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Turbotax Free State File

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Turbotax Free State File

Turbotax free state file Listed Property Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: Listed Property DefinedPassenger Automobile Defined Dwelling Unit Other Property Used for Transportation Computers and Related Peripheral Equipment Predominant Use TestMeeting the Predominant Use Test Qualified Business Use Method of Allocating Use Applying the Predominant Use Test Deductions After Recovery Period Leased PropertyLessor Lessee What Records Must Be KeptAdequate Records Reporting Information on Form 4562 Deductions in Later Years Appendix Topics - This chapter discusses: Listed property defined The predominant use test What records must be kept Useful Items - You may want to see: Publication 463 Travel, Entertainment, and Gift Expenses 587 Business Use of Your Home (Including Use by Day-Care Providers) 917 Business Use of a Car 946 How To Depreciate Property Form (and Instructions) 2106–EZ Unreimbursed Employee Business Expenses 2106 Employee Business Expenses 4255 Recapture of Investment Credit 4562 Depreciation and Amortization This chapter discusses some special rules and recordkeeping requirements for listed property. Turbotax free state file For complete coverage of the rules, including the rules concerning passenger automobiles, see Publication 946. Turbotax free state file If listed property is not used predominantly (more than 50%) in a qualified business use as discussed inPredominant Use Test, later, the section 179 deduction is not allowable and the property must be depreciated using the straight line method. Turbotax free state file Listed Property Defined Listed property is any of the following: Any passenger automobile (defined later), Any other property used for transportation, Any property of a type generally used for entertainment, recreation, or amusement (including photographic, phonographic, communication, and video recording equipment), Any computer and related peripheral equipment, defined later, unless it is used only at a regular business establishment and owned or leased by the person operating the establishment. Turbotax free state file A regular business establishment includes a portion of a dwelling unit (defined later), if, and only if, that portion is used both regularly and exclusively for business as discussed in Publication 587. Turbotax free state file Any cellular telephone (or similar telecommunication equipment) placed in service or leased in a tax year beginning after 1989. Turbotax free state file Passenger Automobile Defined A passenger automobile is any four-wheeled vehicle made primarily for use on public streets, roads, and highways and rated at 6,000 pounds or less of unloaded gross vehicle weight (at 6,000 pounds or less of gross vehicle weight for trucks and vans). Turbotax free state file It includes any part, component, or other item physically attached to the automobile or usually included in the purchase price of an automobile. Turbotax free state file A passenger automobile does not include: An ambulance, hearse, or combination ambulance-hearse used directly in a trade or business, and A vehicle used directly in the trade or business of transporting persons or property for compensation or hire. Turbotax free state file Dwelling Unit A dwelling unit is a house or apartment used to provide living accommodations in a building or structure. Turbotax free state file It does not include a unit in a hotel, motel, inn, or other establishment where more than half the units are used on a transient basis. Turbotax free state file Other Property Used for Transportation Other property used for transportation includes trucks, buses, boats, airplanes, motorcycles, and any other vehicles for transporting persons or goods. Turbotax free state file Listed property does not include: Any vehicle which, by reason of its design, is not likely to be used more than a minimal amount for personal purposes, such as clearly marked police and fire vehicles, ambulances, or hearses used for those purposes, Any vehicle that is designed to carry cargo and that has a loaded gross vehicle weight over 14,000 pounds, bucket trucks (cherry pickers), cement mixers, combines, cranes and derricks, delivery trucks with seating only for the driver (or only for the driver plus a folding jump seat), dump trucks (including garbage trucks), flatbed trucks, forklifts, qualified moving vans, qualified specialized utility repair trucks, and refrigerated trucks, Any passenger bus used for that purpose with a capacity of at least 20 passengers and school buses, Any tractor or other special purpose farm vehicle, and unmarked vehicles used by law enforcement officers if the use is officially authorized, and Any vehicle, such as a taxicab, if substantially all its use is in the trade or business of providing services to transport persons or property for compensation or hire by unrelated persons. Turbotax free state file Computers and Related Peripheral Equipment A computer is a programmable electronically activated device that: Is capable of accepting information, applying prescribed processes to the information, and supplying the results of those processes with or without human intervention, and Consists of a central processing unit with extensive storage, logic, arithmetic, and control capabilities. Turbotax free state file Related peripheral equipment is any auxiliary machine which is designed to be controlled by the central processing unit of a computer. Turbotax free state file Computer or peripheral equipment does not include: Any equipment which is an integral part of property which is not a computer, Typewriters, calculators, adding and accounting machines, copiers, duplicating equipment, and similar equipment, and Equipment of a kind, used primarily for the user's amusement or entertainment, such as video games. Turbotax free state file Predominant Use Test If “listed property,” defined earlier, placed in service after June 18, 1984, is not used predominantly (more than 50%) in a qualified business use during any tax year: The section 179 deduction on the property is not allowable, and You must depreciate the property using the straight line method. Turbotax free state file Listed property placed in service before 1987. Turbotax free state file   For listed property placed in service before 1987, depreciate the property over the following period: Class of Property Listed Property Recovery Period 3-year property 5 years 5-year property 12 years 10-year property 25 years 18-year real property 40 years 19-year real property 40 years If you must use the above recovery periods for listed property not used predominantly in a trade or business, use the percentages from Table 16 titled Listed Property Not Used Predominantly (Other Than 18- or 19-year Real Property), and Table 17 for 18- or 19-year real property, near the end of this publication in the Appendix. Turbotax free state file Listed property placed in service after 1986. Turbotax free state file   For information on listed property placed in service after 1986, see Publication 946. Turbotax free state file Meeting the Predominant Use Test Listed property meets the predominant use test for any tax year if its business use is more than 50% of its total use. Turbotax free state file You must allocate the use of any item of listed property used for more than one purpose during the tax year among its various uses. Turbotax free state file The percentage of investment use of listed property cannot be used as part of the percentage of qualified business use to meet the predominant use test. Turbotax free state file However, the combined total of business and investment use is taken into account to figure your depreciation deduction for the property. Turbotax free state file Note: Property does not stop being predominantly used in a qualified business use because of a transfer at death. Turbotax free state file Example. Turbotax free state file Sarah Bradley uses a home computer 50% of the time to manage her investments. Turbotax free state file She also uses the computer 40% of the time in her part-time consumer research business. Turbotax free state file Sarah's home computer is listed property because it is not used at a regular business establishment. Turbotax free state file Because her business use of the computer does not exceed 50%, the computer is not predominantly used in a qualified business use for the tax year. Turbotax free state file Because she does not meet the predominant use test, she cannot elect a section 179 deduction for this property. Turbotax free state file Her combined rate of business/investment use for determining her depreciation deduction is 90%. Turbotax free state file Qualified Business Use A qualified business use is any use in your trade or business. Turbotax free state file However, it does not include: The use of property held merely to produce income (investment use), The leasing of property to any 5% owner or related person (to the point that the property is used by a 5% owner or person related to the owner or lessee of the property), The use of property as compensation for the performance of services by a 5% owner or related person, or The use of property as compensation for the performance of services by any person (other than a5% owner or related person) unless the value of the use is included in that person's gross income for the use of the property and income tax is withheld on that amount where required. Turbotax free state file See Employees, later. Turbotax free state file 5% owner. Turbotax free state file   A 5% owner of a business, other than a corporation, is any person who owns more than 5% of the capital or profits interest in the business. Turbotax free state file   A 5% owner of a corporation is any person who owns, or is considered to own: More than 5% of the outstanding stock of the corporation, or Stock possessing more than 5% of the total combined voting power of all stock in the corporation. Turbotax free state file Related person. Turbotax free state file   A related person is anyone related to a taxpayer as discussed under Related persons, in chapter 2 under Nonqualifying Property in Publication 946. Turbotax free state file Entertainment Use The use of listed property for entertainment, recreation, or amusement purposes is treated as a qualified business use only to the extent that expenses (other than interest and property tax expenses) for its use are deductible as ordinary and necessary business expenses. Turbotax free state file See Publication 463. Turbotax free state file Leasing or Compensatory Use of Aircraft If at least 25% of the total use of any aircraft during the tax year is for a qualified business use, the leasing or compensatory use of the aircraft by a 5% owner or related person is treated as a qualified business use. Turbotax free state file Commuting The use of a vehicle for commuting is not business use, regardless of whether work is performed during the trip. Turbotax free state file Use of Your Passenger Automobile by Another Person If someone else uses your automobile, that use is not business use unless: That use is directly connected with your business, The value of the use is property reported by you as income to the other person and tax is withheld on the income where required, or The value of the use results in a payment of fair market rent. Turbotax free state file Any payment to you for the use of the automobile is treated as a rent payment for 3). Turbotax free state file Employees Any use by an employee of his or her own listed property (or listed property rented by an employee) in performing services as an employee is not business use unless: The use is for the employer's convenience, and The use is required as a condition of employment. Turbotax free state file Use for the employer's convenience. Turbotax free state file   Whether the use of listed property is for the employer's convenience must be determined from all the facts. Turbotax free state file The use is for the employer's convenience if it is for a substantial business reason of the employer. Turbotax free state file The use of listed property during the employee's regular working hours to carry on the employer's business is generally for the employer's convenience. Turbotax free state file Use required as a condition of employment. Turbotax free state file   Whether the use of listed property is a condition of employment depends on all the facts and circumstances. Turbotax free state file The use of property must be required for the employee to perform duties properly. Turbotax free state file The employer need not explicitly require the employee to use the property. Turbotax free state file A mere statement by the employer that the use of the property is a condition of employment is not sufficient. Turbotax free state file Example 1. Turbotax free state file Virginia Sycamore is employed as a courier with We Deliver which provides local courier services. Turbotax free state file She owns and uses a motorcycle to deliver packages to downtown offices. Turbotax free state file We Deliver explicitly requires all delivery persons to own a small car or motorcycle for use in their employment. Turbotax free state file The company reimburses delivery persons for their costs. Turbotax free state file Virginia's use of the motorcycle is for the convenience of We Deliver and is required as a condition of employment. Turbotax free state file Example 2. Turbotax free state file Bill Nelson is an inspector for Uplift, a construction company with many sites in the local area. Turbotax free state file He must travel to these sites on a regular basis. Turbotax free state file Uplift does not furnish an automobile or explicitly require him to use his own automobile. Turbotax free state file However, it reimburses him for any costs he incurs in traveling to the various sites. Turbotax free state file The use of his own automobile or a rental automobile is for the convenience of Uplift and is required as a condition of employment. Turbotax free state file Method of Allocating Use For passenger automobiles and other means of transportation, allocate the property's use on the basis of mileage. Turbotax free state file You determine the percentage of qualified business use by dividing the number of miles the vehicle is driven for business purposes during the year by the total number of miles the vehicle is driven for all purposes (including business miles) during the year. Turbotax free state file For other items of listed property, allocate the property's use on the basis of the most appropriate unit of time. Turbotax free state file For example, you can determine the percentage of business use of a computer by dividing the number of hours the computer is used for business purposes during the year by the total number of hours the computer is used for all purposes (including business hours) during the year. Turbotax free state file Applying the Predominant Use Test You must apply the predominant use test for an item of listed property each year of the recovery period. Turbotax free state file First Recovery Year If any item of listed property is not used predominantly in a qualified business use in the year it is placed in service: The property is not eligible for a section 179 deduction, and The depreciation deduction must be figured using the straight line method. Turbotax free state file Note: The required use of the straight line method for an item of listed property that does not meet the predominant use test is not the same as electing the straight line method. Turbotax free state file It does not mean that you have to use the straight line method for other property in the same class as the item of listed property. Turbotax free state file Years After the First Recovery Year If you use listed property predominantly (more than 50%) in a qualified business use in the tax year you place it in service, but not in a subsequent tax year during the recovery period, the following rules apply: Figure depreciation using the straight line method. Turbotax free state file Do this for each year, beginning with the year you no longer use the property predominantly in a qualified business use, and Figure any excess depreciation on the property and add it to: Your gross income, and The adjusted basis of your property. Turbotax free state file See Recapture of excess depreciation, next. Turbotax free state file Recapture of excess depreciation. Turbotax free state file   You must include any excess depreciation in your gross income for the first tax year the property is not predominantly used in a qualified business use. Turbotax free state file Any excess depreciation must also be added to the adjusted basis of your property. Turbotax free state file Excess depreciation is the excess (if any) of: The amount of depreciation allowable for the property (including any section 179 deduction claimed) for tax years before the first tax year the property was not predominantly used in a qualified business use, over The amount of depreciation that would have been allowable for those years if the property were not used predominantly in a qualified business use for the year it was placed in service. Turbotax free state file This means you figure your depreciation using the percentages fromTable 16 or 17. Turbotax free state file For information on investment credit recapture, see the instructions for Form 4255. Turbotax free state file Deductions After Recovery Period When listed property (other than passenger automobiles) is used for business, investment, and personal purposes, no deduction is ever allowable for the personal use. Turbotax free state file In tax years after the recovery period, you must determine if there is any unrecovered basis remaining before you compute the depreciation deduction for that tax year. Turbotax free state file To make this determination, figure the depreciation for earlier tax years as if your property were used 100% for business or investment purposes, beginning with the first tax year in which some or all use is for business or investment. Turbotax free state file See Car Used 50% or Less for Business in Publication 917. Turbotax free state file Leased Property The limitations on cost recovery deductions apply to the rental of listed property. Turbotax free state file The following discussion covers the rules that apply to the lessor (the owner of the property) and the lessee (the person who rents the property from the owner). Turbotax free state file SeeLeasing a Car in Publication 917 for a discussion of leased passenger automobiles. Turbotax free state file Lessor The limitations on cost recovery generally do not apply to any listed property leased or held for leasing by anyone regularly engaged in the business of leasing listed property. Turbotax free state file A person is considered regularly engaged in the business of leasing listed property only if contracts for leasing of listed property are entered into with some frequency over a continuous period of time. Turbotax free state file This determination is made on the basis of the facts and circumstances in each case and takes into account the nature of the person's business in its entirety. Turbotax free state file Occasional or incidental leasing activity is insufficient. Turbotax free state file For example, a person leasing only one passenger automobile during a tax year is not regularly engaged in the business of leasing automobiles. Turbotax free state file An employer who allows an employee to use the employer's property for personal purposes and charges the employee for the use is not regularly engaged in the business of leasing the property used by the employee. Turbotax free state file Lessee A lessee of listed property (other than passenger automobiles), must include an amount in gross income called the inclusion amount for the first tax year the property is not used predominantly in a qualified business use. Turbotax free state file Inclusion amount for property leased before 1987. Turbotax free state file   You determine the inclusion amount for property leased after June 18, 1984 and before 1987 by multiplying the fair market value of the property by both the average business/investment use percentage and the applicable percentage. Turbotax free state file You can find the applicable percentages for listed property that is 5- or 10-year recovery property in Tables 19 or 20 in Appendix A of Publication 946. Turbotax free state file   The lease term for listed property other than 18- or 19-year real property, and residential rental or nonresidential real property, includes options to renew. Turbotax free state file For 18- or 19-year real property and residential rental or nonresidential real property that is listed property, the period of the lease does not include any option to renew at fair market value, determined at the time of renewal. Turbotax free state file You treat two or more successive leases that are part of the same transaction (or a series of related transactions) for the same or substantially similar property as one lease. Turbotax free state file Special rules. Turbotax free state file   The lessee adds the inclusion amount to gross income in the next tax year if: The lease term begins within 9 months before the close of the lessee's tax year, The lessee does not use the property predominantly in a qualified business use during that portion of the tax year, and The lease term continues into the lessee's next tax year. Turbotax free state file The lessee determines the inclusion amount by taking into account the average of the business/investment use for both tax years and the applicable percentage for the tax year the lease term begins. Turbotax free state file   If the lease term is less than one year, the amount included in gross income is the amount that bears the same ratio to the additional inclusion amount as the number of days in the lease term bears to 365. Turbotax free state file Maximum inclusion amount. Turbotax free state file   The inclusion amount cannot be more than the sum of the deductible amounts of rent allocable to the lessee's tax year in which the amount must be included in gross income. Turbotax free state file What Records Must Be Kept You cannot take any depreciation or section 179 deduction for the use of listed property (including passenger automobiles) unless you can prove business/investment use with adequate records or sufficient evidence to support your own statements. Turbotax free state file How long to keep records. Turbotax free state file   For listed property, records must be kept for as long as any excess depreciation can be recaptured (included in income). Turbotax free state file Adequate Records To meet the adequate records requirement, you must maintain an account book, diary, log, statement of expense, trip sheet, or similar record or other documentary evidence that, together with the receipt, is sufficient to establish each element of an expenditure or use. Turbotax free state file It is not necessary to record information in an account book, diary, or similar record if the information is already shown on the receipt. Turbotax free state file However, your records should back up your receipts in an orderly manner. Turbotax free state file Elements of Expenditure or Use The records or other documentary evidence must support: The amount of each separate expenditure, such as the cost of acquiring the item, maintenance and repair costs, capital improvement costs, lease payments, and any other expenses, The amount of each business and investment use (based on an appropriate measure, such as mileage for vehicles and time for other listed property), and the total use of the property for the tax year, The date of the expenditure or use, and The business or investment purpose for the expenditure or use. Turbotax free state file Written documents of your expenditure or use are generally better evidence than oral statements alone. Turbotax free state file A written record prepared at or near the time of the expenditure or use has greater value as proof of the expenditure or use. Turbotax free state file A daily log is not required. Turbotax free state file However, some type of record containing the elements of an expenditure or the business or investment use of listed property made at or near the time and backed up by other documents is preferable to a statement prepared later. Turbotax free state file Timeliness The elements of an expenditure or use must be recorded at the time you have full knowledge of the elements. Turbotax free state file An expense account statement made from an account book, diary, or similar record prepared or maintained at or near the time of the expenditure or use is generally considered a timely record if in the regular course of business: The statement is submitted by an employee to the employer, or The statement is submitted by an independent contractor to the client or customer. Turbotax free state file For example, a log maintained on a weekly basis, which accounts for use during the week, will be considered a record made at or near the time of use. Turbotax free state file Business Purpose Supported An adequate record of business purpose must generally be in the form of a written statement. Turbotax free state file However, the amount of backup necessary to establish a business purpose depends on the facts and circumstances of each case. Turbotax free state file A written explanation of the business purpose will not be required if the purpose can be determined from the surrounding facts and circumstances. Turbotax free state file For example, a salesperson visiting customers on an established sales route will not normally need a written explanation of the business purpose of his or her travel. Turbotax free state file Business Use Supported An adequate record contains enough information on each element of every business or investment use. Turbotax free state file The amount of detail required to support the use depends on the facts and circumstances. Turbotax free state file For example, a taxpayer whose only business use of a truck is to make customer deliveries on an established route can satisfy the requirement by recording the length of the route, including the total number of miles driven during the tax year and the date of each trip at or near the time of the trips. Turbotax free state file Although an adequate record generally must be written, a record of the business use of listed property, such as a computer or automobile, can be prepared in a computer memory device using a logging program. Turbotax free state file Separate or Combined Expenditures or Uses Each use by you is normally considered a separate use. Turbotax free state file However, repeated uses can be combined as a single item. Turbotax free state file Each expenditure is recorded as a separate item and not combined with other expenditures. Turbotax free state file If you choose, however, amounts spent for the use of listed property during a tax year, such as for gasoline or automobile repairs, can be combined. Turbotax free state file If these expenses are combined, you do not need to support the business purpose of each expense. Turbotax free state file Instead, you can divide the expenses based on the total business use of the listed property. Turbotax free state file Uses which can be considered part of a single use, such as a round trip or uninterrupted business use, can be accounted for by a single record. Turbotax free state file For example, use of a truck to make deliveries at several locations which begin and end at the business premises and can include a stop at the business in between deliveries can be accounted for by a single record of miles driven. Turbotax free state file Use of a passenger automobile by a salesperson for a business trip away from home over a period of time can be accounted for by a single record of miles traveled. Turbotax free state file Minimal personal use (such as a stop for lunch between two business stops) is not an interruption of business use. Turbotax free state file Confidential Information If any of the information on the elements of an expenditure or use is confidential, it does not need to be in the account book or similar record if it is recorded at or near the time of the expenditure or use. Turbotax free state file It must be kept elsewhere and made available as support to the district director on request. Turbotax free state file Substantial Compliance If you have not fully supported a particular element of an expenditure or use, but have complied with the adequate records requirement for the expenditure or use to the district director's satisfaction, you can establish this element by any evidence the district director deems adequate. Turbotax free state file If you fail to establish that you have substantially complied with the adequate records requirement for an element of an expenditure or use to the district director's satisfaction, you must establish the element: By your own oral or written statement containing detailed information as to the element, and By other evidence sufficient to establish the element. Turbotax free state file If the element is the cost or amount, time, place, or date of an expenditure or use, its supporting evidence must be direct, such as oral testimony by witnesses or a written statement setting forth detailed information about the element or the documentary evidence. Turbotax free state file If the element is the business purpose of an expenditure, its supporting evidence can be circumstantial evidence. Turbotax free state file Sampling You can maintain an adequate record for portions of a tax year and use that record to support your business and investment use for the entire tax year if it can be shown by other evidence that the periods for which an adequate record is maintained are representative of use throughout the year. Turbotax free state file Loss of Records When you establish that failure to produce adequate records is due to loss of the records through circumstances beyond your control, such as through fire, flood, earthquake, or other casualty, you have the right to support a deduction by reasonable reconstruction of your expenditures and use. Turbotax free state file Reporting Information on Form 4562 If you claim a deduction for any listed property, you must provide the requested information on page 2, Section B of Form 4562. Turbotax free state file If you claim a deduction for any vehicle, you must answer certain questions onpage 2 of Form 4562 to provide information about the vehicle use. Turbotax free state file Employees. Turbotax free state file   Employees claiming the standard mileage rate or actual expenses (including depreciation) must use Form 2106 instead of Part V of Form 4562. Turbotax free state file Employees claiming the standard mileage rate may be able to use Form 2106–EZ. Turbotax free state file Employer who provides vehicles to employees. Turbotax free state file   An employer who provides vehicles to employees must obtain enough information from those employees to provide the requested information onForm 4562. Turbotax free state file   An employer who provides more than five vehicles to employees need not include any information on his or her tax return. Turbotax free state file Instead, the employer must obtain the information from his or her employees and indicate on his or her return that the information was obtained and is being retained. Turbotax free state file   You do not need to provide the information requested on page 2 of Form 4562 if, as an employer: You can satisfy the requirements of a written policy statement for vehicles either not used for personal purposes, or not used for personal purposes other than commuting, or You treat all vehicle use by employees as personal use. Turbotax free state file See the instructions for Form 4562. Turbotax free state file Deductions in Later Years When listed property is used for business, investment, and personal purposes, no deduction is allowable for its personal use either in the current year or any later tax year. Turbotax free state file In later years, you must determine if there is any remaining unadjusted or unrecovered basis before you compute the depreciation deduction for that tax year. Turbotax free state file In making this determination, figure the depreciation deductions for earlier tax years as if the listed property were used 100% for business or investment purposes in those years, beginning with the first tax year in which some or all of the property use is for business or investment. Turbotax free state file For more information about deductions after the recovery period for automobiles, see Publication 917. Turbotax free state file Appendix The following tables are for use in figuring depreciation deductions under the ACRS system. Turbotax free state file Table 1. Turbotax free state file 15-Year Real Property* (Other Than Low-Inclome Housing) Table 3. Turbotax free state file Low-Income Housing* Table 6 - Table 9 Table 6 - Table 9 Table 10 - Table 13 Table 14 - Table 17 Prev  Up  Next   Home   More Online Publications
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The Turbotax Free State File

Turbotax free state file 5. Turbotax free state file   Personal Use of Dwelling Unit (Including Vacation Home) Table of Contents Dividing Expenses Dwelling Unit Used as a HomeMain home. Turbotax free state file Shared equity financing agreement. Turbotax free state file Donation of use of the property. Turbotax free state file Examples. Turbotax free state file Days used for repairs and maintenance. Turbotax free state file Days used as a main home before or after renting. Turbotax free state file Reporting Income and DeductionsNot used as a home. Turbotax free state file Used as a home but rented less than 15 days. Turbotax free state file Used as a home and rented 15 days or more. Turbotax free state file 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. Turbotax free state file 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. Turbotax free state file Only your rental expenses may deducted on Schedule E (Form 1040). Turbotax free state file Some of your personal expenses may be deductible if you itemize your deductions on Schedule A (Form 1040). Turbotax free state file You must also determine if the dwelling unit is considered a home. Turbotax free state file The amount of rental expenses that you can deduct may be limited if the dwelling unit is considered a home. Turbotax free state file Whether a dwelling unit is considered a home depends on how many days during the year are considered to be days of personal use. Turbotax free state file 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. Turbotax free state file Dwelling unit. Turbotax free state file   A dwelling unit includes a house, apartment, condominium, mobile home, boat, vacation home, or similar property. Turbotax free state file It also includes all structures or other property belonging to the dwelling unit. Turbotax free state file A dwelling unit has basic living accommodations, such as sleeping space, a toilet, and cooking facilities. Turbotax free state file   A dwelling unit does not include property (or part of the property) used solely as a hotel, motel, inn, or similar establishment. Turbotax free state file 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. Turbotax free state file Example. Turbotax free state file You rent a room in your home that is always available for short-term occupancy by paying customers. Turbotax free state file You do not use the room yourself and you allow only paying customers to use the room. Turbotax free state file This room is used solely as a hotel, motel, inn, or similar establishment and is not a dwelling unit. Turbotax free state file 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. Turbotax free state file When dividing your expenses, follow these rules. Turbotax free state file 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. Turbotax free state file (This rule does not apply when determining whether you used the unit as a home. Turbotax free state file ) Any day that the unit is available for rent but not actually rented is not a day of rental use. Turbotax free state file Fair rental price. Turbotax free state file   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. Turbotax free state file 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. Turbotax free state file   Ask yourself the following questions when comparing another property with yours. Turbotax free state file Is it used for the same purpose? Is it approximately the same size? Is it in approximately the same condition? Does it have similar furnishings? Is it in a similar location? If any of the answers are no, the properties probably are not similar. Turbotax free state file Example. Turbotax free state file Your beach cottage was available for rent from June 1 through August 31 (92 days). Turbotax free state file 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 during that time. Turbotax free state file 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. Turbotax free state file Your family also used the cottage during the last 2 weeks of May (14 days). Turbotax free state file The cottage was not used at all before May 17 or after August 31. Turbotax free state file You figure the part of the cottage expenses to treat as rental expenses as follows. Turbotax free state file The cottage was used for rental a total of 85 days (92 − 7). Turbotax free state file The days it was available for rent but not rented (7 days) are not days of rental use. Turbotax free state file The July weekend (2 days) you used it is rental use because you received a fair rental price for the weekend. Turbotax free state file You used the cottage for personal purposes for 14 days (the last 2 weeks in May). Turbotax free state file The total use of the cottage was 99 days (14 days personal use + 85 days rental use). Turbotax free state file Your rental expenses are 85/99 (86%) of the cottage expenses. Turbotax free state file Note. Turbotax free state file 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. Turbotax free state file Therefore, you had 16 days of personal use and 83 days of rental use for this purpose. Turbotax free state file 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. Turbotax free state file If you have a net loss, you may not be able to deduct all of the rental expenses. Turbotax free state file See Dwelling Unit Used as a Home, next. Turbotax free state file 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. Turbotax free state file 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. Turbotax free state file See What is a day of personal use , later. Turbotax free state file If a dwelling unit is used for personal purposes on a day it is rented at a fair rental price (discussed earlier), do not count that day as a day of rental use in applying (2) above. Turbotax free state file Instead, count it as a day of personal use in applying both (1) and (2) above. Turbotax free state file 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. Turbotax free state file You or any other person who owns an interest in it, unless you rent it to another owner as his or her main home under a shared equity financing agreement (defined later). Turbotax free state file However, see Days used as a main home before or after renting , later. Turbotax free state file A member of your family or a member of the family of any other person who owns an interest in it, unless the family member uses the dwelling unit as his or her main home and pays a fair rental price. Turbotax free state file Family includes only your spouse, brothers and sisters, half-brothers and half-sisters, ancestors (parents, grandparents, etc. Turbotax free state file ), and lineal descendants (children, grandchildren, etc. Turbotax free state file ). Turbotax free state file Anyone under an arrangement that lets you use some other dwelling unit. Turbotax free state file Anyone at less than a fair rental price. Turbotax free state file Main home. Turbotax free state file   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. Turbotax free state file Shared equity financing agreement. Turbotax free state file   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. Turbotax free state file Donation of use of the property. Turbotax free state file   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. Turbotax free state file Examples. Turbotax free state file   The following examples show how to determine if you have days of personal use. Turbotax free state file Example 1. Turbotax free state file You and your neighbor are co-owners of a condominium at the beach. Turbotax free state file Last year, you rented the unit to vacationers whenever possible. Turbotax free state file The unit was not used as a main home by anyone. Turbotax free state file Your neighbor used the unit for 2 weeks last year; you did not use it at all. Turbotax free state file 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. Turbotax free state file Example 2. Turbotax free state file You and your neighbors are co-owners of a house under a shared equity financing agreement. Turbotax free state file Your neighbors live in the house and pay you a fair rental price. Turbotax free state file 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. Turbotax free state file This is because your neighbors rent the house as their main home under a shared equity financing agreement. Turbotax free state file Example 3. Turbotax free state file You own a rental property that you rent to your son. Turbotax free state file Your son does not own any interest in this property. Turbotax free state file He uses it as his main home and pays you a fair rental price. Turbotax free state file 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. Turbotax free state file Example 4. Turbotax free state file You rent your beach house to Rosa. Turbotax free state file Rosa rents her cabin in the mountains to you. Turbotax free state file You each pay a fair rental price. Turbotax free state file You are using your beach house for personal purposes on the days that Rosa uses it because your house is used by Rosa under an arrangement that allows you to use her cabin. Turbotax free state file Example 5. Turbotax free state file You rent an apartment to your mother at less than a fair rental price. Turbotax free state file You are using the apartment for personal purposes on the days that your mother rents it because you rent it for less than a fair rental price. Turbotax free state file Days used for repairs and maintenance. Turbotax free state file   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. Turbotax free state file 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. Turbotax free state file Example. Turbotax free state file Corey owns a cabin in the mountains that he rents for most of the year. Turbotax free state file He spends a week at the cabin with family members. Turbotax free state file Corey works on maintenance of the cabin 3 or 4 hours each day during the week and spends the rest of the time fishing, hiking, and relaxing. Turbotax free state file Corey's family members, however, work substantially full time on the cabin each day during the week. Turbotax free state file The main purpose of being at the cabin that week is to do maintenance work. Turbotax free state file Therefore, the use of the cabin during the week by Corey and his family will not be considered personal use by Corey. Turbotax free state file Days used as a main home before or after renting. Turbotax free state file   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. Turbotax free state file Do not count them as days of personal use if: You rented or tried to rent the property for 12 or more consecutive months. Turbotax free state file 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. Turbotax free state file However, this special rule does not apply when dividing expenses between rental and personal use. Turbotax free state file See Property Changed to Rental Use in chapter 4. Turbotax free state file Example 1. Turbotax free state file On February 29, 2012, you moved out of the house you had lived in for 6 years because you accepted a job in another town. Turbotax free state file You rented your house at a fair rental price from March 15, 2012, to May 14, 2013 (14 months). Turbotax free state file On June 1, 2013, you moved back into your old house. Turbotax free state file The days you used the house as your main home from January 1 to February 29, 2012, and from June 1 to December 31, 2013, are not counted as days of personal use. Turbotax free state file Therefore, you would use the rules in chapter 1 when figuring your rental income and expenses. Turbotax free state file Example 2. Turbotax free state file On January 31, you moved out of the condominium where you had lived for 3 years. Turbotax free state file You offered it for rent at a fair rental price beginning on February 1. Turbotax free state file You were unable to rent it until April. Turbotax free state file On September 15, you sold the condominium. Turbotax free state file The days you used the condominium as your main home from January 1 to January 31 are not counted as days of personal use when determining whether you used it as a home. Turbotax free state file Examples. Turbotax free state file   The following examples show how to determine whether you used your rental property as a home. Turbotax free state file Example 1. Turbotax free state file You converted the basement of your home into an apartment with a bedroom, a bathroom, and a small kitchen. Turbotax free state file You rented the basement apartment at a fair rental price to college students during the regular school year. Turbotax free state file You rented to them on a 9-month lease (273 days). Turbotax free state file You figured 10% of the total days rented to others at a fair rental price is 27 days. Turbotax free state file During June (30 days), your brothers stayed with you and lived in the basement apartment rent free. Turbotax free state file Your basement apartment was used as a home because you used it for personal purposes for 30 days. Turbotax free state file Rent-free use by your brothers is considered personal use. Turbotax free state file Your personal use (30 days) is more than the greater of 14 days or 10% of the total days it was rented (27 days). Turbotax free state file Example 2. Turbotax free state file 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). Turbotax free state file Your sister-in-law stayed in the room, rent free, for the last 3 weeks (21 days) in July. Turbotax free state file You figured 10% of the total days rented to others at a fair rental price is 3 days. Turbotax free state file The room was used as a home because you used it for personal purposes for 21 days. Turbotax free state file That is more than the greater of 14 days or 10% of the 27 days it was rented (3 days). Turbotax free state file Example 3. Turbotax free state file You own a condominium apartment in a resort area. Turbotax free state file You rented it at a fair rental price for a total of 170 days during the year. Turbotax free state file For 12 of these 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. Turbotax free state file Your family actually used the apartment for 10 of those days. Turbotax free state file Therefore, the apartment is treated as having been rented for 160 (170 – 10) days. Turbotax free state file You figured 10% of the total days rented to others at a fair rental price is 16 days. Turbotax free state file Your family also used the apartment for 7 other days during the year. Turbotax free state file You used the apartment as a home because you used it for personal purposes for 17 days. Turbotax free state file That is more than the greater of 14 days or 10% of the 160 days it was rented (16 days). Turbotax free state file Minimal rental use. Turbotax free state file   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. Turbotax free state file See Used as a home but rented less than 15 days, later, for more information. Turbotax free state file Limit on deductions. Turbotax free state file   Renting a dwelling unit that is considered a home is not a passive activity. Turbotax free state file 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. Turbotax free state file 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. Turbotax free state file Any expenses carried forward to the next year will be subject to any limits that apply for that year. Turbotax free state file 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. Turbotax free state file   To figure your deductible rental expenses for this year and any carryover to next year, use Worksheet 5–1. Turbotax free state file Reporting Income and Deductions Property not used for personal purposes. Turbotax free state file   If you do not use a dwelling unit for personal purposes, see chapter 3 for how to report your rental income and expenses. Turbotax free state file Property used for personal purposes. Turbotax free state file   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. Turbotax free state file Not used as a home. Turbotax free state file   If you use a dwelling unit for personal purposes, but not as a home, report all the rental income in your income. Turbotax free state file 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 this chapter under Dividing Expenses . Turbotax free state file The expenses for personal use are not deductible as rental expenses. Turbotax free state file   Your deductible rental expenses can be more than your gross rental income; however, see Limits on Rental Losses in chapter 3. Turbotax free state file Used as a home but rented less than 15 days. Turbotax free state file   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). Turbotax free state file You are not required to report the rental income and rental expenses from this activity. Turbotax free state file The expenses, including qualified mortgage interest, property taxes, and any qualified casualty loss will be reported as normally allowed on Schedule A (Form 1040). Turbotax free state file See the Instructions for Schedule A (Form 1040) for more information on deducting these expenses. Turbotax free state file Used as a home and rented 15 days or more. Turbotax free state file   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. Turbotax free state file 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 this chapter under Dividing Expenses . Turbotax free state file The expenses for personal use are not deductible as rental expenses. Turbotax free state file   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. Turbotax free state file You do not need to use Worksheet 5-1. Turbotax free state file   However, if you had a net loss from renting the dwelling unit for the year, your deduction for certain rental expenses is limited. Turbotax free state file To figure your deductible rental expenses and any carryover to next year, use Worksheet 5–1. Turbotax free state file Worksheet 5-1. Turbotax free state file 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. Turbotax free state file Did you use the dwelling unit as a home this year? (See Dwelling Unit Used as a Home . Turbotax free state file ) 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. Turbotax free state file Rental Use Percentage A. Turbotax free state file Total days available for rent at fair rental price A. Turbotax free state file       B. Turbotax free state file Total days available for rent (line A) but not rented B. Turbotax free state file       C. Turbotax free state file Total days of rental use. Turbotax free state file Subtract line B from line A C. Turbotax free state file       D. Turbotax free state file Total days of personal use (including days rented at less than fair rental price) D. Turbotax free state file       E. Turbotax free state file Total days of rental and personal use. Turbotax free state file Add lines C and D E. Turbotax free state file       F. Turbotax free state file Percentage of expenses allowed for rental. Turbotax free state file Divide line C by line E     F. Turbotax free state file . Turbotax free state file PART II. Turbotax free state file Allowable Rental Expenses 1. Turbotax free state file Enter rents received 1. Turbotax free state file   2a. Turbotax free state file Enter the rental portion of deductible home mortgage interest and qualified mortgage insurance premiums (see instructions) 2a. Turbotax free state file       b. Turbotax free state file Enter the rental portion of real estate taxes b. Turbotax free state file       c. Turbotax free state file Enter the rental portion of deductible casualty and theft losses (see instructions) c. Turbotax free state file       d. Turbotax free state file Enter direct rental expenses (see instructions) d. Turbotax free state file       e. Turbotax free state file Fully deductible rental expenses. Turbotax free state file Add lines 2a–2d. Turbotax free state file Enter here and  on the appropriate lines on Schedule E (see instructions) 2e. Turbotax free state file   3. Turbotax free state file Subtract line 2e from line 1. Turbotax free state file If zero or less, enter -0- 3. Turbotax free state file   4a. Turbotax free state file Enter the rental portion of expenses directly related to operating or maintaining  the dwelling unit (such as repairs, insurance, and utilities) 4a. Turbotax free state file       b. Turbotax free state file Enter the rental portion of excess mortgage interest and qualified mortgage insurance premiums (see instructions) b. Turbotax free state file       c. Turbotax free state file Carryover of operating expenses from 2012 worksheet c. Turbotax free state file       d. Turbotax free state file Add lines 4a–4c d. Turbotax free state file       e. Turbotax free state file Allowable expenses. Turbotax free state file Enter the smaller of line 3 or line 4d (see instructions) 4e. Turbotax free state file   5. Turbotax free state file Subtract line 4e from line 3. Turbotax free state file If zero or less, enter -0- 5. Turbotax free state file   6a. Turbotax free state file Enter the rental portion of excess casualty and theft losses (see instructions) 6a. Turbotax free state file       b. Turbotax free state file Enter the rental portion of depreciation of the dwelling unit b. Turbotax free state file       c. Turbotax free state file Carryover of excess casualty losses and depreciation from 2012 worksheet c. Turbotax free state file       d. Turbotax free state file Add lines 6a–6c d. Turbotax free state file       e. Turbotax free state file Allowable excess casualty and theft losses and depreciation. Turbotax free state file Enter the smaller of  line 5 or line 6d (see instructions) 6e. Turbotax free state file   PART III. Turbotax free state file Carryover of Unallowed Expenses to Next Year 7a. Turbotax free state file Operating expenses to be carried over to next year. Turbotax free state file Subtract line 4e from line 4d 7a. Turbotax free state file   b. Turbotax free state file Excess casualty and theft losses and depreciation to be carried over to next year. Turbotax free state file  Subtract line 6e from line 6d b. Turbotax free state file   Worksheet 5-1 Instructions. Turbotax free state file Worksheet for Figuring Rental Deductions for a Dwelling Unit Used as a Home Caution. Turbotax free state file 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. Turbotax free state file Line 2a. Turbotax free state file Figure the mortgage interest on the dwelling unit that you could deduct on Schedule A as if you had not rented the unit. Turbotax free state file Do not include interest on a loan that did not benefit the dwelling unit. Turbotax free state file 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. Turbotax free state file Include interest on a loan used to buy, build, or improve the dwelling unit, or to refinance such a loan. Turbotax free state file Include the rental portion of this interest in the total you enter on line 2a of the worksheet. Turbotax free state file   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. Turbotax free state file See the Schedule A instructions. Turbotax free state file However, figure your adjusted gross income (Form 1040, line 38) without your rental income and expenses from the dwelling unit. Turbotax free state file See Line 4b to deduct the part of the qualified mortgage insurance premiums not allowed because of the adjusted gross income limit. Turbotax free state file Include the rental portion of the amount from Schedule A, line 13, in the total you enter on line 2a of the worksheet. Turbotax free state file   Note. Turbotax free state file Do not file this Schedule A or use it to figure the amount to deduct on line 13 of that schedule. Turbotax free state file Instead, figure the personal portion on a separate Schedule A. Turbotax free state file 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. Turbotax free state file           Line 2c. Turbotax free state file 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. Turbotax free state file To do this, complete Section A of Form 4684, Casualties and Thefts, treating the losses as personal losses. Turbotax free state file If any of the loss is due to a federally declared disaster, see the Instructions for Form 4684. Turbotax free state file On Form 4684, line 17, enter 10% of your adjusted gross income figured without your rental income and expenses from the dwelling unit. Turbotax free state file Enter the rental portion of the result from Form 4684, line 18, on line 2c of this worksheet. Turbotax free state file   Note. Turbotax free state file Do not file this Form 4684 or use it to figure your personal losses on Schedule A. Turbotax free state file Instead, figure the personal portion on a separate Form 4684. Turbotax free state file           Line 2d. Turbotax free state file Enter the total of your rental expenses that are directly related only to the rental activity. Turbotax free state file These include interest on loans used for rental activities other than to buy, build, or improve the dwelling unit. Turbotax free state file Also include rental agency fees, advertising, office supplies, and depreciation on office equipment used in your rental activity. Turbotax free state file           Line 2e. Turbotax free state file 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. Turbotax free state file Enter the amounts on lines 2a, 2b, 2c, and 2d on the appropriate lines of Schedule E. Turbotax free state file           Line 4b. Turbotax free state file On line 2a, you entered the rental portion of the mortgage interest or qualified mortgage insurance premiums you could deduct on Schedule A if you had not rented the dwelling unit. Turbotax free state file 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. Turbotax free state file Do not include interest on a loan that did not benefit the dwelling unit  (as explained in the line 2a instructions). Turbotax free state file           Line 4e. Turbotax free state file 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. Turbotax free state file *           Line 6a. Turbotax free state file To find the rental portion of excess casualty and theft losses, use the Form 4684 you prepared for line 2c of this worksheet. Turbotax free state file   A. Turbotax free state file Enter the amount from Form 4684, line 10       B. Turbotax free state file Enter the rental portion of line A       C. Turbotax free state file Enter the amount from line 2c of this worksheet       D. Turbotax free state file Subtract line C from line B. Turbotax free state file Enter the result here and on line 6a of this worksheet               Line 6e. Turbotax free state file 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. Turbotax free state file * *Allocating the limited deduction. Turbotax free state file 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. Turbotax free state file Enter the amount you allocate to each expense on the appropriate line of Schedule E, Part I. Turbotax free state file Prev  Up  Next   Home   More Online Publications