Filing Your Taxes Online is Fast, Easy and Secure.
Start now and receive your tax refund in as little as 7 days.

1. Get Answers

Your online questions are customized to your unique tax situation.

2. Maximize your Refund

Find tax credits for everything from school tuition to buying a hybri

3. E-File for FREE

E-file free with direct deposit to get your refund in as few as 7 days.

Filing your taxes with paper mail can be difficult and it could take weeks for your refund to arrive. IRS e-file is easy, fast and secure. There is no paperwork going to the IRS so tax refunds can be processed in as little as 7 days with direct deposit. As you prepare your taxes online, you can see your tax refund in real time.

FREE audit support and representation from an enrolled agent – NEW and only from H&R Block

Free 1040ez Tax Filing

Http Www Hrblock ComIrs Tax Forms 2012 1040aTax Forms 1040 EzTaxesIrs E FileIrs 2012 Tax Return Forms2011 Form 1040Filing Taxes In 2014Download Ez FormWhat Is 1040x1040x 20102012 1040 Tax ReturnFederal Ez Tax Form 2011Nonresidents State Tax FormsHow Do I File My 2009 Taxes OnlineIf I Am Unemployed Do I File TaxesFree Income Tax FilingAarp Free Tax PreparationFederal Tax Form 1040ezFile 1040 Ez Online Free1040ez Tax ReturnWhere Can I File My 2012 Taxes Online2012 TaxesTurbo Tax Free MilitaryCheapest State Tax FilingFile 2012 State Taxes FreeFile An Amended Tax Return For 2009Tax Forms 2011 1040Filing 2012 Taxes For FreeFederal Ez Tax Form1040 Schedule A Tax FormFile 2007 Taxes OnlineFreefilefillableformsIrs Free Tax Preparation OnlineHow Far Back Can I Amend A Tax ReturnFederal Tax Form 2010Irs E File ExtensionDidn't File Taxes Last YearDo Taxes Online 20102012 Tax Form 1040ez

Free 1040ez Tax Filing

Free 1040ez tax filing 9. Free 1040ez tax filing   Rental Income and Expenses Table of Contents Introduction Useful Items - You may want to see: Rental Income Rental ExpensesVacant while listed for sale. Free 1040ez tax filing Repairs and Improvements Other Expenses Property Changed to Rental Use Renting Part of Property Not Rented for Profit Personal Use of Dwelling Unit (Including Vacation Home)Example. Free 1040ez tax filing Dividing Expenses Dwelling Unit Used as a Home Reporting Income and Deductions DepreciationChanging your accounting method to deduct unclaimed depreciation. Free 1040ez tax filing Limits on Rental LossesAt-Risk Rules Passive Activity Limits How To Report Rental Income and ExpensesSchedule E (Form 1040) Introduction This chapter discusses rental income and expenses. Free 1040ez tax filing It also covers the following topics. Free 1040ez tax filing Personal use of dwelling unit (including vacation home). Free 1040ez tax filing Depreciation. Free 1040ez tax filing Limits on rental losses. Free 1040ez tax filing How to report your rental income and expenses. Free 1040ez tax filing If you sell or otherwise dispose of your rental property, see Publication 544, Sales and Other Dispositions of Assets. Free 1040ez tax filing If you have a loss from damage to, or theft of, rental property, see Publication 547, Casualties, Disasters, and Thefts. Free 1040ez tax filing If you rent a condominium or a cooperative apartment, some special rules apply to you even though you receive the same tax treatment as other owners of rental property. Free 1040ez tax filing See Publication 527, Residential Rental Property, for more information. Free 1040ez tax filing Useful Items - You may want to see: Publication 527 Residential Rental Property 534 Depreciating Property Placed in Service Before 1987 535 Business Expenses 925 Passive Activity and At-Risk Rules 946 How To Depreciate Property Form (and Instructions) 4562 Depreciation and Amortization 6251 Alternative Minimum Tax—Individuals 8582 Passive Activity Loss Limitations Schedule E (Form 1040) Supplemental Income and Loss Rental Income In most cases, you must include in your gross income all amounts you receive as rent. Free 1040ez tax filing Rental income is any payment you receive for the use or occupation of property. Free 1040ez tax filing In addition to amounts you receive as normal rent payments, there are other amounts that may be rental income. Free 1040ez tax filing When to report. Free 1040ez tax filing   If you are a cash-basis taxpayer, you report rental income on your return for the year you actually or constructively receive it. Free 1040ez tax filing You are a cash-basis taxpayer if you report income in the year you receive it, regardless of when it was earned. Free 1040ez tax filing You constructively receive income when it is made available to you, for example, by being credited to your bank account. Free 1040ez tax filing   For more information about when you constructively receive income, see Accounting Methods in chapter 1. Free 1040ez tax filing Advance rent. Free 1040ez tax filing   Advance rent is any amount you receive before the period that it covers. Free 1040ez tax filing Include advance rent in your rental income in the year you receive it regardless of the period covered or the method of accounting you use. Free 1040ez tax filing Example. Free 1040ez tax filing You sign a 10-year lease to rent your property. Free 1040ez tax filing In the first year, you receive $5,000 for the first year's rent and $5,000 as rent for the last year of the lease. Free 1040ez tax filing You must include $10,000 in your income in the first year. Free 1040ez tax filing Canceling a lease. Free 1040ez tax filing   If your tenant pays you to cancel a lease, the amount you receive is rent. Free 1040ez tax filing Include the payment in your income in the year you receive it regardless of your method of accounting. Free 1040ez tax filing Expenses paid by tenant. Free 1040ez tax filing   If your tenant pays any of your expenses, the payments are rental income. Free 1040ez tax filing Because you must include this amount in income, you can deduct the expenses if they are deductible rental expenses. Free 1040ez tax filing See Rental Expenses , later, for more information. Free 1040ez tax filing Property or services. Free 1040ez tax filing   If you receive property or services, instead of money, as rent, include the fair market value of the property or services in your rental income. Free 1040ez tax filing   If the services are provided at an agreed upon or specified price, that price is the fair market value unless there is evidence to the contrary. Free 1040ez tax filing Security deposits. Free 1040ez tax filing   Do not include a security deposit in your income when you receive it if you plan to return it to your tenant at the end of the lease. Free 1040ez tax filing But if you keep part or all of the security deposit during any year because your tenant does not live up to the terms of the lease, include the amount you keep in your income in that year. Free 1040ez tax filing   If an amount called a security deposit is to be used as a final payment of rent, it is advance rent. Free 1040ez tax filing Include it in your income when you receive it. Free 1040ez tax filing Part interest. Free 1040ez tax filing   If you own a part interest in rental property, you must report your part of the rental income from the property. Free 1040ez tax filing Rental of property also used as your home. Free 1040ez tax filing   If you rent property that you also use as your home and you rent it less than 15 days during the tax year, do not include the rent you receive in your income and do not deduct rental expenses. Free 1040ez tax filing However, you can deduct on Schedule A (Form 1040) the interest, taxes, and casualty and theft losses that are allowed for nonrental property. Free 1040ez tax filing See Personal Use of Dwelling Unit (Including Vacation Home) , later. Free 1040ez tax filing Rental Expenses This part discusses expenses of renting property that you ordinarily can deduct from your rental income. Free 1040ez tax filing It includes information on the expenses you can deduct if you rent part of your property, or if you change your property to rental use. Free 1040ez tax filing Depreciation , which you can also deduct from your rental income, is discussed later. Free 1040ez tax filing Personal use of rental property. Free 1040ez tax filing   If you sometimes use your rental property for personal purposes, you must divide your expenses between rental and personal use. Free 1040ez tax filing Also, your rental expense deductions may be limited. Free 1040ez tax filing See Personal Use of Dwelling Unit (Including Vacation Home) , later. Free 1040ez tax filing Part interest. Free 1040ez tax filing   If you own a part interest in rental property, you can deduct expenses that you paid according to your percentage of ownership. Free 1040ez tax filing When to deduct. Free 1040ez tax filing   If you are a cash-basis taxpayer, you generally deduct your rental expenses in the year you pay them. Free 1040ez tax filing Depreciation. Free 1040ez tax filing   You can begin to depreciate rental property when it is ready and available for rent. Free 1040ez tax filing See Placed-in-Service under When Does Depreciation Begin and End in chapter 2 of Publication 527. Free 1040ez tax filing Pre-rental expenses. Free 1040ez tax filing   You can deduct your ordinary and necessary expenses for managing, conserving, or maintaining rental property from the time you make it available for rent. Free 1040ez tax filing Uncollected rent. Free 1040ez tax filing   If you are a cash-basis taxpayer, do not deduct uncollected rent. Free 1040ez tax filing Because you have not included it in your income, it is not deductible. Free 1040ez tax filing Vacant rental property. Free 1040ez tax filing   If you hold property for rental purposes, you may be able to deduct your ordinary and necessary expenses (including depreciation) for managing, conserving, or maintaining the property while the property is vacant. Free 1040ez tax filing However, you cannot deduct any loss of rental income for the period the property is vacant. Free 1040ez tax filing Vacant while listed for sale. Free 1040ez tax filing   If you sell property you held for rental purposes, you can deduct the ordinary and necessary expenses for managing, conserving, or maintaining the property until it is sold. Free 1040ez tax filing If the property is not held out and available for rent while listed for sale, the expenses are not deductible rental expenses. Free 1040ez tax filing Repairs and Improvements Generally, an expense for repairing or maintaining your rental property may be deducted if you are not required to capitalize the expense. Free 1040ez tax filing Improvements. Free 1040ez tax filing   You must capitalize any expense you pay to improve your rental property. Free 1040ez tax filing An expense is for an improvement if it results in a betterment to your property, restores your property, or adapts your property to a new or different use. Free 1040ez tax filing Betterments. Free 1040ez tax filing   Expenses that may result in a betterment to your property include expenses for fixing a pre-existing defect or condition, enlarging or expanding your property, or increasing the capacity, strength, or quality of your property. Free 1040ez tax filing Restoration. Free 1040ez tax filing   Expenses that may be for restoration include expenses for replacing a substantial structural part of your property, repairing damage to your property after you properly adjusted the basis of your property as a result of a casualty loss, or rebuilding your property to a like-new condition. Free 1040ez tax filing Adaptation. Free 1040ez tax filing   Expenses that may be for adaptation include expenses for altering your property to a use that is not consistent with the intended ordinary use of your property when you began renting the property. Free 1040ez tax filing Separate the costs of repairs and improvements, and keep accurate records. Free 1040ez tax filing You will need to know the cost of improvements when you sell or depreciate your property. Free 1040ez tax filing The expenses you capitalize for improving your property can generally be depreciated as if the improvement were separate property. Free 1040ez tax filing Other Expenses Other expenses you can deduct from your rental income include advertising, cleaning and maintenance, utilities, fire and liability insurance, taxes, interest, commissions for the collection of rent, ordinary and necessary travel and transportation, and other expenses, discussed next. Free 1040ez tax filing Insurance premiums paid in advance. Free 1040ez tax filing   If you pay an insurance premium for more than one year in advance, for each year of coverage you can deduct the part of the premium payment that will apply to that year. Free 1040ez tax filing You cannot deduct the total premium in the year you pay it. Free 1040ez tax filing Legal and other professional fees. Free 1040ez tax filing   You can deduct, as a rental expense, legal and other professional expenses, such as tax return preparation fees you paid to prepare Schedule E (Form 1040), Part I. Free 1040ez tax filing For example, on your 2013 Schedule E, you can deduct fees paid in 2013 to prepare your 2012 Schedule E, Part I. Free 1040ez tax filing You can also deduct, as a rental expense, any expense (other than federal taxes and penalties) you paid to resolve a tax underpayment related to your rental activities. Free 1040ez tax filing Local benefit taxes. Free 1040ez tax filing   In most cases, you cannot deduct charges for local benefits that increase the value of your property, such as charges for putting in streets, sidewalks, or water and sewer systems. Free 1040ez tax filing These charges are nondepreciable capital expenditures, and must be added to the basis of your property. Free 1040ez tax filing However, you can deduct local benefit taxes that are for maintaining, repairing, or paying interest charges for the benefits. Free 1040ez tax filing Local transportation expenses. Free 1040ez tax filing    You may be able to deduct your ordinary and necessary local transportation expenses if you incur them to collect rental income or to manage, conserve, or maintain your rental property. Free 1040ez tax filing However, transportation expenses incurred to travel between your home and a rental property generally constitute nondeductible commuting costs unless you use your home as your principal place of business. Free 1040ez tax filing See Publication 587, Business Use of Your Home, for information on determining if your home office qualifies as a principal place of business. Free 1040ez tax filing   Generally, if you use your personal car, pickup truck, or light van for rental activities, you can deduct the expenses using one of two methods: actual expenses or the standard mileage rate. Free 1040ez tax filing For 2013, the standard mileage rate for business use is 56. Free 1040ez tax filing 5 cents per mile. Free 1040ez tax filing For more information, see chapter 26. Free 1040ez tax filing    To deduct car expenses under either method, you must keep records that follow the rules in chapter 26. Free 1040ez tax filing In addition, you must complete Form 4562, Part V, and attach it to your tax return. Free 1040ez tax filing Rental of equipment. Free 1040ez tax filing   You can deduct the rent you pay for equipment that you use for rental purposes. Free 1040ez tax filing However, in some cases, lease contracts are actually purchase contracts. Free 1040ez tax filing If so, you cannot deduct these payments. Free 1040ez tax filing You can recover the cost of purchased equipment through depreciation. Free 1040ez tax filing Rental of property. Free 1040ez tax filing   You can deduct the rent you pay for property that you use for rental purposes. Free 1040ez tax filing If you buy a leasehold for rental purposes, you can deduct an equal part of the cost each year over the term of the lease. Free 1040ez tax filing Travel expenses. Free 1040ez tax filing   You can deduct the ordinary and necessary expenses of traveling away from home if the primary purpose of the trip is to collect rental income or to manage, conserve, or maintain your rental property. Free 1040ez tax filing You must properly allocate your expenses between rental and nonrental activities. Free 1040ez tax filing You cannot deduct the cost of traveling away from home if the primary purpose of the trip was to improve your property. Free 1040ez tax filing You recover the cost of improvements by taking depreciation. Free 1040ez tax filing For information on travel expenses, see chapter 26. Free 1040ez tax filing    To deduct travel expenses, you must keep records that follow the rules in chapter 26. Free 1040ez tax filing   See Rental Expenses in Publication 527 for more information. Free 1040ez tax filing Property Changed to Rental Use If you change your home or other property (or a part of it) to rental use at any time other than the beginning of your tax year, you must divide yearly expenses, such as taxes and insurance, between rental use and personal use. Free 1040ez tax filing You can deduct as rental expenses only the part of the expense that is for the part of the year the property was used or held for rental purposes. Free 1040ez tax filing You cannot deduct depreciation or insurance for the part of the year the property was held for personal use. Free 1040ez tax filing However, you can include the home mortgage interest, qualified mortgage insurance premiums, and real estate tax expenses for the part of the year the property was held for personal use as an itemized deduction on Schedule A (Form 1040). Free 1040ez tax filing Example. Free 1040ez tax filing Your tax year is the calendar year. Free 1040ez tax filing You moved from your home in May and started renting it out on June 1. Free 1040ez tax filing You can deduct as rental expenses seven-twelfths of your yearly expenses, such as taxes and insurance. Free 1040ez tax filing Starting with June, you can deduct as rental expenses the amounts you pay for items generally billed monthly, such as utilities. Free 1040ez tax filing Renting Part of Property If you rent part of your property, you must divide certain expenses between the part of the property used for rental purposes and the part of the property used for personal purposes, as though you actually had two separate pieces of property. Free 1040ez tax filing You can deduct the expenses related to the part of the property used for rental purposes, such as home mortgage interest, qualified mortgage insurance premiums, and real estate taxes, as rental expenses on Schedule E (Form 1040). Free 1040ez tax filing You can also deduct as rental expenses a portion of other expenses that normally are nondeductible personal expenses, such as expenses for electricity or painting the outside of your house. Free 1040ez tax filing There is no change in the types of expenses deductible for the personal-use part of your property. Free 1040ez tax filing Generally, these expenses may be deducted only if you itemize your deductions on Schedule A (Form 1040). Free 1040ez tax filing You cannot deduct any part of the cost of the first phone line even if your tenants have unlimited use of it. Free 1040ez tax filing You do not have to divide the expenses that belong only to the rental part of your property. Free 1040ez tax filing For example, if you paint a room that you rent, or if you pay premiums for liability insurance in connection with renting a room in your home, your entire cost is a rental expense. Free 1040ez tax filing If you install a second phone line strictly for your tenants' use, all of the cost of the second line is deductible as a rental expense. Free 1040ez tax filing You can deduct depreciation, discussed later, on the part of the house used for rental purposes as well as on the furniture and equipment you use for rental purposes. Free 1040ez tax filing How to divide expenses. Free 1040ez tax filing   If an expense is for both rental use and personal use, such as mortgage interest or heat for the entire house, you must divide the expense between the rental use and the personal use. Free 1040ez tax filing You can use any reasonable method for dividing the expense. Free 1040ez tax filing It may be reasonable to divide the cost of some items (for example, water) based on the number of people using them. Free 1040ez tax filing The two most common methods for dividing an expense are based on (1) the number of rooms in your home, and (2) the square footage of your home. Free 1040ez tax filing Not Rented for Profit If you do not rent your property to make a profit, you can deduct your rental expenses only up to the amount of your rental income. Free 1040ez tax filing You cannot deduct a loss or carry forward to the next year any rental expenses that are more than your rental income for the year. Free 1040ez tax filing For more information about the rules for an activity not engaged in for profit, see Not-for-Profit Activities in chapter 1 of Publication 535. Free 1040ez tax filing Where to report. Free 1040ez tax filing   Report your not-for-profit rental income on Form 1040, line 21. Free 1040ez tax filing For example, you can include your mortgage interest and any qualified mortgage insurance premiums (if you use the property as your main home or second home), real estate taxes, and casualty losses on the appropriate lines of Schedule A (Form 1040) if you itemize your deductions. Free 1040ez tax filing   If you itemize your deductions, claim your other rental expenses, subject to the rules explained in chapter 1 of Publication 535, as miscellaneous itemized deductions on Form 1040, Schedule A, line 23. Free 1040ez tax filing You can deduct these expenses only if they, together with certain other miscellaneous itemized deductions, total more than 2% of your adjusted gross income. Free 1040ez tax filing Personal Use of Dwelling Unit (Including Vacation Home) If you have any personal use of a dwelling unit (including a vacation home) that you rent, you must divide your expenses between rental use and personal use. Free 1040ez tax filing In general, your rental expenses will be no more than your total expenses multiplied by a fraction; the denominator of which is the total number of days the dwelling unit is used and the numerator of which is the total number of days actually rented at a fair rental price. Free 1040ez tax filing Only your rental expenses may be deducted on Schedule E (Form 1040). Free 1040ez tax filing Some of your personal expenses may be deductible if you itemize your deductions on Schedule A (Form 1040). Free 1040ez tax filing You must also determine if the dwelling unit is considered a home. Free 1040ez tax filing The amount of rental expenses that you can deduct may be limited if the dwelling unit is considered a home. Free 1040ez tax filing Whether a dwelling unit is considered a home depends on how many days during the year are considered to be days of personal use. Free 1040ez tax filing There is a special rule if you used the dwelling unit as a home and you rented it for less than 15 days during the year. Free 1040ez tax filing Dwelling unit. Free 1040ez tax filing   A dwelling unit includes a house, apartment, condominium, mobile home, boat, vacation home, or similar property. Free 1040ez tax filing It also includes all structures or other property belonging to the dwelling unit. Free 1040ez tax filing A dwelling unit has basic living accommodations, such as sleeping space, a toilet, and cooking facilities. Free 1040ez tax filing   A dwelling unit does not include property used solely as a hotel, motel, inn, or similar establishment. Free 1040ez tax filing Property is used solely as a hotel, motel, inn, or similar establishment if it is regularly available for occupancy by paying customers and is not used by an owner as a home during the year. Free 1040ez tax filing Example. Free 1040ez tax filing   You rent a room in your home that is always available for short-term occupancy by paying customers. Free 1040ez tax filing You do not use the room yourself, and you allow only paying customers to use the room. Free 1040ez tax filing The room is used solely as a hotel, motel, inn, or similar establishment and is not a dwelling unit. Free 1040ez tax filing Dividing Expenses If you use a dwelling unit for both rental and personal purposes, divide your expenses between the rental use and the personal use based on the number of days used for each purpose. Free 1040ez tax filing When dividing your expenses, follow these rules. Free 1040ez tax filing Any day that the unit is rented at a fair rental price is a day of rental use even if you used the unit for personal purposes that day. Free 1040ez tax filing This rule does not apply when determining whether you used the unit as a home. Free 1040ez tax filing Any day that the unit is available for rent but not actually rented is not a day of rental use. Free 1040ez tax filing Example. Free 1040ez tax filing Your beach cottage was available for rent from June 1 through August 31 (92 days). Free 1040ez tax filing During that time, except for the first week in August (7 days) when you were unable to find a renter, you rented the cottage at a fair rental price. Free 1040ez tax filing The person who rented the cottage for July allowed you to use it over the weekend (2 days) without any reduction in or refund of rent. Free 1040ez tax filing Your family also used the cottage during the last 2 weeks of May (14 days). Free 1040ez tax filing The cottage was not used at all before May 17 or after August 31. Free 1040ez tax filing You figure the part of the cottage expenses to treat as rental expenses as follows. Free 1040ez tax filing The cottage was used for rental a total of 85 days (92 − 7). Free 1040ez tax filing The days it was available for rent but not rented (7 days) are not days of rental use. Free 1040ez tax filing The July weekend (2 days) you used it is rental use because you received a fair rental price for the weekend. Free 1040ez tax filing You used the cottage for personal purposes for 14 days (the last 2 weeks in May). Free 1040ez tax filing The total use of the cottage was 99 days (14 days personal use + 85 days rental use). Free 1040ez tax filing Your rental expenses are 85/99 (86%) of the cottage expenses. Free 1040ez tax filing Note. Free 1040ez tax filing When determining whether you used the cottage as a home, the July weekend (2 days) you used it is considered personal use even though you received a fair rental price for the weekend. Free 1040ez tax filing Therefore, you had 16 days of personal use and 83 days of rental use for this purpose. Free 1040ez tax filing Because you used the cottage for personal purposes more than 14 days and more than 10% of the days of rental use (8 days), you used it as a home. Free 1040ez tax filing If you have a net loss, you may not be able to deduct all of the rental expenses. Free 1040ez tax filing See Dwelling Unit Used as a Home, next. Free 1040ez tax filing Dwelling Unit Used as a Home If you use a dwelling unit for both rental and personal purposes, the tax treatment of the rental expenses you figured earlier under Dividing Expenses and rental income depends on whether you are considered to be using the dwelling unit as a home. Free 1040ez tax filing You use a dwelling unit as a home during the tax year if you use it for personal purposes more than the greater of: 14 days, or 10% of the total days it is rented to others at a fair rental price. Free 1040ez tax filing See What is a day of personal use , later. Free 1040ez tax filing Fair rental price. Free 1040ez tax filing   A fair rental price for your property generally is the amount of rent that a person who is not related to you would be willing to pay. Free 1040ez tax filing The rent you charge is not a fair rental price if it is substantially less than the rents charged for other properties that are similar to your property in your area. Free 1040ez tax filing   If a dwelling unit is used for personal purposes on a day it is rented at a fair rental price, do not count that day as a day of rental use in applying (2) above. Free 1040ez tax filing Instead, count it as a day of personal use in applying both (1) and (2) above. Free 1040ez tax filing What is a day of personal use?   A day of personal use of a dwelling unit is any day that the unit is used by any of the following persons. Free 1040ez tax filing You or any other person who has an interest in the unit, unless you rent it to another owner as his or her main home under a shared equity financing agreement (defined later). Free 1040ez tax filing However, see Days used as a main home before or after renting , later. Free 1040ez tax filing A member of your family or a member of the family of any other person who owns an interest in the unit, unless the family member uses the dwelling unit as his or her main home and pays a fair rental price. Free 1040ez tax filing Family includes only your spouse, brothers and sisters, half-brothers and half-sisters, ancestors (parents, grandparents, etc. Free 1040ez tax filing ), and lineal descendants (children, grandchildren, etc. Free 1040ez tax filing ). Free 1040ez tax filing Anyone under an arrangement that lets you use some other dwelling unit. Free 1040ez tax filing Anyone at less than a fair rental price. Free 1040ez tax filing Main home. Free 1040ez tax filing   If the other person or member of the family in (1) or (2) above has more than one home, his or her main home is ordinarily the one he or she lived in most of the time. Free 1040ez tax filing Shared equity financing agreement. Free 1040ez tax filing   This is an agreement under which two or more persons acquire undivided interests for more than 50 years in an entire dwelling unit, including the land, and one or more of the co-owners is entitled to occupy the unit as his or her main home upon payment of rent to the other co-owner or owners. Free 1040ez tax filing Donation of use of property. Free 1040ez tax filing   You use a dwelling unit for personal purposes if: You donate the use of the unit to a charitable organization, The organization sells the use of the unit at a fund-raising event, and The “purchaser” uses the unit. Free 1040ez tax filing Examples. Free 1040ez tax filing   The following examples show how to determine days of personal use. Free 1040ez tax filing Example 1. Free 1040ez tax filing You and your neighbor are co-owners of a condominium at the beach. Free 1040ez tax filing Last year, you rented the unit to vacationers whenever possible. Free 1040ez tax filing The unit was not used as a main home by anyone. Free 1040ez tax filing Your neighbor used the unit for 2 weeks last year; you did not use it at all. Free 1040ez tax filing Because your neighbor has an interest in the unit, both of you are considered to have used the unit for personal purposes during those 2 weeks. Free 1040ez tax filing Example 2. Free 1040ez tax filing You and your neighbors are co-owners of a house under a shared equity financing agreement. Free 1040ez tax filing Your neighbors live in the house and pay you a fair rental price. Free 1040ez tax filing Even though your neighbors have an interest in the house, the days your neighbors live there are not counted as days of personal use by you. Free 1040ez tax filing This is because your neighbors rent the house as their main home under a shared equity financing agreement. Free 1040ez tax filing Example 3. Free 1040ez tax filing You own a rental property that you rent to your son. Free 1040ez tax filing Your son does not own any interest in this property. Free 1040ez tax filing He uses it as his main home and pays you a fair rental price. Free 1040ez tax filing Your son's use of the property is not personal use by you because your son is using it as his main home, he owns no interest in the property, and he is paying you a fair rental price. Free 1040ez tax filing Example 4. Free 1040ez tax filing You rent your beach house to Joshua. Free 1040ez tax filing Joshua rents his cabin in the mountains to you. Free 1040ez tax filing You each pay a fair rental price. Free 1040ez tax filing You are using your house for personal purposes on the days that Joshua uses it because your house is used by Joshua under an arrangement that allows you to use his house. Free 1040ez tax filing Days used for repairs and maintenance. Free 1040ez tax filing   Any day that you spend working substantially full time repairing and maintaining (not improving) your property is not counted as a day of personal use. Free 1040ez tax filing Do not count such a day as a day of personal use even if family members use the property for recreational purposes on the same day. Free 1040ez tax filing Days used as a main home before or after renting. Free 1040ez tax filing   For purposes of determining whether a dwelling unit was used as a home, you may not have to count days you used the property as your main home before or after renting it or offering it for rent as days of personal use. Free 1040ez tax filing Do not count them as days of personal use if: You rented or tried to rent the property for 12 or more consecutive months. Free 1040ez tax filing You rented or tried to rent the property for a period of less than 12 consecutive months and the period ended because you sold or exchanged the property. Free 1040ez tax filing However, this special rule does not apply when dividing expenses between rental and personal use. Free 1040ez tax filing Examples. Free 1040ez tax filing   The following examples show how to determine whether you used your rental property as a home. Free 1040ez tax filing Example 1. Free 1040ez tax filing You converted the basement of your home into an apartment with a bedroom, a bathroom, and a small kitchen. Free 1040ez tax filing You rented the basement apartment at a fair rental price to college students during the regular school year. Free 1040ez tax filing You rented to them on a 9-month lease (273 days). Free 1040ez tax filing You figured 10% of the total days rented to others at a fair rental price is 27 days. Free 1040ez tax filing During June (30 days), your brothers stayed with you and lived in the basement apartment rent free. Free 1040ez tax filing Your basement apartment was used as a home because you used it for personal purposes for 30 days. Free 1040ez tax filing Rent-free use by your brothers is considered personal use. Free 1040ez tax filing Your personal use (30 days) is more than the greater of 14 days or 10% of the total days it was rented (27 days). Free 1040ez tax filing Example 2. Free 1040ez tax filing You rented the guest bedroom in your home at a fair rental price during the local college's homecoming, commencement, and football weekends (a total of 27 days). Free 1040ez tax filing Your sister-in-law stayed in the room, rent free, for the last 3 weeks (21 days) in July. Free 1040ez tax filing You figured 10% of the total days rented to others at a fair rental price is 3 days. Free 1040ez tax filing The room was used as a home because you used it for personal purposes for 21 days. Free 1040ez tax filing That is more than the greater of 14 days or 10% of the 27 days it was rented (3 days). Free 1040ez tax filing Example 3. Free 1040ez tax filing You own a condominium apartment in a resort area. Free 1040ez tax filing You rented it at a fair rental price for a total of 170 days during the year. Free 1040ez tax filing For 12 of those days, the tenant was not able to use the apartment and allowed you to use it even though you did not refund any of the rent. Free 1040ez tax filing Your family actually used the apartment for 10 of those days. Free 1040ez tax filing Therefore, the apartment is treated as having been rented for 160 (170 − 10) days. Free 1040ez tax filing You figured 10% of the total days rented to others at a fair rental price is 16 days. Free 1040ez tax filing Your family also used the apartment for 7 other days during the year. Free 1040ez tax filing You used the apartment as a home because you used it for personal purposes for 17 days. Free 1040ez tax filing That is more than the greater of 14 days or 10% of the 160 days it was rented (16 days). Free 1040ez tax filing Minimal rental use. Free 1040ez tax filing   If you use the dwelling unit as a home and you rent it less than 15 days during the year, that period is not treated as rental activity. Free 1040ez tax filing See Used as a home but rented less than 15 days , later, for more information. Free 1040ez tax filing Limit on deductions. Free 1040ez tax filing   Renting a dwelling unit that is considered a home is not a passive activity. Free 1040ez tax filing Instead, if your rental expenses are more than your rental income, some or all of the excess expenses cannot be used to offset income from other sources. Free 1040ez tax filing The excess expenses that cannot be used to offset income from other sources are carried forward to the next year and treated as rental expenses for the same property. Free 1040ez tax filing Any expenses carried forward to the next year will be subject to any limits that apply for that year. Free 1040ez tax filing This limitation will apply to expenses carried forward to another year even if you do not use the property as your home for that subsequent year. Free 1040ez tax filing   To figure your deductible rental expenses for this year and any carryover to next year, use Worksheet 9-1. Free 1040ez tax filing Reporting Income and Deductions Property not used for personal purposes. Free 1040ez tax filing   If you do not use a dwelling unit for personal purposes, see How To Report Rental Income and Expenses , later, for how to report your rental income and expenses. Free 1040ez tax filing Property used for personal purposes. Free 1040ez tax filing   If you do use a dwelling unit for personal purposes, then how you report your rental income and expenses depends on whether you used the dwelling unit as a home. Free 1040ez tax filing Not used as a home. Free 1040ez tax filing   If you use a dwelling unit for personal purposes, but not as a home, report all the rental income in your income. Free 1040ez tax filing Since you used the dwelling unit for personal purposes, you must divide your expenses between the rental use and the personal use as described earlier in Dividing Expenses . Free 1040ez tax filing The expenses for personal use are not deductible as rental expenses. Free 1040ez tax filing   Your deductible rental expenses can be more than your gross rental income; however, see Limits on Rental Losses , later. Free 1040ez tax filing Used as a home but rented less than 15 days. Free 1040ez tax filing   If you use a dwelling unit as a home and you rent it less than 15 days during the year, its primary function is not considered to be rental and it should not be reported on Schedule E (Form 1040). Free 1040ez tax filing You are not required to report the rental income and rental expenses from this activity. Free 1040ez tax filing The expenses, including qualified mortgage interest, property taxes, and any qualified casualty loss will be reported as normally allowed on Schedule A (Form 1040). Free 1040ez tax filing See the Instructions for Schedule A (Form 1040) for more information on deducting these expenses. Free 1040ez tax filing Used as a home and rented 15 days or more. Free 1040ez tax filing   If you use a dwelling unit as a home and rent it 15 days or more during the year, include all your rental income in your income. Free 1040ez tax filing Since you used the dwelling unit for personal purposes, you must divide your expenses between the rental use and the personal use as described earlier in Dividing Expenses . Free 1040ez tax filing The expenses for personal use are not deductible as rental expenses. Free 1040ez tax filing   If you had a net profit from renting the dwelling unit for the year (that is, if your rental income is more than the total of your rental expenses, including depreciation), deduct all of your rental expenses. Free 1040ez tax filing You do not need to use Worksheet 9-1. Free 1040ez tax filing   However, if you had a net loss from renting the dwelling unit for the year, your deduction for certain rental expenses is limited. Free 1040ez tax filing To figure your deductible rental expenses and any carryover to next year, use Worksheet 9-1. Free 1040ez tax filing Depreciation You recover the cost of income-producing property through yearly tax deductions. Free 1040ez tax filing You do this by depreciating the property; that is, by deducting some of the cost each year on your tax return. Free 1040ez tax filing Three factors determine how much depreciation you can deduct each year: (1) your basis in the property, (2) the recovery period for the property, and (3) the depreciation method used. Free 1040ez tax filing You cannot simply deduct your mortgage or principal payments, or the cost of furniture, fixtures, and equipment, as an expense. Free 1040ez tax filing You can deduct depreciation only on the part of your property used for rental purposes. Free 1040ez tax filing Depreciation reduces your basis for figuring gain or loss on a later sale or exchange. Free 1040ez tax filing You may have to use Form 4562 to figure and report your depreciation. Free 1040ez tax filing See How To Report Rental Income and Expenses , later. Free 1040ez tax filing Alternative minimum tax (AMT). Free 1040ez tax filing    If you use accelerated depreciation, you may be subject to the AMT. Free 1040ez tax filing Accelerated depreciation allows you to deduct more depreciation earlier in the recovery period than you could deduct using a straight line method (same deduction each year). Free 1040ez tax filing Claiming the correct amount of depreciation. Free 1040ez tax filing   You should claim the correct amount of depreciation each tax year. Free 1040ez tax filing If you did not claim all the depreciation you were entitled to deduct, you must still reduce your basis in the property by the full amount of depreciation that you could have deducted. Free 1040ez tax filing   If you deducted an incorrect amount of depreciation for property in any year, you may be able to make a correction by filing Form 1040X, Amended U. Free 1040ez tax filing S Individual Income Tax Return. Free 1040ez tax filing If you are not allowed to make the correction on an amended return, you can change your accounting method to claim the correct amount of depreciation. Free 1040ez tax filing See Claiming the correct amount of depreciation in chapter 2 of Publication 527 for more information. Free 1040ez tax filing Changing your accounting method to deduct unclaimed depreciation. Free 1040ez tax filing   To change your accounting method, you generally must file Form 3115, Application for Change in Accounting Method, to get the consent of the IRS. Free 1040ez tax filing In some instances, that consent is automatic. Free 1040ez tax filing For more information, see chapter 1 of Publication 946. Free 1040ez tax filing Land. Free 1040ez tax filing   You cannot depreciate the cost of land because land generally does not wear out, become obsolete, or get used up. Free 1040ez tax filing The costs of clearing, grading, planting, and landscaping are usually all part of the cost of land and cannot be depreciated. Free 1040ez tax filing More information. Free 1040ez tax filing   See Publication 527 for more information about depreciating rental property and see Publication 946 for more information about depreciation. Free 1040ez tax filing Limits on Rental Losses If you have a loss from your rental real estate activity, two sets of rules may limit the amount of loss you can deduct. Free 1040ez tax filing You must consider these rules in the order shown below. Free 1040ez tax filing At-risk rules. Free 1040ez tax filing These rules are applied first if there is investment in your rental real estate activity for which you are not at risk. Free 1040ez tax filing This applies only if the real property was placed in service after 1986. Free 1040ez tax filing Passive activity limits. Free 1040ez tax filing Generally, rental real estate activities are considered passive activities and losses are not deductible unless you have income from other passive activities to offset them. Free 1040ez tax filing However, there are exceptions. Free 1040ez tax filing At-Risk Rules You may be subject to the at-risk rules if you have: A loss from an activity carried on as a trade or business or for the production of income, and Amounts invested in the activity for which you are not fully at risk. Free 1040ez tax filing Losses from holding real property (other than mineral property) placed in service before 1987 are not subject to the at-risk rules. Free 1040ez tax filing In most cases, any loss from an activity subject to the at-risk rules is allowed only to the extent of the total amount you have at risk in the activity at the end of the tax year. Free 1040ez tax filing You are considered at risk in an activity to the extent of cash and the adjusted basis of other property you contributed to the activity and certain amounts borrowed for use in the activity. Free 1040ez tax filing See Publication 925 for more information. Free 1040ez tax filing Passive Activity Limits In most cases, all rental real estate activities (except those of certain real estate professionals, discussed later) are passive activities. Free 1040ez tax filing For this purpose, a rental activity is an activity from which you receive income mainly for the use of tangible property, rather than for services. Free 1040ez tax filing Limits on passive activity deductions and credits. Free 1040ez tax filing    Deductions or losses from passive activities are limited. Free 1040ez tax filing You generally cannot offset income, other than passive income, with losses from passive activities. Free 1040ez tax filing Nor can you offset taxes on income, other than passive income, with credits resulting from passive activities. Free 1040ez tax filing Any excess loss or credit is carried forward to the next tax year. Free 1040ez tax filing   For a detailed discussion of these rules, see Publication 925. Free 1040ez tax filing    You may have to complete Form 8582 to figure the amount of any passive activity loss for the current tax year for all activities and the amount of the passive activity loss allowed on your tax return. Free 1040ez tax filing Real estate professionals. Free 1040ez tax filing   Rental activities in which you materially participated during the year are not passive activities if, for that year, you were a real estate professional. Free 1040ez tax filing For a detailed discussion of the requirements, see Publication 527. Free 1040ez tax filing For a detailed discussion of material participation, see Publication 925. Free 1040ez tax filing Exception for Personal Use of Dwelling Unit If you used the rental property as a home during the year, any income, deductions, gain, or loss allocable to such use shall not be taken into account for purposes of the passive activity loss limitation. Free 1040ez tax filing Instead, follow the rules explained in Personal Use of Dwelling Unit (Including Vacation Home), earlier. Free 1040ez tax filing Exception for Rental Real Estate Activities With Active Participation If you or your spouse actively participated in a passive rental real estate activity, you may be able to deduct up to $25,000 of loss from the activity from your nonpassive income. Free 1040ez tax filing This special allowance is an exception to the general rule disallowing losses in excess of income from passive activities. Free 1040ez tax filing Similarly, you may be able to offset credits from the activity against the tax on up to $25,000 of nonpassive income after taking into account any losses allowed under this exception. Free 1040ez tax filing Active participation. Free 1040ez tax filing   You actively participated in a rental real estate activity if you (and your spouse) owned at least 10% of the rental property and you made management decisions or arranged for others to provide services (such as repairs) in a significant and bona fide sense. Free 1040ez tax filing Management decisions that may count as active participation include approving new tenants, deciding on rental terms, approving expenditures, and similar decisions. Free 1040ez tax filing Maximum special allowance. Free 1040ez tax filing   The maximum special allowance is: $25,000 for single individuals and married individuals filing a joint return for the tax year, $12,500 for married individuals who file separate returns for the tax year and lived apart from their spouses at all times during the tax year, and $25,000 for a qualifying estate reduced by the special allowance for which the surviving spouse qualified. Free 1040ez tax filing   If your modified adjusted gross income (MAGI) is $100,000 or less ($50,000 or less if married filing separately), you can deduct your loss up to the amount specified above. Free 1040ez tax filing If your MAGI is more than $100,000 (more than $50,000 if married filing separately), your special allowance is limited to 50% of the difference between $150,000 ($75,000 if married filing separately) and your MAGI. Free 1040ez tax filing   Generally, if your MAGI is $150,000 or more ($75,000 or more if you are married filing separately), there is no special allowance. Free 1040ez tax filing More information. Free 1040ez tax filing   See Publication 925 for more information on the passive loss limits, including information on the treatment of unused disallowed passive losses and credits and the treatment of gains and losses realized on the disposition of a passive activity. Free 1040ez tax filing How To Report Rental Income and Expenses The basic form for reporting residential rental income and expenses is Schedule E (Form 1040). Free 1040ez tax filing However, do not use that schedule to report a not-for-profit activity. Free 1040ez tax filing See Not Rented for Profit, earlier. Free 1040ez tax filing Providing substantial services. Free 1040ez tax filing   If you provide substantial services that are primarily for your tenant's convenience, such as regular cleaning, changing linen, or maid service, report your rental income and expenses on Schedule C (Form 1040), Profit or Loss From Business, or Schedule C-EZ (Form 1040), Net Profit From Business (Sole Proprietorship). Free 1040ez tax filing Substantial services do not include the furnishing of heat and light, cleaning of public areas, trash collection, etc. Free 1040ez tax filing For information, see Publication 334, Tax Guide for Small Business. Free 1040ez tax filing You also may have to pay self-employment tax on your rental income using Schedule SE (Form 1040), Self-Employment Tax. Free 1040ez tax filing   Use Form 1065, U. Free 1040ez tax filing S. Free 1040ez tax filing Return of Partnership Income, if your rental activity is a partnership (including a partnership with your spouse unless it is a qualified joint venture). Free 1040ez tax filing Qualified joint venture. Free 1040ez tax filing   If you and your spouse each materially participate as the only members of a jointly owned and operated real estate business, and you file a joint return for the tax year, you can make a joint election to be treated as a qualified joint venture instead of a partnership. Free 1040ez tax filing This election, in most cases, will not increase the total tax owed on the joint return, but it does give each of you credit for social security earnings on which retirement benefits are based and for Medicare coverage if your rental income is subject to self-employment tax. Free 1040ez tax filing For more information, see Publication 527. Free 1040ez tax filing Form 1098, Mortgage Interest Statement. Free 1040ez tax filing    If you paid $600 or more of mortgage interest on your rental property to any one person, you should receive a Form 1098, or similar statement showing the interest you paid for the year. Free 1040ez tax filing If you and at least one other person (other than your spouse if you file a joint return) were liable for, and paid interest on the mortgage, and the other person received the Form 1098, report your share of the interest on Schedule E (Form 1040), line 13. Free 1040ez tax filing Attach a statement to your return showing the name and address of the other person. Free 1040ez tax filing In the left margin of Schedule E, next to line 13, enter “See attached. Free 1040ez tax filing ” Schedule E (Form 1040) If you rent buildings, rooms, or apartments, and provide basic services such as heat and light, trash collection, etc. Free 1040ez tax filing , you normally report your rental income and expenses on Schedule E, Part I. Free 1040ez tax filing List your total income, expenses, and depreciation for each rental property. Free 1040ez tax filing Be sure to enter the number of fair rental and personal use days on line 2. Free 1040ez tax filing If you have more than three rental or royalty properties, complete and attach as many Schedules E as are needed to list the properties. Free 1040ez tax filing Complete lines 1 and 2 for each property. Free 1040ez tax filing However, fill in lines 23a through 26 on only one Schedule E. Free 1040ez tax filing On Schedule E, page 1, line 18, enter the depreciation you are claiming for each property. Free 1040ez tax filing To find out if you need to attach Form 4562, see Form 4562, in chapter 3 of Publication 527. Free 1040ez tax filing If you have a loss from your rental real estate activity, you also may need to complete one or both of the following forms. Free 1040ez tax filing Form 6198, At-Risk Limitations. Free 1040ez tax filing See At-Risk Rules , earlier. Free 1040ez tax filing Also see Publication 925. Free 1040ez tax filing Form 8582, Passive Activity Loss Limitations. Free 1040ez tax filing See Passive Activity Limits , earlier. Free 1040ez tax filing Page 2 of Schedule E is used to report income or loss from partnerships, S corporations, estates, trusts, and real estate mortgage investment conduits. Free 1040ez tax filing If you need to use page 2 of Schedule E, be sure to use page 2 of the same Schedule E you used to enter your rental activity on page 1. Free 1040ez tax filing Also, include the amount from line 26 (Part I) in the “Total income or (loss)” on line 41 (Part V). Free 1040ez tax filing Worksheet 9-1. Free 1040ez tax filing Worksheet for Figuring Rental Deductions for a Dwelling Unit Used as a Home Use this worksheet only if you answer “yes” to all of the following questions. Free 1040ez tax filing Did you use the dwelling unit as a home this year? (See Dwelling Unit Used as a Home . Free 1040ez tax filing ) Did you rent the dwelling unit at a fair rental price 15 days or more this year? Is the total of your rental expenses and depreciation more than your rental income? PART I. Free 1040ez tax filing Rental Use Percentage A. Free 1040ez tax filing Total days available for rent at fair rental price A. Free 1040ez tax filing       B. Free 1040ez tax filing Total days available for rent (line A) but not rented B. Free 1040ez tax filing       C. Free 1040ez tax filing Total days of rental use. Free 1040ez tax filing Subtract line B from line A C. Free 1040ez tax filing       D. Free 1040ez tax filing Total days of personal use (including days rented at less than fair rental price) D. Free 1040ez tax filing       E. Free 1040ez tax filing Total days of rental and personal use. Free 1040ez tax filing Add lines C and D E. Free 1040ez tax filing       F. Free 1040ez tax filing Percentage of expenses allowed for rental. Free 1040ez tax filing Divide line C by line E     F. Free 1040ez tax filing   PART II. Free 1040ez tax filing Allowable Rental Expenses 1. Free 1040ez tax filing Enter rents received 1. Free 1040ez tax filing   2a. Free 1040ez tax filing Enter the rental portion of deductible home mortgage interest and qualified mortgage insurance premiums (see instructions) 2a. Free 1040ez tax filing       b. Free 1040ez tax filing Enter the rental portion of real estate taxes b. Free 1040ez tax filing       c. Free 1040ez tax filing Enter the rental portion of deductible casualty and theft losses (see instructions) c. Free 1040ez tax filing       d. Free 1040ez tax filing Enter direct rental expenses (see instructions) d. Free 1040ez tax filing       e. Free 1040ez tax filing Fully deductible rental expenses. Free 1040ez tax filing Add lines 2a–2d. Free 1040ez tax filing Enter here and  on the appropriate lines on Schedule E (see instructions) 2e. Free 1040ez tax filing   3. Free 1040ez tax filing Subtract line 2e from line 1. Free 1040ez tax filing If zero or less, enter -0- 3. Free 1040ez tax filing   4a. Free 1040ez tax filing Enter the rental portion of expenses directly related to operating or maintaining  the dwelling unit (such as repairs, insurance, and utilities) 4a. Free 1040ez tax filing       b. Free 1040ez tax filing Enter the rental portion of excess mortgage interest and qualified mortgage insurance premiums (see instructions) b. Free 1040ez tax filing       c. Free 1040ez tax filing Carryover of operating expenses from 2012 worksheet c. Free 1040ez tax filing       d. Free 1040ez tax filing Add lines 4a–4c d. Free 1040ez tax filing       e. Free 1040ez tax filing Allowable expenses. Free 1040ez tax filing Enter the smaller of line 3 or line 4d (see instructions) 4e. Free 1040ez tax filing   5. Free 1040ez tax filing Subtract line 4e from line 3. Free 1040ez tax filing If zero or less, enter -0- 5. Free 1040ez tax filing   6a. Free 1040ez tax filing Enter the rental portion of excess casualty and theft losses (see instructions) 6a. Free 1040ez tax filing       b. Free 1040ez tax filing Enter the rental portion of depreciation of the dwelling unit b. Free 1040ez tax filing       c. Free 1040ez tax filing Carryover of excess casualty losses and depreciation from 2012 worksheet c. Free 1040ez tax filing       d. Free 1040ez tax filing Add lines 6a–6c d. Free 1040ez tax filing       e. Free 1040ez tax filing Allowable excess casualty and theft losses and depreciation. Free 1040ez tax filing Enter the smaller of  line 5 or line 6d (see instructions) 6e. Free 1040ez tax filing   PART III. Free 1040ez tax filing Carryover of Unallowed Expenses to Next Year 7a. Free 1040ez tax filing Operating expenses to be carried over to next year. Free 1040ez tax filing Subtract line 4e from line 4d 7a. Free 1040ez tax filing   b. Free 1040ez tax filing Excess casualty and theft losses and depreciation to be carried over to next year. Free 1040ez tax filing  Subtract line 6e from line 6d b. Free 1040ez tax filing   Worksheet 9-1 Instructions. Free 1040ez tax filing Worksheet for Figuring Rental Deductions for a Dwelling Unit Used as a Home Caution. Free 1040ez tax filing Use the percentage determined in Part I, line F, to figure the rental portions to enter on lines 2a–2c, 4a–4b, and 6a–6b of  Part II. Free 1040ez tax filing Line 2a. Free 1040ez tax filing Figure the mortgage interest on the dwelling unit that you could deduct on Schedule A as if you had not rented the unit. Free 1040ez tax filing Do not include interest on a loan that did not benefit the dwelling unit. Free 1040ez tax filing For example, do not include interest on a home equity loan used to pay off credit cards or other personal loans, buy a car, or pay college tuition. Free 1040ez tax filing Include interest on a loan used to buy, build, or improve the dwelling unit, or to refinance such a loan. Free 1040ez tax filing Include the rental portion of this interest in the total you enter on line 2a of the worksheet. Free 1040ez tax filing   Figure the qualified mortgage insurance premiums on the dwelling unit that you could deduct on line 13 of Schedule A as if you had not rented the unit. Free 1040ez tax filing See the Schedule A instructions. Free 1040ez tax filing However, figure your adjusted gross income (Form 1040, line 38) without your rental income and expenses from the dwelling unit. Free 1040ez tax filing See Line 4b to deduct the part of the qualified mortgage insurance premiums not allowed because of the adjusted gross income limit. Free 1040ez tax filing Include the rental portion of the amount from Schedule A, line 13, in the total you enter on line 2a of the worksheet. Free 1040ez tax filing   Note. Free 1040ez tax filing Do not file this Schedule A or use it to figure the amount to deduct on line 13 of that schedule. Free 1040ez tax filing Instead, figure the personal portion on a separate Schedule A. Free 1040ez tax filing If you have deducted mortgage interest or qualified mortgage insurance premiums on the dwelling unit on other forms, such as Schedule C or F, remember to reduce your Schedule A deduction by that amount. Free 1040ez tax filing           Line 2c. Free 1040ez tax filing Figure the casualty and theft losses related to the dwelling unit that you could deduct on Schedule A as if you had not rented the dwelling unit. Free 1040ez tax filing To do this, complete Section A of Form 4684, Casualties and Thefts, treating the losses as personal losses. Free 1040ez tax filing If any of the loss is due to a federally declared disaster, see the Instructions for Form 4684. Free 1040ez tax filing On Form 4684, line 17, enter 10% of your adjusted gross income figured without your rental income and expenses from the dwelling unit. Free 1040ez tax filing Enter the rental portion of the result from Form 4684, line 18, on line 2c of this worksheet. Free 1040ez tax filing   Note. Free 1040ez tax filing Do not file this Form 4684 or use it to figure your personal losses on Schedule A. Free 1040ez tax filing Instead, figure the personal portion on a separate Form 4684. Free 1040ez tax filing           Line 2d. Free 1040ez tax filing Enter the total of your rental expenses that are directly related only to the rental activity. Free 1040ez tax filing These include interest on loans used for rental activities other than to buy, build, or improve the dwelling unit. Free 1040ez tax filing Also include rental agency fees, advertising, office supplies, and depreciation on office equipment used in your rental activity. Free 1040ez tax filing           Line 2e. Free 1040ez tax filing You can deduct the amounts on lines 2a, 2b, 2c, and 2d as rental expenses on Schedule E even if your rental expenses are more than your rental income. Free 1040ez tax filing Enter the amounts on lines 2a, 2b, 2c, and 2d on the appropriate lines of Schedule E. Free 1040ez tax filing           Line 4b. Free 1040ez tax filing On line 2a, you entered the rental portion of the mortgage interest and qualified mortgage insurance premiums you could deduct on Schedule A if you had not rented the dwelling unit. Free 1040ez tax filing If you had additional mortgage interest and qualified mortgage insurance premiums that would not be deductible on Schedule A because of limits imposed on them, enter on line 4b of this worksheet the rental portion of those excess amounts. Free 1040ez tax filing Do not include interest on a loan that did not benefit the dwelling unit (as explained in the line 2a instructions). Free 1040ez tax filing           Line 4e. Free 1040ez tax filing You can deduct the amounts on lines 4a, 4b, and 4c as rental expenses on Schedule E only to the extent they are not more than the amount on line 4e. Free 1040ez tax filing *           Line 6a. Free 1040ez tax filing To find the rental portion of excess casualty and theft losses, use the Form 4684 you prepared for line 2c of this worksheet. Free 1040ez tax filing   A. Free 1040ez tax filing Enter the amount from Form 4684, line 10       B. Free 1040ez tax filing Enter the rental portion of line A       C. Free 1040ez tax filing Enter the amount from line 2c of this worksheet       D. Free 1040ez tax filing Subtract line C from line B. Free 1040ez tax filing Enter the result here and on line 6a of this worksheet               Line 6e. Free 1040ez tax filing You can deduct the amounts on lines 6a, 6b, and 6c as rental expenses on Schedule E only to the extent they are not more than the amount on line 6e. Free 1040ez tax filing * *Allocating the limited deduction. Free 1040ez tax filing If you cannot deduct all of the amount on line 4d or 6d this year, you can allocate the allowable deduction in any way you wish among the expenses included on line 4d or 6d. Free 1040ez tax filing Enter the amount you allocate to each expense on the appropriate line of Schedule E, Part I. Free 1040ez tax filing Prev  Up  Next   Home   More Online Publications
Print - Click this link to Print this page

Understanding Your CP3219B Notice

This Statutory Notice of Deficiency notifies you of the IRS’s intent to assess a tax deficiency and informs you of your right to petition the United States Tax Court to dispute the proposed adjustments.


What you need to do immediately

  • Review this notice and compare our changes to the information on your tax return. On previous notices we asked you to verify the income, credits, and deductions reported on your tax return because they’re different from the information we received from other sources. You didn't provide any further information to us.
  • If you agree with the changes, complete the Form 4089, Notice of Deficiency - Waiver, sign and return it in order to limit additional interest charges.
  • If you don't send a payment with Form 4089, we will send a bill for the amount due with any interest and applicable penalties.
  • Mail any additional information you have to us immediately. Attach this letter to your correspondence to help us identify your case. Keep a copy for your records. Our consideration won't extend the deadline to file a petition with the U.S Tax Court.
  • If you don’t agree with the changes you have the right to challenge the increase in tax by filing a petition with the U.S. Tax Court. You have 90 days (150 if the notice was addressed outside the United States) to file the petition. The Court can’t consider your case if the petition is filed late. You can download a petition form and rules from www.ustaxcourt.gov or contact:

  • Clerk of the U.S. Tax Court
    400 Second Street, NW
    Washington, DC 20217
    1-202-521-0700

You may want to

  • Send us the name, address and taxpayer identification number of the other party that received the income if it isn't yours.
  • Notify the payers to correct their records to show the name and taxpayer identification number of the person or business who actually received the income, so that future reports to us are accurate.

Answers to Common Questions

Is this a Bill?
No. It tells you of the IRS’s intention to assess a tax deficiency. It isn't an assessment of tax nor does it require you to make immediate payment. We haven’t charged any additional tax at this time.

Should I call with my response or mail it in?
If you want us to consider additional information, please contact us immediately. Our consideration won't extend the deadline to file a petition with the U.S Tax Court.


If you have a simple response, such as directing us to a specific line on your original return where you reported the income, you can call a Customer Service Representative and provide the information. A toll-free number is listed in the top right hand corner of the notice.


A written response may be required if the issue is more involved, especially if you disagree with some of the proposed changes. You may want to mail copies of payer information documents such as Form(s) 1099 or Schedule(s) K-1. Include any other letters or documents that support your position. You should submit a written statement to fully explain any unusual tax situations.


If you choose to petition the United States Tax Court, the application must be submitted in writing.

Why did it take you so long to contact us about this?
Tax years generally end on Dec. 31, but we don't receive information from banks, businesses, and other payers until much later. Once we receive all the tax returns and payer information, we compare the information you reported with the information third party payers provided to us. It can take 8 months or more to complete this review.

I need more time to find my records and go through them all. Will you allow me additional time to respond?
No. The time you have to petition the United States Tax Court can't be extended. It’s important that you respond to the Statutory Notice of Deficiency or petition the United States Tax Court (if you choose to) by the due date shown on the notice. If you don’t, we’ll assume the proposed changes are correct and assess the additional deficiency.

Do I have to pay the interest? Can you remove it?
The law requires us to charge interest on any tax that isn't paid by the return due date (Internal Revenue Code Section 6601). 

The law doesn't permit us to reduce or remove interest for reasonable cause. However, in limited circumstances, we may waive penalties. If you believe you qualify for penalty removal, you should include related information in your response.

What should I do to avoid problems like this in the future?
Keep accurate payment information from banks and other payers to verify you've received all payment information for filing your return. Review the documents to be sure they show your most current address. Take the following actions when filing your tax return to avoid similar issues in the future:

  • Report specific income type on the correct line on the Form 1120, U.S. Corporation Income Tax Return. For example, rental income should be claimed on Form 1120, line 6 (Gross Rents). For additional information, please see the reporting instructions for Form 1120.
  • If you report income on a line not traditionally reserved for that type of income, provide a statement indicating where the income was reported. For example, your business is related to investment activity and you're reporting all interest income (including amounts reported to the IRS on Form 1099-INT, Interest Income) with your gross receipts on Form 1120, line 1.
  • Always attach a statement identifying the source of the amount reported on Form 1120, line 10 (Other Income).
  • Provide an attached statement explaining your percentage of gross proceeds (ex; reported to us on Form 1099-MISC) that you would be liable to claim on your tax return.
  • Generally, if you receive a Form 1099 for amounts that actually belong to another person, you are considered a nominee recipient. You must file a Form 1099 with the IRS (the same type of Form 1099 you received) for each of the other owners showing the amounts applicable to each.
Page Last Reviewed or Updated: 28-Feb-2014

How to get help

  • Call the 1-800 number listed on the top right corner of your notice.
  • Authorize someone (e.g., accountant) to contact the IRS on your behalf using Form 2848.
  • See if you qualify for help from a Low Income Taxpayer Clinic.
     

The Free 1040ez Tax Filing

Free 1040ez tax filing 6. Free 1040ez tax filing   Retail Tax on Heavy Trucks, Trailers, and Tractors Table of Contents Highway vehicle. Free 1040ez tax filing Vehicles not considered highway vehicles. Free 1040ez tax filing Idling reduction device. Free 1040ez tax filing Separate purchase. Free 1040ez tax filing Leases. Free 1040ez tax filing Exported vehicle. Free 1040ez tax filing Tax on resale of tax-paid trailers and semitrailers. Free 1040ez tax filing Use treated as sale. Free 1040ez tax filing Sale. Free 1040ez tax filing Long-term lease. Free 1040ez tax filing Short-term lease. Free 1040ez tax filing Related person. Free 1040ez tax filing Exclusions from tax base. Free 1040ez tax filing Sales not at arm's length. Free 1040ez tax filing Installment sales. Free 1040ez tax filing Repairs and modifications. Free 1040ez tax filing Further manufacture. Free 1040ez tax filing Rail trailers and rail vans. Free 1040ez tax filing Parts and accessories. Free 1040ez tax filing Trash containers. Free 1040ez tax filing House trailers. Free 1040ez tax filing Camper coaches or bodies for self-propelled mobile homes. Free 1040ez tax filing Farm feed, seed, and fertilizer equipment. Free 1040ez tax filing Ambulances and hearses. Free 1040ez tax filing Truck-tractors. Free 1040ez tax filing Concrete mixers. Free 1040ez tax filing Registration requirement. Free 1040ez tax filing Further manufacture. Free 1040ez tax filing A tax of 12% of the sales price is imposed on the first retail sale of the following articles, including related parts and accessories sold on or in connection with, or with the sale of, the articles. Free 1040ez tax filing Truck chassis and bodies. Free 1040ez tax filing Truck trailer and semitrailer chassis and bodies. Free 1040ez tax filing Tractors of the kind chiefly used for highway transportation in combination with a trailer or semitrailer. Free 1040ez tax filing A truck is a highway vehicle primarily designed to transport its load on the same chassis as the engine, even if it is equipped to tow a vehicle, such as a trailer or semitrailer. Free 1040ez tax filing A tractor is a highway vehicle designed to tow a vehicle, such as a trailer or semitrailer. Free 1040ez tax filing A tractor may carry incidental items of cargo when towing or limited amounts of cargo when not towing. Free 1040ez tax filing A sale of a truck, truck trailer, or semitrailer is considered a sale of a chassis and a body. Free 1040ez tax filing The seller is liable for the tax. Free 1040ez tax filing Chassis or body. Free 1040ez tax filing   A chassis or body is taxable only if you sell it for use as a component part of a highway vehicle that is a truck, truck trailer or semitrailer, or a tractor of the kind chiefly used for highway transportation in combination with a trailer or semitrailer. Free 1040ez tax filing Highway vehicle. Free 1040ez tax filing   A highway vehicle is any self-propelled vehicle designed to carry a load over public highways, whether or not it is also designed to perform other functions. Free 1040ez tax filing Examples of vehicles designed to carry a load over public highways are passenger automobiles, motorcycles, buses, and highway-type trucks and truck tractors. Free 1040ez tax filing A vehicle is a highway vehicle even though the vehicle's design allows it to perform a highway transportation function for only one of the following. Free 1040ez tax filing A particular type of load, such as passengers, furnishings, and personal effects (as in a house, office, or utility trailer). Free 1040ez tax filing A special kind of cargo, goods, supplies, or materials. Free 1040ez tax filing Some off-highway task unrelated to highway transportation, except as discussed next. Free 1040ez tax filing Vehicles not considered highway vehicles. Free 1040ez tax filing   Generally, the following kinds of vehicles are not considered highway vehicles for purposes of the retail tax. Free 1040ez tax filing Specially designed mobile machinery for nontransportation functions. Free 1040ez tax filing A self-propelled vehicle is not a highway vehicle if all the following apply. Free 1040ez tax filing The chassis has permanently mounted to it machinery or equipment used to perform certain operations (construction, manufacturing, drilling, mining, timbering, processing, farming, or similar operations) if the operation of the machinery or equipment is unrelated to transportation on or off the public highways. Free 1040ez tax filing The chassis has been specially designed to serve only as a mobile carriage and mount (and power source, if applicable) for the machinery or equipment, whether or not the machinery or equipment is in operation. Free 1040ez tax filing The chassis could not, because of its special design and without substantial structural modification, be used as part of a vehicle designed to carry any other load. Free 1040ez tax filing Vehicles specially designed for off-highway transportation. Free 1040ez tax filing A vehicle is not treated as a highway vehicle if the vehicle is specially designed for the primary function of transporting a particular type of load other than over the public highway and because of this special design, the vehicles's capability to transport a load over a public highway is substantially limited or impaired. Free 1040ez tax filing To make this determination, you can take into account the vehicle's size, whether the vehicle is subject to licensing, safety, or other requirements, and whether the vehicle can transport a load at a sustained speed of at least 25 miles per hour. Free 1040ez tax filing It does not matter that the vehicle can carry heavier loads off highway than it is allowed to carry over the highway. Free 1040ez tax filing Nontransportation trailers and semitrailers. Free 1040ez tax filing A trailer or semitrailer is not treated as a highway vehicle if it is specially designed to function only as an enclosed stationary shelter for carrying on a nontransportation function at an off-highway site. Free 1040ez tax filing For example, a trailer that is capable only of functioning as an office for an off-highway construction operation is not a highway vehicle. Free 1040ez tax filing Gross vehicle weight. Free 1040ez tax filing   The tax does not apply to truck chassis and bodies suitable for use with a vehicle that has a gross vehicle weight (defined below) of 33,000 pounds or less. Free 1040ez tax filing It also does not apply to truck trailer and semitrailer chassis and bodies suitable for use with a trailer or semitrailer that has a gross vehicle weight of 26,000 pounds or less. Free 1040ez tax filing Tractors that have a gross vehicle weight of 19,500 pounds or less and a gross combined weight of 33,000 pounds or less are excluded from the 12% retail tax. Free 1040ez tax filing   The following four classifications of truck body types meet the suitable for use standard and will be excluded from the retail excise tax. Free 1040ez tax filing Platform truck bodies 21 feet or less in length. Free 1040ez tax filing Dry freight and refrigerated truck van bodies 24 feet or less in length. Free 1040ez tax filing Dump truck bodies with load capacities of 8 cubic yards or less. Free 1040ez tax filing Refuse packer truck bodies with load capacities of 20 cubic yards or less. Free 1040ez tax filing For more information on these classifications, see Revenue Procedure 2005-19, which is on page 832 of I. Free 1040ez tax filing R. Free 1040ez tax filing B. Free 1040ez tax filing 2005-14 at www. Free 1040ez tax filing irs. Free 1040ez tax filing gov/pub/irs-irbs/irb05-14. Free 1040ez tax filing pdf. Free 1040ez tax filing   The gross vehicle weight means the maximum total weight of a loaded vehicle. Free 1040ez tax filing Generally, this maximum total weight is the gross vehicle weight rating provided by the manufacturer or determined by the seller of the completed article. Free 1040ez tax filing The seller's gross vehicle weight rating is determined solely on the basis of the strength of the chassis frame and the axle capacity and placement. Free 1040ez tax filing The seller may not take into account any readily attachable components (such as tires or rim assemblies) in determining the gross vehicle weight. Free 1040ez tax filing See Regulations section 145. Free 1040ez tax filing 4051-1(e)(3) for more information. Free 1040ez tax filing Parts or accessories. Free 1040ez tax filing   The tax applies to parts or accessories sold on or in connection with, or with the sale of, a taxable article. Free 1040ez tax filing For example, if at the time of the sale by the retailer, the part or accessory has been ordered from the retailer, the part or accessory will be considered as sold in connection with the sale of the vehicle. Free 1040ez tax filing The tax applies in this case whether or not the retailer bills the parts or accessories separately. Free 1040ez tax filing   If the retailer sells a taxable chassis, body, or tractor without parts or accessories considered essential for the operation or appearance of the taxable article, the sale of the parts or accessories by the retailer to the purchaser is considered made in connection with the sale of the taxable article even though they are shipped separately, at the same time, or on a different date. Free 1040ez tax filing The tax applies unless there is evidence to the contrary. Free 1040ez tax filing For example, if a retailer sells to any person a chassis and the bumpers for the chassis, or sells a taxable tractor and the fifth wheel and attachments, the tax applies to the parts or accessories regardless of the method of billing or the time at which the shipments were made. Free 1040ez tax filing The tax does not apply to parts and accessories that are spares or replacements. Free 1040ez tax filing   The tax imposed on parts and accessories sold on or in connection with the taxable articles listed earlier and the tax imposed on the separate purchase of parts and accessories (discussed next) for the taxable articles listed earlier do not apply to an idling reduction device or insulation that has an R value of at least R35 per inch. Free 1040ez tax filing Idling reduction device. Free 1040ez tax filing   An idling reduction device is any device or system of devices that provide the tractor with services, such as heat, air conditioning, and electricity, without the use of the main drive engine while the tractor is temporarily parked or stationary. Free 1040ez tax filing The device must be affixed to the tractor and determined by the Administrator of the EPA, in consultation with the Secretary of Energy and Secretary of Transportation, to reduce idling while parked or stationary. Free 1040ez tax filing The EPA discusses idling reduction technologies on its website at www. Free 1040ez tax filing epa. Free 1040ez tax filing gov/smartway/technology/idling. Free 1040ez tax filing htm. Free 1040ez tax filing Separate purchase. Free 1040ez tax filing   The tax generally applies to the price of a part or accessory and its installation if the following conditions are met. Free 1040ez tax filing The owner, lessee, or operator of any vehicle that contains a taxable article installs any part or accessory on the vehicle. Free 1040ez tax filing The installation occurs within 6 months after the vehicle is first placed in service. Free 1040ez tax filing   The owners of the trade or business installing the parts or accessories are secondarily liable for the tax. Free 1040ez tax filing   A vehicle is placed in service on the date the owner takes actual possession of the vehicle. Free 1040ez tax filing This date is established by a signed delivery ticket or other comparable document indicating delivery to and acceptance by the owner. Free 1040ez tax filing   The tax does not apply if the installed part or accessory is a replacement part or accessory. Free 1040ez tax filing The tax also does not apply if the total price of the parts and accessories, including installation charges, during the 6-month period is $1,000 or less. Free 1040ez tax filing However, if the total price is more than $1,000, the tax applies to the cost of all parts and accessories (and installation charges) during that period. Free 1040ez tax filing Example. Free 1040ez tax filing You bought a taxable vehicle and placed it in service on April 8. Free 1040ez tax filing On May 3, you bought and installed parts and accessories at a cost of $850. Free 1040ez tax filing On July 15, you bought and installed parts and accessories for $300. Free 1040ez tax filing Tax of $138 (12% of $1,150) applies on July 15. Free 1040ez tax filing Also, tax will apply to any costs of additional parts and accessories installed on the vehicle before October 8. Free 1040ez tax filing First retail sale defined. Free 1040ez tax filing   The sale of an article is treated as the first retail sale, and the seller will be liable for the tax imposed on the sale unless one of the following exceptions applies. Free 1040ez tax filing There has been a prior taxable sale, lease, or use of the article (however, see Tax on resale of tax-paid trailers and semitrailers, later). Free 1040ez tax filing The sale qualifies as a tax-free sale under section 4221 (see Sales exempt from tax, later). Free 1040ez tax filing The seller in good faith accepts from the purchaser a statement signed under penalties of perjury and executed in good faith that the purchaser intends to resell the article or lease it on a long-term basis. Free 1040ez tax filing There is no registration requirement. Free 1040ez tax filing Leases. Free 1040ez tax filing   A long-term lease (a lease with a term of 1 year or more, taking into account options to renew) before a first retail sale is treated as a taxable sale. Free 1040ez tax filing The tax is imposed on the lessor at the time of the lease. Free 1040ez tax filing   A short-term lease (a lease with a term of less than 1 year, taking into account options to renew) before a first retail sale is treated as a taxable use. Free 1040ez tax filing The tax is imposed on the lessor at the time of the lease. Free 1040ez tax filing Exported vehicle. Free 1040ez tax filing   A vehicle exported before its first retail sale, used in a foreign country, and then returned to the United States is subject to the retail tax on its first domestic use or retail sale after importation. Free 1040ez tax filing Tax on resale of tax-paid trailers and semitrailers. Free 1040ez tax filing   The tax applies to a trailer or semitrailer resold within 6 months after having been sold in a taxable sale. Free 1040ez tax filing The seller liable for the tax on the resale can claim a credit equal to the tax paid on the prior taxable sale. Free 1040ez tax filing The credit cannot exceed the tax on the resale. Free 1040ez tax filing See Regulations section 145. Free 1040ez tax filing 4052-1(a)(4) for information on the conditions to allowance for the credit. Free 1040ez tax filing Use treated as sale. Free 1040ez tax filing   If any person uses a taxable article before the first retail sale of the article, that person is liable for the tax as if the article had been sold at retail by that person. Free 1040ez tax filing Figure the tax on the price at which similar articles are sold in the ordinary course of trade by retailers. Free 1040ez tax filing The tax attaches when the use begins. Free 1040ez tax filing   If the seller of an article regularly sells the articles at retail in arm's-length transactions, figure the tax on its use on the lowest established retail price for the articles in effect at the time of the taxable use. Free 1040ez tax filing   If the seller of an article does not regularly sell the articles at retail in arm's-length transactions, a constructive price on which the tax is figured will be determined by the IRS after considering the selling practices and price structures of sellers of similar articles. Free 1040ez tax filing   If a seller of an article incurs liability for tax on the use of the article and later sells or leases the article in a transaction that otherwise would be taxable, liability for tax is not incurred on the later sale or lease. Free 1040ez tax filing Presumptive retail sales price. Free 1040ez tax filing   There are rules to ensure that the tax base of transactions considered to be taxable sales includes either an actual or presumed markup percentage. Free 1040ez tax filing If the person liable for tax is the vehicle's manufacturer, producer, or importer, the following discussions show how you figure the presumptive retail sales price depending on the type of transaction and the persons involved in the transaction. Free 1040ez tax filing Table 6-1 outlines the appropriate tax base calculation for various transactions. Free 1040ez tax filing   The presumed markup percentage to be used for trucks and truck-tractors is 4%. Free 1040ez tax filing But for truck trailers and semitrailers and remanufactured trucks and tractors, the presumed markup percentage is zero. Free 1040ez tax filing Sale. Free 1040ez tax filing   For a taxable sale by a manufacturer, producer, importer, or related person, you generally figure the tax on a tax base of the sales price plus an amount equal to the presumed markup percentage times that sales price. Free 1040ez tax filing Long-term lease. Free 1040ez tax filing   In the case of a long-term lease by a manufacturer, producer, importer, or related person, figure the tax on a tax base of the constructive sales price plus an amount equal to the presumed markup percentage times the constructive sales price. Free 1040ez tax filing Short-term lease. Free 1040ez tax filing   When a manufacturer, producer, importer, or related person leases an article in a short-term lease considered a taxable use, figure the tax on a constructive sales price at which those or similar articles generally are sold in the ordinary course of trade by retailers. Free 1040ez tax filing   But if the lessor in this situation regularly sells articles at retail in arm's-length transactions, figure the tax on the lowest established retail price in effect at the time of the taxable use. Free 1040ez tax filing   If a person other than the manufacturer, producer, importer, or related person leases an article in a short-term lease considered a taxable use, figure the tax on a tax base of the price for which the article was sold to the lessor plus the cost of parts and accessories installed by the lessor and a presumed markup percentage. Free 1040ez tax filing Related person. Free 1040ez tax filing   A related person is any member of the same controlled group as the manufacturer, producer, or importer. Free 1040ez tax filing Do not treat as a related person a person that sells the articles through a permanent retail establishment in the normal course of being a retailer if that person has records to prove the article was sold for a price that included a markup equal to or greater than the presumed markup percentage. Free 1040ez tax filing Table 6-1. Free 1040ez tax filing Tax Base IF the transaction is a. Free 1040ez tax filing . Free 1040ez tax filing . Free 1040ez tax filing THEN figuring the base by using the. Free 1040ez tax filing . Free 1040ez tax filing . Free 1040ez tax filing Sale by the manufacturer, producer, importer, or related person Sales price plus (presumed markup percentage × sales price) Sale by the dealer Total consideration paid for the item including any charges incident to placing it in a condition ready for use Long-term lease by the manufacturer, producer, importer, or related person Constructive sales price plus (presumed markup percentage × constructive sales price) Short-term lease by the manufacturer, producer, importer, or related person Constructive sales price at which such or similar articles are sold Short-term lease by a lessor other than the manufacturer, producer, importer, or related person Price for which the article was sold to the lessor plus the cost of parts and accessories installed by the lessor plus a presumed markup percentage Short-term lease where the articles are regularly sold at arm's length Lowest established retail price in effect at the time of the taxable use General rule for sales by dealers to the consumer. Free 1040ez tax filing   For a taxable sale, other than a long-term lease, by a person other than a manufacturer, producer, importer, or related person, your tax base is the retail sales price as discussed next under Determination of tax base. Free 1040ez tax filing   When you sell an article to the consumer, generally you do not add a presumed markup to the tax base. Free 1040ez tax filing However, you do add a markup if all the following apply. Free 1040ez tax filing You do not perform any significant activities relating to the processing of the sale of a taxable article. Free 1040ez tax filing The main reason for processing the sale through you is to avoid or evade the presumed markup. Free 1040ez tax filing You do not have records proving that the article was sold for a price that included a markup equal to or greater than the presumed markup percentage. Free 1040ez tax filing In these situations, your tax base is the sales price plus an amount equal to the presumed markup percentage times that selling price. Free 1040ez tax filing Determination of tax base. Free 1040ez tax filing   These rules apply to both normal retail sales price and presumptive retail sales price computations. Free 1040ez tax filing To arrive at the tax base, the price is the total consideration paid (including trade-in allowance) for the item and includes any charge incident to placing the article in a condition ready for use. Free 1040ez tax filing However, see Presumptive retail sales price, earlier. Free 1040ez tax filing Exclusions from tax base. Free 1040ez tax filing   Exclude from the tax base the retail excise tax imposed on the sale. Free 1040ez tax filing Exclude any state or local retail sales tax if stated as a separate charge from the price whether the sales tax is imposed on the seller or purchaser. Free 1040ez tax filing Also exclude the value of any used component of the article furnished by the first user of the article. Free 1040ez tax filing   Exclude charges for transportation, delivery, insurance, and installation (other than installation charges for parts and accessories, discussed earlier) and other expenses incurred in connection with the delivery of an article to a purchaser. Free 1040ez tax filing These expenses are those incurred in delivery from the retail dealer to the customer. Free 1040ez tax filing In the case of delivery directly from the manufacturer to the dealer's customer, include the transportation and delivery charges to the extent the charges do not exceed what it would have cost to ship the article to the dealer. Free 1040ez tax filing   Exclude amounts charged for machinery or equipment that does not contribute to the highway transportation function of the vehicle, provided those charges are supported by adequate records. Free 1040ez tax filing For example, for an industrial vacuum loader vehicle, exclude amounts charged for the vacuum pump and hose, filter system, material separator, silencer or muffler, control cabinet, and ladder. Free 1040ez tax filing Similarly, for a sewer cleaning vehicle, exclude amounts charged for the high pressure water pump, hose components, and the vacuum pipe. Free 1040ez tax filing Sales not at arm's length. Free 1040ez tax filing   For any taxable article sold (not at arm's length) at less than the fair market price, figure the excise tax on the price for which similar articles are sold at retail in the ordinary course of trade. Free 1040ez tax filing   A sale is not at arm's length if either of the following apply. Free 1040ez tax filing One of the parties is controlled (in law or in fact) by the other or there is common control, whether or not the control is actually exercised to influence the sales price. Free 1040ez tax filing The sale is made under special arrangements between a seller and a purchaser. Free 1040ez tax filing Installment sales. Free 1040ez tax filing   If the first retail sale is an installment sale, or other form of sale in which the sales price is paid in installments, tax liability arises at the time of the sale. Free 1040ez tax filing The tax is figured on the entire sales price. Free 1040ez tax filing No part of the tax is deferred because the sales price is paid in installments. Free 1040ez tax filing Repairs and modifications. Free 1040ez tax filing   The tax does not apply to the sale or use of an article that has been repaired or modified unless the cost of the repairs and modifications is more than 75% of the retail price of a comparable new article. Free 1040ez tax filing This includes modifications that change the transportation function of an article or restore a wrecked article to a functional condition. Free 1040ez tax filing However, this exception generally does not apply to an article that was not subject to the tax when it was new. Free 1040ez tax filing Further manufacture. Free 1040ez tax filing   The tax does not apply to the use by a person of a taxable article as material in the manufacture or production of, or as a component part of, another article to be manufactured or produced by that person. Free 1040ez tax filing Do not treat a person as engaged in the manufacture of any article merely because that person combines the article with a: Coupling device (including any fifth wheel); Wrecker crane; Loading and unloading equipment (including any crane, hoist, winch, or power liftgate); Aerial ladder or tower; Ice and snow control equipment; Earth moving, excavation, and construction equipment; Spreader; Sleeper cab; Cab shield; or Wood or metal floor. Free 1040ez tax filing Combining an article with an item in this list does not give rise to taxability. Free 1040ez tax filing However, see Parts or accessories discussed earlier. Free 1040ez tax filing Articles exempt from tax. Free 1040ez tax filing   The tax on heavy trucks, trailers, and tractors does not apply to sales of the articles described in the following discussions. Free 1040ez tax filing Rail trailers and rail vans. Free 1040ez tax filing   This is any chassis or body of a trailer or semitrailer designed for use both as a highway vehicle and a railroad car (including any parts and accessories designed primarily for use on and in connection with it). Free 1040ez tax filing Do not treat a piggyback trailer or semitrailer as designed for use as a railroad car. Free 1040ez tax filing Parts and accessories. Free 1040ez tax filing   This is any part or accessory sold separately from the truck or trailer, except as described earlier under Parts or accessories and Separate purchase. Free 1040ez tax filing Trash containers. Free 1040ez tax filing   This is any box, container, receptacle, bin, or similar article that meets all the following conditions. Free 1040ez tax filing It is designed to be used as a trash container. Free 1040ez tax filing It is not designed to carry freight other than trash. Free 1040ez tax filing It is not designed to be permanently mounted on or affixed to a truck chassis or body. Free 1040ez tax filing House trailers. Free 1040ez tax filing   This is any house trailer (regardless of size) suitable for use in connection with either passenger automobiles or trucks. Free 1040ez tax filing Camper coaches or bodies for self-propelled mobile homes. Free 1040ez tax filing   This is any article designed to be mounted or placed on trucks, truck chassis, or automobile chassis and to be used primarily as living quarters or camping accommodations. Free 1040ez tax filing Further, the tax does not apply to chassis specifically designed and constructed to accommodate and transport self-propelled mobile home bodies. Free 1040ez tax filing Farm feed, seed, and fertilizer equipment. Free 1040ez tax filing   This is any body primarily designed to process or prepare, haul, spread, load, or unload feed, seed, or fertilizer to or on farms. Free 1040ez tax filing This exemption applies only to the farm equipment body (and parts and accessories) and not to the chassis upon which the farm equipment is mounted. Free 1040ez tax filing Ambulances and hearses. Free 1040ez tax filing   This is any ambulance, hearse, or combination ambulance-hearse. Free 1040ez tax filing Truck-tractors. Free 1040ez tax filing   This is any truck-tractor specifically designed for use in shifting semitrailers in and around freight yards and freight terminals. Free 1040ez tax filing Concrete mixers. Free 1040ez tax filing   This is any article designed to be placed or mounted on a truck, truck trailer, or semitrailer chassis to be used to process or prepare concrete. Free 1040ez tax filing This exemption does not apply to the chassis on which the article is mounted. Free 1040ez tax filing Sales exempt from tax. Free 1040ez tax filing   The following sales are ordinarily exempt from tax. Free 1040ez tax filing Sales to a state or local government for its exclusive use. Free 1040ez tax filing Sales to Indian tribal governments, but only if the transaction involves the exercise of an essential tribal government function. Free 1040ez tax filing Sales to a nonprofit educational organization for its exclusive use. Free 1040ez tax filing Sales to a qualified blood collector organization (as defined under Communications Tax in chapter 4) for its exclusive use in the collection, storage, or transportation of blood. Free 1040ez tax filing Sales for use by the purchaser for further manufacture of other taxable articles (see below). Free 1040ez tax filing Sales for export or for resale by the purchaser to a second purchaser for export. Free 1040ez tax filing Sales to the United Nations for official use. Free 1040ez tax filing Registration requirement. Free 1040ez tax filing   In general, the seller and buyer must be registered for a sale to be tax free. Free 1040ez tax filing See the Form 637 instructions for more information. Free 1040ez tax filing Certain registration exceptions apply in the case of sales to state and local governments, sales to foreign purchasers for export, and sales for resale or long term leasing. Free 1040ez tax filing Further manufacture. Free 1040ez tax filing   If you buy articles tax free and resell or use them other than in the manufacture of another article, you are liable for the tax on their resale or use just as if you had manufactured and made the first retail sale of them. Free 1040ez tax filing Credits or refunds. Free 1040ez tax filing   A credit or refund (without interest) of the retail tax on the taxable articles described earlier may be allowable if the tax has been paid with respect to an article and, before any other use, such article is used by any person as a component part of another taxable article manufactured or produced. Free 1040ez tax filing The person using the article as a component part is eligible for the credit or refund. Free 1040ez tax filing   A credit or refund is allowable if, before any other use, an article is, by any person: Exported, Used or sold for use as supplies for vessels, Sold to a state or local government for its exclusive use, Sold to a nonprofit educational organization for its exclusive use, or Sold to a qualified blood collector organization (as defined under Communications Tax in chapter 4) for its exclusive use in the collection, storage, or transportation of blood. Free 1040ez tax filing A credit or refund is also allowable if there is a price readjustment by reason of the return or repossession of an article or by reason of a bona fide discount, rebate, or allowance. Free 1040ez tax filing   See also Conditions to allowance in chapter 5. Free 1040ez tax filing Tire credit. Free 1040ez tax filing   A credit is allowed against the retail tax on the taxable articles described earlier if taxable tires are sold on or in connection with the sale of the article. Free 1040ez tax filing The credit is equal to the manufacturers excise tax imposed on the taxable tires (discussed earlier). Free 1040ez tax filing This is the section 4051(d) taxable tire credit and is claimed on Schedule C (Form 720) for the same quarter for which the tax on the heavy vehicle is reported. Free 1040ez tax filing Prev  Up  Next   Home   More Online Publications