9.6 Renting a Residence to a Relative
by J.K. Lasser Institute
J.K. Lasser's Your Income Tax 2013: For Preparing Your 2012 Tax Return
- Cover
- Contents: Chapter by Chapter
- Title
- Copyright
- What’s New for 2012
- Key Tax Numbers for 2012
- Looking Ahead to 2013
- Part 1: Filing Basics
- Do You Have to File a 2012 Tax Return?
- Filing Tests for Dependents: 2012 Returns
- Where to File
- Filing Deadlines (on or before)
- Choosing Which Tax Form to File
- Chapter 1: Filing Status
- 1.1 Which Filing Status Should You Use?
- 1.2 Tax Rates Based on Filing Status
- 1.3 Filing Separately Instead of Jointly
- 1.4 Filing a Joint Return
- 1.5 Nonresident Alien Spouse
- 1.6 Community Property Rules
- 1.7 Innocent Spouse Rules
- 1.8 Separate Liability Election for Former Spouses
- 1.9 Equitable Relief
- 1.10 Death of Your Spouse in 2012
- 1.11 Qualifying Widow(er) Status If Your Spouse Died in 2011 or 2010
- 1.12 Qualifying as Head of Household
- 1.13 Filing for Your Child
- 1.14 Return for Deceased
- 1.15 Return for an Incompetent Person
- 1.16 How a Nonresident Alien Is Taxed
- 1.17 How a Resident Alien Is Taxed
- 1.18 Who Is a Resident Alien?
- 1.19 When an Alien Leaves the United States
- 1.20 Expatriation Tax
- Part 2: Reporting Your Income
- Chapter 2: Wages, Salary, and Other Compensation
- 2.1 Salary and Wage Income
- 2.2 Constructive Receipt of Year-End Paychecks
- 2.3 Pay Received in Property Is Taxed
- 2.4 Commissions Taxable When Credited
- 2.5 Unemployment Benefits
- 2.6 Strike Pay Benefits and Penalties
- 2.7 Nonqualified Deferred Compensation
- 2.8 Did You Return Wages Received in a Prior Year?
- 2.9 Waiver of Executor’s and Trustee’s Commissions
- 2.10 Life Insurance Benefits
- 2.11 Educational Benefits for Employees’ Children
- 2.12 Sick Pay Is Taxable
- 2.13 Workers’ Compensation Is Tax Free
- 2.14 Disability Pensions
- 2.15 Stock Appreciation Rights (SARs)
- 2.16 Stock Options
- 2.17 Restricted Stock
- Chapter 3: Fringe Benefits
- 3.1 Tax-Free Health and Accident Coverage Under Employer Plans
- 3.2 Health Savings Accounts (HSAs) and Archer MSAs
- 3.3 Reimbursements and Other Tax-Free Payments From Employer Health and Accident Plans
- 3.4 Group-Term Life Insurance Premiums
- 3.5 Dependent Care Assistance
- 3.6 Adoption Benefits
- 3.7 Education Assistance Plans
- 3.8 Company Cars, Parking, and Transit Passes
- 3.9 Working Condition Fringe Benefits
- 3.10 De Minimis Fringe Benefits
- 3.11 Employer-Provided Retirement Advice
- 3.12 Employee Achievement Awards
- 3.13 Employer-Furnished Meals or Lodging
- 3.14 Minister’s Rental or Housing Allowance
- 3.15 Cafeteria Plans Provide Choice of Benefits
- 3.16 Flexible Spending Arrangements
- 3.17 Company Services Provided at No Additional Cost
- 3.18 Discounts on Company Products or Services
- Chapter 4: Dividend and Interest Income
- 4.1 Reporting Dividends and Mutual-Fund Distributions
- 4.2 Qualified Corporate Dividends Taxed at Favorable Capital Gain Rates
- 4.3 Dividends From a Partnership, S Corporation, Estate, or Trust
- 4.4 Real Estate Investment Trust (REIT) Dividends
- 4.5 Taxable Dividends of Earnings and Profits
- 4.6 Stock Dividends on Common Stock
- 4.7 Dividends Paid in Property
- 4.8 Taxable Stock Dividends
- 4.9 Who Reports the Dividends
- 4.10 Year Dividends Are Reported
- 4.11 Distribution Not Out of Earnings: Return of Capital
- 4.12 Reporting Interest on Your Tax Return
- 4.13 Interest on Frozen Accounts Not Taxed
- 4.14 Interest Income on Debts Owed to You
- 4.15 Reporting Interest on Bonds Bought or Sold
- 4.16 Forfeiture of Interest on Premature Withdrawals
- 4.17 Amortization of Bond Premium
- 4.18 Discount on Bonds
- 4.19 Reporting Original Issue Discount on Your Return
- 4.20 Reporting Income on Market Discount Bonds
- 4.21 Discount on Short-Term Obligations
- 4.22 Stripped Coupon Bonds and Stock
- 4.23 Sale or Retirement of Bonds and Notes
- 4.24 State and City Interest Generally Tax Exempt
- 4.25 Taxable State and City Interest
- 4.26 Tax-Exempt Bonds Bought at a Discount
- 4.27 Treasury Bills, Notes, and Bonds
- 4.28 Interest on United States Savings Bonds
- 4.29 Deferring United States Savings Bond Interest
- 4.30 Minimum Interest Rules
- 4.31 Interest-Free or Below-Market-Interest Loans
- 4.32 Minimum Interest on Seller-Financed Sales
- Chapter 5: Reporting Property Sales
- 5.1 General Tax Rules for Property Sales
- 5.2 How Property Sales Are Classified and Taxed
- 5.3 Capital Gains Rates and Holding Periods
- 5.4 Capital Losses and Carryovers
- 5.5 Capital Losses of Married Couples
- 5.6 Losses May Be Disallowed on Sales to Related Persons
- 5.7 Deferring or Excluding Gain on Small Business Stock Investment
- 5.8 Sample Entries of Capital Asset Sales on Form 8949 and on Schedule D
- 5.9 Counting the Months in Your Holding Period
- 5.10 Holding Period for Securities
- 5.11 Holding Period for Real Estate
- 5.12 Holding Period: Gifts, Inheritances, and Other Property
- 5.13 Calculating Gain or Loss
- 5.14 Amount Realized Is the Total Selling Price
- 5.15 Finding Your Cost
- 5.16 Unadjusted Basis of Your Property
- 5.17 Basis of Property You Inherited or Received as a Gift
- 5.18 Joint Tenancy Basis Rules for Surviving Tenants
- 5.19 Allocating Cost Among Several Assets
- 5.20 How To Find Adjusted Basis
- 5.21 Tax Advantage of Installment Sales
- 5.22 Figuring the Taxable Part of Installment Payments
- 5.23 Electing Not To Report on the Installment Method
- 5.24 Restriction on Installment Sales to Relatives
- 5.25 Contingent Payment Sales
- 5.26 Using Escrow and Other Security Arrangements
- 5.27 Minimum Interest on Deferred Payment Sales
- 5.28 Dispositions of Installment Notes
- 5.29 Repossession of Personal Property Sold on Installment
- 5.30 Boot in Like-Kind Exchange Payable in Installments
- 5.31 “Interest” Tax on Sales Over $150,000 Plus $5 Million Debt
- 5.32 Worthless Securities
- 5.33 Tax Consequences of Bad Debts
- 5.34 Four Rules To Prove a Bad Debt Deduction
- 5.35 Family Bad Debts
- Chapter 6: Tax-Free Exchanges of Property
- 6.1 Trades of Like-Kind Property
- 6.2 Personal Property Held for Business or Investment
- 6.3 Receipt of Cash and Other Property—“Boot”
- 6.4 Time Limits and Security Arrangements for Deferred Exchanges
- 6.5 Qualified Exchange Accommodation Arrangements (QEAAs) for Reverse Exchanges
- 6.6 Exchanges Between Related Parties
- 6.7 Property Transfers Between Spouses and Ex-Spouses
- 6.8 Tax-Free Exchanges of Stock in Same Corporation
- 6.9 Joint Ownership Interests
- 6.10 Setting up Closely Held Corporations
- 6.11 Exchanges of Coins and Bullion
- 6.12 Tax-Free Exchanges of Insurance Policies
- Chapter 7: Retirement and Annuity Income
- 7.1 Retirement Distributions on Form 1099-R
- 7.2 Lump-Sum Distributions
- 7.3 Lump-Sum Options If You Were Born Before January 2, 1936
- 7.4 Averaging on Form 4972
- 7.5 Capital Gain Treatment for Pre-1974 Participation
- 7.6 Lump-Sum Payments Received by Beneficiary
- 7.7 Tax-Free Rollovers From Qualified Plans
- 7.8 Direct Rollover or Personal Rollover
- 7.9 Rollover of Proceeds From Sale of Property
- 7.10 Distribution of Employer Stock or Other Securities
- 7.11 Survivor Annuity for Spouse
- 7.12 Court Distributions to Former Spouse Under a QDRO
- 7.13 When Retirement Benefits Must Begin
- 7.14 Payouts to Beneficiaries
- 7.15 Penalty for Distributions Before Age 59½
- 7.16 Restrictions on Loans From Company Plans
- 7.17 Tax Benefits of 401(k) Plans
- 7.18 Limit on Salary-Reduction Deferrals
- 7.19 Withdrawals From 401(k) Plans Restricted
- 7.20 Designated Roth Contributions to 401(k) Plans
- 7.21 Annuities for Employees of Tax-Exempts and Schools (403(b) Plans)
- 7.22 Government and Exempt Organization Deferred Pay Plans
- 7.23 Figuring the Taxable Part of Your Annuity
- 7.24 Life Expectancy Tables
- 7.25 When You Convert Your Endowment Policy
- 7.26 Reporting Employee Annuities
- 7.27 Simplified Method for Calculating Taxable Employee Annuity
- 7.28 Employee’s Cost in Annuity
- 7.29 Withdrawals From Employer’s Qualified Retirement Plan Before Annuity Starting Date
- Chapter 8: IRAs
- 8.1 Starting a Traditional IRA
- 8.2 Traditional IRA Contributions Must Be Based on Earnings
- 8.3 Contributions to a Traditional IRA If You Are Married
- 8.4 IRA Deduction Restrictions for Active Participants in Employer Plan
- 8.5 Active Participation in Employer Plan
- 8.6 Nondeductible Contributions to Traditional IRAs
- 8.7 Penalty for Excess Contributions to Traditional IRAs
- 8.8 Taxable Distributions From Traditional IRAs
- 8.9 Partially Tax-Free Traditional IRA Distributions Allocable to Nondeductible Contributions
- 8.10 Tax-Free Rollovers and Direct Transfers to Traditional IRAs
- 8.11 Transfer of Traditional IRA to Spouse at Divorce
- 8.12 Penalty for Traditional IRA Withdrawals Before Age 59½
- 8.13 Mandatory Distributions From a Traditional IRA After Age 70½
- 8.14 Inherited Traditional IRAs
- 8.15 SEP Basics
- 8.16 Salary-Reduction SEP Set Up Before 1997
- 8.17 Who Is Eligible for a SIMPLE IRA?
- 8.18 SIMPLE IRA Contributions and Distributions
- 8.19 Roth IRA Advantages
- 8.20 Annual Contributions to a Roth IRA
- 8.21 Converting a Traditional IRA to a Roth IRA
- 8.22 Recharacterizations and Reconversions
- 8.23 Distributions From a Roth IRA
- 8.24 Distributions to Roth IRA Beneficiaries
- Chapter 9: Income From Real Estate Rentals and Royalties
- 9.1 Reporting Rental Real Estate Income and Expenses
- 9.2 Checklist of Rental Deductions
- 9.3 Distinguishing Between a Repair and an Improvement
- 9.4 Reporting Rents From a Multi-Unit Residence
- 9.5 Depreciation on Converting a Home to Rental Property
- 9.6 Renting a Residence to a Relative
- 9.7 Personal Use and Rental of a Residence During the Year
- 9.8 Counting Personal-Use Days and Rental Days for a Residence
- 9.9 Allocating Expenses of a Residence to Rental Days
- 9.10 Rentals Lacking Profit Motive
- 9.11 Reporting Royalty Income
- 9.12 Production Costs of Books and Creative Properties
- 9.13 Deducting the Cost of Patents or Copyrights
- 9.14 Intangible Drilling Costs
- 9.15 Depletion Deduction
- 9.16 Oil and Gas Percentage Depletion
- Chapter 10: Loss Restrictions: Passive Activities and At-Risk Limits
- 10.1 Rental Activities
- 10.2 Rental Real Estate Loss Allowance of up to $25,000
- 10.3 Real Estate Professionals
- 10.4 Participation May Avoid Passive Loss Restrictions
- 10.5 Classifying Business Activities as One or Several
- 10.6 Material Participation Tests for Business
- 10.7 Tax Credits of Passive Activities Limited
- 10.8 Determining Passive or Nonpassive Income and Loss
- 10.9 Passive Income Recharacterized as Nonpassive Income
- 10.10 Working Interests in Oil and Gas Wells
- 10.11 Partners and Members of LLCs and LLPs
- 10.12 Form 8582
- 10.13 Suspended Losses Allowed on Disposition of Your Interest
- 10.14 Suspended Tax Credits
- 10.15 Personal Service and Closely Held Corporations
- 10.16 Sales of Property and of Passive Activity Interests
- 10.17 At-Risk Limits
- 10.18 What Is At Risk?
- 10.19 Amounts Not At Risk
- 10.20 At-Risk Investment in Several Activities
- 10.21 Carryover of Disallowed Losses
- 10.22 Recapture of Losses Where At Risk Is Less Than Zero
- Chapter 11: Other Income
- 11.1 Prizes and Awards
- 11.2 Lottery and Sweepstake Winnings
- 11.3 Gambling Winnings and Losses
- 11.4 Gifts and Inheritances
- 11.5 Refunds of State and Local Income Tax Deductions
- 11.6 Other Recovered Deductions
- 11.7 How Legal Damages Are Taxed
- 11.8 Cancellation of Debts You Owe
- 11.9 Schedule K-1
- 11.10 How Partners Report Partnership Profit and Loss
- 11.11 When a Partner Reports Income or Loss
- 11.12 Partnership Loss Limitations
- 11.13 Unified Tax Audits of Partnerships
- 11.14 Stockholder Reporting of S Corporation Income and Loss
- 11.15 How Beneficiaries Report Estate or Trust Income
- 11.16 Reporting Income in Respect of a Decedent (IRD)
- 11.17 Deduction for Estate Tax Attributable to IRD
- 11.18 How Life Insurance Proceeds Are Taxed to a Beneficiary
- 11.19 A Policy With a Family Income Rider
- 11.20 Selling or Surrendering Life Insurance Policy
- 11.21 Jury Duty Fees
- 11.22 Foster Care Payments
- Chapter 2: Wages, Salary, and Other Compensation
- Part 3: Claiming Deductions
- Chapter 12: Deductions Allowed in Figuring Adjusted Gross Income
- 12.1 Figuring Adjusted Gross Income (AGI)
- 12.2 Claiming Deductions From Gross Income
- 12.3 What Moving Costs Are Deductible?
- 12.4 The Distance Test
- 12.5 The 39-Week Test for Employees
- 12.6 The 78-Week Test for the Self-Employed and Partners
- 12.7 Claiming Deductible Moving Expenses
- 12.8 Reimbursements of Moving Expenses
- Chapter 13: Claiming the Standard Deduction or Itemized Deductions
- Chapter 14: Charitable Contribution Deductions
- 14.1 Deductible Contributions
- 14.2 Nondeductible Contributions
- 14.3 Contributions That Provide You With Benefits
- 14.4 Unreimbursed Expenses of Volunteer Workers
- 14.5 Support of a Student in Your Home
- 14.6 What Kind of Property Are You Donating?
- 14.7 Cars, Clothing, and Other Property Valued Below Cost
- 14.8 Bargain Sales of Appreciated Property
- 14.9 Art Objects
- 14.10 Interests in Real Estate
- 14.11 Life Insurance
- 14.12 Business Inventory
- 14.13 Donations Through Trusts
- 14.14 Records Needed To Substantiate Your Contributions
- 14.15 Form 8283 and Written Appraisal Requirements for Property Donations
- 14.16 Penalty for Substantial Overvaluation of Property
- 14.17 Ceiling on Charitable Contributions
- 14.18 Carryover for Excess Donations
- 14.19 Election To Reduce Fair Market Value by Appreciation
- Chapter 15: Itemized Deduction for Interest Expenses
- 15.1 Home Mortgage Interest
- 15.2 Home Acquisition Loans
- 15.3 Home Equity Loans
- 15.4 Home Construction Loans
- 15.5 Home Improvement Loans
- 15.6 Mortgage Insurance Premiums and Other Payment Rules
- 15.7 Interest on Refinanced Loans
- 15.8 “Points”
- 15.9 Cooperative and Condominium Apartments
- 15.10 Investment Interest Limitations
- 15.11 Debts To Carry Tax-Exempt Obligations
- 15.12 Earmarking Use of Loan Proceeds For Investment or Business
- 15.13 Year To Claim an Interest Deduction
- 15.14 Prepaid Interest
- Chapter 16: Deductions for Taxes
- 16.1 Deductible Taxes
- 16.2 Nondeductible Taxes
- 16.3 State and Local Income Taxes or General Sales Taxes
- 16.4 Deducting Real Estate Taxes
- 16.5 Assessments
- 16.6 Tenants’ Payment of Taxes
- 16.7 Allocating Taxes When You Sell or Buy Realty
- 16.8 Automobile License Fees
- 16.9 Taxes Deductible as Business Expenses
- 16.10 Foreign Taxes
- Chapter 17: Medical and Dental Expense Deductions
- 17.1 Medical Expenses Must Exceed AGI Threshold
- 17.2 Allowable Medical Care Costs
- 17.3 Nondeductible Medical Expenses
- 17.4 Reimbursements Reduce Deductible Expenses
- 17.5 Premiums of Medical Care Policies
- 17.6 Expenses of Your Spouse
- 17.7 Expenses of Your Dependents
- 17.8 Decedent’s Medical Expenses
- 17.9 Travel Costs May Be Medical Deductions
- 17.10 Schooling for the Mentally or Physically Disabled
- 17.11 Nursing Homes
- 17.12 Nurses’ Wages
- 17.13 Home Improvements as Medical Expenses
- 17.14 Costs Deductible as Business Expenses
- 17.15 Long-Term Care Premiums and Services
- 17.16 Life Insurance Used by Chronically ill or Terminally ill Persons
- Chapter 18: Casualty and Theft Losses and Involuntary Conversions
- 18.1 Sudden Event Test for Casualty Losses
- 18.2 When To Deduct a Casualty Loss
- 18.3 Disaster Losses
- 18.4 Who May Deduct a Casualty Loss
- 18.5 Bank Deposit Losses
- 18.6 Damage to Trees and Shrubs
- 18.7 Deducting Damage to Your Car
- 18.8 Proving a Casualty Loss
- 18.9 Theft Losses
- 18.10 Proving a Theft Loss
- 18.11 Nondeductible Casualty and Theft Losses
- 18.12 Floors for Personal-Use Property Losses
- 18.13 Figuring Your Loss on Form 4684
- 18.14 Personal and Business Use of Property
- 18.15 Repairs May Be a “Measure of Loss”
- 18.16 Insurance Reimbursements
- 18.17 Excess Living Costs Paid by Insurance Are Not Taxable
- 18.18 Do Your Casualty or Theft Losses Exceed Your Income?
- 18.19 Defer Gain by Replacing Property
- 18.20 Involuntary Conversions Qualifying for Tax Deferral
- 18.21 How To Elect To Defer Tax
- 18.22 Time Period for Buying Replacement Property
- 18.23 Types of Qualifying Replacement Property
- 18.24 Cost of Replacement Property Determines Postponed Gain
- 18.25 Special Assessments and Severance Damages
- 18.26 Reporting Gains From Casualties
- Chapter 19: Deducting Job Costs and Other Miscellaneous Expenses
- 19.1 2% AGI Floor Reduces Most Miscellaneous Expenses
- 19.2 Effect of 2% AGI Floor on Deductions
- 19.3 Checklist of Job Expenses Subject to the 2% AGI Floor
- 19.4 Job Expenses Not Subject to the 2% AGI Floor
- 19.5 Dues and Subscriptions
- 19.6 Uniforms and Work Clothes
- 19.7 Expenses of Looking for a New Job
- 19.8 Local Transportation Costs
- 19.9 Unusual Job Expenses
- 19.10 Computers Bought for Work
- 19.11 Cell Phones, Calculators, Copiers and Fax Machines
- 19.12 Small Tools
- 19.13 Employee Home Office Deductions
- 19.14 Telephone Costs
- 19.15 Checklist of Deductible Investment Expenses
- 19.16 Costs of Tax Return Preparation and Audits
- 19.17 Deducting Legal Costs
- 19.18 Contingent Fees Paid Out of Taxable Awards
- Chapter 20: Travel and Entertainment Expense Deductions
- 20.1 Deduction Guide for Travel and Transportation Expenses
- 20.2 Commuting Expenses
- 20.3 Overnight-Sleep Test Limits Deduction of Meal Costs
- 20.4 IRS Meal Allowance
- 20.5 Business Trip Deductions
- 20.6 Local Lodging Costs
- 20.7 When Are You Away From Home?
- 20.8 Fixing a Tax Home If You Work in Different Locations
- 20.9 Tax Home of Married Couple Working in Different Cities
- 20.10 Deducting Living Costs on Temporary Assignment
- 20.11 Business-Vacation Trips Within the United States
- 20.12 Business-Vacation Trips Outside the United States
- 20.13 Deducting Expenses of Business Conventions
- 20.14 Travel Expenses of a Spouse or Dependents
- 20.15 Restrictions on Foreign Conventions and Cruises
- 20.16 50% Deduction Limit
- 20.17 The Restrictive Tests for Meals and Entertainment
- 20.18 Directly Related Dining and Entertainment
- 20.19 Goodwill Entertainment
- 20.20 Home Entertaining
- 20.21 Your Personal Share of Entertainment Costs
- 20.22 Entertainment Costs of Spouses
- 20.23 Entertainment Facilities and Club Dues
- 20.24 Restrictive Test Exception for Reimbursements
- 20.25 50% Cost Limitation on Meals and Entertainment
- 20.26 Business Gift Deductions Are Limited
- 20.27 Record-Keeping Requirements
- 20.28 Proving Travel and Entertainment Expenses
- 20.29 Reporting T&E Expenses If You Are Self-Employed
- 20.30 Employee Reporting of Unreimbursed T&E Expenses
- 20.31 Tax Treatment of Reimbursements
- 20.32 What Is an Accountable Plan?
- 20.33 Per Diem Travel Allowance Under Accountable Plans
- 20.34 Automobile Mileage Allowance
- 20.35 Reimbursements Under Non-Accountable Plans
- Chapter 21: Personal Exemptions
- 21.1 How Many Exemptions May You Claim?
- 21.2 Your Spouse as an Exemption
- 21.3 Qualifying Children
- 21.4 Qualifying Relatives
- 21.5 Meeting the Support Test for a Qualifying Relative
- 21.6 Multiple Support Agreements
- 21.7 Special Rule for Divorced or Separated Parents
- 21.8 The Dependent Must Meet a Citizen or Resident Test
- 21.9 The Dependent Does Not File a Joint Return
- 21.10 Spouses’ Names and Social Security Numbers on Joint Return
- 21.11 Reporting Social Security Numbers of Dependents
- 21.12 Personal Exemptions Not Subject to Phaseout for 2012
- Chapter 12: Deductions Allowed in Figuring Adjusted Gross Income
- Part 4: Personal Tax Computations
- Chapter 22: Figuring Your Regular Income Tax Liability
- Chapter 23: Alternative Minimum Tax (AMT)
- Chapter 24: Computing the “Kiddie Tax” on Your Child’s Investment Income
- Chapter 25: Personal Tax Credits Reduce Your Tax Liability
- 25.1 Overview of Personal Tax Credits
- 25.2 Child Tax Credit for Children Under Age 17
- 25.3 Figuring the Child Tax Credit
- 25.4 Qualifying for Child and Dependent Care Credit
- 25.5 Limits on the Dependent Care Credit
- 25.6 Earned Income Test for Dependent Care Credit
- 25.7 Credit Allowed for Care of Qualifying Persons
- 25.8 Expenses Qualifying for the Dependent Care Credit
- 25.9 Dependent Care Credit Rules for Separated Couples
- 25.10 Qualifying Tests for EIC
- 25.11 Income Tests for Earned Income Credit (EIC)
- 25.12 Look up EIC in Government Tables
- 25.13 Qualifying for the Adoption Credit
- 25.14 Claiming the Adoption Credit on Form 8839
- 25.15 Eligibility for the Saver’s Credit
- 25.16 Figuring the Saver’s Credit
- 25.17 Health Coverage Credit
- 25.18 Mortgage Interest Credit
- 25.19 Residential Energy Credits
- 25.20 Credits for Fuel Cell Vehicles and Plug-in Electric Vehicles
- 25.21 Repayment of the First-Time Homebuyer Credit
- Chapter 26: Tax Withholdings
- 26.1 Withholdings Should Cover Estimated Tax
- 26.2 Income Taxes Withheld on Wages
- 26.3 Low Earners May Be Exempt From Withholding
- 26.4 Are You Withholding the Right Amount?
- 26.5 Voluntary Withholding on Government Payments
- 26.6 When Tips Are Subject to Withholding
- 26.7 Withholding on Gambling Winnings
- 26.8 FICA Withholdings
- 26.9 Withholding on Retirement Distributions
- 26.10 Backup Withholding
- Chapter 27: Estimated Tax Payments
- Part 5: Tax Planning
- Chapter 28: Tax Planning Overview
- Chapter 29: Tax Savings for Residence Sales
- 29.1 Avoiding Tax on Sale of Principal Residence
- 29.2 Meeting the Ownership and Use Tests
- 29.3 Home Sales by Married Persons
- 29.4 Reduced Maximum Exclusion
- 29.5 Figuring Gain or Loss
- 29.6 Figuring Adjusted Basis
- 29.7 Personal and Business Use of a Home
- 29.8 No Loss Allowed on Personal Residence
- 29.9 Loss on Residence Converted to Rental Property
- 29.10 Loss on Residence Acquired by Gift or Inheritance
- Chapter 30: Tax Rules for Investors in Securities
- 30.1 Planning Year-End Securities Transactions
- 30.2 Earmarking Stock Lots
- 30.3 Sale of Stock Dividends
- 30.4 Stock Rights
- 30.5 Short Sales of Stock
- 30.6 Wash Sales
- 30.7 Convertible Stocks and Bonds
- 30.8 Constructive Sales of Appreciated Financial Positions
- 30.9 Straddle Losses
- 30.10 Capital Gain Restricted on Conversion Transactions
- 30.11 Puts and Calls and Index Options
- 30.12 Investing in Tax-Exempts
- 30.13 Ordinary Loss for Small Business Stock (Section 1244)
- 30.14 Series EE Bonds
- 30.15 I Bonds
- 30.16 Trader, Dealer, or Investor?
- 30.17 Mark-to-Market Election for Traders
- Chapter 31: Tax Savings for Investors in Real Estate
- 31.1 Real Estate Ventures
- 31.2 Sales of Subdivided Land—Dealer or Investor?
- 31.3 Exchanging Real Estate Without Tax
- 31.4 Timing Your Real Property Sales
- 31.5 Cancellation of a Lease
- 31.6 Sale of an Option
- 31.7 Granting of an Easement
- 31.8 Special Tax Credits for Real Estate Investments
- 31.9 Foreclosures, Repossessions, Short Sales, and Voluntary Conveyances to Creditors
- 31.10 Restructuring Mortgage Debt
- 31.11 Abandonments
- 31.12 Seller’s Repossession After Buyer’s Default on Mortgage
- 31.13 Foreclosure on Mortgages Other Than Purchase Money
- 31.14 Foreclosure Sale to Third Party
- 31.15 Transferring Mortgaged Realty
- Chapter 32: Tax Rules for Investors in Mutual Funds
- 32.1 Timing of Your Investment Can Affect Your Taxes
- 32.2 Reinvestment Plans
- 32.3 Mutual-Fund Distributions Reported on Form 1099-DIV
- 32.4 Tax-Exempt Bond Funds
- 32.5 Fund Expenses
- 32.6 Tax Credits From Mutual Funds
- 32.7 How To Report Mutual Fund Distributions
- 32.8 Redemptions and Exchanges of Fund Shares
- 32.9 Basis of Redeemed Shares
- 32.10 Comparison of Basis Methods
- Chapter 33: Educational Tax Benefits
- 33.1 Scholarships and Grants
- 33.2 Tuition Reductions for College Employees
- 33.3 How Fulbright Awards Are Taxed
- 33.4 United States Savings Bond Tuition Plans
- 33.5 Contributing to a Qualified Tuition Program (Section 529 Plan)
- 33.6 Distributions From Qualified Tuition Programs (Section 529 Plans)
- 33.7 Education Tax Credits
- 33.8 American Opportunity Credit
- 33.9 Lifetime Learning Credit
- 33.10 Contributing to a Coverdell Education Savings Account (ESA)
- 33.11 Distributions From Coverdell ESAs
- 33.12 Tuition and Fees Deduction
- 33.13 Student Loan Interest Deduction
- 33.14 Types of Deductible Work-Related Costs
- 33.15 Work-Related Tests for Education Costs
- 33.16 Local Transportation and Travel Away From Home To Take Courses
- Chapter 34: Special Tax Rules for Senior Citizens
- 34.1 Senior Citizens Get Certain Filing Breaks
- 34.2 Social Security Benefits Subject to Tax
- 34.3 Computing Taxable Social Security Benefits
- 34.4 Election for Lump-Sum Social Security Benefit Payment
- 34.5 Retiring on Social Security Benefits
- 34.6 How Tax on Social Security Reduces Your Earnings
- 34.7 Claiming the Credit for the Elderly and Disabled
- 34.8 Base Amount for the Elderly or Disabled Credit
- 34.9 Reduction of the Base Amount and Liability Limitation for the Credit
- 34.10 Tax Effects of Moving to a Continuing Care Facility
- 34.11 Medicare Part B and Part D Premiums for 2013
- Chapter 35: Members of the Armed Forces
- 35.1 Taxable Armed Forces Pay and Benefits
- 35.2 Tax-Free Armed Forces Benefits
- 35.3 Deductions for Armed Forces Personnel
- 35.4 Tax-Free Pay for Service in Combat Zone
- 35.5 Tax Deadlines Extended for Combat Zone or Contingency Operation Service
- 35.6 Tax Forgiveness for Combat Zone or Terrorist or Military Action Deaths
- 35.7 Extension To Pay Your Tax When Entering the Service
- 35.8 Tax Information for Reservists
- Chapter 36: How To Treat Foreign Earned Income
- 36.1 Claiming the Foreign Earned Income Exclusion
- 36.2 What Is Foreign Earned Income?
- 36.3 Qualifying for the Foreign Earned Income Exclusion
- 36.4 How To Treat Housing Costs
- 36.5 Meeting the Foreign Residence or Physical Presence Test
- 36.6 Claiming Deductions
- 36.7 Exclusion Not Established When Your Return Is Due
- 36.8 Tax-Free Meals and Lodging for Workers in Camps
- 36.9 Virgin Islands, Samoa, Guam, and Northern Marianas
- 36.10 Earnings in Puerto Rico
- 36.11 Tax Treaties With Foreign Countries
- 36.12 Exchange Rates and Blocked Currency
- 36.13 Foreign Tax Credit
- Chapter 37: Planning Alimony and Marital Settlements
- 37.1 Planning Alimony Agreements
- 37.2 Decree or Agreement Required
- 37.3 Cash Payments Required
- 37.4 Payments Must Stop at Death
- 37.5 Child Support Payments Are Not Alimony
- 37.6 No Minimum Payment Period for Alimony
- 37.7 3rd Year Recapture If Alimony Drops by More Than $15,000
- 37.8 Legal Fees of Marital Settlements
- Chapter 38: Household Employment Taxes (“Nanny Tax”)
- Chapter 39: Gift and Estate Tax Planning Basics
- 39.1 Gifts of Appreciated Property
- 39.2 Gift Tax Basics
- 39.3 Filing a Gift Tax Return
- 39.4 Gift Tax Credit
- 39.5 Custodial Accounts for Minors
- 39.6 Trusts in Family Planning
- 39.7 What is the Estate Tax?
- 39.8 Take Inventory and Estimate the Value of Your Potential Estate
- 39.9 Estate Tax for 2012
- 39.10 Planning for a Potential Estate Tax
- Part 6: Business Tax Planning
- Chapter 40: Income or Loss From Your Business or Profession
- 40.1 Forms of Doing Business
- 40.2 Reporting Self-Employed Income
- 40.3 Accounting Methods for Reporting Business Income
- 40.4 Tax Reporting Year for Self-Employed
- 40.5 Reporting Certain Payments and Receipts to the IRS
- 40.6 Filing Schedule C
- 40.7 Deductions for Professionals
- 40.8 Nondeductible Expense Items
- 40.9 How Authors and Artists May Write Off Expenses
- 40.10 Deducting Expenses of a Sideline Business or Hobby
- 40.11 Deducting Expenses of Looking for a New Business
- 40.12 Home Office Deduction
- 40.13 What Home Office Expenses Are Deductible?
- 40.14 Allocating Expenses to Business Use
- 40.15 Business Income May Limit Home Office Deductions
- 40.16 Home Office for Sideline Business
- 40.17 Depreciation of Office in Cooperative Apartment
- 40.18 Net Operating Losses (NOLs)
- 40.19 Your Net Operating Loss
- 40.20 How To Report a Net Operating Loss
- 40.21 How To Carry Back Your Net Operating Loss
- 40.22 Election To Carry Forward Losses
- 40.23 Overview of the Domestic Production Activities Deduction
- 40.24 Qualified Production Activities
- 40.25 Figuring the Deduction
- 40.26 Business Credits
- 40.27 Filing Schedule F
- 40.28 Farming Expenses
- Chapter 41: Retirement and Medical Plans for Self-Employed
- 41.1 Overview of Retirement and Medical Plans
- 41.2 Choosing a Keogh Plan
- 41.3 Choosing a SEP
- 41.4 Deductible Keogh or SEP Contributions
- 41.5 How To Claim the Keogh or SEP Deduction
- 41.6 How To Qualify a Keogh Plan or SEP Plan
- 41.7 Annual Keogh Plan Return
- 41.8 How Keogh Plan Distributions Are Taxed
- 41.9 SIMPLE IRA Plans
- 41.10 Health Savings Account (HSA) Basics
- 41.11 Limits on Deductible HSA Contributions
- 41.12 Distributions From HSAs
- 41.13 Archer MSAs
- 41.14 Small Business Health Tax Credit
- Chapter 42: Claiming Depreciation Deductions
- 42.1 What Property May Be Depreciated?
- 42.2 Claiming Depreciation on Your Tax Return
- 42.3 First-Year Expensing Deduction
- 42.4 MACRS Recovery Periods
- 42.5 MACRS Rates
- 42.6 Half-Year Convention for MACRS
- 42.7 Last Quarter Placements—Mid-Quarter Convention
- 42.8 150% Rate Election
- 42.9 Straight-Line Depreciation
- 42.10 Computers and Other Listed Property
- 42.11 Assets in Service Before 1987
- 42.12 MACRS for Real Estate Placed in Service After 1986
- 42.13 Demolishing a Building
- 42.14 Leasehold Improvements
- 42.15 Depreciating Real Estate Placed in Service After 1980 and Before 1987
- 42.16 When MACRS Is Not Allowed
- 42.17 Amortizing Goodwill and Other Intangibles (Section 197)
- 42.18 Deducting the Cost of Computer Software
- 42.19 Amortizing Song Rights
- 42.20 Bonus Depreciation
- Chapter 43: Deducting Car and Truck Expenses
- 43.1 Standard Mileage Rate
- 43.2 Expense Allocations
- 43.3 Depreciation Restrictions on Cars, Trucks, and Vans
- 43.4 Annual Ceilings on Depreciation
- 43.5 MACRS Rates for Cars, Trucks, and Vans
- 43.6 Straight-Line Method
- 43.7 Depreciation for Year Vehicle Is Disposed Of
- 43.8 Depreciation After Recovery Period Ends
- 43.9 Trade-in of Business Vehicle
- 43.10 Recapture of Deductions on Business Car, Truck, or Van
- 43.11 Keeping Records of Business Use
- 43.12 Leased Business Vehicles: Deductions and Income
- Chapter 44: Sales of Business Property
- 44.1 Depreciation Recaptured as Ordinary Income on Sale of Personal Property
- 44.2 Depreciation Recaptured as Ordinary Income on Sale of Real Estate
- 44.3 Recapture of First-Year Expensing
- 44.4 Gifts and Inheritances of Depreciable Property
- 44.5 Involuntary Conversions and Tax-Free Exchanges
- 44.6 Installment Sale of Depreciable Property
- 44.7 Sale of a Proprietorship
- 44.8 Property Used in a Business (Section 1231 Assets)
- 44.9 Sale of Property Used for Business and Personal Purposes
- 44.10 Should You Trade in Business Equipment?
- 44.11 Corporate Liquidation
- Chapter 45: Figuring Self-Employment Tax
- Chapter 40: Income or Loss From Your Business or Profession
- Part 7: Filing Your Return and What Happens After You File
- Chapter 46: Filing Your Return
- Chapter 47: Filing Refund Claims, and Amended Returns
- Chapter 48: If the IRS Examines Your Return
- 48.1 Odds of Being Audited
- 48.2 When the IRS Can Assess Additional Taxes
- 48.3 Audit Overview
- 48.4 Preparing for the Audit
- 48.5 Handling the Audit
- 48.6 Tax Penalties for Inaccurate Returns
- 48.7 Penalties for Not Reporting Foreign Financial Accounts
- 48.8 Agreeing to the Audit Changes
- 48.9 Disputing the Audit Changes
- 48.10 Offer in Compromise
- 48.11 Recovering Costs of a Tax Dispute
- 48.12 Suing the IRS for Unauthorized Collection
- Glossary
- Index
9.6 Renting a Residence to a Relative
The tax law distinguishes between a rental of a unit used by a close relative as a principal residence and a rental of a unit that is not the relative’s principal residence, such as a second home or vacation home. It is easier to deduct a rental loss on the principal residence rental.
On a fair market rental of a unit used by the close relative as a principal residence, your relative’s use is not considered personal use by you that could bar a loss under the personal-use test (9.7). A relative’s use of the unit as a second or vacation home is attributed to you in applying the personal-use test (9.7), even if you receive a fair market value rent.
Close relatives who come within these rules are: brothers and sisters, half-brothers and half-sisters, spouses, parents, grandparents, children, and grandchildren.
Fair market rental is the amount a person who is not related to you would be willing to pay. The most direct way to determine fair market rental is to ask a real estate agent in your neighborhood for comparative rentals.
EXAMPLE
Barranti inherited a residence from her grandmother. The house was in a state of disrepair. A real estate agent estimated the fair market rental rate for the house to be between $700 and $750 per month. Barranti rented the house to her brother for $500 a month while he repaired the structure. After a year, he moved out and Barranti sold the house and claimed a rental loss and a loss on the sale. The Tax Court disallowed both losses. The below-market rental to Barranti’s brother was treated as her own personal use of the house, preventing the rental loss deduction. The below-market rental was also treated as evidence that Barranti held the property for personal purposes and therefore she could not deduct the loss on the sale either.
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