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Can You File 2011 Taxes Now

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Can You File 2011 Taxes Now

Can you file 2011 taxes now Publication 587 - Main Content Table of Contents Qualifying for a DeductionExclusive Use Regular Use Trade or Business Use Principal Place of Business Place To Meet Patients, Clients, or Customers Separate Structure Figuring the DeductionUsing Actual Expenses Using the Simplified Method Daycare Facility Standard meal and snack rates. Can you file 2011 taxes now Sale or Exchange of Your HomeGain on Sale Depreciation Basis Adjustment Reporting the Sale More Information Business Furniture and EquipmentListed Property Property Bought for Business Use Personal Property Converted to Business Use Recordkeeping Where To DeductSelf-Employed Persons Employees Partners How To Get Tax HelpLow Income Taxpayer Clinics Worksheet To Figure the Deduction for Business Use of Your HomeInstructions for the Worksheet Worksheets To Figure the Deduction for Business Use of Your Home (Simplified Method) Instructions for the Simplified Method Worksheet Instructions for the Daycare Facility Worksheet Instructions for the Area Adjustment Worksheet Qualifying for a Deduction Generally, you cannot deduct items related to your home, such as mortgage interest, real estate taxes, utilities, maintenance, rent, depreciation, or property insurance, as business expenses. Can you file 2011 taxes now However, you may be able to deduct expenses related to the business use of part of your home if you meet specific requirements. Can you file 2011 taxes now Even then, the deductible amount of these types of expenses may be limited. Can you file 2011 taxes now Use this section and Figure A, later, to decide if you can deduct expenses for the business use of your home. Can you file 2011 taxes now To qualify to deduct expenses for business use of your home, you must use part of your home: Exclusively and regularly as your principal place of business (defined later), Exclusively and regularly as a place where you meet or deal with patients, clients, or customers in the normal course of your trade or business, In the case of a separate structure which is not attached to your home, in connection with your trade or business, On a regular basis for certain storage use (see Storage of inventory or product samples , later), For rental use (see Publication 527), or As a daycare facility (see Daycare Facility , later). Can you file 2011 taxes now Additional tests for employee use. Can you file 2011 taxes now   If you are an employee and you use a part of your home for business, you may qualify for a deduction for its business use. Can you file 2011 taxes now You must meet the tests discussed earlier plus: Your business use must be for the convenience of your employer, and You must not rent any part of your home to your employer and use the rented portion to perform services as an employee for that employer. Can you file 2011 taxes now If the use of the home office is merely appropriate and helpful, you cannot deduct expenses for the business use of your home. Can you file 2011 taxes now Exclusive Use To qualify under the exclusive use test, you must use a specific area of your home only for your trade or business. Can you file 2011 taxes now The area used for business can be a room or other separately identifiable space. Can you file 2011 taxes now The space does not need to be marked off by a permanent partition. Can you file 2011 taxes now You do not meet the requirements of the exclusive use test if you use the area in question both for business and for personal purposes. Can you file 2011 taxes now Example. Can you file 2011 taxes now You are an attorney and use a den in your home to write legal briefs and prepare clients' tax returns. Can you file 2011 taxes now Your family also uses the den for recreation. Can you file 2011 taxes now The den is not used exclusively in your trade or business, so you cannot claim a deduction for the business use of the den. Can you file 2011 taxes now Exceptions to Exclusive Use You do not have to meet the exclusive use test if either of the following applies. Can you file 2011 taxes now You use part of your home for the storage of inventory or product samples (discussed next). Can you file 2011 taxes now You use part of your home as a daycare facility, discussed later under Daycare Facility . Can you file 2011 taxes now Note. Can you file 2011 taxes now With the exception of these two uses, any portion of the home used for business purposes must meet the exclusive use test. Can you file 2011 taxes now Storage of inventory or product samples. Can you file 2011 taxes now    If you use part of your home for storage of inventory or product samples, you can deduct expenses for the business use of your home without meeting the exclusive use test. Can you file 2011 taxes now However, you must meet all the following tests. Can you file 2011 taxes now You sell products at wholesale or retail as your trade or business. Can you file 2011 taxes now You keep the inventory or product samples in your home for use in your trade or business. Can you file 2011 taxes now Your home is the only fixed location of your trade or business. Can you file 2011 taxes now You use the storage space on a regular basis. Can you file 2011 taxes now The space you use is a separately identifiable space suitable for storage. Can you file 2011 taxes now Example. Can you file 2011 taxes now Your home is the only fixed location of your business of selling mechanics' tools at retail. Can you file 2011 taxes now You regularly use half of your basement for storage of inventory and product samples. Can you file 2011 taxes now You sometimes use the area for personal purposes. Can you file 2011 taxes now The expenses for the storage space are deductible even though you do not use this part of your basement exclusively for business. Can you file 2011 taxes now Regular Use To qualify under the regular use test, you must use a specific area of your home for business on a regular basis. Can you file 2011 taxes now Incidental or occasional business use is not regular use. Can you file 2011 taxes now You must consider all facts and circumstances in determining whether your use is on a regular basis. Can you file 2011 taxes now Trade or Business Use To qualify under the trade-or-business-use test, you must use part of your home in connection with a trade or business. Can you file 2011 taxes now If you use your home for a profit-seeking activity that is not a trade or business, you cannot take a deduction for its business use. Can you file 2011 taxes now Example. Can you file 2011 taxes now You use part of your home exclusively and regularly to read financial periodicals and reports, clip bond coupons, and carry out similar activities related to your own investments. Can you file 2011 taxes now You do not make investments as a broker or dealer. Can you file 2011 taxes now So, your activities are not part of a trade or business and you cannot take a deduction for the business use of your home. Can you file 2011 taxes now Principal Place of Business You can have more than one business location, including your home, for a single trade or business. Can you file 2011 taxes now To qualify to deduct the expenses for the business use of your home under the principal place of business test, your home must be your principal place of business for that trade or business. Can you file 2011 taxes now To determine whether your home is your principal place of business, you must consider: The relative importance of the activities performed at each place where you conduct business, and The amount of time spent at each place where you conduct business. Can you file 2011 taxes now Your home office will qualify as your principal place of business if you meet the following requirements. Can you file 2011 taxes now You use it exclusively and regularly for administrative or management activities of your trade or business. Can you file 2011 taxes now You have no other fixed location where you conduct substantial administrative or management activities of your trade or business. Can you file 2011 taxes now If, after considering your business locations, your home cannot be identified as your principal place of business, you cannot deduct home office expenses. Can you file 2011 taxes now However, see the later discussions under Place To Meet Patients, Clients, or Customers and Separate Structure for other ways to qualify to deduct home office expenses. Can you file 2011 taxes now Administrative or management activities. Can you file 2011 taxes now   There are many activities that are administrative or managerial in nature. Can you file 2011 taxes now The following are a few examples. Can you file 2011 taxes now Billing customers, clients, or patients. Can you file 2011 taxes now Keeping books and records. Can you file 2011 taxes now Ordering supplies. Can you file 2011 taxes now Setting up appointments. Can you file 2011 taxes now Forwarding orders or writing reports. Can you file 2011 taxes now Administrative or management activities performed at other locations. Can you file 2011 taxes now   The following activities performed by you or others will not disqualify your home office from being your principal place of business. Can you file 2011 taxes now You have others conduct your administrative or management activities at locations other than your home. Can you file 2011 taxes now (For example, another company does your billing from its place of business. Can you file 2011 taxes now ) You conduct administrative or management activities at places that are not fixed locations of your business, such as in a car or a hotel room. Can you file 2011 taxes now You occasionally conduct minimal administrative or management activities at a fixed location outside your home. Can you file 2011 taxes now You conduct substantial nonadministrative or nonmanagement business activities at a fixed location outside your home. Can you file 2011 taxes now (For example, you meet with or provide services to customers, clients, or patients at a fixed location of the business outside your home. Can you file 2011 taxes now ) You have suitable space to conduct administrative or management activities outside your home, but choose to use your home office for those activities instead. Can you file 2011 taxes now Please click here for the text description of the image. Can you file 2011 taxes now Can you deduct business use of the home expenses? Example 1. Can you file 2011 taxes now John is a self-employed plumber. Can you file 2011 taxes now Most of John's time is spent at customers' homes and offices installing and repairing plumbing. Can you file 2011 taxes now He has a small office in his home that he uses exclusively and regularly for the administrative or management activities of his business, such as phoning customers, ordering supplies, and keeping his books. Can you file 2011 taxes now John writes up estimates and records of work completed at his customers' premises. Can you file 2011 taxes now He does not conduct any substantial administrative or management activities at any fixed location other than his home office. Can you file 2011 taxes now John does not do his own billing. Can you file 2011 taxes now He uses a local bookkeeping service to bill his customers. Can you file 2011 taxes now John's home office qualifies as his principal place of business for deducting expenses for its use. Can you file 2011 taxes now He uses the home office for the administrative or managerial activities of his plumbing business and he has no other fixed location where he conducts these administrative or managerial activities. Can you file 2011 taxes now His choice to have his billing done by another company does not disqualify his home office from being his principal place of business. Can you file 2011 taxes now He meets all the qualifications, including principal place of business, so he can deduct expenses (subject to certain limitations, explained later) for the business use of his home. Can you file 2011 taxes now Example 2. Can you file 2011 taxes now Pamela is a self-employed sales representative for several different product lines. Can you file 2011 taxes now She has an office in her home that she uses exclusively and regularly to set up appointments and write up orders and other reports for the companies whose products she sells. Can you file 2011 taxes now She occasionally writes up orders and sets up appointments from her hotel room when she is away on business overnight. Can you file 2011 taxes now Pamela's business is selling products to customers at various locations throughout her territory. Can you file 2011 taxes now To make these sales, she regularly visits customers to explain the available products and take orders. Can you file 2011 taxes now Pamela's home office qualifies as her principal place of business for deducting expenses for its use. Can you file 2011 taxes now She conducts administrative or management activities there and she has no other fixed location where she conducts substantial administrative or management activities. Can you file 2011 taxes now The fact that she conducts some administrative or management activities in her hotel room (not a fixed location) does not disqualify her home office from being her principal place of business. Can you file 2011 taxes now She meets all the qualifications, including principal place of business, so she can deduct expenses (subject to certain limitations, explained later) for the business use of her home. Can you file 2011 taxes now Example 3. Can you file 2011 taxes now Paul is a self-employed anesthesiologist. Can you file 2011 taxes now He spends the majority of his time administering anesthesia and postoperative care in three local hospitals. Can you file 2011 taxes now One of the hospitals provides him with a small shared office where he could conduct administrative or management activities. Can you file 2011 taxes now Paul very rarely uses the office the hospital provides. Can you file 2011 taxes now He uses a room in his home that he has converted to an office. Can you file 2011 taxes now He uses this room exclusively and regularly to conduct all the following activities. Can you file 2011 taxes now Contacting patients, surgeons, and hospitals regarding scheduling. Can you file 2011 taxes now Preparing for treatments and presentations. Can you file 2011 taxes now Maintaining billing records and patient logs. Can you file 2011 taxes now Satisfying continuing medical education requirements. Can you file 2011 taxes now Reading medical journals and books. Can you file 2011 taxes now Paul's home office qualifies as his principal place of business for deducting expenses for its use. Can you file 2011 taxes now He conducts administrative or management activities for his business as an anesthesiologist there and he has no other fixed location where he conducts substantial administrative or management activities for this business. Can you file 2011 taxes now His choice to use his home office instead of the one provided by the hospital does not disqualify his home office from being his principal place of business. Can you file 2011 taxes now His performance of substantial nonadministrative or nonmanagement activities at fixed locations outside his home also does not disqualify his home office from being his principal place of business. Can you file 2011 taxes now He meets all the qualifications, including principal place of business, so he can deduct expenses (subject to certain limitations, explained later) for the business use of his home. Can you file 2011 taxes now Example 4. Can you file 2011 taxes now Kathleen is employed as a teacher. Can you file 2011 taxes now She is required to teach and meet with students at the school and to grade papers and tests. Can you file 2011 taxes now The school provides her with a small office where she can work on her lesson plans, grade papers and tests, and meet with parents and students. Can you file 2011 taxes now The school does not require her to work at home. Can you file 2011 taxes now Kathleen prefers to use the office she has set up in her home and does not use the one provided by the school. Can you file 2011 taxes now She uses this home office exclusively and regularly for the administrative duties of her teaching job. Can you file 2011 taxes now Kathleen must meet the convenience-of-the-employer test, even if her home qualifies as her principal place of business for deducting expenses for its use. Can you file 2011 taxes now Her employer provides her with an office and does not require her to work at home, so she does not meet the convenience-of-the-employer test and cannot claim a deduction for the business use of her home. Can you file 2011 taxes now More Than One Trade or Business The same home office can be the principal place of business for two or more separate business activities. Can you file 2011 taxes now Whether your home office is the principal place of business for more than one business activity must be determined separately for each of your trade or business activities. Can you file 2011 taxes now You must use the home office exclusively and regularly for one or more of the following purposes. Can you file 2011 taxes now As the principal place of business for one or more of your trades or businesses. Can you file 2011 taxes now As a place to meet or deal with patients, clients, or customers in the normal course of one or more of your trades or businesses. Can you file 2011 taxes now If your home office is a separate structure, in connection with one or more of your trades or businesses. Can you file 2011 taxes now You can use your home office for more than one business activity, but you cannot use it for any nonbusiness (i. Can you file 2011 taxes now e. Can you file 2011 taxes now , personal) activities. Can you file 2011 taxes now If you are an employee, any use of the home office in connection with your employment must be for the convenience of your employer. Can you file 2011 taxes now See Rental to employer , later, if you rent part of your home to your employer. Can you file 2011 taxes now Example. Can you file 2011 taxes now Tracy White is employed as a teacher. Can you file 2011 taxes now Her principal place of work is the school, which provides her office space to do her school work. Can you file 2011 taxes now She also has a mail order jewelry business. Can you file 2011 taxes now All her work in the jewelry business is done in her home office and the office is used exclusively for that business. Can you file 2011 taxes now If she meets all the other tests, she can deduct expenses for the business use of her home for the jewelry business. Can you file 2011 taxes now If Tracy also uses the office for work related to her teaching, she must meet the exclusive use test for both businesses to qualify for the deduction. Can you file 2011 taxes now As an employee, Tracy must also meet the convenience-of-the-employer test to qualify for the deduction. Can you file 2011 taxes now She does not meet this test for her work as a teacher, so she cannot claim a deduction for the business use of her home for either activity. Can you file 2011 taxes now Place To Meet Patients, Clients, or Customers If you meet or deal with patients, clients, or customers in your home in the normal course of your business, even though you also carry on business at another location, you can deduct your expenses for the part of your home used exclusively and regularly for business if you meet both the following tests. Can you file 2011 taxes now You physically meet with patients, clients, or customers on your premises. Can you file 2011 taxes now Their use of your home is substantial and integral to the conduct of your business. Can you file 2011 taxes now Doctors, dentists, attorneys, and other professionals who maintain offices in their homes generally will meet this requirement. Can you file 2011 taxes now Using your home for occasional meetings and telephone calls will not qualify you to deduct expenses for the business use of your home. Can you file 2011 taxes now The part of your home you use exclusively and regularly to meet patients, clients, or customers does not have to be your principal place of business. Can you file 2011 taxes now Example. Can you file 2011 taxes now June Quill, a self-employed attorney, works 3 days a week in her city office. Can you file 2011 taxes now She works 2 days a week in her home office used only for business. Can you file 2011 taxes now She regularly meets clients there. Can you file 2011 taxes now Her home office qualifies for a business deduction because she meets clients there in the normal course of her business. Can you file 2011 taxes now Separate Structure You can deduct expenses for a separate free-standing structure, such as a studio, workshop, garage, or barn, if you use it exclusively and regularly for your business. Can you file 2011 taxes now The structure does not have to be your principal place of business or a place where you meet patients, clients, or customers. Can you file 2011 taxes now Example. Can you file 2011 taxes now John Berry operates a floral shop in town. Can you file 2011 taxes now He grows the plants for his shop in a greenhouse behind his home. Can you file 2011 taxes now He uses the greenhouse exclusively and regularly in his business, so he can deduct the expenses for its use, subject to certain limitations, explained later. Can you file 2011 taxes now Figuring the Deduction After you determine that you meet the tests under Qualifying for a Deduction , you can begin to figure how much you can deduct. Can you file 2011 taxes now When figuring the amount you can deduct for the business use of your home, you will use either your actual expenses or a simplified method. Can you file 2011 taxes now Electing to use the simplified method. Can you file 2011 taxes now   The simplified method is an alternative to the calculation, allocation, and substantiation of actual expenses. Can you file 2011 taxes now You choose whether or not to figure your deduction using the simplified method each taxable year. Can you file 2011 taxes now See Using the Simplified Method , later. Can you file 2011 taxes now Rental to employer. Can you file 2011 taxes now   If you rent part of your home to your employer and you use the rented part in performing services for your employer as an employee, your deduction for the business use of your home is limited. Can you file 2011 taxes now You can deduct mortgage interest, qualified mortgage insurance premiums, real estate taxes, and personal casualty losses for the rented part, subject to any limitations. Can you file 2011 taxes now However, you cannot deduct otherwise allowable trade or business expenses, business casualty losses, or depreciation related to the use of your home (or use the simplified method as an alternative to deducting these actual expenses) in performing services for your employer. Can you file 2011 taxes now Using Actual Expenses If you do not or cannot elect to use the simplified method for a home, you will figure your deduction for that home using your actual expenses. Can you file 2011 taxes now You will also need to figure the percentage of your home used for business and the limit on the deduction. Can you file 2011 taxes now If you are an employee or a partner, or you use your home in your farming business and you file Schedule F (Form 1040), you can use the Worksheet To Figure the Deduction for Business Use of Your Home, near the end of this publication, to help you figure your deduction. Can you file 2011 taxes now If you use your home in a trade or business and you file Schedule C (Form 1040), you will use Form 8829 to figure your deduction. Can you file 2011 taxes now Part-year use. Can you file 2011 taxes now   You cannot deduct expenses for the business use of your home incurred during any part of the year you did not use your home for business purposes. Can you file 2011 taxes now For example, if you begin using part of your home for business on July 1, and you meet all the tests from that date until the end of the year, consider only your expenses for the last half of the year in figuring your allowable deduction. Can you file 2011 taxes now Expenses related to tax-exempt income. Can you file 2011 taxes now   Generally, you cannot deduct expenses that are related to tax-exempt allowances. Can you file 2011 taxes now However, if you receive a tax-exempt parsonage allowance or a tax-exempt military allowance, your expenses for mortgage interest and real estate taxes are deductible under the normal rules. Can you file 2011 taxes now No deduction is allowed for other expenses related to the tax-exempt allowance. Can you file 2011 taxes now   If your housing is provided free of charge and the value of the housing is tax exempt, you cannot deduct the rental value of any portion of the housing. Can you file 2011 taxes now Actual Expenses You must divide the expenses of operating your home between personal and business use. Can you file 2011 taxes now The part of a home operating expense you can use to figure your deduction depends on both of the following. Can you file 2011 taxes now Whether the expense is direct, indirect, or unrelated. Can you file 2011 taxes now The percentage of your home used for business. Can you file 2011 taxes now Table 1, next, describes the types of expenses you may have and the extent to which they are deductible. Can you file 2011 taxes now Table 1. Can you file 2011 taxes now Types of Expenses  Expense  Description  Deductibility Direct Expenses only for  the business part  of your home. Can you file 2011 taxes now Deductible in full. Can you file 2011 taxes now *   Examples:  Painting or repairs  only in the area  used for business. Can you file 2011 taxes now Exception: May be only partially  deductible in a daycare facility. Can you file 2011 taxes now See Daycare Facility , later. Can you file 2011 taxes now Indirect Expenses for  keeping up and running your  entire home. Can you file 2011 taxes now Deductible based on the percentage of your home used for business. Can you file 2011 taxes now *   Examples:  Insurance, utilities, and  general repairs. Can you file 2011 taxes now   Unrelated Expenses only for  the parts of your  home not used  for business. Can you file 2011 taxes now Not deductible. Can you file 2011 taxes now   Examples:  Lawn care or painting  a room not used  for business. Can you file 2011 taxes now   *Subject to the deduction limit, discussed later. Can you file 2011 taxes now Form 8829 and the Worksheet To Figure the Deduction for Business Use of Your Home have separate columns for direct and indirect expenses. Can you file 2011 taxes now Certain expenses are deductible whether or not you use your home for business. Can you file 2011 taxes now If you qualify to deduct business use of the home expenses, use the business percentage of these expenses to figure your total business use of the home deduction. Can you file 2011 taxes now These expenses include the following. Can you file 2011 taxes now Real estate taxes. Can you file 2011 taxes now Qualified mortgage insurance premiums. Can you file 2011 taxes now Deductible mortgage interest. Can you file 2011 taxes now Casualty losses. Can you file 2011 taxes now Other expenses are deductible only if you use your home for business. Can you file 2011 taxes now You can use the business percentage of these expenses to figure your total business use of the home deduction. Can you file 2011 taxes now These expenses generally include (but are not limited to) the following. Can you file 2011 taxes now Depreciation (covered under Depreciating Your Home , later). Can you file 2011 taxes now Insurance. Can you file 2011 taxes now Rent paid for the use of property you do not own but use in your trade or business. Can you file 2011 taxes now Repairs. Can you file 2011 taxes now Security system. Can you file 2011 taxes now Utilities and services. Can you file 2011 taxes now Real estate taxes. Can you file 2011 taxes now   To figure the business part of your real estate taxes, multiply the real estate taxes paid by the percentage of your home used for business. Can you file 2011 taxes now   For more information on the deduction for real estate taxes, see Publication 530, Tax Information for Homeowners. Can you file 2011 taxes now Deductible mortgage interest. Can you file 2011 taxes now   To figure the business part of your deductible mortgage interest, multiply this interest by the percentage of your home used for business. Can you file 2011 taxes now You can include interest on a second mortgage in this computation. Can you file 2011 taxes now If your total mortgage debt is more than $1,000,000 or your home equity debt is more than $100,000, your deduction may be limited. Can you file 2011 taxes now For more information on what interest is deductible, see Publication 936, Home Mortgage Interest Deduction. Can you file 2011 taxes now Qualified mortgage insurance premiums. Can you file 2011 taxes now   To figure the business part of your qualified mortgage insurance premiums, multiply the premiums by the percentage of your home used for business. Can you file 2011 taxes now You can include premiums for insurance on a second mortgage in this computation. Can you file 2011 taxes now If your adjusted gross income is more than $100,000 ($50,000 if your filing status is married filing separately), your deduction may be limited. Can you file 2011 taxes now For more information, see Publication 936, and Line 13 in the Instructions for Schedule A (Form 1040). Can you file 2011 taxes now Casualty losses. Can you file 2011 taxes now    If you have a casualty loss on your home that you use for business, treat the casualty loss as a direct expense, an indirect expense, or an unrelated expense, depending on the property affected. Can you file 2011 taxes now A direct expense is the loss on the portion of the property you use only in your business. Can you file 2011 taxes now Use the entire loss to figure the business use of the home deduction. Can you file 2011 taxes now An indirect expense is the loss on property you use for both business and personal purposes. Can you file 2011 taxes now Use only the business portion to figure the deduction. Can you file 2011 taxes now An unrelated expense is the loss on property you do not use in your business. Can you file 2011 taxes now Do not use any of the loss to figure the deduction. Can you file 2011 taxes now Example. Can you file 2011 taxes now You meet the rules to take a deduction for an office in your home that is 10% of the total area of your house. Can you file 2011 taxes now A storm damages your roof. Can you file 2011 taxes now This is an indirect expense as the roof is part of the whole house and is considered to be used both for business and personal purposes. Can you file 2011 taxes now You would complete Form 4684, Casualties and Thefts, to report your loss. Can you file 2011 taxes now You complete both section A (Personal Use Property) and section B (Business and Income-Producing Property) as your home is used both for business and personal purposes. Can you file 2011 taxes now Since you use 90% of your home for personal purposes, use 90% of the cost or adjusted basis of your home, insurance or other reimbursement, and fair market value, both before and after the storm, to figure the amounts to enter on lines 2, 3, 5, and 6 of Form 4684. Can you file 2011 taxes now Since you use 10% of your home for business purposes, use 10% of the cost or adjusted basis of your home, insurance or other reimbursement, and fair market value, both before and after the storm, to figure the amounts to enter on lines 20, 21, 23, and 24 of Form 4684. Can you file 2011 taxes now Forms and worksheets to use. Can you file 2011 taxes now   If you are filing Schedule C (Form 1040), get Form 8829 and follow the instructions for casualty losses. Can you file 2011 taxes now If you are an employee or a partner, or you file Schedule F (Form 1040), use the Worksheet To Figure the Deduction for Business Use of Your Home, near the end of this publication. Can you file 2011 taxes now You will also need to get Form 4684. Can you file 2011 taxes now More information. Can you file 2011 taxes now   For more information on casualty losses, see Publication 547, Casualties, Disasters, and Thefts. Can you file 2011 taxes now Insurance. Can you file 2011 taxes now   You can deduct the cost of insurance that covers the business part of your home. Can you file 2011 taxes now However, if your insurance premium gives you coverage for a period that extends past the end of your tax year, you can deduct only the business percentage of the part of the premium that gives you coverage for your tax year. Can you file 2011 taxes now You can deduct the business percentage of the part that applies to the following year in that year. Can you file 2011 taxes now Rent. Can you file 2011 taxes now   If you rent the home you occupy and meet the requirements for business use of the home, you can deduct part of the rent you pay. Can you file 2011 taxes now To figure your deduction, multiply your rent payments by the percentage of your home used for business. Can you file 2011 taxes now   If you own your home, you cannot deduct the fair rental value of your home. Can you file 2011 taxes now However, see Depreciating Your Home , later. Can you file 2011 taxes now Repairs. Can you file 2011 taxes now   The cost of repairs that relate to your business, including labor (other than your own labor), is a deductible expense. Can you file 2011 taxes now For example, a furnace repair benefits the entire home. Can you file 2011 taxes now If you use 10% of your home for business, you can deduct 10% of the cost of the furnace repair. Can you file 2011 taxes now   Repairs keep your home in good working order over its useful life. Can you file 2011 taxes now Examples of common repairs are patching walls and floors, painting, wallpapering, repairing roofs and gutters, and mending leaks. Can you file 2011 taxes now However, repairs are sometimes treated as a permanent improvement and are not deductible. Can you file 2011 taxes now See Permanent improvements , later, under Depreciating Your Home. Can you file 2011 taxes now Security system. Can you file 2011 taxes now   If you install a security system that protects all the doors and windows in your home, you can deduct the business part of the expenses you incur to maintain and monitor the system. Can you file 2011 taxes now You also can take a depreciation deduction for the part of the cost of the security system relating to the business use of your home. Can you file 2011 taxes now Utilities and services. Can you file 2011 taxes now   Expenses for utilities and services, such as electricity, gas, trash removal, and cleaning services, are primarily personal expenses. Can you file 2011 taxes now However, if you use part of your home for business, you can deduct the business part of these expenses. Can you file 2011 taxes now Generally, the business percentage for utilities is the same as the percentage of your home used for business. Can you file 2011 taxes now Telephone. Can you file 2011 taxes now   The basic local telephone service charge, including taxes, for the first telephone line into your home (i. Can you file 2011 taxes now e. Can you file 2011 taxes now , landline) is a nondeductible personal expense. Can you file 2011 taxes now However, charges for business long-distance phone calls on that line, as well as the cost of a second line into your home used exclusively for business, are deductible business expenses. Can you file 2011 taxes now Do not include these expenses as a cost of using your home for business. Can you file 2011 taxes now Deduct these charges separately on the appropriate form or schedule. Can you file 2011 taxes now For example, if you file Schedule C (Form 1040), deduct these expenses on line 25, Utilities (instead of line 30, Expenses for business use of your home). Can you file 2011 taxes now Depreciating Your Home If you own your home and qualify to deduct expenses for its business use, you can claim a deduction for depreciation. Can you file 2011 taxes now Depreciation is an allowance for the wear and tear on the part of your home used for business. Can you file 2011 taxes now You cannot depreciate the cost or value of the land. Can you file 2011 taxes now You recover its cost when you sell or otherwise dispose of the property. Can you file 2011 taxes now Before you figure your depreciation deduction, you need to know the following information. Can you file 2011 taxes now The month and year you started using your home for business. Can you file 2011 taxes now The adjusted basis and fair market value of your home (excluding land) at the time you began using it for business. Can you file 2011 taxes now The cost of any improvements before and after you began using the property for business. Can you file 2011 taxes now The percentage of your home used for business. Can you file 2011 taxes now See Business Percentage , later. Can you file 2011 taxes now Adjusted basis defined. Can you file 2011 taxes now   The adjusted basis of your home is generally its cost, plus the cost of any permanent improvements you made to it, minus any casualty losses or depreciation deducted in earlier tax years. Can you file 2011 taxes now For a discussion of adjusted basis, see Publication 551. Can you file 2011 taxes now Permanent improvements. Can you file 2011 taxes now   A permanent improvement increases the value of property, adds to its life, or gives it a new or different use. Can you file 2011 taxes now Examples of improvements are replacing electric wiring or plumbing, adding a new roof or addition, paneling, or remodeling. Can you file 2011 taxes now    You must carefully distinguish between repairs and improvements. Can you file 2011 taxes now See Repairs , earlier, under Actual Expenses. Can you file 2011 taxes now You also must keep accurate records of these expenses. Can you file 2011 taxes now These records will help you decide whether an expense is a deductible or a capital (added to the basis) expense. Can you file 2011 taxes now However, if you make repairs as part of an extensive remodeling or restoration of your home, the entire job is an improvement. Can you file 2011 taxes now Example. Can you file 2011 taxes now You buy an older home and fix up two rooms as a beauty salon. Can you file 2011 taxes now You patch the plaster on the ceilings and walls, paint, repair the floor, install an outside door, and install new wiring, plumbing, and other equipment. Can you file 2011 taxes now Normally, the patching, painting, and floor work are repairs and the other expenses are permanent improvements. Can you file 2011 taxes now However, because the work gives your property a new use, the entire remodeling job is a permanent improvement and its cost is added to the basis of the property. Can you file 2011 taxes now You cannot deduct any portion of it as a repair expense. Can you file 2011 taxes now Adjusting for depreciation deducted in earlier years. Can you file 2011 taxes now   Decrease the basis of your property by the depreciation you deducted, or could have deducted, on your tax returns under the method of depreciation you properly selected. Can you file 2011 taxes now If you deducted less depreciation than you could have under the method you selected, decrease the basis by the amount you could have deducted under that method. Can you file 2011 taxes now If you did not deduct any depreciation, decrease the basis by the amount you could have deducted. Can you file 2011 taxes now   If you deducted more depreciation than you should have, decrease your basis by the amount you should have deducted, plus the part of the excess depreciation you deducted that actually decreased your tax liability for any year. Can you file 2011 taxes now   If you deducted the incorrect amount of depreciation, see Publication 946. Can you file 2011 taxes now Fair market value defined. Can you file 2011 taxes now   The fair market value of your home is the price at which the property would change hands between a buyer and a seller, neither having to buy or sell, and both having reasonable knowledge of all necessary facts. Can you file 2011 taxes now Sales of similar property, on or about the date you begin using your home for business, may be helpful in determining the property's fair market value. Can you file 2011 taxes now Figuring the depreciation deduction for the current year. Can you file 2011 taxes now   If you began using your home for business before 2013, continue to use the same depreciation method you used in past tax years. Can you file 2011 taxes now   If you began using your home for business for the first time in 2013, depreciate the business part as nonresidential real property under the modified accelerated cost recovery system (MACRS). Can you file 2011 taxes now Under MACRS, nonresidential real property is depreciated using the straight line method over 39 years. Can you file 2011 taxes now For more information on MACRS and other methods of depreciation, see Publication 946. Can you file 2011 taxes now   To figure the depreciation deduction, you must first figure the part of the cost of your home that can be depreciated (depreciable basis). Can you file 2011 taxes now The depreciable basis is figured by multiplying the percentage of your home used for business by the smaller of the following. Can you file 2011 taxes now The adjusted basis of your home (excluding land) on the date you began using your home for business. Can you file 2011 taxes now The fair market value of your home (excluding land) on the date you began using your home for business. Can you file 2011 taxes now Depreciation table. Can you file 2011 taxes now   If 2013 was the first year you used your home for business, you can figure your 2013 depreciation for the business part of your home by using the appropriate percentage from the following table. Can you file 2011 taxes now Table 2. Can you file 2011 taxes now MACRS Percentage Table for 39-Year Nonresidential Real Property Month First Used for Business Percentage To Use 1 2. Can you file 2011 taxes now 461% 2 2. Can you file 2011 taxes now 247% 3 2. Can you file 2011 taxes now 033% 4 1. Can you file 2011 taxes now 819% 5 1. Can you file 2011 taxes now 605% 6 1. Can you file 2011 taxes now 391% 7 1. Can you file 2011 taxes now 177% 8 0. Can you file 2011 taxes now 963% 9 0. Can you file 2011 taxes now 749% 10 0. Can you file 2011 taxes now 535% 11 0. Can you file 2011 taxes now 321% 12 0. Can you file 2011 taxes now 107%   Multiply the depreciable basis of the business part of your home by the percentage from the table for the first month you use your home for business. Can you file 2011 taxes now See Publication 946 for the percentages for the remaining tax years of the recovery period. Can you file 2011 taxes now Example. Can you file 2011 taxes now In May, George Miller began to use one room in his home exclusively and regularly to meet clients. Can you file 2011 taxes now This room is 8% of the square footage of his home. Can you file 2011 taxes now He bought the home in 2003 for $125,000. Can you file 2011 taxes now He determined from his property tax records that his adjusted basis in the house (exclusive of land) is $115,000. Can you file 2011 taxes now In May, the house had a fair market value of $165,000. Can you file 2011 taxes now He multiplies his adjusted basis of $115,000 (which is less than the fair market value) by 8%. Can you file 2011 taxes now The result is $9,200, his depreciable basis for the business part of the house. Can you file 2011 taxes now George files his return based on the calendar year. Can you file 2011 taxes now May is the 5th month of his tax year. Can you file 2011 taxes now He multiplies his depreciable basis of $9,200 by 1. Can you file 2011 taxes now 605% (. Can you file 2011 taxes now 01605), the percentage from the table for the 5th month. Can you file 2011 taxes now His depreciation deduction is $147. Can you file 2011 taxes now 66. Can you file 2011 taxes now Depreciating permanent improvements. Can you file 2011 taxes now   Add the costs of permanent improvements made before you began using your home for business to the basis of your property. Can you file 2011 taxes now Depreciate these costs as part of the cost of your home as explained earlier. Can you file 2011 taxes now The costs of improvements made after you begin using your home for business (that affect the business part of your home, such as a new roof) are depreciated separately. Can you file 2011 taxes now Multiply the cost of the improvement by the business-use percentage and depreciate the result over the recovery period that would apply to your home if you began using it for business at the same time as the improvement. Can you file 2011 taxes now For improvements made this year, the recovery period is 39 years. Can you file 2011 taxes now For the percentage to use for the first year, see Table 2, earlier. Can you file 2011 taxes now For more information on recovery periods, see Publication 946. Can you file 2011 taxes now Business Percentage To find the business percentage, compare the size of the part of your home that you use for business to your whole house. Can you file 2011 taxes now Use the resulting percentage to figure the business part of the expenses for operating your entire home. Can you file 2011 taxes now You can use any reasonable method to determine the business percentage. Can you file 2011 taxes now The following are two commonly used methods for figuring the percentage. Can you file 2011 taxes now Divide the area (length multiplied by the width) used for business by the total area of your home. Can you file 2011 taxes now If the rooms in your home are all about the same size, you can divide the number of rooms used for business by the total number of rooms in your home. Can you file 2011 taxes now Example 1. Can you file 2011 taxes now Your office is 240 square feet (12 feet × 20 feet). Can you file 2011 taxes now Your home is 1,200 square feet. Can you file 2011 taxes now Your office is 20% (240 ÷ 1,200) of the total area of your home. Can you file 2011 taxes now Your business percentage is 20%. Can you file 2011 taxes now Example 2. Can you file 2011 taxes now You use one room in your home for business. Can you file 2011 taxes now Your home has 10 rooms, all about equal size. Can you file 2011 taxes now Your office is 10% (1 ÷ 10) of the total area of your home. Can you file 2011 taxes now Your business percentage is 10%. Can you file 2011 taxes now Use lines 1-7 of Form 8829, or lines 1-3 on the Worksheet To Figure the Deduction for Business Use of Your Home (near the end of this publication) to figure your business percentage. Can you file 2011 taxes now Deduction Limit If your gross income from the business use of your home equals or exceeds your total business expenses (including depreciation), you can deduct all your business expenses related to the use of your home. Can you file 2011 taxes now If your gross income from the business use of your home is less than your total business expenses, your deduction for certain expenses for the business use of your home is limited. Can you file 2011 taxes now Your deduction of otherwise nondeductible expenses, such as insurance, utilities, and depreciation of your home (with depreciation of your home taken last), that are allocable to the business, is limited to the gross income from the business use of your home minus the sum of the following. Can you file 2011 taxes now The business part of expenses you could deduct even if you did not use your home for business (such as mortgage interest, real estate taxes, and casualty and theft losses that are allowable as itemized deductions on Schedule A (Form 1040)). Can you file 2011 taxes now These expenses are discussed in detail under Actual Expenses , earlier. Can you file 2011 taxes now The business expenses that relate to the business activity in the home (for example, business phone, supplies, and depreciation on equipment), but not to the use of the home itself. Can you file 2011 taxes now If you are self-employed, do not include in (2) above your deduction for one-half of your self-employment tax. Can you file 2011 taxes now Carryover of unallowed expenses. Can you file 2011 taxes now   If your deductions are greater than the current year's limit, you can carry over the excess to the next year in which you use actual expenses. Can you file 2011 taxes now They are subject to the deduction limit for that year, whether or not you live in the same home during that year. Can you file 2011 taxes now Figuring the deduction limit and carryover. Can you file 2011 taxes now   If you are an employee or a partner, or you file Schedule F (Form 1040), use the Worksheet To Figure the Deduction for Business Use of Your Home, near the end of this publication. Can you file 2011 taxes now If you file Schedule C (Form 1040), figure your deduction limit and carryover on Form 8829. Can you file 2011 taxes now Example. Can you file 2011 taxes now You meet the requirements for deducting expenses for the business use of your home. Can you file 2011 taxes now You use 20% of your home for business. Can you file 2011 taxes now In 2013, your business expenses and the expenses for the business use of your home are deducted from your gross income in the following order. Can you file 2011 taxes now    Gross income from business $6,000 Minus:   Deductible mortgage interest and real estate taxes (20%) 3,000 Business expenses not related to the use of your home (100%) (business phone, supplies, and depreciation on equipment) 2,000 Deduction limit $1,000 Minus other expenses allocable to business use of home:   Maintenance, insurance, and utilities (20%) 800 Depreciation allowed (20% = $1,600 allowable, but subject to balance of deduction limit) 200 Other expenses up to the deduction limit $1,000 Depreciation carryover to 2014 ($1,600 − $200) (subject to deduction limit in 2014) $1,400   You can deduct all of the business part of your deductible mortgage interest and real estate taxes ($3,000). Can you file 2011 taxes now You also can deduct all of your business expenses not related to the use of your home ($2,000). Can you file 2011 taxes now Additionally, you can deduct all of the business part of your expenses for maintenance, insurance, and utilities, because the total ($800) is less than the $1,000 deduction limit. Can you file 2011 taxes now Your deduction for depreciation for the business use of your home is limited to $200 ($1,000 minus $800) because of the deduction limit. Can you file 2011 taxes now You can carry over the $1,400 balance and add it to your depreciation for 2014, subject to your deduction limit in 2014. Can you file 2011 taxes now More than one place of business. Can you file 2011 taxes now   If part of the gross income from your trade or business is from the business use of part of your home and part is from a place other than your home, you must determine the part of your gross income from the business use of your home before you figure the deduction limit. Can you file 2011 taxes now In making this determination, consider the time you spend at each location, the business investment in each location, and any other relevant facts and circumstances. Can you file 2011 taxes now If your home office qualifies as your principal place of business, you can deduct your daily transportation costs between your home and another work location in the same trade or business. Can you file 2011 taxes now For more information on transportation costs, see Publication 463, Travel, Entertainment, Gift, and Car Expenses. Can you file 2011 taxes now Using the Simplified Method The simplified method is an alternative to the calculation, allocation, and substantiation of actual expenses. Can you file 2011 taxes now In most cases, you will figure your deduction by multiplying $5, the prescribed rate, by the area of your home used for a qualified business use. Can you file 2011 taxes now The area you use to figure your deduction is limited to 300 square feet. Can you file 2011 taxes now See Simplified Amount , later, for information about figuring the amount of the deduction. Can you file 2011 taxes now For more information about the simplified method, see Revenue Procedure 2013-13, 2013-06 I. Can you file 2011 taxes now R. Can you file 2011 taxes now B. Can you file 2011 taxes now 478, available at www. Can you file 2011 taxes now irs. Can you file 2011 taxes now gov/irb/2013-06_IRB/ar09. Can you file 2011 taxes now html. Can you file 2011 taxes now Actual expenses and depreciation of your home. Can you file 2011 taxes now   If you elect to use the simplified method, you cannot deduct any actual expenses for the business except for business expenses that are not related to the use of the home. Can you file 2011 taxes now You also cannot deduct any depreciation (including any additional first-year depreciation) or section 179 expense for the portion of the home that is used for a qualified business use. Can you file 2011 taxes now The depreciation deduction allowable for that portion of the home is deemed to be zero for a year you use the simplified method. Can you file 2011 taxes now If you figure your deduction for business use of the home using actual expenses in a subsequent year, you will have to use the appropriate optional depreciation table for MACRS to figure your depreciation. Can you file 2011 taxes now More information. Can you file 2011 taxes now   For more information about claiming depreciation in a subsequent year, see Revenue Procedure 2013-13, 2013-06 I. Can you file 2011 taxes now R. Can you file 2011 taxes now B. Can you file 2011 taxes now 478, available at www. Can you file 2011 taxes now irs. Can you file 2011 taxes now gov/irb/2013-06_IRB/ar09. Can you file 2011 taxes now html. Can you file 2011 taxes now See Publication 946 for the optional depreciation tables Although you cannot deduct any depreciation or section 179 expense for the portion of your home used for a qualified business use, you may still claim depreciation or the section 179 expense deduction on other assets used in the business (for example, furniture and equipment). Can you file 2011 taxes now Expenses deductible without regard to business use. Can you file 2011 taxes now   When using the simplified method, treat as personal expenses those business expenses related to the use of the home that are deductible without regard to whether there is a qualified business use of the home. Can you file 2011 taxes now These expenses include mortgage interest, real estate taxes, and casualty losses, subject to any limitations. Can you file 2011 taxes now See Where To Deduct , later. Can you file 2011 taxes now If you also rent part of your home, you must still allocate these expenses between rental use and personal use (for this purpose, personal use includes business use reported using the simplified method). Can you file 2011 taxes now No deduction of carryover of actual expenses. Can you file 2011 taxes now   If you used actual expenses to figure your deduction for business use of the home in a prior year and your deduction was limited, you cannot deduct the disallowed amount carried over from the prior year during a year you figure your deduction using the simplified method. Can you file 2011 taxes now Instead, you will continue to carry over the disallowed amount to the next year that you use actual expenses to figure your deduction. Can you file 2011 taxes now Electing the Simplified Method You choose whether or not to figure your deduction using the simplified method each taxable year. Can you file 2011 taxes now Make the election for a home by using the simplified method to figure the deduction for the qualified business use of that home on a timely filed, original federal income tax return. Can you file 2011 taxes now An election for a taxable year, once made, is irrevocable. Can you file 2011 taxes now A change from using the simplified method in one year to actual expenses in a succeeding taxable year, or vice-versa, is not a change in method of accounting and does not require the consent of the Commissioner. Can you file 2011 taxes now Shared use. Can you file 2011 taxes now   If you share your home with someone else who also uses the home in a business that qualifies for this deduction, each of you make your own election. Can you file 2011 taxes now More than one qualified business use. Can you file 2011 taxes now   If you conduct more than one business that qualifies for this deduction in your home, your election to use the simplified method applies to all your qualified business uses of that home. Can you file 2011 taxes now More than one home. Can you file 2011 taxes now   If you used more than one home during the year (for example, you moved during the year), you can elect to use the simplified method for only one of the homes. Can you file 2011 taxes now You must figure the deduction for any other home using actual expenses. Can you file 2011 taxes now Simplified Amount Your deduction for the qualified business use of a home is the sum of each amount you figure for a separate qualified business use of your home. Can you file 2011 taxes now To figure your deduction for the business use of a home using the simplified method, you will need to know the following information for each qualified business use of the home. Can you file 2011 taxes now The allowable area of your home used in conducting the business. Can you file 2011 taxes now If you did not conduct the business for the entire year in the home or the area changed during the year, you will need to know the allowable area you used and the number of days you conducted the business for each month. Can you file 2011 taxes now The gross income from the business use of your home. Can you file 2011 taxes now The amount of the business expenses that are not related to the use of your home. Can you file 2011 taxes now If the qualified business use is for a daycare facility that uses space in your home on a regular (but not exclusive) basis, you will also need to know the percentage of time that part of your home is used for daycare. Can you file 2011 taxes now To figure the amount you can deduct for qualified business use of your home using the simplified method, follow these 3 steps. Can you file 2011 taxes now Multiply the allowable area by $5 (or less than $5 if the qualified business use is for a daycare that uses space in your home on a regular, but not exclusive, basis). Can you file 2011 taxes now See Allowable area and Space used regularly for daycare , later. Can you file 2011 taxes now Subtract the expenses from the business that are not related to the use of the home from the gross income related to the business use of the home. Can you file 2011 taxes now If these expenses are greater than the gross income from the business use of the home, then you cannot take a deduction for this business use of the home. Can you file 2011 taxes now See Gross income limitation , later. Can you file 2011 taxes now Take the smaller of the amounts from (1) and (2). Can you file 2011 taxes now This is the amount you can deduct for this qualified business use of your home using the simplified method. Can you file 2011 taxes now If you are an employee or a partner, or you use your home in your farming business and file Schedule F (Form 1040), you can use the Simplified Method Worksheet, near the end of this publication, to help you figure your deduction. Can you file 2011 taxes now If you use your home in a trade or business and you file Schedule C (Form 1040), you will use the Simplified Method Worksheet in your Instructions for Schedule C to figure your deduction. Can you file 2011 taxes now Allowable area. Can you file 2011 taxes now   In most cases, the allowable area is the smaller of the actual area (in square feet) of your home used in conducting the business and 300 square feet. Can you file 2011 taxes now Your allowable area may be smaller if you conducted the business as a qualified joint venture with your spouse, the area used by the business was shared with another qualified business use, you used the home for the business for only part of the year, or the area used by the business changed during the year. Can you file 2011 taxes now You can use the Area Adjustment Worksheet (for simplified method), near the end of this publication, to help you figure your allowable area for a qualified business use. Can you file 2011 taxes now Area used by a qualified joint venture. Can you file 2011 taxes now   If the qualified business use of the home is also a qualified joint venture, you and your spouse will figure the deduction for the business use separately. Can you file 2011 taxes now Split the actual area used in conducting business between you and your spouse in the same manner you split your other tax attributes. Can you file 2011 taxes now Then, each spouse will figure the allowable area separately. Can you file 2011 taxes now For more information about qualified joint ventures, see Qualified Joint Venture in the Instructions for Schedule C. Can you file 2011 taxes now Shared use. Can you file 2011 taxes now   If you share your home with someone else who uses the home to conduct business that also qualifies for this deduction, you may not include the same square feet to figure your deduction as the other person. Can you file 2011 taxes now You must allocate the shared space between you and the other person in a reasonable manner. Can you file 2011 taxes now Example. Can you file 2011 taxes now Kristin and Lindsey are roommates. Can you file 2011 taxes now Kristin uses 300 square feet of their home for a qualified business use. Can you file 2011 taxes now Lindsey uses 200 square feet of their home for a separate qualified business use. Can you file 2011 taxes now The qualified business uses share 100 square feet. Can you file 2011 taxes now In addition to the portion that they do not share, Kristin and Lindsey can both claim 50 of the 100 square feet or divide the 100 square feet between them in any reasonable manner. Can you file 2011 taxes now If divided evenly, Kristin could claim 250 square feet using the simplified method and Lindsey could claim 150 square feet. Can you file 2011 taxes now More than one qualified business use. Can you file 2011 taxes now   If you conduct more than one business qualifying for the deduction, you are limited to a maximum of 300 square feet for all of the businesses. Can you file 2011 taxes now Allocate the actual square footage used (up to the maximum of 300 square feet) among your qualified business uses in a reasonable manner. Can you file 2011 taxes now However, do not allocate more square feet to a qualified business use than you actually use for that business. Can you file 2011 taxes now Rental use. Can you file 2011 taxes now   The simplified method does not apply to rental use. Can you file 2011 taxes now A rental use that qualifies for the deduction must be figured using actual expenses. Can you file 2011 taxes now If the rental use and a qualified business use share the same area, you will have to allocate the actual area used between the two uses. Can you file 2011 taxes now You cannot use the same area to figure a deduction for the qualified business use as you are using to figure the deduction for the rental use. Can you file 2011 taxes now Part-year use or area changes. Can you file 2011 taxes now   If your qualified business use was for a portion of the taxable year (for example, a seasonal business or a business that begins during the taxable year) or you changed the square footage of your qualified business use, your deduction is limited to the average monthly allowable square footage. Can you file 2011 taxes now You calculate the average monthly allowable square footage by adding the amount of allowable square feet you used in each month and dividing the sum by 12. Can you file 2011 taxes now When determining the average monthly allowable square footage, you cannot take more than 300 square feet into account for any one month. Can you file 2011 taxes now Additionally, if your qualified business use was less than 15 days in a month, you must use -0- for that month. Can you file 2011 taxes now Example 1. Can you file 2011 taxes now Andy files his federal income tax return on a calendar year basis. Can you file 2011 taxes now On July 20, he began using 420 square feet of his home for a qualified business use. Can you file 2011 taxes now He continued to use the 420 square feet until the end of the year. Can you file 2011 taxes now His average monthly allowable square footage is 125 square feet, which is figured using 300 square feet for each month August through December divided by the number of months in the taxable year ((0 + 0 + 0 + 0 + 0 + 0 + 0 + 300 + 300 + 300 + 300 + 300)/12). Can you file 2011 taxes now Example 2. Can you file 2011 taxes now Amy files her federal income tax return on a calendar year basis. Can you file 2011 taxes now On April 20, she began using 100 square feet of her home for a qualified business use. Can you file 2011 taxes now On August 5, she expanded the area of her qualified use to 330 square feet. Can you file 2011 taxes now Amy continued to use the 330 square feet until the end of the year. Can you file 2011 taxes now Her average monthly allowable square footage is 150 square feet, which is figured using 100 square feet for May through July and 300 square feet for August through December divided by the number of months in the taxable year ((0 + 0 + 0 + 0 + 100 + 100 +100 + 300 + 300 + 300 + 300 + 300)/12). Can you file 2011 taxes now Gross income limitation. Can you file 2011 taxes now   Your deduction for business use of the home is limited to an amount equal to the gross income derived from the qualified business use of the home reduced by the business deductions that are unrelated to the use of your home. Can you file 2011 taxes now If the business deductions that are unrelated to the use of your home are greater than the gross income derived from the qualified business use of your home, then you cannot take a deduction for this qualified business use of your home. Can you file 2011 taxes now Business expenses not related to use of the home. Can you file 2011 taxes now   These expenses relate to the business activity in the home, but not to the use of the home itself. Can you file 2011 taxes now You can still deduct business expenses that are unrelated to the use of the home. Can you file 2011 taxes now See Where To Deduct , later. Can you file 2011 taxes now Examples of business expenses that are unrelated to the use of the home are advertising, wages, supplies, dues, and depreciation for equipment. Can you file 2011 taxes now Space used regularly for daycare. Can you file 2011 taxes now   If you do not use the area of your home exclusively for daycare, you must reduce the prescribed rate (maximum $5 per square foot) before figuring your deduction. Can you file 2011 taxes now The reduced rate will equal the prescribed rate times a fraction. Can you file 2011 taxes now The numerator of the fraction is the number of hours that the space was used during the year for daycare and the denominator is the total number of hours during the year that the space was available for all uses. Can you file 2011 taxes now You can use the Daycare Facility Worksheet (for simplified method), near the end of this publication, to help you figure the reduced rate. Can you file 2011 taxes now    If you used at least 300 square feet for daycare regularly and exclusively during the year, then you do not need to reduce the prescribed rate or complete the Daycare Facility Worksheet. Can you file 2011 taxes now Daycare Facility If you use space in your home on a regular basis for providing daycare, you may be able to claim a deduction for that part of your home even if you use the same space for nonbusiness purposes. Can you file 2011 taxes now To qualify for this exception to the exclusive use rule, you must meet both of the following requirements. Can you file 2011 taxes now You must be in the trade or business of providing daycare for children, persons age 65 or older, or persons who are physically or mentally unable to care for themselves. Can you file 2011 taxes now You must have applied for, been granted, or be exempt from having, a license, certification, registration, or approval as a daycare center or as a family or group daycare home under state law. Can you file 2011 taxes now You do not meet this requirement if your application was rejected or your license or other authorization was revoked. Can you file 2011 taxes now Figuring the deduction. Can you file 2011 taxes now   If you elect to use the simplified method for your home, figure your deduction as described earlier in Using the Simplified Method under Figuring the Deduction. Can you file 2011 taxes now    If you are figuring your deduction using actual expenses and you regularly use part of your home for daycare, figure what part is used for daycare, as explained in Business Percentage , earlier, under Figuring the Deduction. Can you file 2011 taxes now If you also use that part exclusively for daycare, deduct all the allocable expenses, subject to the deduction limit, as explained earlier. Can you file 2011 taxes now   If the use of part of your home as a daycare facility is regular, but not exclusive, you must figure the percentage of time that part of your home is used for daycare. Can you file 2011 taxes now A room that is available for use throughout each business day and that you regularly use in your business is considered to be used for daycare throughout each business day. Can you file 2011 taxes now You do not have to keep records to show the specific hours the area was used for business. Can you file 2011 taxes now You can use the area occasionally for personal reasons. Can you file 2011 taxes now However, a room you use only occasionally for business does not qualify for the deduction. Can you file 2011 taxes now To find the percentage of time you actually use your home for business, compare the total time used for business to the total time that part of your home can be used for all purposes. Can you file 2011 taxes now You can compare the hours of business use in a week with the number of hours in a week (168). Can you file 2011 taxes now Or you can compare the hours of business use for the year with the number of hours in the year (8,760 in 2013). Can you file 2011 taxes now If you started or stopped using your home for daycare in 2013, you must prorate the number of hours based on the number of days the home was available for daycare. Can you file 2011 taxes now Example 1. Can you file 2011 taxes now Mary Lake used her basement to operate a daycare business for children. Can you file 2011 taxes now She figures the business percentage of the basement as follows. Can you file 2011 taxes now Square footage of the basement Square footage of her home = 1,600 3,200 = 50%           She used the basement for daycare an average of 12 hours a day, 5 days a week, for 50 weeks a year. Can you file 2011 taxes now During the other 12 hours a day, the family could use the basement. Can you file 2011 taxes now She figures the percentage of time the basement was used for daycare as follows. Can you file 2011 taxes now Number of hours used for daycare (12 x 5 x 50) Total number of hours in the year (24 x 365) = 3,000 8,760 = 34. Can you file 2011 taxes now 25%           Mary can deduct 34. Can you file 2011 taxes now 25% of any direct expenses for the basement. Can you file 2011 taxes now However, because her indirect expenses are for the entire house, she can deduct only 17. Can you file 2011 taxes now 13% of the indirect expenses. Can you file 2011 taxes now She figures the percentage for her indirect expenses as follows. Can you file 2011 taxes now Business percentage of the basement 50% Multiplied by: Percentage of time used for daycare × 34. Can you file 2011 taxes now 25% Percentage for indirect expenses 17. Can you file 2011 taxes now 13% Mary completes Form 8829, Part I, figuring the percentage of her home used for business, including the percentage of time the basement was used. Can you file 2011 taxes now In Part II, Mary figures her deductible expenses. Can you file 2011 taxes now She uses the following information to complete Part II. Can you file 2011 taxes now Gross income from her daycare business $50,000 Expenses not related to the business use of the home $25,000 Tentative profit $25,000 Rent $8,400 Utilities $850 Painting the basement $500 Mary enters her tentative profit, $25,000, on line 8. Can you file 2011 taxes now (This figure is the same as the amount on line 29 of her Schedule C (Form 1040). Can you file 2011 taxes now ) The expenses she paid for rent and utilities relate to her entire home. Can you file 2011 taxes now Therefore, she enters the amount paid for rent on line 18, column (b), and the amount paid for utilities on line 20, column (b). Can you file 2011 taxes now She shows the total of these expenses on line 22, column (b). Can you file 2011 taxes now For line 23, she multiplies the amount on line 22, column (b) by the percentage on line 7 and enters the result, $1,585. Can you file 2011 taxes now Mary paid $500 to have the basement painted. Can you file 2011 taxes now The painting is a direct expense. Can you file 2011 taxes now However, because she did not use the basement exclusively for daycare, she must multiply $500 by the percentage of time the basement was used for daycare (34. Can you file 2011 taxes now 25% – line 6). Can you file 2011 taxes now She enters $171 (34. Can you file 2011 taxes now 25% × $500) on line 19, column (a). Can you file 2011 taxes now She adds line 22, column (a), and line 23 and enters $1,756 ($171 + $1,585) on line 25. Can you file 2011 taxes now This is less than her deduction limit (line 15), so she can deduct the entire amount. Can you file 2011 taxes now She follows the instructions to complete the rest of Part II and enters $1,756 on lines 33 and 35. Can you file 2011 taxes now She then carries the $1,756 to line 30 of her Schedule C (Form 1040). Can you file 2011 taxes now Example 2. Can you file 2011 taxes now Assume the same facts as in Example 1 except that Mary also has another room that was available each business day for children to take naps in. Can you file 2011 taxes now Although she did not keep a record of the number of hours the room was actually used for naps, it was used for part of each business day. Can you file 2011 taxes now Since the room was available for business use during regular operating hours each business day and was used regularly in the business, it is considered used for daycare throughout each business day. Can you file 2011 taxes now The basement and room are 60% of the total area of her home. Can you file 2011 taxes now In figuring her expenses, 34. Can you file 2011 taxes now 25% of any direct expenses for the basement and room are deductible. Can you file 2011 taxes now In addition, 20. Can you file 2011 taxes now 55% (34. Can you file 2011 taxes now 25% × 60%) of her indirect expenses are deductible. Can you file 2011 taxes now Example 3. Can you file 2011 taxes now Assume the same facts as in Example 1 except that Mary stopped using her home for a daycare facility on June 24, 2013. Can you file 2011 taxes now She used the basement for daycare an average of 12 hours a day, 5 days a week, but for only 25 weeks of the year. Can you file 2011 taxes now During the other 12 hours a day, the family could still use the basement. Can you file 2011 taxes now She figures the percentage of time the basement was used for business as follows. Can you file 2011 taxes now Number of hours used for daycare (12 x 5 x 25) Total number of hours during period used (24 x 175) = 1,500 4,200 = 35. Can you file 2011 taxes now 71%           Mary can deduct 35. Can you file 2011 taxes now 71% of any direct expenses for the basement. Can you file 2011 taxes now However, because her indirect expenses are for the entire house, she can deduct only 17. Can you file 2011 taxes now 86% of the indirect expenses. Can you file 2011 taxes now She figures the percentage for her indirect expenses as follows. Can you file 2011 taxes now Business percentage of the basement 50% Multiplied by: Percentage of time used for daycare × 35. Can you file 2011 taxes now 71% Percentage for indirect expenses 17. Can you file 2011 taxes now 86% Meals. Can you file 2011 taxes now   If you provide food for your daycare recipients, do not include the expense as a cost of using your home for business. Can you file 2011 taxes now Claim it as a separate deduction on your Schedule C (Form 1040). Can you file 2011 taxes now You can never deduct the cost of food consumed by you or your family. Can you file 2011 taxes now You can deduct as a business expense 100% of the actual cost of food consumed by your daycare recipients (see Standard meal and snack rates , later, for an optional method for eligible children) and generally only 50% of the cost of food consumed by your employees. Can you file 2011 taxes now However, you can deduct 100% of the cost of food consumed by your employees if its value can be excluded from their wages as a de minimis fringe benefit. Can you file 2011 taxes now For more information on meals that meet these requirements, see Meals in chapter 2 of Publication 15-B, Employer's Tax Guide to Fringe Benefits. Can you file 2011 taxes now   If you deduct the actual cost of food for your daycare business, keep a separate record (with receipts) of your family's food costs. Can you file 2011 taxes now   Reimbursements you receive from a sponsor under the Child and Adult Care Food Program of the Department of Agriculture are taxable only to the extent they exceed your expenses for food for eligible children. Can you file 2011 taxes now If your reimbursements are more than your expenses for food, show the difference as income in Part I of Schedule C (Form 1040). Can you file 2011 taxes now If your food expenses are greater than the reimbursements, show the difference as an expense in Part V of Schedule C (Form 1040). Can you file 2011 taxes now Do not include payments or expenses for your own children if they are eligible for the program. Can you file 2011 taxes now Follow this procedure even if you receive a Form 1099-MISC, Miscellaneous Income, reporting a payment from the sponsor. Can you file 2011 taxes now Standard meal and snack rates. Can you file 2011 taxes now   If you qualify as a family daycare provider, you can use the standard meal and snack rates, instead of actual costs, to compute the deductible cost of meals and snacks provided to eligible children. Can you file 2011 taxes now For these purposes: A family daycare provider is a person engaged in the business of providing family daycare. Can you file 2011 taxes now Family daycare is childcare provided to eligible children in the home of the family daycare provider. Can you file 2011 taxes now The care must be non-medical, not involve a transfer of legal custody, and generally last less than 24 hours each day. Can you file 2011 taxes now Eligible children are minor children receiving family daycare in the home of the family daycare provider. Can you file 2011 taxes now Eligible children do not include children who are full-time or part-time residents in the home where the childcare is provided or children whose parents or guardians are residents of the same home. Can you file 2011 taxes now Eligible children do not include children who receive daycare services for personal reasons of the provider. Can you file 2011 taxes now For example, if a provider provides daycare services for a relative as a favor to that relative, that child is not an eligible child. Can you file 2011 taxes now   You can compute the deductible cost of each meal and snack you actually purchased and served to an eligible child during the time period you provided family daycare using the standard meal and snack rates shown in Table 3, later. Can you file 2011 taxes now You can use the standard meal and snack rates for a maximum of one breakfast, one lunch, one dinner, and three snacks per eligible child per day. Can you file 2011 taxes now If you receive reimbursement for a particular meal or snack, you can deduct only the portion of the applicable standard meal or snack rate that is more than the amount of the reimbursement. Can you file 2011 taxes now   You can use either the standard meal and snack rates or actual costs to calculate the deductible cost of food provided to eligible children in the family daycare for any particular tax year. Can you file 2011 taxes now If you choose to use the standard meal and snack rates for a particular tax year, you must use the rates for all your deductible food costs for eligible children during that tax year. Can you file 2011 taxes now However, if you use the standard meal and snack rates in any tax year, you can use actual costs to compute the deductible cost of food in any other tax year. Can you file 2011 taxes now   If you use the standard meal and snack rates, you must maintain records to substantiate the computation of the total amount deducted for the cost of food provided to eligible children. Can you file 2011 taxes now The records kept should include the name of each child, dates and hours of attendance in the daycare, and the type and quantity of meals and snacks served. Can you file 2011 taxes now This information can be recorded in a log similar to the one shown in Exhibit A, near the end of this publication. Can you file 2011 taxes now   The standard meal and snack rates include beverages, but do not include non-food supplies used for food preparation, service, or storage, such as containers, paper products, or utensils. Can you file 2011 taxes now These expenses can be claimed as a separate deduction on your Schedule C (Form 1040). Can you file 2011 taxes now     Table 3. Can you file 2011 taxes now Standard Meal and Snack Rates1 Location of Family Daycare Provider Breakfast Lunch Dinner Snack States other than Alaska an
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Can you file 2011 taxes now 4. Can you file 2011 taxes now   Student Loan Interest Deduction Table of Contents Introduction Student Loan Interest DefinedQualified Student Loan Qualified Education Expenses Include As Interest Do Not Include As Interest When Must Interest Be Paid Can You Claim the DeductionNo Double Benefit Allowed Figuring the DeductionEffect of the Amount of Your Income on the Amount of Your Deduction Which Worksheet To Use Claiming the Deduction Introduction Generally, personal interest you pay, other than certain mortgage interest, is not deductible on your tax return. Can you file 2011 taxes now However, if your modified adjusted gross income (MAGI) is less than $75,000 ($155,000 if filing a joint return) there is a special deduction allowed for paying interest on a student loan (also known as an education loan) used for higher education. Can you file 2011 taxes now For most taxpayers, MAGI is the adjusted gross income as figured on their federal income tax return before subtracting any deduction for student loan interest. Can you file 2011 taxes now This deduction can reduce the amount of your income subject to tax by up to $2,500 in 2013. Can you file 2011 taxes now The student loan interest deduction is taken as an adjustment to income. Can you file 2011 taxes now This means you can claim this deduction even if you do not itemize deductions on Schedule A (Form 1040). Can you file 2011 taxes now This chapter explains: What type of loan interest you can deduct, Whether you can claim the deduction, What expenses you must have paid with the student loan, Who is an eligible student, How to figure the deduction, and How to claim the deduction. Can you file 2011 taxes now Table 4-1. Can you file 2011 taxes now Student Loan Interest Deduction at a Glance This table summarizes the features of the student loan interest deduction. Can you file 2011 taxes now Do not rely on this table alone. Can you file 2011 taxes now Refer to the text for complete details. Can you file 2011 taxes now Feature   Description Maximum benefit   You can reduce your income subject to tax by up to $2,500. Can you file 2011 taxes now Loan qualifications   Your student loan: •must have been taken out solely to pay qualified education expenses, and •cannot be from a related person or made under a qualified employer plan. Can you file 2011 taxes now Student qualifications   The student must be: •you, your spouse, or your dependent, and  •enrolled at least half-time in a degree program. Can you file 2011 taxes now Time limit on deduction   You can deduct interest paid during the remaining period of your student loan. Can you file 2011 taxes now Limit on modified adjusted gross income (MAGI)   $155,000 if married filing a joint return; $75,000 if single, head of household, or qualifying widow(er). Can you file 2011 taxes now Student Loan Interest Defined Student loan interest is interest you paid during the year on a qualified student loan. Can you file 2011 taxes now It includes both required and voluntary interest payments. Can you file 2011 taxes now Qualified Student Loan This is a loan you took out solely to pay qualified education expenses (defined later) that were: For you, your spouse, or a person who was your dependent when you took out the loan, Paid or incurred within a reasonable period of time before or after you took out the loan, and For education provided during an academic period for an eligible student. Can you file 2011 taxes now Loans from the following sources are not qualified student loans. Can you file 2011 taxes now A related person. Can you file 2011 taxes now A qualified employer plan. Can you file 2011 taxes now Your dependent. Can you file 2011 taxes now   Generally, your dependent is someone who is either a: Qualifying child, or Qualifying relative. Can you file 2011 taxes now You can find more information about dependents in Publication 501. Can you file 2011 taxes now Exceptions. Can you file 2011 taxes now   For purposes of the student loan interest deduction, there are the following exceptions to the general rules for dependents. Can you file 2011 taxes now An individual can be your dependent even if you are the dependent of another taxpayer. Can you file 2011 taxes now An individual can be your dependent even if the individual files a joint return with a spouse. Can you file 2011 taxes now An individual can be your dependent even if the individual had gross income for the year that was equal to or more than the exemption amount for the year ($3,900 for 2013). Can you file 2011 taxes now Reasonable period of time. Can you file 2011 taxes now   Qualified education expenses are treated as paid or incurred within a reasonable period of time before or after you take out the loan if they are paid with the proceeds of student loans that are part of a federal postsecondary education loan program. Can you file 2011 taxes now   Even if not paid with the proceeds of that type of loan, the expenses are treated as paid or incurred within a reasonable period of time if both of the following requirements are met. Can you file 2011 taxes now The expenses relate to a specific academic period, and The loan proceeds are disbursed within a period that begins 90 days before the start of that academic period and ends 90 days after the end of that academic period. Can you file 2011 taxes now   If neither of the above situations applies, the reasonable period of time usually is determined based on all the relevant facts and circumstances. Can you file 2011 taxes now Academic period. Can you file 2011 taxes now   An academic period includes a semester, trimester, quarter, or other period of study (such as a summer school session) as reasonably determined by an educational institution. Can you file 2011 taxes now In the case of an educational institution that uses credit hours or clock hours and does not have academic terms, each payment period can be treated as an academic period. Can you file 2011 taxes now Eligible student. Can you file 2011 taxes now   This is a student who was enrolled at least half-time in a program leading to a degree, certificate, or other recognized educational credential. Can you file 2011 taxes now Enrolled at least half-time. Can you file 2011 taxes now   A student was enrolled at least half-time if the student was taking at least half the normal full-time work load for his or her course of study. Can you file 2011 taxes now   The standard for what is half of the normal full-time work load is determined by each eligible educational institution. Can you file 2011 taxes now However, the standard may not be lower than any of those established by the U. Can you file 2011 taxes now S. Can you file 2011 taxes now Department of Education under the Higher Education Act of 1965. Can you file 2011 taxes now Related person. Can you file 2011 taxes now   You cannot deduct interest on a loan you get from a related person. Can you file 2011 taxes now Related persons include: Your spouse, Your brothers and sisters, Your half brothers and half sisters, Your ancestors (parents, grandparents, etc. Can you file 2011 taxes now ), Your lineal descendants (children, grandchildren, etc. Can you file 2011 taxes now ), and Certain corporations, partnerships, trusts, and exempt organizations. Can you file 2011 taxes now Qualified employer plan. Can you file 2011 taxes now   You cannot deduct interest on a loan made under a qualified employer plan or under a contract purchased under such a plan. Can you file 2011 taxes now Qualified Education Expenses For purposes of the student loan interest deduction, these expenses are the total costs of attending an eligible educational institution, including graduate school. Can you file 2011 taxes now They include amounts paid for the following items. Can you file 2011 taxes now Tuition and fees. Can you file 2011 taxes now Room and board. Can you file 2011 taxes now Books, supplies, and equipment. Can you file 2011 taxes now Other necessary expenses (such as transportation). Can you file 2011 taxes now The cost of room and board qualifies only to the extent that it is not more than the greater of: The allowance for room and board, as determined by the eligible educational institution, that was included in the cost of attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student, or The actual amount charged if the student is residing in housing owned or operated by the eligible educational institution. Can you file 2011 taxes now Eligible educational institution. Can you file 2011 taxes now   An eligible educational institution is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U. Can you file 2011 taxes now S. Can you file 2011 taxes now Department of Education. Can you file 2011 taxes now It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. Can you file 2011 taxes now   Certain educational institutions located outside the United States also participate in the U. Can you file 2011 taxes now S. Can you file 2011 taxes now Department of Education's Federal Student Aid (FSA) programs. Can you file 2011 taxes now   For purposes of the student loan interest deduction, an eligible educational institution also includes an institution conducting an internship or residency program leading to a degree or certificate from an institution of higher education, a hospital, or a health care facility that offers postgraduate training. Can you file 2011 taxes now   An educational institution must meet the above criteria only during the academic period(s) for which the student loan was incurred. Can you file 2011 taxes now The deductibility of interest on the loan is not affected by the institution's subsequent loss of eligibility. Can you file 2011 taxes now    The educational institution should be able to tell you if it is an eligible educational institution. Can you file 2011 taxes now Adjustments to Qualified Education Expenses You must reduce your qualified education expenses by the total amount paid for them with the following tax-free items. Can you file 2011 taxes now Employer-provided educational assistance. Can you file 2011 taxes now See chapter 11, Employer-Provided Educational Assistance . Can you file 2011 taxes now Tax-free distribution of earnings from a Coverdell education savings account (ESA). Can you file 2011 taxes now See Tax-Free Distributions in chapter 7, Coverdell Education Savings Account. Can you file 2011 taxes now Tax-free distribution of earnings from a qualified tuition program (QTP). Can you file 2011 taxes now See Figuring the Taxable Portion of a Distribution in chapter 8, Qualified Tuition Program. Can you file 2011 taxes now U. Can you file 2011 taxes now S. Can you file 2011 taxes now savings bond interest that you exclude from income because it is used to pay qualified education expenses. Can you file 2011 taxes now See chapter 10, Education Savings Bond Program . Can you file 2011 taxes now The tax-free part of scholarships and fellowships. Can you file 2011 taxes now See Tax-Free Scholarships and Fellowships in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. Can you file 2011 taxes now Veterans' educational assistance. Can you file 2011 taxes now See Veterans' Benefits in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. Can you file 2011 taxes now Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. Can you file 2011 taxes now Include As Interest In addition to simple interest on the loan, if all other requirements are met, the items discussed below can be student loan interest. Can you file 2011 taxes now Loan origination fee. Can you file 2011 taxes now   In general, this is a one-time fee charged by the lender when a loan is made. Can you file 2011 taxes now To be deductible as interest, a loan origination fee must be for the use of money rather than for property or services (such as commitment fees or processing costs) provided by the lender. Can you file 2011 taxes now A loan origination fee treated as interest accrues over the term of the loan. Can you file 2011 taxes now   Loan origination fees were not required to be reported on Form 1098-E, Student Loan Interest Statement, for loans made before September 1, 2004. Can you file 2011 taxes now If loan origination fees are not included in the amount reported on your Form 1098-E, you can use any reasonable method to allocate the loan origination fees over the term of the loan. Can you file 2011 taxes now The method shown in the example below allocates equal portions of the loan origination fee to each payment required under the terms of the loan. Can you file 2011 taxes now A method that results in the double deduction of the same portion of a loan origination fee would not be reasonable. Can you file 2011 taxes now Example. Can you file 2011 taxes now In August 2004, Bill took out a student loan for $16,000 to pay the tuition for his senior year of college. Can you file 2011 taxes now The lender charged a 3% loan origination fee ($480) that was withheld from the funds Bill received. Can you file 2011 taxes now Bill began making payments on his student loan in 2013. Can you file 2011 taxes now Because the loan origination fee was not included in his 2013 Form 1098-E, Bill can use any reasonable method to allocate that fee over the term of the loan. Can you file 2011 taxes now Bill's loan is payable in 120 equal monthly payments. Can you file 2011 taxes now He allocates the $480 fee equally over the total number of payments ($480 ÷ 120 months = $4 per month). Can you file 2011 taxes now Bill made 7 payments in 2013, so he paid $28 ($4 × 7) of interest attributable to the loan origination fee. Can you file 2011 taxes now To determine his student loan interest deduction, he will add the $28 to the amount of other interest reported to him on Form 1098-E. Can you file 2011 taxes now Capitalized interest. Can you file 2011 taxes now   This is unpaid interest on a student loan that is added by the lender to the outstanding principal balance of the loan. Can you file 2011 taxes now Capitalized interest is treated as interest for tax purposes and is deductible as payments of principal are made on the loan. Can you file 2011 taxes now No deduction for capitalized interest is allowed in a year in which no loan payments were made. Can you file 2011 taxes now Interest on revolving lines of credit. Can you file 2011 taxes now   This interest, which includes interest on credit card debt, is student loan interest if the borrower uses the line of credit (credit card) only to pay qualified education expenses. Can you file 2011 taxes now See Qualified Education Expenses , earlier. Can you file 2011 taxes now Interest on refinanced student loans. Can you file 2011 taxes now   This includes interest on both: Consolidated loans—loans used to refinance more than one student loan of the same borrower, and Collapsed loans—two or more loans of the same borrower that are treated by both the lender and the borrower as one loan. Can you file 2011 taxes now    If you refinance a qualified student loan for more than your original loan and you use the additional amount for any purpose other than qualified education expenses, you cannot deduct any interest paid on the refinanced loan. Can you file 2011 taxes now Voluntary interest payments. Can you file 2011 taxes now   These are payments made on a qualified student loan during a period when interest payments are not required, such as when the borrower has been granted a deferment or the loan has not yet entered repayment status. Can you file 2011 taxes now Example. Can you file 2011 taxes now The payments on Roger's student loan were scheduled to begin in June 2012, 6 months after he graduated from college. Can you file 2011 taxes now He began making payments as required. Can you file 2011 taxes now In September 2013, Roger enrolled in graduate school on a full-time basis. Can you file 2011 taxes now He applied for and was granted deferment of his loan payments while in graduate school. Can you file 2011 taxes now Wanting to pay down his student loan as much as possible, he made loan payments in October and November 2013. Can you file 2011 taxes now Even though these were voluntary (not required) payments, Roger can deduct the interest paid in October and November. Can you file 2011 taxes now Allocating Payments Between Interest and Principal The allocation of payments between interest and principal for tax purposes might not be the same as the allocation shown on the Form 1098-E or other statement you receive from the lender or loan servicer. Can you file 2011 taxes now To make the allocation for tax purposes, a payment generally applies first to stated interest that remains unpaid as of the date the payment is due, second to any loan origination fees allocable to the payment, third to any capitalized interest that remains unpaid as of the date the payment is due, and fourth to the outstanding principal. Can you file 2011 taxes now Example. Can you file 2011 taxes now In August 2012, Peg took out a $10,000 student loan to pay the tuition for her senior year of college. Can you file 2011 taxes now The lender charged a 3% loan origination fee ($300) that was withheld from the funds Peg received. Can you file 2011 taxes now The interest (5% simple) on this loan accrued while she completed her senior year and for 6 months after she graduated. Can you file 2011 taxes now At the end of that period, the lender determined the amount to be repaid by capitalizing all accrued but unpaid interest ($625 interest accrued from August 2012 through October 2013) and adding it to the outstanding principal balance of the loan. Can you file 2011 taxes now The loan is payable over 60 months, with a payment of $200. Can you file 2011 taxes now 51 due on the first of each month, beginning November 2013. Can you file 2011 taxes now Peg did not receive a Form 1098-E for 2013 from her lender because the amount of interest she paid did not require the lender to issue an information return. Can you file 2011 taxes now However, she did receive an account statement from the lender that showed the following 2013 payments on her outstanding loan of $10,625 ($10,000 principal + $625 accrued but unpaid interest). Can you file 2011 taxes now Payment Date   Payment   Stated Interest   Principal November 2013   $200. Can you file 2011 taxes now 51   $44. Can you file 2011 taxes now 27   $156. Can you file 2011 taxes now 24 December 2013   $200. Can you file 2011 taxes now 51   $43. Can you file 2011 taxes now 62   $156. Can you file 2011 taxes now 89 Totals   $401. Can you file 2011 taxes now 02   $87. Can you file 2011 taxes now 89   $313. Can you file 2011 taxes now 13 To determine the amount of interest that could be deducted on the loan for 2013, Peg starts with the total amount of stated interest she paid, $87. Can you file 2011 taxes now 89. Can you file 2011 taxes now Next, she allocates the loan origination fee over the term of the loan ($300 ÷ 60 months = $5 per month). Can you file 2011 taxes now A total of $10 ($5 of each of the two principal payments) should be treated as interest for tax purposes. Can you file 2011 taxes now Peg then applies the unpaid capitalized interest ($625) to the two principal payments in the order in which they were made, and determines that the remaining amount of principal of both payments is treated as interest for tax purposes. Can you file 2011 taxes now Assuming that Peg qualifies to take the student loan interest deduction, she can deduct $401. Can you file 2011 taxes now 02 ($87. Can you file 2011 taxes now 89 + $10 + $303. Can you file 2011 taxes now 13). Can you file 2011 taxes now For 2014, Peg will continue to allocate $5 of the loan origination fee to the principal portion of each monthly payment she makes and treat that amount as interest for tax purposes. Can you file 2011 taxes now She also will apply the remaining amount of capitalized interest ($625 − $303. Can you file 2011 taxes now 13 = $321. Can you file 2011 taxes now 87) to the principal payments in the order in which they are made until the balance is zero, and treat those amounts as interest for tax purposes. Can you file 2011 taxes now Do Not Include As Interest You cannot claim a student loan interest deduction for any of the following items. Can you file 2011 taxes now Interest you paid on a loan if, under the terms of the loan, you are not legally obligated to make interest payments. Can you file 2011 taxes now Loan origination fees that are payments for property or services provided by the lender, such as commitment fees or processing costs. Can you file 2011 taxes now Interest you paid on a loan to the extent payments were made through your participation in the National Health Service Corps Loan Repayment Program (the “NHSC Loan Repayment Program”) or certain other loan repayment assistance programs. Can you file 2011 taxes now For more information, see Student Loan Repayment Assistance in chapter 5, Student Loan Cancellations and Repayment Assistance. Can you file 2011 taxes now When Must Interest Be Paid You can deduct all interest you paid during the year on your student loan, including voluntary payments, until the loan is paid off. Can you file 2011 taxes now Can You Claim the Deduction Generally, you can claim the deduction if all of the following requirements are met. Can you file 2011 taxes now Your filing status is any filing status except married filing separately. Can you file 2011 taxes now No one else is claiming an exemption for you on his or her tax return. Can you file 2011 taxes now You are legally obligated to pay interest on a qualified student loan. Can you file 2011 taxes now You paid interest on a qualified student loan. Can you file 2011 taxes now Claiming an exemption for you. Can you file 2011 taxes now   Another taxpayer is claiming an exemption for you if he or she lists your name and other required information on his or her Form 1040 (or Form 1040A), line 6c, or Form 1040NR, line 7c. Can you file 2011 taxes now Example 1. Can you file 2011 taxes now During 2013, Josh paid $600 interest on his qualified student loan. Can you file 2011 taxes now Only he is legally obligated to make the payments. Can you file 2011 taxes now No one claimed an exemption for Josh for 2013. Can you file 2011 taxes now Assuming all other requirements are met, Josh can deduct the $600 of interest he paid on his 2013 Form 1040 or 1040A. Can you file 2011 taxes now Example 2. Can you file 2011 taxes now During 2013, Jo paid $1,100 interest on her qualified student loan. Can you file 2011 taxes now Only she is legally obligated to make the payments. Can you file 2011 taxes now Jo's parents claimed an exemption for her on their 2013 tax return. Can you file 2011 taxes now In this case, neither Jo nor her parents may deduct the student loan interest Jo paid in 2013. Can you file 2011 taxes now Interest paid by others. Can you file 2011 taxes now   If you are the person legally obligated to make interest payments and someone else makes a payment of interest on your behalf, you are treated as receiving the payments from the other person and, in turn, paying the interest. Can you file 2011 taxes now Example 1. Can you file 2011 taxes now Darla obtained a qualified student loan to attend college. Can you file 2011 taxes now After Darla's graduation from college, she worked as an intern for a nonprofit organization. Can you file 2011 taxes now As part of the internship program, the nonprofit organization made an interest payment on behalf of Darla. Can you file 2011 taxes now This payment was treated as additional compensation and reported in box 1 of her Form W-2. Can you file 2011 taxes now Assuming all other qualifications are met, Darla can deduct this payment of interest on her tax return. Can you file 2011 taxes now Example 2. Can you file 2011 taxes now Ethan obtained a qualified student loan to attend college. Can you file 2011 taxes now After graduating from college, the first monthly payment on his loan was due in December. Can you file 2011 taxes now As a gift, Ethan's mother made this payment for him. Can you file 2011 taxes now No one is claiming a dependency exemption for Ethan on his or her tax return. Can you file 2011 taxes now Assuming all other qualifications are met, Ethan can deduct this payment of interest on his tax return. Can you file 2011 taxes now No Double Benefit Allowed You cannot deduct as interest on a student loan any amount that is an allowable deduction under any other provision of the tax law (for example, as home mortgage interest). Can you file 2011 taxes now Figuring the Deduction Your student loan interest deduction for 2013 is generally the smaller of: $2,500, or The interest you paid in 2013. Can you file 2011 taxes now However, the amount determined above may be gradually reduced (phased out) or eliminated based on your filing status and MAGI as explained below. Can you file 2011 taxes now You can use Worksheet 4-1. Can you file 2011 taxes now Student Loan Interest Deduction Worksheet (at the end of this chapter) to figure both your MAGI and your deduction. Can you file 2011 taxes now Form 1098-E. Can you file 2011 taxes now   To help you figure your student loan interest deduction, you should receive Form 1098-E. Can you file 2011 taxes now Generally, an institution (such as a bank or governmental agency) that received interest payments of $600 or more during 2013 on one or more qualified student loans must send Form 1098-E (or acceptable substitute) to each borrower by January 31, 2014. Can you file 2011 taxes now   For qualified student loans taken out before September 1, 2004, the institution is required to include on Form 1098-E only payments of stated interest. Can you file 2011 taxes now Other interest payments, such as certain loan origination fees and capitalized interest, may not appear on the form you receive. Can you file 2011 taxes now However, if you pay qualifying interest that is not included on Form 1098-E, you can also deduct those amounts. Can you file 2011 taxes now See Allocating Payments Between Interest and Principal , earlier. Can you file 2011 taxes now    The lender may ask for a completed Form W-9S, or similar statement to obtain the borrower's name, address, and taxpayer identification number. Can you file 2011 taxes now The form may also be used by the borrower to certify that the student loan was incurred solely to pay for qualified education expenses. Can you file 2011 taxes now Effect of the Amount of Your Income on the Amount of Your Deduction The amount of your student loan interest deduction is phased out (gradually reduced) if your MAGI is between $60,000 and $75,000 ($125,000 and $155,000 if you file a joint return). Can you file 2011 taxes now You cannot take a student loan interest deduction if your MAGI is $75,000 or more ($155,000 or more if you file a joint return). Can you file 2011 taxes now Modified adjusted gross income (MAGI). Can you file 2011 taxes now   For most taxpayers, MAGI is adjusted gross income (AGI) as figured on their federal income tax return before subtracting any deduction for student loan interest. Can you file 2011 taxes now However, as discussed below, there may be other modifications. Can you file 2011 taxes now Table 4-2 shows how the amount of your MAGI can affect your student loan interest deduction. Can you file 2011 taxes now Table 4-2. Can you file 2011 taxes now Effect of MAGI on Student Loan Interest Deduction IF your filing status is. Can you file 2011 taxes now . Can you file 2011 taxes now . Can you file 2011 taxes now AND your MAGI is. Can you file 2011 taxes now . Can you file 2011 taxes now . Can you file 2011 taxes now THEN your student loan interest deduction is. Can you file 2011 taxes now . Can you file 2011 taxes now . Can you file 2011 taxes now single,  head of household, or qualifying widow(er) not more than $60,000 not affected by the phaseout. Can you file 2011 taxes now more than $60,000  but less than $75,000 reduced because of the phaseout. Can you file 2011 taxes now $75,000 or more eliminated by the phaseout. Can you file 2011 taxes now married filing joint return not more than $125,000 not affected by the phaseout. Can you file 2011 taxes now more than $125,000 but less than $155,000 reduced because of the phaseout. Can you file 2011 taxes now $155,000 or more eliminated by the phaseout. Can you file 2011 taxes now MAGI when using Form 1040A. Can you file 2011 taxes now   If you file Form 1040A, your MAGI is the AGI on line 22 of that form figured without taking into account any amount on line 18 (student loan interest deduction) and line 19 (tuition and fees deduction). Can you file 2011 taxes now MAGI when using Form 1040. Can you file 2011 taxes now   If you file Form 1040, your MAGI is the AGI on line 38 of that form figured without taking into account any amount on line 33 (student loan interest deduction), line 34 (tuition and fees deduction), or line 35 (domestic production activities deduction), and modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, and Exclusion of income by bona fide residents of Puerto Rico. Can you file 2011 taxes now MAGI when using Form 1040NR. Can you file 2011 taxes now   If you file Form 1040NR, your MAGI is the AGI on line 36 of that form figured without taking into account any amount on line 33 (student loan interest deduction) and line 34 (domestic production activities deduction). Can you file 2011 taxes now MAGI when using Form 1040NR-EZ. Can you file 2011 taxes now   If you file Form 1040NR-EZ, your MAGI is the AGI on line 10 of that form figured without taking into account any amount on line 9 (student loan interest deduction). Can you file 2011 taxes now Phaseout. Can you file 2011 taxes now   If your MAGI is within the range of incomes where the credit must be reduced, you must figure your reduced deduction. Can you file 2011 taxes now To figure the phaseout, multiply your interest deduction (before the phaseout) by a fraction. Can you file 2011 taxes now The numerator is your MAGI minus $60,000 ($125,000 in the case of a joint return). Can you file 2011 taxes now The denominator is $15,000 ($30,000 in the case of a joint return). Can you file 2011 taxes now Subtract the result from your deduction (before the phaseout) to give you the amount you can deduct. Can you file 2011 taxes now Example 1. Can you file 2011 taxes now During 2013 you paid $800 interest on a qualified student loan. Can you file 2011 taxes now Your 2013 MAGI is $145,000 and you are filing a joint return. Can you file 2011 taxes now You must reduce your deduction by $533, figured as follows. Can you file 2011 taxes now   $800 × $145,000 − $125,000  $30,000 = $533   Your reduced student loan interest deduction is $267 ($800 − $533). Can you file 2011 taxes now Example 2. Can you file 2011 taxes now The facts are the same as in Example 1 except that you paid $2,750 interest. Can you file 2011 taxes now Your maximum deduction for 2013 is $2,500. Can you file 2011 taxes now You must reduce your maximum deduction by $1,667, figured as follows. Can you file 2011 taxes now   $2,500 × $145,000 − $125,000  $30,000 = $1,667   In this example, your reduced student loan interest deduction is $833 ($2,500 − $1,667). Can you file 2011 taxes now Which Worksheet To Use Generally, you figure the deduction using the Student Loan Interest Deduction Worksheet in the instructions for Form 1040, Form 1040A, or Form 1040NR. Can you file 2011 taxes now However, if you are filing Form 2555, Foreign Earned Income, Form 2555-EZ, Foreign Earned Income Exclusion, or Form 4563, Exclusion of Income for Bona Fide Residents of American Samoa, or you are excluding income from sources within Puerto Rico, you must complete Worksheet 4-1. Can you file 2011 taxes now Student Loan Interest Deduction Worksheet at the end of this chapter. Can you file 2011 taxes now Claiming the Deduction The student loan interest deduction is an adjustment to income. Can you file 2011 taxes now To claim the deduction, enter the allowable amount on line 33 (Form 1040), line 18 (Form 1040A), line 33 (Form 1040NR), or line 9 (Form 1040NR-EZ). Can you file 2011 taxes now Worksheet 4-1. Can you file 2011 taxes now Student Loan Interest Deduction Worksheet Use this worksheet instead of the worksheet in the Form 1040 instructions if you are filing Form 2555, 2555-EZ, or 4563, or you are excluding income from sources within Puerto Rico. Can you file 2011 taxes now Before using this worksheet, you must complete Form 1040, lines 7 through 32, plus any amount to be entered on the dotted line next to line 36. Can you file 2011 taxes now 1. Can you file 2011 taxes now Enter the total interest you paid in 2013 on qualified student loans. Can you file 2011 taxes now Do not enter  more than $2,500 1. Can you file 2011 taxes now   2. Can you file 2011 taxes now Enter the amount from Form 1040, line 22 2. Can you file 2011 taxes now       3. Can you file 2011 taxes now Enter the total of the amounts from Form 1040,  lines 23 through 32 3. Can you file 2011 taxes now           4. Can you file 2011 taxes now Enter the total of any amounts entered on the dotted line next to Form 1040, line 36 4. Can you file 2011 taxes now           5. Can you file 2011 taxes now Add lines 3 and 4 5. Can you file 2011 taxes now       6. Can you file 2011 taxes now Subtract line 5 from line 2 6. Can you file 2011 taxes now       7. Can you file 2011 taxes now Enter any foreign earned income exclusion and/or housing  exclusion (Form 2555, line 45, or Form 2555-EZ, line 18) 7. Can you file 2011 taxes now       8. Can you file 2011 taxes now Enter any foreign housing deduction (Form 2555, line 50) 8. Can you file 2011 taxes now       9. Can you file 2011 taxes now Enter the amount of income from Puerto Rico you are excluding 9. Can you file 2011 taxes now       10. Can you file 2011 taxes now Enter the amount of income from American Samoa  you are excluding (Form 4563, line 15) 10. Can you file 2011 taxes now       11. Can you file 2011 taxes now Add lines 6 through 10. Can you file 2011 taxes now This is your modified adjusted gross income 11. Can you file 2011 taxes now   12. Can you file 2011 taxes now Enter the amount shown below for your filing status 12. Can you file 2011 taxes now     •Single, head of household, or qualifying widow(er)—$60,000       •Married filing jointly—$125,000     13. Can you file 2011 taxes now Is the amount on line 11 more than the amount on line 12?       □ No. Can you file 2011 taxes now Skip lines 13 and 14, enter -0- on line 15, and go to line 16. Can you file 2011 taxes now       □ Yes. Can you file 2011 taxes now Subtract line 12 from line 11 13. Can you file 2011 taxes now   14. Can you file 2011 taxes now Divide line 13 by $15,000 ($30,000 if married filing jointly). Can you file 2011 taxes now Enter the result as a decimal  (rounded to at least three places). Can you file 2011 taxes now If the result is 1. Can you file 2011 taxes now 000 or more, enter 1. Can you file 2011 taxes now 000 14. Can you file 2011 taxes now . Can you file 2011 taxes now 15. Can you file 2011 taxes now Multiply line 1 by line 14 15. Can you file 2011 taxes now   16. Can you file 2011 taxes now Student loan interest deduction. Can you file 2011 taxes now Subtract line 15 from line 1. Can you file 2011 taxes now Enter the result here  and on Form 1040, line 33. Can you file 2011 taxes now Do not include this amount in figuring any other  deduction on your return (such as on Schedule A, C, E, etc. Can you file 2011 taxes now ) 16. Can you file 2011 taxes now   Prev  Up  Next   Home   More Online Publications