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Income Tax Preparation

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Income Tax Preparation

Income tax preparation 4. Income tax preparation   Underpayment Penalty for 2013 Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: General RuleFarmers and fishermen. Income tax preparation Higher income taxpayers. Income tax preparation Minimum required for higher income taxpayers. Income tax preparation Estate or trust payments of estimated tax. Income tax preparation Lowering or eliminating the penalty. Income tax preparation ExceptionsLess Than $1,000 Due No Tax Liability Last Year Figuring Your Required Annual Payment (Part I) Short Method for Figuring the Penalty (Part III) Regular Method for Figuring the Penalty (Part IV)Figuring Your Underpayment (Part IV, Section A) Worksheet for Form 2210, Part IV, Section B—Figuring the Penalty Annualized Income Installment Method (Schedule AI) Farmers and Fishermen Waiver of PenaltyFarmers and fishermen. Income tax preparation Introduction If you did not pay enough tax, either through withholding or by making timely estimated tax payments, you will have underpaid your estimated tax and may have to pay a penalty. Income tax preparation You may understand this chapter better if you can refer to a copy of your latest federal income tax return. Income tax preparation No penalty. Income tax preparation   Generally, you will not have to pay a penalty for 2013 if any of the following apply. Income tax preparation The total of your withholding and timely estimated tax payments was at least as much as your 2012 tax. Income tax preparation (See Special rules for certain individuals for higher income taxpayers and farmers and fishermen. Income tax preparation ) The tax balance due on your 2013 return is no more than 10% of your total 2013 tax, and you paid all required estimated tax payments on time. Income tax preparation Your total tax for 2013 (defined later) minus your withholding is less than $1,000. Income tax preparation You did not have a tax liability for 2012. Income tax preparation You did not have any withholding taxes and your current year tax (less any household employment taxes) is less than $1,000. Income tax preparation IRS can figure the penalty for you. Income tax preparation   If you think you owe the penalty, but you do not want to figure it yourself when you file your tax return, you may not have to. Income tax preparation Generally, the IRS will figure the penalty for you and send you a bill. Income tax preparation   You only need to figure your penalty in the following three situations. Income tax preparation You are requesting a waiver of part, but not all, of the penalty. Income tax preparation You are using the annualized income installment method to figure the penalty. Income tax preparation You are treating the federal income tax withheld from your income as paid on the dates actually withheld. Income tax preparation However, if these situations do not apply to you, and you think you can lower or eliminate your penalty, complete Form 2210 or Form 2210-F and attach it to your return. Income tax preparation See Form 2210 , later. Income tax preparation Topics - This chapter discusses: The general rule for the underpayment penalty, Special rules for certain individuals, Exceptions to the underpayment penalty, How to figure your underpayment and the amount of your penalty on Form 2210, and How to ask the IRS to waive the penalty. Income tax preparation Useful Items - You may want to see: Form (and Instructions) 2210 Underpayment of Estimated Tax by Individuals, Estates, and Trusts 2210-F Underpayment of Estimated Tax by Farmers and Fishermen See chapter 5 for information about getting these forms. Income tax preparation General Rule In general, you may owe a penalty for 2013 if the total of your withholding and timely estimated tax payments did not equal at least the smaller of: 90% of your 2013 tax, or 100% of your 2012 tax. Income tax preparation (Your 2012 tax return must cover a 12-month period. Income tax preparation ) Your 2013 tax, for this purpose, is defined under Total tax for 2013 , later. Income tax preparation Special rules for certain individuals. Income tax preparation   There are special rules for farmers and fishermen and certain higher income taxpayers. Income tax preparation Farmers and fishermen. Income tax preparation   If at least two-thirds of your gross income for 2012 or 2013 is from farming or fishing, substitute  662/3% for 90% in (1) above. Income tax preparation   See Farmers and Fishermen , later. Income tax preparation Higher income taxpayers. Income tax preparation   If your AGI for 2012 was more than $150,000 ($75,000 if your 2013 filing status is married filing a separate return), substitute 110% for 100% in (2) under General Rule . Income tax preparation This rule does not apply to farmers or fishermen. Income tax preparation   For 2012, AGI is the amount shown on Form 1040, line 37; Form 1040A, line 21; and Form 1040EZ, line 4. Income tax preparation Penalty figured separately for each period. Income tax preparation   Because the penalty is figured separately for each payment period, you may owe a penalty for an earlier payment period even if you later paid enough to make up the underpayment. Income tax preparation This is true even if you are due a refund when you file your income tax return. Income tax preparation Example. Income tax preparation You did not make estimated tax payments for 2013 because you thought you had enough tax withheld from your wages. Income tax preparation Early in January 2014, you made an estimate of your total 2013 tax. Income tax preparation Then you realized that your withholding was $2,000 less than the amount needed to avoid a penalty for underpayment of estimated tax. Income tax preparation On January 10, you made an estimated tax payment of $3,000, which is the difference between your withholding and your estimate of your total tax. Income tax preparation Your final return shows your total tax to be $50 less than your estimate, so you are due a refund. Income tax preparation You do not owe a penalty for your payment due January 15, 2014. Income tax preparation However, you may owe a penalty through January 10, 2014, the day you made the $3,000 payment, for your underpayments for the earlier payment periods. Income tax preparation Minimum required each period. Income tax preparation   You will owe a penalty for any 2013 payment period for which your estimated tax payment plus your withholding for the period and overpayments applied from previous periods was less than the smaller of: 22. Income tax preparation 5% of your 2013 tax, or 25% of your 2012 tax. Income tax preparation (Your 2012 tax return must cover a 12-month period. Income tax preparation ) Minimum required for higher income taxpayers. Income tax preparation   If you are subject to the rule for higher income taxpayers, discussed above, substitute 27. Income tax preparation 5% for 25% in (2) under General Rule . Income tax preparation When penalty is charged. Income tax preparation   If you miss a payment or you paid less than the minimum required in a period, you may be charged an underpayment penalty from the date the amount was due to the date the payment is made. Income tax preparation If a payment is mailed, the date of the U. Income tax preparation S. Income tax preparation postmark is considered the date of payment. Income tax preparation   If a payment is made electronically, the date the payment is shown on your payment account (checking, savings, etc. Income tax preparation ) is considered to be the date of payment. Income tax preparation Estate or trust payments of estimated tax. Income tax preparation   If you have estimated taxes credited to you from an estate or trust (Schedule K-1 (Form 1041)), treat the payment as made by you on January 15, 2014. Income tax preparation Amended returns. Income tax preparation    If you file an amended return by the due date of your original return, use the tax shown on your amended return to figure your required estimated tax payments. Income tax preparation If you file an amended return after the due date of the original return, use the tax shown on the original return. Income tax preparation   However, if you and your spouse file a joint return after the due date to replace separate returns you originally filed by the due date, use the tax shown on the joint return to figure your required estimated tax payments. Income tax preparation This rule applies only if both original separate returns were filed on time. Income tax preparation 2012 separate returns and 2013 joint return. Income tax preparation    If you file a joint return with your spouse for 2013, but you filed separate returns for 2012, your 2012 tax is the total of the tax shown on your separate returns. Income tax preparation You filed a separate return if you filed as single, head of household, or married filing separately. Income tax preparation 2012 joint return and 2013 separate returns. Income tax preparation    If you file a separate return for 2013, but you filed a joint return with your spouse for 2012, your 2012 tax is your share of the tax on the joint return. Income tax preparation You are filing a separate return if you file as single, head of household, or married filing separately. Income tax preparation   To figure your share of the taxes on a joint return, first figure the tax both you and your spouse would have paid had you filed separate returns for 2012 using the same filing status as for 2013. Income tax preparation Then multiply the tax on the joint return by the following fraction. Income tax preparation   The tax you would have paid had you filed a separate return   The total tax you and your spouse would have paid had you filed separate returns Example. Income tax preparation Lisa and Paul filed a joint return for 2012 showing taxable income of $49,000 and a tax of $6,484. Income tax preparation Of the $49,000 taxable income, $41,000 was Lisa's and the rest was Paul's. Income tax preparation For 2013, they file married filing separately. Income tax preparation Lisa figures her share of the tax on the 2012 joint return as follows. Income tax preparation 2012 tax on $41,000 based on a separate return $ 6,286 2012 tax on $8,000 based on a  separate return 803 Total $ 7,089 Lisa's percentage of total tax  ($6,286 ÷ $ 7,089) 88. Income tax preparation 67% Lisa's part of tax on joint return ($6,484 × 88. Income tax preparation 67%) $ 5,749 Form 2210. Income tax preparation   In most cases, you do not need to file Form 2210. Income tax preparation The IRS will figure the penalty for you and send you a bill. Income tax preparation If you want us to figure the penalty for you, leave the penalty line on your return blank. Income tax preparation Do not file Form 2210. Income tax preparation   To determine if you should file Form 2210, see Part II of Form 2210. Income tax preparation If you decide to figure your penalty, complete Part I, Part II, and either Part III or Part IV of the form and the Penalty Worksheet in the Instructions for Form 2210. Income tax preparation If you use Form 2210, you cannot file Form 1040EZ. Income tax preparation   On Form 1040, enter the amount of your penalty on line 77. Income tax preparation If you owe tax on line 76, add the penalty to your tax due and show your total payment on line 76. Income tax preparation If you are due a refund, subtract the penalty from the overpayment and enter the result on line 73. Income tax preparation   On Form 1040A, enter the amount of your penalty on line 46. Income tax preparation If you owe tax on line 45, add the penalty to your tax due and show your total payment on line 45. Income tax preparation If you are due a refund, subtract the penalty from the overpayment and enter the result on line 42. Income tax preparation Lowering or eliminating the penalty. Income tax preparation    You may be able to lower or eliminate your penalty if you file Form 2210. Income tax preparation You must file Form 2210 with your return if any of the following applies. Income tax preparation You request a waiver. Income tax preparation See Waiver of Penalty , later. Income tax preparation You use the annualized income installment method. Income tax preparation See the explanation of this method under Annualized Income Installment Method (Schedule AI) . Income tax preparation You use your actual withholding for each payment period for estimated tax purposes. Income tax preparation See Actual withholding method under Figuring Your Underpayment (Part IV, Section A). Income tax preparation You base any of your required installments on the tax shown on your 2012 return and you filed or are filing a joint return for either 2012 or 2013, but not for both years. Income tax preparation Exceptions Generally, you do not have to pay an underpayment penalty if either: Your total tax is less than $1,000, or You had no tax liability last year. Income tax preparation Less Than $1,000 Due You do not owe a penalty if the total tax shown on your return minus the amount you paid through withholding (including excess social security and tier 1 railroad retirement (RRTA) tax withholding) is less than $1,000. Income tax preparation Total tax for 2013. Income tax preparation   For 2013, your total tax on Form 1040 is the amount on line 61 reduced by the following. Income tax preparation    Unreported social security and Medicare tax or RRTA tax from Forms 4137 or 8919 (line 57). Income tax preparation Any tax included on line 58 for excess contributions to IRAs, Archer MSAs, Coverdell education savings accounts, and health savings accounts, or any tax on excess accumulations in qualified retirement plans. Income tax preparation The following write-ins on line 60: Uncollected social security and Medicare tax or RRTA tax on tips or group-term life insurance, Tax on excess golden parachute payments, Excise tax on insider stock compensation from an expatriated corporation, Look-back interest due under section 167(g), Look-back interest due under section 460(b), Recapture of federal mortgage subsidy, and Additional tax on advance payments of health coverage tax credit when not eligible. Income tax preparation Any refundable credit amounts listed on lines 64a, 65, 66, 70, and any credit from Form 8885 included on line 71. Income tax preparation   If you filed Form 1040A, your 2013 total tax is the amount on line 35 reduced by any refundable credits on lines 38a, 39, and 40. Income tax preparation   If you filed Form 1040EZ, your 2013 total tax is the amount on line 10 reduced by the amount on line 8a. Income tax preparation Note. Income tax preparation When figuring the amount on line 60, include household employment taxes only if you had federal income tax withheld from your income or you would owe the penalty even if you did not include those taxes. Income tax preparation Paid through withholding. Income tax preparation    For 2013, the amount you paid through withholding on Form 1040 is the amount on line 62 plus any excess social security or tier 1 RRTA tax withholding on line 69. Income tax preparation Add to that any write-in amount on line 72 identified as “Form 8689. Income tax preparation ” On Form 1040A, the amount you paid through withholding is the amount on line 36 plus any excess social security or tier 1 RRTA tax withholding included on line 41. Income tax preparation On Form 1040EZ, it is the amount on line 7. Income tax preparation No Tax Liability Last Year You do not owe a penalty if you had no tax liability last year and you were a U. Income tax preparation S. Income tax preparation citizen or resident for the whole year. Income tax preparation For this rule to apply, your tax year must have included all 12 months of the year. Income tax preparation You had no tax liability for 2012 if your total tax was zero or you were not required to file an income tax return. Income tax preparation Example. Income tax preparation Ray, who is single and 22 years old, was unemployed for a few months during 2012. Income tax preparation He earned $6,700 in wages before he was laid off, and he received $1,400 in unemployment compensation afterwards. Income tax preparation He had no other income. Income tax preparation Even though he had gross income of $8,100, he did not have to pay income tax because his gross income was less than the filing requirement for a single person under age 65 ($9,750 for 2012). Income tax preparation He filed a return only to have his withheld income tax refunded to him. Income tax preparation In 2013, Ray began regular work as an independent contractor. Income tax preparation Ray made no estimated tax payments in 2013. Income tax preparation Even though he did owe tax at the end of the year, Ray does not owe the underpayment penalty for 2013 because he had no tax liability in 2012. Income tax preparation Total tax for 2012. Income tax preparation   For 2012, your total tax on Form 1040 is the amount on line 61 reduced by the following. Income tax preparation    Unreported social security and Medicare tax or RRTA tax from Forms 4137 or 8919 (line 57). Income tax preparation Any tax included on line 58 for excess contributions to IRAs, Archer MSAs, Coverdell education savings accounts, and health savings accounts, or any tax on excess accumulations in qualified retirement plans. Income tax preparation The following write-ins on line 60: Uncollected social security and Medicare tax or RRTA tax on tips or group-term life insurance, Tax on excess golden parachute payments, Excise tax on insider stock compensation from an expatriated corporation, Look-back interest due under section 167(g), Look-back interest due under section 460(b), Recapture of federal mortgage subsidy, and Additional tax on advance payments of health coverage tax credit when not eligible. Income tax preparation Any refundable credit amounts listed on lines 64a, 65, 66, 70, and credits from Forms 8801 (line 27 only), and 8885 included on line 71. Income tax preparation   If you filed Form 1040A, your 2012 total tax is the amount on line 35 reduced by any refundable credits on lines 38a, 39, and 40. Income tax preparation   If you filed Form 1040EZ, your 2012 total tax is the amount on line 11 reduced by the amount on line 8a. Income tax preparation Figuring Your Required Annual Payment (Part I) Figure your required annual payment in Part I of Form 2210, following the line-by-line instructions. Income tax preparation If you rounded the entries on your tax return to whole dollars, you can round on Form 2210. Income tax preparation Example. Income tax preparation The tax on Lori Lane's 2012 return was $12,400. Income tax preparation Her AGI was not more than $150,000 for either 2012 or 2013. Income tax preparation The tax on her 2013 return (Form 1040, line 55) is $13,044. Income tax preparation Line 56 (self-employment tax) is $8,902. Income tax preparation Her 2013 total tax is $21,946. Income tax preparation For 2013, Lori had $1,600 income tax withheld and made four equal estimated tax payments ($1,000 each). Income tax preparation 90% of her 2013 tax is $19,751. Income tax preparation Because she paid less than her 2012 tax ($12,400) and less than 90% of her 2013 tax ($19,751), and does not meet an exception, Lori knows that she owes a penalty for underpayment of estimated tax. Income tax preparation The IRS will figure the penalty for Lori, but she decides to figure it herself on Form 2210 and pay it with her taxes when she files her tax return. Income tax preparation Lori's required annual payment is $12,400 (100% of 2012 tax) because that is smaller than 90% of her 2013 tax. Income tax preparation Different 2012 filing status. Income tax preparation    If you file a separate return for 2013, but you filed a joint return with your spouse for 2012, see 2012 joint return and 2013 separate returns , earlier, to figure the amount to enter as your 2012 tax on line 8 of Form 2210. Income tax preparation Short Method for Figuring the Penalty (Part III) You may be able to use the short method in Part III of Form 2210 to figure your penalty for underpayment of estimated tax. Income tax preparation If you qualify to use this method, it will result in the same penalty amount as the regular method. Income tax preparation However, either the annualized income installment method or the actual withholding method, explained later, may result in a smaller penalty. Income tax preparation You can use the short method only if you meet one of the following requirements. Income tax preparation You made no estimated tax payments for 2013 (it does not matter whether you had income tax withholding). Income tax preparation You paid the same amount of estimated tax on each of the four payment due dates. Income tax preparation If you do not meet either requirement, figure your penalty using the regular method in Part IV of Form 2210 and the Penalty Worksheet in the instructions. Income tax preparation Note. Income tax preparation If any payment was made before the due date, you can use the short method, but the penalty may be less if you use the regular method. Income tax preparation However, if the payment was only a few days early, the difference is likely to be small. Income tax preparation You cannot use the short method if any of the following apply. Income tax preparation You made any estimated tax payments late. Income tax preparation You checked box C or D in Part II of Form 2210. Income tax preparation You are filing Form 1040NR or 1040NR-EZ and you did not receive wages as an employee subject to U. Income tax preparation S. Income tax preparation income tax withholding. Income tax preparation If you use the short method, you cannot use the annualized income installment method to figure your underpayment for each payment period. Income tax preparation Also, you cannot use your actual withholding during each period to figure your payments for each period. Income tax preparation These methods, which may give you a smaller penalty amount, are explained under Figuring Your Underpayment (Part IV, Section A). Income tax preparation Complete Part III of Form 2210 following the line-by-line instructions in the Instructions for Form 2210. Income tax preparation Regular Method for Figuring the Penalty (Part IV) You can use the regular method in Part IV of Form 2210 to figure your penalty for underpayment of estimated tax if you paid one or more estimated tax payments earlier than the due date. Income tax preparation You must use the regular method in Part IV of Form 2210 to figure your penalty for underpayment of estimated tax if any of the following apply to you. Income tax preparation You paid one or more estimated tax payments on a date after the due date. Income tax preparation You paid at least one, but less than four, installments of estimated tax. Income tax preparation You paid estimated tax payments in un- equal amounts. Income tax preparation You use the annualized income installment method to figure your underpayment for each payment period. Income tax preparation You use your actual withholding during each payment period to figure your payments. Income tax preparation Under the regular method, figure your underpayment for each payment period in Section A, then figure your penalty using the Penalty Worksheet in the Instructions for Form 2210. Income tax preparation Enter the results on line 27 of Section B. Income tax preparation Figuring Your Underpayment (Part IV, Section A) Figure your underpayment of estimated tax for each payment period in Section A following the line-by-line instructions in the Instructions for Form 2210. Income tax preparation Complete lines 20 through 26 of the first column before going to line 20 of the next column. Income tax preparation Required installments—line 18. Income tax preparation   Your required payment for each payment period (line 18) is usually one-fourth of your required annual payment (Part I, line 9). Income tax preparation This method—the regular method—is the one to use if you received your income evenly throughout the year. Income tax preparation   However, if you did not receive your income evenly throughout the year, you may be able to lower or eliminate your penalty by figuring your underpayment using the annualized income installment method. Income tax preparation First complete Schedule AI (Form 2210), then enter the amounts from line 25 of that schedule on line 18 of Form 2210, Part IV. Income tax preparation See Annualized Income Installment Method (Schedule AI), later. Income tax preparation Payments made—line 19. Income tax preparation   Enter in each column the total of: Your estimated tax paid after the due date for the previous column and by the due date shown at the top of the column, and One-fourth of your withholding. Income tax preparation For special rules for figuring your payments, see Form 2210 instructions for line 19. Income tax preparation   If you file Form 1040, your withholding is the amount on line 62, plus any excess social security or tier 1 RRTA tax withholding on line 69. Income tax preparation If you file Form 1040A, your withholding is the amount on line 36 plus any excess social security or tier 1 RRTA tax withholding included in line 41. Income tax preparation Actual withholding method. Income tax preparation    Instead of using one-fourth of your withholding for each quarter, you can choose to use the amounts actually withheld by each due date. Income tax preparation You can make this choice separately for the tax withheld from your wages and for all other withholding. Income tax preparation This includes any excess social security and tier 1 RRTA tax withheld. Income tax preparation   Using your actual withholding may result in a smaller penalty if most of your withholding occurred early in the year. Income tax preparation   If you use your actual withholding, you must check box D in Form 2210, Part II. Income tax preparation Then complete Form 2210 using the regular method (Part IV) and file it with your return. Income tax preparation Worksheet for Form 2210, Part IV, Section B—Figuring the Penalty Figure the amount of your penalty for Section B using the Penalty Worksheet in the Form 2210 instructions. Income tax preparation The penalty is imposed on each underpayment amount shown on Form 2210, Section A, line 25, for the number of days that it remained unpaid. Income tax preparation For 2013, there are four rate periods—April 16 through June 30, July 1 through September 30, October 1 through December 31, and January 1, 2014 through April 15, 2014. Income tax preparation A 3% rate applies to all four periods. Income tax preparation Payments. Income tax preparation    Before completing the Penalty Worksheet, it may be helpful to make a list of the payments you made and income tax withheld after the due date (or the last day payments could be made on time) for the earliest payment period an underpayment occurred. Income tax preparation For example, if you had an underpayment for the first payment period, list your payments after April 15, 2013. Income tax preparation You can use the table in the Form 2210 instructions to make your list. Income tax preparation Follow those instructions for listing income tax withheld and payments made with your return. Income tax preparation Use the list to determine when each underpayment was paid. Income tax preparation   If you mail your estimated tax payments, use the date of the U. Income tax preparation S. Income tax preparation postmark as the date of payment. Income tax preparation Line 1b. Income tax preparation   Apply the payments listed to underpayment balance in the first column until it is fully paid. Income tax preparation Apply payments in the order made. Income tax preparation Figuring the penalty. Income tax preparation   If an underpayment was paid in two or more payments on different dates, you must figure the penalty separately for each payment. Income tax preparation On line 3 of the Penalty Worksheet enter the number of days between the due date (line 2) and the date of each payment on line 1b. Income tax preparation On line 4 figure the penalty for the amount of each payment applied on line 1b or the amount remaining unpaid. Income tax preparation If no payments are applied, figure the penalty on the amount on line 1a. Income tax preparation Aid for counting days. Income tax preparation    Table 4-1 provides a simple method for counting the number of days between a due date and a payment date. Income tax preparation Find the number for the date the payment was due by going across to the column of the month the payment was due and moving down the column to the due date. Income tax preparation In the same manner, find the number for the date the payment was made. Income tax preparation Subtract the due date “number” from the payment date “number. Income tax preparation ”   For example, if a payment was due on June 15 (61), but was not paid until September 1 (139), the payment was 78 (139 – 61) days late. Income tax preparation Table 4-1. Income tax preparation Calendar To Determine the Number of Days a Payment Is Late Instructions. Income tax preparation Use this table with Form 2210 if you are completing Part IV, Section B. Income tax preparation First, find the number for the payment due date by going across to the column of the month the payment was due and moving down the column to the due date. Income tax preparation Then, in the same manner, find the number for the date the payment was made. Income tax preparation Finally, subtract the due date number from the payment date number. Income tax preparation The result is the number of days the payment is late. Income tax preparation Example. Income tax preparation The payment due date is June 15 (61). Income tax preparation The payment was made on November 4 (203). Income tax preparation The payment is 142 days late (203 – 61). Income tax preparation Tax Year 2013 Day of 2013 2013 2013 2013 2013 2013 2013 2013 2013 2014 2014 2014 2014 Month April May June July Aug. Income tax preparation Sept. Income tax preparation Oct. Income tax preparation Nov. Income tax preparation Dec. Income tax preparation Jan. Income tax preparation Feb. Income tax preparation Mar. Income tax preparation Apr. Income tax preparation 1   16 47 77 108 139 169 200 230 261 292 320 351 2   17 48 78 109 140 170 201 231 262 293 321 352 3   18 49 79 110 141 171 202 232 263 294 322 353 4   19 50 80 111 142 172 203 233 264 295 323 354 5   20 51 81 112 143 173 204 234 265 296 324 355 6   21 52 82 113 144 174 205 235 266 297 325 356 7   22 53 83 114 145 175 206 236 267 298 326 357 8   23 54 84 115 146 176 207 237 268 299 327 358 9   24 55 85 116 147 177 208 238 269 300 328 359 10   25 56 86 117 148 178 209 239 270 301 329 360 11   26 57 87 118 149 179 210 240 271 302 330 361 12   27 58 88 119 150 180 211 241 272 303 331 362 13   28 59 89 120 151 181 212 242 273 304 332 363 14   29 60 90 121 152 182 213 243 274 305 333 364 15 0 30 61 91 122 153 183 214 244 275 306 334 365 16 1 31 62 92 123 154 184 215 245 276 307 335   17 2 32 63 93 124 155 185 216 246 277 308 336   18 3 33 64 94 125 156 186 217 247 278 309 337   19 4 34 65 95 126 157 187 218 248 279 310 338   20 5 35 66 96 127 158 188 219 249 280 311 339   21 6 36 67 97 128 159 189 220 250 281 312 340   22 7 37 68 98 129 160 190 221 251 282 313 341   23 8 38 69 99 130 161 191 222 252 283 314 342   24 9 39 70 100 131 162 192 223 253 284 315 343   25 10 40 71 101 132 163 193 224 254 285 316 344   26 11 41 72 102 133 164 194 225 255 286 317 345   27 12 42 73 103 134 165 195 226 256 287 318 346   28 13 43 74 104 135 166 196 227 257 288 319 347   29 14 44 75 105 136 167 197 228 258 289   348   30 15 45 76 106 137 168 198 229 259 290   349   31   46   107 138   199   260 291   350   Annualized Income Installment Method (Schedule AI) If you did not receive your income evenly throughout the year (for example, your income from a shop you operated at a marina was much larger in the summer than it was during the rest of the year), you may be able to lower or eliminate your penalty by figuring your underpayment using the annualized income installment method. Income tax preparation Under this method, your required installment (Part IV, line 18) for one or more payment periods may be less than one-fourth of your required annual payment. Income tax preparation To figure your underpayment using this method, complete Form 2210, Schedule AI. Income tax preparation Schedule AI annualizes your tax at the end of each payment period based on your income, deductions, and other items relating to events that occurred from the beginning of the tax year through the end of the period. Income tax preparation If you use the annualized income installment method, you must check box C in Part II of Form 2210. Income tax preparation Also, you must attach Form 2210 and Schedule AI to your return. Income tax preparation If you use Schedule AI for any payment due date, you must use it for all payment due dates. Income tax preparation Completing Schedule AI. Income tax preparation   Follow the Form 2210 instructions to complete Schedule AI. Income tax preparation For each period shown on Schedule AI, figure your income and deductions based on your method of accounting. Income tax preparation If you use the cash method of accounting (used by most people), include all income actually or constructively received during the period and all deductions actually paid during the period. Income tax preparation Note. Income tax preparation Each period includes amounts from the previous period(s). Income tax preparation Period (a) includes items for January 1 through March 31. Income tax preparation Period (b) includes items for January 1 through May 31. Income tax preparation Period (c) includes items for January 1 through August 31. Income tax preparation Period (d) includes items for the entire year. Income tax preparation Farmers and Fishermen If you are a farmer or fisherman, the following special rules for underpayment of estimated tax apply to you. Income tax preparation The penalty for underpaying your 2013 estimated tax will not apply if you file your return and pay all the tax due by March 3, 2014. Income tax preparation If you are a fiscal year taxpayer, the penalty will not apply if you file your return and pay the tax due by the first day of the third month after the end of your tax year. Income tax preparation Any penalty you owe for underpaying your 2013 estimated tax will be figured from one payment due date, January 15, 2014. Income tax preparation The underpayment penalty for 2013 is figured on the difference between the amount of 2013 withholding plus estimated tax paid by the due date and the smaller of: 662/3% (rather than 90%) of your 2013 tax, or 100% of the tax shown on your 2012 return. Income tax preparation Even if these special rules apply to you, you will not owe the penalty if you meet either of the two conditions discussed under Exceptions . Income tax preparation See Who Must Pay Estimated Tax in chapter 2 for the definition of a farmer or fisherman who is eligible for these special rules. Income tax preparation Form 2210-F. Income tax preparation   Use Form 2210-F to figure any underpayment penalty. Income tax preparation Do not attach it to your return unless you check a box in Part I. Income tax preparation However, if none of the boxes apply to you and you owe a penalty, you do not need to attach Form 2210-F. Income tax preparation Enter the amount from line 16 on Form 1040, line 77 and add the penalty to any balance due on your return or subtract it from your refund. Income tax preparation Keep your filled-in Form 2210-F for your records. Income tax preparation    If none of the boxes on Form 2210-F apply to you and you owe a penalty, the IRS can figure your penalty and send you a bill. Income tax preparation Waiver of Penalty The IRS can waive the penalty for underpayment if either of the following applies. Income tax preparation You did not make a payment because of a casualty, disaster, or other unusual circumstance and it would be inequitable to impose the penalty. Income tax preparation You retired (after reaching age 62) or became disabled in 2012 or 2013 and both the following requirements are met. Income tax preparation You had a reasonable cause for not making the payment. Income tax preparation Your underpayment was not due to willful neglect. Income tax preparation How to request a waiver. Income tax preparation   To request a waiver, see the Instructions for Form 2210. Income tax preparation Farmers and fishermen. Income tax preparation   To request a waiver, see the Instructions for Form 2210-F. Income tax preparation Federally declared disaster. Income tax preparation   Certain estimated tax payment deadlines for taxpayers who reside or have a business in a federally declared disaster area are postponed for a period during and after the disaster. Income tax preparation During the processing of your tax return, the IRS automatically identifies taxpayers located in a covered disaster area (by county or parish) and applies the appropriate penalty relief. Income tax preparation Do not file Form 2210 or 2210-F if your underpayment was due to a federally declared disaster. Income tax preparation If you still owe a penalty after the automatic waiver is applied, we will send you a bill. Income tax preparation   Individuals, estates, and trusts not in a covered disaster area but whose books, records, or tax professionals' offices are in a covered area are also entitled to relief. Income tax preparation Also eligible are relief workers affiliated with a recognized government or charitable organization assisting in the relief activities in a covered disaster area. Income tax preparation If you meet either of these eligibility requirements, you must call the IRS disaster hotline at 1-866-562-5227 and identify yourself as eligible for this relief. Income tax preparation   Details on the applicable disaster postponement period can be found at IRS. Income tax preparation gov. Income tax preparation Enter Tax Relief in Disaster Situations. Income tax preparation Select the federally declared disaster that affected you. Income tax preparation    Worksheet 4-1. Income tax preparation 2013 Form 2210, Schedule AI—Line 12 Qualified Dividends and Capital Gain Tax Worksheet Note. Income tax preparation To figure the annualized entries for lines 2, 3, and 5 below, multiply the expected amount for the period by the  annualization amount on line 2 of Schedule AI for the same period. Income tax preparation                   1. Income tax preparation Enter line 11 of your Schedule AI, or line 3 from Worksheet 4-2 1. Income tax preparation       2. Income tax preparation Enter your annualized qualified dividends for the period 2. Income tax preparation           3. Income tax preparation Are you filing Schedule D?               □ Yes. Income tax preparation Enter the smaller of your annualized amount from line 15 or line 16 of Schedule D. Income tax preparation If either line 15 or line 16 is blank or a loss, enter -0-. Income tax preparation 3. Income tax preparation             □ No. Income tax preparation Enter your annualized capital gain distributions from Form 1040, line 13             4. Income tax preparation Add lines 2 and 3   4. Income tax preparation           5. Income tax preparation If you are claiming investment interest expense on Form 4952, enter your annualized amount from line 4g of that form. Income tax preparation Otherwise, enter -0-   5. Income tax preparation           6. Income tax preparation Subtract line 5 from line 4. Income tax preparation If zero or less, enter -0- 6. Income tax preparation       7. Income tax preparation Subtract line 6 from line 1. Income tax preparation If zero or less, enter -0- 7. Income tax preparation       8. Income tax preparation Enter: $36,900 if single or married filing separately, $73,800 if married filing jointly or qualifying widow(er), $49,400 if head of household. Income tax preparation 8. Income tax preparation       9. Income tax preparation Enter the smaller of line 1 or line 8 9. Income tax preparation       10. Income tax preparation Enter the smaller of line 7 or line 9 10. Income tax preparation       11. Income tax preparation Subtract line 10 from line 9. Income tax preparation This amount is taxed at 0% 11. Income tax preparation       12. Income tax preparation Enter the smaller of line 1 or line 6 12. Income tax preparation       13. Income tax preparation Enter the amount from line 11 13. Income tax preparation       14. Income tax preparation Subtract line 13 from line 12 14. Income tax preparation       15. Income tax preparation Multiply line 14 by 15% (. Income tax preparation 15) 15. Income tax preparation   16. Income tax preparation Figure the tax on the amount on line 7. Income tax preparation If the amount on line 7 is less than $100,000, use the Tax Table in the 2013 Form 1040 instructions to figure this tax. Income tax preparation If the amount on line 7 is $100,000 or more, use the Tax Computation Worksheet in the 2013 Form 1040 instructions 16. Income tax preparation   17. Income tax preparation Add lines 15 and 16 17. Income tax preparation   18. Income tax preparation Figure the tax on the amount on line 1. Income tax preparation If the amount on line 1 is less than $100,000, use the Tax Table in the 2013 Form 1040 instructions to figure this tax. Income tax preparation If the amount on line 1 is $100,000 or more, use the Tax Computation Worksheet in the 2013 Form 1040 instructions 18. Income tax preparation   19. Income tax preparation Tax on all taxable income. Income tax preparation Enter the smaller of line 17 or line 18. Income tax preparation Also enter this amount on line 12 of Schedule AI in the appropriate column. Income tax preparation However, if you are using this worksheet to figure the tax on the amount on line 3 of Worksheet 4-2, enter the amount from line 19 on Worksheet 4-2, line 4 19. Income tax preparation   Worksheet 4-2. Income tax preparation 2013 Form 2210, Schedule AI—Line 12 Foreign Earned Income Tax Worksheet Before you begin:If Schedule AI, line 11, is zero for the period, do not complete this worksheet. Income tax preparation             1. Income tax preparation Enter the amount from line 11 of Schedule AI for the period 1. Income tax preparation   2. Income tax preparation Enter the annualized amount* of foreign earned income and housing amount excluded or deducted (from  Form 2555, lines 45 and 50, or Form 2555-EZ, line 18) in figuring the amount entered for the period on line 1  of Schedule AI 2. Income tax preparation   3. Income tax preparation Add lines 1 and 2 3. Income tax preparation   4. Income tax preparation Tax on the amount on line 3. Income tax preparation Use the Tax Table, Tax Computation Worksheet, Form 8615**, Qualified Dividends and Capital Gain Tax Worksheet***, or Schedule D Tax Worksheet***, whichever applies. Income tax preparation See the 2013 Instructions for Form 1040, line 44, to find out which tax computation method to use. Income tax preparation (Note. Income tax preparation You do not have to use the same method for each period on Schedule AI. Income tax preparation ) 4. Income tax preparation   5. Income tax preparation Tax on the amount on line 2. Income tax preparation If the amount on line 2 is less than $100,000, use the Tax Table in the 2013 Form 1040 instructions to figure this tax. Income tax preparation If the amount on line 7 is $100,000 or more, use the Tax Computation Worksheet in the 2013 Form 1040 instructions 5. Income tax preparation   6. Income tax preparation Subtract line 5 from line 4. Income tax preparation Enter the result here and on line 12 of Schedule AI. Income tax preparation If zero or less,  enter -0- 6. Income tax preparation             * To figure the annualized amount for line 2, multiply the exclusion or deduction for the period by the annualization amount on line 2 of Schedule AI for the same period. Income tax preparation     ** If you use Form 8615 to figure the tax on line 4 above, enter the amount from line 3 above on line 4 of Form 8615. Income tax preparation If the child's parent files Form 2555 or 2555-EZ, enter the amounts from lines 3 and 4 of the parent's Foreign Earned Income Tax Worksheet on lines 6 and 10, respectively, of Form 8615. Income tax preparation Complete the rest of Form 8615 according to its instructions. Income tax preparation Then complete lines 5 and 6 above. Income tax preparation     *** Enter the amount from line 3 above on line 1 of the Qualified Dividends and Capital Gain Tax Worksheet (or Worksheet 4-1 in this chapter) or the Schedule D Tax Worksheet, whichever worksheet you use to figure the tax on line 4 above. Income tax preparation Complete that worksheet through line 6 (line 10 if you use the Schedule D Tax Worksheet). Income tax preparation Next, determine if you have a capital gain excess. Income tax preparation     Figuring capital gain excess. Income tax preparation To find out if you have a capital gain excess for the appropriate period, subtract line 11 of Schedule AI from line 6 of Worksheet 4-1 or your Qualified Dividends and Capital Gain Tax Worksheet (line 10 of your Schedule D Tax Worksheet). Income tax preparation If the result is more than zero, that amount is your capital gain excess. Income tax preparation     No capital gain excess. Income tax preparation If you do not have a capital gain excess, complete the rest of Worksheet 4-1, Qualified Dividends and Capital Gain Tax Worksheet, or the Schedule D Tax Worksheet according to the worksheet's instructions. Income tax preparation Then complete lines 5 and 6 above. Income tax preparation     Capital gain excess. Income tax preparation If you have a capital gain excess, complete a second Worksheet 4-1, Qualified Dividends and Capital Gain Tax Worksheet, or Schedule D Tax Worksheet (whichever applies) as instructed above but in its entirety and with the following additional modifications. Income tax preparation Then complete lines 5 and 6 above. Income tax preparation     Make the modifications below only for purposes of filling out Worksheet 4-2 above. Income tax preparation     a. Income tax preparation Reduce (but not below zero) the amount you otherwise would enter on line 3 of your Worksheet 4-1, line 3 of your Qualified Dividends and Capital Gain Tax Worksheet, or line 9 of your Schedule D Tax Worksheet by your capital gain excess. Income tax preparation     b. Income tax preparation Reduce (but not below zero) the amount you otherwise would enter on line 2 of your Worksheet 4-1, line 2 of your Qualified Dividends and Capital Gain Tax Worksheet, or line 6 of your Schedule D Tax Worksheet by any of your capital gain excess not used in (a) above. Income tax preparation     c. Income tax preparation Reduce (but not below zero) the amount on your Schedule D (Form 1040), line 18, by your capital gain excess. Income tax preparation     d. Income tax preparation Include your capital gain excess as a loss on line 16 of your Unrecaptured Section 1250 Gain Worksheet in the 2013 Instructions for Schedule D (Form 1040). Income tax preparation   Prev  Up  Next   Home   More Online Publications
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Income tax preparation 5. Income tax preparation   Personal Use of Dwelling Unit (Including Vacation Home) Table of Contents Dividing Expenses Dwelling Unit Used as a HomeMain home. Income tax preparation Shared equity financing agreement. Income tax preparation Donation of use of the property. Income tax preparation Examples. Income tax preparation Days used for repairs and maintenance. Income tax preparation Days used as a main home before or after renting. Income tax preparation Reporting Income and DeductionsNot used as a home. Income tax preparation Used as a home but rented less than 15 days. Income tax preparation Used as a home and rented 15 days or more. Income tax preparation 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. Income tax preparation 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. Income tax preparation Only your rental expenses may deducted on Schedule E (Form 1040). Income tax preparation Some of your personal expenses may be deductible if you itemize your deductions on Schedule A (Form 1040). Income tax preparation You must also determine if the dwelling unit is considered a home. Income tax preparation The amount of rental expenses that you can deduct may be limited if the dwelling unit is considered a home. Income tax preparation Whether a dwelling unit is considered a home depends on how many days during the year are considered to be days of personal use. Income tax preparation 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. Income tax preparation Dwelling unit. Income tax preparation   A dwelling unit includes a house, apartment, condominium, mobile home, boat, vacation home, or similar property. Income tax preparation It also includes all structures or other property belonging to the dwelling unit. Income tax preparation A dwelling unit has basic living accommodations, such as sleeping space, a toilet, and cooking facilities. Income tax preparation   A dwelling unit does not include property (or part of the property) used solely as a hotel, motel, inn, or similar establishment. Income tax preparation 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. Income tax preparation Example. Income tax preparation You rent a room in your home that is always available for short-term occupancy by paying customers. Income tax preparation You do not use the room yourself and you allow only paying customers to use the room. Income tax preparation This room is used solely as a hotel, motel, inn, or similar establishment and is not a dwelling unit. Income tax preparation 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. Income tax preparation When dividing your expenses, follow these rules. Income tax preparation 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. Income tax preparation (This rule does not apply when determining whether you used the unit as a home. Income tax preparation ) Any day that the unit is available for rent but not actually rented is not a day of rental use. Income tax preparation Fair rental price. Income tax preparation   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. Income tax preparation 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. Income tax preparation   Ask yourself the following questions when comparing another property with yours. Income tax preparation 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. Income tax preparation Example. Income tax preparation Your beach cottage was available for rent from June 1 through August 31 (92 days). Income tax preparation 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. Income tax preparation 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. Income tax preparation Your family also used the cottage during the last 2 weeks of May (14 days). Income tax preparation The cottage was not used at all before May 17 or after August 31. Income tax preparation You figure the part of the cottage expenses to treat as rental expenses as follows. Income tax preparation The cottage was used for rental a total of 85 days (92 − 7). Income tax preparation The days it was available for rent but not rented (7 days) are not days of rental use. Income tax preparation The July weekend (2 days) you used it is rental use because you received a fair rental price for the weekend. Income tax preparation You used the cottage for personal purposes for 14 days (the last 2 weeks in May). Income tax preparation The total use of the cottage was 99 days (14 days personal use + 85 days rental use). Income tax preparation Your rental expenses are 85/99 (86%) of the cottage expenses. Income tax preparation Note. Income tax preparation 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. Income tax preparation Therefore, you had 16 days of personal use and 83 days of rental use for this purpose. Income tax preparation 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. Income tax preparation If you have a net loss, you may not be able to deduct all of the rental expenses. Income tax preparation See Dwelling Unit Used as a Home, next. Income tax preparation 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. Income tax preparation 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. Income tax preparation See What is a day of personal use , later. Income tax preparation 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. Income tax preparation Instead, count it as a day of personal use in applying both (1) and (2) above. Income tax preparation 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. Income tax preparation 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). Income tax preparation However, see Days used as a main home before or after renting , later. Income tax preparation 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. Income tax preparation Family includes only your spouse, brothers and sisters, half-brothers and half-sisters, ancestors (parents, grandparents, etc. Income tax preparation ), and lineal descendants (children, grandchildren, etc. Income tax preparation ). Income tax preparation Anyone under an arrangement that lets you use some other dwelling unit. Income tax preparation Anyone at less than a fair rental price. Income tax preparation Main home. Income tax preparation   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. Income tax preparation Shared equity financing agreement. Income tax preparation   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. Income tax preparation Donation of use of the property. Income tax preparation   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. Income tax preparation Examples. Income tax preparation   The following examples show how to determine if you have days of personal use. Income tax preparation Example 1. Income tax preparation You and your neighbor are co-owners of a condominium at the beach. Income tax preparation Last year, you rented the unit to vacationers whenever possible. Income tax preparation The unit was not used as a main home by anyone. Income tax preparation Your neighbor used the unit for 2 weeks last year; you did not use it at all. Income tax preparation 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. Income tax preparation Example 2. Income tax preparation You and your neighbors are co-owners of a house under a shared equity financing agreement. Income tax preparation Your neighbors live in the house and pay you a fair rental price. Income tax preparation 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. Income tax preparation This is because your neighbors rent the house as their main home under a shared equity financing agreement. Income tax preparation Example 3. Income tax preparation You own a rental property that you rent to your son. Income tax preparation Your son does not own any interest in this property. Income tax preparation He uses it as his main home and pays you a fair rental price. Income tax preparation 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. Income tax preparation Example 4. Income tax preparation You rent your beach house to Rosa. Income tax preparation Rosa rents her cabin in the mountains to you. Income tax preparation You each pay a fair rental price. Income tax preparation 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. Income tax preparation Example 5. Income tax preparation You rent an apartment to your mother at less than a fair rental price. Income tax preparation 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. Income tax preparation Days used for repairs and maintenance. Income tax preparation   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. Income tax preparation 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. Income tax preparation Example. Income tax preparation Corey owns a cabin in the mountains that he rents for most of the year. Income tax preparation He spends a week at the cabin with family members. Income tax preparation 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. Income tax preparation Corey's family members, however, work substantially full time on the cabin each day during the week. Income tax preparation The main purpose of being at the cabin that week is to do maintenance work. Income tax preparation Therefore, the use of the cabin during the week by Corey and his family will not be considered personal use by Corey. Income tax preparation Days used as a main home before or after renting. Income tax preparation   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. Income tax preparation Do not count them as days of personal use if: You rented or tried to rent the property for 12 or more consecutive months. Income tax preparation 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. Income tax preparation However, this special rule does not apply when dividing expenses between rental and personal use. Income tax preparation See Property Changed to Rental Use in chapter 4. Income tax preparation Example 1. Income tax preparation 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. Income tax preparation You rented your house at a fair rental price from March 15, 2012, to May 14, 2013 (14 months). Income tax preparation On June 1, 2013, you moved back into your old house. Income tax preparation 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. Income tax preparation Therefore, you would use the rules in chapter 1 when figuring your rental income and expenses. Income tax preparation Example 2. Income tax preparation On January 31, you moved out of the condominium where you had lived for 3 years. Income tax preparation You offered it for rent at a fair rental price beginning on February 1. Income tax preparation You were unable to rent it until April. Income tax preparation On September 15, you sold the condominium. Income tax preparation 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. Income tax preparation Examples. Income tax preparation   The following examples show how to determine whether you used your rental property as a home. Income tax preparation Example 1. Income tax preparation You converted the basement of your home into an apartment with a bedroom, a bathroom, and a small kitchen. Income tax preparation You rented the basement apartment at a fair rental price to college students during the regular school year. Income tax preparation You rented to them on a 9-month lease (273 days). Income tax preparation You figured 10% of the total days rented to others at a fair rental price is 27 days. Income tax preparation During June (30 days), your brothers stayed with you and lived in the basement apartment rent free. Income tax preparation Your basement apartment was used as a home because you used it for personal purposes for 30 days. Income tax preparation Rent-free use by your brothers is considered personal use. Income tax preparation Your personal use (30 days) is more than the greater of 14 days or 10% of the total days it was rented (27 days). Income tax preparation Example 2. Income tax preparation 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). Income tax preparation Your sister-in-law stayed in the room, rent free, for the last 3 weeks (21 days) in July. Income tax preparation You figured 10% of the total days rented to others at a fair rental price is 3 days. Income tax preparation The room was used as a home because you used it for personal purposes for 21 days. Income tax preparation That is more than the greater of 14 days or 10% of the 27 days it was rented (3 days). Income tax preparation Example 3. Income tax preparation You own a condominium apartment in a resort area. Income tax preparation You rented it at a fair rental price for a total of 170 days during the year. Income tax preparation 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. Income tax preparation Your family actually used the apartment for 10 of those days. Income tax preparation Therefore, the apartment is treated as having been rented for 160 (170 – 10) days. Income tax preparation You figured 10% of the total days rented to others at a fair rental price is 16 days. Income tax preparation Your family also used the apartment for 7 other days during the year. Income tax preparation You used the apartment as a home because you used it for personal purposes for 17 days. Income tax preparation That is more than the greater of 14 days or 10% of the 160 days it was rented (16 days). Income tax preparation Minimal rental use. Income tax preparation   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. Income tax preparation See Used as a home but rented less than 15 days, later, for more information. Income tax preparation Limit on deductions. Income tax preparation   Renting a dwelling unit that is considered a home is not a passive activity. Income tax preparation 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. Income tax preparation 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. Income tax preparation Any expenses carried forward to the next year will be subject to any limits that apply for that year. Income tax preparation 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. Income tax preparation   To figure your deductible rental expenses for this year and any carryover to next year, use Worksheet 5–1. Income tax preparation Reporting Income and Deductions Property not used for personal purposes. Income tax preparation   If you do not use a dwelling unit for personal purposes, see chapter 3 for how to report your rental income and expenses. Income tax preparation Property used for personal purposes. Income tax preparation   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. Income tax preparation Not used as a home. Income tax preparation   If you use a dwelling unit for personal purposes, but not as a home, report all the rental income in your income. Income tax preparation 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 . Income tax preparation The expenses for personal use are not deductible as rental expenses. Income tax preparation   Your deductible rental expenses can be more than your gross rental income; however, see Limits on Rental Losses in chapter 3. Income tax preparation Used as a home but rented less than 15 days. Income tax preparation   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). Income tax preparation You are not required to report the rental income and rental expenses from this activity. Income tax preparation The expenses, including qualified mortgage interest, property taxes, and any qualified casualty loss will be reported as normally allowed on Schedule A (Form 1040). Income tax preparation See the Instructions for Schedule A (Form 1040) for more information on deducting these expenses. Income tax preparation Used as a home and rented 15 days or more. Income tax preparation   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. Income tax preparation 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 . Income tax preparation The expenses for personal use are not deductible as rental expenses. Income tax preparation   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. Income tax preparation You do not need to use Worksheet 5-1. Income tax preparation   However, if you had a net loss from renting the dwelling unit for the year, your deduction for certain rental expenses is limited. Income tax preparation To figure your deductible rental expenses and any carryover to next year, use Worksheet 5–1. Income tax preparation Worksheet 5-1. Income tax preparation 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. Income tax preparation Did you use the dwelling unit as a home this year? (See Dwelling Unit Used as a Home . Income tax preparation ) 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. Income tax preparation Rental Use Percentage A. Income tax preparation Total days available for rent at fair rental price A. Income tax preparation       B. Income tax preparation Total days available for rent (line A) but not rented B. Income tax preparation       C. Income tax preparation Total days of rental use. Income tax preparation Subtract line B from line A C. Income tax preparation       D. Income tax preparation Total days of personal use (including days rented at less than fair rental price) D. Income tax preparation       E. Income tax preparation Total days of rental and personal use. Income tax preparation Add lines C and D E. Income tax preparation       F. Income tax preparation Percentage of expenses allowed for rental. Income tax preparation Divide line C by line E     F. Income tax preparation . Income tax preparation PART II. Income tax preparation Allowable Rental Expenses 1. Income tax preparation Enter rents received 1. Income tax preparation   2a. Income tax preparation Enter the rental portion of deductible home mortgage interest and qualified mortgage insurance premiums (see instructions) 2a. Income tax preparation       b. Income tax preparation Enter the rental portion of real estate taxes b. Income tax preparation       c. Income tax preparation Enter the rental portion of deductible casualty and theft losses (see instructions) c. Income tax preparation       d. Income tax preparation Enter direct rental expenses (see instructions) d. Income tax preparation       e. Income tax preparation Fully deductible rental expenses. Income tax preparation Add lines 2a–2d. Income tax preparation Enter here and  on the appropriate lines on Schedule E (see instructions) 2e. Income tax preparation   3. Income tax preparation Subtract line 2e from line 1. Income tax preparation If zero or less, enter -0- 3. Income tax preparation   4a. Income tax preparation Enter the rental portion of expenses directly related to operating or maintaining  the dwelling unit (such as repairs, insurance, and utilities) 4a. Income tax preparation       b. Income tax preparation Enter the rental portion of excess mortgage interest and qualified mortgage insurance premiums (see instructions) b. Income tax preparation       c. Income tax preparation Carryover of operating expenses from 2012 worksheet c. Income tax preparation       d. Income tax preparation Add lines 4a–4c d. Income tax preparation       e. Income tax preparation Allowable expenses. Income tax preparation Enter the smaller of line 3 or line 4d (see instructions) 4e. Income tax preparation   5. Income tax preparation Subtract line 4e from line 3. Income tax preparation If zero or less, enter -0- 5. Income tax preparation   6a. Income tax preparation Enter the rental portion of excess casualty and theft losses (see instructions) 6a. Income tax preparation       b. Income tax preparation Enter the rental portion of depreciation of the dwelling unit b. Income tax preparation       c. Income tax preparation Carryover of excess casualty losses and depreciation from 2012 worksheet c. Income tax preparation       d. Income tax preparation Add lines 6a–6c d. Income tax preparation       e. Income tax preparation Allowable excess casualty and theft losses and depreciation. Income tax preparation Enter the smaller of  line 5 or line 6d (see instructions) 6e. Income tax preparation   PART III. Income tax preparation Carryover of Unallowed Expenses to Next Year 7a. Income tax preparation Operating expenses to be carried over to next year. Income tax preparation Subtract line 4e from line 4d 7a. Income tax preparation   b. Income tax preparation Excess casualty and theft losses and depreciation to be carried over to next year. Income tax preparation  Subtract line 6e from line 6d b. Income tax preparation   Worksheet 5-1 Instructions. Income tax preparation Worksheet for Figuring Rental Deductions for a Dwelling Unit Used as a Home Caution. Income tax preparation 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. Income tax preparation Line 2a. Income tax preparation Figure the mortgage interest on the dwelling unit that you could deduct on Schedule A as if you had not rented the unit. Income tax preparation Do not include interest on a loan that did not benefit the dwelling unit. Income tax preparation 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. Income tax preparation Include interest on a loan used to buy, build, or improve the dwelling unit, or to refinance such a loan. Income tax preparation Include the rental portion of this interest in the total you enter on line 2a of the worksheet. Income tax preparation   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. Income tax preparation See the Schedule A instructions. Income tax preparation However, figure your adjusted gross income (Form 1040, line 38) without your rental income and expenses from the dwelling unit. Income tax preparation See Line 4b to deduct the part of the qualified mortgage insurance premiums not allowed because of the adjusted gross income limit. Income tax preparation Include the rental portion of the amount from Schedule A, line 13, in the total you enter on line 2a of the worksheet. Income tax preparation   Note. Income tax preparation Do not file this Schedule A or use it to figure the amount to deduct on line 13 of that schedule. Income tax preparation Instead, figure the personal portion on a separate Schedule A. Income tax preparation 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. Income tax preparation           Line 2c. Income tax preparation 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. Income tax preparation To do this, complete Section A of Form 4684, Casualties and Thefts, treating the losses as personal losses. Income tax preparation If any of the loss is due to a federally declared disaster, see the Instructions for Form 4684. Income tax preparation On Form 4684, line 17, enter 10% of your adjusted gross income figured without your rental income and expenses from the dwelling unit. Income tax preparation Enter the rental portion of the result from Form 4684, line 18, on line 2c of this worksheet. Income tax preparation   Note. Income tax preparation Do not file this Form 4684 or use it to figure your personal losses on Schedule A. Income tax preparation Instead, figure the personal portion on a separate Form 4684. Income tax preparation           Line 2d. Income tax preparation Enter the total of your rental expenses that are directly related only to the rental activity. Income tax preparation These include interest on loans used for rental activities other than to buy, build, or improve the dwelling unit. Income tax preparation Also include rental agency fees, advertising, office supplies, and depreciation on office equipment used in your rental activity. Income tax preparation           Line 2e. Income tax preparation 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. Income tax preparation Enter the amounts on lines 2a, 2b, 2c, and 2d on the appropriate lines of Schedule E. Income tax preparation           Line 4b. Income tax preparation 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. Income tax preparation 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. Income tax preparation Do not include interest on a loan that did not benefit the dwelling unit  (as explained in the line 2a instructions). Income tax preparation           Line 4e. Income tax preparation 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. Income tax preparation *           Line 6a. Income tax preparation To find the rental portion of excess casualty and theft losses, use the Form 4684 you prepared for line 2c of this worksheet. Income tax preparation   A. Income tax preparation Enter the amount from Form 4684, line 10       B. Income tax preparation Enter the rental portion of line A       C. Income tax preparation Enter the amount from line 2c of this worksheet       D. Income tax preparation Subtract line C from line B. Income tax preparation Enter the result here and on line 6a of this worksheet               Line 6e. Income tax preparation 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. Income tax preparation * *Allocating the limited deduction. Income tax preparation 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. Income tax preparation Enter the amount you allocate to each expense on the appropriate line of Schedule E, Part I. Income tax preparation Prev  Up  Next   Home   More Online Publications