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Turbotax 1. Turbotax 403(b) Plan Basics Table of Contents What Is a 403(b) Plan? What Are the Benefits of Contributing to a 403(b) Plan?Excluded. Turbotax Deducted. Turbotax Who Can Participate in a 403(b) Plan?Ministers. Turbotax Who Can Set Up a 403(b) Account? How Can Contributions Be Made to My 403(b) Account? Do I Report Contributions on My Tax Return? How Much Can Be Contributed to My 403(b) Account? This chapter introduces you to 403(b) plans and accounts. Turbotax Specifically, the chapter answers the following questions. Turbotax What is a 403(b) plan? What are the benefits of contributing to a 403(b) plan? Who can participate in a 403(b) plan? Who can set up a 403(b) account? How can contributions be made to my 403(b) account? Do I report contributions on my tax return? How much can be contributed to my 403(b) account? What Is a 403(b) Plan? A 403(b) plan, also known as a tax-sheltered annuity (TSA) plan, is a retirement plan for certain employees of public schools, employees of certain tax-exempt organizations, and certain ministers. Turbotax Individual accounts in a 403(b) plan can be any of the following types. Turbotax An annuity contract, which is a contract provided through an insurance company, A custodial account, which is an account invested in mutual funds, or A retirement income account set up for church employees. Turbotax Generally, retirement income accounts can invest in either annuities or mutual funds. Turbotax We use the term “403(b) account” to refer to any one of these funding arrangements throughout this publication, unless otherwise specified. Turbotax What Are the Benefits of Contributing to a 403(b) Plan? There are three benefits to contributing to a 403(b) plan. Turbotax The first benefit is that you do not pay income tax on allowable contributions until you begin making withdrawals from the plan, usually after you retire. Turbotax Allowable contributions to a 403(b) plan are either excluded or deducted from your income. Turbotax However, if your contributions are made to a Roth contribution program, this benefit does not apply. Turbotax Instead, you pay income tax on the contributions to the plan but distributions from the plan (if certain requirements are met) are tax free. Turbotax Note. Turbotax Generally, employees must pay social security and Medicare tax on their contributions to a 403(b) plan, including those made under a salary reduction agreement. Turbotax See chapter 4, Limit on Elective Deferrals , for more information. Turbotax The second benefit is that earnings and gains on amounts in your 403(b) account are not taxed until you withdraw them. Turbotax Earnings and gains on amounts in a Roth contribution program are not taxed if your withdrawals are qualified distributions. Turbotax Otherwise, they are taxed when you withdraw them. Turbotax The third benefit is that you may be eligible to take a credit for elective deferrals contributed to your 403(b) account. Turbotax See chapter 10, Retirement Savings Contributions Credit (Saver's Credit) . Turbotax Excluded. Turbotax If an amount is excluded from your income, it is not included in your total wages on your Form W-2. Turbotax This means that you do not report the excluded amount on your tax return. Turbotax Deducted. Turbotax If an amount is deducted from your income, it is included with your other wages on your Form W-2. Turbotax You report this amount on your tax return, but you are allowed to subtract it when figuring the amount of income on which you must pay tax. Turbotax Who Can Participate in a 403(b) Plan? Any eligible employee can participate in a 403(b) plan. Turbotax Eligible employees. Turbotax The following employees are eligible to participate in a 403(b) plan. Turbotax Employees of tax-exempt organizations established under section 501(c)(3). Turbotax These organizations are usually referred to as section 501(c)(3) organizations or simply 501(c)(3) organizations. Turbotax Employees of public school systems who are involved in the day-to-day operations of a school. Turbotax Employees of cooperative hospital service organizations. Turbotax Civilian faculty and staff of the Uniformed Services University of the Health Sciences. Turbotax Employees of public school systems organized by Indian tribal governments. Turbotax Certain ministers (explained next). Turbotax Ministers. Turbotax The following ministers are eligible employees for whom a 403(b) account can be established. Turbotax Ministers employed by section 501(c)(3) organizations. Turbotax Self-employed ministers. Turbotax A self-employed minister is treated as employed by a tax-exempt organization that is a qualified employer. Turbotax Ministers (chaplains) who meet both of the following requirements. Turbotax They are employed by organizations that are not section 501(c)(3) organizations. Turbotax They function as ministers in their day-to-day professional responsibilities with their employers. Turbotax Throughout this publication, the term chaplain will be used to mean ministers described in the third category in the list above. Turbotax Example. Turbotax A minister employed as a chaplain by a state-run prison and a chaplain in the United States Armed Forces are eligible employees because their employers are not section 501(c)(3) organizations and they are employed as ministers. Turbotax Who Can Set Up a 403(b) Account? You cannot set up your own 403(b) account. Turbotax Only employers can set up 403(b) accounts. Turbotax A self-employed minister cannot set up a 403(b) account for his or her benefit. Turbotax If you are a self-employed minister, only the organization (denomination) with which you are associated can set up an account for your benefit. Turbotax How Can Contributions Be Made to My 403(b) Account? Generally, only your employer can make contributions to your 403(b) account. Turbotax However, some plans will allow you to make after-tax contributions (defined below). Turbotax The following types of contributions can be made to 403(b) accounts. Turbotax Elective deferrals . Turbotax These are contributions made under a salary reduction agreement. Turbotax This agreement allows your employer to withhold money from your paycheck to be contributed directly into a 403(b) account for your benefit. Turbotax Except for Roth contributions, you do not pay income tax on these contributions until you withdraw them from the account. Turbotax If your contributions are Roth contributions, you pay taxes on your contributions but any qualified distributions from your Roth account are tax free. Turbotax Nonelective contributions . Turbotax These are employer contributions that are not made under a salary reduction agreement. Turbotax Nonelective contributions include matching contributions, discretionary contributions, and mandatory contributions from your employer. Turbotax You do not pay income tax on these contributions until you withdraw them from the account. Turbotax After-tax contributions . Turbotax These are contributions (that are not Roth contributions) you make with funds that you must include in income on your tax return. Turbotax A salary payment on which income tax has been withheld is a source of these contributions. Turbotax If your plan allows you to make after-tax contributions, they are not excluded from income and you cannot deduct them on your tax return. Turbotax A combination of any of the three contribution types listed above. Turbotax Self-employed minister. Turbotax If you are a self-employed minister, you are considered both an employee and an employer, and you can contribute to a retirement income account for your own benefit. Turbotax Do I Report Contributions on My Tax Return? Generally, you do not report contributions to your 403(b) account (except Roth contributions) on your tax return. Turbotax Your employer will report contributions on your 2013 Form W-2. Turbotax Elective deferrals will be shown in box 12 and the Retirement plan box will be checked in box 13. Turbotax If you are a self-employed minister or chaplain, see the discussions next. Turbotax Self-employed ministers. Turbotax If you are a self-employed minister, you must report the total contributions as a deduction on your tax return. Turbotax Deduct your contributions on line 28 of the 2013 Form 1040. Turbotax Chaplains. Turbotax If you are a chaplain and your employer does not exclude contributions made to your 403(b) account from your earned income, you may be able to take a deduction for those contributions on your tax return. Turbotax However, if your employer has agreed to exclude the contributions from your earned income, you will not be allowed a deduction on your tax return. Turbotax If you can take a deduction, include your contributions on line 36 of the 2013 Form 1040. Turbotax Enter the amount of your deduction and write “403(b)” on the dotted line next to line 36. Turbotax How Much Can Be Contributed to My 403(b) Account? There are limits on the amount of contributions that can be made to your 403(b) account each year. Turbotax If contributions made to your 403(b) account are more than these contribution limits, penalties may apply. Turbotax Chapters 2 through 6 provide information on how to determine the amount that can be contributed to your 403(b) account. Turbotax Worksheets are provided in Chapter 9 to help you determine the maximum amount that can be contributed to your 403(b) account each year. Turbotax Chapter 7, Excess Contributions , describes how to prevent excess contributions and how to get an excess contribution corrected. Turbotax Prev Up Next Home More Online Publications
Letter 3030C Frequently Asked Questions (FAQs)
What is the letter telling me?
The letter is providing you an explanation of the tax, penalty and interest still due on your account.
What do I have to do?
Pay the balance due in the letter as soon as possible.
How much time do I have?
The letter provides you the full pay amount to a specified date.
What happens if I don't take any action?
If you do not make arrangements to pay the balance you owe, we can proceed with enforcement action and may file a levy on your wages or bank account or file a lien on your personal property.
Who should I contact?
If you have any questions about this letter, call us at the number printed in the letter. The person who answers the phone will assist you.
What if I don't agree or have already taken corrective action?
If you do not agree with this letter, call us immediately at the number included. We will do our best to help you. If you have called us about this matter before, but we did not correct the problem, you may want to contact the Office of the Taxpayer Advocate.
Page Last Reviewed or Updated: 30-Jan-2014
Turbotax 3. Turbotax Reporting Rental Income, Expenses, and Losses Table of Contents Which Forms To UseSchedule E (Form 1040) Schedule C (Form 1040), Profit or Loss From Business Qualified Joint Venture Limits on Rental LossesAt-Risk Rules Passive Activity Limits Casualties and Thefts Example Figuring the net income or loss for a residential rental activity may involve more than just listing the income and deductions on Schedule E (Form 1040). Turbotax There are activities which do not qualify to use Schedule E, such as when the activity is not engaged in to make a profit or when you provide substantial services in conjunction with the property. Turbotax There are also the limitations which may need to be applied if you have a net loss on Schedule E. Turbotax There are two: (1) the limitation based on the amount of investment you have at risk in your rental activity, and (2) the special limits imposed on passive activities. Turbotax You may also have a gain or loss related to your rental property from a casualty or theft. Turbotax This is considered separately from the income and expense information you report on Schedule E. Turbotax Which Forms To Use The basic form for reporting residential rental income and expenses is Schedule E (Form 1040). Turbotax However, do not use that schedule to report a not-for-profit activity. Turbotax See Not Rented for Profit , in chapter 4. Turbotax There are also other rental situations in which forms other than Schedule E would be used. Turbotax Schedule E (Form 1040) If you rent buildings, rooms, or apartments, and provide basic services such as heat and light, trash collection, etc. Turbotax , you normally report your rental income and expenses on Schedule E, Part I. Turbotax List your total income, expenses, and depreciation for each rental property. Turbotax Be sure to enter the number of fair rental and personal use days on line 2. Turbotax If you have more than three rental or royalty properties, complete and attach as many Schedules E as are needed to list the properties. Turbotax Complete lines 1 and 2 for each property. Turbotax However, fill in lines 23a through 26 on only one Schedule E. Turbotax On Schedule E, page 1, line 18, enter the depreciation you are claiming for each property. Turbotax To find out if you need to attach Form 4562, see Form 4562 , later. Turbotax If you have a loss from your rental real estate activity, you also may need to complete one or both of the following forms. Turbotax Form 6198, At-Risk Limitations. Turbotax See At-Risk Rules , later. Turbotax Also see Publication 925. Turbotax Form 8582, Passive Activity Loss Limitations. Turbotax See Passive Activity Limits , later. Turbotax Page 2 of Schedule E is used to report income or loss from partnerships, S corporations, estates, trusts, and real estate mortgage investment conduits. Turbotax 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. Turbotax Also, include the amount from line 26 (Part I) in the “Total income or (loss)” on line 41 (Part V). Turbotax Form 4562. Turbotax You must complete and attach Form 4562 for rental activities only if you are claiming: Depreciation, including the special depreciation allowance, on property placed in service during 2013; Depreciation on listed property (such as a car), regardless of when it was placed in service; or Any other car expenses, including the standard mileage rate or lease expenses. Turbotax Otherwise, figure your depreciation on your own worksheet. Turbotax You do not have to attach these computations to your return, but you should keep them in your records for future reference. Turbotax See Publication 946 for information on preparing Form 4562. Turbotax Schedule C (Form 1040), Profit or Loss From Business Generally, Schedule C is used when you provide substantial services in conjunction with the property or the rental is part of a trade or business as a real estate dealer. Turbotax Providing substantial services. Turbotax If you provide substantial services that are primarily for your tenant's convenience, such as regular cleaning, changing linen, or maid service, you 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. Turbotax Use Form 1065, U. Turbotax S. Turbotax Return of Partnership Income, if your rental activity is a partnership (including a partnership with your spouse unless it is a qualified joint venture). Turbotax Substantial services do not include the furnishing of heat and light, cleaning of public areas, trash collection, etc. Turbotax For information, see Publication 334, Tax Guide for Small Business. Turbotax Also, you may have to pay self-employment tax on your rental income using Schedule SE (Form 1040), Self-Employment Tax. Turbotax For a discussion of “substantial services,” see Real Estate Rents in Publication 334, chapter 5. Turbotax Qualified Joint Venture If you and your spouse each materially participate (see Material participation under Passive Activity Limits, later) 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. Turbotax 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. Turbotax If you make this election, you must report rental real estate income on Schedule E (or Schedule C if you provide substantial services). Turbotax You will not be required to file Form 1065 for any year the election is in effect. Turbotax Rental real estate income generally is not included in net earnings from self-employment subject to self-employment tax and generally is subject to the passive activity limits. Turbotax If you and your spouse filed a Form 1065 for the year prior to the election, the partnership terminates at the end of the tax year immediately preceding the year the election takes effect. Turbotax For more information on qualified joint ventures, go to IRS. Turbotax gov and enter “qualified joint venture” in the search box. Turbotax 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. Turbotax You must consider these rules in the order shown below. Turbotax Both are discussed in this section. Turbotax At-risk rules. Turbotax These rules are applied first if there is investment in your rental real estate activity for which you are not at risk. Turbotax This applies only if the real property was placed in service after 1986. Turbotax Passive activity limits. Turbotax 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. Turbotax However, there are exceptions. Turbotax 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. Turbotax Losses from holding real property (other than mineral property) placed in service before 1987 are not subject to the at-risk rules. Turbotax 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. Turbotax 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. Turbotax Any loss that is disallowed because of the at-risk limits is treated as a deduction from the same activity in the next tax year. Turbotax See Publication 925 for a discussion of the at-risk rules. Turbotax Form 6198. Turbotax If you are subject to the at-risk rules, file Form 6198, At-Risk Limitations, with your tax return. Turbotax Passive Activity Limits In most cases, all rental real estate activities (except those of certain real estate professionals, discussed later) are passive activities. Turbotax 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. Turbotax For a discussion of activities that are not considered rental activities, see Rental Activities in Publication 925. Turbotax Deductions or losses from passive activities are limited. Turbotax You generally cannot offset income, other than passive income, with losses from passive activities. Turbotax Nor can you offset taxes on income, other than passive income, with credits resulting from passive activities. Turbotax Any excess loss or credit is carried forward to the next tax year. Turbotax Exceptions to the rules for figuring passive activity limits for personal use of a dwelling unit and for rental real estate with active participation are discussed later. Turbotax For a detailed discussion of these rules, see Publication 925. Turbotax Real estate professionals. Turbotax If you are a real estate professional, complete line 43 of Schedule E. Turbotax You qualify as a real estate professional for the tax year if you meet both of the following requirements. Turbotax More than half of the personal services you perform in all trades or businesses during the tax year are performed in real property trades or businesses in which you materially participate. Turbotax You perform more than 750 hours of services during the tax year in real property trades or businesses in which you materially participate. Turbotax If you qualify as a real estate professional, rental real estate activities in which you materially participated are not passive activities. Turbotax For purposes of determining whether you materially participated in your rental real estate activities, each interest in rental real estate is a separate activity unless you elect to treat all your interests in rental real estate as one activity. Turbotax Do not count personal services you perform as an employee in real property trades or businesses unless you are a 5% owner of your employer. Turbotax You are a 5% owner if you own (or are considered to own) more than 5% of your employer's outstanding stock, or capital or profits interest. Turbotax Do not count your spouse's personal services to determine whether you met the requirements listed earlier to qualify as a real estate professional. Turbotax However, you can count your spouse's participation in an activity in determining if you materially participated. Turbotax Real property trades or businesses. Turbotax A real property trade or business is a trade or business that does any of the following with real property. Turbotax Develops or redevelops it. Turbotax Constructs or reconstructs it. Turbotax Acquires it. Turbotax Converts it. Turbotax Rents or leases it. Turbotax Operates or manages it. Turbotax Brokers it. Turbotax Choice to treat all interests as one activity. Turbotax If you were a real estate professional and had more than one rental real estate interest during the year, you can choose to treat all the interests as one activity. Turbotax You can make this choice for any year that you qualify as a real estate professional. Turbotax If you forgo making the choice for one year, you can still make it for a later year. Turbotax If you make the choice, it is binding for the tax year you make it and for any later year that you are a real estate professional. Turbotax This is true even if you are not a real estate professional in any intervening year. Turbotax (For that year, the exception for real estate professionals will not apply in determining whether your activity is subject to the passive activity rules. Turbotax ) See the Instructions for Schedule E for information about making this choice. Turbotax Material participation. Turbotax Generally, you materially participated in an activity for the tax year if you were involved in its operations on a regular, continuous, and substantial basis during the year. Turbotax For details, see Publication 925 or the Instructions for Schedule C. Turbotax Participating spouse. Turbotax If you are married, determine whether you materially participated in an activity by also counting any participation in the activity by your spouse during the year. Turbotax Do this even if your spouse owns no interest in the activity or files a separate return for the year. Turbotax Form 8582. Turbotax 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. Turbotax See Form 8582 not required , later in this chapter, to determine if you must complete Form 8582. Turbotax If you are required to complete Form 8582 and are also subject to the at-risk rules, include the amount from Form 6198, line 21 (deductible loss) in column (b) of Form 8582, Worksheet 1 or 3, as required. Turbotax 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. Turbotax Instead, follow the rules explained in chapter 5, Personal Use of Dwelling Unit (Including Vacation Home). Turbotax Exception for Rental Real Estate 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. Turbotax This special allowance is an exception to the general rule disallowing losses in excess of income from passive activities. Turbotax 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. Turbotax Example. Turbotax Jane is single and has $40,000 in wages, $2,000 of passive income from a limited partnership, and $3,500 of passive loss from a rental real estate activity in which she actively participated. Turbotax $2,000 of Jane's $3,500 loss offsets her passive income. Turbotax The remaining $1,500 loss can be deducted from her $40,000 wages. Turbotax The special allowance is not available if you were married, lived with your spouse at any time during the year, and are filing a separate return. Turbotax Active participation. Turbotax 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. Turbotax Management decisions that may count as active participation include approving new tenants, deciding on rental terms, approving expenditures, and other similar decisions. Turbotax Example. Turbotax Mike is single and had the following income and losses during the tax year: Salary $42,300 Dividends 300 Interest 1,400 Rental loss (4,000) The rental loss was from the rental of a house Mike owned. Turbotax Mike had advertised and rented the house to the current tenant himself. Turbotax He also collected the rents, which usually came by mail. Turbotax All repairs were either made or contracted out by Mike. Turbotax Although the rental loss is from a passive activity, because Mike actively participated in the rental property management he can use the entire $4,000 loss to offset his other income. Turbotax Maximum special allowance. Turbotax 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. Turbotax 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. Turbotax 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. Turbotax Generally, if your MAGI is $150,000 or more ($75,000 or more if you are married filing separately), there is no special allowance. Turbotax Modified adjusted gross income (MAGI). Turbotax This is your adjusted gross income from Form 1040, U. Turbotax S. Turbotax Individual Income Tax Return, line 38, or Form 1040NR, U. Turbotax S. Turbotax Nonresident Alien Income Tax Return, line 37, figured without taking into account: The taxable amount of social security or equivalent tier 1 railroad retirement benefits, The deductible contributions to traditional individual retirement accounts (IRAs) and section 501(c)(18) pension plans, The exclusion from income of interest from Series EE and I U. Turbotax S. Turbotax savings bonds used to pay higher educational expenses, The exclusion of amounts received under an employer's adoption assistance program, Any passive activity income or loss included on Form 8582, Any rental real estate loss allowed to real estate professionals, Any overall loss from a publicly traded partnership (see Publicly Traded Partnerships (PTPs) in the Instructions for Form 8582), The deduction allowed for one-half of self-employment tax, The deduction allowed for interest paid on student loans, The deduction for qualified tuition and related fees, and The domestic production activities deduction (see the Instructions for Form 8903). Turbotax Form 8582 not required. Turbotax Do not complete Form 8582 if you meet all of the following conditions. Turbotax Your only passive activities were rental real estate activities in which you actively participated. Turbotax Your overall net loss from these activities is $25,000 or less ($12,500 or less if married filing separately and you lived apart from your spouse all year). Turbotax If married filing separately, you lived apart from your spouse all year. Turbotax You have no prior year unallowed losses from these (or any other passive) activities. Turbotax You have no current or prior year unallowed credits from passive activities. Turbotax Your MAGI is $100,000 or less ($50,000 or less if married filing separately and you lived apart from your spouse all year). Turbotax You do not hold any interest in a rental real estate activity as a limited partner or as a beneficiary of an estate or a trust. Turbotax If you meet all of the conditions listed above, your rental real estate activities are not limited by the passive activity rules and you do not have to complete Form 8582. Turbotax On lines 23a through 23e of your Schedule E, enter the applicable amounts. Turbotax Casualties and Thefts As a result of a casualty or theft, you may have a loss related to your rental property. Turbotax You may be able to deduct the loss on your income tax return. Turbotax Casualty. Turbotax This is the damage, destruction, or loss of property resulting from an identifiable event that is sudden, unexpected, or unusual. Turbotax Such events include a storm, fire, or earthquake. Turbotax Theft. Turbotax This is defined as the unlawful taking and removing of your money or property with the intent to deprive you of it. Turbotax Gain from casualty or theft. Turbotax It is also possible to have a gain from a casualty or theft if you receive money, including insurance, that is more than your adjusted basis in the property. Turbotax Generally, you must report this gain. Turbotax However, under certain circumstances, you may defer paying tax by choosing to postpone reporting the gain. Turbotax To do this, you generally must buy replacement property within 2 years after the close of the first tax year in which any part of your gain is realized. Turbotax In certain circumstances, the replacement period can be greater than 2 years; see Replacement Period in Publication 547 for more information. Turbotax The cost of the replacement property must be equal to or more than the net insurance or other payment you received. Turbotax More information. Turbotax For information on business and nonbusiness casualty and theft losses, see Publication 547. Turbotax How to report. Turbotax If you had a casualty or theft that involved property used in your rental activity, figure the net gain or loss in Section B of Form 4684, Casualties and Thefts. Turbotax Follow the Instructions for Form 4684 for where to carry your net gain or loss. Turbotax Example In February 2008, Marie Pfister bought a rental house for $135,000 (house $120,000 and land $15,000) and immediately began renting it out. Turbotax In 2013, she rented it all 12 months for a monthly rental fee of $1,125. Turbotax In addition to her rental income of $13,500 (12 x $1,125), Marie had the following expenses. Turbotax Mortgage interest $8,000 Fire insurance (1-year policy) 250 Miscellaneous repairs 400 Real estate taxes imposed and paid 500 Maintenance 200 Marie depreciates the residential rental property under MACRS GDS. Turbotax This means using the straight line method over a recovery period of 27. Turbotax 5 years. Turbotax She uses Table 2-2d to find her depreciation percentage. Turbotax Because she placed the property in service in February 2008, she continues to use that row of Table 2-2d. Turbotax For year 6, the rate is 3. Turbotax 636%. Turbotax Marie figures her net rental income or loss for the house as follows: Total rental income received ($1,125 × 12) $13,500 Minus: Expenses Mortgage interest $8,000 Fire insurance 250 Miscellaneous repairs 400 Real estate taxes 500 Maintenance 200 Total expenses 9,350 Balance $4,150 Minus: Depreciation ($120,000 x 3. Turbotax 636%) 4,363 Net rental (loss) for house ($213) Marie had a net loss for the year. Turbotax Because she actively participated in her passive rental real estate activity and her loss was less than $25,000, she can deduct the loss on her return. Turbotax Marie also meets all of the requirements for not having to file Form 8582. Turbotax She uses Schedule E, Part I, to report her rental income and expenses. Turbotax She enters her income, expenses, and depreciation for the house in the column for Property A and enters her loss on line 22. Turbotax Form 4562 is not required. Turbotax Prev Up Next Home More Online Publications