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Amended Tax Return

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Amended Tax Return

Amended tax return 1. Amended tax return   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. Amended tax return Generally, each year you will report all income and deduct all out-of-pocket expenses in full. Amended tax return 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. Amended tax return 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). Amended tax return Rental Income In most cases, you must include in your gross income all amounts you receive as rent. Amended tax return Rental income is any payment you receive for the use or occupation of property. Amended tax return In addition to amounts you receive as normal rental payments, there are other amounts that may be rental income. Amended tax return 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. Amended tax return Most individual taxpayers use the cash method. Amended tax return Cash method. Amended tax return   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. Amended tax return You constructively receive income when it is made available to you, for example, by being credited to your bank account. Amended tax return Accrual method. Amended tax return    If you are an accrual basis taxpayer, you generally report income when you earn it, rather than when you receive it. Amended tax return You generally deduct your expenses when you incur them, rather than when you pay them. Amended tax return More information. Amended tax return   See Publication 538, Accounting Periods and Methods, for more information about when you constructively receive income and accrual methods of accounting. Amended tax return Types of Income The following are common types of rental income. Amended tax return Advance rent. Amended tax return   Advance rent is any amount you receive before the period that it covers. Amended tax return 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. Amended tax return Example. Amended tax return On March 18, 2013, you signed a 10-year lease to rent your property. Amended tax return During 2013, you received $9,600 for the first year's rent and $9,600 as rent for the last year of the lease. Amended tax return You must include $19,200 in your rental income in the first year. Amended tax return Canceling a lease. Amended tax return   If your tenant pays you to cancel a lease, the amount you receive is rent. Amended tax return Include the payment in your income in the year you receive it regardless of your method of accounting. Amended tax return Expenses paid by tenant. Amended tax return   If your tenant pays any of your expenses, those payments are rental income. Amended tax return Because you must include this amount in income, you can also deduct the expenses if they are deductible rental expenses. Amended tax return For more information, see Rental Expenses , later. Amended tax return Example 1. Amended tax return Your tenant pays the water and sewage bill for your rental property and deducts the amount from the normal rent payment. Amended tax return Under the terms of the lease, your tenant does not have to pay this bill. Amended tax return Include the utility bill paid by the tenant and any amount received as a rent payment in your rental income. Amended tax return You can deduct the utility payment made by your tenant as a rental expense. Amended tax return Example 2. Amended tax return While you are out of town, the furnace in your rental property stops working. Amended tax return Your tenant pays for the necessary repairs and deducts the repair bill from the rent payment. Amended tax return Include the repair bill paid by the tenant and any amount received as a rent payment in your rental income. Amended tax return You can deduct the repair payment made by your tenant as a rental expense. Amended tax return Property or services. Amended tax return   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. Amended tax return   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. Amended tax return Example. Amended tax return Your tenant is a house painter. Amended tax return He offers to paint your rental property instead of paying 2 months rent. Amended tax return You accept his offer. Amended tax return Include in your rental income the amount the tenant would have paid for 2 months rent. Amended tax return You can deduct that same amount as a rental expense for painting your property. Amended tax return Security deposits. Amended tax return   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. Amended tax return 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. Amended tax return    If an amount called a security deposit is to be used as a final payment of rent, it is advance rent. Amended tax return Include it in your income when you receive it. Amended tax return Other Sources of Rental Income Lease with option to buy. Amended tax return   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. Amended tax return 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. Amended tax return Part interest. Amended tax return   If you own a part interest in rental property, you must report your part of the rental income from the property. Amended tax return Rental of property also used as your home. Amended tax return   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. Amended tax return 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. Amended tax return See chapter 5, Personal Use of Dwelling Unit (Including Vacation Home). Amended tax return 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. Amended tax return Personal use of rental property. Amended tax return   If you sometimes use your rental property for personal purposes, you must divide your expenses between rental and personal use. Amended tax return Also, your rental expense deductions may be limited. Amended tax return See chapter 5, Personal Use of Dwelling Unit (Including Vacation Home). Amended tax return Part interest. Amended tax return   If you own a part interest in rental property, you can deduct expenses you paid according to your percentage of ownership. Amended tax return Example. Amended tax return Roger owns a one-half undivided interest in a rental house. Amended tax return Last year he paid $968 for necessary repairs on the property. Amended tax return Roger can deduct $484 (50% × $968) as a rental expense. Amended tax return He is entitled to reimbursement for the remaining half from the co-owner. Amended tax return When To Deduct You generally deduct your rental expenses in the year you pay them. Amended tax return If you use the accrual method, see Publication 538 for more information. Amended tax return Types of Expenses Listed below are the most common rental expenses. Amended tax return Advertising. Amended tax return Auto and travel expenses. Amended tax return Cleaning and maintenance. Amended tax return Commissions. Amended tax return Depreciation. Amended tax return Insurance. Amended tax return Interest (other). Amended tax return Legal and other professional fees. Amended tax return Local transportation expenses. Amended tax return Management fees. Amended tax return Mortgage interest paid to banks, etc. Amended tax return Points. Amended tax return Rental payments. Amended tax return Repairs. Amended tax return Taxes. Amended tax return Utilities. Amended tax return Some of these expenses, as well as other less common ones, are discussed below. Amended tax return Depreciation. Amended tax return   Depreciation is a capital expense. Amended tax return It is the mechanism for recovering your cost in an income producing property and must be taken over the expected life of the property. Amended tax return   You can begin to depreciate rental property when it is ready and available for rent. Amended tax return See Placed in Service under When Does Depreciation Begin and End in chapter 2. Amended tax return Insurance premiums paid in advance. Amended tax return   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. Amended tax return You cannot deduct the total premium in the year you pay it. Amended tax return See chapter 6 of Publication 535 for information on deductible premiums. Amended tax return Interest expense. Amended tax return   You can deduct mortgage interest you pay on your rental property. Amended tax return 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. Amended tax return Chapter 4 of Publication 535 explains mortgage interest in detail. Amended tax return Expenses paid to obtain a mortgage. Amended tax return   Certain expenses you pay to obtain a mortgage on your rental property cannot be deducted as interest. Amended tax return These expenses, which include mortgage commissions, abstract fees, and recording fees, are capital expenses that are part of your basis in the property. Amended tax return Form 1098, Mortgage Interest Statement. Amended tax return   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. Amended tax return 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. Amended tax return Attach a statement to your return showing the name and address of the other person. Amended tax return On the dotted line next to line 13, enter “See attached. Amended tax return ” Legal and other professional fees. Amended tax return   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. Amended tax return For example, on your 2013 Schedule E you can deduct fees paid in 2013 to prepare Part I of your 2012 Schedule E. Amended tax return 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. Amended tax return Local benefit taxes. Amended tax return   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. Amended tax return These charges are nondepreciable capital expenditures and must be added to the basis of your property. Amended tax return However, you can deduct local benefit taxes that are for maintaining, repairing, or paying interest charges for the benefits. Amended tax return Local transportation expenses. Amended tax return   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. Amended tax return 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. Amended tax return See Publication 587, Business Use of Your Home, for information on determining if your home office qualifies as a principal place of business. Amended tax return   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. Amended tax return For 2013, the standard mileage rate for business use is 56. Amended tax return 5 cents per mile. Amended tax return For more information, see chapter 4 of Publication 463. Amended tax return    To deduct car expenses under either method, you must keep records that follow the rules in chapter 5 of Publication 463. Amended tax return In addition, you must complete Form 4562, Part V, and attach it to your tax return. Amended tax return Pre-rental expenses. Amended tax return   You can deduct your ordinary and necessary expenses for managing, conserving, or maintaining rental property from the time you make it available for rent. Amended tax return Rental of equipment. Amended tax return   You can deduct the rent you pay for equipment that you use for rental purposes. Amended tax return However, in some cases, lease contracts are actually purchase contracts. Amended tax return If so, you cannot deduct these payments. Amended tax return You can recover the cost of purchased equipment through depreciation. Amended tax return Rental of property. Amended tax return   You can deduct the rent you pay for property that you use for rental purposes. Amended tax return 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. Amended tax return Travel expenses. Amended tax return   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. Amended tax return You must properly allocate your expenses between rental and nonrental activities. Amended tax return You cannot deduct the cost of traveling away from home if the primary purpose of the trip is to improve the property. Amended tax return The cost of improvements is recovered by taking depreciation. Amended tax return For information on travel expenses, see chapter 1 of Publication 463. Amended tax return    To deduct travel expenses, you must keep records that follow the rules in chapter 5 of Publication 463. Amended tax return Uncollected rent. Amended tax return   If you are a cash basis taxpayer, do not deduct uncollected rent. Amended tax return Because you have not included it in your income, it is not deductible. Amended tax return   If you use an accrual method, report income when you earn it. Amended tax return If you are unable to collect the rent, you may be able to deduct it as a business bad debt. Amended tax return See chapter 10 of Publication 535 for more information about business bad debts. Amended tax return Vacant rental property. Amended tax return   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. Amended tax return However, you cannot deduct any loss of rental income for the period the property is vacant. Amended tax return Vacant while listed for sale. Amended tax return   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. Amended tax return If the property is not held out and available for rent while listed for sale, the expenses are not deductible rental expenses. Amended tax return 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. Amended tax return These charges are also called loan origination fees, maximum loan charges, or premium charges. Amended tax return Any of these charges (points) that are solely for the use of money are interest. Amended tax return 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. Amended tax return The method used to figure the amount of points you can deduct each year follows the original issue discount (OID) rules. Amended tax return 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). Amended tax return 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. Amended tax return If the OID is not de minimis, you must use the constant-yield method to figure how much you can deduct. Amended tax return De minimis OID. Amended tax return   The OID is de minimis if it is less than one-fourth of 1% (. Amended tax return 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). Amended tax return   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. Amended tax return On a constant-yield basis over the term of the loan. Amended tax return On a straight line basis over the term of the loan. Amended tax return In proportion to stated interest payments. Amended tax return In its entirety at maturity of the loan. Amended tax return 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. Amended tax return Example. Amended tax return 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. Amended tax return The loan is to be repaid over 30 years. Amended tax return During 2013, Carol paid $10,000 of mortgage interest (stated interest) to the lender. Amended tax return When the loan was made, she paid $1,500 in points to the lender. Amended tax return The points reduced the principal amount of the loan from $100,000 to $98,500, resulting in $1,500 of OID. Amended tax return Carol determines that the points (OID) she paid are de minimis based on the following computation. Amended tax return Redemption price at maturity (principal amount of the loan) $100,000 Multiplied by: The term of the  loan in complete years ×30 Multiplied by ×. Amended tax return 0025 De minimis amount $7,500 The points (OID) she paid ($1,500) are less than the de minimis amount ($7,500). Amended tax return 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. Amended tax return Under the straight line method, she can deduct $50 each year for 30 years. Amended tax return Constant-yield method. Amended tax return   If the OID is not de minimis, you must use the constant-yield method to figure how much you can deduct each year. Amended tax return   You figure your deduction for the first year in the following manner. Amended tax return Determine the issue price of the loan. Amended tax return If you paid points on the loan, the issue price generally is the difference between the principal and the points. Amended tax return Multiply the result in (1) by the yield to maturity (defined later). Amended tax return Subtract any qualified stated interest payments (defined later) from the result in (2). Amended tax return This is the OID you can deduct in the first year. Amended tax return Yield to maturity (YTM). Amended tax return   This rate is generally shown in the literature you receive from your lender. Amended tax return If you do not have this information, consult your lender or tax advisor. Amended tax return 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. Amended tax return Qualified stated interest (QSI). Amended tax return   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. Amended tax return Example—Year 1. Amended tax return The facts are the same as in the previous example. Amended tax return The yield to maturity on Carol's loan is 10. Amended tax return 2467%, compounded annually. Amended tax return She figured the amount of points (OID) she could deduct in 2013 as follows. Amended tax return Principal amount of the loan $100,000 Minus: Points (OID) –1,500 Issue price of the loan $98,500 Multiplied by: YTM × . Amended tax return 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. Amended tax return To get the adjusted issue price, add to the issue price figured in Year 1 any OID previously deducted. Amended tax return Then follow steps (2) and (3), earlier. Amended tax return Example—Year 2. Amended tax return Carol figured the deduction for 2014 as follows. Amended tax return Issue price $98,500 Plus: Points (OID) deducted  in 2013 +93 Adjusted issue price $98,593 Multiplied by: YTM × . Amended tax return 102467 Total 10,103 Minus: QSI –10,000 Points (OID) deductible in 2014 $103 Loan or mortgage ends. Amended tax return    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. Amended tax return A loan or mortgage may end due to a refinancing, prepayment, foreclosure, or similar event. Amended tax return 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. Amended tax return Points when loan refinance is more than the previous outstanding balance. Amended tax return   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. Amended tax return 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. Amended tax return 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. Amended tax return Improvements. Amended tax return   You must capitalize any expense you pay to improve your rental property. Amended tax return 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. Amended tax return Betterments. Amended tax return   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. Amended tax return Restoration. Amended tax return   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. Amended tax return Adaptation. Amended tax return   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. Amended tax return Separate the costs of repairs and improvements, and keep accurate records. Amended tax return You will need to know the cost of improvements when you sell or depreciate your property. Amended tax return The expenses you capitalize for improving your property can generally be depreciated as if the improvement were separate property. Amended tax return Table 1-1. Amended tax return 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
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The Amended Tax Return

Amended tax return 4. Amended tax return   Communications and Air Transportation Taxes Table of Contents Uncollected Tax Report Communications TaxLocal-only service. Amended tax return Private communication service. Amended tax return Exemptions Credits or Refunds Air Transportation TaxesTransportation of Persons by Air International Air Travel Facilities Transportation of Property by Air Special Rules on Transportation Taxes Excise taxes are imposed on amounts paid for certain facilities and services. Amended tax return If you receive any payment on which tax is imposed, you are required to collect the tax, file returns, and pay the tax over to the government. Amended tax return If you fail to collect and pay over the taxes, you may be liable for the trust fund recovery penalty. Amended tax return See chapter 14, later. Amended tax return Uncollected Tax Report A separate report is required to be filed by collecting agents of communications services and air transportation taxes if the person from whom the facilities or services tax (the tax) is required to be collected (the taxpayer) refuses to pay the tax, or it is impossible for the collecting agent to collect the tax. Amended tax return The report must contain the name and address of the taxpayer, the type of facility provided or service rendered, the amount paid for the facility or service (the amount on which the tax is based), and the date paid. Amended tax return Regular method taxpayers. Amended tax return   For regular method taxpayers, the report must be filed by the due date of the Form 720 on which the tax would have been reported. Amended tax return Alternative method taxpayers. Amended tax return   For alternative method taxpayers, the report must be filed by the due date of the Form 720 that includes an adjustment to the separate account for the uncollected tax. Amended tax return See Alternative method in  chapter 11. Amended tax return Where to file. Amended tax return    Do not file the uncollected tax report with Form 720. Amended tax return Instead, mail the report to: Internal Revenue Service Excise Tax Program SE:S:SP:EX MS C9-109 5000 Ellin Rd. Amended tax return  Lanham, MD 20706 Communications Tax A 3% tax is imposed on amounts paid for local telephone service and teletypewriter exchange service. Amended tax return Local telephone service. Amended tax return   This includes access to a local telephone system and the privilege of telephonic quality communication with most people who are part of the system. Amended tax return Local telephone service also includes any facility or services provided in connection with this service. Amended tax return The tax applies to lease payments for certain customer premises equipment (CPE) even though the lessor does not also provide access to a local telecommunications system. Amended tax return Local-only service. Amended tax return   Local-only service is local telephone service as described above, provided under a plan that does not include long distance telephone service or that separately states the charge for local service on the bill to customers. Amended tax return Local-only service also includes any facility or services provided in connection with this service, even though these services and facilities may also be used with long-distance service. Amended tax return Private communication service. Amended tax return   Private communication service is not local telephone service. Amended tax return Private communication service includes accessory-type services provided in connection with a Centrex, PBX, or other similar system for dual use accessory equipment. Amended tax return However, the charge for the service must be stated separately from the charge for the basic system, and the accessory must function, in whole or in part, in connection with intercommunication among the subscriber's stations. Amended tax return Teletypewriter exchange service. Amended tax return   This includes access from a teletypewriter or other data station to a teletypewriter exchange system and the privilege of intercommunication by that station with most persons having teletypewriter or other data stations in the same exchange system. Amended tax return Figuring the tax. Amended tax return   The tax is based on the sum of all charges for local telephone service included in the bill. Amended tax return However, if the bill groups individual items for billing and tax purposes, the tax is based on the sum of the individual items within that group. Amended tax return The tax on the remaining items not included in any group is based on the charge for each item separately. Amended tax return Do not include in the tax base state or local sales or use taxes that are separately stated on the taxpayer's bill. Amended tax return Exemptions Payments for certain services or payments from certain users are exempt from the communications tax. Amended tax return Nontaxable service. Amended tax return   Nontaxable service means bundled service and long distance service. Amended tax return Nontaxable service also includes pre-paid telephone cards and pre-paid cellular service. Amended tax return Bundled service. Amended tax return   Bundled service is local and long distance service provided under a plan that does not separately state the charge for the local telephone service. Amended tax return Bundled service includes plans that provide both local and long distance service for either a flat monthly fee or a charge that varies with the elapsed transmission time for which the service is used. Amended tax return Telecommunications companies provide bundled service for both landlines and wireless (cellular) service. Amended tax return If Voice over Internet Protocol service provides both local and long distance service and the charges are not separately stated, such service is bundled service. Amended tax return   The method for sending or receiving a call, such as on a landline telephone, wireless (cellular), or some other method, does not affect whether a service is local-only or bundled. Amended tax return Long distance service. Amended tax return   Long distance service is telephonic quality communication with persons whose telephones are outside the local telephone system of the caller. Amended tax return Pre-paid telephone cards (PTC). Amended tax return   A PTC will be treated as bundled service unless a PTC expressly states it is for local-only service. Amended tax return Generally, the person responsible for collecting the tax is the carrier who transfers the PTC to the transferee. Amended tax return The transferee is the first person that is not a carrier to whom a PTC is transferred by the carrier. Amended tax return The transferee is the person liable for the tax and is eligible to request a credit or refund. Amended tax return For more information, see Regulations section 49. Amended tax return 4251-4. Amended tax return   The holder is the person that purchases a PTC to use and not to resell. Amended tax return Holders are not liable for the tax and cannot request a credit or refund. Amended tax return Pre-paid cellular telephones. Amended tax return   Rules similar to the PTC rules described above apply to pre-paid cellular telephones. Amended tax return The transferee is the person eligible to request the credit or refund. Amended tax return Installation charges. Amended tax return   The tax does not apply to payments received for the installation of any instrument, wire, pole, switchboard, apparatus, or equipment. Amended tax return However, the tax does apply to payments for the repair or replacement of those items incidental to ordinary maintenance. Amended tax return Answering services. Amended tax return   The tax does not apply to amounts paid for a private line, an answering service, and a one-way paging or message service if they do not provide access to a local telephone system and the privilege of telephonic communication as part of the local telephone system. Amended tax return Mobile radio telephone service. Amended tax return   The tax does not apply to payments for a two-way radio service that does not provide access to a local telephone system. Amended tax return Coin-operated telephones. Amended tax return   The tax for local telephone service does not apply to payments made for services by inserting coins in public coin-operated telephones. Amended tax return But the tax applies if the coin-operated telephone service is furnished for a guaranteed amount. Amended tax return Figure the tax on the amount paid under the guarantee plus any fixed monthly or other periodic charge. Amended tax return Telephone-operated security systems. Amended tax return   The tax does not apply to amounts paid for telephones used only to originate calls to a limited number of telephone stations for security entry into a building. Amended tax return In addition, the tax does not apply to any amounts paid for rented communication equipment used in the security system. Amended tax return News services. Amended tax return   The tax on teletypewriter exchange service does not apply to charges for the following news services. Amended tax return Services dealing exclusively with the collection or dissemination of news for or through the public press or radio or television broadcasting. Amended tax return Services used exclusively in the collection or dissemination of news by a news ticker service furnishing a general news service similar to that of the public press. Amended tax return This exemption applies to payments received for messages from one member of the news media to another member (or to or from their bona fide correspondents). Amended tax return For the exemption to apply, the charge for these services must be billed in writing to the person paying for the service and that person must certify in writing that the services are used for an exempt purpose. Amended tax return Services not exempted. Amended tax return   The tax applies to amounts paid by members of the news media for local telephone service. Amended tax return International organizations and the American Red Cross. Amended tax return   The tax does not apply to communication services furnished to an international organization or to the American National Red Cross. Amended tax return Nonprofit hospitals. Amended tax return   The tax does not apply to telephone services furnished to income tax-exempt nonprofit hospitals for their use. Amended tax return Also, the tax does not apply to amounts paid by these hospitals to provide local telephone service in the homes of their personnel who must be reached during their off-duty hours. Amended tax return Nonprofit educational organizations. Amended tax return   The tax does not apply to payments received for services and facilities furnished to a nonprofit educational organization for its use. Amended tax return A nonprofit educational organization is one that satisfies all the following requirements. Amended tax return It normally maintains a regular faculty and curriculum. Amended tax return It normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on. Amended tax return It is exempt from income tax under section 501(a). Amended tax return This includes a school operated by an organization exempt under section 501(c)(3) if the school meets the above qualifications. Amended tax return Qualified blood collector organizations. Amended tax return   The tax does not apply to telephone services furnished to qualified blood collector organizations for their use. Amended tax return A qualified blood collector organization is one that is: Described in section 501(c)(3) and exempt from tax under section 501(a), Primarily engaged in the activity of collecting human blood, Registered with the IRS, and Registered by the Food and Drug Administration to collect blood. Amended tax return Federal, state, and local government. Amended tax return   The tax does not apply to communication services provided to the government of the United States, the government of any state or its political subdivisions, the District of Columbia, or the United Nations. Amended tax return Treat an Indian tribal government as a state for the exemption from the communications tax only if the services involve the exercise of an essential tribal government function. Amended tax return Exemption certificate. Amended tax return   Any form of exemption certificate will be acceptable if it includes all the information required by the Internal Revenue Code and Regulations. Amended tax return See Regulations section 49. Amended tax return 4253-11. Amended tax return File the certificate with the provider of the communication services. Amended tax return An exemption certificate is not required for nontaxable services. Amended tax return   The following users that are exempt from the communications tax do not have to file an annual exemption certificate after they have filed the initial certificate to claim an exemption from the communications tax. Amended tax return The American National Red Cross and other international organizations. Amended tax return Nonprofit hospitals. Amended tax return Nonprofit educational organizations. Amended tax return Qualified blood collector organizations. Amended tax return State and local governments. Amended tax return   The federal government does not have to file any exemption certificate. Amended tax return   All other organizations must furnish exemption certificates when required. Amended tax return Credits or Refunds If tax is collected and paid over for nontaxable services, or for certain services or users exempt from the communications tax, the collector or taxpayer may claim a credit or refund if it has repaid the tax to the person from whom the tax was collected or obtained the consent of that person to the allowance of the credit or refund. Amended tax return Alternatively, the person who paid the tax may claim a refund. Amended tax return For more information on how to file for credits or refunds, see the Instructions for Form 720 or Form 8849. Amended tax return Collectors. Amended tax return   The collector may request a credit or refund if it has repaid the tax to the person from whom the tax was collected, or obtained the consent of that person to the allowance of the credit or refund. Amended tax return These requirements also apply to nontaxable service refunds. Amended tax return Collectors using the regular method for deposits. Amended tax return   Collectors using the regular method for deposits must use Form 720X to request a credit or refund if the collector has repaid the tax to the person from whom the tax was collected, or obtained the consent of that person to the allowance of the credit or refund. Amended tax return Collectors using the alternative method for deposits. Amended tax return   Collectors using the alternative method for deposits must adjust their separate accounts for the credit or refund if it has repaid the tax to the person from whom the tax was collected, or obtained the consent of that person to the allowance of the credit or refund. Amended tax return For more information, see the Instructions for Form 720. Amended tax return Air Transportation Taxes Taxes are imposed on amounts paid for: Transportation of persons by air, Use of international air travel facilities, and Transportation of property by air. Amended tax return Transportation of Persons by Air The tax on transportation of persons by air is made up of the: Percentage tax, and Domestic-segment tax. Amended tax return Percentage tax. Amended tax return   A tax of 7. Amended tax return 5% applies to amounts paid for taxable transportation of persons by air. Amended tax return Amounts paid for transportation include charges for layover or waiting time and movement of aircraft in deadhead service. Amended tax return Mileage awards. Amended tax return   The percentage tax may apply to an amount paid (in cash or in kind) to an air carrier (or any related person) for the right to provide mileage awards for, or other reductions in the cost of, any transportation of persons by air. Amended tax return For example, this applies to mileage awards purchased by credit card companies, telephone companies, restaurants, hotels, and other businesses. Amended tax return   Generally, the percentage tax does not apply to amounts paid for mileage awards where the mileage awards cannot, under any circumstances, be redeemed for air transportation that is subject to the tax. Amended tax return Until regulations are issued, the following rules apply to mileage awards. Amended tax return Amounts paid for mileage awards that cannot be redeemed for taxable transportation beginning and ending in the United States are not subject to the tax. Amended tax return For this rule, mileage awards issued by a foreign air carrier are considered to be usable only on that foreign air carrier and thus not redeemable for taxable transportation beginning and ending in the United States. Amended tax return Therefore, amounts paid to a foreign air carrier for mileage awards are not subject to the tax. Amended tax return Amounts paid by an air carrier to a domestic air carrier for mileage awards that can be redeemed for taxable transportation are not subject to the tax to the extent those miles will be awarded in connection with the purchase of taxable transportation. Amended tax return Amounts paid by an air carrier to a domestic air carrier for mileage awards that can be redeemed for taxable transportation are subject to the tax to the extent those miles will not be awarded in connection with the purchase of taxable transportation. Amended tax return Domestic-segment tax. Amended tax return   The domestic-segment tax is a flat dollar amount for each segment of taxable transportation for which an amount is paid. Amended tax return However, see Rural airports, later. Amended tax return A segment is a single takeoff and a single landing. Amended tax return The amount of the domestic-segment tax is in the Instructions for Form 720. Amended tax return Charter flights. Amended tax return    If an aircraft is chartered, the domestic-segment tax for each segment of taxable transportation is figured by multiplying the tax by the number of passengers transported on the aircraft. Amended tax return Rural airports. Amended tax return   The domestic-segment tax does not apply to a segment to or from a rural airport. Amended tax return An airport is a rural airport for a calendar year if fewer than 100,000 commercial passengers departed from the airport by air during the second preceding calendar year (the 100,000 passenger rule), and one of the following is true: The airport is not located within 75 miles of another airport from which 100,000 or more commercial passengers departed during the second preceding calendar year, The airport was receiving essential air service subsidies as of August 5, 1997, or The airport is not connected by paved roads to another airport. Amended tax return   To apply the 100,000 passenger rule to any airport described in (3) above, only count commercial passengers departing from the airport by air on flight segments of at least 100 miles. Amended tax return   An updated list of rural airports can be found on the Department of Transportation website at www. Amended tax return dot. Amended tax return gov and enter the phrase “Essential Air Service” in the search box. Amended tax return Taxable transportation. Amended tax return   Taxable transportation is transportation by air that meets either of the following tests. Amended tax return It begins and ends either in the United States or at any place in Canada or Mexico not more than 225 miles from the nearest point on the continental United States boundary (this is the 225-mile zone). Amended tax return It is directly or indirectly from one port or station in the United States to another port or station in the United States, but only if it is not a part of uninterrupted international air transportation, discussed later. Amended tax return Round trip. Amended tax return   A round trip is considered two separate trips. Amended tax return The first trip is from the point of departure to the destination. Amended tax return The second trip is the return trip from that destination. Amended tax return Uninterrupted international air transportation. Amended tax return   This means transportation entirely by air that does not begin and end in the United States or in the 225-mile zone if there is not more than a 12-hour scheduled interval between arrival and departure at any station in the United States. Amended tax return For a special rule that applies to military personnel, see Exemptions, later. Amended tax return Transportation between the continental U. Amended tax return S. Amended tax return and Alaska or Hawaii. Amended tax return   This transportation is partially exempt from the tax on transportation of persons by air. Amended tax return The tax does not apply to the part of the trip between the point at which the route of transportation leaves or enters the continental United States (or a port or station in the 225-mile zone) and the point at which it enters or leaves Hawaii or Alaska. Amended tax return Leaving or entering occurs when the route of the transportation passes over either the United States border or a point 3 nautical miles (3. Amended tax return 45 statute miles) from low tide on the coast line, or when it leaves a port or station in the 225-mile zone. Amended tax return Therefore, this transportation is subject to the percentage tax on the part of the trip in U. Amended tax return S. Amended tax return airspace, the domestic-segment tax for each domestic segment, and the tax on the use of international air travel facilities, discussed later. Amended tax return Transportation within Alaska or Hawaii. Amended tax return   The tax on transportation of persons by air applies to the entire fare paid in the case of flights between any of the Hawaiian Islands, and between any ports or stations in the Aleutian Islands or other ports or stations elsewhere in Alaska. Amended tax return The tax applies even though parts of the flights may be over international waters or over Canada, if no point on the direct line of transportation between the ports or stations is more than 225 miles from the United States (Hawaii or Alaska). Amended tax return Package tours. Amended tax return   The air transportation taxes apply to “complimentary” air transportation furnished solely to participants in package holiday tours. Amended tax return The amount paid for these package tours includes a charge for air transportation even though it may be advertised as “free. Amended tax return ” This rule also applies to the tax on the use of international air travel facilities, discussed later. Amended tax return Liability for tax. Amended tax return   The person paying for taxable transportation is liable for the tax and, ordinarily, the person receiving the payment collects the tax, files the returns, and pays the tax over to the government. Amended tax return However, if payment is made outside the United States for a prepaid order, exchange order, or similar order, the person furnishing the initial transportation provided for under that order must collect the tax. Amended tax return    A travel agency that is an independent broker and sells tours on aircraft that it charters must collect the transportation tax, file the returns, and pay the tax over to the government. Amended tax return However, a travel agency that sells tours as the agent of an airline must collect the tax and remit it to the airline for the filing of returns and for the payment of the tax over to the government. Amended tax return An independent third party that is not under the airline's supervision or control, but is acting on behalf of, and receiving compensation from, a passenger, is not required to collect the tax and pay it to the government. Amended tax return For more information on resellers of air transportation, see Revenue Ruling 2006-52. Amended tax return You can find Revenue Ruling 2006-52 on page 761 of I. Amended tax return R. Amended tax return B. Amended tax return 2006-43 at www. Amended tax return irs. Amended tax return gov/pub/irs-irbs/irb06-43. Amended tax return pdf. Amended tax return   The fact that the aircraft does not use public or commercial airports in taking off and landing has no effect on the tax. Amended tax return But see Certain helicopter uses, later. Amended tax return   For taxable transportation that begins and ends in the United States, the tax applies regardless of whether the payment is made in or outside the United States. Amended tax return   If the tax is not paid when payment for the transportation is made, the air carrier providing the initial segment of the transportation that begins or ends in the United States becomes liable for the tax. Amended tax return Exemptions. Amended tax return   The tax on transportation of persons by air does not apply in the following situations. Amended tax return See also Special Rules on Transportation Taxes, later. Amended tax return Military personnel on international trips. Amended tax return   When traveling in uniform at their own expense, United States military personnel on authorized leave are deemed to be traveling in uninterrupted international air transportation (defined earlier) even if the scheduled interval between arrival and departure at any station in the United States is actually more than 12 hours. Amended tax return However, such personnel must buy their tickets within 12 hours after landing at the first domestic airport and accept the first available accommodation of the type called for by their tickets. Amended tax return The trip must begin or end outside the United States and the 225-mile zone. Amended tax return Certain helicopter uses. Amended tax return   The tax does not apply to air transportation by helicopter if the helicopter is used for any of the following purposes. Amended tax return Transporting individuals, equipment, or supplies in the exploration for, or the development or removal of, hard minerals, oil, or gas. Amended tax return Planting, cultivating, cutting, transporting, or caring for trees (including logging operations). Amended tax return Providing emergency medical transportation. Amended tax return   However, during a use described in items (1) or (2), the tax applies if the helicopter takes off from, or lands at, a facility eligible for assistance under the Airport and Airway Development Act of 1970, or otherwise uses services provided under section 44509 or 44913(b) or subchapter I of chapter 471 of title 49, United States Code. Amended tax return For item (1), treat each flight segment as a separate flight. Amended tax return Fixed-wing aircraft uses. Amended tax return   The tax does not apply to air transportation by fixed-wing aircraft if the fixed-wing aircraft is used for any of the following purposes. Amended tax return Planting, cultivating, cutting, transporting, or caring for trees (including logging operations). Amended tax return Providing emergency medical transportation. Amended tax return The aircraft must be equipped for and exclusively dedicated on that flight to acute care emergency medical services. Amended tax return   However, during a use described in item (1), the tax applies if the fixed-wing aircraft takes off from, or lands at, a facility eligible for assistance under the Airport and Airway Development Act of 1970, or otherwise uses services provided under section 44509 or 44913(b) or subchapter I of chapter 471 of title 49, United States Code. Amended tax return Skydiving. Amended tax return   The tax does not apply to any air transportation exclusively for the purpose of skydiving. Amended tax return Seaplanes. Amended tax return   The tax does not apply to any air transportation by seaplane for any segment consisting of a takeoff from, and a landing on, water if the places where the takeoff and landing occur are not receiving financial assistance from the Airport and Airways Trust Fund. Amended tax return Bonus tickets. Amended tax return   The tax does not apply to free bonus tickets issued by an airline company to its customers who have satisfied all requirements to qualify for the bonus tickets. Amended tax return However, the tax applies to amounts paid by customers for advance bonus tickets when customers have traveled insufficient mileage to fully qualify for the free advance bonus tickets. Amended tax return International Air Travel Facilities A tax per person is imposed (whether in or outside the United States) for international flights that begin or end in the United States. Amended tax return However, for a domestic segment that begins or ends in Alaska or Hawaii, a reduced tax per person applies only to departures. Amended tax return This tax does not apply if all the transportation is subject to the percentage tax, discussed earlier. Amended tax return It also doesn't apply if the surtax on fuel used in a fractional ownership program aircraft (discussed earlier) is imposed. Amended tax return See the Instructions for Form 720 for the tax rates. Amended tax return Transportation of Property by Air A tax of 6. Amended tax return 25% is imposed on amounts paid (whether in or outside the United States) for transportation of property by air. Amended tax return The fact that the aircraft may not use public or commercial airports in taking off and landing has no effect on the tax. Amended tax return The tax applies only to amounts paid to a person engaged in the business of transporting property by air for hire. Amended tax return The tax applies only to transportation (including layover time and movement of aircraft in deadhead service) that begins and ends in the United States. Amended tax return Thus, the tax does not apply to transportation of property by air that begins or ends outside the United States. Amended tax return Exemptions. Amended tax return   The tax on transportation of property by air does not apply in the following situations. Amended tax return See also Special Rules on Transportation Taxes, later. Amended tax return Cropdusting and firefighting service. Amended tax return   The tax does not apply to amounts paid for cropdusting or aerial firefighting service. Amended tax return Exportation. Amended tax return    The tax does not apply to payments for transportation of property by air in the course of exportation (including to United States possessions) by continuous movement, as evidenced by the execution of Form 1363, Export Exemption Certificate. Amended tax return See Form 1363 for more information. Amended tax return Certain helicopter and fixed-wing air ambulance uses. Amended tax return   The tax does not apply to amounts paid for the use of helicopters in construction to set heating and air conditioning units on roofs of buildings, to dismantle tower cranes, and to aid in construction of power lines and ski lifts. Amended tax return   The tax also does not apply to air transportation by helicopter or fixed-wing aircraft for the purpose of providing emergency medical services. Amended tax return The fixed-wing aircraft must be equipped for and exclusively dedicated on that flight to acute care emergency medical services. Amended tax return Skydiving. Amended tax return   The tax does not apply to any air transportation exclusively for the purpose of skydiving. Amended tax return Excess baggage. Amended tax return    The tax does not apply to excess baggage accompanying a passenger on an aircraft operated on an established line. Amended tax return Surtax on fuel used in a fractional ownership program aircraft. Amended tax return   The tax does not apply if the surtax on fuel used in a fractional ownership program aircraft (discussed earlier) is imposed. Amended tax return Alaska and Hawaii. Amended tax return   For transportation of property to and from Alaska and Hawaii, the tax in general does not apply to the portion of the transportation that is entirely outside the continental United States (or the 225-mile zone if the aircraft departs from or arrives at an airport in the 225-mile zone). Amended tax return But the tax applies to flights between ports or stations in Alaska and the Aleutian Islands, as well as between ports or stations in Hawaii. Amended tax return The tax applies even though parts of the flights may be over international waters or over Canada, if no point on a line drawn from where the route of transportation leaves the United States (Alaska) to where it reenters the United States (Alaska) is more than 225 miles from the United States. Amended tax return Liability for tax. Amended tax return   The person paying for taxable transportation is liable for the tax and, ordinarily, the person engaged in the business of transporting property by air for hire receives the payment, collects the tax, files the returns, and pays the tax over to the government. Amended tax return   If tax is not paid when a payment is made outside the United States, the person furnishing the last segment of taxable transportation collects the tax from the person to whom the property is delivered in the United States. Amended tax return Special Rules on Transportation Taxes In certain circumstances, special rules apply to the taxes on transportation of persons and property by air. Amended tax return Aircraft used by affiliated corporations. Amended tax return   The taxes do not apply to payments received by one member of an affiliated group of corporations from another member for services furnished in connection with the use of an aircraft. Amended tax return However, the aircraft must be owned or leased by a member of the affiliated group and cannot be available for hire by a nonmember of the affiliated group. Amended tax return Determine whether an aircraft is available for hire by a nonmember of an affiliated group on a flight-by-flight basis. Amended tax return   For this rule, an affiliated group of corporations is any group of corporations connected with a common parent corporation through 80% or more of stock ownership. Amended tax return Small aircraft. Amended tax return   The taxes do not apply to transportation furnished by an aircraft having a maximum certificated takeoff weight of 6,000 pounds or less. Amended tax return However, the taxes do apply if the aircraft is operated on an established line. Amended tax return “Operated on an established line” means the aircraft operates with some degree of regularity between definite points. Amended tax return However, it does not include any time an aircraft is being operated on a flight that is solely for sightseeing. Amended tax return   Consider an aircraft to be operated on an established line if it is operated on a charter basis between two cities also served by that carrier on a regularly scheduled basis. Amended tax return   Also, the taxes apply if the aircraft is jet-powered, regardless of its maximum certificated takeoff weight or whether or not it is operated on an established line. Amended tax return Mixed load of persons and property. Amended tax return   If a single amount is paid for air transportation of persons and property, the payment must be allocated between the amount subject to the tax on transportation of persons and the amount subject to the tax on transportation of property. Amended tax return The allocation must be reasonable and supported by adequate records. Amended tax return Credits or refunds. Amended tax return   If tax is collected and paid over for air transportation that is not taxable air transportation, the collector may claim a credit or refund if it has repaid the tax to the person from whom the tax was collected or obtained the consent of that person to the allowance of the credit or refund. Amended tax return Alternatively, the person who paid the tax may claim a refund. Amended tax return For information on how to file for credits or refunds, see the Instructions for Form 720 or Form 8849. Amended tax return Prev  Up  Next   Home   More Online Publications