I'm not contesting that the income has to be reported, I'm merely disputing that he has multiple options. Assuming he's not a real estate professional, it would go on Schedule E. Since he's mostly likely selecting tenants and settings terms and what not, he's actively participating (differently from materially participating). This would enable him to deduct up to $25,000 in losses each year assuming his MAGI is below $150,000. Otherwise, these losses will accumulate on Form 8582 til he has either passive income or disposes of the property.
Passive Activities
There are two kinds of passive activities.
Trade or business activities in which you do not materially participate during the year.
Rental activities, even if you do materially participate in them, unless you are a real estate professional.
Material participation in a trade or business is discussed later, under Activities That Are Not Passive Activities.
Treatment of former passive activities. A former passive activity is an activity that was a passive activity in any earlier tax year, but is not a passive activity in the current tax year. You can deduct a prior year's unallowed loss from the activity up to the amount of your current year net income from the activity. Treat any remaining prior year unallowed loss like you treat any other passive loss.
In addition, any prior year unallowed passive activity credits from a former passive activity offset the allocable part of your current year tax liability. The allocable part of your current year tax liability is that part of this year's tax liability that is allocable to the current year net income from the former passive activity. You figure this after you reduce your net income from the activity by any prior year unallowed loss from that activity (but not below zero).
Rental Activities
A rental activity is a passive activity even if you materially participated in that activity, unless you materially participated as a real estate professional. See Real Estate Professional under Activities That Are Not Passive Activities, later. An activity is a rental activity if tangible property (real or personal) is used by customers or held for use by customers, and the gross income (or expected gross income) from the activity represents amounts paid (or to be paid) mainly for the use of the property. It does not matter whether the use is under a lease, a service contract, or some other arrangement.
Special $25,000 allowance. If you or your spouse actively participated in a passive rental real estate activity, you can deduct up to $25,000 of loss from the activity from your nonpassive income. This special allowance is an exception to the general rule disallowing losses in excess of income from passive activities. Similarly, you can offset credits from the activity against the tax on up to $25,000 of nonpassive income after taking into account any losses allowed under this exception.
If you are married, filing a separate return, and lived apart from your spouse for the entire tax year, your special allowance cannot be more than $12,500. If you lived with your spouse at any time during the year and are filing a separate return, you cannot use the special allowance to reduce your nonpassive income or tax on nonpassive income.
The maximum special allowance is reduced if your modified adjusted gross income exceeds certain amounts. See Phaseout rule, later.
Exceptions. Your activity is not a rental activity if any of the following apply.
- The average period of customer use of the property is 7 days or less. You figure the average period of customer use by dividing the total number of days in all rental periods by the number of rentals during the tax year. If the activity involves renting more than one class of property, multiply the average period of customer use of each class by a fraction. The numerator of the fraction is the gross rental income from that class of property and the denominator is the activity's total gross rental income. The activity's average period of customer use will equal the sum of the amounts for each class.
- The average period of customer use of the property, as figured in (1) above, is 30 days or less and you provide significant personal services with the rentals. Significant personal services include only services performed by individuals. To determine if personal services are significant, all relevant facts and circumstances are taken into consideration, including the frequency of the services, the type and amount of labor required to perform the services, and the value of the services relative to the amount charged for use of the property. Significant personal services do not include the following.
- Services needed to permit the lawful use of the property,
- Services to repair or improve property that would extend its useful life for a period substantially longer than the average rental, and
- Services that are similar to those commonly provided with long-term rentals of real estate, such as cleaning and maintenance of common areas or routine repairs.
- You provide extraordinary personal services in making the rental property available for customer use. Services are extraordinary personal services if they are performed by individuals and the customers' use of the property is incidental to their receipt of the services.
- The rental is incidental to a nonrental activity. The rental of property is incidental to an activity of holding property for investment if the main purpose of holding the property is to realize a gain from its appreciation and the gross rental income from the property is less than 2% of the smaller of the property's unadjusted basis or fair market value. The unadjusted basis of property is its cost not reduced by depreciation or any other basis adjustment. The rental of property is incidental to a trade or business activity if all of the following apply.
- You own an interest in the trade or business activity during the year.
- The rental property was used mainly in that trade or business activity during the current year, or during at least 2 of the 5 preceding tax years.
- Your gross rental income from the property is less than 2% of the smaller of its unadjusted basis or fair market value. Lodging provided to an employee or the employee's spouse or dependents is incidental to the activity or activities in which the employee performs services if the lodging is furnished for the employer's convenience.
- You customarily make the rental property available during defined business hours for nonexclusive use by various customers.
- You provide the property for use in a nonrental activity in your capacity as an owner of an interest in the partnership, S corporation, or joint venture conducting that activity.
As long as the funds are sent by 31 Dec, you should be safe for 2011.Is it too late to pay estimated tax? Got about 50K in long term cap gains in the summer. Never bothered with 1040es, I remember I got dinged a couple hundred bucks last year. Is my penalty basically going to be 50,000*15% LT rate*3% interest =$225? If I send $7500 to IRS now, will I avoid the penalty or I will still be dinged for it because I didn't send it in in the summer?
Serious question, me and my parents are full of bewilderment right now.
I am a college student earning about 11,000-12k/year as what my school defines a "Student Assistant". I have a w-4, pay taxes bi-weekly, have no benefits and all my school stuff is on loans and grants up to 22K/year as of right now. This year, I've only earned about 6K (started my job in July).
It would obviously be nice to get a good tax refund is possible, i'll be having to buy a new car SOON as mine is about dead; it would be nice if it was a nice car (8-9K used) + Insurance. Also top that with books, meal plan, etc.
Question is, do I file with my parents who make a bout 80K year combined and take away whatever tax refund(if any) or increase their tax payment as a dependent? or, can I file by myself and [would i?] get a tax refund?
Any help is appreciated guys, hopefully this clear things up before I got talk to one of em fancy tax advisors to make sure everything is legally right.
I have a question regarding the sale of stock. As this is my first time selling, and I wasn't sure how it would work under the circumstances of a Employee Stock Purchase Program (ESPP).
With the ESPP at my company we get 15% less the LOWEST value on Jan 1 or Jun 30 (first offering) and the same for Jul 1 and Dec 31.
When calculating capital gains, would I use the value of the stock at the time of purchase?
i.e. If stock was $30 on Jan 1 and $38 on Jun 30, I would get to purchase the stock for $30/share less 15% (25.50/share).
This is where it becomes fuzzy for me. I believe taxation on capital gains uses the following rules:
i. If the stock is held for a minimum of 2 years I will be taxed on the lesser of my actual gain or 15% FMV of the stock on the grant date.
My understanding -- I will not have to pay tax on the 15% discount that I received. My capital gains will be calculated based on the price of the stock at the time it was granted or $30/share in the above example. Is this correct?
In your case above, it sounds like you sold 2 years after the Grant Date, which would give you a Qualifying Disposition. You will have to report compensation income. However, it's a bit tricky. It's the smaller of:
- the fair market value of the stock at grant date and the purchase price as of the grant date OR
- profit from selling the shares.
Your employer may or may not include the compensation income on your W2. Your employer should send you a form 3922, which will help you file properly. Assuming you sold the shares, you will receive a 1099-B showing the proceeds of the sale.
Use Schedule D to report the sale of your shares. Don't forget your basis in the stock will be what you paid PLUS the compensation income you calculated.
Go about 2/3rds ways down to get a good example.
As long as the funds are sent by 31 Dec, you should be safe for 2011.
Earned income is what the IRS looks for in quarterly payments.
Is there any tax benefit for an unborn child? My wife is 25 weeks pregnant.
Would the medical costs be deductible? For instance, she had already met her deductible for this year, but since the baby is not due until April we had to repay our deductible and other costs.
We've paid ~$3k the last 2 months to cover the cost of the delivery up front.
Is there any tax benefit for an unborn child? My wife is 25 weeks pregnant.
Would the medical costs be deductible? For instance, she had already met her deductible for this year, but since the baby is not due until April we had to repay our deductible and other costs.
We've paid ~$3k the last 2 months to cover the cost of the delivery up front.
Is there any tax benefit for an unborn child? My wife is 25 weeks pregnant.
Would the medical costs be deductible? For instance, she had already met her deductible for this year, but since the baby is not due until April we had to repay our deductible and other costs.
We've paid ~$3k the last 2 months to cover the cost of the delivery up front.
I just got married this year. My wife owns her condo but my name/information is not associated with it. We make combined approximately 130k.
1) Do we have to file jointly? No
2) What would get us the most return given no itemization, filing separately or jointly?
I received a lump sum buyout and moved into a new job at the same time, so ill have approximately 2 full salaries putting me far past the Roth Ira limits. I read articles about a loophole to start a traditional Ira and roll it into a Roth without income limit or penalty (except the taxable nature of Roth contributions). Is there anything special to know here? do I have 2 days left to execute this or til Apr 15? Also wanted to verify I can still sell other investments to realize a loss and then rebuy to claim more deductions?
Lastly, I bought a car in December, do I need to pay the sales tax in December or is the tax deduction based on the sale date? The county wouldn't let me pay the taxes without a signed title, which is currently in express mail back to me. (Sellers bank sent title to me without signature, initially)
are we getting the $400 bonus again this year? making work pay i think it was called, can't remember at the moment
Line item #33 on the 1040/ #18 on the 1040AHow is student loan interest factored in when doing taxes? I got an e-mail saying something about if I paid more than $600 in student loan interest then I can file it on my return. Any info on this?
Serious question, me and my parents are full of bewilderment right now.
I am a college student earning about 11,000-12k/year as what my school defines a "Student Assistant". I have a w-4, pay taxes bi-weekly, have no benefits and all my school stuff is on loans and grants up to 22K/year as of right now. This year, I've only earned about 6K (started my job in July).
It would obviously be nice to get a good tax refund is possible, i'll be having to buy a new car SOON as mine is about dead; it would be nice if it was a nice car (8-9K used) + Insurance. Also top that with books, meal plan, etc.
Question is, do I file with my parents who make a bout 80K year combined and take away whatever tax refund(if any) or increase their tax payment as a dependent? or, can I file by myself and [would i?] get a tax refund?
Any help is appreciated guys, hopefully this clear things up before I got talk to one of em fancy tax advisors to make sure everything is legally right.