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Software For 1040nr

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Software For 1040nr

Software for 1040nr Publication 554 - Introductory Material Table of Contents What's New Reminders IntroductionVolunteer Income Tax Assistance and Tax Counseling for the Elderly. Software for 1040nr Ordering forms and publications. Software for 1040nr Tax questions. Software for 1040nr What's New Alternative minimum tax exemption increased. Software for 1040nr  The AMT exemption amount has increased to $51,900 ($80,800 if married filing jointly or qualifying widow(er); $40,400 if married filing separately). Software for 1040nr Earned income credit. Software for 1040nr  The maximum amount of income you can earn and still get the credit has increased. Software for 1040nr You may be able to take the credit if you earn less than: $14,340 ($19,680 if married filing jointly), do not have a qualifying child, and are at least 25 years old and under 65, $37,870 ($43,210 if married filing jointly), and you have one qualifying child, $43,038 ($48,378 if married filing jointly), and you have two qualifying children, or $46,227 ($51,567 if married filing jointly), and you have three or more qualifying children. Software for 1040nr For more information, see Earned Income Credit , later. Software for 1040nr Exemption phaseout. Software for 1040nr  You lose at least part of the benefit of your exemptions if your adjusted gross income is above a certain amount. Software for 1040nr For 2013, the phaseout begins at $150,000 for married individuals filing separate returns; $250,000 for single individuals; $275,000 for heads of household; and $300,000 for married individuals filing joint returns or qualifying widow(er)s. Software for 1040nr For more information, see Phaseout of Exemptions in Publication 501. Software for 1040nr Limit on itemized deductions. Software for 1040nr   Beginning January 1, 2013, itemized deductions for taxpayers with adjusted gross incomes above $150,000 may be reduced. Software for 1040nr See Overall limitation , later. Software for 1040nr Medical and dental expenses. Software for 1040nr   Beginning January 1, 2013, taxpayers 65 and older can deduct only the part of their medical and dental expenses that exceed 7. Software for 1040nr 5% of their adjusted gross income (10% for taxpayers under 65). Software for 1040nr Same-sex marriages. Software for 1040nr  If you have a same-sex spouse whom you legally married in a state (or foreign country) that recognizes same-sex marriage, you and your spouse generally must use the married filing jointly or married filing separately filing status on your 2013 return, even if you and your spouse now live in a state (or foreign country) that does not recognize same-sex marriage. Software for 1040nr For more information, see Publication 501. Software for 1040nr Reminders Future developments. Software for 1040nr  For the latest information about developments related to Publication 554, such as legislation enacted after it was published, go to www. Software for 1040nr irs. Software for 1040nr gov/pub554. Software for 1040nr Tax return preparers. Software for 1040nr  Choose your preparer carefully. Software for 1040nr If you pay someone to prepare your return, the preparer is required, under the law, to sign the return and fill in the other blanks in the Paid Preparer's area of your return. Software for 1040nr Remember, however, that you are still responsible for the accuracy of every item entered on your return. Software for 1040nr If there is any underpayment, you are responsible for paying it, plus any interest and penalty that may be due. Software for 1040nr Sale of home by surviving spouse. Software for 1040nr  If you are an unmarried widow or widower, you may qualify to exclude up to $500,000 of any gain from the sale or exchange of your main home. Software for 1040nr For more information, see Sale of Home , later. Software for 1040nr Third party designee. Software for 1040nr  You can check the “Yes” box in the Third Party Designee area of your return to authorize the IRS to discuss your return with your preparer, a friend, family member, or any other person you choose. Software for 1040nr This allows the IRS to call the person you identified as your designee to answer any questions that may arise during the processing of your return. Software for 1040nr It also allows your designee to perform certain actions. Software for 1040nr See your income tax return instructions for details. Software for 1040nr Employment tax withholding. Software for 1040nr  Your wages are subject to withholding for income tax, social security tax, and Medicare tax even if you are receiving social security benefits. Software for 1040nr Photographs of missing children. Software for 1040nr  The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Software for 1040nr Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. Software for 1040nr You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. Software for 1040nr Introduction The purpose of this publication is to provide a general overview of selected topics that are of interest to older taxpayers. Software for 1040nr The publication will help you determine if you need to file a return and, if so, what items to report on your return. Software for 1040nr Each topic is discussed only briefly, so you will find references to other free IRS publications that provide more detail on these topics if you need it. Software for 1040nr Table I has a list of questions you may have about filing your federal tax return. Software for 1040nr To the right of each question is the location of the answer in this publication. Software for 1040nr Also, at the back of this publication there is an index to help you search for the topic you need. Software for 1040nr While most federal income tax laws apply equally to all taxpayers, regardless of age, there are some provisions that give special treatment to older taxpayers. Software for 1040nr The following are some examples. Software for 1040nr Higher gross income threshold for filing. Software for 1040nr You must be age 65 or older at the end of the year to get this benefit. Software for 1040nr You are considered age 65 on the day before your 65th birthday. Software for 1040nr Therefore, you are considered age 65 at the end of the year if your 65th birthday is on or before January 1 of the following year. Software for 1040nr Higher standard deduction. Software for 1040nr If you do not itemize deductions, you are entitled to a higher standard deduction if you are age 65 or older at the end of the year. Software for 1040nr You are considered age 65 at the end of the year if your 65th birthday is on or before January 1 of the following year. Software for 1040nr Credit for the elderly or the disabled. Software for 1040nr If you qualify, you may benefit from the credit for the elderly or the disabled. Software for 1040nr To determine if you qualify and how to figure this credit, see Credit for the Elderly or the Disabled , later. Software for 1040nr Return preparation assistance. Software for 1040nr   The IRS wants to make it easier for you to file your federal tax return. Software for 1040nr You may find it helpful to visit a Volunteer Income Tax Assistance (VITA), Tax Counseling for the Elderly (TCE), or American Association of Retired Persons (AARP) Tax-Aide site near you. Software for 1040nr Volunteer Income Tax Assistance and Tax Counseling for the Elderly. Software for 1040nr   These programs provide free help for low-income taxpayers and taxpayers age 60 or older to fill in and file their returns. Software for 1040nr For the VITA/TCE site nearest you, contact your local IRS office. Software for 1040nr For more information, see Free help with your tax return under How To Get Tax Help. Software for 1040nr   For the location of an AARP Tax-Aide site in your community, call 1-888-227-7669. Software for 1040nr When asked, be ready to press in or speak your 5-digit ZIP code. Software for 1040nr Or, you can visit their website on the Internet at www. Software for 1040nr aarp. Software for 1040nr org/money/taxaide. Software for 1040nr Comments and suggestions. Software for 1040nr   We welcome your comments about this publication and your suggestions for future editions. Software for 1040nr   You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. Software for 1040nr NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. Software for 1040nr Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Software for 1040nr   You can send your comments from www. Software for 1040nr irs. Software for 1040nr gov/formspubs/. Software for 1040nr Click on “More Information” and then on “Comment on Tax Forms and Publications. Software for 1040nr ”   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. Software for 1040nr Ordering forms and publications. Software for 1040nr   Visit www. Software for 1040nr irs. Software for 1040nr gov/formspubs/ to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 business days after your request is received. Software for 1040nr Internal Revenue Service 1201 N. Software for 1040nr Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. Software for 1040nr   If you have a tax question, check the information available on IRS. Software for 1040nr gov or call 1-800-829-1040. Software for 1040nr We cannot answer tax questions sent to either of the above addresses. Software for 1040nr Table I. Software for 1040nr What You Should Know About Federal Taxes Note. Software for 1040nr The following is a list of questions you may have about filling out your federal income tax return. Software for 1040nr  To the right of each question is the location of the answer in this publication. Software for 1040nr What I Should Know Where To Find the Answer Do I need to file a return? See chapter 1. Software for 1040nr Is my income taxable or nontaxable?  If it is nontaxable, must I still report it? See chapter 2. Software for 1040nr How do I report benefits I received from the Social Security Administration or the Railroad Retirement Board?  Are these benefits taxable? See Social Security and Equivalent Railroad Retirement Benefits in chapter 2. Software for 1040nr Must I report the sale of my home?  If I had a gain, is any part of it taxable? See Sale of Home in chapter 2. Software for 1040nr What are some of the items that I can deduct to reduce my income? See chapters 3 and 4. Software for 1040nr How do I report the amounts I set aside for my IRA? See Individual Retirement Arrangement (IRA) Contributions and Deductions in chapter 3. Software for 1040nr Would it be better for me to claim the standard deduction or itemize my deductions? See chapter 4. Software for 1040nr What are some of the credits I can claim to reduce my tax? See chapter 5 for discussions on the credit for the elderly or the disabled, the child and dependent care credit, and the earned income credit. Software for 1040nr Must I make estimated tax payments? See chapter 6. Software for 1040nr How do I contact the IRS or get more information? See chapter 7. Software for 1040nr Prev  Up  Next   Home   More Online Publications
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Tax Relief for Victims of Tropical Storm Debby in Florida

Updated 7/19/2012 to include Citrus, Gilchrist, Lafayette, Polk, Sarasota counties.
Updated 7/13/2012 to include Hillsborough, Manatee and Taylor counties.

FL-2012-07, Jul. 5, 2012

PLANTATION — Victims of tropical storm Debby that began on June 23, 2012 in parts of Florida may qualify for tax relief from the Internal Revenue Service.

The President has declared Baker, Bradford, Citrus, Clay, Columbia, Duval, Franklin, Gilchrist, Hernando, Highlands, Hillsborough, Lafayette, Manatee, Nassau, Pasco, Pinellas, Polk, Sarasota, Suwannee, Taylor, Union, and Wakulla counties a federal disaster area. Individuals who reside or have a business in these counties may qualify for tax relief.

The declaration permits the IRS to postpone certain deadlines for taxpayers who reside or have a business in the disaster area. For instance, certain deadlines falling on or after June 23, and on or before Aug. 22, have been postponed to Aug. 22, 2012.

In addition, the IRS is waiving the failure-to-deposit penalties for employment and excise tax deposits due on or after June 23, and on or before July 9, as long as the deposits are made by July 9, 2012.

If an affected taxpayer receives a penalty notice from the IRS, the taxpayer should call the telephone number on the notice to have the IRS abate any interest and any late filing or late payment penalties that would otherwise apply. Penalties or interest will be abated only for taxpayers who have an original or extended filing, payment or deposit due date, including an extended filing or payment due date, that falls within the postponement period.

The IRS automatically identifies taxpayers located in the covered disaster area and applies automatic filing and payment relief. But affected taxpayers who reside or have a business located outside the covered disaster area must call the IRS disaster hotline at 1-866-562-5227 to request this tax relief.

Covered Disaster Area

The counties listed above constitute a covered disaster area for purposes of Treas. Reg. § 301.7508A-1(d)(2) and are entitled to the relief detailed below.

Affected Taxpayers

Taxpayers considered to be affected taxpayers eligible for the postponement of time to file returns, pay taxes and perform other time-sensitive acts are those taxpayers listed in Treas. Reg. § 301.7508A-1(d)(1), and include individuals who live, and businesses whose principal place of business is located, in the covered disaster area. Taxpayers not in the covered disaster area, but whose records necessary to meet a deadline listed in Treas. Reg. § 301.7508A-1(c) are in the covered disaster area, are also entitled to relief. In addition, all relief workers affiliated with a recognized government or philanthropic organization assisting in the relief activities in the covered disaster area and any individual visiting the covered disaster area who was killed or injured as a result of the disaster are entitled to relief.

Grant of Relief

Under section 7508A, the IRS gives affected taxpayers until Aug. 22 to file most tax returns (including individual, corporate, and estate and trust income tax returns; partnership returns, S corporation returns, and trust returns; estate, gift, and generation-skipping transfer tax returns; and employment and certain excise tax returns), or to make tax payments, including estimated tax payments, that have either an original or extended due date occurring on or after June 23 and on or before Aug. 22.

The IRS also gives affected taxpayers until Aug. 22 to perform other time-sensitive actions described in Treas. Reg. § 301.7508A-1(c)(1) and Rev. Proc. 2007-56, 2007-34 I.R.B. 388 (Aug. 20, 2007), that are due to be performed on or after June 23 and on or before Aug. 22.

This relief also includes the filing of Form 5500 series returns, in the manner described in section 8 of Rev. Proc. 2007-56. The relief described in section 17 of Rev. Proc. 2007-56, pertaining to like-kind exchanges of property, also applies to certain taxpayers who are not otherwise affected taxpayers and may include acts required to be performed before or after the period above.

The postponement of time to file and pay does not apply to information returns in the W-2, 1098, 1099 series, or to Forms 1042-S or 8027. Penalties for failure to timely file information returns can be waived under existing procedures for reasonable cause. Likewise, the postponement does not apply to employment and excise tax deposits. The IRS, however, will abate penalties for failure to make timely employment and excise tax deposits due on or after June 23 and on or before July 9 provided the taxpayer makes these deposits by July 9.

Casualty Losses

Affected taxpayers in a federally declared disaster area have the option of claiming disaster-related casualty losses on their federal income tax return for either this year or last year. Claiming the loss on an original or amended return for last year will get the taxpayer an earlier refund, but waiting to claim the loss on this year's return could result in a greater tax saving, depending on other income factors.

Individuals may deduct personal property losses that are not covered by insurance or other reimbursements. For details, see Form 4684 and its instructions.

Affected taxpayers claiming the disaster loss on last year's return should put the Disaster Designation "Florida/Tropical Storm Debby" at the top of the form so that the IRS can expedite the processing of the refund.

Other Relief

The IRS will waive the usual fees and expedite requests for copies of previously filed tax returns for affected taxpayers. Taxpayers should put the assigned Disaster Designation in red ink at the top of Form 4506, Request for Copy of Tax Return, or Form 4506-T, Request for Transcript of Tax Return, as appropriate, and submit it to the IRS.

Affected taxpayers who are contacted by the IRS on a collection or examination matter should explain how the disaster impacts them so that the IRS can provide appropriate consideration to their case.

Taxpayers may download forms and publications from the official IRS website, irs.gov, or order them by calling 1-800-TAX-FORM (1-800-829-3676). The IRS toll-free number for general tax questions is 1-800-829-1040.

Related Information

Disaster Assistance and Emergency Relief for Individuals and Businesses
Recent IRS Disaster Relief Announcements

Page Last Reviewed or Updated: 25-Jun-2013

The Software For 1040nr

Software for 1040nr 3. Software for 1040nr   Rent Expense Table of Contents Introduction Topics - This chapter discusses: RentConditional sales contract. Software for 1040nr Leveraged leases. Software for 1040nr Leveraged leases of limited-use property. Software for 1040nr Taxes on Leased Property Cost of Getting a Lease Improvements by Lessee Capitalizing Rent Expenses Introduction This chapter discusses the tax treatment of rent or lease payments you make for property you use in your business but do not own. Software for 1040nr It also discusses how to treat other kinds of payments you make that are related to your use of this property. Software for 1040nr These include payments you make for taxes on the property. Software for 1040nr Topics - This chapter discusses: The definition of rent Taxes on leased property The cost of getting a lease Improvements by the lessee Capitalizing rent expenses Rent Rent is any amount you pay for the use of property you do not own. Software for 1040nr In general, you can deduct rent as an expense only if the rent is for property you use in your trade or business. Software for 1040nr If you have or will receive equity in or title to the property, the rent is not deductible. Software for 1040nr Unreasonable rent. Software for 1040nr   You cannot take a rental deduction for unreasonable rent. Software for 1040nr Ordinarily, the issue of reasonableness arises only if you and the lessor are related. Software for 1040nr Rent paid to a related person is reasonable if it is the same amount you would pay to a stranger for use of the same property. Software for 1040nr Rent is not unreasonable just because it is figured as a percentage of gross sales. Software for 1040nr For examples of related persons, see Related persons in chapter 2, Publication 544. Software for 1040nr Rent on your home. Software for 1040nr   If you rent your home and use part of it as your place of business, you may be able to deduct the rent you pay for that part. Software for 1040nr You must meet the requirements for business use of your home. Software for 1040nr For more information, see Business use of your home in chapter 1. Software for 1040nr Rent paid in advance. Software for 1040nr   Generally, rent paid in your trade or business is deductible in the year paid or accrued. Software for 1040nr If you pay rent in advance, you can deduct only the amount that applies to your use of the rented property during the tax year. Software for 1040nr You can deduct the rest of your payment only over the period to which it applies. Software for 1040nr Example 1. Software for 1040nr You are a calendar year taxpayer and you leased a building for 5 years beginning July 1. Software for 1040nr Your rent is $12,000 per year. Software for 1040nr You paid the first year's rent ($12,000) on June 30. Software for 1040nr You can deduct only $6,000 (6/12 × $12,000) for the rent that applies to the first year. Software for 1040nr Example 2. Software for 1040nr You are a calendar year taxpayer. Software for 1040nr Last January you leased property for 3 years for $6,000 a year. Software for 1040nr You paid the full $18,000 (3 × $6,000) during the first year of the lease. Software for 1040nr Each year you can deduct only $6,000, the part of the lease that applies to that year. Software for 1040nr Canceling a lease. Software for 1040nr   You generally can deduct as rent an amount you pay to cancel a business lease. Software for 1040nr Lease or purchase. Software for 1040nr   There may be instances in which you must determine whether your payments are for rent or for the purchase of the property. Software for 1040nr You must first determine whether your agreement is a lease or a conditional sales contract. Software for 1040nr Payments made under a conditional sales contract are not deductible as rent expense. Software for 1040nr Conditional sales contract. Software for 1040nr   Whether an agreement is a conditional sales contract depends on the intent of the parties. Software for 1040nr Determine intent based on the provisions of the agreement and the facts and circumstances that exist when you make the agreement. Software for 1040nr No single test, or special combination of tests, always applies. Software for 1040nr However, in general, an agreement may be considered a conditional sales contract rather than a lease if any of the following is true. Software for 1040nr The agreement applies part of each payment toward an equity interest you will receive. Software for 1040nr You get title to the property after you make a stated amount of required payments. Software for 1040nr The amount you must pay to use the property for a short time is a large part of the amount you would pay to get title to the property. Software for 1040nr You pay much more than the current fair rental value of the property. Software for 1040nr You have an option to buy the property at a nominal price compared to the value of the property when you may exercise the option. Software for 1040nr Determine this value when you make the agreement. Software for 1040nr You have an option to buy the property at a nominal price compared to the total amount you have to pay under the agreement. Software for 1040nr The agreement designates part of the payments as interest, or that part is easy to recognize as interest. Software for 1040nr Leveraged leases. Software for 1040nr   Leveraged lease transactions may not be considered leases. Software for 1040nr Leveraged leases generally involve three parties: a lessor, a lessee, and a lender to the lessor. Software for 1040nr Usually the lease term covers a large part of the useful life of the leased property, and the lessee's payments to the lessor are enough to cover the lessor's payments to the lender. Software for 1040nr   If you plan to take part in what appears to be a leveraged lease, you may want to get an advance ruling. Software for 1040nr Revenue Procedure 2001-28 on page 1156 of Internal Revenue Bulletin 2001-19 contains the guidelines the IRS will use to determine if a leveraged lease is a lease for federal income tax purposes. Software for 1040nr Revenue Procedure 2001-29 on page 1160 of the same Internal Revenue Bulletin provides the information required to be furnished in a request for an advance ruling on a leveraged lease transaction. Software for 1040nr Internal Revenue Bulletin 2001-19 is available at www. Software for 1040nr irs. Software for 1040nr gov/pub/irs-irbs/irb01-19. Software for 1040nr pdf. Software for 1040nr   In general, Revenue Procedure 2001-28 provides that, for advance ruling purposes only, the IRS will consider the lessor in a leveraged lease transaction to be the owner of the property and the transaction to be a valid lease if all the factors in the revenue procedure are met, including the following. Software for 1040nr The lessor must maintain a minimum unconditional “at risk” equity investment in the property (at least 20% of the cost of the property) during the entire lease term. Software for 1040nr The lessee may not have a contractual right to buy the property from the lessor at less than fair market value when the right is exercised. Software for 1040nr The lessee may not invest in the property, except as provided by Revenue Procedure 2001-28. Software for 1040nr The lessee may not lend any money to the lessor to buy the property or guarantee the loan used by the lessor to buy the property. Software for 1040nr The lessor must show that it expects to receive a profit apart from the tax deductions, allowances, credits, and other tax attributes. Software for 1040nr   The IRS may charge you a user fee for issuing a tax ruling. Software for 1040nr For more information, see Revenue Procedure 2014-1 available at  www. Software for 1040nr irs. Software for 1040nr gov/irb/2014-1_IRB/ar05. Software for 1040nr html. Software for 1040nr Leveraged leases of limited-use property. Software for 1040nr   The IRS will not issue advance rulings on leveraged leases of so-called limited-use property. Software for 1040nr Limited-use property is property not expected to be either useful to or usable by a lessor at the end of the lease term except for continued leasing or transfer to a lessee. Software for 1040nr See Revenue Procedure 2001-28 for examples of limited-use property and property that is not limited-use property. Software for 1040nr Leases over $250,000. Software for 1040nr   Special rules are provided for certain leases of tangible property. Software for 1040nr The rules apply if the lease calls for total payments of more than $250,000 and any of the following apply. Software for 1040nr Rents increase during the lease. Software for 1040nr Rents decrease during the lease. Software for 1040nr Rents are deferred (rent is payable after the end of the calendar year following the calendar year in which the use occurs and the rent is allocated). Software for 1040nr Rents are prepaid (rent is payable before the end of the calendar year preceding the calendar year in which the use occurs and the rent is allocated). Software for 1040nr These rules do not apply if your lease specifies equal amounts of rent for each month in the lease term and all rent payments are due in the calendar year to which the rent relates (or in the preceding or following calendar year). Software for 1040nr   Generally, if the special rules apply, you must use an accrual method of accounting (and time value of money principles) for your rental expenses, regardless of your overall method of accounting. Software for 1040nr In addition, in certain cases in which the IRS has determined that a lease was designed to achieve tax avoidance, you must take rent and stated or imputed interest into account under a constant rental accrual method in which the rent is treated as accruing ratably over the entire lease term. Software for 1040nr For details, see section 467 of the Internal Revenue Code. Software for 1040nr Taxes on Leased Property If you lease business property, you can deduct as additional rent any taxes you have to pay to or for the lessor. Software for 1040nr When you can deduct these taxes as additional rent depends on your accounting method. Software for 1040nr Cash method. Software for 1040nr   If you use the cash method of accounting, you can deduct the taxes as additional rent only for the tax year in which you pay them. Software for 1040nr Accrual method. Software for 1040nr   If you use an accrual method of accounting, you can deduct taxes as additional rent for the tax year in which you can determine all the following. Software for 1040nr That you have a liability for taxes on the leased property. Software for 1040nr How much the liability is. Software for 1040nr That economic performance occurred. Software for 1040nr   The liability and amount of taxes are determined by state or local law and the lease agreement. Software for 1040nr Economic performance occurs as you use the property. Software for 1040nr Example 1. Software for 1040nr Oak Corporation is a calendar year taxpayer that uses an accrual method of accounting. Software for 1040nr Oak leases land for use in its business. Software for 1040nr Under state law, owners of real property become liable (incur a lien on the property) for real estate taxes for the year on January 1 of that year. Software for 1040nr However, they do not have to pay these taxes until July 1 of the next year (18 months later) when tax bills are issued. Software for 1040nr Under the terms of the lease, Oak becomes liable for the real estate taxes in the later year when the tax bills are issued. Software for 1040nr If the lease ends before the tax bill for a year is issued, Oak is not liable for the taxes for that year. Software for 1040nr Oak cannot deduct the real estate taxes as rent until the tax bill is issued. Software for 1040nr This is when Oak's liability under the lease becomes fixed. Software for 1040nr Example 2. Software for 1040nr The facts are the same as in Example 1 except that, according to the terms of the lease, Oak becomes liable for the real estate taxes when the owner of the property becomes liable for them. Software for 1040nr As a result, Oak will deduct the real estate taxes as rent on its tax return for the earlier year. Software for 1040nr This is the year in which Oak's liability under the lease becomes fixed. Software for 1040nr Cost of Getting a Lease You may either enter into a new lease with the lessor of the property or get an existing lease from another lessee. Software for 1040nr Very often when you get an existing lease from another lessee, you must pay the previous lessee money to get the lease, besides having to pay the rent on the lease. Software for 1040nr If you get an existing lease on property or equipment for your business, you generally must amortize any amount you pay to get that lease over the remaining term of the lease. Software for 1040nr For example, if you pay $10,000 to get a lease and there are 10 years remaining on the lease with no option to renew, you can deduct $1,000 each year. Software for 1040nr The cost of getting an existing lease of tangible property is not subject to the amortization rules for section 197 intangibles discussed in chapter 8. Software for 1040nr Option to renew. Software for 1040nr   The term of the lease for amortization includes all renewal options plus any other period for which you and the lessor reasonably expect the lease to be renewed. Software for 1040nr However, this applies only if less than 75% of the cost of getting the lease is for the term remaining on the purchase date (not including any period for which you may choose to renew, extend, or continue the lease). Software for 1040nr Allocate the lease cost to the original term and any option term based on the facts and circumstances. Software for 1040nr In some cases, it may be appropriate to make the allocation using a present value computation. Software for 1040nr For more information, see Regulations section 1. Software for 1040nr 178-1(b)(5). Software for 1040nr Example 1. Software for 1040nr You paid $10,000 to get a lease with 20 years remaining on it and two options to renew for 5 years each. Software for 1040nr Of this cost, you paid $7,000 for the original lease and $3,000 for the renewal options. Software for 1040nr Because $7,000 is less than 75% of the total $10,000 cost of the lease (or $7,500), you must amortize the $10,000 over 30 years. Software for 1040nr That is the remaining life of your present lease plus the periods for renewal. Software for 1040nr Example 2. Software for 1040nr The facts are the same as in Example 1, except that you paid $8,000 for the original lease and $2,000 for the renewal options. Software for 1040nr You can amortize the entire $10,000 over the 20-year remaining life of the original lease. Software for 1040nr The $8,000 cost of getting the original lease was not less than 75% of the total cost of the lease (or $7,500). Software for 1040nr Cost of a modification agreement. Software for 1040nr   You may have to pay an additional “rent” amount over part of the lease period to change certain provisions in your lease. Software for 1040nr You must capitalize these payments and amortize them over the remaining period of the lease. Software for 1040nr You cannot deduct the payments as additional rent, even if they are described as rent in the agreement. Software for 1040nr Example. Software for 1040nr You are a calendar year taxpayer and sign a 20-year lease to rent part of a building starting on January 1. Software for 1040nr However, before you occupy it, you decide that you really need less space. Software for 1040nr The lessor agrees to reduce your rent from $7,000 to $6,000 per year and to release the excess space from the original lease. Software for 1040nr In exchange, you agree to pay an additional rent amount of $3,000, payable in 60 monthly installments of $50 each. Software for 1040nr   You must capitalize the $3,000 and amortize it over the 20-year term of the lease. Software for 1040nr Your amortization deduction each year will be $150 ($3,000 ÷ 20). Software for 1040nr You cannot deduct the $600 (12 × $50) that you will pay during each of the first 5 years as rent. Software for 1040nr Commissions, bonuses, and fees. Software for 1040nr   Commissions, bonuses, fees, and other amounts you pay to get a lease on property you use in your business are capital costs. Software for 1040nr You must amortize these costs over the term of the lease. Software for 1040nr Loss on merchandise and fixtures. Software for 1040nr   If you sell at a loss merchandise and fixtures that you bought solely to get a lease, the loss is a cost of getting the lease. Software for 1040nr You must capitalize the loss and amortize it over the remaining term of the lease. Software for 1040nr Improvements by Lessee If you add buildings or make other permanent improvements to leased property, depreciate the cost of the improvements using the modified accelerated cost recovery system (MACRS). Software for 1040nr Depreciate the property over its appropriate recovery period. Software for 1040nr You cannot amortize the cost over the remaining term of the lease. Software for 1040nr If you do not keep the improvements when you end the lease, figure your gain or loss based on your adjusted basis in the improvements at that time. Software for 1040nr For more information, see the discussion of MACRS in Publication 946, How To Depreciate Property. Software for 1040nr Assignment of a lease. Software for 1040nr   If a long-term lessee who makes permanent improvements to land later assigns all lease rights to you for money and you pay the rent required by the lease, the amount you pay for the assignment is a capital investment. Software for 1040nr If the rental value of the leased land increased since the lease began, part of your capital investment is for that increase in the rental value. Software for 1040nr The rest is for your investment in the permanent improvements. Software for 1040nr   The part that is for the increased rental value of the land is a cost of getting a lease, and you amortize it over the remaining term of the lease. Software for 1040nr You can depreciate the part that is for your investment in the improvements over the recovery period of the property as discussed earlier, without regard to the lease term. Software for 1040nr Capitalizing Rent Expenses Under the uniform capitalization rules, you must capitalize the direct costs and part of the indirect costs for certain production or resale activities. Software for 1040nr Include these costs in the basis of property you produce or acquire for resale, rather than claiming them as a current deduction. Software for 1040nr You recover the costs through depreciation, amortization, or cost of goods sold when you use, sell, or otherwise dispose of the property. Software for 1040nr Indirect costs include amounts incurred for renting or leasing equipment, facilities, or land. Software for 1040nr Uniform capitalization rules. Software for 1040nr   You may be subject to the uniform capitalization rules if you do any of the following, unless the property is produced for your use other than in a business or an activity carried on for profit. Software for 1040nr Produce real property or tangible personal property. Software for 1040nr For this purpose, tangible personal property includes a film, sound recording, video tape, book, or similar property. Software for 1040nr Acquire property for resale. Software for 1040nr However, these rules do not apply to the following property. Software for 1040nr Personal property you acquire for resale if your average annual gross receipts are $10 million or less for the 3 prior tax years. Software for 1040nr Property you produce if you meet either of the following conditions. Software for 1040nr Your indirect costs of producing the property are $200,000 or less. Software for 1040nr You use the cash method of accounting and do not account for inventories. Software for 1040nr Example 1. Software for 1040nr You rent construction equipment to build a storage facility. Software for 1040nr If you are subject to the uniform capitalization rules, you must capitalize as part of the cost of the building the rent you paid for the equipment. Software for 1040nr You recover your cost by claiming a deduction for depreciation on the building. Software for 1040nr Example 2. Software for 1040nr You rent space in a facility to conduct your business of manufacturing tools. Software for 1040nr If you are subject to the uniform capitalization rules, you must include the rent you paid to occupy the facility in the cost of the tools you produce. Software for 1040nr More information. Software for 1040nr   For more information on these rules, see Uniform Capitalization Rules in Publication 538 and the regulations under Internal Revenue Code section 263A. Software for 1040nr Prev  Up  Next   Home   More Online Publications