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Free 1040x forms prepared online Publication 1212 - Main Content Table of Contents Definitions Debt Instruments on the OID List Debt Instruments Not on the OID List Information for Brokers and Other MiddlemenShort-Term Obligations Redeemed at Maturity Long-Term Debt Instruments Certificates of Deposit Bearer Bonds and Coupons Backup Withholding Information for Owners of OID Debt InstrumentsExceptions. Free 1040x forms prepared online Adjustment for premium. Free 1040x forms prepared online Adjustment for acquisition premium. Free 1040x forms prepared online Adjustment for market discount. Free 1040x forms prepared online Form 1099-OID How To Report OID Figuring OID on Long-Term Debt Instruments Figuring OID on Stripped Bonds and Coupons How To Get Tax HelpLow Income Taxpayer Clinics Definitions The following terms are used throughout this publication. Free 1040x forms prepared online “Original issue discount” is defined first. Free 1040x forms prepared online The other terms are listed alphabetically. Free 1040x forms prepared online Original issue discount (OID). Free 1040x forms prepared online   OID is a form of interest. Free 1040x forms prepared online It is the excess of a debt instrument's stated redemption price at maturity over its issue price (acquisition price for a stripped bond or coupon). Free 1040x forms prepared online Zero coupon bonds and debt instruments that pay no stated interest until maturity are examples of debt instruments that have OID. Free 1040x forms prepared online Accrual period. Free 1040x forms prepared online   An accrual period is an interval of time used to measure OID. Free 1040x forms prepared online The length of an accrual period can be 6 months, a year, or some other period, depending on when the debt instrument was issued. Free 1040x forms prepared online Acquisition premium. Free 1040x forms prepared online   Acquisition premium is the excess of a debt instrument's adjusted basis immediately after purchase, including purchase at original issue, over the debt instrument's adjusted issue price at that time. Free 1040x forms prepared online A debt instrument does not have acquisition premium, however, if the debt instrument was purchased at a premium. Free 1040x forms prepared online See Premium, later. Free 1040x forms prepared online Adjusted issue price. Free 1040x forms prepared online   The adjusted issue price of a debt instrument at the beginning of an accrual period is used to figure the OID allocable to that period. Free 1040x forms prepared online In general, the adjusted issue price at the beginning of the debt instrument's first accrual period is its issue price. Free 1040x forms prepared online The adjusted issue price at the beginning of any subsequent accrual period is the sum of the issue price and all the OID includible in income before that accrual period minus any payment previously made on the debt instrument, other than a payment of qualified stated interest. Free 1040x forms prepared online Debt instrument. Free 1040x forms prepared online   The term “debt instrument” means any instrument or contractual arrangement that constitutes indebtedness under general principles of federal income tax law (including, for example, a bond, debenture, note, certificate, or other evidence of indebtedness). Free 1040x forms prepared online It generally does not include an annuity contract. Free 1040x forms prepared online Issue price. Free 1040x forms prepared online   For debt instruments listed in Section I-A and Section I-B, the issue price generally is the initial offering price to the public (excluding bond houses and brokers) at which a substantial amount of these instruments was sold. Free 1040x forms prepared online Market discount. Free 1040x forms prepared online   Market discount arises when a debt instrument purchased in the secondary market has decreased in value since its issue date, generally because of an increase in interest rates. Free 1040x forms prepared online An OID debt instrument has market discount if your adjusted basis in the debt instrument immediately after you acquired it (usually its purchase price) was less than the debt instrument's issue price plus the total OID that accrued before you acquired it. Free 1040x forms prepared online The market discount is the difference between the issue price plus accrued OID and your adjusted basis. Free 1040x forms prepared online Premium. Free 1040x forms prepared online   A debt instrument is purchased at a premium if its adjusted basis immediately after purchase is greater than the total of all amounts payable on the debt instrument after the purchase date, other than qualified stated interest. Free 1040x forms prepared online The premium is the excess of the adjusted basis over the payable amounts. Free 1040x forms prepared online See Publication 550 for information on the tax treatment of bond premium. Free 1040x forms prepared online Qualified stated interest. Free 1040x forms prepared online   In general, qualified stated interest is stated interest that is unconditionally payable in cash or property (other than debt instruments of the issuer) at least annually over the term of the debt instrument at a single fixed rate. Free 1040x forms prepared online Stated redemption price at maturity. Free 1040x forms prepared online   A debt instrument's stated redemption price at maturity is the sum of all amounts (principal and interest) payable on the debt instrument other than qualified stated interest. Free 1040x forms prepared online Yield to maturity (YTM). Free 1040x forms prepared online   In general, the YTM is the discount rate that, when used in figuring the present value of all principal and interest payments, produces an amount equal to the issue price of the debt instrument. Free 1040x forms prepared online The YTM is generally shown on the face of the debt instrument or in the literature you receive from your broker. Free 1040x forms prepared online If you do not have this information, consult your broker, tax advisor, or the issuer. Free 1040x forms prepared online Debt Instruments on the OID List The OID list on the IRS website can be used by brokers and other middlemen to prepare information returns. Free 1040x forms prepared online If you own a listed debt instrument, you generally should not rely on the information in the OID list to determine (or compare) the OID to be reported on your tax return. Free 1040x forms prepared online The OID amounts listed are figured without reference to the price or date at which you acquired the debt instrument. Free 1040x forms prepared online For information about determining the OID to be reported on your tax return, see the instructions for figuring OID under Information for Owners of OID Debt Instruments, later. Free 1040x forms prepared online The following discussions explain what information is contained in each section of the list. Free 1040x forms prepared online Section I. Free 1040x forms prepared online   This section contains publicly offered, long-term debt instruments. Free 1040x forms prepared online Section I-A: Corporate Debt Instruments Issued Before 1985. Free 1040x forms prepared online Section I-B: Corporate Debt Instruments Issued After 1984. Free 1040x forms prepared online Section I-C: Inflation-Indexed Debt Instruments. Free 1040x forms prepared online For each publicly offered debt instrument in Section I, the list contains the following information. Free 1040x forms prepared online The name of the issuer. Free 1040x forms prepared online The Committee on Uniform Security Identification Procedures (CUSIP) number. Free 1040x forms prepared online The issue date. Free 1040x forms prepared online The maturity date. Free 1040x forms prepared online The issue price expressed as a percent of principal or of stated redemption price at maturity. Free 1040x forms prepared online The annual stated or coupon interest rate. Free 1040x forms prepared online (This rate is shown as 0. Free 1040x forms prepared online 00 if no annual interest payments are provided. Free 1040x forms prepared online ) The yield to maturity will be added to Section I-B for bonds issued after December 31, 2006. Free 1040x forms prepared online The total OID accrued up to January 1 of a calendar year. Free 1040x forms prepared online (This information is not available for every instrument. Free 1040x forms prepared online ) For long-term debt instruments issued after July 1, 1982, the daily OID for the accrual periods falling in a calendar year and a subsequent year. Free 1040x forms prepared online The total OID per $1,000 of principal or maturity value for a calendar year and a subsequent year. Free 1040x forms prepared online Section II. Free 1040x forms prepared online   This section contains stripped coupons and principal components of U. Free 1040x forms prepared online S. Free 1040x forms prepared online Treasury and Government-Sponsored Enterprise debt instruments. Free 1040x forms prepared online These stripped components are available through the Department of the Treasury's Separate Trading of Registered Interest and Principal of Securities (STRIPS) program and government-sponsored enterprises such as the Resolution Funding Corporation. Free 1040x forms prepared online This section also includes debt instruments backed by U. Free 1040x forms prepared online S. Free 1040x forms prepared online Treasury securities that represent ownership interests in those securities. Free 1040x forms prepared online   The obligations listed in Section II are arranged by maturity date. Free 1040x forms prepared online The amounts listed are the total OID for a calendar year per $1,000 of redemption price. Free 1040x forms prepared online Section III. Free 1040x forms prepared online   This section contains short-term discount obligations. Free 1040x forms prepared online Section III-A: Short-Term U. Free 1040x forms prepared online S. Free 1040x forms prepared online Treasury Bills. Free 1040x forms prepared online Section III-B: Federal Home Loan Banks. Free 1040x forms prepared online Section III-C: Federal National Mortgage Association. Free 1040x forms prepared online Section III-D: Federal Farm Credit Banks. Free 1040x forms prepared online Section III-E: Federal Home Loan Mortgage Corporation. Free 1040x forms prepared online Section III-F: Federal Agricultural Mortgage Corporation. Free 1040x forms prepared online    Information that supplements Section III-A is available on the Internet at http://www. Free 1040x forms prepared online treasurydirect. Free 1040x forms prepared online gov/tdhome. Free 1040x forms prepared online htm. Free 1040x forms prepared online   The short-term obligations listed in this section are arranged by maturity date. Free 1040x forms prepared online For each obligation, the list contains the CUSIP number, maturity date, issue date, issue price (expressed as a percent of principal), and discount to be reported as interest for a calendar year per $1,000 of redemption price. Free 1040x forms prepared online Brokers and other middlemen should rely on the issue price information in Section III only if they are unable to determine the price actually paid by the owner. Free 1040x forms prepared online Debt Instruments Not on the OID List The list of debt instruments discussed earlier does not contain the following items. Free 1040x forms prepared online U. Free 1040x forms prepared online S. Free 1040x forms prepared online savings bonds. Free 1040x forms prepared online Certificates of deposit and other face-amount certificates issued at a discount, including syndicated certificates of deposit. Free 1040x forms prepared online Obligations issued by tax-exempt organizations. Free 1040x forms prepared online OID debt instruments that matured or were entirely called by the issuer before the tables were posted on the IRS website. Free 1040x forms prepared online Mortgage-backed securities and mortgage participation certificates. Free 1040x forms prepared online Long-term OID debt instruments issued before May 28, 1969. Free 1040x forms prepared online Short-term obligations, other than the obligations listed in Section III. Free 1040x forms prepared online Debt instruments issued at a discount by states or their political subdivisions. Free 1040x forms prepared online REMIC regular interests and CDOs. Free 1040x forms prepared online Commercial paper and banker's acceptances issued at a discount. Free 1040x forms prepared online Obligations issued at a discount by individuals. Free 1040x forms prepared online Foreign obligations not traded in the United States and obligations not issued in the United States. Free 1040x forms prepared online Information for Brokers and Other Middlemen The following discussions contain specific instructions for brokers and middlemen who hold or redeem a debt instrument for the owner. Free 1040x forms prepared online In general, you must file a Form 1099 for the debt instrument if the interest or OID to be included in the owner's income for a calendar year totals $10 or more. Free 1040x forms prepared online You also must file a Form 1099 if you were required to deduct and withhold tax, even if the interest or OID is less than $10. Free 1040x forms prepared online See Backup Withholding, later. Free 1040x forms prepared online If you must file a Form 1099, furnish a copy to the owner of the debt instrument by January 31 in the year it is due. Free 1040x forms prepared online File all your Forms 1099 with the IRS, accompanied by Form 1096, by February 28 in the year it is due (March 31 if you file electronically). Free 1040x forms prepared online Electronic payee statements. Free 1040x forms prepared online   You can issue Form 1099-OID electronically with the consent of the recipient. Free 1040x forms prepared online More information. Free 1040x forms prepared online   For more information, including penalties for failure to file (or furnish) required information returns or statements, see the General Instructions for Certain Information Returns (Forms 1098, 1099, 3921, 3922, 5498, and W-2G) for the appropriate calendar year. Free 1040x forms prepared online Short-Term Obligations Redeemed at Maturity If you redeem a short-term discount obligation for the owner at maturity, you must report the discount as interest on Form 1099-INT. Free 1040x forms prepared online To figure the discount, use the purchase price shown on the owner's copy of the purchase confirmation receipt or similar record, or the price shown in your transaction records. Free 1040x forms prepared online If you sell the obligation for the owner before maturity, you must file Form 1099-B to reflect the gross proceeds to the seller. Free 1040x forms prepared online Do not report the accrued discount to the date of sale on either Form 1099-INT or Form 1099-OID. Free 1040x forms prepared online If the owner's purchase price cannot be determined, figure the discount as if the owner had purchased the obligation at its original issue price. Free 1040x forms prepared online A special rule is used to determine the original issue price for information reporting on U. Free 1040x forms prepared online S. Free 1040x forms prepared online Treasury bills (T-bills) listed in Section III-A. Free 1040x forms prepared online Under this rule, you treat as the original issue price of the T-bill the noncompetitive (weighted average of accepted auction bids) discount price for the longest-maturity T-bill maturing on the same date as the T-bill being redeemed. Free 1040x forms prepared online This noncompetitive discount price is the issue price (expressed as a percent of principal) shown in Section III-A. Free 1040x forms prepared online A similar rule is used to figure the discount on short-term discount obligations issued by the organizations listed in Section III-B through Section III-F. Free 1040x forms prepared online Example 1. Free 1040x forms prepared online There are 13-week and 26-week T-bills maturing on the same date as the T-bill being redeemed. Free 1040x forms prepared online The price actually paid by the owner cannot be established by owner or middleman records. Free 1040x forms prepared online You treat as the issue price of the T-bill the noncompetitive discount price (expressed as a percent of principal) shown in Section III-A for a 26-week bill maturing on the same date as the T-bill redeemed. Free 1040x forms prepared online The interest you report on Form 1099-INT is the OID (per $1,000 of principal) shown in Section III-A for that obligation. Free 1040x forms prepared online Long-Term Debt Instruments If you hold a long-term OID debt instrument as a nominee for the true owner, you generally must file Form 1099-OID. Free 1040x forms prepared online For this purpose, you can rely on Section I of the OID list to determine the following information. Free 1040x forms prepared online Whether a debt instrument has OID. Free 1040x forms prepared online The OID to be reported on the Form 1099-OID. Free 1040x forms prepared online In general, you must report OID on publicly offered, long-term debt instruments listed in Section I. Free 1040x forms prepared online You also can report OID on other long-term debt instruments. Free 1040x forms prepared online Form 1099-OID. Free 1040x forms prepared online   On Form 1099-OID for a calendar year show the following information. Free 1040x forms prepared online Box 1. Free 1040x forms prepared online The OID for the actual dates the owner held the debt instruments during a calendar year. Free 1040x forms prepared online To determine this amount, see Figuring OID, next. Free 1040x forms prepared online Box 2. Free 1040x forms prepared online The qualified stated interest paid or credited during the calendar year. Free 1040x forms prepared online Interest reported here is not reported on Form 1099-INT. Free 1040x forms prepared online The qualified stated interest on Treasury inflation-protected securities may be reported on Form 1099-INT in box 3 instead. Free 1040x forms prepared online Box 3. Free 1040x forms prepared online Any interest or principal forfeited because of an early withdrawal that the owner can deduct from gross income. Free 1040x forms prepared online Do not reduce the amounts in boxes 1 and 2 by the forfeiture. Free 1040x forms prepared online Box 4. Free 1040x forms prepared online Any backup withholding for this debt instrument. Free 1040x forms prepared online Box 7. Free 1040x forms prepared online The CUSIP number, if any. Free 1040x forms prepared online If there is no CUSIP number, give a description of the debt instrument, including the abbreviation for the stock exchange, the abbreviation used by the stock exchange for the issuer, the coupon rate, and the year of maturity (for example, NYSE XYZ 12. Free 1040x forms prepared online 50 2006). Free 1040x forms prepared online If the issuer of the debt instrument is other than the payer, show the name of the issuer in this box. Free 1040x forms prepared online Box 8. Free 1040x forms prepared online The OID on a U. Free 1040x forms prepared online S. Free 1040x forms prepared online Treasury obligation for the part of the year the owner held the debt instrument. Free 1040x forms prepared online Box 9. Free 1040x forms prepared online Investment expenses passed on to holders of a single-class REMIC. Free 1040x forms prepared online Boxes 10-12. Free 1040x forms prepared online Use to report any state income tax withheld for this debt instrument. Free 1040x forms prepared online Figuring OID. Free 1040x forms prepared online   You can determine the OID on a long-term debt instrument by using either of the following. Free 1040x forms prepared online Section I of the OID list. Free 1040x forms prepared online The income tax regulations. Free 1040x forms prepared online Using Section I. Free 1040x forms prepared online   If the owner held the debt instrument for the entire calendar year, report the OID shown in Section I for the calendar year. Free 1040x forms prepared online Because OID is listed for each $1,000 of stated redemption price at maturity, you must adjust the listed amount to reflect the debt instrument's actual stated redemption price at maturity. Free 1040x forms prepared online For example, if the debt instrument's stated redemption price at maturity is $500, report one-half the listed OID. Free 1040x forms prepared online   If the owner held the debt instrument for less than the entire calendar year, figure the OID to report as follows. Free 1040x forms prepared online Look up the daily OID for the first accrual period in the calendar year during which the owner held the debt instrument. Free 1040x forms prepared online Multiply the daily OID by the number of days the owner held the debt instrument during that accrual period. Free 1040x forms prepared online Repeat steps (1) and (2) for any remaining accrual periods for the year during which the owner held the debt instrument. Free 1040x forms prepared online Add the results in steps (2) and (3) to determine the owner's OID per $1,000 of stated redemption price at maturity. Free 1040x forms prepared online If necessary, adjust the OID in (4) to reflect the debt instrument's stated redemption price at maturity. Free 1040x forms prepared online Report the result on Form 1099-OID in box 1. Free 1040x forms prepared online Using the income tax regulations. Free 1040x forms prepared online   Instead of using Section I to figure OID, you can use the regulations under sections 1272 through 1275 of the Internal Revenue Code. Free 1040x forms prepared online For example, under the regulations, you can use monthly accrual periods in figuring OID for a debt instrument issued after April 3, 1994, that provides for monthly payments. Free 1040x forms prepared online (If you use Section I-B, the OID is figured using 6-month accrual periods. Free 1040x forms prepared online )   For a general explanation of the rules for figuring OID under the regulations, see Figuring OID on Long-Term Debt Instruments under Information for Owners of OID Debt Instruments, later. Free 1040x forms prepared online Certificates of Deposit If you hold a bank certificate of deposit (CD) as a nominee, you must determine whether the CD has OID and any OID includible in the income of the owner. Free 1040x forms prepared online You must file an information return showing the reportable interest and OID, if any, on the CD. Free 1040x forms prepared online These rules apply whether or not you sold the CD to the owner. Free 1040x forms prepared online Report OID on a CD in the same way as OID on other debt instruments. Free 1040x forms prepared online See Short-Term Obligations Redeemed at Maturity and Long-Term Debt Instruments, earlier. Free 1040x forms prepared online Bearer Bonds and Coupons If a coupon from a bearer bond is presented to you for collection before the bond matures, you generally must report the interest on Form 1099-INT. Free 1040x forms prepared online However, do not report the interest if either of the following apply. Free 1040x forms prepared online You hold the bond as a nominee for the true owner. Free 1040x forms prepared online The payee is a foreign person. Free 1040x forms prepared online See Payments to foreign person under Backup Withholding, later. Free 1040x forms prepared online Because you cannot assume the presenter of the coupon also owns the bond, you should not report OID on the bond on Form 1099-OID. Free 1040x forms prepared online The coupon may have been “stripped” (separated) from the bond and separately purchased. Free 1040x forms prepared online However, if a long-term bearer bond on the OID list is presented to you for redemption upon call or maturity, you should prepare a Form 1099-OID showing the OID for that calendar year, as well as any coupon interest payments collected at the time of redemption. Free 1040x forms prepared online Backup Withholding If you report OID on Form 1099-OID or interest on Form 1099-INT for a calendar year, you may be required to apply backup withholding to the reportable payment at a rate of 28%. Free 1040x forms prepared online The backup withholding is deducted at the time a cash payment is made. Free 1040x forms prepared online See Pub. Free 1040x forms prepared online 1281, Backup Withholding for Missing and Incorrect Name/TIN(s), for more information. Free 1040x forms prepared online Backup withholding generally applies in the following situations. Free 1040x forms prepared online The payee does not give you a taxpayer identification number (TIN). Free 1040x forms prepared online The IRS notifies you that the payee gave an incorrect TIN. Free 1040x forms prepared online The IRS notifies you that the payee is subject to backup withholding due to payee underreporting. Free 1040x forms prepared online For debt instruments acquired after 1983: The payee does not certify, under penalties of perjury, that he or she is not subject to backup withholding under (3), or The payee does not certify, under penalties of perjury, that the TIN given is correct. Free 1040x forms prepared online However, for short-term discount obligations (other than government obligations), bearer bonds and coupons, and U. Free 1040x forms prepared online S. Free 1040x forms prepared online savings bonds, backup withholding applies only if the payee does not give you a TIN or gives you an obviously incorrect number for a TIN. Free 1040x forms prepared online Short-term obligations. Free 1040x forms prepared online   Backup withholding applies to OID on a short-term obligation only when the OID is paid at maturity. Free 1040x forms prepared online However, backup withholding applies to any interest payable before maturity when the interest is paid or credited. Free 1040x forms prepared online   If the owner of a short-term obligation at maturity is not the original owner and can establish the purchase price of the obligation, the amount subject to backup withholding must be determined by treating the purchase price as the issue price. Free 1040x forms prepared online However, you can choose to disregard that price if it would require significant manual intervention in the computer or recordkeeping system used for the obligation. Free 1040x forms prepared online If the purchase price of a listed obligation is not established or is disregarded, you must use the issue price shown in Section III. Free 1040x forms prepared online Long-term obligations. Free 1040x forms prepared online   If no cash payments are made on a long-term obligation before maturity, backup withholding applies only at maturity. Free 1040x forms prepared online The amount subject to backup withholding is the OID includible in the owner's gross income for the calendar year when the obligation matures. Free 1040x forms prepared online The amount to be withheld is limited to the cash paid. Free 1040x forms prepared online Registered long-term obligations with cash payments. Free 1040x forms prepared online   If a registered long-term obligation has cash payments before maturity, backup withholding applies when a cash payment is made. Free 1040x forms prepared online The amount subject to backup withholding is the total of the qualified stated interest (defined earlier under Definitions) and OID includible in the owner's gross income for the calendar year when the payment is made. Free 1040x forms prepared online If more than one cash payment is made during the year, the OID subject to withholding for the year must be allocated among the expected cash payments in the ratio that each bears to the total of the expected cash payments. Free 1040x forms prepared online For any payment, the required withholding is limited to the cash paid. Free 1040x forms prepared online Payee not the original owner. Free 1040x forms prepared online   If the payee is not the original owner of the obligation, the OID subject to backup withholding is the OID includible in the gross income of all owners during the calendar year (without regard to any amount paid by the new owner at the time of transfer). Free 1040x forms prepared online The amount subject to backup withholding at maturity of a listed obligation must be determined using the issue price shown in Section I. Free 1040x forms prepared online Bearer long-term obligations with cash payments. Free 1040x forms prepared online   If a bearer long-term obligation has cash payments before maturity, backup withholding applies when the cash payments are made. Free 1040x forms prepared online For payments before maturity, the amount subject to withholding is the qualified stated interest (defined earlier under Definitions) includible in the owner's gross income for the calendar year. Free 1040x forms prepared online For a payment at maturity, the amount subject to withholding is only the total of any qualified stated interest paid at maturity and the OID includible in the owner's gross income for the calendar year when the obligation matures. Free 1040x forms prepared online The required withholding at maturity is limited to the cash paid. Free 1040x forms prepared online Sales and redemptions. Free 1040x forms prepared online   If you report the gross proceeds from a sale, exchange, or redemption of a debt instrument on Form 1099-B for a calendar year, you may be required to withhold 28% of the amount reported. Free 1040x forms prepared online Backup withholding applies in the following situations. Free 1040x forms prepared online The payee does not give you a TIN. Free 1040x forms prepared online The IRS notifies you that the payee gave an incorrect TIN. Free 1040x forms prepared online For debt instruments held in an account opened after 1983, the payee does not certify, under penalties of perjury, that the TIN given is correct. Free 1040x forms prepared online Payments outside the United States to U. Free 1040x forms prepared online S. Free 1040x forms prepared online person. Free 1040x forms prepared online   The requirements for backup withholding and information reporting apply to payments of OID and interest made outside the United States to a U. Free 1040x forms prepared online S. Free 1040x forms prepared online person, a controlled foreign corporation, or a foreign person at least 50% of whose income for the preceding 3-year period is effectively connected with the conduct of a U. Free 1040x forms prepared online S. Free 1040x forms prepared online trade or business. Free 1040x forms prepared online Payments to foreign person. Free 1040x forms prepared online   The following discussions explain the rules for backup withholding and information reporting on payments to foreign persons. Free 1040x forms prepared online U. Free 1040x forms prepared online S. Free 1040x forms prepared online -source amount. Free 1040x forms prepared online   Backup withholding and information reporting are not required for payments of U. Free 1040x forms prepared online S. Free 1040x forms prepared online -source OID, interest, or proceeds from a sale or redemption of an OID instrument if the payee has given you proof (generally the appropriate Form W-8 or an acceptable substitute) that the payee is a foreign person. Free 1040x forms prepared online A U. Free 1040x forms prepared online S. Free 1040x forms prepared online resident is not a foreign person. Free 1040x forms prepared online For proof of the payee's foreign status, you can rely on the appropriate Form W-8 or on documentary evidence for payments made outside the United States to an offshore account or, in case of broker proceeds, a sale effected outside the United States. Free 1040x forms prepared online Receipt of the appropriate Form W-8 does not relieve you from information reporting and backup withholding if you actually know the payee is a U. Free 1040x forms prepared online S. Free 1040x forms prepared online person. Free 1040x forms prepared online   For information about the 28% withholding tax that may apply to payments of U. Free 1040x forms prepared online S. Free 1040x forms prepared online -source OID or interest to foreign persons, see Publication 515. Free 1040x forms prepared online Foreign-source amount. Free 1040x forms prepared online   Backup withholding and information reporting are not required for payments of foreign-source OID and interest made outside the United States. Free 1040x forms prepared online However, if the payments are made inside the United States, the requirements for backup withholding and information reporting will apply unless the payee has given you the appropriate Form W-8 or acceptable substitute as proof that the payee is a foreign person. Free 1040x forms prepared online More information. Free 1040x forms prepared online   For more information about backup withholding and information reporting on foreign-source amounts or payments to foreign persons, see Regulations section 1. Free 1040x forms prepared online 6049-5. Free 1040x forms prepared online Information for Owners of OID Debt Instruments This section is for persons who prepare their own tax returns. Free 1040x forms prepared online It discusses the income tax rules for figuring and reporting OID on long-term debt instruments. Free 1040x forms prepared online It also includes a similar discussion for stripped bonds and coupons, such as zero coupon bonds available through the Department of the Treasury's STRIPS program and government-sponsored enterprises such as the Resolution Funding Corporation. Free 1040x forms prepared online However, the information provided does not cover every situation. Free 1040x forms prepared online More information can be found in the regulations under sections 1271 through 1275 of the Internal Revenue Code. Free 1040x forms prepared online Including OID in income. Free 1040x forms prepared online   Generally, you include OID in income as it accrues each year, whether or not you receive any payments from the debt instrument issuer. Free 1040x forms prepared online Exceptions. Free 1040x forms prepared online   The rules for including OID in income as it accrues generally do not apply to the following debt instruments. Free 1040x forms prepared online U. Free 1040x forms prepared online S. Free 1040x forms prepared online savings bonds. Free 1040x forms prepared online Tax-exempt obligations. Free 1040x forms prepared online (However, see Tax-Exempt Bonds and Coupons, later. Free 1040x forms prepared online ) Obligations issued by individuals before March 2, 1984. Free 1040x forms prepared online Loans of $10,000 or less between individuals who are not in the business of lending money. Free 1040x forms prepared online (The dollar limit includes outstanding prior loans by the lender to the borrower. Free 1040x forms prepared online ) This exception does not apply if a principal purpose of the loan is to avoid any federal tax. Free 1040x forms prepared online   See chapter 1 of Publication 550 for information about the rules for these and other types of discounted debt instruments, such as short-term and market discount obligations. Free 1040x forms prepared online Publication 550 also discusses rules for holders of REMIC interests and CDOs. Free 1040x forms prepared online De minimis rule. Free 1040x forms prepared online   You can treat OID as zero if the total OID on a debt instrument is less than one-fourth of 1% (. Free 1040x forms prepared online 0025) of the stated redemption price at maturity multiplied by the number of full years from the date of original issue to maturity. Free 1040x forms prepared online Debt instruments with de minimis OID are not listed in this publication. Free 1040x forms prepared online There are special rules to determine the de minimis amount in the case of debt instruments that provide for more than one payment of principal. Free 1040x forms prepared online Also, the de minimis rules generally do not apply to tax-exempt obligations. Free 1040x forms prepared online Example 2. Free 1040x forms prepared online You bought at issuance a 10-year debt instrument with a stated redemption price at maturity of $1,000, issued at $980 with OID of $20. Free 1040x forms prepared online One-fourth of 1% of $1,000 (the stated redemption price) times 10 (the number of full years from the date of original issue to maturity) equals $25. Free 1040x forms prepared online Under the de minimis rule, you can treat the OID as zero because the $20 discount is less than $25. Free 1040x forms prepared online Example 3. Free 1040x forms prepared online Assume the same facts as Example 2, except the debt instrument was issued at $950. Free 1040x forms prepared online You must report part of the $50 OID each year because it is more than $25. Free 1040x forms prepared online Choice to report all interest as OID. Free 1040x forms prepared online   Generally, you can choose to treat all interest on a debt instrument acquired after April 3, 1994, as OID and include it in gross income by using the constant yield method. Free 1040x forms prepared online See Constant yield method under Debt Instruments Issued After 1984, later, for more information. Free 1040x forms prepared online   For this choice, interest includes stated interest, acquisition discount, OID, de minimis OID, market discount, de minimis market discount, and unstated interest, as adjusted by any amortizable bond premium or acquisition premium. Free 1040x forms prepared online For more information, see Regulations section 1. Free 1040x forms prepared online 1272-3. Free 1040x forms prepared online Purchase after date of original issue. Free 1040x forms prepared online   A debt instrument you purchased after the date of original issue may have premium, acquisition premium, or market discount. Free 1040x forms prepared online If so, the OID reported to you on Form 1099-OID may have to be adjusted. Free 1040x forms prepared online For more information, see Showing an OID adjustment under How To Report OID, later. Free 1040x forms prepared online The following rules generally do not apply to contingent payment debt instruments. Free 1040x forms prepared online Adjustment for premium. Free 1040x forms prepared online   If your debt instrument (other than an inflation-indexed debt instrument) has premium, do not report any OID as ordinary income. Free 1040x forms prepared online Your adjustment is the total OID shown on your Form 1099-OID. Free 1040x forms prepared online Adjustment for acquisition premium. Free 1040x forms prepared online   If your debt instrument has acquisition premium, reduce the OID you report. Free 1040x forms prepared online Your adjustment is the difference between the OID shown on your Form 1099-OID and the reduced OID amount figured using the rules explained later under Figuring OID on Long-Term Debt Instruments. Free 1040x forms prepared online Adjustment for market discount. Free 1040x forms prepared online   If your debt instrument has market discount that you choose to include in income currently, increase the OID you report. Free 1040x forms prepared online Your adjustment is the accrued market discount for the year. Free 1040x forms prepared online See Market Discount Bonds in chapter 1 of Publication 550 for information on how to figure accrued market discount and include it in your income currently and for other information about market discount bonds. Free 1040x forms prepared online If you choose to use the constant yield method to figure accrued market discount, also see Figuring OID on Long-Term Debt Instruments, later. Free 1040x forms prepared online The constant yield method of figuring accrued OID, explained in those discussions under Constant yield method, is also used to figure accrued market discount. Free 1040x forms prepared online For more information concerning premium or market discount on an inflation-indexed debt instrument, see Regulations section 1. Free 1040x forms prepared online 1275-7. Free 1040x forms prepared online Sale, exchange, or redemption. Free 1040x forms prepared online   Generally, you treat your gain or loss from the sale, exchange, or redemption of a discounted debt instrument as a capital gain or loss if you held the debt instrument as a capital asset. Free 1040x forms prepared online If you sold the debt instrument through a broker, you should receive Form 1099-B or an equivalent statement from the broker. Free 1040x forms prepared online Use the Form 1099-B or other statement and your brokerage statements to complete Form 8949, and Schedule D (Form 1040). Free 1040x forms prepared online   Your gain or loss is the difference between the amount you realized on the sale, exchange, or redemption and your basis in the debt instrument. Free 1040x forms prepared online Your basis, generally, is your cost increased by the OID you have included in income each year you held it. Free 1040x forms prepared online In general, to determine your gain or loss on a tax-exempt bond, figure your basis in the bond by adding to your cost the OID you would have included in income if the bond had been taxable. Free 1040x forms prepared online   See chapter 4 of Publication 550 for more information about the tax treatment of the sale or redemption of discounted debt instruments. Free 1040x forms prepared online Example 4. Free 1040x forms prepared online Larry, a calendar year taxpayer, bought a corporate debt instrument at original issue for $86,235. Free 1040x forms prepared online 00 on November 1 of Year 1. Free 1040x forms prepared online The 15-year debt instrument matures on October 31 of Year 16 at a stated redemption price of $100,000. Free 1040x forms prepared online The debt instrument provides for semiannual payments of interest at 10%. Free 1040x forms prepared online Assume the debt instrument is a capital asset in Larry's hands. Free 1040x forms prepared online The debt instrument has $13,765. Free 1040x forms prepared online 00 of OID ($100,000 stated redemption price at maturity minus $86,235. Free 1040x forms prepared online 00 issue price). Free 1040x forms prepared online Larry sold the debt instrument for $90,000 on November 1 of Year 4. Free 1040x forms prepared online Including the OID he will report for the period he held the debt instrument in Year 4, Larry has included $4,556. Free 1040x forms prepared online 00 of OID in income and has increased his basis by that amount to $90,791. Free 1040x forms prepared online 00. Free 1040x forms prepared online Larry has realized a loss of $791. Free 1040x forms prepared online 00. Free 1040x forms prepared online All of Larry's loss is capital loss. Free 1040x forms prepared online Form 1099-OID The issuer of the debt instrument (or your broker, if you purchased or held the debt instrument through a broker) should give you a copy of Form 1099-OID or a similar statement if the accrued OID for the calendar year is $10 or more and the term of the debt instrument is more than 1 year. Free 1040x forms prepared online Form 1099-OID shows all OID income in box 1 except OID on a U. Free 1040x forms prepared online S. Free 1040x forms prepared online Treasury obligation, which is shown in box 8. Free 1040x forms prepared online It also shows, in box 2, any qualified stated interest you must include in income. Free 1040x forms prepared online (However, any qualified stated interest on Treasury inflation-protected securities can be reported on Form 1099-INT in box 3. Free 1040x forms prepared online ) A copy of Form 1099-OID will be sent to the IRS. Free 1040x forms prepared online Do not attach your copy to your tax return. Free 1040x forms prepared online Keep it for your records. Free 1040x forms prepared online If you are required to file a tax return and you receive Form 1099-OID showing taxable amounts, you must report these amounts on your return. Free 1040x forms prepared online A 20% accuracy-related penalty may be charged for underpayment of tax due to either negligence or disregard of rules and regulations or substantial understatement of tax. Free 1040x forms prepared online Form 1099-OID not received. Free 1040x forms prepared online   If you held an OID debt instrument for a calendar year but did not receive a Form 1099-OID, refer to the discussions under Figuring OID on Long-Term Debt Instruments, later, for information on the OID you must report. Free 1040x forms prepared online Refiguring OID. Free 1040x forms prepared online   You must refigure the OID shown on Form 1099-OID, in box 1 or box 8, to determine the proper amount to include in income if one of the following applies. Free 1040x forms prepared online You bought the debt instrument at a premium or at an acquisition premium. Free 1040x forms prepared online The debt instrument is a stripped bond or coupon (including zero coupon bonds backed by U. Free 1040x forms prepared online S. Free 1040x forms prepared online Treasury securities). Free 1040x forms prepared online The debt instrument is a contingent payment or inflation-indexed debt instrument. Free 1040x forms prepared online See the discussions under Figuring OID on Long-Term Debt Instruments or Figuring OID on Stripped Bonds and Coupons, later, for the specific computations. Free 1040x forms prepared online Refiguring interest. Free 1040x forms prepared online   If you disposed of a debt instrument or acquired it from another holder between interest dates, see the discussion under Bonds Sold Between Interest Dates in chapter 1 of Publication 550 for information about refiguring the interest shown on Form 1099-OID in box 2. Free 1040x forms prepared online Nominee. Free 1040x forms prepared online   If you are the holder of an OID debt instrument and you receive a Form 1099-OID that shows your taxpayer identification number and includes amounts belonging to another person, you are considered a “nominee. Free 1040x forms prepared online ” You must file another Form 1099-OID for each actual owner, showing the OID for the owner. Free 1040x forms prepared online Show the owner of the debt instrument as the “recipient” and you as the “payer. Free 1040x forms prepared online ”   Complete Form 1099-OID and Form 1096 and file the forms with the Internal Revenue Service Center for your area. Free 1040x forms prepared online You must also give a copy of the Form 1099-OID to the actual owner. Free 1040x forms prepared online However, you are not required to file a nominee return to show amounts belonging to your spouse. Free 1040x forms prepared online See the Form 1099 instructions for more information. Free 1040x forms prepared online   When preparing your tax return, follow the instructions under Showing an OID adjustment in the next discussion. Free 1040x forms prepared online How To Report OID Generally, you report your taxable interest and OID income on the interest line of Form 1040EZ, Form 1040A, or Form 1040. Free 1040x forms prepared online Form 1040 or Form 1040A required. Free 1040x forms prepared online   You must use Form 1040 or Form 1040A (you cannot use Form 1040EZ) under either of the following conditions. Free 1040x forms prepared online You received a Form 1099-OID as a nominee for the actual owner. Free 1040x forms prepared online Your total interest and OID income for the year was more than $1,500. Free 1040x forms prepared online Form 1040 required. Free 1040x forms prepared online   You must use Form 1040 (you cannot use Form 1040A or Form 1040EZ) if you are reporting more or less OID than the amount shown on Form 1099-OID, other than because you are a nominee. Free 1040x forms prepared online For example, if you paid a premium or an acquisition premium when you purchased the debt instrument, you must use Form 1040 because you will report less OID than shown on Form 1099-OID. Free 1040x forms prepared online Also, you must use Form 1040 if you were charged an early withdrawal penalty. Free 1040x forms prepared online Where to report. Free 1040x forms prepared online   List each payer's name (if a brokerage firm gave you a Form 1099, list the brokerage firm as the payer) and the amount received from each payer on Form 1040A, Schedule B, Part I, line 1, or Form 1040, Schedule B, line 1. Free 1040x forms prepared online Include all OID and periodic interest shown on any Form 1099-OID, boxes 1, 2, and 8, you received for the tax year. Free 1040x forms prepared online Also include any other OID and interest income for which you did not receive a Form 1099. Free 1040x forms prepared online Showing an OID adjustment. Free 1040x forms prepared online   If you use Form 1040 to report more or less OID than shown on Form 1099-OID, list the full OID on Schedule B, Part I, line 1, and follow the instructions under 1 or 2, next. Free 1040x forms prepared online   If you use Form 1040A to report the OID shown on a Form 1099-OID you received as a nominee for the actual owner, list the full OID on Schedule B, Part I, line 1 and follow the instructions under 1. Free 1040x forms prepared online If the OID, as adjusted, is less than the amount shown on Form 1099-OID, show the adjustment as follows. Free 1040x forms prepared online Under your last entry on line 1, subtotal all interest and OID income listed on line 1. Free 1040x forms prepared online Below the subtotal, write “Nominee Distribution” or “OID Adjustment” and show the OID you are not required to report. Free 1040x forms prepared online Subtract that OID from the subtotal and enter the result on line 2. Free 1040x forms prepared online If the OID, as adjusted, is more than the amount shown on Form 1099-OID, show the adjustment as follows. Free 1040x forms prepared online Under your last entry on line 1, subtotal all interest and OID income listed on line 1. Free 1040x forms prepared online Below the subtotal, write “OID Adjustment” and show the additional OID. Free 1040x forms prepared online Add that OID to the subtotal and enter the result on line 2. Free 1040x forms prepared online Figuring OID on Long-Term Debt Instruments How you figure the OID on a long-term debt instrument depends on the date it was issued. Free 1040x forms prepared online It also may depend on the type of the debt instrument. Free 1040x forms prepared online There are different rules for each of the following debt instruments. Free 1040x forms prepared online Corporate debt instruments issued after 1954 and before May 28, 1969, and government debt instruments issued after 1954 and before July 2, 1982. Free 1040x forms prepared online Corporate debt instruments issued after May 27, 1969, and before July 2, 1982. Free 1040x forms prepared online Debt instruments issued after July 1, 1982, and before 1985. Free 1040x forms prepared online Debt instruments issued after 1984 (other than debt instruments described in (5) and (6)). Free 1040x forms prepared online Contingent payment debt instruments issued after August 12, 1996. Free 1040x forms prepared online Inflation-indexed debt instruments (including Treasury inflation-protected securities) issued after January 5, 1997. Free 1040x forms prepared online Zero coupon bonds. Free 1040x forms prepared online   The rules for figuring OID on zero coupon bonds backed by U. Free 1040x forms prepared online S. Free 1040x forms prepared online Treasury securities are discussed under Figuring OID on Stripped Bonds and Coupons, later. Free 1040x forms prepared online Corporate Debt Instruments Issued After 1954 and Before May 28, 1969, and Government Debt Instruments Issued After 1954 and Before July 2, 1982 If you hold these debt instruments as capital assets, you include OID in income only in the year the debt instrument is sold, exchanged, or redeemed, and only if you have a gain. Free 1040x forms prepared online The OID, which is taxed as ordinary income, generally equals the following amount. Free 1040x forms prepared online   number of full months you held the debt instrument  number of full months from date of original issue to date of maturity X original issue discount The balance of the gain is capital gain. Free 1040x forms prepared online If there is a loss on the sale of the debt instrument, the entire loss is a capital loss and no OID is reported. Free 1040x forms prepared online Corporate Debt Instruments Issued After May 27, 1969, and Before July 2, 1982 If you hold these debt instruments as capital assets, you must include part of the OID in income each year you own the debt instruments. Free 1040x forms prepared online For information about showing the correct OID on your tax return, see the discussion under How To Report OID, earlier. Free 1040x forms prepared online Your basis in the debt instrument is increased by the OID you include in income. Free 1040x forms prepared online Form 1099-OID. Free 1040x forms prepared online   You should receive a Form 1099-OID showing OID for the part of the year you held the debt instrument. Free 1040x forms prepared online However, if you paid an acquisition premium, you may need to refigure the OID to report on your tax return. Free 1040x forms prepared online See Reduction for acquisition premium, later. Free 1040x forms prepared online If you held an OID debt instrument in a calendar year but did not receive a Form 1099-OID, see Form 1099-OID not received, immediately below, and refer to Section I-A available at www. Free 1040x forms prepared online irs. Free 1040x forms prepared online gov/pub1212 by clicking the link under Recent Developments. Free 1040x forms prepared online Form 1099-OID not received. Free 1040x forms prepared online    The OID listed is for each $1,000 of redemption price. Free 1040x forms prepared online You must adjust the listed amount if your debt instrument has a different principal amount. Free 1040x forms prepared online For example, if you have a debt instrument with a $500 principal amount, use one-half the listed amount to figure your OID. Free 1040x forms prepared online   If you held the debt instrument the entire year, use the OID shown in Section I-A for a calendar year. Free 1040x forms prepared online (If your debt instrument is not listed in Section I-A, consult the issuer for information about the issue price and the OID that accrued for that year. Free 1040x forms prepared online ) If you did not hold the debt instrument the entire year, figure your OID using the following method. Free 1040x forms prepared online Divide the OID shown by 12. Free 1040x forms prepared online Multiply the result in (1) by the number of complete and partial months (for example, 6½ months) you held the debt instrument during a calendar year. Free 1040x forms prepared online This is the OID to include in income unless you paid an acquisition premium. Free 1040x forms prepared online The reduction for acquisition premium is discussed next. Free 1040x forms prepared online Reduction for acquisition premium. Free 1040x forms prepared online   If you bought the debt instrument at an acquisition premium, figure the OID to include in income as follows. Free 1040x forms prepared online Divide the total OID on the debt instrument by the number of complete months, and any part of a month, from the date of original issue to the maturity date. Free 1040x forms prepared online This is the monthly OID. Free 1040x forms prepared online Subtract from your cost the issue price and the accumulated OID from the date of issue to the date of purchase. Free 1040x forms prepared online (If the result is zero or less, stop here. Free 1040x forms prepared online You did not pay an acquisition premium. Free 1040x forms prepared online ) Divide the amount figured in (2) by the number of complete months, and any part of a month, from the date of your purchase to the maturity date. Free 1040x forms prepared online Subtract the amount figured in (3) from the amount figured in (1). Free 1040x forms prepared online This is the OID to include in income for each month you hold the debt instrument during the year. Free 1040x forms prepared online Transfers during the month. Free 1040x forms prepared online   If you buy or sell a debt instrument on any day other than the same day of the month as the date of original issue, the ratable monthly portion of OID for the month of sale is divided between the seller and the buyer according to the number of days each held the debt instrument. Free 1040x forms prepared online Your holding period for this purpose begins the day you acquire the debt instrument and ends the day before you dispose of it. Free 1040x forms prepared online Debt Instruments Issued After July 1, 1982, and Before 1985 If you hold these debt instruments as capital assets, you must include part of the OID in income each year you own the debt instruments and increase your basis by the amount included. Free 1040x forms prepared online For information about showing the correct OID on your tax return, see How To Report OID, earlier. Free 1040x forms prepared online Form 1099-OID. Free 1040x forms prepared online   You should receive a Form 1099-OID showing OID for the part of the year you held the debt instrument. Free 1040x forms prepared online However, if you paid an acquisition premium, you may need to refigure the OID to report on your tax return. Free 1040x forms prepared online See Constant yield method and the discussions on acquisition premium that follow, later. Free 1040x forms prepared online If you held an OID debt instrument in a calendar year but did not receive a Form 1099-OID, see Form 1099-OID not received, immediately below, and refer to Section I-A available at www. Free 1040x forms prepared online irs. Free 1040x forms prepared online gov/pub1212 by clicking the link under Recent Developments. Free 1040x forms prepared online Form 1099-OID not received. Free 1040x forms prepared online    The OID listed is for each $1,000 of redemption price. Free 1040x forms prepared online You must adjust the listed amount if your debt instrument has a different principal amount. Free 1040x forms prepared online For example, if you have a debt instrument with a $500 principal amount, use one-half the listed amount to figure your OID. Free 1040x forms prepared online   If you held the debt instrument the entire year, use the OID shown in Section I-A. Free 1040x forms prepared online (If your instrument is not listed in Section I-A, consult the issuer for information about the issue price, the yield to maturity, and the OID that accrued for that year. Free 1040x forms prepared online ) If you did not hold the debt instrument the entire year, figure your OID using either of the following methods. Free 1040x forms prepared online Method 1. Free 1040x forms prepared online    Divide the total OID for a calendar year by 365 (366 for leap years). Free 1040x forms prepared online Multiply the result in (1) by the number of days you held the debt instrument during that particular year. Free 1040x forms prepared online  This computation is an approximation and may result in a slightly higher OID than Method 2. Free 1040x forms prepared online Method 2. Free 1040x forms prepared online    Look up the daily OID for the first accrual period you held the debt instrument during a calendar year. Free 1040x forms prepared online (See Accrual period under Constant yield method, next. Free 1040x forms prepared online ) Multiply the daily OID by the number of days you held the debt instrument during that accrual period. Free 1040x forms prepared online If you held the debt instrument for part of both accrual periods, repeat (1) and (2) for the second accrual period. Free 1040x forms prepared online Add the results of (2) and (3). Free 1040x forms prepared online This is the OID to include in income, unless you paid an acquisition premium. Free 1040x forms prepared online (The reduction for acquisition premium is discussed later. Free 1040x forms prepared online ) Constant yield method. Free 1040x forms prepared online   This discussion shows how to figure OID on debt instruments issued after July 1, 1982, and before 1985, using a constant yield method. Free 1040x forms prepared online OID is allocated over the life of the debt instrument through adjustments to the issue price for each accrual period. Free 1040x forms prepared online   Figure the OID allocable to any accrual period as follows. Free 1040x forms prepared online Multiply the adjusted issue price at the beginning of the accrual period by the debt instrument's yield to maturity. Free 1040x forms prepared online Subtract from the result in (1) any qualified stated interest allocable to the accrual period. Free 1040x forms prepared online Accrual period. Free 1040x forms prepared online   An accrual period for any OID debt instrument issued after July 1, 1982, and before 1985 is each 1-year period beginning on the date of the issue of the obligation and each anniversary thereafter, or the shorter period to maturity for the last accrual period. Free 1040x forms prepared online Your tax year will usually include parts of two accrual periods. Free 1040x forms prepared online Daily OID. Free 1040x forms prepared online   The OID for any accrual period is allocated equally to each day in the accrual period. Free 1040x forms prepared online You must include in income the sum of the OID amounts for each day you hold the debt instrument during the year. Free 1040x forms prepared online If your tax year includes parts of two or more accrual periods, you must include the proper daily OID amounts for each accrual period. Free 1040x forms prepared online Figuring daily OID. Free 1040x forms prepared online   The daily OID for the initial accrual period is figured using the following formula. Free 1040x forms prepared online   (ip × ytm) − qsi     p   ip = issue price ytm = yield to maturity qsi = qualified stated interest p = number of days in accrual period         The daily OID for subsequent accrual periods is figured the same way except the adjusted issue price at the beginning of each period is used in the formula instead of the issue price. Free 1040x forms prepared online Reduction for acquisition premium on debt instruments purchased before July 19, 1984. Free 1040x forms prepared online   If you bought the debt instrument at an acquisition premium before July 19, 1984, figure the OID includible in income by reducing the daily OID by the daily acquisition premium. Free 1040x forms prepared online Figure the daily acquisition premium by dividing the total acquisition premium by the number of days in the period beginning on your purchase date and ending on the day before the date of maturity. Free 1040x forms prepared online Reduction for acquisition premium on debt instruments purchased after July 18, 1984. Free 1040x forms prepared online   If you bought the debt instrument at an acquisition premium after July 18, 1984, figure the OID includible in income by reducing the daily OID by the daily acquisition premium. Free 1040x forms prepared online However, the method of figuring the daily acquisition premium is different from the method described in the preceding discussion. Free 1040x forms prepared online To figure the daily acquisition premium under this method, multiply the daily OID by the following fraction. Free 1040x forms prepared online The numerator is the acquisition premium. Free 1040x forms prepared online The denominator is the total OID remaining for the debt instrument after your purchase date. Free 1040x forms prepared online Section I-A is available at www. Free 1040x forms prepared online irs. Free 1040x forms prepared online gov/pub1212 and clicking the link under Recent Developments. Free 1040x forms prepared online Using Section I-A to figure accumulated OID. Free 1040x forms prepared online   If you bought your corporate debt instrument in a calendar year or the subsequent year, you can figure the accumulated OID to the date of purchase by adding the following amounts. Free 1040x forms prepared online The amount from the “Total OID to January 1, YYYY” column for your debt instrument. Free 1040x forms prepared online The OID from January 1 of a calendar year to the date of purchase, figured as follows. Free 1040x forms prepared online Multiply the daily OID for the first accrual period in the calendar year by the number of days from January 1 to the date of purchase, or the end of the accrual period if the debt instrument was purchased in the second or third accrual period. Free 1040x forms prepared online Multiply the daily OID for each subsequent accrual period by the number of days in the period to the date of purchase or the end of the accrual period, whichever applies. Free 1040x forms prepared online Add the amounts figured in (2a) and (2b). Free 1040x forms prepared online Debt Instruments Issued After 1984 If you hold debt instruments issued after 1984, you must report part of the OID in gross income each year that you own the debt instruments. Free 1040x forms prepared online You must include the OID in gross income whether or not you hold the debt instrument as a capital asset. Free 1040x forms prepared online Your basis in the debt instrument is increased by the OID you include in income. Free 1040x forms prepared online For information about showing the correct OID on your tax return, see How To Report OID, earlier. Free 1040x forms prepared online Form 1099-OID. Free 1040x forms prepared online   You should receive a Form 1099-OID showing OID for the part of a calendar year you held the debt instrument. Free 1040x forms prepared online However, if you paid an acquisition premium, you may need to refigure the OID to report on your tax return. Free 1040x forms prepared online See Constant yield method and Reduction for acquisition premium, later. Free 1040x forms prepared online   You may also need to refigure the OID for a contingent payment or inflation-indexed debt instrument on which the amount reported on Form 1099-OID is inaccurate. Free 1040x forms prepared online See Contingent Payment Debt Instruments or Inflation-Indexed Debt Instruments, later. Free 1040x forms prepared online If you held an OID debt instrument in a calendar year but did not receive a Form 1099-OID, see Form 1099-OID not received, immediately below, and refer to Section I-B available at www. Free 1040x forms prepared online irs. Free 1040x forms prepared online gov/pub1212 by clicking the link under Recent Developments. Free 1040x forms prepared online Form 1099-OID not received. Free 1040x forms prepared online   The OID listed is for each $1,000 of redemption price. Free 1040x forms prepared online You must adjust the listed amount if your debt instrument has a different principal amount. Free 1040x forms prepared online For example, if you have a debt instrument with a $500 principal amount, use one-half the listed amount to figure your OID. Free 1040x forms prepared online   Use the OID shown in Section I-B for a calendar year if you held the debt instrument the entire year. Free 1040x forms prepared online (If your debt instrument is not listed in Section I-B, consult the issuer for information about the issue price, the yield to maturity, and the OID that accrued for that year. Free 1040x forms prepared online ) If you did not hold the debt instrument the entire year, figure your OID as follows. Free 1040x forms prepared online Look up the daily OID for the first accrual period in which you held the debt instrument during a calendar year. Free 1040x forms prepared online (See Accrual period under Constant yield method, later. Free 1040x forms prepared online ) Multiply the daily OID by the number of days you held the debt instrument during that accrual period. Free 1040x forms prepared online Repeat (1) and (2) for any remaining accrual periods in which you held the debt instrument. Free 1040x forms prepared online Add the results of (2) and (3). Free 1040x forms prepared online This is the OID to include in income for that year, unless you paid an acquisition premium. Free 1040x forms prepared online (The reduction for acquisition premium is discussed later. Free 1040x forms prepared online ) Tax-exempt bond. Free 1040x forms prepared online   If you own a tax-exempt bond, figure your basis in the bond by adding to your cost the OID you would have included in income if the bond had been taxable. Free 1040x forms prepared online You need to make this adjustment to determine if you have a gain or loss on a later disposition of the bond. Free 1040x forms prepared online In general, use the rules that follow to determine your OID. Free 1040x forms prepared online Constant yield method. Free 1040x forms prepared online   This discussion shows how to figure OID on debt instruments issued after 1984 using a constant yield method. Free 1040x forms prepared online (The special rules that apply to contingent payment debt instruments and inflation-indexed debt instruments are explained later. Free 1040x forms prepared online ) OID is allocated over the life of the debt instrument through adjustments to the issue price for each accrual period. Free 1040x forms prepared online   Figure the OID allocable to any accrual period as follows. Free 1040x forms prepared online Multiply the adjusted issue price at the beginning of the accrual period by a fraction. Free 1040x forms prepared online The numerator of the fraction is the debt instrument's yield to maturity and the denominator is the number of accrual periods per year. Free 1040x forms prepared online The yield must be stated appropriately taking into account the length of the particular accrual period. Free 1040x forms prepared online Subtract from the result in (1) any qualified stated interest allocable to the accrual period. Free 1040x forms prepared online Accrual period. Free 1040x forms prepared online   For debt instruments issued after 1984 and before April 4, 1994, an accrual period is each 6-month period that ends on the day that corresponds to the stated maturity date of the debt instrument or the date 6 months before that date. Free 1040x forms prepared online For example, a debt instrument maturing on March 31 has accrual periods that end on September 30 and March 31 of each calendar year. Free 1040x forms prepared online Any short period is included as the first accrual period. Free 1040x forms prepared online   For debt instruments issued after April 3, 1994, accrual periods may be of any length and may vary in length over the term of the debt instrument, as long as each accrual period is no longer than 1 year and all payments are made on the first or last day of an accrual period. Free 1040x forms prepared online However, the OID listed for these debt instruments in Section I-B has been figured using 6-month accrual periods. Free 1040x forms prepared online Daily OID. Free 1040x forms prepared online   The OID for any accrual period is allocated equally to each day in the accrual period. Free 1040x forms prepared online Figure the amount to include in income by adding the OID for each day you hold the debt instrument during the year. Free 1040x forms prepared online Since your tax year will usually include parts of two or more accrual periods, you must include the proper daily OID for each accrual period. Free 1040x forms prepared online If your debt instrument has 6-month accrual periods, your tax year will usually include one full 6-month accrual period and parts of two other 6-month periods. Free 1040x forms prepared online Figuring daily OID. Free 1040x forms prepared online   The daily OID for the initial accrual period is figured using the following formula. Free 1040x forms prepared online   (ip × ytm/n) − qsi     p   ip = issue price ytm = yield to maturity n = number of accrual periods in 1 year qsi = qualified stated interest p = number of days in accrual period       The daily OID for subsequent accrual periods is figured the same way except the adjusted issue price at the beginning of each period is used in the formula instead of the issue price. Free 1040x forms prepared online Example 5. Free 1040x forms prepared online On January 1 of Year 1, you bought a 15-year, 10% debt instrument of A Corporation at original issue for $86,235. Free 1040x forms prepared online 17. Free 1040x forms prepared online According to the prospectus, the debt instrument matures on December 31 of Year 15 at a stated redemption price of $100,000. Free 1040x forms prepared online The yield to maturity is 12%, compounded semiannually. Free 1040x forms prepared online The debt instrument provides for qualified stated interest payments of $5,000 on June 30 and December 31 of each calendar year. Free 1040x forms prepared online The accrual periods are the 6-month periods ending on each of these dates. Free 1040x forms prepared online The number of days for the first accrual period (January 1 through June 30) is 181 days (182 for leap years). Free 1040x forms prepared online The daily OID for the first accrual period is figured as follows. Free 1040x forms prepared online   ($86,235. Free 1040x forms prepared online 17 x . Free 1040x forms prepared online 12/2) – $5,000     181 days     = $174. Free 1040x forms prepared online 11020 = $. Free 1040x forms prepared online 96193   181           The adjusted issue price at the beginning of the second accrual period is the issue price plus the OID previously includible in income ($86,235. Free 1040x forms prepared online 17 + $174. Free 1040x forms prepared online 11), or $86,409. Free 1040x forms prepared online 28. Free 1040x forms prepared online The number of days for the second accrual period (July 1 through December 31) is 184 days. Free 1040x forms prepared online The daily OID for the second accrual period is figured as follows. Free 1040x forms prepared online   ($86,409. Free 1040x forms prepared online 28 x . Free 1040x forms prepared online 12/2) – $5,000     184 days     = $184. Free 1040x forms prepared online 55681 = $1. Free 1040x forms prepared online 00303   184 Since the first and second accrual periods coincide exactly with your tax year, you include in income for Year 1 the OID allocable to the first two accrual periods, $174. Free 1040x forms prepared online 11 ($. Free 1040x forms prepared online 95665 × 182 days) plus $184. Free 1040x forms prepared online 56 ($1. Free 1040x forms prepared online 00303 × 184 days), or $358. Free 1040x forms prepared online 67. Free 1040x forms prepared online Add the OID to the $10,000 interest you report on your income tax return for Year 1. Free 1040x forms prepared online Example 6. Free 1040x forms prepared online Assume the same facts as in Example 5, except that you bought the debt instrument at original issue on May 1 of Year 1, with a maturity date of April 30, Year 16. Free 1040x forms prepared online Also, the interest payment dates are October 31 and April 30 of each calendar year. Free 1040x forms prepared online The accrual periods are the 6-month periods ending on each of these dates. Free 1040x forms prepared online The number of days for the first accrual period (May 1 through October 31) is 184 days. Free 1040x forms prepared online The daily OID for the first accrual period is figured as follows. Free 1040x forms prepared online   ($86,235. Free 1040x forms prepared online 17 x . Free 1040x forms prepared online 12/2) – $5,000     184 days     = $174. Free 1040x forms prepared online 11020 = $. Free 1040x forms prepared online 94625   184           The number of days for the second accrual period (November 1 through April 30) is 181 days (182 for leap years). Free 1040x forms prepared online The daily OID for the second accrual period is figured as follows. Free 1040x forms prepared online   ($86,409. Free 1040x forms prepared online 28 x . Free 1040x forms prepared online 12/2) – $5,000     181 days     = $184. Free 1040x forms prepared online 55681 = $1. Free 1040x forms prepared online 01965   181 If you hold the debt instrument through the end of Year 1, you must include $236. Free 1040x forms prepared online 31 of OID in income. Free 1040x forms prepared online This is $174. Free 1040x forms prepared online 11 ($. Free 1040x forms prepared online 94625 × 184 days) for the period May 1 through October 31 plus $62. Free 1040x forms prepared online 20 ($1. Free 1040x forms prepared online 01965 × 61 days) for the period November 1 through December 31. Free 1040x forms prepared online The OID is added to the $5,000 interest income paid on October 31 of Year 1. Free 1040x forms prepared online Your basis in the debt instrument is increased by the OID you include in income. Free 1040x forms prepared online On January 1 of Year 2, your basis in the A Corporation debt instrument is $86,471. Free 1040x forms prepared online 48 ($86,235. Free 1040x forms prepared online 17 + $236. Free 1040x forms prepared online 31). Free 1040x forms prepared online Short first accrual period. Free 1040x forms prepared online   You may have to make adjustments if a debt instrument has a short first accrual period. Free 1040x forms prepared online For example, a debt instrument with 6-month accrual periods that is issued on February 15 and matures on October 31 has a short first accrual period that ends April 30. Free 1040x forms prepared online (The remaining accrual periods begin on May 1 and November 1. Free 1040x forms prepared online ) For this short period, figure the daily OID as described earlier, but adjust the yield for the length of the short accrual period. Free 1040x forms prepared online You may use any reasonable compounding method in determining OID for a short period. Free 1040x forms prepared online Examples of reasonable compounding methods include continuous compounding and monthly compounding (that is, simple interest within a month). Free 1040x forms prepared online Consult your tax advisor for more information about making this computation. Free 1040x forms prepared online   The OID for the final accrual period is the difference between the amount payable at maturity (other than a payment of qualified stated interest) and the adjusted issue price at the beginning of the final accrual period. Free 1040x forms prepared online Reduction for acquisition premium. Free 1040x forms prepared online   If you bought the debt instrument at an acquisition premium, figure the OID includible in income by reducing the daily OID by the daily acquisition premium. Free 1040x forms prepared online To figure the daily acquisition premium, multiply the daily OID by the following fraction. Free 1040x forms prepared online The numerator is the acquisition premium. Free 1040x forms prepared online The denominator is the total OID remaining for the debt instrument after your purchase date. Free 1040x forms prepared online Example 7. Free 1040x forms prepared online Assume the same facts as in Example 6, except that you bought the debt instrument on November 1 of Year 1 for $87,000, after its original issue on May 1 of Year 1. Free 1040x forms prepared online The adjusted issue price on November 1 of Year 1 is $86,409. Free 1040x forms prepared online 28 ($86,235. Free 1040x forms prepared online 17 + $174. Free 1040x forms prepared online 11). Free 1040x forms prepared online In this case, you paid an acquisition premium of $590. Free 1040x forms prepared online 72 ($87,000 − $86,409. Free 1040x forms prepared online 28). Free 1040x forms prepared online The daily OID for the accrual period November 1 through April 30, reduced for the acquisition premium, is figured as follows. Free 1040x forms prepared online 1) Daily OID on date of purchase (2nd accrual period) $1. Free 1040x forms prepared online 01965*  2)  Acquisition premium $590. Free 1040x forms prepared online 72    3)  Total OID remaining after purchase date ($13,764. Free 1040x forms prepared online 83 − $174. Free 1040x forms prepared online 11) 13,590. Free 1040x forms prepared online 72   4) Line 2 ÷ line 3 . Free 1040x forms prepared online 04346  5)  Line 1 × line 4 . Free 1040x forms prepared online 04432  6)  Daily OID reduced for the acquisition premium. Free 1040x forms prepared online Line 1 − line 5 $0. Free 1040x forms prepared online 97533  * As shown in Example 6. Free 1040x forms prepared online The total OID to include in income for Year 1 is $59. Free 1040x forms prepared online 50 ($. Free 1040x forms prepared online 97533 × 61 days). Free 1040x forms prepared online Contingent Payment Debt Instruments This discussion shows how to figure OID on a contingent payment debt instrument issued after August 12, 1996, that was issued for cash or publicly traded property. Free 1040x forms prepared online In general, a contingent payment debt instrument provides for one or more payments that are contingent as to timing or amount. Free 1040x forms prepared online If you hold a contingent payment bond, you must report OID as it accrues each year. Free 1040x forms prepared online Because the actual payments on a contingent payment debt instrument cannot be known in advance, issuers and holders cannot use the constant yield method (discussed earlier under Debt Instruments Issued After 1984) without making certain assumptions about the payments on the debt instrument. Free 1040x forms prepared online To figure OID accruals on contingent payment debt instruments, holders and issuers must use the noncontingent bond method. Free 1040x forms prepared online Noncontingent bond method. Free 1040x forms prepared online    Under this method, the issuer must compute a comparable yield for the debt instrument and, based on this yield, construct a projected payment schedule for the instrument, which includes a projected fixed amount for each contingent payment. Free 1040x forms prepared online In general, holders and issuers accrue OID on this projected payment schedule using the constant yield method that applies to fixed payment debt instruments. Free 1040x forms prepared online When a contingent payment differs from the projected fixed amount, the holders and issuers make adjustments to their OID accruals. Free 1040x forms prepared online If the actual contingent payment is larger than expected, both the issuer and the holder increase their OID accruals. Free 1040x forms prepared online If the actual contingent payment is smaller than expected, holders and issuers generally decrease their OID accruals. Free 1040x forms prepared online Form 1099-OID. Free 1040x forms prepared online   The amount shown on Form 1099-OID in box 1 you receive for a contingent payment debt instrument may not be the correct amount to include in income. Free 1040x forms prepared online For example, the amount may not be correct if the contingent payment was different from the projected amount. Free 1040x forms prepared online If the amount in box 1 is not correct, you must figure the OID to report on your return under the following rules. Free 1040x forms prepared online For information on showing an OID adjustment on your tax return, see How To Report OID, earlier. Free 1040x forms prepared online Figuring OID. Free 1040x forms prepared online   To figure OID on a contingent payment debt instrument, you need to know the “comparable yield” and “projected payment schedule” of the debt instrument. Free 1040x forms prepared online The issuer must make these available to you. Free 1040x forms prepared online Comparable yield. Free 1040x forms prepared online   The comparable yield generally is the yield at which the issuer would issue a fixed rate debt instrument with terms and conditions similar to those of the contingent payment debt instrument. Free 1040x forms prepared online The comparable yield is determined as of the debt instrument's issue date. Free 1040x forms prepared online Projected payment schedule. Free 1040x forms prepared online   The projected payment schedule for a contingent payment debt instrument includes all fixed payments due under the instrument and a projected fixed amount for each contingent payment. Free 1040x forms prepared online The projected payment schedule is created by the issuer as of the debt instrument's issue date. Free 1040x forms prepared online It is used to determine the issuer's and holder's interest accruals and adjustments. Free 1040x forms prepared online Steps for figuring OID. Free 1040x forms prepared online   Figure the OID on a contingent payment debt instrument in two steps. Free 1040x forms prepared online Figure the OID using the constant yield method (discussed earlier under Debt Instruments Issued After 1984 ) that applies to fixed payment debt instruments. Free 1040x forms prepared online Use the comparable yield as the yield to maturity. Free 1040x forms prepared online In general, use the projected payment schedule to determine the instrument's adjusted issue price at the beginning of each accrual period (other than the initial period). Free 1040x forms prepared online Do not treat any amount payable as qualified stated interest. Free 1040x forms prepared online Adjust the OID in (1) to account for actual contingent payments. Free 1040x forms prepared online If the contingent payment is greater than the projected fixed amount, you have a positive adjustment. Free 1040x forms prepared online If the contingent payment is less than the projected fixed amount, you have a negative adjustment. Free 1040x forms prepared online Net positive adjustment. Free 1040x forms prepared online   A net positive adjustment exists for a tax year when the total of any positive adjustments described in (2) above for the tax year is more than the total of any negative adjustments for the tax year. Free 1040x forms prepared online Treat a net positive adjustment as additional OID for the tax year. Free 1040x forms prepared online Net negative adjustment. Free 1040x forms prepared online   A net negative adjustment exists for a tax year when the total of any negative adjustments described in (2) above for the tax year is more than the total of any positive adjustments for the tax year. Free 1040x forms prepared online Use a net negative adjustment to offset OID on the debt instrument for the tax year. Free 1040x forms prepared online If the net negative adjustment is more than the OID on the debt instrument for the tax year, you can claim the difference as an ordinary loss. Free 1040x forms prepared online However, the amount you can claim as an ordinary loss is limited to the OID on the debt instrument you included in income in prior tax years. Free 1040x forms prepared online You must carry forward any net negative adjustment that is more than the total OID for the tax year and prior tax years and treat it as a negative adjustment in the next tax year. Free 1040x forms prepared online Basis adjustments. Free 1040x forms prepared online   In general, increase your basis in a contingent payment debt instrument by the OID included in income. Free 1040x forms prepared online Your basis, however, is not affected by any negative or positive adjustments. Free 1040x forms prepared online Decrease your basis by any noncontingent payment received and the projected contingent payment scheduled to be received. Free 1040x forms prepared online Treatment of gain or loss on sale or exchange. Free 1040x forms prepared online   If you sell a contingent payment debt instrument at a gain, your gain is ordinary income (interest income), even if you hold the debt instrument as a capital asset. Free 1040x forms prepared online If you sell a contingent payment debt instrument at a loss, your loss is an ordinary loss to the extent of your prior OID accruals on the debt instrument. Free 1040x forms prepared online If the debt instrument is a capital asset, treat any loss that is more than your prior OID accruals as a capital loss. Free 1040x forms prepared online See Regulations section 1. Free 1040x forms prepared online 1275-4 for exceptions to these rules. Free 1040x forms prepared online Premium, acquisition premium, and market discount. Free 1040x forms prepared online   The rules for accruing premium, acquisition premium, and market discount do not apply to a contingent payment debt instrument. Free 1040x forms prepared online See Regulations section 1. Free 1040x forms prepared online 1275-4 to determine how to account for these items. Free 1040x forms prepared online Inflation-Indexed Debt Instruments This discussion shows how you figure OID on certain inflation-indexed debt instruments issued after January 5, 1997. Free 1040x forms prepared online An inflation-indexed debt instrument is generally a debt instrument on which the payments are adjusted for inflation and d
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The Free 1040x Forms Prepared Online

Free 1040x forms prepared online 9. Free 1040x forms prepared online   Rental Income and Expenses Table of Contents Introduction Useful Items - You may want to see: Rental Income Rental ExpensesVacant while listed for sale. Free 1040x forms prepared online 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 1040x forms prepared online Dividing Expenses Dwelling Unit Used as a Home Reporting Income and Deductions DepreciationChanging your accounting method to deduct unclaimed depreciation. Free 1040x forms prepared online 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 1040x forms prepared online It also covers the following topics. Free 1040x forms prepared online Personal use of dwelling unit (including vacation home). Free 1040x forms prepared online Depreciation. Free 1040x forms prepared online Limits on rental losses. Free 1040x forms prepared online How to report your rental income and expenses. Free 1040x forms prepared online If you sell or otherwise dispose of your rental property, see Publication 544, Sales and Other Dispositions of Assets. Free 1040x forms prepared online If you have a loss from damage to, or theft of, rental property, see Publication 547, Casualties, Disasters, and Thefts. Free 1040x forms prepared online 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 1040x forms prepared online See Publication 527, Residential Rental Property, for more information. Free 1040x forms prepared online 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 1040x forms prepared online Rental income is any payment you receive for the use or occupation of property. Free 1040x forms prepared online In addition to amounts you receive as normal rent payments, there are other amounts that may be rental income. Free 1040x forms prepared online When to report. Free 1040x forms prepared online   If you are a cash-basis taxpayer, you report rental income on your return for the year you actually or constructively receive it. Free 1040x forms prepared online You are a cash-basis taxpayer if you report income in the year you receive it, regardless of when it was earned. Free 1040x forms prepared online You constructively receive income when it is made available to you, for example, by being credited to your bank account. Free 1040x forms prepared online   For more information about when you constructively receive income, see Accounting Methods in chapter 1. Free 1040x forms prepared online Advance rent. Free 1040x forms prepared online   Advance rent is any amount you receive before the period that it covers. Free 1040x forms prepared online 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 1040x forms prepared online Example. Free 1040x forms prepared online You sign a 10-year lease to rent your property. Free 1040x forms prepared online 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 1040x forms prepared online You must include $10,000 in your income in the first year. Free 1040x forms prepared online Canceling a lease. Free 1040x forms prepared online   If your tenant pays you to cancel a lease, the amount you receive is rent. Free 1040x forms prepared online Include the payment in your income in the year you receive it regardless of your method of accounting. Free 1040x forms prepared online Expenses paid by tenant. Free 1040x forms prepared online   If your tenant pays any of your expenses, the payments are rental income. Free 1040x forms prepared online Because you must include this amount in income, you can deduct the expenses if they are deductible rental expenses. Free 1040x forms prepared online See Rental Expenses , later, for more information. Free 1040x forms prepared online Property or services. Free 1040x forms prepared online   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 1040x forms prepared online   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 1040x forms prepared online Security deposits. Free 1040x forms prepared online   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 1040x forms prepared online 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 1040x forms prepared online   If an amount called a security deposit is to be used as a final payment of rent, it is advance rent. Free 1040x forms prepared online Include it in your income when you receive it. Free 1040x forms prepared online Part interest. Free 1040x forms prepared online   If you own a part interest in rental property, you must report your part of the rental income from the property. Free 1040x forms prepared online Rental of property also used as your home. Free 1040x forms prepared online   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 1040x forms prepared online However, you can deduct on Schedule A (Form 1040) the interest, taxes, and casualty and theft losses that are allowed for nonrental property. Free 1040x forms prepared online See Personal Use of Dwelling Unit (Including Vacation Home) , later. Free 1040x forms prepared online Rental Expenses This part discusses expenses of renting property that you ordinarily can deduct from your rental income. Free 1040x forms prepared online 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 1040x forms prepared online Depreciation , which you can also deduct from your rental income, is discussed later. Free 1040x forms prepared online Personal use of rental property. Free 1040x forms prepared online   If you sometimes use your rental property for personal purposes, you must divide your expenses between rental and personal use. Free 1040x forms prepared online Also, your rental expense deductions may be limited. Free 1040x forms prepared online See Personal Use of Dwelling Unit (Including Vacation Home) , later. Free 1040x forms prepared online Part interest. Free 1040x forms prepared online   If you own a part interest in rental property, you can deduct expenses that you paid according to your percentage of ownership. Free 1040x forms prepared online When to deduct. Free 1040x forms prepared online   If you are a cash-basis taxpayer, you generally deduct your rental expenses in the year you pay them. Free 1040x forms prepared online Depreciation. Free 1040x forms prepared online   You can begin to depreciate rental property when it is ready and available for rent. Free 1040x forms prepared online See Placed-in-Service under When Does Depreciation Begin and End in chapter 2 of Publication 527. Free 1040x forms prepared online Pre-rental expenses. Free 1040x forms prepared online   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 1040x forms prepared online Uncollected rent. Free 1040x forms prepared online   If you are a cash-basis taxpayer, do not deduct uncollected rent. Free 1040x forms prepared online Because you have not included it in your income, it is not deductible. Free 1040x forms prepared online Vacant rental property. Free 1040x forms prepared online   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 1040x forms prepared online However, you cannot deduct any loss of rental income for the period the property is vacant. Free 1040x forms prepared online Vacant while listed for sale. Free 1040x forms prepared online   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 1040x forms prepared online If the property is not held out and available for rent while listed for sale, the expenses are not deductible rental expenses. Free 1040x forms prepared online 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 1040x forms prepared online Improvements. Free 1040x forms prepared online   You must capitalize any expense you pay to improve your rental property. Free 1040x forms prepared online 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 1040x forms prepared online Betterments. Free 1040x forms prepared online   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 1040x forms prepared online Restoration. Free 1040x forms prepared online   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 1040x forms prepared online Adaptation. Free 1040x forms prepared online   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 1040x forms prepared online Separate the costs of repairs and improvements, and keep accurate records. Free 1040x forms prepared online You will need to know the cost of improvements when you sell or depreciate your property. Free 1040x forms prepared online The expenses you capitalize for improving your property can generally be depreciated as if the improvement were separate property. Free 1040x forms prepared online 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 1040x forms prepared online Insurance premiums paid in advance. Free 1040x forms prepared online   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 1040x forms prepared online You cannot deduct the total premium in the year you pay it. Free 1040x forms prepared online Legal and other professional fees. Free 1040x forms prepared online   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 1040x forms prepared online For example, on your 2013 Schedule E, you can deduct fees paid in 2013 to prepare your 2012 Schedule E, Part I. Free 1040x forms prepared online 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 1040x forms prepared online Local benefit taxes. Free 1040x forms prepared online   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 1040x forms prepared online These charges are nondepreciable capital expenditures, and must be added to the basis of your property. Free 1040x forms prepared online However, you can deduct local benefit taxes that are for maintaining, repairing, or paying interest charges for the benefits. Free 1040x forms prepared online Local transportation expenses. Free 1040x forms prepared online    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 1040x forms prepared online 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 1040x forms prepared online See Publication 587, Business Use of Your Home, for information on determining if your home office qualifies as a principal place of business. Free 1040x forms prepared online   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 1040x forms prepared online For 2013, the standard mileage rate for business use is 56. Free 1040x forms prepared online 5 cents per mile. Free 1040x forms prepared online For more information, see chapter 26. Free 1040x forms prepared online    To deduct car expenses under either method, you must keep records that follow the rules in chapter 26. Free 1040x forms prepared online In addition, you must complete Form 4562, Part V, and attach it to your tax return. Free 1040x forms prepared online Rental of equipment. Free 1040x forms prepared online   You can deduct the rent you pay for equipment that you use for rental purposes. Free 1040x forms prepared online However, in some cases, lease contracts are actually purchase contracts. Free 1040x forms prepared online If so, you cannot deduct these payments. Free 1040x forms prepared online You can recover the cost of purchased equipment through depreciation. Free 1040x forms prepared online Rental of property. Free 1040x forms prepared online   You can deduct the rent you pay for property that you use for rental purposes. Free 1040x forms prepared online 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 1040x forms prepared online Travel expenses. Free 1040x forms prepared online   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 1040x forms prepared online You must properly allocate your expenses between rental and nonrental activities. Free 1040x forms prepared online You cannot deduct the cost of traveling away from home if the primary purpose of the trip was to improve your property. Free 1040x forms prepared online You recover the cost of improvements by taking depreciation. Free 1040x forms prepared online For information on travel expenses, see chapter 26. Free 1040x forms prepared online    To deduct travel expenses, you must keep records that follow the rules in chapter 26. Free 1040x forms prepared online   See Rental Expenses in Publication 527 for more information. Free 1040x forms prepared online 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 1040x forms prepared online 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 1040x forms prepared online You cannot deduct depreciation or insurance for the part of the year the property was held for personal use. Free 1040x forms prepared online 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 1040x forms prepared online Example. Free 1040x forms prepared online Your tax year is the calendar year. Free 1040x forms prepared online You moved from your home in May and started renting it out on June 1. Free 1040x forms prepared online You can deduct as rental expenses seven-twelfths of your yearly expenses, such as taxes and insurance. Free 1040x forms prepared online Starting with June, you can deduct as rental expenses the amounts you pay for items generally billed monthly, such as utilities. Free 1040x forms prepared online 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 1040x forms prepared online 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 1040x forms prepared online 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 1040x forms prepared online There is no change in the types of expenses deductible for the personal-use part of your property. Free 1040x forms prepared online Generally, these expenses may be deducted only if you itemize your deductions on Schedule A (Form 1040). Free 1040x forms prepared online You cannot deduct any part of the cost of the first phone line even if your tenants have unlimited use of it. Free 1040x forms prepared online You do not have to divide the expenses that belong only to the rental part of your property. Free 1040x forms prepared online 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 1040x forms prepared online 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 1040x forms prepared online 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 1040x forms prepared online How to divide expenses. Free 1040x forms prepared online   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 1040x forms prepared online You can use any reasonable method for dividing the expense. Free 1040x forms prepared online It may be reasonable to divide the cost of some items (for example, water) based on the number of people using them. Free 1040x forms prepared online 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 1040x forms prepared online 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 1040x forms prepared online 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 1040x forms prepared online 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 1040x forms prepared online Where to report. Free 1040x forms prepared online   Report your not-for-profit rental income on Form 1040, line 21. Free 1040x forms prepared online 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 1040x forms prepared online   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 1040x forms prepared online 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 1040x forms prepared online 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 1040x forms prepared online 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 1040x forms prepared online Only your rental expenses may be deducted on Schedule E (Form 1040). Free 1040x forms prepared online Some of your personal expenses may be deductible if you itemize your deductions on Schedule A (Form 1040). Free 1040x forms prepared online You must also determine if the dwelling unit is considered a home. Free 1040x forms prepared online The amount of rental expenses that you can deduct may be limited if the dwelling unit is considered a home. Free 1040x forms prepared online 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 1040x forms prepared online 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 1040x forms prepared online Dwelling unit. Free 1040x forms prepared online   A dwelling unit includes a house, apartment, condominium, mobile home, boat, vacation home, or similar property. Free 1040x forms prepared online It also includes all structures or other property belonging to the dwelling unit. Free 1040x forms prepared online A dwelling unit has basic living accommodations, such as sleeping space, a toilet, and cooking facilities. Free 1040x forms prepared online   A dwelling unit does not include property used solely as a hotel, motel, inn, or similar establishment. Free 1040x forms prepared online 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 1040x forms prepared online Example. Free 1040x forms prepared online   You rent a room in your home that is always available for short-term occupancy by paying customers. Free 1040x forms prepared online You do not use the room yourself, and you allow only paying customers to use the room. Free 1040x forms prepared online The room is used solely as a hotel, motel, inn, or similar establishment and is not a dwelling unit. Free 1040x forms prepared online 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 1040x forms prepared online When dividing your expenses, follow these rules. Free 1040x forms prepared online 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 1040x forms prepared online This rule does not apply when determining whether you used the unit as a home. Free 1040x forms prepared online Any day that the unit is available for rent but not actually rented is not a day of rental use. Free 1040x forms prepared online Example. Free 1040x forms prepared online Your beach cottage was available for rent from June 1 through August 31 (92 days). Free 1040x forms prepared online 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 1040x forms prepared online 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 1040x forms prepared online Your family also used the cottage during the last 2 weeks of May (14 days). Free 1040x forms prepared online The cottage was not used at all before May 17 or after August 31. Free 1040x forms prepared online You figure the part of the cottage expenses to treat as rental expenses as follows. Free 1040x forms prepared online The cottage was used for rental a total of 85 days (92 − 7). Free 1040x forms prepared online The days it was available for rent but not rented (7 days) are not days of rental use. Free 1040x forms prepared online The July weekend (2 days) you used it is rental use because you received a fair rental price for the weekend. Free 1040x forms prepared online You used the cottage for personal purposes for 14 days (the last 2 weeks in May). Free 1040x forms prepared online The total use of the cottage was 99 days (14 days personal use + 85 days rental use). Free 1040x forms prepared online Your rental expenses are 85/99 (86%) of the cottage expenses. Free 1040x forms prepared online Note. Free 1040x forms prepared online 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 1040x forms prepared online Therefore, you had 16 days of personal use and 83 days of rental use for this purpose. Free 1040x forms prepared online 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 1040x forms prepared online If you have a net loss, you may not be able to deduct all of the rental expenses. Free 1040x forms prepared online See Dwelling Unit Used as a Home, next. Free 1040x forms prepared online 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 1040x forms prepared online 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 1040x forms prepared online See What is a day of personal use , later. Free 1040x forms prepared online Fair rental price. Free 1040x forms prepared online   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 1040x forms prepared online 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 1040x forms prepared online   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 1040x forms prepared online Instead, count it as a day of personal use in applying both (1) and (2) above. Free 1040x forms prepared online 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 1040x forms prepared online 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 1040x forms prepared online However, see Days used as a main home before or after renting , later. Free 1040x forms prepared online 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 1040x forms prepared online Family includes only your spouse, brothers and sisters, half-brothers and half-sisters, ancestors (parents, grandparents, etc. Free 1040x forms prepared online ), and lineal descendants (children, grandchildren, etc. Free 1040x forms prepared online ). Free 1040x forms prepared online Anyone under an arrangement that lets you use some other dwelling unit. Free 1040x forms prepared online Anyone at less than a fair rental price. Free 1040x forms prepared online Main home. Free 1040x forms prepared online   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 1040x forms prepared online Shared equity financing agreement. Free 1040x forms prepared online   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 1040x forms prepared online Donation of use of property. Free 1040x forms prepared online   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 1040x forms prepared online Examples. Free 1040x forms prepared online   The following examples show how to determine days of personal use. Free 1040x forms prepared online Example 1. Free 1040x forms prepared online You and your neighbor are co-owners of a condominium at the beach. Free 1040x forms prepared online Last year, you rented the unit to vacationers whenever possible. Free 1040x forms prepared online The unit was not used as a main home by anyone. Free 1040x forms prepared online Your neighbor used the unit for 2 weeks last year; you did not use it at all. Free 1040x forms prepared online 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 1040x forms prepared online Example 2. Free 1040x forms prepared online You and your neighbors are co-owners of a house under a shared equity financing agreement. Free 1040x forms prepared online Your neighbors live in the house and pay you a fair rental price. Free 1040x forms prepared online 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 1040x forms prepared online This is because your neighbors rent the house as their main home under a shared equity financing agreement. Free 1040x forms prepared online Example 3. Free 1040x forms prepared online You own a rental property that you rent to your son. Free 1040x forms prepared online Your son does not own any interest in this property. Free 1040x forms prepared online He uses it as his main home and pays you a fair rental price. Free 1040x forms prepared online 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 1040x forms prepared online Example 4. Free 1040x forms prepared online You rent your beach house to Joshua. Free 1040x forms prepared online Joshua rents his cabin in the mountains to you. Free 1040x forms prepared online You each pay a fair rental price. Free 1040x forms prepared online 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 1040x forms prepared online Days used for repairs and maintenance. Free 1040x forms prepared online   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 1040x forms prepared online 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 1040x forms prepared online Days used as a main home before or after renting. Free 1040x forms prepared online   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 1040x forms prepared online 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 1040x forms prepared online 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 1040x forms prepared online However, this special rule does not apply when dividing expenses between rental and personal use. Free 1040x forms prepared online Examples. Free 1040x forms prepared online   The following examples show how to determine whether you used your rental property as a home. Free 1040x forms prepared online Example 1. Free 1040x forms prepared online You converted the basement of your home into an apartment with a bedroom, a bathroom, and a small kitchen. Free 1040x forms prepared online You rented the basement apartment at a fair rental price to college students during the regular school year. Free 1040x forms prepared online You rented to them on a 9-month lease (273 days). Free 1040x forms prepared online You figured 10% of the total days rented to others at a fair rental price is 27 days. Free 1040x forms prepared online During June (30 days), your brothers stayed with you and lived in the basement apartment rent free. Free 1040x forms prepared online Your basement apartment was used as a home because you used it for personal purposes for 30 days. Free 1040x forms prepared online Rent-free use by your brothers is considered personal use. Free 1040x forms prepared online 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 1040x forms prepared online Example 2. Free 1040x forms prepared online 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 1040x forms prepared online Your sister-in-law stayed in the room, rent free, for the last 3 weeks (21 days) in July. Free 1040x forms prepared online You figured 10% of the total days rented to others at a fair rental price is 3 days. Free 1040x forms prepared online The room was used as a home because you used it for personal purposes for 21 days. Free 1040x forms prepared online That is more than the greater of 14 days or 10% of the 27 days it was rented (3 days). Free 1040x forms prepared online Example 3. Free 1040x forms prepared online You own a condominium apartment in a resort area. Free 1040x forms prepared online You rented it at a fair rental price for a total of 170 days during the year. Free 1040x forms prepared online 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 1040x forms prepared online Your family actually used the apartment for 10 of those days. Free 1040x forms prepared online Therefore, the apartment is treated as having been rented for 160 (170 − 10) days. Free 1040x forms prepared online You figured 10% of the total days rented to others at a fair rental price is 16 days. Free 1040x forms prepared online Your family also used the apartment for 7 other days during the year. Free 1040x forms prepared online You used the apartment as a home because you used it for personal purposes for 17 days. Free 1040x forms prepared online That is more than the greater of 14 days or 10% of the 160 days it was rented (16 days). Free 1040x forms prepared online Minimal rental use. Free 1040x forms prepared online   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 1040x forms prepared online See Used as a home but rented less than 15 days , later, for more information. Free 1040x forms prepared online Limit on deductions. Free 1040x forms prepared online   Renting a dwelling unit that is considered a home is not a passive activity. Free 1040x forms prepared online 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 1040x forms prepared online 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 1040x forms prepared online Any expenses carried forward to the next year will be subject to any limits that apply for that year. Free 1040x forms prepared online 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 1040x forms prepared online   To figure your deductible rental expenses for this year and any carryover to next year, use Worksheet 9-1. Free 1040x forms prepared online Reporting Income and Deductions Property not used for personal purposes. Free 1040x forms prepared online   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 1040x forms prepared online Property used for personal purposes. Free 1040x forms prepared online   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 1040x forms prepared online Not used as a home. Free 1040x forms prepared online   If you use a dwelling unit for personal purposes, but not as a home, report all the rental income in your income. Free 1040x forms prepared online 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 1040x forms prepared online The expenses for personal use are not deductible as rental expenses. Free 1040x forms prepared online   Your deductible rental expenses can be more than your gross rental income; however, see Limits on Rental Losses , later. Free 1040x forms prepared online Used as a home but rented less than 15 days. Free 1040x forms prepared online   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 1040x forms prepared online You are not required to report the rental income and rental expenses from this activity. Free 1040x forms prepared online 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 1040x forms prepared online See the Instructions for Schedule A (Form 1040) for more information on deducting these expenses. Free 1040x forms prepared online Used as a home and rented 15 days or more. Free 1040x forms prepared online   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 1040x forms prepared online 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 1040x forms prepared online The expenses for personal use are not deductible as rental expenses. Free 1040x forms prepared online   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 1040x forms prepared online You do not need to use Worksheet 9-1. Free 1040x forms prepared online   However, if you had a net loss from renting the dwelling unit for the year, your deduction for certain rental expenses is limited. Free 1040x forms prepared online To figure your deductible rental expenses and any carryover to next year, use Worksheet 9-1. Free 1040x forms prepared online Depreciation You recover the cost of income-producing property through yearly tax deductions. Free 1040x forms prepared online You do this by depreciating the property; that is, by deducting some of the cost each year on your tax return. Free 1040x forms prepared online 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 1040x forms prepared online You cannot simply deduct your mortgage or principal payments, or the cost of furniture, fixtures, and equipment, as an expense. Free 1040x forms prepared online You can deduct depreciation only on the part of your property used for rental purposes. Free 1040x forms prepared online Depreciation reduces your basis for figuring gain or loss on a later sale or exchange. Free 1040x forms prepared online You may have to use Form 4562 to figure and report your depreciation. Free 1040x forms prepared online See How To Report Rental Income and Expenses , later. Free 1040x forms prepared online Alternative minimum tax (AMT). Free 1040x forms prepared online    If you use accelerated depreciation, you may be subject to the AMT. Free 1040x forms prepared online 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 1040x forms prepared online Claiming the correct amount of depreciation. Free 1040x forms prepared online   You should claim the correct amount of depreciation each tax year. Free 1040x forms prepared online 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 1040x forms prepared online   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 1040x forms prepared online S Individual Income Tax Return. Free 1040x forms prepared online 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 1040x forms prepared online See Claiming the correct amount of depreciation in chapter 2 of Publication 527 for more information. Free 1040x forms prepared online Changing your accounting method to deduct unclaimed depreciation. Free 1040x forms prepared online   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 1040x forms prepared online In some instances, that consent is automatic. Free 1040x forms prepared online For more information, see chapter 1 of Publication 946. Free 1040x forms prepared online Land. Free 1040x forms prepared online   You cannot depreciate the cost of land because land generally does not wear out, become obsolete, or get used up. Free 1040x forms prepared online The costs of clearing, grading, planting, and landscaping are usually all part of the cost of land and cannot be depreciated. Free 1040x forms prepared online More information. Free 1040x forms prepared online   See Publication 527 for more information about depreciating rental property and see Publication 946 for more information about depreciation. Free 1040x forms prepared online 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 1040x forms prepared online You must consider these rules in the order shown below. Free 1040x forms prepared online At-risk rules. Free 1040x forms prepared online These rules are applied first if there is investment in your rental real estate activity for which you are not at risk. Free 1040x forms prepared online This applies only if the real property was placed in service after 1986. Free 1040x forms prepared online Passive activity limits. Free 1040x forms prepared online 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 1040x forms prepared online However, there are exceptions. Free 1040x forms prepared online 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 1040x forms prepared online Losses from holding real property (other than mineral property) placed in service before 1987 are not subject to the at-risk rules. Free 1040x forms prepared online 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 1040x forms prepared online 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 1040x forms prepared online See Publication 925 for more information. Free 1040x forms prepared online Passive Activity Limits In most cases, all rental real estate activities (except those of certain real estate professionals, discussed later) are passive activities. Free 1040x forms prepared online 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 1040x forms prepared online Limits on passive activity deductions and credits. Free 1040x forms prepared online    Deductions or losses from passive activities are limited. Free 1040x forms prepared online You generally cannot offset income, other than passive income, with losses from passive activities. Free 1040x forms prepared online Nor can you offset taxes on income, other than passive income, with credits resulting from passive activities. Free 1040x forms prepared online Any excess loss or credit is carried forward to the next tax year. Free 1040x forms prepared online   For a detailed discussion of these rules, see Publication 925. Free 1040x forms prepared online    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 1040x forms prepared online Real estate professionals. Free 1040x forms prepared online   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 1040x forms prepared online For a detailed discussion of the requirements, see Publication 527. Free 1040x forms prepared online For a detailed discussion of material participation, see Publication 925. Free 1040x forms prepared online 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 1040x forms prepared online Instead, follow the rules explained in Personal Use of Dwelling Unit (Including Vacation Home), earlier. Free 1040x forms prepared online 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 1040x forms prepared online This special allowance is an exception to the general rule disallowing losses in excess of income from passive activities. Free 1040x forms prepared online 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 1040x forms prepared online Active participation. Free 1040x forms prepared online   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 1040x forms prepared online Management decisions that may count as active participation include approving new tenants, deciding on rental terms, approving expenditures, and similar decisions. Free 1040x forms prepared online Maximum special allowance. Free 1040x forms prepared online   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 1040x forms prepared online   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 1040x forms prepared online 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 1040x forms prepared online   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 1040x forms prepared online More information. Free 1040x forms prepared online   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 1040x forms prepared online How To Report Rental Income and Expenses The basic form for reporting residential rental income and expenses is Schedule E (Form 1040). Free 1040x forms prepared online However, do not use that schedule to report a not-for-profit activity. Free 1040x forms prepared online See Not Rented for Profit, earlier. Free 1040x forms prepared online Providing substantial services. Free 1040x forms prepared online   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 1040x forms prepared online Substantial services do not include the furnishing of heat and light, cleaning of public areas, trash collection, etc. Free 1040x forms prepared online For information, see Publication 334, Tax Guide for Small Business. Free 1040x forms prepared online You also may have to pay self-employment tax on your rental income using Schedule SE (Form 1040), Self-Employment Tax. Free 1040x forms prepared online   Use Form 1065, U. Free 1040x forms prepared online S. Free 1040x forms prepared online 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 1040x forms prepared online Qualified joint venture. Free 1040x forms prepared online   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 1040x forms prepared online 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 1040x forms prepared online For more information, see Publication 527. Free 1040x forms prepared online Form 1098, Mortgage Interest Statement. Free 1040x forms prepared online    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 1040x forms prepared online 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 1040x forms prepared online Attach a statement to your return showing the name and address of the other person. Free 1040x forms prepared online In the left margin of Schedule E, next to line 13, enter “See attached. Free 1040x forms prepared online ” Schedule E (Form 1040) If you rent buildings, rooms, or apartments, and provide basic services such as heat and light, trash collection, etc. Free 1040x forms prepared online , you normally report your rental income and expenses on Schedule E, Part I. Free 1040x forms prepared online List your total income, expenses, and depreciation for each rental property. Free 1040x forms prepared online Be sure to enter the number of fair rental and personal use days on line 2. Free 1040x forms prepared online 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 1040x forms prepared online Complete lines 1 and 2 for each property. Free 1040x forms prepared online However, fill in lines 23a through 26 on only one Schedule E. Free 1040x forms prepared online On Schedule E, page 1, line 18, enter the depreciation you are claiming for each property. Free 1040x forms prepared online To find out if you need to attach Form 4562, see Form 4562, in chapter 3 of Publication 527. Free 1040x forms prepared online 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 1040x forms prepared online Form 6198, At-Risk Limitations. Free 1040x forms prepared online See At-Risk Rules , earlier. Free 1040x forms prepared online Also see Publication 925. Free 1040x forms prepared online Form 8582, Passive Activity Loss Limitations. Free 1040x forms prepared online See Passive Activity Limits , earlier. Free 1040x forms prepared online 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 1040x forms prepared online 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 1040x forms prepared online Also, include the amount from line 26 (Part I) in the “Total income or (loss)” on line 41 (Part V). Free 1040x forms prepared online Worksheet 9-1. Free 1040x forms prepared online 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 1040x forms prepared online Did you use the dwelling unit as a home this year? (See Dwelling Unit Used as a Home . Free 1040x forms prepared online ) 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 1040x forms prepared online Rental Use Percentage A. Free 1040x forms prepared online Total days available for rent at fair rental price A. Free 1040x forms prepared online       B. Free 1040x forms prepared online Total days available for rent (line A) but not rented B. Free 1040x forms prepared online       C. Free 1040x forms prepared online Total days of rental use. Free 1040x forms prepared online Subtract line B from line A C. Free 1040x forms prepared online       D. Free 1040x forms prepared online Total days of personal use (including days rented at less than fair rental price) D. Free 1040x forms prepared online       E. Free 1040x forms prepared online Total days of rental and personal use. Free 1040x forms prepared online Add lines C and D E. Free 1040x forms prepared online       F. Free 1040x forms prepared online Percentage of expenses allowed for rental. Free 1040x forms prepared online Divide line C by line E     F. Free 1040x forms prepared online   PART II. Free 1040x forms prepared online Allowable Rental Expenses 1. Free 1040x forms prepared online Enter rents received 1. Free 1040x forms prepared online   2a. Free 1040x forms prepared online Enter the rental portion of deductible home mortgage interest and qualified mortgage insurance premiums (see instructions) 2a. Free 1040x forms prepared online       b. Free 1040x forms prepared online Enter the rental portion of real estate taxes b. Free 1040x forms prepared online       c. Free 1040x forms prepared online Enter the rental portion of deductible casualty and theft losses (see instructions) c. Free 1040x forms prepared online       d. Free 1040x forms prepared online Enter direct rental expenses (see instructions) d. Free 1040x forms prepared online       e. Free 1040x forms prepared online Fully deductible rental expenses. Free 1040x forms prepared online Add lines 2a–2d. Free 1040x forms prepared online Enter here and  on the appropriate lines on Schedule E (see instructions) 2e. Free 1040x forms prepared online   3. Free 1040x forms prepared online Subtract line 2e from line 1. Free 1040x forms prepared online If zero or less, enter -0- 3. Free 1040x forms prepared online   4a. Free 1040x forms prepared online Enter the rental portion of expenses directly related to operating or maintaining  the dwelling unit (such as repairs, insurance, and utilities) 4a. Free 1040x forms prepared online       b. Free 1040x forms prepared online Enter the rental portion of excess mortgage interest and qualified mortgage insurance premiums (see instructions) b. Free 1040x forms prepared online       c. Free 1040x forms prepared online Carryover of operating expenses from 2012 worksheet c. Free 1040x forms prepared online       d. Free 1040x forms prepared online Add lines 4a–4c d. Free 1040x forms prepared online       e. Free 1040x forms prepared online Allowable expenses. Free 1040x forms prepared online Enter the smaller of line 3 or line 4d (see instructions) 4e. Free 1040x forms prepared online   5. Free 1040x forms prepared online Subtract line 4e from line 3. Free 1040x forms prepared online If zero or less, enter -0- 5. Free 1040x forms prepared online   6a. Free 1040x forms prepared online Enter the rental portion of excess casualty and theft losses (see instructions) 6a. Free 1040x forms prepared online       b. Free 1040x forms prepared online Enter the rental portion of depreciation of the dwelling unit b. Free 1040x forms prepared online       c. Free 1040x forms prepared online Carryover of excess casualty losses and depreciation from 2012 worksheet c. Free 1040x forms prepared online       d. Free 1040x forms prepared online Add lines 6a–6c d. Free 1040x forms prepared online       e. Free 1040x forms prepared online Allowable excess casualty and theft losses and depreciation. Free 1040x forms prepared online Enter the smaller of  line 5 or line 6d (see instructions) 6e. Free 1040x forms prepared online   PART III. Free 1040x forms prepared online Carryover of Unallowed Expenses to Next Year 7a. Free 1040x forms prepared online Operating expenses to be carried over to next year. Free 1040x forms prepared online Subtract line 4e from line 4d 7a. Free 1040x forms prepared online   b. Free 1040x forms prepared online Excess casualty and theft losses and depreciation to be carried over to next year. Free 1040x forms prepared online  Subtract line 6e from line 6d b. Free 1040x forms prepared online   Worksheet 9-1 Instructions. Free 1040x forms prepared online Worksheet for Figuring Rental Deductions for a Dwelling Unit Used as a Home Caution. Free 1040x forms prepared online 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 1040x forms prepared online Line 2a. Free 1040x forms prepared online Figure the mortgage interest on the dwelling unit that you could deduct on Schedule A as if you had not rented the unit. Free 1040x forms prepared online Do not include interest on a loan that did not benefit the dwelling unit. Free 1040x forms prepared online 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 1040x forms prepared online Include interest on a loan used to buy, build, or improve the dwelling unit, or to refinance such a loan. Free 1040x forms prepared online Include the rental portion of this interest in the total you enter on line 2a of the worksheet. Free 1040x forms prepared online   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 1040x forms prepared online See the Schedule A instructions. Free 1040x forms prepared online However, figure your adjusted gross income (Form 1040, line 38) without your rental income and expenses from the dwelling unit. Free 1040x forms prepared online See Line 4b to deduct the part of the qualified mortgage insurance premiums not allowed because of the adjusted gross income limit. Free 1040x forms prepared online Include the rental portion of the amount from Schedule A, line 13, in the total you enter on line 2a of the worksheet. Free 1040x forms prepared online   Note. Free 1040x forms prepared online Do not file this Schedule A or use it to figure the amount to deduct on line 13 of that schedule. Free 1040x forms prepared online Instead, figure the personal portion on a separate Schedule A. Free 1040x forms prepared online 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 1040x forms prepared online           Line 2c. Free 1040x forms prepared online 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 1040x forms prepared online To do this, complete Section A of Form 4684, Casualties and Thefts, treating the losses as personal losses. Free 1040x forms prepared online If any of the loss is due to a federally declared disaster, see the Instructions for Form 4684. Free 1040x forms prepared online On Form 4684, line 17, enter 10% of your adjusted gross income figured without your rental income and expenses from the dwelling unit. Free 1040x forms prepared online Enter the rental portion of the result from Form 4684, line 18, on line 2c of this worksheet. Free 1040x forms prepared online   Note. Free 1040x forms prepared online Do not file this Form 4684 or use it to figure your personal losses on Schedule A. Free 1040x forms prepared online Instead, figure the personal portion on a separate Form 4684. Free 1040x forms prepared online           Line 2d. Free 1040x forms prepared online Enter the total of your rental expenses that are directly related only to the rental activity. Free 1040x forms prepared online These include interest on loans used for rental activities other than to buy, build, or improve the dwelling unit. Free 1040x forms prepared online Also include rental agency fees, advertising, office supplies, and depreciation on office equipment used in your rental activity. Free 1040x forms prepared online           Line 2e. Free 1040x forms prepared online 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 1040x forms prepared online Enter the amounts on lines 2a, 2b, 2c, and 2d on the appropriate lines of Schedule E. Free 1040x forms prepared online           Line 4b. Free 1040x forms prepared online 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 1040x forms prepared online 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 1040x forms prepared online Do not include interest on a loan that did not benefit the dwelling unit (as explained in the line 2a instructions). Free 1040x forms prepared online           Line 4e. Free 1040x forms prepared online 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 1040x forms prepared online *           Line 6a. Free 1040x forms prepared online To find the rental portion of excess casualty and theft losses, use the Form 4684 you prepared for line 2c of this worksheet. Free 1040x forms prepared online   A. Free 1040x forms prepared online Enter the amount from Form 4684, line 10       B. Free 1040x forms prepared online Enter the rental portion of line A       C. Free 1040x forms prepared online Enter the amount from line 2c of this worksheet       D. Free 1040x forms prepared online Subtract line C from line B. Free 1040x forms prepared online Enter the result here and on line 6a of this worksheet               Line 6e. Free 1040x forms prepared online 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 1040x forms prepared online * *Allocating the limited deduction. Free 1040x forms prepared online 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 1040x forms prepared online Enter the amount you allocate to each expense on the appropriate line of Schedule E, Part I. Free 1040x forms prepared online Prev  Up  Next   Home   More Online Publications