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1040ez Instructions 20101040ez instructions 2010 Publication 527 - Introductory Material Table of Contents Future Developments What's New Reminders IntroductionSale of main home used as rental property. 1040ez instructions 2010 Tax-free exchange of rental property occasionally used for personal purposes. 1040ez instructions 2010 Ordering forms and publications. 1040ez instructions 2010 Tax questions. 1040ez instructions 2010 Useful Items - You may want to see: Future Developments For the latest information about developments related to Publication 527, such as legislation enacted after it was published, go to www. 1040ez instructions 2010 irs. 1040ez instructions 2010 gov/pub527. 1040ez instructions 2010 What's New Net Investment Income Tax (NIIT). 1040ez instructions 2010 Beginning in 2013, you may be subject to the Net Investment Income Tax (NIIT). 1040ez instructions 2010 NIIT is a 3. 1040ez instructions 2010 8% tax on the lesser of net investment income or the excess of modified adjusted gross income (MAGI) over the threshold amount. 1040ez instructions 2010 Net investment income may include rental income and other income from passive activities. 1040ez instructions 2010 Use Form 8960, Net Investment Income Tax, to figure this tax. 1040ez instructions 2010 For more information on NIIT, go to IRS. 1040ez instructions 2010 gov and enter “Net Investment Income Tax” in the search box. 1040ez instructions 2010 Reminders Photographs of missing children. 1040ez instructions 2010 The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. 1040ez instructions 2010 Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. 1040ez instructions 2010 You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. 1040ez instructions 2010 Introduction Do you own a second house that you rent out all the time? Do you own a vacation home that you rent out when you or your family isn't using it? These are two common types of residential rental activities discussed in this publication. 1040ez instructions 2010 In most cases, all rental income must be reported on your tax return, but there are differences in the expenses you are allowed to deduct and in the way the rental activity is reported on your return. 1040ez instructions 2010 First, this publication will look at the rental-for-profit activity in which there is no personal use of the property. 1040ez instructions 2010 We will look at types of income and when each is reported, and at types of expenses and which are deductible. 1040ez instructions 2010 Chapter 2 discusses depreciation as it applies to your rental real estate activity—what property can be depreciated and how to figure it. 1040ez instructions 2010 Chapter 3 covers the actual reporting of your rental income and deductions, including casualties and thefts, limitations on losses, and claiming the correct amount of depreciation. 1040ez instructions 2010 Special rental situations are grouped together in chapter 4. 1040ez instructions 2010 These include condominiums, cooperatives, property changed to rental use, renting only part of your property, and a not-for-profit rental activity. 1040ez instructions 2010 Finally, in chapter 5, we will look at the rules for rental income and expenses when there is also personal use of the dwelling unit, such as a vacation home. 1040ez instructions 2010 Sale or exchange of rental property. 1040ez instructions 2010 For information on how to figure and report any gain or loss from the sale, exchange or other disposition of your rental property, see Publication 544, Sales and Other Dispositions of Assets. 1040ez instructions 2010 Sale of main home used as rental property. 1040ez instructions 2010 For information on how to figure and report any gain or loss from the sale or other disposition of your main home that you also used as rental property, see Publication 523, Selling Your Home. 1040ez instructions 2010 Tax-free exchange of rental property occasionally used for personal purposes. 1040ez instructions 2010 If you meet certain qualifying use standards, you may qualify for a tax-free exchange (a like-kind or section 1031 exchange) of one piece of rental property you own for a similar piece of rental property, even if you have used the rental property for personal purposes. 1040ez instructions 2010 For information on the qualifying use standards, see Rev. 1040ez instructions 2010 Proc. 1040ez instructions 2010 2008–16, 2008 IRB 547, at http://www. 1040ez instructions 2010 irs. 1040ez instructions 2010 gov/irb/2008-10_IRB/ar12. 1040ez instructions 2010 html . 1040ez instructions 2010 For more information on like-kind exchanges, see chapter 1 of Publication 544. 1040ez instructions 2010 Comments and suggestions. 1040ez instructions 2010 We welcome your comments about this publication and your suggestions for future editions. 1040ez instructions 2010 You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. 1040ez instructions 2010 NW, IR-6526 Washington, DC 20224 We respond to many letters by telephone. 1040ez instructions 2010 Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. 1040ez instructions 2010 You can send your comments from www. 1040ez instructions 2010 irs. 1040ez instructions 2010 gov/formspubs/. 1040ez instructions 2010 Click on “More Information” and then on “Comment on Tax Forms and Publications”. 1040ez instructions 2010 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. 1040ez instructions 2010 Ordering forms and publications. 1040ez instructions 2010 Visit www. 1040ez instructions 2010 irs. 1040ez instructions 2010 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. 1040ez instructions 2010 Internal Revenue Service 1201 N. 1040ez instructions 2010 Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. 1040ez instructions 2010 If you have a tax question, check the information available on IRS. 1040ez instructions 2010 gov or call 1-800-829-1040. 1040ez instructions 2010 We cannot answer tax questions sent to either of the above addresses. 1040ez instructions 2010 Useful Items - You may want to see: Publication 463 Travel, Entertainment, Gift, and Car Expenses 523 Selling Your Home 534 Depreciating Property Placed in Service Before 1987 535 Business Expenses 544 Sales and Other Dispositions of Assets 547 Casualties, Disasters, and Thefts 551 Basis of Assets 925 Passive Activity and At-Risk Rules 946 How To Depreciate Property Form (and Instructions) 4562 Depreciation and Amortization 5213 Election To Postpone Determination as To Whether the Presumption Applies That an Activity Is Engaged in for Profit 8582 Passive Activity Loss Limitations Schedule E (Form 1040) Supplemental Income and Loss See chapter 6, How To Get Tax Help for information about getting these publications and forms. 1040ez instructions 2010 Prev Up Next Home More Online Publications
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Investigate Before You Invest
What do you want to invest in: stocks, bonds, mutual funds? Do you want to open an IRA or buy an annuity? Does your employer offer a 401K? Remember, every investment involves some degree of risk. Most securities are not insured by the Federal government if they lose money or fail, even if you purchase them through a bank or credit union that offers Federally insured savings accounts. Make sure you have answers to all of these questions before you invest:
- Define your goals. Ask yourself "Why am I investing money?" Maybe you want to save money to purchase a house or to save for retirement. Maybe you would like to have money to pay for your child's education, or just to have a financial cushion to handle unexpected expenses or a loss of income.
- How quickly can you get your money back? Stocks, bonds, and shares in mutual funds can usually be sold at any time, but there is no guarantee you will get back all the money you paid for them. Other investments, such as limited partnerships, often restrict your ability to cash out your holdings.
- What can you expect to earn on your money? While bonds generally promise a fixed return, earnings on most other securities go up and down with market changes. Also, keep in mind that just because an investment has done well in the past, there is no guarantee it will do well in the future.
- What type of earnings can you expect? Will you get income in the form of interest, dividends or rent? Some investments, such as stocks and real estate, have the potential for earnings and growth in value. What is the potential for earnings over time?
- How much risk is involved? With any investment, there is always the risk that you won't get your money back or the earnings promised. There is usually a trade-off between risk and reward: the higher the potential return, the greater the risk. The federal government insures bank savings accounts and backs up U.S. Treasury securities (including savings bonds). Other investment options are not protected.
- Are your investments diversified? Some investments perform better than others in certain situations. For example, when interest rates go up, bond prices tend to go down. One industry may struggle while another prospers. Putting your money in a variety of investment options can help to reduce your risk.
- Are there any tax advantages to a particular investment? U.S. Savings Bonds are exempt from state and local taxes. Municipal bonds are exempt from federal income tax and, sometimes, state income tax as well. For special goals, such as paying for college and retirement, tax-deferred investments are available that let you postpone or even eliminate payment of income taxes.
Compare Investment Vehicles
Not all investment vehicles are created equal or work for your personal financial goals. Some provide steady income and are low risk, but yield small returns on investment; others may provide significant returns, but require a long term investment commitment. There is a wide assortment of investment vehicles available. Some of the most popular include: mutual funds, traditional IRAs, Roth IRAs, savings bonds or bond funds, stocks, and certificates of deposit.
Some investments pay out earnings on a regular (quarterly, monthly, or annual) basis, while others pay out earnings at the end of the investment period or may have age requirements for when you can withdraw your money without a penalty. Make sure your investment income stream matches your investment timeline.
You should also consider the tax ramifications. If you are saving for retirement or for education, consider investments that offer incentives for saving for a particular purpose. Your contributions for some investments are tax deductible, but the earnings are not taxed (e.g. Roth IRA); your contributions to other investments may not be taxed, but the earnings are taxed (e.g. traditional IRA).
You don't have to put all of your money in one investment. Consider diversifying your investment portfolio by placing your money in several investment vehicles. This can protect you from risk; while one of your investments may be performing poorly, another one of your investments can make up for those losses.
|Type of Investment||What is it?||Risk level|
|Traditional IRA||Traditional IRA is a personal savings plan that gives tax advantages for savings for retirement. Investments may include variety of securities. Contributions may be tax-deductible; earnings are not taxed until distributed.||Risk levels vary according to the holdings in the IRA|
|Roth IRA||A personal savings plan where earnings that remain in the account are not taxed. Investments may include a variety of securities. Contributions are not tax-deductible.||Risk levels vary according to the holding in the IRA|
|Money Market Funds||Mutual funds that invest in short-term bonds. Usually pays better interest rates than a savings account but not as much as a certificate of deposit (CD).||Low risk.|
|Bonds and Bond Funds||Also known as fixed-income securities because the income they pay is fixed when the bond is sold. Bonds and bond funds invest in corporate or government debt obligations.||Low risk.|
|Index Funds||Invest in a particular market index. An index fund is passively managed and simply mirrors the performance of the designated stock or bond index.||Risk level depends on which index the fund uses. A bond index fund involves a lower risk level than an index fund of emerging markets overseas.|
|Stocks||Stocks represent a share of a company As the company's value rises or falls, so does the value of the stock.||Medium to high risk.|
|Mutual funds||Invest in a variety of securities, which may include stocks, bonds, and/or money market securities. Costs and objectives vary.||Risk levels vary according to the holdings in the mutual fund.|
Investing Through Your Employer
Many employers encourage their employees to save for their retirement by establishing 401(k), 403(b), or 457(b) plans. Employees that participate in these programs elect to have a set amount of their income deducted from their paychecks to save for retirement; these amounts are not subject to income taxes. In many cases, your employer will match a portion of the amount of the money that you contribute into your 401(k) account, which is like getting "free" money. If you stop working at a company, remember to take the money from your 401(k) with you. If you "rollover" the total from your old job to an account at your new job, a traditional IRA, you will not have to pay taxes on the money.