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H And R Block Military

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Understanding your CP42 Notice

The amount of your refund has changed because we used it to pay your
spouse's past due tax debt.


What you need to do

  • Read your notice carefully — it'll explain how we used your refund and how much of it is left.
  • Contact us if you disagree.

You may want to...


Answers to Common Questions

What should I do if I disagree with the notice?
Call us at the toll free number on the top right corner of your notice. Please have your paperwork (such as cancelled checks, amended return, etc.) ready when you call.

Part of the refund you used is mine. You used it to pay taxes my spouse owes. I don't owe any taxes. What can I do?
You can file a Form 8379, Injured Spouse Allocation to claim your share of the refund.

What happens to the part of my refund you didn't use?
You'll receive a refund check for any part we didn't use.


Tips for next year

Consider filing your taxes electronically. Filing online can help you avoid mistakes and find credits and deductions that you may qualify for. In many cases you can file for free. Learn more about e-file.

Printable samples of this notice (PDF)

Tax publications you may find useful

How to get help

Calling the 1-800 number listed on the top right corner of your notice is the fastest way to get your questions answered.

You can also authorize someone (such as an accountant) to contact the IRS on your behalf using this Power of Attorney and Declaration of Representative (Form 2848).

Or you may qualify for help from a Low Income Taxpayer Clinic.
 

Page Last Reviewed or Updated: 04-Mar-2014

The H And R Block Military

H and r block military 4. H and r block military   Special Situations Table of Contents Condominiums CooperativesDepreciation Property Changed to Rental UseBasis of Property Changed to Rental Use Figuring the Depreciation Deduction Renting Part of Property Not Rented for ProfitPostponing decision. H and r block military Example—Property Changed to Rental Use This chapter discusses some rental real estate activities that are subject to additional rules. H and r block military Condominiums A condominium is most often a dwelling unit in a multi-unit building, but can also take other forms, such as a townhouse or garden apartment. H and r block military If you own a condominium, you also own a share of the common elements, such as land, lobbies, elevators, and service areas. H and r block military You and the other condominium owners may pay dues or assessments to a special corporation that is organized to take care of the common elements. H and r block military Special rules apply if you rent your condominium to others. H and r block military You can deduct as rental expenses all the expenses discussed in chapters 1 and 2. H and r block military In addition, you can deduct any dues or assessments paid for maintenance of the common elements. H and r block military You cannot deduct special assessments you pay to a condominium management corporation for improvements. H and r block military However, you may be able to recover your share of the cost of any improvement by taking depreciation. H and r block military Cooperatives If you live in a cooperative, you do not own your apartment. H and r block military Instead, a corporation owns the apartments and you are a tenant-stockholder in the cooperative housing corporation. H and r block military If you rent your apartment to others, you usually can deduct, as a rental expense, all the maintenance fees you pay to the cooperative housing corporation. H and r block military In addition to the maintenance fees paid to the cooperative housing corporation, you can deduct your direct payments for repairs, upkeep, and other rental expenses, including interest paid on a loan used to buy your stock in the corporation. H and r block military Depreciation You will be depreciating your stock in the corporation rather than the apartment itself. H and r block military Figure your depreciation deduction as follows. H and r block military Figure the depreciation for all the depreciable real property owned by the corporation. H and r block military (Depreciation methods are discussed in chapter 2 of this publication and Publication 946. H and r block military ) If you bought your cooperative stock after its first offering, figure the depreciable basis of this property as follows. H and r block military Multiply your cost per share by the total number of outstanding shares. H and r block military Add to the amount figured in (a) any mortgage debt on the property on the date you bought the stock. H and r block military Subtract from the amount figured in (b) any mortgage debt that is not for the depreciable real property, such as the part for the land. H and r block military Subtract from the amount figured in (1) any depreciation for space owned by the corporation that can be rented but cannot be lived in by tenant-stockholders. H and r block military Divide the number of your shares of stock by the total number of shares outstanding, including any shares held by the corporation. H and r block military Multiply the result of (2) by the percentage you figured in (3). H and r block military This is your depreciation on the stock. H and r block military Your depreciation deduction for the year cannot be more than the part of your adjusted basis (defined in chapter 2) in the stock of the corporation that is allocable to your rental property. H and r block military Payments added to capital account. H and r block military   Payments earmarked for a capital asset or improvement, or otherwise charged to the corporation's capital account are added to the basis of your stock in the corporation. H and r block military For example, you cannot deduct a payment used to pave a community parking lot, install a new roof, or pay the principal of the corporation's mortgage. H and r block military   Treat as a capital cost the amount you were assessed for capital items. H and r block military This cannot be more than the amount by which your payments to the corporation exceeded your share of the corporation's mortgage interest and real estate taxes. H and r block military   Your share of interest and taxes is the amount the corporation elected to allocate to you, if it reasonably reflects those expenses for your apartment. H and r block military Otherwise, figure your share in the following manner. H and r block military Divide the number of your shares of stock by the total number of shares outstanding, including any shares held by the corporation. H and r block military Multiply the corporation's deductible interest by the number you figured in (1). H and r block military This is your share of the interest. H and r block military Multiply the corporation's deductible taxes by the number you figured in (1). H and r block military This is your share of the taxes. H and r block military Property Changed to Rental Use If you change your home or other property (or a part of it) to rental use at any time other than the beginning of your tax year, you must divide yearly expenses, such as taxes and insurance, between rental use and personal use. H and r block military You can deduct as rental expenses only the part of the expense that is for the part of the year the property was used or held for rental purposes. H and r block military You cannot deduct depreciation or insurance for the part of the year the property was held for personal use. H and r block military However, you can include the home mortgage interest, qualified mortgage insurance premiums, and real estate tax expenses for the part of the year the property was held for personal use as an itemized deduction on Schedule A (Form 1040). H and r block military Example. H and r block military Your tax year is the calendar year. H and r block military You moved from your home in May and started renting it out on June 1. H and r block military You can deduct as rental expenses seven-twelfths of your yearly expenses, such as taxes and insurance. H and r block military Starting with June, you can deduct as rental expenses the amounts you pay for items generally billed monthly, such as utilities. H and r block military When figuring depreciation, treat the property as placed in service on June 1. H and r block military Basis of Property Changed to Rental Use When you change property you held for personal use to rental use (for example, you rent your former home), the basis for depreciation will be the lesser of fair market value or adjusted basis on the date of conversion. H and r block military Fair market value. H and r block military   This is the price at which the property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all the relevant facts. H and r block military Sales of similar property, on or about the same date, may be helpful in figuring the fair market value of the property. H and r block military Figuring the basis. H and r block military   The basis for depreciation is the lesser of: The fair market value of the property on the date you changed it to rental use, or Your adjusted basis on the date of the change—that is, your original cost or other basis of the property, plus the cost of permanent additions or improvements since you acquired it, minus deductions for any casualty or theft losses claimed on earlier years' income tax returns and other decreases to basis. H and r block military For other increases and decreases to basis, see Adjusted Basis in chapter 2. H and r block military Example. H and r block military Several years ago you built your home for $140,000 on a lot that cost you $14,000. H and r block military Before changing the property to rental use this year, you added $28,000 of permanent improvements to the house and claimed a $3,500 casualty loss deduction for damage to the house. H and r block military Part of the improvements qualified for a $500 residential energy credit, which you claimed on your 2010 tax return. H and r block military Because land is not depreciable, you can only include the cost of the house when figuring the basis for depreciation. H and r block military The adjusted basis of the house at the time of the change in its use was $164,000 ($140,000 + $28,000 − $3,500 − $500). H and r block military On the date of the change in use, your property had a fair market value of $168,000, of which $21,000 was for the land and $147,000 was for the house. H and r block military The basis for depreciation on the house is the fair market value on the date of the change ($147,000), because it is less than your adjusted basis ($164,000). H and r block military Cooperatives If you change your cooperative apartment to rental use, figure your allowable depreciation as explained earlier. H and r block military (Depreciation methods are discussed in chapter 2 of this publication and Publication 946. H and r block military ) The basis of all the depreciable real property owned by the cooperative housing corporation is the smaller of the following amounts. H and r block military The fair market value of the property on the date you change your apartment to rental use. H and r block military This is considered to be the same as the corporation's adjusted basis minus straight line depreciation, unless this value is unrealistic. H and r block military The corporation's adjusted basis in the property on that date. H and r block military Do not subtract depreciation when figuring the corporation's adjusted basis. H and r block military If you bought the stock after its first offering, the corporation's adjusted basis in the property is the amount figured in (1) under Depreciation (under Cooperatives, near the beginning of this chapter). H and r block military The fair market value of the property is considered to be the same as the corporation's adjusted basis figured in this way minus straight line depreciation, unless the value is unrealistic. H and r block military Figuring the Depreciation Deduction To figure the deduction, use the depreciation system in effect when you convert your residence to rental use. H and r block military Generally, that will be MACRS for any conversion after 1986. H and r block military Treat the property as placed in service on the conversion date. H and r block military Example. H and r block military Your converted residence (see previous example under Figuring the basis) was available for rent on August 1. H and r block military Using Table 2-2d (see chapter 2), the percentage for Year 1 beginning in August is 1. H and r block military 364% and the depreciation deduction for Year 1 is $2,005 ($147,000 × . H and r block military 01364). H and r block military Renting Part of Property If you rent part of your property, you must divide certain expenses between the part of the property used for rental purposes and the part of the property used for personal purposes, as though you actually had two separate pieces of property. H and r block military You can deduct the expenses related to the part of the property used for rental purposes, such as home mortgage interest, qualified mortgage insurance premiums, and real estate taxes, as rental expenses on Schedule E (Form 1040). H and r block military You can also deduct as rental expenses a portion of other expenses that normally are nondeductible personal expenses, such as expenses for electricity, or painting the outside of the house. H and r block military There is no change in the types of expenses deductible for the personal-use part of your property. H and r block military Generally, these expenses may be deducted only if you itemize your deductions on Schedule A (Form 1040). H and r block military You cannot deduct any part of the cost of the first phone line even if your tenants have unlimited use of it. H and r block military You do not have to divide the expenses that belong only to the rental part of your property. H and r block military For example, if you paint a room that you rent, or if you pay premiums for liability insurance in connection with renting a room in your home, your entire cost is a rental expense. H and r block military If you install a second phone line strictly for your tenant's use, all of the cost of the second line is deductible as a rental expense. H and r block military You can deduct depreciation on the part of the house used for rental purposes as well as on the furniture and equipment you use for rental purposes. H and r block military How to divide expenses. H and r block military   If an expense is for both rental use and personal use, such as mortgage interest or heat for the entire house, you must divide the expense between rental use and personal use. H and r block military You can use any reasonable method for dividing the expense. H and r block military It may be reasonable to divide the cost of some items (for example, water) based on the number of people using them. H and r block military The two most common methods for dividing an expense are (1) the number of rooms in your home, and (2) the square footage of your home. H and r block military Example. H and r block military You rent a room in your house. H and r block military The room is 12 × 15 feet, or 180 square feet. H and r block military Your entire house has 1,800 square feet of floor space. H and r block military You can deduct as a rental expense 10% of any expense that must be divided between rental use and personal use. H and r block military If your heating bill for the year for the entire house was $600, $60 ($600 × . H and r block military 10) is a rental expense. H and r block military The balance, $540, is a personal expense that you cannot deduct. H and r block military Duplex. H and r block military   A common situation is the duplex where you live in one unit and rent out the other. H and r block military Certain expenses apply to the entire property, such as mortgage interest and real estate taxes, and must be split to determine rental and personal expenses. H and r block military Example. H and r block military You own a duplex and live in one half, renting the other half. H and r block military Both units are approximately the same size. H and r block military Last year, you paid a total of $10,000 mortgage interest and $2,000 real estate taxes for the entire property. H and r block military You can deduct $5,000 mortgage interest and $1,000 real estate taxes on Schedule E (Form 1040), and if you itemize your deductions, you can deduct the other $5,000 mortgage interest and $1,000 real estate taxes on Schedule A (Form 1040). H and r block military Not Rented for Profit If you do not rent your property to make a profit, you can deduct your rental expenses only up to the amount of your rental income. H and r block military You cannot deduct a loss or carry forward to the next year any rental expenses that are more than your rental income for the year. H and r block military Where to report. H and r block military   Report your not-for-profit rental income on Form 1040 or 1040NR, line 21. H and r block military For example, if you are filing Form 1040, you can include your mortgage interest and any qualified mortgage insurance premiums (if you use the property as your main home or second home), real estate taxes, and casualty losses on the appropriate lines of Schedule A (Form 1040) if you itemize your deductions. H and r block military   If you itemize your deductions, claim your other rental expenses, subject to the rules explained in chapter 1 of Publication 535, as miscellaneous itemized deductions on Schedule A (Form 1040), line 23, or Schedule A (Form 1040NR), line 9. H and r block military You can deduct these expenses only if they, together with certain other miscellaneous itemized deductions, total more than 2% of your adjusted gross income. H and r block military Presumption of profit. H and r block military   If your rental income is more than your rental expenses for at least 3 years out of a period of 5 consecutive years, you are presumed to be renting your property to make a profit. H and r block military Postponing decision. H and r block military   If you are starting your rental activity and do not have 3 years showing a profit, you can elect to have the presumption made after you have the 5 years of experience required by the test. H and r block military You may choose to postpone the decision of whether the rental is for profit by filing Form 5213. H and r block military You must file Form 5213 within 3 years after the due date of your return (determined without extensions) for the year in which you first carried on the activity or, if earlier, within 60 days after receiving written notice from the Internal Revenue Service proposing to disallow deductions attributable to the activity. H and r block military More information. H and r block military   For more information about the rules for an activity not engaged in for profit, see Not-for-Profit Activities in chapter 1 of Publication 535. H and r block military Example—Property Changed to Rental Use In January, Eileen Johnson bought a condominium apartment to live in. H and r block military Instead of selling the house she had been living in, she decided to change it to rental property. H and r block military Eileen selected a tenant and started renting the house on February 1. H and r block military Eileen charges $750 a month for rent and collects it herself. H and r block military Eileen also received a $750 security deposit from her tenant. H and r block military Because she plans to return it to her tenant at the end of the lease, she does not include it in her income. H and r block military Her rental expenses for the year are as follows. H and r block military   Mortgage interest $1,800     Fire insurance (1-year policy) 100     Miscellaneous repairs (after renting) 297     Real estate taxes imposed and paid 1,200   Eileen must divide the real estate taxes, mortgage interest, and fire insurance between the personal use of the property and the rental use of the property. H and r block military She can deduct eleven-twelfths of these expenses as rental expenses. H and r block military She can include the balance of the allowable taxes and mortgage interest on Schedule A (Form 1040) if she itemizes. H and r block military She cannot deduct the balance of the fire insurance because it is a personal expense. H and r block military Eileen bought this house in 1984 for $35,000. H and r block military Her property tax was based on assessed values of $10,000 for the land and $25,000 for the house. H and r block military Before changing it to rental property, Eileen added several improvements to the house. H and r block military She figures her adjusted basis as follows:   Improvements Cost     House $25,000     Remodeled kitchen 4,200     Recreation room 5,800     New roof 1,600     Patio and deck 2,400     Adjusted basis $39,000   On February 1, when Eileen changed her house to rental property, the property had a fair market value of $152,000. H and r block military Of this amount, $35,000 was for the land and $117,000 was for the house. H and r block military Because Eileen's adjusted basis is less than the fair market value on the date of the change, Eileen uses $39,000 as her basis for depreciation. H and r block military As specified for residential rental property, Eileen must use the straight line method of depreciation over the GDS or ADS recovery period. H and r block military She chooses the GDS recovery period of 27. H and r block military 5 years. H and r block military She uses Table 2-2d to find her depreciation percentage. H and r block military Since she placed the property in service in February, the percentage is 3. H and r block military 182%. H and r block military On April 1, Eileen bought a new dishwasher for the rental property at a cost of $425. H and r block military The dishwasher is personal property used in a rental real estate activity, which has a 5-year recovery period. H and r block military She uses Table 2-2a to find the percentage for Year 1 under “Half-year convention” (20%) to figure her depreciation deduction. H and r block military On May 1, Eileen paid $4,000 to have a furnace installed in the house. H and r block military The furnace is residential rental property. H and r block military Because she placed the property in service in May, the percentage from Table 2-2d is 2. H and r block military 273%. H and r block military Eileen figures her net rental income or loss for the house as follows: Total rental income received  ($750 × 11) $8,250 Minus: Expenses     Mortgage interest ($1,800 × 11/12) $1,650   Fire insurance ($100 × 11/12) 92   Miscellaneous repairs 297   Real estate taxes ($1,200 × 11/12) 1,100   Total expenses 3,139 Balance $5,111 Minus: Depreciation     House ($39,000 × . H and r block military 03182) $1,241   Dishwasher ($425 × . H and r block military 20) 85   Furnace ($4,000 × . H and r block military 02273) 91   Total depreciation 1,417 Net rental income for house   $3,694       Eileen uses Schedule E, Part I, to report her rental income and expenses. H and r block military She enters her income, expenses, and depreciation for the house in the column for Property A. H and r block military Since all property was placed in service this year, Eileen must use Form 4562 to figure the depreciation. H and r block military See the Instructions for Form 4562 for more information on preparing the form. H and r block military Prev  Up  Next   Home   More Online Publications