockfree com Kathleen prefers to use the office she has set up in her home and does not use the one provided by the school. Hrblockfree com She uses this home office exclusively and regularly for the administrative duties of her teaching job. Hrblockfree com Kathleen must meet the convenience-of-the-employer test, even if her home qualifies as her principal place of business for deducting expenses for its use. Hrblockfree com Her employer provides her with an office and does not require her to work at home, so she does not meet the convenience-of-the-employer test and cannot claim a deduction for the business use of her home. Hrblockfree com More Than One Trade or Business The same home office can be the principal place of business for two or more separate business activities. Hrblockfree com Whether your home office is the principal place of business for more than one business activity must be determined separately for each of your trade or business activities. Hrblockfree com You must use the home office exclusively and regularly for one or more of the following purposes. Hrblockfree com As the principal place of business for one or more of your trades or businesses. Hrblockfree com As a place to meet or deal with patients, clients, or customers in the normal course of one or more of your trades or businesses. Hrblockfree com If your home office is a separate structure, in connection with one or more of your trades or businesses. Hrblockfree com You can use your home office for more than one business activity, but you cannot use it for any nonbusiness (i. Hrblockfree com e. Hrblockfree com , personal) activities. Hrblockfree com If you are an employee, any use of the home office in connection with your employment must be for the convenience of your employer. Hrblockfree com See Rental to employer , later, if you rent part of your home to your employer. Hrblockfree com Example. Hrblockfree com Tracy White is employed as a teacher. Hrblockfree com Her principal place of work is the school, which provides her office space to do her school work. Hrblockfree com She also has a mail order jewelry business. Hrblockfree com All her work in the jewelry business is done in her home office and the office is used exclusively for that business. Hrblockfree com If she meets all the other tests, she can deduct expenses for the business use of her home for the jewelry business. Hrblockfree com If Tracy also uses the office for work related to her teaching, she must meet the exclusive use test for both businesses to qualify for the deduction. Hrblockfree com As an employee, Tracy must also meet the convenience-of-the-employer test to qualify for the deduction. Hrblockfree com She does not meet this test for her work as a teacher, so she cannot claim a deduction for the business use of her home for either activity. Hrblockfree com Place To Meet Patients, Clients, or Customers If you meet or deal with patients, clients, or customers in your home in the normal course of your business, even though you also carry on business at another location, you can deduct your expenses for the part of your home used exclusively and regularly for business if you meet both the following tests. Hrblockfree com You physically meet with patients, clients, or customers on your premises. Hrblockfree com Their use of your home is substantial and integral to the conduct of your business. Hrblockfree com Doctors, dentists, attorneys, and other professionals who maintain offices in their homes generally will meet this requirement. Hrblockfree com Using your home for occasional meetings and telephone calls will not qualify you to deduct expenses for the business use of your home. Hrblockfree com The part of your home you use exclusively and regularly to meet patients, clients, or customers does not have to be your principal place of business. Hrblockfree com Example. Hrblockfree com June Quill, a self-employed attorney, works 3 days a week in her city office. Hrblockfree com She works 2 days a week in her home office used only for business. Hrblockfree com She regularly meets clients there. Hrblockfree com Her home office qualifies for a business deduction because she meets clients there in the normal course of her business. Hrblockfree com Separate Structure You can deduct expenses for a separate free-standing structure, such as a studio, workshop, garage, or barn, if you use it exclusively and regularly for your business. Hrblockfree com The structure does not have to be your principal place of business or a place where you meet patients, clients, or customers. Hrblockfree com Example. Hrblockfree com John Berry operates a floral shop in town. Hrblockfree com He grows the plants for his shop in a greenhouse behind his home. Hrblockfree com He uses the greenhouse exclusively and regularly in his business, so he can deduct the expenses for its use, subject to certain limitations, explained later. Hrblockfree com Figuring the Deduction After you determine that you meet the tests under Qualifying for a Deduction , you can begin to figure how much you can deduct. Hrblockfree com When figuring the amount you can deduct for the business use of your home, you will use either your actual expenses or a simplified method. Hrblockfree com Electing to use the simplified method. Hrblockfree com   The simplified method is an alternative to the calculation, allocation, and substantiation of actual expenses. Hrblockfree com You choose whether or not to figure your deduction using the simplified method each taxable year. Hrblockfree com See Using the Simplified Method , later. Hrblockfree com Rental to employer. Hrblockfree com   If you rent part of your home to your employer and you use the rented part in performing services for your employer as an employee, your deduction for the business use of your home is limited. Hrblockfree com You can deduct mortgage interest, qualified mortgage insurance premiums, real estate taxes, and personal casualty losses for the rented part, subject to any limitations. Hrblockfree com However, you cannot deduct otherwise allowable trade or business expenses, business casualty losses, or depreciation related to the use of your home (or use the simplified method as an alternative to deducting these actual expenses) in performing services for your employer. Hrblockfree com Using Actual Expenses If you do not or cannot elect to use the simplified method for a home, you will figure your deduction for that home using your actual expenses. Hrblockfree com You will also need to figure the percentage of your home used for business and the limit on the deduction. Hrblockfree com If you are an employee or a partner, or you use your home in your farming business and you file Schedule F (Form 1040), you can use the Worksheet To Figure the Deduction for Business Use of Your Home, near the end of this publication, to help you figure your deduction. Hrblockfree com If you use your home in a trade or business and you file Schedule C (Form 1040), you will use Form 8829 to figure your deduction. Hrblockfree com Part-year use. Hrblockfree com   You cannot deduct expenses for the business use of your home incurred during any part of the year you did not use your home for business purposes. Hrblockfree com For example, if you begin using part of your home for business on July 1, and you meet all the tests from that date until the end of the year, consider only your expenses for the last half of the year in figuring your allowable deduction. Hrblockfree com Expenses related to tax-exempt income. Hrblockfree com   Generally, you cannot deduct expenses that are related to tax-exempt allowances. Hrblockfree com However, if you receive a tax-exempt parsonage allowance or a tax-exempt military allowance, your expenses for mortgage interest and real estate taxes are deductible under the normal rules. Hrblockfree com No deduction is allowed for other expenses related to the tax-exempt allowance. Hrblockfree com   If your housing is provided free of charge and the value of the housing is tax exempt, you cannot deduct the rental value of any portion of the housing. Hrblockfree com Actual Expenses You must divide the expenses of operating your home between personal and business use. Hrblockfree com The part of a home operating expense you can use to figure your deduction depends on both of the following. Hrblockfree com Whether the expense is direct, indirect, or unrelated. Hrblockfree com The percentage of your home used for business. Hrblockfree com Table 1, next, describes the types of expenses you may have and the extent to which they are deductible. Hrblockfree com Table 1. Hrblockfree com Types of Expenses  Expense  Description  Deductibility Direct Expenses only for  the business part  of your home. Hrblockfree com Deductible in full. Hrblockfree com *   Examples:  Painting or repairs  only in the area  used for business. Hrblockfree com Exception: May be only partially  deductible in a daycare facility. Hrblockfree com See Daycare Facility , later. Hrblockfree com Indirect Expenses for  keeping up and running your  entire home. Hrblockfree com Deductible based on the percentage of your home used for business. Hrblockfree com *   Examples:  Insurance, utilities, and  general repairs. Hrblockfree com   Unrelated Expenses only for  the parts of your  home not used  for business. Hrblockfree com Not deductible. Hrblockfree com   Examples:  Lawn care or painting  a room not used  for business. Hrblockfree com   *Subject to the deduction limit, discussed later. Hrblockfree com Form 8829 and the Worksheet To Figure the Deduction for Business Use of Your Home have separate columns for direct and indirect expenses. Hrblockfree com Certain expenses are deductible whether or not you use your home for business. Hrblockfree com If you qualify to deduct business use of the home expenses, use the business percentage of these expenses to figure your total business use of the home deduction. Hrblockfree com These expenses include the following. Hrblockfree com Real estate taxes. Hrblockfree com Qualified mortgage insurance premiums. Hrblockfree com Deductible mortgage interest. Hrblockfree com Casualty losses. Hrblockfree com Other expenses are deductible only if you use your home for business. Hrblockfree com You can use the business percentage of these expenses to figure your total business use of the home deduction. Hrblockfree com These expenses generally include (but are not limited to) the following. Hrblockfree com Depreciation (covered under Depreciating Your Home , later). Hrblockfree com Insurance. Hrblockfree com Rent paid for the use of property you do not own but use in your trade or business. Hrblockfree com Repairs. Hrblockfree com Security system. Hrblockfree com Utilities and services. Hrblockfree com Real estate taxes. Hrblockfree com   To figure the business part of your real estate taxes, multiply the real estate taxes paid by the percentage of your home used for business. Hrblockfree com   For more information on the deduction for real estate taxes, see Publication 530, Tax Information for Homeowners. Hrblockfree com Deductible mortgage interest. Hrblockfree com   To figure the business part of your deductible mortgage interest, multiply this interest by the percentage of your home used for business. Hrblockfree com You can include interest on a second mortgage in this computation. Hrblockfree com If your total mortgage debt is more than $1,000,000 or your home equity debt is more than $100,000, your deduction may be limited. Hrblockfree com For more information on what interest is deductible, see Publication 936, Home Mortgage Interest Deduction. Hrblockfree com Qualified mortgage insurance premiums. Hrblockfree com   To figure the business part of your qualified mortgage insurance premiums, multiply the premiums by the percentage of your home used for business. Hrblockfree com You can include premiums for insurance on a second mortgage in this computation. Hrblockfree com If your adjusted gross income is more than $100,000 ($50,000 if your filing status is married filing separately), your deduction may be limited. Hrblockfree com For more information, see Publication 936, and Line 13 in the Instructions for Schedule A (Form 1040). Hrblockfree com Casualty losses. Hrblockfree com    If you have a casualty loss on your home that you use for business, treat the casualty loss as a direct expense, an indirect expense, or an unrelated expense, depending on the property affected. Hrblockfree com A direct expense is the loss on the portion of the property you use only in your business. Hrblockfree com Use the entire loss to figure the business use of the home deduction. Hrblockfree com An indirect expense is the loss on property you use for both business and personal purposes. Hrblockfree com Use only the business portion to figure the deduction. Hrblockfree com An unrelated expense is the loss on property you do not use in your business. Hrblockfree com Do not use any of the loss to figure the deduction. Hrblockfree com Example. Hrblockfree com You meet the rules to take a deduction for an office in your home that is 10% of the total area of your house. Hrblockfree com A storm damages your roof. Hrblockfree com This is an indirect expense as the roof is part of the whole house and is considered to be used both for business and personal purposes. Hrblockfree com You would complete Form 4684, Casualties and Thefts, to report your loss. Hrblockfree com You complete both section A (Personal Use Property) and section B (Business and Income-Producing Property) as your home is used both for business and personal purposes. Hrblockfree com Since you use 90% of your home for personal purposes, use 90% of the cost or adjusted basis of your home, insurance or other reimbursement, and fair market value, both before and after the storm, to figure the amounts to enter on lines 2, 3, 5, and 6 of Form 4684. Hrblockfree com Since you use 10% of your home for business purposes, use 10% of the cost or adjusted basis of your home, insurance or other reimbursement, and fair market value, both before and after the storm, to figure the amounts to enter on lines 20, 21, 23, and 24 of Form 4684. Hrblockfree com Forms and worksheets to use. Hrblockfree com   If you are filing Schedule C (Form 1040), get Form 8829 and follow the instructions for casualty losses. Hrblockfree com If you are an employee or a partner, or you file Schedule F (Form 1040), use the Worksheet To Figure the Deduction for Business Use of Your Home, near the end of this publication. Hrblockfree com You will also need to get Form 4684. Hrblockfree com More information. Hrblockfree com   For more information on casualty losses, see Publication 547, Casualties, Disasters, and Thefts. Hrblockfree com Insurance. Hrblockfree com   You can deduct the cost of insurance that covers the business part of your home. Hrblockfree com However, if your insurance premium gives you coverage for a period that extends past the end of your tax year, you can deduct only the business percentage of the part of the premium that gives you coverage for your tax year. Hrblockfree com You can deduct the business percentage of the part that applies to the following year in that year. Hrblockfree com Rent. Hrblockfree com   If you rent the home you occupy and meet the requirements for business use of the home, you can deduct part of the rent you pay. Hrblockfree com To figure your deduction, multiply your rent payments by the percentage of your home used for business. Hrblockfree com   If you own your home, you cannot deduct the fair rental value of your home. Hrblockfree com However, see Depreciating Your Home , later. Hrblockfree com Repairs. Hrblockfree com   The cost of repairs that relate to your business, including labor (other than your own labor), is a deductible expense. Hrblockfree com For example, a furnace repair benefits the entire home. Hrblockfree com If you use 10% of your home for business, you can deduct 10% of the cost of the furnace repair. Hrblockfree com   Repairs keep your home in good working order over its useful life. Hrblockfree com Examples of common repairs are patching walls and floors, painting, wallpapering, repairing roofs and gutters, and mending leaks. Hrblockfree com However, repairs are sometimes treated as a permanent improvement and are not deductible. Hrblockfree com See Permanent improvements , later, under Depreciating Your Home. Hrblockfree com Security system. Hrblockfree com   If you install a security system that protects all the doors and windows in your home, you can deduct the business part of the expenses you incur to maintain and monitor the system. Hrblockfree com You also can take a depreciation deduction for the part of the cost of the security system relating to the business use of your home. Hrblockfree com Utilities and services. Hrblockfree com   Expenses for utilities and services, such as electricity, gas, trash removal, and cleaning services, are primarily personal expenses. Hrblockfree com However, if you use part of your home for business, you can deduct the business part of these expenses. Hrblockfree com Generally, the business percentage for utilities is the same as the percentage of your home used for business. Hrblockfree com Telephone. Hrblockfree com   The basic local telephone service charge, including taxes, for the first telephone line into your home (i. Hrblockfree com e. Hrblockfree com , landline) is a nondeductible personal expense. Hrblockfree com However, charges for business long-distance phone calls on that line, as well as the cost of a second line into your home used exclusively for business, are deductible business expenses. Hrblockfree com Do not include these expenses as a cost of using your home for business. Hrblockfree com Deduct these charges separately on the appropriate form or schedule. Hrblockfree com For example, if you file Schedule C (Form 1040), deduct these expenses on line 25, Utilities (instead of line 30, Expenses for business use of your home). Hrblockfree com Depreciating Your Home If you own your home and qualify to deduct expenses for its business use, you can claim a deduction for depreciation. Hrblockfree com Depreciation is an allowance for the wear and tear on the part of your home used for business. Hrblockfree com You cannot depreciate the cost or value of the land. Hrblockfree com You recover its cost when you sell or otherwise dispose of the property. Hrblockfree com Before you figure your depreciation deduction, you need to know the following information. Hrblockfree com The month and year you started using your home for business. Hrblockfree com The adjusted basis and fair market value of your home (excluding land) at the time you began using it for business. Hrblockfree com The cost of any improvements before and after you began using the property for business. Hrblockfree com The percentage of your home used for business. Hrblockfree com See Business Percentage , later. Hrblockfree com Adjusted basis defined. Hrblockfree com   The adjusted basis of your home is generally its cost, plus the cost of any permanent improvements you made to it, minus any casualty losses or depreciation deducted in earlier tax years. Hrblockfree com For a discussion of adjusted basis, see Publication 551. Hrblockfree com Permanent improvements. Hrblockfree com   A permanent improvement increases the value of property, adds to its life, or gives it a new or different use. Hrblockfree com Examples of improvements are replacing electric wiring or plumbing, adding a new roof or addition, paneling, or remodeling. Hrblockfree com    You must carefully distinguish between repairs and improvements. Hrblockfree com See Repairs , earlier, under Actual Expenses. Hrblockfree com You also must keep accurate records of these expenses. Hrblockfree com These records will help you decide whether an expense is a deductible or a capital (added to the basis) expense. Hrblockfree com However, if you make repairs as part of an extensive remodeling or restoration of your home, the entire job is an improvement. Hrblockfree com Example. Hrblockfree com You buy an older home and fix up two rooms as a beauty salon. Hrblockfree com You patch the plaster on the ceilings and walls, paint, repair the floor, install an outside door, and install new wiring, plumbing, and other equipment. Hrblockfree com Normally, the patching, painting, and floor work are repairs and the other expenses are permanent improvements. Hrblockfree com However, because the work gives your property a new use, the entire remodeling job is a permanent improvement and its cost is added to the basis of the property. Hrblockfree com You cannot deduct any portion of it as a repair expense. Hrblockfree com Adjusting for depreciation deducted in earlier years. Hrblockfree com   Decrease the basis of your property by the depreciation you deducted, or could have deducted, on your tax returns under the method of depreciation you properly selected. Hrblockfree com If you deducted less depreciation than you could have under the method you selected, decrease the basis by the amount you could have deducted under that method. Hrblockfree com If you did not deduct any depreciation, decrease the basis by the amount you could have deducted. Hrblockfree com   If you deducted more depreciation than you should have, decrease your basis by the amount you should have deducted, plus the part of the excess depreciation you deducted that actually decreased your tax liability for any year. Hrblockfree com   If you deducted the incorrect amount of depreciation, see Publication 946. Hrblockfree com Fair market value defined. Hrblockfree com   The fair market value of your home is the price at which the property would change hands between a buyer and a seller, neither having to buy or sell, and both having reasonable knowledge of all necessary facts. Hrblockfree com Sales of similar property, on or about the date you begin using your home for business, may be helpful in determining the property's fair market value. Hrblockfree com Figuring the depreciation deduction for the current year. Hrblockfree com   If you began using your home for business before 2013, continue to use the same depreciation method you used in past tax years. Hrblockfree com   If you began using your home for business for the first time in 2013, depreciate the business part as nonresidential real property under the modified accelerated cost recovery system (MACRS). Hrblockfree com Under MACRS, nonresidential real property is depreciated using the straight line method over 39 years. Hrblockfree com For more information on MACRS and other methods of depreciation, see Publication 946. Hrblockfree com   To figure the depreciation deduction, you must first figure the part of the cost of your home that can be depreciated (depreciable basis). Hrblockfree com The depreciable basis is figured by multiplying the percentage of your home used for business by the smaller of the following. Hrblockfree com The adjusted basis of your home (excluding land) on the date you began using your home for business. Hrblockfree com The fair market value of your home (excluding land) on the date you began using your home for business. Hrblockfree com Depreciation table. Hrblockfree com   If 2013 was the first year you used your home for business, you can figure your 2013 depreciation for the business part of your home by using the appropriate percentage from the following table. Hrblockfree com Table 2. Hrblockfree com MACRS Percentage Table for 39-Year Nonresidential Real Property Month First Used for Business Percentage To Use 1 2. Hrblockfree com 461% 2 2. Hrblockfree com 247% 3 2. Hrblockfree com 033% 4 1. Hrblockfree com 819% 5 1. Hrblockfree com 605% 6 1. Hrblockfree com 391% 7 1. Hrblockfree com 177% 8 0. Hrblockfree com 963% 9 0. Hrblockfree com 749% 10 0. Hrblockfree com 535% 11 0. Hrblockfree com 321% 12 0. Hrblockfree com 107%   Multiply the depreciable basis of the business part of your home by the percentage from the table for the first month you use your home for business. Hrblockfree com See Publication 946 for the percentages for the remaining tax years of the recovery period. Hrblockfree com Example. Hrblockfree com In May, George Miller began to use one room in his home exclusively and regularly to meet clients. Hrblockfree com This room is 8% of the square footage of his home. Hrblockfree com He bought the home in 2003 for $125,000. Hrblockfree com He determined from his property tax records that his adjusted basis in the house (exclusive of land) is $115,000. Hrblockfree com In May, the house had a fair market value of $165,000. Hrblockfree com He multiplies his adjusted basis of $115,000 (which is less than the fair market value) by 8%. Hrblockfree com The result is $9,200, his depreciable basis for the business part of the house. Hrblockfree com George files his return based on the calendar year. Hrblockfree com May is the 5th month of his tax year. Hrblockfree com He multiplies his depreciable basis of $9,200 by 1. Hrblockfree com 605% (. Hrblockfree com 01605), the percentage from the table for the 5th month. Hrblockfree com His depreciation deduction is $147. Hrblockfree com 66. Hrblockfree com Depreciating permanent improvements. Hrblockfree com   Add the costs of permanent improvements made before you began using your home for business to the basis of your property. Hrblockfree com Depreciate these costs as part of the cost of your home as explained earlier. Hrblockfree com The costs of improvements made after you begin using your home for business (that affect the business part of your home, such as a new roof) are depreciated separately. Hrblockfree com Multiply the cost of the improvement by the business-use percentage and depreciate the result over the recovery period that would apply to your home if you began using it for business at the same time as the improvement. Hrblockfree com For improvements made this year, the recovery period is 39 years. Hrblockfree com For the percentage to use for the first year, see Table 2, earlier. Hrblockfree com For more information on recovery periods, see Publication 946. Hrblockfree com Business Percentage To find the business percentage, compare the size of the part of your home that you use for business to your whole house. Hrblockfree com Use the resulting percentage to figure the business part of the expenses for operating your entire home. Hrblockfree com You can use any reasonable method to determine the business percentage. Hrblockfree com The following are two commonly used methods for figuring the percentage. Hrblockfree com Divide the area (length multiplied by the width) used for business by the total area of your home. Hrblockfree com If the rooms in your home are all about the same size, you can divide the number of rooms used for business by the total number of rooms in your home. Hrblockfree com Example 1. Hrblockfree com Your office is 240 square feet (12 feet × 20 feet). Hrblockfree com Your home is 1,200 square feet. Hrblockfree com Your office is 20% (240 ÷ 1,200) of the total area of your home. Hrblockfree com Your business percentage is 20%. Hrblockfree com Example 2. Hrblockfree com You use one room in your home for business. Hrblockfree com Your home has 10 rooms, all about equal size. Hrblockfree com Your office is 10% (1 ÷ 10) of the total area of your home. Hrblockfree com Your business percentage is 10%. Hrblockfree com Use lines 1-7 of Form 8829, or lines 1-3 on the Worksheet To Figure the Deduction for Business Use of Your Home (near the end of this publication) to figure your business percentage. Hrblockfree com Deduction Limit If your gross income from the business use of your home equals or exceeds your total business expenses (including depreciation), you can deduct all your business expenses related to the use of your home. Hrblockfree com If your gross income from the business use of your home is less than your total business expenses, your deduction for certain expenses for the business use of your home is limited. Hrblockfree com Your deduction of otherwise nondeductible expenses, such as insurance, utilities, and depreciation of your home (with depreciation of your home taken last), that are allocable to the business, is limited to the gross income from the business use of your home minus the sum of the following. Hrblockfree com The business part of expenses you could deduct even if you did not use your home for business (such as mortgage interest, real estate taxes, and casualty and theft losses that are allowable as itemized deductions on Schedule A (Form 1040)). Hrblockfree com These expenses are discussed in detail under Actual Expenses , earlier. Hrblockfree com The business expenses that relate to the business activity in the home (for example, business phone, supplies, and depreciation on equipment), but not to the use of the home itself. Hrblockfree com If you are self-employed, do not include in (2) above your deduction for one-half of your self-employment tax. Hrblockfree com Carryover of unallowed expenses. Hrblockfree com   If your deductions are greater than the current year's limit, you can carry over the excess to the next year in which you use actual expenses. Hrblockfree com They are subject to the deduction limit for that year, whether or not you live in the same home during that year. Hrblockfree com Figuring the deduction limit and carryover. Hrblockfree com   If you are an employee or a partner, or you file Schedule F (Form 1040), use the Worksheet To Figure the Deduction for Business Use of Your Home, near the end of this publication. Hrblockfree com If you file Schedule C (Form 1040), figure your deduction limit and carryover on Form 8829. Hrblockfree com Example. Hrblockfree com You meet the requirements for deducting expenses for the business use of your home. Hrblockfree com You use 20% of your home for business. Hrblockfree com In 2013, your business expenses and the expenses for the business use of your home are deducted from your gross income in the following order. Hrblockfree com    Gross income from business $6,000 Minus:   Deductible mortgage interest and real estate taxes (20%) 3,000 Business expenses not related to the use of your home (100%) (business phone, supplies, and depreciation on equipment) 2,000 Deduction limit $1,000 Minus other expenses allocable to business use of home:   Maintenance, insurance, and utilities (20%) 800 Depreciation allowed (20% = $1,600 allowable, but subject to balance of deduction limit) 200 Other expenses up to the deduction limit $1,000 Depreciation carryover to 2014 ($1,600 − $200) (subject to deduction limit in 2014) $1,400   You can deduct all of the business part of your deductible mortgage interest and real estate taxes ($3,000). Hrblockfree com You also can deduct all of your business expenses not related to the use of your home ($2,000). Hrblockfree com Additionally, you can deduct all of the business part of your expenses for maintenance, insurance, and utilities, because the total ($800) is less than the $1,000 deduction limit. Hrblockfree com Your deduction for depreciation for the business use of your home is limited to $200 ($1,000 minus $800) because of the deduction limit. Hrblockfree com You can carry over the $1,400 balance and add it to your depreciation for 2014, subject to your deduction limit in 2014. Hrblockfree com More than one place of business. Hrblockfree com   If part of the gross income from your trade or business is from the business use of part of your home and part is from a place other than your home, you must determine the part of your gross income from the business use of your home before you figure the deduction limit. Hrblockfree com In making this determination, consider the time you spend at each location, the business investment in each location, and any other relevant facts and circumstances. Hrblockfree com If your home office qualifies as your principal place of business, you can deduct your daily transportation costs between your home and another work location in the same trade or business. Hrblockfree com For more information on transportation costs, see Publication 463, Travel, Entertainment, Gift, and Car Expenses. Hrblockfree com Using the Simplified Method The simplified method is an alternative to the calculation, allocation, and substantiation of actual expenses. Hrblockfree com In most cases, you will figure your deduction by multiplying $5, the prescribed rate, by the area of your home used for a qualified business use. Hrblockfree com The area you use to figure your deduction is limited to 300 square feet. Hrblockfree com See Simplified Amount , later, for information about figuring the amount of the deduction. Hrblockfree com For more information about the simplified method, see Revenue Procedure 2013-13, 2013-06 I. Hrblockfree com R. Hrblockfree com B. Hrblockfree com 478, available at www. Hrblockfree com irs. Hrblockfree com gov/irb/2013-06_IRB/ar09. Hrblockfree com html. Hrblockfree com Actual expenses and depreciation of your home. Hrblockfree com   If you elect to use the simplified method, you cannot deduct any actual expenses for the business except for business expenses that are not related to the use of the home. Hrblockfree com You also cannot deduct any depreciation (including any additional first-year depreciation) or section 179 expense for the portion of the home that is used for a qualified business use. Hrblockfree com The depreciation deduction allowable for that portion of the home is deemed to be zero for a year you use the simplified method. Hrblockfree com If you figure your deduction for business use of the home using actual expenses in a subsequent year, you will have to use the appropriate optional depreciation table for MACRS to figure your depreciation. Hrblockfree com More information. Hrblockfree com   For more information about claiming depreciation in a subsequent year, see Revenue Procedure 2013-13, 2013-06 I. Hrblockfree com R. Hrblockfree com B. Hrblockfree com 478, available at www. Hrblockfree com irs. Hrblockfree com gov/irb/2013-06_IRB/ar09. Hrblockfree com html. Hrblockfree com See Publication 946 for the optional depreciation tables Although you cannot deduct any depreciation or section 179 expense for the portion of your home used for a qualified business use, you may still claim depreciation or the section 179 expense deduction on other assets used in the business (for example, furniture and equipment). Hrblockfree com Expenses deductible without regard to business use. Hrblockfree com   When using the simplified method, treat as personal expenses those business expenses related to the use of the home that are deductible without regard to whether there is a qualified business use of the home. Hrblockfree com These expenses include mortgage interest, real estate taxes, and casualty losses, subject to any limitations. Hrblockfree com See Where To Deduct , later. Hrblockfree com If you also rent part of your home, you must still allocate these expenses between rental use and personal use (for this purpose, personal use includes business use reported using the simplified method). Hrblockfree com No deduction of carryover of actual expenses. Hrblockfree com   If you used actual expenses to figure your deduction for business use of the home in a prior year and your deduction was limited, you cannot deduct the disallowed amount carried over from the prior year during a year you figure your deduction using the simplified method. Hrblockfree com Instead, you will continue to carry over the disallowed amount to the next year that you use actual expenses to figure your deduction. Hrblockfree com Electing the Simplified Method You choose whether or not to figure your deduction using the simplified method each taxable year. Hrblockfree com Make the election for a home by using the simplified method to figure the deduction for the qualified business use of that home on a timely filed, original federal income tax return. Hrblockfree com An election for a taxable year, once made, is irrevocable. Hrblockfree com A change from using the simplified method in one year to actual expenses in a succeeding taxable year, or vice-versa, is not a change in method of accounting and does not require the consent of the Commissioner. Hrblockfree com Shared use. Hrblockfree com   If you share your home with someone else who also uses the home in a business that qualifies for this deduction, each of you make your own election. Hrblockfree com More than one qualified business use. Hrblockfree com   If you conduct more than one business that qualifies for this deduction in your home, your election to use the simplified method applies to all your qualified business uses of that home. Hrblockfree com More than one home. Hrblockfree com   If you used more than one home during the year (for example, you moved during the year), you can elect to use the simplified method for only one of the homes. Hrblockfree com You must figure the deduction for any other home using actual expenses. Hrblockfree com Simplified Amount Your deduction for the qualified business use of a home is the sum of each amount you figure for a separate qualified business use of your home. Hrblockfree com To figure your deduction for the business use of a home using the simplified method, you will need to know the following information for each qualified business use of the home. Hrblockfree com The allowable area of your home used in conducting the business. Hrblockfree com If you did not conduct the business for the entire year in the home or the area changed during the year, you will need to know the allowable area you used and the number of days you conducted the business for each month. Hrblockfree com The gross income from the business use of your home. Hrblockfree com The amount of the business expenses that are not related to the use of your home. Hrblockfree com If the qualified business use is for a daycare facility that uses space in your home on a regular (but not exclusive) basis, you will also need to know the percentage of time that part of your home is used for daycare. Hrblockfree com To figure the amount you can deduct for qualified business use of your home using the simplified method, follow these 3 steps. Hrblockfree com Multiply the allowable area by $5 (or less than $5 if the qualified business use is for a daycare that uses space in your home on a regular, but not exclusive, basis). Hrblockfree com See Allowable area and Space used regularly for daycare , later. Hrblockfree com Subtract the expenses from the business that are not related to the use of the home from the gross income related to the business use of the home. Hrblockfree com If these expenses are greater than the gross income from the business use of the home, then you cannot take a deduction for this business use of the home. Hrblockfree com See Gross income limitation , later. Hrblockfree com Take the smaller of the amounts from (1) and (2). Hrblockfree com This is the amount you can deduct for this qualified business use of your home using the simplified method. Hrblockfree com If you are an employee or a partner, or you use your home in your farming business and file Schedule F (Form 1040), you can use the Simplified Method Worksheet, near the end of this publication, to help you figure your deduction. Hrblockfree com If you use your home in a trade or business and you file Schedule C (Form 1040), you will use the Simplified Method Worksheet in your Instructions for Schedule C to figure your deduction. Hrblockfree com Allowable area. Hrblockfree com   In most cases, the allowable area is the smaller of the actual area (in square feet) of your home used in conducting the business and 300 square feet. Hrblockfree com Your allowable area may be smaller if you conducted the business as a qualified joint venture with your spouse, the area used by the business was shared with another qualified business use, you used the home for the business for only part of the year, or the area used by the business changed during the year. Hrblockfree com You can use the Area Adjustment Worksheet (for simplified method), near the end of this publication, to help you figure your allowable area for a qualified business use. Hrblockfree com Area used by a qualified joint venture. Hrblockfree com   If the qualified business use of the home is also a qualified joint venture, you and your spouse will figure the deduction for the business use separately. Hrblockfree com Split the actual area used in conducting business between you and your spouse in the same manner you split your other tax attributes. Hrblockfree com Then, each spouse will figure the allowable area separately. Hrblockfree com For more information about qualified joint ventures, see Qualified Joint Venture in the Instructions for Schedule C. Hrblockfree com Shared use. Hrblockfree com   If you share your home with someone else who uses the home to conduct business that also qualifies for this deduction, you may not include the same square feet to figure your deduction as the other person. Hrblockfree com You must allocate the shared space between you and the other person in a reasonable manner. Hrblockfree com Example. Hrblockfree com Kristin and Lindsey are roommates. Hrblockfree com Kristin uses 300 square feet of their home for a qualified business use. Hrblockfree com Lindsey uses 200 square feet of their home for a separate qualified business use. Hrblockfree com The qualified business uses share 100 square feet. Hrblockfree com In addition to the portion that they do not share, Kristin and Lindsey can both claim 50 of the 100 square feet or divide the 100 square feet between them in any reasonable manner. Hrblockfree com If divided evenly, Kristin could claim 250 square feet using the simplified method and Lindsey could claim 150 square feet. Hrblockfree com More than one qualified business use. Hrblockfree com   If you conduct more than one business qualifying for the deduction, you are limited to a maximum of 300 square feet for all of the businesses. Hrblockfree com Allocate the actual square footage used (up to the maximum of 300 square feet) among your qualified business uses in a reasonable manner. Hrblockfree com However, do not allocate more square feet to a qualified business use than you actually use for that business. Hrblockfree com Rental use. Hrblockfree com   The simplified method does not apply to rental use. Hrblockfree com A rental use that qualifies for the deduction must be figured using actual expenses. Hrblockfree com If the rental use and a qualified business use share the same area, you will have to allocate the actual area used between the two uses. Hrblockfree com You cannot use the same area to figure a deduction for the qualified business use as you are using to figure the deduction for the rental use. Hrblockfree com Part-year use or area changes. Hrblockfree com   If your qualified business use was for a portion of the taxable year (for example, a seasonal business or a business that begins during the taxable year) or you changed the square footage of your qualified business use, your deduction is limited to the average monthly allowable square footage. Hrblockfree com You calculate the average monthly allowable square footage by adding the amount of allowable square feet you used in each month and dividing the sum by 12. Hrblockfree com When determining the average monthly allowable square footage, you cannot take more than 300 square feet into account for any one month. Hrblockfree com Additionally, if your qualified business use was less than 15 days in a month, you must use -0- for that month. Hrblockfree com Example 1. Hrblockfree com Andy files his federal income tax return on a calendar year basis. Hrblockfree com On July 20, he began using 420 square feet of his home for a qualified business use. Hrblockfree com He continued to use the 420 square feet until the end of the year. Hrblockfree com His average monthly allowable square footage is 125 square feet, which is figured using 300 square feet for each month August through December divided by the number of months in the taxable year ((0 + 0 + 0 + 0 + 0 + 0 + 0 + 300 + 300 + 300 + 300 + 300)/12). Hrblockfree com Example 2. Hrblockfree com Amy files her federal income tax return on a calendar year basis. Hrblockfree com On April 20, she began using 100 square feet of her home for a qualified business use. Hrblockfree com On August 5, she expanded the area of her qualified use to 330 square feet. Hrblockfree com Amy continued to use the 330 square feet until the end of the year. Hrblockfree com Her average monthly allowable square footage is 150 square feet, which is figured using 100 square feet for May through July and 300 square feet for August through December divided by the number of months in the taxable year ((0 + 0 + 0 + 0 + 100 + 100 +100 + 300 + 300 + 300 + 300 + 300)/12). Hrblockfree com Gross income limitation. Hrblockfree com   Your deduction for business use of the home is limited to an amount equal to the gross income derived from the qualified business use of the home reduced by the business deductions that are unrelated to the use of your home. Hrblockfree com If the business deductions that are unrelated to the use of your home are greater than the gross income derived from the qualified business use of your home, then you cannot take a deduction for this qualified business use of your home. Hrblockfree com Business expenses not related to use of the home. Hrblockfree com   These expenses relate to the business activity in the home, but not to the use of the home itself. Hrblockfree com You can still deduct business expenses that are unrelated to the use of the home. Hrblockfree com See Where To Deduct , later. Hrblockfree com Examples of business expenses that are unrelated to the use of the home are advertising, wages, supplies, dues, and depreciation for equipment. Hrblockfree com Space used regularly for daycare. Hrblockfree com   If you do not use the area of your home exclusively for daycare, you must reduce the prescribed rate (maximum $5 per square foot) before figuring your deduction. Hrblockfree com The reduced rate will equal the prescribed rate times a fraction. Hrblockfree com The numerator of the fraction is the number of hours that the space was used during the year for daycare and the denominator is the total number of hours during the year that the space was available for all uses. Hrblockfree com You can use the Daycare Facility Worksheet (for simplified method), near the end of this publication, to help you figure the reduced rate. Hrblockfree com    If you used at least 300 square feet for daycare regularly and exclusively during the year, then you do not need to reduce the prescribed rate or complete the Daycare Facility Worksheet. Hrblockfree com Daycare Facility If you use space in your home on a regular basis for providing daycare, you may be able to claim a deduction for that part of your home even if you use the same space for nonbusiness purposes. Hrblockfree com To qualify for this exception to the exclusive use rule, you must meet both of the following requirements. Hrblockfree com You must be in the trade or business of providing daycare for children, persons age 65 or older, or persons who are physically or mentally unable to care for themselves. Hrblockfree com You must have applied for, been granted, or be exempt from having, a license, certification, registration, or approval as a daycare center or as a family or group daycare home under state law. Hrblockfree com You do not meet this requirement if your application was rejected or your license or other authorization was revoked. Hrblockfree com Figuring the deduction. Hrblockfree com   If you elect to use the simplified method for your home, figure your deduction as described earlier in Using the Simplified Method under Figuring the Deduction. Hrblockfree com    If you are figuring your deduction using actual expenses and you regularly use part of your home for daycare, figure what part is used for daycare, as explained in Business Percentage , earlier, under Figuring the Deduction. Hrblockfree com If you also use that part exclusively for daycare, deduct all the allocable expenses, subject to the deduction limit, as explained earlier. Hrblockfree com   If the use of part of your home as a daycare facility is regular, but not exclusive, you must figure the percentage of time that part of your home is used for daycare. Hrblockfree com A room that is available for use throughout each business day and that you regularly use in your business is considered to be used for daycare throughout each business day. Hrblockfree com You do not have to keep records to show the specific hours the area was used for business. Hrblockfree com You can use the area occasionally for personal reasons. Hrblockfree com However, a room you use only occasionally for business does not qualify for the deduction. Hrblockfree com To find the percentage of time you actually use your home for business, compare the total time used for business to the total time that part of your home can be used for all purposes. Hrblockfree com You can compare the hours of business use in a week with the number of hours in a week (168). Hrblockfree com Or you can compare the hours of business use for the year with the number of hours in the year (8,760 in 2013). Hrblockfree com If you started or stopped using your home for daycare in 2013, you must prorate the number of hours based on the number of days the home was available for daycare. Hrblockfree com Example 1. Hrblockfree com Mary Lake used her basement to operate a daycare business for children. Hrblockfree com She figures the business percentage of the basement as follows. Hrblockfree com Square footage of the basement Square footage of her home = 1,600 3,200 = 50%           She used the basement for daycare an average of 12 hours a day, 5 days a week, for 50 weeks a year. Hrblockfree com During the other 12 hours a day, the family could use the basement. Hrblockfree com She figures the percentage of time the basement was used for daycare as follows. Hrblockfree com Number of hours used for daycare (12 x 5 x 50) Total number of hours in the year (24 x 365) = 3,000 8,760 = 34. Hrblockfree com 25%           Mary can deduct 34. Hrblockfree com 25% of any direct expenses for the basement. Hrblockfree com However, because her indirect expenses are for the entire house, she can deduct only 17. Hrblockfree com 13% of the indirect expenses. Hrblockfree com She figures the percentage for her indirect expenses as follows. Hrblockfree com Business percentage of the basement 50% Multiplied by: Percentage of time used for daycare × 34. Hrblockfree com 25% Percentage for indirect expenses 17. Hrblockfree com 13% Mary completes Form 8829, Part I, figuring the percentage of her home used for business, including the percentage of time the basement was used. Hrblockfree com In Part II, Mary figures her deductible expenses. Hrblockfree com She uses the following information to complete Part II. Hrblockfree com Gross income from her daycare business $50,000 Expenses not related to the business use of the home $25,000 Tentative profit $25,000 Rent $8,400 Utilities $850 Painting the basement $500 Mary enters her tentative profit, $25,000, on line 8. Hrblockfree com (This figure is the same as the amount on line 29 of her Schedule C (Form 1040). Hrblockfree com ) The expenses she paid for rent and utilities relate to her entire home. Hrblockfree com Therefore, she enters the amount paid for rent on line 18, column (b), and the amount paid for utilities on line 20, column (b). Hrblockfree com She shows the total of these expenses on line 22, column (b). Hrblockfree com For line 23, she multiplies the amount on line 22, column (b) by the percentage on line 7 and enters the result, $1,585. Hrblockfree com Mary paid $500 to have the basement painted. Hrblockfree com The painting is a direct expense. Hrblockfree com However, because she did not use the basement exclusively for daycare, she must multiply $500 by the percentage of time the basement was used for daycare (34. Hrblockfree com 25% – line 6). Hrblockfree com She enters $171 (34. Hrblockfree com 25% × $500) on line 19, column (a). Hrblockfree com She adds line 22, column (a), and line 23 and enters $1,756 ($171 + $1,585) on line 25. Hrblockfree com This is less than her deduction limit (line 15), so she can deduct the entire amount. Hrblockfree com She follows the instructions to complete the rest of Part II and enters $1,756 on lines 33 and 35. Hrblockfree com She then carries the $1,756 to line 30 of her Schedule C (Form 1040). Hrblockfree com Example 2. Hrblockfree com Assume the same facts as in Example 1 except that Mary also has another room that was available each business day for children to take naps in. Hrblockfree com Although she did not keep a record of the number of hours the room was actually used for naps, it was used for part of each business day. Hrblockfree com Since the room was available for business use during regular operating hours each business day and was used regularly in the business, it is considered used for daycare throughout each business day. Hrblockfree com The basement and room are 60% of the total area of her home. Hrblockfree com In figuring her expenses, 34. Hrblockfree com 25% of any direct expenses for the basement and room are deductible. Hrblockfree com In addition, 20. Hrblockfree com 55% (34. Hrblockfree com 25% × 60%) of her indirect expenses are deductible. Hrblockfree com Example 3. Hrblockfree com Assume the same facts as in Example 1 except that Mary stopped using her home for a daycare facility on June 24, 2013. Hrblockfree com She used the basement for daycare an average of 12 hours a day, 5 days a week, but for only 25 weeks of the year. Hrblockfree com During the other 12 hours a day, the family could still use the basement. Hrblockfree com She figures the percentage of time the basement was used for business as follows. Hrblockfree com Number of hours used for daycare (12 x 5 x 25) Total number of hours during period used (24 x 175) = 1,500 4,200 = 35. Hrblockfree com 71%           Mary can deduct 35. Hrblockfree com 71% of any direct expenses for the basement. Hrblockfree com However, because her indirect expenses are for the entire house, she can deduct only 17. Hrblockfree com 86% of the indirect expenses. Hrblockfree com She figures the percentage for her indirect expenses as follows. Hrblockfree com Business percentage of the basement 50% Multiplied by: Percentage of time used for daycare × 35. Hrblockfree com 71% Percentage for indirect expenses 17. Hrblockfree com 86% Meals. Hrblockfree com   If you provide food for your daycare recipients, do not include the expense as a cost of using your home for business. Hrblockfree com Claim it as a separate deduction on your Schedule C (Form 1040). Hrblockfree com You can never deduct the cost of food consumed by you or your family. Hrblockfree com You can deduct as a business expense 100% of the actual cost of food consumed by your daycare recipients (see Standard meal and snack rates , later, for an optional method for eligible children) and generally only 50% of the cost of food consumed by your employees. Hrblockfree com However, you can deduct 100% of the cost of food consumed by your employees if its value can be excluded from their wages as a de minimis fringe benefit. Hrblockfree com For more information on meals that meet these requirements, see Meals in chapter 2 of Publication 15-B, Employer's Tax Guide to Fringe Benefits. Hrblockfree com   If you deduct the actual cost of food for your daycare business, keep a separate record (with receipts) of your family's food costs. Hrblockfree com   Reimbursements you receive from a sponsor under the Child and Adult Care Food Program of the Department of Agriculture are taxable only to the extent they exceed your expenses for food for eligible children. Hrblockfree com If your reimbursements are more than your expenses for food, show the difference as income in Part I of Schedule C (Form 1040). Hrblockfree com If your food expenses are greater than the reimbursements, show the difference as an expense in Part V of Schedule C (Form 1040). Hrblockfree com Do not include payments or expenses for your own children if they are eligible for the program. Hrblockfree com Follow this procedure even if you receive a Form 1099-MISC, Miscellaneous Income, reporting a payment from the sponsor. Hrblockfree com Standard meal and snack rates. Hrblockfree com   If you qualify as a family daycare provider, you can use the standard meal and snack rates, instead of actual costs, to compute the deductible cost of meals and snacks provided to eligible children. Hrblockfree com For these purposes: A family daycare provider is a person engaged in the business of providing family daycare. Hrblockfree com Family daycare is childcare provided to eligible children in the home of the family daycare provider. Hrblockfree com The care must be non-medical, not involve a transfer of legal custody, and generally last less than 24 hours each day. Hrblockfree com Eligible children are minor children receiving family daycare in the home of the family daycare provider. Hrblockfree com Eligible children do not include children who are full-time or part-time residents in the home where the childcare is provided or children whose parents or guardians are residents of the same home. Hrblockfree com Eligible children do not include children who receive daycare services for personal reasons of the provider. Hrblockfree com For example, if a provider provides daycare services for a relative as a favor to that relative, that child is not an eligible child. Hrblockfree com   You can compute the deductible cost of each meal and snack you actually purchased and served to an eligible child during the time period you provided family daycare using the standard meal and snack rates shown in Table 3, later. Hrblockfree com You can use the standard meal and snack rates for a maximum of one breakfast, one lunch, one dinner, and three snacks per eligible child per day. Hrblockfree com If you receive reimbursement for a particular meal or snack, you can deduct only the portion of the applicable standard meal or snack rate that is more than the amount of the reimbursement. Hrblockfree com   You can use either the standard meal and snack rates or actual costs to calculate the deductible cost of food provided to eligible children in the family daycare for any particular tax year. Hrblockfree com If you choose to use the standard meal and snack rates for a particular tax year, you must use the rates for all your deductible food costs for eligible children during that tax year. Hrblockfree com However, if you use the standard meal and snack rates in any tax year, you can use actual costs to compute the deductible cost of food in any other tax year. Hrblockfree com   If you use the standard meal and snack rates, you must maintain records to substantiate the computation of the total amount deducted for the cost of food provided to eligible children. Hrblockfree com The records kept should include the name of each child, dates and hours of attendance in the daycare, and the type and quantity of meals and snacks served. Hrblockfree com This information can be recorded in a log similar to the one shown in Exhibit A, near the end of this publication. Hrblockfree com   The standard meal and snack rates include beverages, but do not include non-food supplies used for food preparation, service, or storage, such as containers, paper products, or utensils. Hrblockfree com These expenses can be claimed as a separate deduction on your Schedule C (Form 1040). Hrblockfree com     Table 3. Hrblockfree com Standard Meal and Snack Rates1 Location of Family Daycare Provider Breakfast Lunch Dinner Snack States other than Alaska an
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Hrblockfree com 14. Hrblockfree com   Excise Taxes Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Fuels Used in FarmingBuyer of fuel, including undyed diesel fuel or undyed kerosene. Hrblockfree com Undyed diesel fuel, undyed kerosene, and Other Fuels (including alternative fuel). Hrblockfree com Custom application of fertilizer and pesticide. Hrblockfree com Fuel not used for farming. Hrblockfree com Dyed Diesel Fuel and Dyed Kerosene Fuels Used in Off-Highway Business Use Fuels Used for Household Purposes or Other Than as a Fuel for Propulsion Engines How To Claim a Credit or RefundCredit only. Hrblockfree com Claiming a Credit Claiming a Refund Including the Credit or Refund in Income Introduction You may be eligible to claim a credit on your income tax return for the federal excise tax on certain fuels. Hrblockfree com You may also be eligible to claim a quarterly refund of the fuel taxes during the year, instead of waiting to claim a credit on your income tax return. Hrblockfree com Whether you can claim a credit or refund depends on whether the fuel was taxed and the purpose (nontaxable use) for which you used the fuel. Hrblockfree com The nontaxable uses of fuel for which a farmer may claim a credit or refund are generally the following. Hrblockfree com Use on a farm for farming purposes. Hrblockfree com Off-highway business use. Hrblockfree com Uses other than as a fuel in a propulsion engine, such as home use. Hrblockfree com Table 14-1 presents an overview of credits and refunds that may be claimed for fuels used for the nontaxable uses listed above. Hrblockfree com See Publication 510, Excise Taxes, for more information. Hrblockfree com Topics - This chapter discusses: Fuels used in farming Dyed diesel fuel and dyed kerosene Fuels used in off-highway business use Fuels used for household purposes How to claim a credit or refund Including the credit or refund in income Useful Items - You may want to see: Publication 510 Excise Taxes Form (and Instructions) 720 Quarterly Federal Excise Tax Return 4136 Credit for Federal Tax Paid on Fuels 8849 Claim for Refund of Excise Taxes See chapter 16 for information about getting publications and forms. Hrblockfree com Fuels Used in Farming Owners, operators, and tenants of farms and certain other persons may be eligible to claim a credit or refund of excise taxes on fuel used in the trade or business of farming, when used on a farm in the United States for farming purposes. Hrblockfree com See Table 14-1 for a list of available fuel tax credits and refunds. Hrblockfree com Fuel is used on a farm for farming purposes only if used in carrying on a trade or business of farming, on a farm in the United States, and for farming purposes. Hrblockfree com Farm. Hrblockfree com   A farm includes livestock, dairy, fish, poultry, fruit, fur-bearing animals, and truck farms, orchards, plantations, ranches, nurseries, ranges, and feed yards for finishing cattle. Hrblockfree com It also includes structures such as greenhouses used primarily for raising agricultural or horticultural commodities. Hrblockfree com A fish farm is an area where fish are grown or raised and not merely caught or harvested. Hrblockfree com Table 14-1. Hrblockfree com Fuel Tax Credits and Refunds at a Glance Use this table to see if you can take a credit or refund for a nontaxable use of the fuel listed. Hrblockfree com Fuel Used On a Farm for Farming Purposes Off-Highway Business Use Household Use or Use Other Than as a Fuel1 Gasoline Credit only Credit or refund None Aviation gasoline Credit only None None Undyed diesel fuel and undyed kerosene Credit or refund Credit or refund2 Credit or refund2 Kerosene for use in aviation Credit or refund None None Dyed diesel fuel and dyed kerosene None None None Other Fuels (including alternative fuels)3 Credit or refund Credit or refund None 1For a use other than as fuel in a propulsion engine. Hrblockfree com 2Applies to undyed kerosene not sold from a blocked pump or, under certain circumstances, for blending with undyed diesel fuel to be used for heating purposes. Hrblockfree com See Reg. Hrblockfree com 48. Hrblockfree com 6427-10 (b)(1) for the definition of a blocked pump. Hrblockfree com 3Other Fuels means any liquid except gas oil, fuel oil, or any product taxable under Internal Revenue Code section 4081. Hrblockfree com It includes the alternative fuels: liquefied petroleum gas (LPG),“P” Series fuels, compressed natural gas (CNG), liquefied hydrogen, any liquid fuel derived from coal (including peat) through the Fischer-Tropsch process, liquid fuel derived from biomass, liquid natural gas (LNG), liquefied gas derived from biomass, and compressed gas derived from biomass. Hrblockfree com Farming purposes. Hrblockfree com   As the owner, tenant, or operator and the ultimate purchaser of fuel that you purchased, you use the fuel on a farm for farming purposes if you use it in any of the following ways. Hrblockfree com To cultivate the soil or to raise or harvest any agricultural or horticultural commodity. Hrblockfree com To raise, shear, feed, care for, train, or manage livestock, bees, poultry, fur-bearing animals, or wildlife. Hrblockfree com To operate, manage, conserve, improve, or maintain your farm and its tools and equipment. Hrblockfree com To handle, dry, pack, grade, or store any raw agricultural or horticultural commodity. Hrblockfree com For this use to qualify, you must have produced more than half the commodity so treated during the tax year. Hrblockfree com The more-than-one-half test applies separately to each commodity. Hrblockfree com Commodity means a single raw product. Hrblockfree com For example, apples and peaches are two separate commodities. Hrblockfree com To plant, cultivate, care for, or cut trees or to prepare (other than sawing logs into lumber, chipping, or other milling) trees for market, but only if these activities are incidental to your farming operations. Hrblockfree com Your tree operations are incidental only if they are minor in nature when compared to the total farming operations. Hrblockfree com   If any other person, such as a neighbor or custom operator (independent contractor), performs a service for you on your farm for any of the purposes included in list items (1) or (2), above, you are considered to be the ultimate purchaser who used the fuel on a farm for farming purposes. Hrblockfree com Therefore, you can still claim the credit or refund for the fuel so used. Hrblockfree com However, see Custom application of fertilizer and pesticide, later. Hrblockfree com If the other person performs any other services for you on your farm for purposes not included in list items (1) or (2) above, no one can claim the credit or refund for fuel used on your farm for those other services. Hrblockfree com Buyer of fuel, including undyed diesel fuel or undyed kerosene. Hrblockfree com   If doubt exists whether the owner, tenant, or operator of the farm bought the fuel, determine who actually bore the cost of the fuel. Hrblockfree com For example, if the owner of a farm and his or her tenant equally share the cost of gasoline used on the farm, each can claim a credit for the tax on half the fuel used. Hrblockfree com Undyed diesel fuel, undyed kerosene, and Other Fuels (including alternative fuel). Hrblockfree com   Usually, the farmer is the only person who can make a claim for credit or refund for the tax on undyed diesel fuel, undyed kerosene, or other fuels (including alternative fuel) used for farming purposes. Hrblockfree com However, see Custom application of fertilizer and pesticide, next. Hrblockfree com Also see Dyed Diesel Fuel and Dyed Kerosene, later. Hrblockfree com Example. Hrblockfree com Farm owner Haleigh Blue hired custom operator Tyler Steele to cultivate the soil on her farm. Hrblockfree com Tyler used 200 gallons of undyed diesel fuel that he purchased to perform the work on Haleigh's farm. Hrblockfree com In addition, Haleigh hired contractor Lee Brown to pack and store her apple crop. Hrblockfree com Lee bought 25 gallons of undyed diesel fuel to use in packing the apples. Hrblockfree com Haleigh can claim the credit for the 200 gallons of undyed diesel fuel used by Tyler on her farm because it qualifies as fuel used on the farm for farming purposes. Hrblockfree com No one can claim a credit for the 25 gallons used by Lee because that fuel was not used for a farming purpose included in list items (1) or (2), above. Hrblockfree com In the above example, both Tyler Steele and Lee Brown could have purchased dyed (untaxed) diesel fuel for their tasks. Hrblockfree com Custom application of fertilizer and pesticide. Hrblockfree com   Fuel used on a farm for farming purposes includes fuel used in the application (including aerial application) of fertilizer, pesticides, or other substances. Hrblockfree com Generally, the applicator is treated as having used the fuel on a farm for farming purposes. Hrblockfree com For applicators using highway vehicles, only the fuel used on the farm is exempt. Hrblockfree com Fuel used traveling on the highway to and from the farm is taxable. Hrblockfree com Fuel used by an aerial applicator for the direct flight between the airfield and one or more farms is treated as used for a farming purpose. Hrblockfree com For aviation gasoline, the aerial applicator makes the claim as the ultimate purchaser. Hrblockfree com For kerosene used in aviation, the ultimate purchaser may make the claim or waive the right to make the claim to the registered ultimate vendor. Hrblockfree com A sample waiver is included as Model Waiver L in the appendix of Publication 510. Hrblockfree com A registered ultimate vendor is the person who sells undyed diesel fuel, undyed kerosene, or kerosene for use in aviation to the user (ultimate purchaser) of the fuel for use on a farm for farming purposes. Hrblockfree com To claim a credit or refund of tax, the ultimate vendor must be registered with the Internal Revenue Service at the time the claim is made. Hrblockfree com However, registered ultimate vendors cannot make claims for undyed diesel fuel and undyed kerosene sold for use on a farm for farming purposes. Hrblockfree com Fuel not used for farming. Hrblockfree com   You do not use fuel on a farm for farming purposes when you use it in any of the following ways. Hrblockfree com Off the farm, such as on the highway or in noncommercial aviation, even if the fuel is used in transporting livestock, feed, crops, or equipment. Hrblockfree com For personal use, such as lawn mowing. Hrblockfree com In processing, packaging, freezing, or canning operations. Hrblockfree com In processing crude gum into gum spirits of turpentine or gum resin or in processing maple sap into maple syrup or maple sugar. Hrblockfree com All-terrain vehicles (ATVs). Hrblockfree com   Fuel used in ATVs on a farm for farming purposes, discussed earlier, is eligible for a credit or refund of excise taxes on the fuel. Hrblockfree com Fuel used in ATVs for nonfarming purposes is not eligible for a credit or refund of the taxes. Hrblockfree com If ATVs are used both for farming and nonfarming purposes, only that portion of the fuel used for farming purposes is eligible for the credit or refund. Hrblockfree com Dyed Diesel Fuel and Dyed Kerosene If you purchase dyed diesel fuel or dyed kerosene for a nontaxable use, you must use it only on a farm for farming purposes or for other nontaxable purposes. Hrblockfree com For example, you should not use dyed diesel fuel in a truck that is used both on the farm for farming purposes and on the highway, even though the highway use is in connection with farm business. Hrblockfree com Excise tax applies to the fuel used by the truck on the highways. Hrblockfree com In this situation, undyed (taxed) fuel should be purchased for the truck. Hrblockfree com You should keep fuel records of the use of the truck on the farm for farming purposes, and for other uses. Hrblockfree com You may be eligible for a credit or refund for the excise tax on fuel used on the farm for farming purposes. Hrblockfree com Penalty. Hrblockfree com   A penalty is imposed on any person who knowingly uses, sells, or alters dyed diesel fuel or dyed kerosene for any purpose other than a nontaxable use. Hrblockfree com The penalty is the greater of $1,000 or $10 per gallon of the dyed diesel fuel or dyed kerosene involved. Hrblockfree com After the first violation, the $1,000 portion of the penalty increases depending on the number of violations. Hrblockfree com For more information on this penalty, see Publication 510. Hrblockfree com Fuels Used in Off-Highway Business Use You may be eligible to claim a credit or refund for the excise tax on fuel used in an off-highway business use. Hrblockfree com Off-highway business use. Hrblockfree com   This is any use of fuel in a trade or business or in an income-producing activity. Hrblockfree com The use must not be in a highway vehicle registered or required to be registered for use on public highways. Hrblockfree com Off-highway business use generally does not include any use in a recreational motorboat. Hrblockfree com Examples. Hrblockfree com   Off-highway business use includes the use of fuels in a trade or business in any of the following ways. Hrblockfree com In stationary machines such as generators, compressors, power saws, and similar equipment; For cleaning ; and In forklift trucks, bulldozers, and earthmovers. Hrblockfree com   Off-highway nonbusiness (taxable) use of fuel includes: use in minibikes, snowmobiles, power lawn mowers, chain saws, and other yard equipment. Hrblockfree com For more information, see Publication 510. Hrblockfree com Fuels Used for Household Purposes or Other Than as a Fuel for Propulsion Engines You may be eligible to claim a credit or refund for the excise tax on undyed diesel fuel or kerosene used for home heating, lighting, and cooking. Hrblockfree com This also applies to diesel fuel and kerosene used in a home generator to produce electricity for home use. Hrblockfree com Home use of a fuel does not include use in a propulsion engine and it is not considered an off-highway business use. Hrblockfree com How To Claim a Credit or Refund You may be able to claim a credit or refund of the excise tax on fuels you use for nontaxable uses. Hrblockfree com The basic rules for claiming credits and refunds are listed in Table 14-2 . Hrblockfree com Table 14-2. Hrblockfree com Claiming a Credit or Refund of Excise Taxes This table gives the basic rules for claiming a credit or refund of excise taxes on fuels used for a nontaxable use. Hrblockfree com   Credit Refund Which form to use Form 4136, Credit for Federal Tax Paid on Fuels Form 8849, Claim for Refund of Excise Taxes, and Schedule 1 (Form 8849), Nontaxable Use of Fuels Type of form Annual Quarterly When to file With your income tax return By the last day of the quarter following the last quarter included in the claim Amount of tax Any amount $750 or more1 1You may carry over an amount less than $750 to the next quarter. Hrblockfree com Keep at your principal place of business all records needed to enable the IRS to verify that you are the person entitled to claim a credit or refund and the amount you claimed. Hrblockfree com You do not have to use any special form, but the records should establish the following information. Hrblockfree com The total number of gallons bought and used during the period covered by your claim. Hrblockfree com The dates of the purchases. Hrblockfree com The names and addresses of suppliers and amounts bought from each during the period covered by your claim. Hrblockfree com The nontaxable use for which you used the fuel. Hrblockfree com The number of gallons used for each nontaxable use. Hrblockfree com It is important that your records separately show the number of gallons used for each nontaxable use that qualifies as a claim. Hrblockfree com For more information about recordkeeping, see Publication 583, Starting a Business and Keeping Records. Hrblockfree com Credit or refund. Hrblockfree com   A credit is an amount that reduces the tax on your income tax return when you file it at the end of the year. Hrblockfree com If you meet certain requirements, you may claim a refund during the year instead of waiting until you file your income tax return. Hrblockfree com Credit only. Hrblockfree com   You can claim the following taxes only as a credit on your income tax return. Hrblockfree com Tax on gasoline and aviation gasoline you used on a farm for farming purposes. Hrblockfree com Tax on fuels (including undyed diesel fuel or undyed kerosene) you used for nontaxable uses if the total for the tax year is less than $750. Hrblockfree com Tax on fuel you did not include in any claim for refund previously filed for any quarter of the tax year. Hrblockfree com Claiming a Credit You make a claim for a fuel tax credit on Form 4136 and attach it to your income tax return. Hrblockfree com Do not claim a credit for any excise tax for which you have filed a refund claim. Hrblockfree com How to claim a credit. Hrblockfree com   How you claim a credit depends on whether you are an individual, partnership, corporation, S corporation, trust, or farmers' cooperative association. Hrblockfree com Individuals. Hrblockfree com   You claim the credit on the “Credit for federal tax on fuels” line of your Form 1040. Hrblockfree com If you would not otherwise have to file an income tax return, you must do so to get a fuel tax credit. Hrblockfree com Partnership. Hrblockfree com   Partnerships (other than electing large partnerships) claim the credit by including a statement on Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc. Hrblockfree com , showing each partner's share of the number of gallons of each fuel sold or used for a nontaxable use, the type of use, and the applicable credit per gallon. Hrblockfree com Each partner claims the credit on his or her income tax return for the partner's share of the fuel used by the partnership. Hrblockfree com An electing large partnership can claim the credit on the “Other payments” line of Form 1065-B, U. Hrblockfree com S. Hrblockfree com Return of Income for Electing Large Partnerships. Hrblockfree com Other entities. Hrblockfree com   Corporations, S corporations, farmers' cooperative associations, and trusts make the claim on the appropriate line of their income tax return. Hrblockfree com When to claim a credit. Hrblockfree com   You can claim a fuel tax credit on your income tax return for the year you used the fuel. Hrblockfree com You may be able to make a fuel tax claim on an amended income tax return for the year you used the fuel. Hrblockfree com A claim for credit or refund of an overpayment must generally be filed within the later of: Three years from the date the original return was filed, or Two years from the date the tax was paid. Hrblockfree com Claiming a Refund Generally, you may claim a refund of excise taxes on Form 8849. Hrblockfree com Complete and attach to Form 8849 the appropriate Form 8849 schedule(s). Hrblockfree com The instructions for Form 8849 and the separate instructions for each schedule explain the requirements for making a claim for refund. Hrblockfree com If you file Form 720, you can use its Schedule C for your refund claims for the quarter. Hrblockfree com See the Instructions for Form 720. Hrblockfree com Do not claim a refund on Form 8849 for any amount for which you have filed or will file a claim on Form 720 or Form 4136. Hrblockfree com You may file a claim for refund for any quarter of your tax year for which you can claim $750 or more. Hrblockfree com This amount is the excise tax on all fuels used for a nontaxable use during that quarter or any prior quarter (for which no other claim has been filed) during the tax year. Hrblockfree com If you cannot claim at least $750 at the end of a quarter, you carry the amount over to the next quarter of your tax year to determine if you can claim at least $750 for that quarter. Hrblockfree com If you cannot claim at least $750 at the end of the fourth quarter of your tax year, you must claim a credit on your income tax return using Form 4136. Hrblockfree com Only one claim can be filed for a quarter. Hrblockfree com You cannot claim a refund for excise tax on gasoline and aviation gasoline used on a farm for farming purposes. Hrblockfree com You must claim a credit on your income tax return for the tax. Hrblockfree com How to file a quarterly claim. Hrblockfree com   File the claim for refund by filling out Schedule 1 (Form 8849) and attaching it to Form 8849. Hrblockfree com Send it to the address shown in the instructions. Hrblockfree com If you file Form 720, you can use its Schedule C for your refund claims. Hrblockfree com See the Instructions for Form 720. Hrblockfree com When to file a quarterly claim. Hrblockfree com   You must file a quarterly claim by the last day of the first quarter following the last quarter included in the claim. Hrblockfree com If you do not file a timely refund claim for the fourth quarter of your tax year, you will have to claim a credit for that amount on your income tax return, as discussed earlier. Hrblockfree com    In most situations, the amount claimed as a credit or refund will be less than the amount deducted as fuel tax expense because the Leaking Underground Storage Tank (LUST) tax of $0. Hrblockfree com 001 per gallon is generally not subject to credit or refund. Hrblockfree com Including the Credit or Refund in Income Include any credit or refund of excise taxes on fuels in your gross income if you claimed the total cost of the fuel (including the excise taxes) as an expense deduction that reduced your income tax liability. Hrblockfree com Which year you include a credit or refund in gross income depends on whether you use the cash or an accrual method of accounting. Hrblockfree com Cash method. Hrblockfree com   If you use the cash method and file a claim for refund, include the refund amount in gross income for the tax year in which you receive the refund. Hrblockfree com If you claim a credit on your income tax return, include the credit amount in gross income for the tax year in which you file Form 4136. Hrblockfree com If you file an amended return and claim a credit, include the credit amount in gross income for the tax year in which you receive the credit. Hrblockfree com Example. Hrblockfree com Sharon Brown, a farmer who uses the cash method, filed her 2012 Form 1040 on March 3, 2013. Hrblockfree com On her Schedule F, she deducted the total cost of gasoline (including $110 of excise taxes) used on the farm for farming purposes. Hrblockfree com Then, on Form 4136, she claimed the $110 as a credit. Hrblockfree com Sharon reports the $110 as other income on line 8b of her 2013 Schedule F. Hrblockfree com Accrual method. Hrblockfree com   If you use an accrual method, include the amount of credit or refund in gross income for the tax year in which you used the fuels. Hrblockfree com It does not matter whether you filed for a quarterly refund or claimed the entire amount as a credit. Hrblockfree com Example. Hrblockfree com Patty Green, a farmer who uses the accrual method, files her 2012 Form 1040 on April 15, 2013. Hrblockfree com On Schedule F, she deducts the total cost of gasoline (including $155 of excise taxes) she used on the farm for farming purposes during 2012. Hrblockfree com On Form 4136, Patty claims the $155 as a credit. Hrblockfree com She reports the $155 as other income on line 8b of her 2012 Schedule F. Hrblockfree com Prev  Up  Next   Home   More Online Publications