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Amended Tax FormNeed To File 2006 Tax ReturnFree EfileFiling Taxes LateFiling Late Taxes Online1040x Form 2011 TurbotaxFree State Tax FilingFree State Income Tax ReturnFile 2011 Taxes In 2013 FreeFile State Tax OnlyAmended 1040E-file 2012Taxact Online FreeHelp With 1040xForm 1040ez 2012File State Tax ReturnsSelf Employed Tax DeductionsTurbotax Military DiscountNj 1040 NrH & R Block Efile1040x FilingFiling 2012 Taxes Late OnlineHow To Amend 2012 TaxesTax MilitaryHow To Do A Tax AmendmentAmend My Taxes OnlineFree Taxes For 2012Best Tax SoftwareIrs Forms 1040x DownloadE File 2012 Returns2010 E FileFree State ReturnHr Block 2005 Taxes1040x How ToHow To File An Amended Tax Return For 2012Free State Tax Return Efile1040ez Tax Forms2008 Tax FormsHow To Amend My 2011 Tax ReturnE File Taxes

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Irs free tax file Publication 556 - Introductory Material Table of Contents The IRS Mission Reminders IntroductionOrdering forms and publications. Irs free tax file Tax questions. Irs free tax file Useful Items - You may want to see: The IRS Mission Provide America's taxpayers top quality service by helping them understand and meet their tax responsibilities and by applying the tax law with integrity and fairness to all. Irs free tax file Reminders Penalty for filing erroneous claim for refund or credit. Irs free tax file  You may have to pay a penalty if you file an erroneous claim for refund or credit. Irs free tax file See Penalty for erroneous claim for refund, later under Claims for Refund. Irs free tax file Interest and penalties suspended if notice not mailed within 36 months. Irs free tax file  If you file your return timely (including extensions), interest and certain penalties will be suspended if the IRS does not mail a notice to you within 36 months. Irs free tax file See Suspension of interest and penalties, later under Examination of Returns. Irs free tax file Fast track mediation. Irs free tax file  The IRS offers fast track mediation services to help taxpayers resolve many disputes resulting from: Examinations (audits), Offers in compromise, Trust fund recovery penalties, and Other collection actions. Irs free tax file See Fast track mediation under If You Do Not Agree. Irs free tax file Introduction The Internal Revenue Service (IRS) accepts most federal tax returns as filed. Irs free tax file However, the IRS examines (or audits) some returns to determine if income, expenses, and credits are being reported accurately. Irs free tax file If your return is selected for examination, it does not suggest that you made an error or are dishonest. Irs free tax file Returns are chosen by computerized screening, by random sample, or by an income document matching program. Irs free tax file See Examination selection criteria, later. Irs free tax file You should also know that many examinations result in a refund or acceptance of the tax return without change. Irs free tax file This publication discusses general rules and procedures that the IRS follows in examinations. Irs free tax file It explains what happens during an examination and your appeal rights, both within the IRS and in the federal court system. Irs free tax file It also explains how to file a claim for refund of tax you already paid. Irs free tax file As a taxpayer, you have the right to be treated fairly, professionally, promptly, and courteously by IRS employees. Irs free tax file Publication 1, Your Rights as a Taxpayer, explains your rights when dealing with the IRS. Irs free tax file Comments and suggestions. Irs free tax file   We welcome your comments about this publication and your suggestions for future editions. Irs free tax file   You can write to us at the following address:  Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. Irs free tax file NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. Irs free tax file Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Irs free tax file   You can send your comments from www. Irs free tax file irs. Irs free tax file gov/formspubs/. Irs free tax file Click on “More Information” and then on “Comment on Tax Forms and Publications. Irs free tax file ”   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. Irs free tax file Ordering forms and publications. Irs free tax file   Visit www. Irs free tax file irs. Irs free tax file gov/formspubs to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received. Irs free tax file  Internal Revenue Service  1201 N. Irs free tax file Mitsubishi Motorway Bloomington, IL 61704-6613 Tax questions. Irs free tax file   If you have a tax question, check the information available on www. Irs free tax file irs. Irs free tax file gov or call 1-800-829-1040. Irs free tax file We cannot answer tax questions sent to either of the above addresses. Irs free tax file Useful Items - You may want to see: Publication 1 Your Rights as a Taxpayer 5 Your Appeal Rights and How To Prepare a Protest If You Don't Agree 547 Casualties, Disasters, and Thefts 594 The IRS Collection Process 910 Guide to Free Tax Services 971 Innocent Spouse Relief 1546 Taxpayer Advocate Service–Your Voice at the IRS 1660 Collection Appeal Rights 3605 Fast Track Mediation 3920 Tax Relief for Victims of Terrorist Attacks 4134 Low Income Taxpayer Clinic List Form (and Instructions) 843 Claim for Refund and Request for Abatement 911 Request for Taxpayer Advocate Service Assistance (and Application for Taxpayer Assistance Order) 1040X Amended U. Irs free tax file S. Irs free tax file Individual Income Tax Return 2848 Power of Attorney and Declaration of Representative 4506 Request for Copy of Tax Return 4506-T Request for Transcript of Tax Return 8379 Injured Spouse Allocation 8857 Request for Innocent Spouse Relief See How To Get Tax Help , near the end of this publication, for information about getting these publications and forms. Irs free tax file Prev  Up  Next   Home   More Online Publications
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Understanding Your CP237 Notice

We sent you a replacement refund check.


What you need to do

  • If you have the expired check, please destroy it.
  • When you receive the new check, remember to cash it.

You may want to...

  • Call 1-800-829-3676 (1-800-TAX-FORM) to order forms and publications.

Answers to Common Questions

 

When will I receive my replacement check?
You should receive the replacement check within 30 days.

Can I request that you mail my refund check to an alternate address?
Refund checks are mailed only to the address of record, which is the address provided on the tax return or the result of a permanent address change request submitted after the return is filed.


Tips for next year

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


Understanding your notice

Your notice may look different from the sample because the information contained in your notice is tailored to your situation.

Notice CP237, Page 1

Page Last Reviewed or Updated: 07-Aug-2013

Printable samples of this notice (PDF)

 

 

How to get help

  • Call the 1-800 number listed on the top right corner of your notice.
  • Authorize someone (e.g., accountant) to contact the IRS on your behalf using Form 2848.
  • See if you qualify for help from a Low Income Taxpayer Clinic.
     

The Irs Free Tax File

Irs free tax file 9. Irs free tax file   Rental Income and Expenses Table of Contents Introduction Useful Items - You may want to see: Rental Income Rental ExpensesVacant while listed for sale. Irs free tax file Repairs and Improvements Other Expenses Property Changed to Rental Use Renting Part of Property Not Rented for Profit Personal Use of Dwelling Unit (Including Vacation Home)Example. Irs free tax file Dividing Expenses Dwelling Unit Used as a Home Reporting Income and Deductions DepreciationChanging your accounting method to deduct unclaimed depreciation. Irs free tax file Limits on Rental LossesAt-Risk Rules Passive Activity Limits How To Report Rental Income and ExpensesSchedule E (Form 1040) Introduction This chapter discusses rental income and expenses. Irs free tax file It also covers the following topics. Irs free tax file Personal use of dwelling unit (including vacation home). Irs free tax file Depreciation. Irs free tax file Limits on rental losses. Irs free tax file How to report your rental income and expenses. Irs free tax file If you sell or otherwise dispose of your rental property, see Publication 544, Sales and Other Dispositions of Assets. Irs free tax file If you have a loss from damage to, or theft of, rental property, see Publication 547, Casualties, Disasters, and Thefts. Irs free tax file If you rent a condominium or a cooperative apartment, some special rules apply to you even though you receive the same tax treatment as other owners of rental property. Irs free tax file See Publication 527, Residential Rental Property, for more information. Irs free tax file Useful Items - You may want to see: Publication 527 Residential Rental Property 534 Depreciating Property Placed in Service Before 1987 535 Business Expenses 925 Passive Activity and At-Risk Rules 946 How To Depreciate Property Form (and Instructions) 4562 Depreciation and Amortization 6251 Alternative Minimum Tax—Individuals 8582 Passive Activity Loss Limitations Schedule E (Form 1040) Supplemental Income and Loss Rental Income In most cases, you must include in your gross income all amounts you receive as rent. Irs free tax file Rental income is any payment you receive for the use or occupation of property. Irs free tax file In addition to amounts you receive as normal rent payments, there are other amounts that may be rental income. Irs free tax file When to report. Irs free tax file   If you are a cash-basis taxpayer, you report rental income on your return for the year you actually or constructively receive it. Irs free tax file You are a cash-basis taxpayer if you report income in the year you receive it, regardless of when it was earned. Irs free tax file You constructively receive income when it is made available to you, for example, by being credited to your bank account. Irs free tax file   For more information about when you constructively receive income, see Accounting Methods in chapter 1. Irs free tax file Advance rent. Irs free tax file   Advance rent is any amount you receive before the period that it covers. Irs free tax file Include advance rent in your rental income in the year you receive it regardless of the period covered or the method of accounting you use. Irs free tax file Example. Irs free tax file You sign a 10-year lease to rent your property. Irs free tax file In the first year, you receive $5,000 for the first year's rent and $5,000 as rent for the last year of the lease. Irs free tax file You must include $10,000 in your income in the first year. Irs free tax file Canceling a lease. Irs free tax file   If your tenant pays you to cancel a lease, the amount you receive is rent. Irs free tax file Include the payment in your income in the year you receive it regardless of your method of accounting. Irs free tax file Expenses paid by tenant. Irs free tax file   If your tenant pays any of your expenses, the payments are rental income. Irs free tax file Because you must include this amount in income, you can deduct the expenses if they are deductible rental expenses. Irs free tax file See Rental Expenses , later, for more information. Irs free tax file Property or services. Irs free tax file   If you receive property or services, instead of money, as rent, include the fair market value of the property or services in your rental income. Irs free tax file   If the services are provided at an agreed upon or specified price, that price is the fair market value unless there is evidence to the contrary. Irs free tax file Security deposits. Irs free tax file   Do not include a security deposit in your income when you receive it if you plan to return it to your tenant at the end of the lease. Irs free tax file But if you keep part or all of the security deposit during any year because your tenant does not live up to the terms of the lease, include the amount you keep in your income in that year. Irs free tax file   If an amount called a security deposit is to be used as a final payment of rent, it is advance rent. Irs free tax file Include it in your income when you receive it. Irs free tax file Part interest. Irs free tax file   If you own a part interest in rental property, you must report your part of the rental income from the property. Irs free tax file Rental of property also used as your home. Irs free tax file   If you rent property that you also use as your home and you rent it less than 15 days during the tax year, do not include the rent you receive in your income and do not deduct rental expenses. Irs free tax file However, you can deduct on Schedule A (Form 1040) the interest, taxes, and casualty and theft losses that are allowed for nonrental property. Irs free tax file See Personal Use of Dwelling Unit (Including Vacation Home) , later. Irs free tax file Rental Expenses This part discusses expenses of renting property that you ordinarily can deduct from your rental income. Irs free tax file It includes information on the expenses you can deduct if you rent part of your property, or if you change your property to rental use. Irs free tax file Depreciation , which you can also deduct from your rental income, is discussed later. Irs free tax file Personal use of rental property. Irs free tax file   If you sometimes use your rental property for personal purposes, you must divide your expenses between rental and personal use. Irs free tax file Also, your rental expense deductions may be limited. Irs free tax file See Personal Use of Dwelling Unit (Including Vacation Home) , later. Irs free tax file Part interest. Irs free tax file   If you own a part interest in rental property, you can deduct expenses that you paid according to your percentage of ownership. Irs free tax file When to deduct. Irs free tax file   If you are a cash-basis taxpayer, you generally deduct your rental expenses in the year you pay them. Irs free tax file Depreciation. Irs free tax file   You can begin to depreciate rental property when it is ready and available for rent. Irs free tax file See Placed-in-Service under When Does Depreciation Begin and End in chapter 2 of Publication 527. Irs free tax file Pre-rental expenses. Irs free tax file   You can deduct your ordinary and necessary expenses for managing, conserving, or maintaining rental property from the time you make it available for rent. Irs free tax file Uncollected rent. Irs free tax file   If you are a cash-basis taxpayer, do not deduct uncollected rent. Irs free tax file Because you have not included it in your income, it is not deductible. Irs free tax file Vacant rental property. Irs free tax file   If you hold property for rental purposes, you may be able to deduct your ordinary and necessary expenses (including depreciation) for managing, conserving, or maintaining the property while the property is vacant. Irs free tax file However, you cannot deduct any loss of rental income for the period the property is vacant. Irs free tax file Vacant while listed for sale. Irs free tax file   If you sell property you held for rental purposes, you can deduct the ordinary and necessary expenses for managing, conserving, or maintaining the property until it is sold. Irs free tax file If the property is not held out and available for rent while listed for sale, the expenses are not deductible rental expenses. Irs free tax file Repairs and Improvements Generally, an expense for repairing or maintaining your rental property may be deducted if you are not required to capitalize the expense. Irs free tax file Improvements. Irs free tax file   You must capitalize any expense you pay to improve your rental property. Irs free tax file An expense is for an improvement if it results in a betterment to your property, restores your property, or adapts your property to a new or different use. Irs free tax file Betterments. Irs free tax file   Expenses that may result in a betterment to your property include expenses for fixing a pre-existing defect or condition, enlarging or expanding your property, or increasing the capacity, strength, or quality of your property. Irs free tax file Restoration. Irs free tax file   Expenses that may be for restoration include expenses for replacing a substantial structural part of your property, repairing damage to your property after you properly adjusted the basis of your property as a result of a casualty loss, or rebuilding your property to a like-new condition. Irs free tax file Adaptation. Irs free tax file   Expenses that may be for adaptation include expenses for altering your property to a use that is not consistent with the intended ordinary use of your property when you began renting the property. Irs free tax file Separate the costs of repairs and improvements, and keep accurate records. Irs free tax file You will need to know the cost of improvements when you sell or depreciate your property. Irs free tax file The expenses you capitalize for improving your property can generally be depreciated as if the improvement were separate property. Irs free tax file Other Expenses Other expenses you can deduct from your rental income include advertising, cleaning and maintenance, utilities, fire and liability insurance, taxes, interest, commissions for the collection of rent, ordinary and necessary travel and transportation, and other expenses, discussed next. Irs free tax file Insurance premiums paid in advance. Irs free tax file   If you pay an insurance premium for more than one year in advance, for each year of coverage you can deduct the part of the premium payment that will apply to that year. Irs free tax file You cannot deduct the total premium in the year you pay it. Irs free tax file Legal and other professional fees. Irs free tax file   You can deduct, as a rental expense, legal and other professional expenses, such as tax return preparation fees you paid to prepare Schedule E (Form 1040), Part I. Irs free tax file For example, on your 2013 Schedule E, you can deduct fees paid in 2013 to prepare your 2012 Schedule E, Part I. Irs free tax file You can also deduct, as a rental expense, any expense (other than federal taxes and penalties) you paid to resolve a tax underpayment related to your rental activities. Irs free tax file Local benefit taxes. Irs free tax file   In most cases, you cannot deduct charges for local benefits that increase the value of your property, such as charges for putting in streets, sidewalks, or water and sewer systems. Irs free tax file These charges are nondepreciable capital expenditures, and must be added to the basis of your property. Irs free tax file However, you can deduct local benefit taxes that are for maintaining, repairing, or paying interest charges for the benefits. Irs free tax file Local transportation expenses. Irs free tax file    You may be able to deduct your ordinary and necessary local transportation expenses if you incur them to collect rental income or to manage, conserve, or maintain your rental property. Irs free tax file However, transportation expenses incurred to travel between your home and a rental property generally constitute nondeductible commuting costs unless you use your home as your principal place of business. Irs free tax file See Publication 587, Business Use of Your Home, for information on determining if your home office qualifies as a principal place of business. Irs free tax file   Generally, if you use your personal car, pickup truck, or light van for rental activities, you can deduct the expenses using one of two methods: actual expenses or the standard mileage rate. Irs free tax file For 2013, the standard mileage rate for business use is 56. Irs free tax file 5 cents per mile. Irs free tax file For more information, see chapter 26. Irs free tax file    To deduct car expenses under either method, you must keep records that follow the rules in chapter 26. Irs free tax file In addition, you must complete Form 4562, Part V, and attach it to your tax return. Irs free tax file Rental of equipment. Irs free tax file   You can deduct the rent you pay for equipment that you use for rental purposes. Irs free tax file However, in some cases, lease contracts are actually purchase contracts. Irs free tax file If so, you cannot deduct these payments. Irs free tax file You can recover the cost of purchased equipment through depreciation. Irs free tax file Rental of property. Irs free tax file   You can deduct the rent you pay for property that you use for rental purposes. Irs free tax file If you buy a leasehold for rental purposes, you can deduct an equal part of the cost each year over the term of the lease. Irs free tax file Travel expenses. Irs free tax file   You can deduct the ordinary and necessary expenses of traveling away from home if the primary purpose of the trip is to collect rental income or to manage, conserve, or maintain your rental property. Irs free tax file You must properly allocate your expenses between rental and nonrental activities. Irs free tax file You cannot deduct the cost of traveling away from home if the primary purpose of the trip was to improve your property. Irs free tax file You recover the cost of improvements by taking depreciation. Irs free tax file For information on travel expenses, see chapter 26. Irs free tax file    To deduct travel expenses, you must keep records that follow the rules in chapter 26. Irs free tax file   See Rental Expenses in Publication 527 for more information. Irs free tax file Property Changed to Rental Use If you change your home or other property (or a part of it) to rental use at any time other than the beginning of your tax year, you must divide yearly expenses, such as taxes and insurance, between rental use and personal use. Irs free tax file You can deduct as rental expenses only the part of the expense that is for the part of the year the property was used or held for rental purposes. Irs free tax file You cannot deduct depreciation or insurance for the part of the year the property was held for personal use. Irs free tax file However, you can include the home mortgage interest, qualified mortgage insurance premiums, and real estate tax expenses for the part of the year the property was held for personal use as an itemized deduction on Schedule A (Form 1040). Irs free tax file Example. Irs free tax file Your tax year is the calendar year. Irs free tax file You moved from your home in May and started renting it out on June 1. Irs free tax file You can deduct as rental expenses seven-twelfths of your yearly expenses, such as taxes and insurance. Irs free tax file Starting with June, you can deduct as rental expenses the amounts you pay for items generally billed monthly, such as utilities. Irs free tax file Renting Part of Property If you rent part of your property, you must divide certain expenses between the part of the property used for rental purposes and the part of the property used for personal purposes, as though you actually had two separate pieces of property. Irs free tax file You can deduct the expenses related to the part of the property used for rental purposes, such as home mortgage interest, qualified mortgage insurance premiums, and real estate taxes, as rental expenses on Schedule E (Form 1040). Irs free tax file You can also deduct as rental expenses a portion of other expenses that normally are nondeductible personal expenses, such as expenses for electricity or painting the outside of your house. Irs free tax file There is no change in the types of expenses deductible for the personal-use part of your property. Irs free tax file Generally, these expenses may be deducted only if you itemize your deductions on Schedule A (Form 1040). Irs free tax file You cannot deduct any part of the cost of the first phone line even if your tenants have unlimited use of it. Irs free tax file You do not have to divide the expenses that belong only to the rental part of your property. Irs free tax file For example, if you paint a room that you rent, or if you pay premiums for liability insurance in connection with renting a room in your home, your entire cost is a rental expense. Irs free tax file If you install a second phone line strictly for your tenants' use, all of the cost of the second line is deductible as a rental expense. Irs free tax file You can deduct depreciation, discussed later, on the part of the house used for rental purposes as well as on the furniture and equipment you use for rental purposes. Irs free tax file How to divide expenses. Irs free tax file   If an expense is for both rental use and personal use, such as mortgage interest or heat for the entire house, you must divide the expense between the rental use and the personal use. Irs free tax file You can use any reasonable method for dividing the expense. Irs free tax file It may be reasonable to divide the cost of some items (for example, water) based on the number of people using them. Irs free tax file The two most common methods for dividing an expense are based on (1) the number of rooms in your home, and (2) the square footage of your home. Irs free tax file Not Rented for Profit If you do not rent your property to make a profit, you can deduct your rental expenses only up to the amount of your rental income. Irs free tax file You cannot deduct a loss or carry forward to the next year any rental expenses that are more than your rental income for the year. Irs free tax file For more information about the rules for an activity not engaged in for profit, see Not-for-Profit Activities in chapter 1 of Publication 535. Irs free tax file Where to report. Irs free tax file   Report your not-for-profit rental income on Form 1040, line 21. Irs free tax file For example, you can include your mortgage interest and any qualified mortgage insurance premiums (if you use the property as your main home or second home), real estate taxes, and casualty losses on the appropriate lines of Schedule A (Form 1040) if you itemize your deductions. Irs free tax file   If you itemize your deductions, claim your other rental expenses, subject to the rules explained in chapter 1 of Publication 535, as miscellaneous itemized deductions on Form 1040, Schedule A, line 23. Irs free tax file You can deduct these expenses only if they, together with certain other miscellaneous itemized deductions, total more than 2% of your adjusted gross income. Irs free tax file Personal Use of Dwelling Unit (Including Vacation Home) If you have any personal use of a dwelling unit (including a vacation home) that you rent, you must divide your expenses between rental use and personal use. Irs free tax file In general, your rental expenses will be no more than your total expenses multiplied by a fraction; the denominator of which is the total number of days the dwelling unit is used and the numerator of which is the total number of days actually rented at a fair rental price. Irs free tax file Only your rental expenses may be deducted on Schedule E (Form 1040). Irs free tax file Some of your personal expenses may be deductible if you itemize your deductions on Schedule A (Form 1040). Irs free tax file You must also determine if the dwelling unit is considered a home. Irs free tax file The amount of rental expenses that you can deduct may be limited if the dwelling unit is considered a home. Irs free tax file Whether a dwelling unit is considered a home depends on how many days during the year are considered to be days of personal use. Irs free tax file There is a special rule if you used the dwelling unit as a home and you rented it for less than 15 days during the year. Irs free tax file Dwelling unit. Irs free tax file   A dwelling unit includes a house, apartment, condominium, mobile home, boat, vacation home, or similar property. Irs free tax file It also includes all structures or other property belonging to the dwelling unit. Irs free tax file A dwelling unit has basic living accommodations, such as sleeping space, a toilet, and cooking facilities. Irs free tax file   A dwelling unit does not include property used solely as a hotel, motel, inn, or similar establishment. Irs free tax file Property is used solely as a hotel, motel, inn, or similar establishment if it is regularly available for occupancy by paying customers and is not used by an owner as a home during the year. Irs free tax file Example. Irs free tax file   You rent a room in your home that is always available for short-term occupancy by paying customers. Irs free tax file You do not use the room yourself, and you allow only paying customers to use the room. Irs free tax file The room is used solely as a hotel, motel, inn, or similar establishment and is not a dwelling unit. Irs free tax file Dividing Expenses If you use a dwelling unit for both rental and personal purposes, divide your expenses between the rental use and the personal use based on the number of days used for each purpose. Irs free tax file When dividing your expenses, follow these rules. Irs free tax file Any day that the unit is rented at a fair rental price is a day of rental use even if you used the unit for personal purposes that day. Irs free tax file This rule does not apply when determining whether you used the unit as a home. Irs free tax file Any day that the unit is available for rent but not actually rented is not a day of rental use. Irs free tax file Example. Irs free tax file Your beach cottage was available for rent from June 1 through August 31 (92 days). Irs free tax file During that time, except for the first week in August (7 days) when you were unable to find a renter, you rented the cottage at a fair rental price. Irs free tax file The person who rented the cottage for July allowed you to use it over the weekend (2 days) without any reduction in or refund of rent. Irs free tax file Your family also used the cottage during the last 2 weeks of May (14 days). Irs free tax file The cottage was not used at all before May 17 or after August 31. Irs free tax file You figure the part of the cottage expenses to treat as rental expenses as follows. Irs free tax file The cottage was used for rental a total of 85 days (92 − 7). Irs free tax file The days it was available for rent but not rented (7 days) are not days of rental use. Irs free tax file The July weekend (2 days) you used it is rental use because you received a fair rental price for the weekend. Irs free tax file You used the cottage for personal purposes for 14 days (the last 2 weeks in May). Irs free tax file The total use of the cottage was 99 days (14 days personal use + 85 days rental use). Irs free tax file Your rental expenses are 85/99 (86%) of the cottage expenses. Irs free tax file Note. Irs free tax file When determining whether you used the cottage as a home, the July weekend (2 days) you used it is considered personal use even though you received a fair rental price for the weekend. Irs free tax file Therefore, you had 16 days of personal use and 83 days of rental use for this purpose. Irs free tax file Because you used the cottage for personal purposes more than 14 days and more than 10% of the days of rental use (8 days), you used it as a home. Irs free tax file If you have a net loss, you may not be able to deduct all of the rental expenses. Irs free tax file See Dwelling Unit Used as a Home, next. Irs free tax file Dwelling Unit Used as a Home If you use a dwelling unit for both rental and personal purposes, the tax treatment of the rental expenses you figured earlier under Dividing Expenses and rental income depends on whether you are considered to be using the dwelling unit as a home. Irs free tax file You use a dwelling unit as a home during the tax year if you use it for personal purposes more than the greater of: 14 days, or 10% of the total days it is rented to others at a fair rental price. Irs free tax file See What is a day of personal use , later. Irs free tax file Fair rental price. Irs free tax file   A fair rental price for your property generally is the amount of rent that a person who is not related to you would be willing to pay. Irs free tax file The rent you charge is not a fair rental price if it is substantially less than the rents charged for other properties that are similar to your property in your area. Irs free tax file   If a dwelling unit is used for personal purposes on a day it is rented at a fair rental price, do not count that day as a day of rental use in applying (2) above. Irs free tax file Instead, count it as a day of personal use in applying both (1) and (2) above. Irs free tax file What is a day of personal use?   A day of personal use of a dwelling unit is any day that the unit is used by any of the following persons. Irs free tax file You or any other person who has an interest in the unit, unless you rent it to another owner as his or her main home under a shared equity financing agreement (defined later). Irs free tax file However, see Days used as a main home before or after renting , later. Irs free tax file A member of your family or a member of the family of any other person who owns an interest in the unit, unless the family member uses the dwelling unit as his or her main home and pays a fair rental price. Irs free tax file Family includes only your spouse, brothers and sisters, half-brothers and half-sisters, ancestors (parents, grandparents, etc. Irs free tax file ), and lineal descendants (children, grandchildren, etc. Irs free tax file ). Irs free tax file Anyone under an arrangement that lets you use some other dwelling unit. Irs free tax file Anyone at less than a fair rental price. Irs free tax file Main home. Irs free tax file   If the other person or member of the family in (1) or (2) above has more than one home, his or her main home is ordinarily the one he or she lived in most of the time. Irs free tax file Shared equity financing agreement. Irs free tax file   This is an agreement under which two or more persons acquire undivided interests for more than 50 years in an entire dwelling unit, including the land, and one or more of the co-owners is entitled to occupy the unit as his or her main home upon payment of rent to the other co-owner or owners. Irs free tax file Donation of use of property. Irs free tax file   You use a dwelling unit for personal purposes if: You donate the use of the unit to a charitable organization, The organization sells the use of the unit at a fund-raising event, and The “purchaser” uses the unit. Irs free tax file Examples. Irs free tax file   The following examples show how to determine days of personal use. Irs free tax file Example 1. Irs free tax file You and your neighbor are co-owners of a condominium at the beach. Irs free tax file Last year, you rented the unit to vacationers whenever possible. Irs free tax file The unit was not used as a main home by anyone. Irs free tax file Your neighbor used the unit for 2 weeks last year; you did not use it at all. Irs free tax file Because your neighbor has an interest in the unit, both of you are considered to have used the unit for personal purposes during those 2 weeks. Irs free tax file Example 2. Irs free tax file You and your neighbors are co-owners of a house under a shared equity financing agreement. Irs free tax file Your neighbors live in the house and pay you a fair rental price. Irs free tax file Even though your neighbors have an interest in the house, the days your neighbors live there are not counted as days of personal use by you. Irs free tax file This is because your neighbors rent the house as their main home under a shared equity financing agreement. Irs free tax file Example 3. Irs free tax file You own a rental property that you rent to your son. Irs free tax file Your son does not own any interest in this property. Irs free tax file He uses it as his main home and pays you a fair rental price. Irs free tax file Your son's use of the property is not personal use by you because your son is using it as his main home, he owns no interest in the property, and he is paying you a fair rental price. Irs free tax file Example 4. Irs free tax file You rent your beach house to Joshua. Irs free tax file Joshua rents his cabin in the mountains to you. Irs free tax file You each pay a fair rental price. Irs free tax file You are using your house for personal purposes on the days that Joshua uses it because your house is used by Joshua under an arrangement that allows you to use his house. Irs free tax file Days used for repairs and maintenance. Irs free tax file   Any day that you spend working substantially full time repairing and maintaining (not improving) your property is not counted as a day of personal use. Irs free tax file Do not count such a day as a day of personal use even if family members use the property for recreational purposes on the same day. Irs free tax file Days used as a main home before or after renting. Irs free tax file   For purposes of determining whether a dwelling unit was used as a home, you may not have to count days you used the property as your main home before or after renting it or offering it for rent as days of personal use. Irs free tax file Do not count them as days of personal use if: You rented or tried to rent the property for 12 or more consecutive months. Irs free tax file You rented or tried to rent the property for a period of less than 12 consecutive months and the period ended because you sold or exchanged the property. Irs free tax file However, this special rule does not apply when dividing expenses between rental and personal use. Irs free tax file Examples. Irs free tax file   The following examples show how to determine whether you used your rental property as a home. Irs free tax file Example 1. Irs free tax file You converted the basement of your home into an apartment with a bedroom, a bathroom, and a small kitchen. Irs free tax file You rented the basement apartment at a fair rental price to college students during the regular school year. Irs free tax file You rented to them on a 9-month lease (273 days). Irs free tax file You figured 10% of the total days rented to others at a fair rental price is 27 days. Irs free tax file During June (30 days), your brothers stayed with you and lived in the basement apartment rent free. Irs free tax file Your basement apartment was used as a home because you used it for personal purposes for 30 days. Irs free tax file Rent-free use by your brothers is considered personal use. Irs free tax file Your personal use (30 days) is more than the greater of 14 days or 10% of the total days it was rented (27 days). Irs free tax file Example 2. Irs free tax file You rented the guest bedroom in your home at a fair rental price during the local college's homecoming, commencement, and football weekends (a total of 27 days). Irs free tax file Your sister-in-law stayed in the room, rent free, for the last 3 weeks (21 days) in July. Irs free tax file You figured 10% of the total days rented to others at a fair rental price is 3 days. Irs free tax file The room was used as a home because you used it for personal purposes for 21 days. Irs free tax file That is more than the greater of 14 days or 10% of the 27 days it was rented (3 days). Irs free tax file Example 3. Irs free tax file You own a condominium apartment in a resort area. Irs free tax file You rented it at a fair rental price for a total of 170 days during the year. Irs free tax file For 12 of those days, the tenant was not able to use the apartment and allowed you to use it even though you did not refund any of the rent. Irs free tax file Your family actually used the apartment for 10 of those days. Irs free tax file Therefore, the apartment is treated as having been rented for 160 (170 − 10) days. Irs free tax file You figured 10% of the total days rented to others at a fair rental price is 16 days. Irs free tax file Your family also used the apartment for 7 other days during the year. Irs free tax file You used the apartment as a home because you used it for personal purposes for 17 days. Irs free tax file That is more than the greater of 14 days or 10% of the 160 days it was rented (16 days). Irs free tax file Minimal rental use. Irs free tax file   If you use the dwelling unit as a home and you rent it less than 15 days during the year, that period is not treated as rental activity. Irs free tax file See Used as a home but rented less than 15 days , later, for more information. Irs free tax file Limit on deductions. Irs free tax file   Renting a dwelling unit that is considered a home is not a passive activity. Irs free tax file Instead, if your rental expenses are more than your rental income, some or all of the excess expenses cannot be used to offset income from other sources. Irs free tax file The excess expenses that cannot be used to offset income from other sources are carried forward to the next year and treated as rental expenses for the same property. Irs free tax file Any expenses carried forward to the next year will be subject to any limits that apply for that year. Irs free tax file This limitation will apply to expenses carried forward to another year even if you do not use the property as your home for that subsequent year. Irs free tax file   To figure your deductible rental expenses for this year and any carryover to next year, use Worksheet 9-1. Irs free tax file Reporting Income and Deductions Property not used for personal purposes. Irs free tax file   If you do not use a dwelling unit for personal purposes, see How To Report Rental Income and Expenses , later, for how to report your rental income and expenses. Irs free tax file Property used for personal purposes. Irs free tax file   If you do use a dwelling unit for personal purposes, then how you report your rental income and expenses depends on whether you used the dwelling unit as a home. Irs free tax file Not used as a home. Irs free tax file   If you use a dwelling unit for personal purposes, but not as a home, report all the rental income in your income. Irs free tax file Since you used the dwelling unit for personal purposes, you must divide your expenses between the rental use and the personal use as described earlier in Dividing Expenses . Irs free tax file The expenses for personal use are not deductible as rental expenses. Irs free tax file   Your deductible rental expenses can be more than your gross rental income; however, see Limits on Rental Losses , later. Irs free tax file Used as a home but rented less than 15 days. Irs free tax file   If you use a dwelling unit as a home and you rent it less than 15 days during the year, its primary function is not considered to be rental and it should not be reported on Schedule E (Form 1040). Irs free tax file You are not required to report the rental income and rental expenses from this activity. Irs free tax file The expenses, including qualified mortgage interest, property taxes, and any qualified casualty loss will be reported as normally allowed on Schedule A (Form 1040). Irs free tax file See the Instructions for Schedule A (Form 1040) for more information on deducting these expenses. Irs free tax file Used as a home and rented 15 days or more. Irs free tax file   If you use a dwelling unit as a home and rent it 15 days or more during the year, include all your rental income in your income. Irs free tax file Since you used the dwelling unit for personal purposes, you must divide your expenses between the rental use and the personal use as described earlier in Dividing Expenses . Irs free tax file The expenses for personal use are not deductible as rental expenses. Irs free tax file   If you had a net profit from renting the dwelling unit for the year (that is, if your rental income is more than the total of your rental expenses, including depreciation), deduct all of your rental expenses. Irs free tax file You do not need to use Worksheet 9-1. Irs free tax file   However, if you had a net loss from renting the dwelling unit for the year, your deduction for certain rental expenses is limited. Irs free tax file To figure your deductible rental expenses and any carryover to next year, use Worksheet 9-1. Irs free tax file Depreciation You recover the cost of income-producing property through yearly tax deductions. Irs free tax file You do this by depreciating the property; that is, by deducting some of the cost each year on your tax return. Irs free tax file Three factors determine how much depreciation you can deduct each year: (1) your basis in the property, (2) the recovery period for the property, and (3) the depreciation method used. Irs free tax file You cannot simply deduct your mortgage or principal payments, or the cost of furniture, fixtures, and equipment, as an expense. Irs free tax file You can deduct depreciation only on the part of your property used for rental purposes. Irs free tax file Depreciation reduces your basis for figuring gain or loss on a later sale or exchange. Irs free tax file You may have to use Form 4562 to figure and report your depreciation. Irs free tax file See How To Report Rental Income and Expenses , later. Irs free tax file Alternative minimum tax (AMT). Irs free tax file    If you use accelerated depreciation, you may be subject to the AMT. Irs free tax file Accelerated depreciation allows you to deduct more depreciation earlier in the recovery period than you could deduct using a straight line method (same deduction each year). Irs free tax file Claiming the correct amount of depreciation. Irs free tax file   You should claim the correct amount of depreciation each tax year. Irs free tax file If you did not claim all the depreciation you were entitled to deduct, you must still reduce your basis in the property by the full amount of depreciation that you could have deducted. Irs free tax file   If you deducted an incorrect amount of depreciation for property in any year, you may be able to make a correction by filing Form 1040X, Amended U. Irs free tax file S Individual Income Tax Return. Irs free tax file If you are not allowed to make the correction on an amended return, you can change your accounting method to claim the correct amount of depreciation. Irs free tax file See Claiming the correct amount of depreciation in chapter 2 of Publication 527 for more information. Irs free tax file Changing your accounting method to deduct unclaimed depreciation. Irs free tax file   To change your accounting method, you generally must file Form 3115, Application for Change in Accounting Method, to get the consent of the IRS. Irs free tax file In some instances, that consent is automatic. Irs free tax file For more information, see chapter 1 of Publication 946. Irs free tax file Land. Irs free tax file   You cannot depreciate the cost of land because land generally does not wear out, become obsolete, or get used up. Irs free tax file The costs of clearing, grading, planting, and landscaping are usually all part of the cost of land and cannot be depreciated. Irs free tax file More information. Irs free tax file   See Publication 527 for more information about depreciating rental property and see Publication 946 for more information about depreciation. Irs free tax file Limits on Rental Losses If you have a loss from your rental real estate activity, two sets of rules may limit the amount of loss you can deduct. Irs free tax file You must consider these rules in the order shown below. Irs free tax file At-risk rules. Irs free tax file These rules are applied first if there is investment in your rental real estate activity for which you are not at risk. Irs free tax file This applies only if the real property was placed in service after 1986. Irs free tax file Passive activity limits. Irs free tax file Generally, rental real estate activities are considered passive activities and losses are not deductible unless you have income from other passive activities to offset them. Irs free tax file However, there are exceptions. Irs free tax file At-Risk Rules You may be subject to the at-risk rules if you have: A loss from an activity carried on as a trade or business or for the production of income, and Amounts invested in the activity for which you are not fully at risk. Irs free tax file Losses from holding real property (other than mineral property) placed in service before 1987 are not subject to the at-risk rules. Irs free tax file In most cases, any loss from an activity subject to the at-risk rules is allowed only to the extent of the total amount you have at risk in the activity at the end of the tax year. Irs free tax file You are considered at risk in an activity to the extent of cash and the adjusted basis of other property you contributed to the activity and certain amounts borrowed for use in the activity. Irs free tax file See Publication 925 for more information. Irs free tax file Passive Activity Limits In most cases, all rental real estate activities (except those of certain real estate professionals, discussed later) are passive activities. Irs free tax file For this purpose, a rental activity is an activity from which you receive income mainly for the use of tangible property, rather than for services. Irs free tax file Limits on passive activity deductions and credits. Irs free tax file    Deductions or losses from passive activities are limited. Irs free tax file You generally cannot offset income, other than passive income, with losses from passive activities. Irs free tax file Nor can you offset taxes on income, other than passive income, with credits resulting from passive activities. Irs free tax file Any excess loss or credit is carried forward to the next tax year. Irs free tax file   For a detailed discussion of these rules, see Publication 925. Irs free tax file    You may have to complete Form 8582 to figure the amount of any passive activity loss for the current tax year for all activities and the amount of the passive activity loss allowed on your tax return. Irs free tax file Real estate professionals. Irs free tax file   Rental activities in which you materially participated during the year are not passive activities if, for that year, you were a real estate professional. Irs free tax file For a detailed discussion of the requirements, see Publication 527. Irs free tax file For a detailed discussion of material participation, see Publication 925. Irs free tax file Exception for Personal Use of Dwelling Unit If you used the rental property as a home during the year, any income, deductions, gain, or loss allocable to such use shall not be taken into account for purposes of the passive activity loss limitation. Irs free tax file Instead, follow the rules explained in Personal Use of Dwelling Unit (Including Vacation Home), earlier. Irs free tax file Exception for Rental Real Estate Activities With Active Participation If you or your spouse actively participated in a passive rental real estate activity, you may be able to deduct up to $25,000 of loss from the activity from your nonpassive income. Irs free tax file This special allowance is an exception to the general rule disallowing losses in excess of income from passive activities. Irs free tax file Similarly, you may be able to offset credits from the activity against the tax on up to $25,000 of nonpassive income after taking into account any losses allowed under this exception. Irs free tax file Active participation. Irs free tax file   You actively participated in a rental real estate activity if you (and your spouse) owned at least 10% of the rental property and you made management decisions or arranged for others to provide services (such as repairs) in a significant and bona fide sense. Irs free tax file Management decisions that may count as active participation include approving new tenants, deciding on rental terms, approving expenditures, and similar decisions. Irs free tax file Maximum special allowance. Irs free tax file   The maximum special allowance is: $25,000 for single individuals and married individuals filing a joint return for the tax year, $12,500 for married individuals who file separate returns for the tax year and lived apart from their spouses at all times during the tax year, and $25,000 for a qualifying estate reduced by the special allowance for which the surviving spouse qualified. Irs free tax file   If your modified adjusted gross income (MAGI) is $100,000 or less ($50,000 or less if married filing separately), you can deduct your loss up to the amount specified above. Irs free tax file If your MAGI is more than $100,000 (more than $50,000 if married filing separately), your special allowance is limited to 50% of the difference between $150,000 ($75,000 if married filing separately) and your MAGI. Irs free tax file   Generally, if your MAGI is $150,000 or more ($75,000 or more if you are married filing separately), there is no special allowance. Irs free tax file More information. Irs free tax file   See Publication 925 for more information on the passive loss limits, including information on the treatment of unused disallowed passive losses and credits and the treatment of gains and losses realized on the disposition of a passive activity. Irs free tax file How To Report Rental Income and Expenses The basic form for reporting residential rental income and expenses is Schedule E (Form 1040). Irs free tax file However, do not use that schedule to report a not-for-profit activity. Irs free tax file See Not Rented for Profit, earlier. Irs free tax file Providing substantial services. Irs free tax file   If you provide substantial services that are primarily for your tenant's convenience, such as regular cleaning, changing linen, or maid service, report your rental income and expenses on Schedule C (Form 1040), Profit or Loss From Business, or Schedule C-EZ (Form 1040), Net Profit From Business (Sole Proprietorship). Irs free tax file Substantial services do not include the furnishing of heat and light, cleaning of public areas, trash collection, etc. Irs free tax file For information, see Publication 334, Tax Guide for Small Business. Irs free tax file You also may have to pay self-employment tax on your rental income using Schedule SE (Form 1040), Self-Employment Tax. Irs free tax file   Use Form 1065, U. Irs free tax file S. Irs free tax file Return of Partnership Income, if your rental activity is a partnership (including a partnership with your spouse unless it is a qualified joint venture). Irs free tax file Qualified joint venture. Irs free tax file   If you and your spouse each materially participate as the only members of a jointly owned and operated real estate business, and you file a joint return for the tax year, you can make a joint election to be treated as a qualified joint venture instead of a partnership. Irs free tax file This election, in most cases, will not increase the total tax owed on the joint return, but it does give each of you credit for social security earnings on which retirement benefits are based and for Medicare coverage if your rental income is subject to self-employment tax. Irs free tax file For more information, see Publication 527. Irs free tax file Form 1098, Mortgage Interest Statement. Irs free tax file    If you paid $600 or more of mortgage interest on your rental property to any one person, you should receive a Form 1098, or similar statement showing the interest you paid for the year. Irs free tax file If you and at least one other person (other than your spouse if you file a joint return) were liable for, and paid interest on the mortgage, and the other person received the Form 1098, report your share of the interest on Schedule E (Form 1040), line 13. Irs free tax file Attach a statement to your return showing the name and address of the other person. Irs free tax file In the left margin of Schedule E, next to line 13, enter “See attached. Irs free tax file ” Schedule E (Form 1040) If you rent buildings, rooms, or apartments, and provide basic services such as heat and light, trash collection, etc. Irs free tax file , you normally report your rental income and expenses on Schedule E, Part I. Irs free tax file List your total income, expenses, and depreciation for each rental property. Irs free tax file Be sure to enter the number of fair rental and personal use days on line 2. Irs free tax file If you have more than three rental or royalty properties, complete and attach as many Schedules E as are needed to list the properties. Irs free tax file Complete lines 1 and 2 for each property. Irs free tax file However, fill in lines 23a through 26 on only one Schedule E. Irs free tax file On Schedule E, page 1, line 18, enter the depreciation you are claiming for each property. Irs free tax file To find out if you need to attach Form 4562, see Form 4562, in chapter 3 of Publication 527. Irs free tax file If you have a loss from your rental real estate activity, you also may need to complete one or both of the following forms. Irs free tax file Form 6198, At-Risk Limitations. Irs free tax file See At-Risk Rules , earlier. Irs free tax file Also see Publication 925. Irs free tax file Form 8582, Passive Activity Loss Limitations. Irs free tax file See Passive Activity Limits , earlier. Irs free tax file Page 2 of Schedule E is used to report income or loss from partnerships, S corporations, estates, trusts, and real estate mortgage investment conduits. Irs free tax file If you need to use page 2 of Schedule E, be sure to use page 2 of the same Schedule E you used to enter your rental activity on page 1. Irs free tax file Also, include the amount from line 26 (Part I) in the “Total income or (loss)” on line 41 (Part V). Irs free tax file Worksheet 9-1. Irs free tax file Worksheet for Figuring Rental Deductions for a Dwelling Unit Used as a Home Use this worksheet only if you answer “yes” to all of the following questions. Irs free tax file Did you use the dwelling unit as a home this year? (See Dwelling Unit Used as a Home . Irs free tax file ) Did you rent the dwelling unit at a fair rental price 15 days or more this year? Is the total of your rental expenses and depreciation more than your rental income? PART I. Irs free tax file Rental Use Percentage A. Irs free tax file Total days available for rent at fair rental price A. Irs free tax file       B. Irs free tax file Total days available for rent (line A) but not rented B. Irs free tax file       C. Irs free tax file Total days of rental use. Irs free tax file Subtract line B from line A C. Irs free tax file       D. Irs free tax file Total days of personal use (including days rented at less than fair rental price) D. Irs free tax file       E. Irs free tax file Total days of rental and personal use. Irs free tax file Add lines C and D E. Irs free tax file       F. Irs free tax file Percentage of expenses allowed for rental. Irs free tax file Divide line C by line E     F. Irs free tax file   PART II. Irs free tax file Allowable Rental Expenses 1. Irs free tax file Enter rents received 1. Irs free tax file   2a. Irs free tax file Enter the rental portion of deductible home mortgage interest and qualified mortgage insurance premiums (see instructions) 2a. Irs free tax file       b. Irs free tax file Enter the rental portion of real estate taxes b. Irs free tax file       c. Irs free tax file Enter the rental portion of deductible casualty and theft losses (see instructions) c. Irs free tax file       d. Irs free tax file Enter direct rental expenses (see instructions) d. Irs free tax file       e. Irs free tax file Fully deductible rental expenses. Irs free tax file Add lines 2a–2d. Irs free tax file Enter here and  on the appropriate lines on Schedule E (see instructions) 2e. Irs free tax file   3. Irs free tax file Subtract line 2e from line 1. Irs free tax file If zero or less, enter -0- 3. Irs free tax file   4a. Irs free tax file Enter the rental portion of expenses directly related to operating or maintaining  the dwelling unit (such as repairs, insurance, and utilities) 4a. Irs free tax file       b. Irs free tax file Enter the rental portion of excess mortgage interest and qualified mortgage insurance premiums (see instructions) b. Irs free tax file       c. Irs free tax file Carryover of operating expenses from 2012 worksheet c. Irs free tax file       d. Irs free tax file Add lines 4a–4c d. Irs free tax file       e. Irs free tax file Allowable expenses. Irs free tax file Enter the smaller of line 3 or line 4d (see instructions) 4e. Irs free tax file   5. Irs free tax file Subtract line 4e from line 3. Irs free tax file If zero or less, enter -0- 5. Irs free tax file   6a. Irs free tax file Enter the rental portion of excess casualty and theft losses (see instructions) 6a. Irs free tax file       b. Irs free tax file Enter the rental portion of depreciation of the dwelling unit b. Irs free tax file       c. Irs free tax file Carryover of excess casualty losses and depreciation from 2012 worksheet c. Irs free tax file       d. Irs free tax file Add lines 6a–6c d. Irs free tax file       e. Irs free tax file Allowable excess casualty and theft losses and depreciation. Irs free tax file Enter the smaller of  line 5 or line 6d (see instructions) 6e. Irs free tax file   PART III. Irs free tax file Carryover of Unallowed Expenses to Next Year 7a. Irs free tax file Operating expenses to be carried over to next year. Irs free tax file Subtract line 4e from line 4d 7a. Irs free tax file   b. Irs free tax file Excess casualty and theft losses and depreciation to be carried over to next year. Irs free tax file  Subtract line 6e from line 6d b. Irs free tax file   Worksheet 9-1 Instructions. Irs free tax file Worksheet for Figuring Rental Deductions for a Dwelling Unit Used as a Home Caution. Irs free tax file Use the percentage determined in Part I, line F, to figure the rental portions to enter on lines 2a–2c, 4a–4b, and 6a–6b of  Part II. Irs free tax file Line 2a. Irs free tax file Figure the mortgage interest on the dwelling unit that you could deduct on Schedule A as if you had not rented the unit. Irs free tax file Do not include interest on a loan that did not benefit the dwelling unit. Irs free tax file For example, do not include interest on a home equity loan used to pay off credit cards or other personal loans, buy a car, or pay college tuition. Irs free tax file Include interest on a loan used to buy, build, or improve the dwelling unit, or to refinance such a loan. Irs free tax file Include the rental portion of this interest in the total you enter on line 2a of the worksheet. Irs free tax file   Figure the qualified mortgage insurance premiums on the dwelling unit that you could deduct on line 13 of Schedule A as if you had not rented the unit. Irs free tax file See the Schedule A instructions. Irs free tax file However, figure your adjusted gross income (Form 1040, line 38) without your rental income and expenses from the dwelling unit. Irs free tax file See Line 4b to deduct the part of the qualified mortgage insurance premiums not allowed because of the adjusted gross income limit. Irs free tax file Include the rental portion of the amount from Schedule A, line 13, in the total you enter on line 2a of the worksheet. Irs free tax file   Note. Irs free tax file Do not file this Schedule A or use it to figure the amount to deduct on line 13 of that schedule. Irs free tax file Instead, figure the personal portion on a separate Schedule A. Irs free tax file If you have deducted mortgage interest or qualified mortgage insurance premiums on the dwelling unit on other forms, such as Schedule C or F, remember to reduce your Schedule A deduction by that amount. Irs free tax file           Line 2c. Irs free tax file Figure the casualty and theft losses related to the dwelling unit that you could deduct on Schedule A as if you had not rented the dwelling unit. Irs free tax file To do this, complete Section A of Form 4684, Casualties and Thefts, treating the losses as personal losses. Irs free tax file If any of the loss is due to a federally declared disaster, see the Instructions for Form 4684. Irs free tax file On Form 4684, line 17, enter 10% of your adjusted gross income figured without your rental income and expenses from the dwelling unit. Irs free tax file Enter the rental portion of the result from Form 4684, line 18, on line 2c of this worksheet. Irs free tax file   Note. Irs free tax file Do not file this Form 4684 or use it to figure your personal losses on Schedule A. Irs free tax file Instead, figure the personal portion on a separate Form 4684. Irs free tax file           Line 2d. Irs free tax file Enter the total of your rental expenses that are directly related only to the rental activity. Irs free tax file These include interest on loans used for rental activities other than to buy, build, or improve the dwelling unit. Irs free tax file Also include rental agency fees, advertising, office supplies, and depreciation on office equipment used in your rental activity. Irs free tax file           Line 2e. Irs free tax file You can deduct the amounts on lines 2a, 2b, 2c, and 2d as rental expenses on Schedule E even if your rental expenses are more than your rental income. Irs free tax file Enter the amounts on lines 2a, 2b, 2c, and 2d on the appropriate lines of Schedule E. Irs free tax file           Line 4b. Irs free tax file On line 2a, you entered the rental portion of the mortgage interest and qualified mortgage insurance premiums you could deduct on Schedule A if you had not rented the dwelling unit. Irs free tax file If you had additional mortgage interest and qualified mortgage insurance premiums that would not be deductible on Schedule A because of limits imposed on them, enter on line 4b of this worksheet the rental portion of those excess amounts. Irs free tax file Do not include interest on a loan that did not benefit the dwelling unit (as explained in the line 2a instructions). Irs free tax file           Line 4e. Irs free tax file You can deduct the amounts on lines 4a, 4b, and 4c as rental expenses on Schedule E only to the extent they are not more than the amount on line 4e. Irs free tax file *           Line 6a. Irs free tax file To find the rental portion of excess casualty and theft losses, use the Form 4684 you prepared for line 2c of this worksheet. Irs free tax file   A. Irs free tax file Enter the amount from Form 4684, line 10       B. Irs free tax file Enter the rental portion of line A       C. Irs free tax file Enter the amount from line 2c of this worksheet       D. Irs free tax file Subtract line C from line B. Irs free tax file Enter the result here and on line 6a of this worksheet               Line 6e. Irs free tax file You can deduct the amounts on lines 6a, 6b, and 6c as rental expenses on Schedule E only to the extent they are not more than the amount on line 6e. Irs free tax file * *Allocating the limited deduction. Irs free tax file If you cannot deduct all of the amount on line 4d or 6d this year, you can allocate the allowable deduction in any way you wish among the expenses included on line 4d or 6d. Irs free tax file Enter the amount you allocate to each expense on the appropriate line of Schedule E, Part I. Irs free tax file Prev  Up  Next   Home   More Online Publications