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Need Help Filing A 1040x

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Need Help Filing A 1040x

Need help filing a 1040x 10. Need help filing a 1040x   Education Savings Bond Program Table of Contents Introduction Who Can Cash In Bonds Tax FreeAdjusted qualified education expenses. Need help filing a 1040x Eligible educational institution. Need help filing a 1040x Dependent for whom you claim an exemption. Need help filing a 1040x MAGI when using Form 1040A. Need help filing a 1040x MAGI when using Form 1040. Need help filing a 1040x Figuring the Tax-Free AmountEffect of the Amount of Your Income on the Amount of Your Exclusion Claiming the Exclusion Introduction Generally, you must pay tax on the interest earned on U. Need help filing a 1040x S. Need help filing a 1040x savings bonds. Need help filing a 1040x If you do not include the interest in income in the years it is earned, you must include it in your income in the year in which you cash in the bonds. Need help filing a 1040x However, when you cash in certain savings bonds under an education savings bond program, you may be able to exclude the interest from income. Need help filing a 1040x Who Can Cash In Bonds Tax Free You may be able to cash in qualified U. Need help filing a 1040x S. Need help filing a 1040x savings bonds without having to include in your income some or all of the interest earned on the bonds if you meet the following conditions. Need help filing a 1040x You pay qualified education expenses for yourself, your spouse, or a dependent for whom you claim an exemption on your return. Need help filing a 1040x Your modified adjusted gross income (MAGI) is less than the amount specified for your filing status. Need help filing a 1040x Your filing status is not married filing separately. Need help filing a 1040x Qualified U. Need help filing a 1040x S. Need help filing a 1040x savings bonds. Need help filing a 1040x   A qualified U. Need help filing a 1040x S. Need help filing a 1040x savings bond is a series EE bond issued after 1989 or a series I bond. Need help filing a 1040x The bond must be issued either in your name (as the sole owner) or in the name of both you and your spouse (as co-owners). Need help filing a 1040x   The owner must be at least 24 years old before the bond's issue date. Need help filing a 1040x The issue date is printed on the front of the savings bond. Need help filing a 1040x    The issue date is not necessarily the date of purchase—it will be the first day of the month in which the bond is purchased (or posted, if bought electronically). Need help filing a 1040x Qualified education expenses. Need help filing a 1040x   These include the following items you pay for either yourself, your spouse, or a dependent for whom you claim an exemption. Need help filing a 1040x Tuition and fees required to enroll at or attend an eligible educational institution. Need help filing a 1040x Qualified education expenses do not include expenses for room and board or for courses involving sports, games, or hobbies that are not part of a degree or certificate granting program. Need help filing a 1040x Contributions to a qualified tuition program (QTP) (see How Much Can You Contribute in chapter 8, Qualified Tuition Program). Need help filing a 1040x Contributions to a Coverdell education savings account (ESA) (see Contributions in chapter 7, Coverdell Education Savings Account). Need help filing a 1040x Adjusted qualified education expenses. Need help filing a 1040x   You must reduce your qualified education expenses by all of the following tax-free benefits. Need help filing a 1040x Tax-free part of scholarships and fellowships (see Tax-Free Scholarships and Fellowships in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions). Need help filing a 1040x Expenses used to figure the tax-free portion of distributions from a Coverdell ESA (see Qualified Education Expenses in chapter 7, Coverdell Education Savings Account). Need help filing a 1040x Expenses used to figure the tax-free portion of distributions from a QTP (see Qualified education expenses in chapter 8, Qualified Tuition Program). Need help filing a 1040x Any tax-free payments (other than gifts or inheritances) received as educational assistance, such as: Veterans' educational assistance benefits (see Veterans' Benefits in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Qualified tuition reductions (see Qualified Tuition Reduction in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), or Employer-provided educational assistance (see chapter 11, Employer-Provided Educational Assistance ). Need help filing a 1040x Any expenses used in figuring the American opportunity and lifetime learning credits. Need help filing a 1040x See What Expenses Qualify in chapter 2, American Opportunity Credit, and What Expenses Qualify in chapter 3, Lifetime Learning Credit, for more information. Need help filing a 1040x Eligible educational institution. Need help filing a 1040x   An eligible educational institution is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U. Need help filing a 1040x S. Need help filing a 1040x Department of Education. Need help filing a 1040x It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. Need help filing a 1040x The educational institution should be able to tell you if it is an eligible educational institution. Need help filing a 1040x   Certain educational institutions located outside the United States also participate in the U. Need help filing a 1040x S. Need help filing a 1040x Department of Education's Federal Student Aid (FSA) programs. Need help filing a 1040x Dependent for whom you claim an exemption. Need help filing a 1040x   You claim an exemption for a person if you list his or her name and other required information on Form 1040 (or Form 1040A), line 6c. Need help filing a 1040x Modified adjusted gross income (MAGI). Need help filing a 1040x   For most taxpayers, MAGI is adjusted gross income (AGI) as figured on their federal income tax return without taking into account this interest exclusion. Need help filing a 1040x However, as discussed below, there may be other modifications. Need help filing a 1040x MAGI when using Form 1040A. Need help filing a 1040x   If you file Form 1040A, your MAGI is the AGI on line 22 of that form figured without taking into account any savings bond interest exclusion and modified by adding back any amount on line 18 (student loan interest deduction) and line 19 (tuition and fees deduction). Need help filing a 1040x MAGI when using Form 1040. Need help filing a 1040x   If you file Form 1040, your MAGI is the AGI on line 38 of that form figured without taking into account any savings bond interest exclusion and modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, Exclusion of income by bona fide residents of Puerto Rico, Exclusion for adoption benefits received under an employer's adoption assistance program, Deduction for student loan interest, Deduction for tuition and fees, and Deduction for domestic production activities. Need help filing a 1040x    Use the worksheet in the instructions for line 9 of Form 8815 to figure your MAGI. Need help filing a 1040x If you claim any of the exclusion or deduction items (1)–(6) listed above, add the amount of the exclusion or deduction to the amount on line 5 of the worksheet. Need help filing a 1040x Do not add in the deduction for (7) student loan interest, and (8) tuition and fees, or (9) domestic production activities because line 4 of the worksheet already includes these amounts. Need help filing a 1040x Enter the total on Form 8815, line 9, as your modified adjusted gross income (MAGI). Need help filing a 1040x    Because the deduction for interest expenses attributable to royalties and other investments is limited to your net investment income, you cannot figure the deduction until you have figured this interest exclusion. Need help filing a 1040x Therefore, if you had interest expenses attributable to royalties and deductible on Schedule E (Form 1040), Supplemental Income and Loss, you must make a special computation of your deductible interest without regard to this exclusion to figure the net royalty income included in your MAGI. Need help filing a 1040x See Royalties included in MAGI under Education Savings Bond Program in Publication 550, chapter 1. Need help filing a 1040x Figuring the Tax-Free Amount If the total you receive when you cash in the bonds is not more than the adjusted qualified education expenses for the year, all of the interest on the bonds may be tax free. Need help filing a 1040x However, if the total you receive when you cash in the bonds is more than the adjusted expenses, only part of the interest may be tax free. Need help filing a 1040x To determine the tax-free amount, multiply the interest part of the proceeds by a fraction. Need help filing a 1040x The numerator (top part) of the fraction is the adjusted qualified education expenses (AQEE) you paid during the year. Need help filing a 1040x The denominator (bottom part) of the fraction is the total proceeds you received during the year. Need help filing a 1040x Example. Need help filing a 1040x In February 2013, Mark and Joan Washington, a married couple, cashed a qualified series EE U. Need help filing a 1040x S. Need help filing a 1040x savings bond. Need help filing a 1040x They received proceeds of $9,000, representing principal of $6,000 and interest of $3,000. Need help filing a 1040x In 2013, they paid $7,650 of their daughter's college tuition. Need help filing a 1040x They are not claiming an American opportunity or lifetime learning credit for those expenses, and their daughter does not have any tax-free educational assistance. Need help filing a 1040x Their MAGI for 2013 was $80,000. Need help filing a 1040x   $3,000 interest × $7,650 AQEE  $9,000 proceeds = $2,550 tax-free interest   They can exclude $2,550 of interest in 2013. Need help filing a 1040x They must pay tax on the remaining $450 ($3,000 − $2,550) interest. Need help filing a 1040x Effect of the Amount of Your Income on the Amount of Your Exclusion The amount of your interest exclusion is gradually reduced (phased out) based on your MAGI and filing status. Need help filing a 1040x Claiming the Exclusion Use Form 8815 to figure your education savings bond interest exclusion. Need help filing a 1040x Enter your exclusion on line 3 of Schedule B (Form 1040A or 1040), Interest and Ordinary Dividends. Need help filing a 1040x Attach Form 8815 to your tax return. Need help filing a 1040x Prev  Up  Next   Home   More Online Publications
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Filing Past Due Tax Returns

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File all tax returns that are due, regardless of whether or not you can pay in full. File your past due return the same way and to the same location where you would file an on-time return. 

If you have received a notice, make sure to send your past due return to the location indicated on the notice you received.

Why you should file your past due return now

Avoid interest and penalties

File your past due return and pay now to limit interest charges and late payment penalties.

Claim a refund

You risk losing your refund if you don't file your return. If you are due a refund for withholding or estimated taxes, you must file your return to claim it within 3 years of the return due date. The same rule applies to a right to claim tax credits such as the Earned Income Credit.

We hold income tax refunds in cases where our records show that one or more income tax returns are past due. We hold them until we get the past due return or receive an acceptable reason for not filing a past due return.

Protect Social Security benefits

If you are self-employed and do not file your federal income tax return, any self-employment income you earned will not be reported to the Social Security Administration and you will not receive credits toward Social Security retirement or disability benefits.

Avoid issues obtaining loans

Loan approvals may be delayed if you don't file your return. Copies of filed tax returns must be submitted to financial institutions, mortgage lenders/brokers, etc., whenever you want to buy or refinance a home, get a loan for a business, or apply for federal aid for higher education.

If you owe more than you can pay

If you cannot pay what you owe, you can request an additional 60-120 days to pay your account in full through the Online Payment Agreement application or by calling 800-829-1040; no user fee will be charged. If you need more time to pay, you can request an installment agreement or you may qualify for an offer in compromise.

What if you don’t file voluntarily

Substitute Return 

If you fail to file, we may file a substitute return for you. This return might not give you credit for deductions and exemptions you may be entitled to receive. We will send you a Notice of Deficiency CP3219N (90-day letter) proposing a tax assessment. You will have 90 days to file your past due tax return or file a petition in Tax Court. If you do neither, we will proceed with our proposed assessment. If you have received notice CP3219N you can not request an extension to file. 

If any of the income listed is incorrect, you may do the following:

  • Contact us at 1-866-681-4271 to let us know.
  • Contact the payer (source) of the income to request a corrected Form W-2 or 1099.
  • Attach the corrected forms when you send us your completed tax returns.

If the IRS files a substitute return, it is still in your best interest to file your own tax return to take advantage of any exemptions, credits and deductions you are entitled to receive. The IRS will generally adjust your account to reflect the correct figures.

Collection and enforcement actions

The return we prepare for you (our proposed assessment) will lead to a tax bill, which, if unpaid, will trigger the collection process. This can include such actions as a levy on your wages or bank account or the filing of a notice of federal tax lien.

If you repeatedly do not file, you could be subject to additional enforcement measures, such as additional penalties and/or criminal prosecution.

Help filing your past due return

For filing help, call 1-800-829-1040 or 1-800-829-4059 for TTY/TDD. If you need income information to help prepare a past due return, call the toll-free number at 1-866-681-4271, or contact your employer or payer.

Get our online tax forms and instructions to file your past due return, or order them by calling 1-800-Tax-Form (1-800-829-3676) or 1-800-829-4059 for TTY/TDD. 

If you are experiencing a hardship and you can’t file your past due return, you can call or write your local Taxpayer Advocate Office for your state.

Already filed your past due return

If you received a notice, you should send us a copy of the past due return to the indicated address.

It takes approximately 6 weeks for us to process an accurately completed past due tax return.

Page Last Reviewed or Updated: 16-Sep-2013

The Need Help Filing A 1040x

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