28.03.2015 Views

2004 Instructions for Form 1040 (ALL) - Supreme Law Firm

2004 Instructions for Form 1040 (ALL) - Supreme Law Firm

2004 Instructions for Form 1040 (ALL) - Supreme Law Firm

SHOW MORE
SHOW LESS

Create successful ePaper yourself

Turn your PDF publications into a flip-book with our unique Google optimized e-Paper software.

Department of the Treasury<br />

Internal Revenue Service<br />

<strong>2004</strong> <strong>Instructions</strong> <strong>for</strong> Schedule E (<strong>Form</strong> <strong>1040</strong>)<br />

Use Schedule E (<strong>Form</strong> <strong>1040</strong>) to report income or loss from rental real estate, royalties,<br />

Supplemental partnerships, S corporations, estates, trusts, and residual interests in REMICs.<br />

You can attach your own schedule(s) to report income or loss from any of these sources.<br />

Income and<br />

Use the same <strong>for</strong>mat as on Schedule E.<br />

Enter separately on Schedule E the total income and the total loss <strong>for</strong> each part. Enclose<br />

loss figures in (parentheses).<br />

Loss<br />

Section references are to the Internal Revenue Code.<br />

Qualified nonrecourse financing is financing<br />

<strong>for</strong> which no one is personally liable <strong>for</strong><br />

it is a trade or business activity, and if so,<br />

whether you materially participated in the<br />

General <strong>Instructions</strong><br />

repayment and is: activity <strong>for</strong> the tax year.<br />

At-Risk Rules • Borrowed by you in connection with See the <strong>Instructions</strong> <strong>for</strong> <strong>Form</strong> 8582 to<br />

Generally, you must complete <strong>Form</strong> 6198 holding real property,<br />

determine whether you materially particito<br />

figure your allowable loss if you have: • Not convertible from a debt obligation pated in the activity and <strong>for</strong> the definition<br />

• A loss from an activity carried on as a to an ownership interest, and<br />

of “rental activity.”<br />

trade or business or <strong>for</strong> the production of • Loaned or guaranteed by any federal,<br />

See Pub. 925 <strong>for</strong> special rules that apply<br />

income, and<br />

state, or local government, or borrowed by<br />

to rentals of:<br />

• Amounts in the activity <strong>for</strong> which you you from a qualified person.<br />

• Substantially nondepreciable propare<br />

not at risk. Qualified person. A qualified person is a erty,<br />

The at-risk rules generally limit the person who actively and regularly engages • Property incidental to development<br />

amount of loss (including loss on the dispo- in the business of lending money, such as a activities, and<br />

sition of assets) you can claim to the bank or savings and loan association. A<br />

qualified person cannot be:<br />

• Property to activities in which you<br />

amount you could actually lose in the activ-<br />

materially participate.<br />

ity. However, the at-risk rules do not apply • Related to you (unless the nonre-<br />

to losses from an activity of holding real course financing obtained is commercially Activities That Are Not Passive<br />

property, if you acquired your interest in reasonable and on the same terms as loans Activities<br />

the activity be<strong>for</strong>e 1987 and the property involving unrelated persons),<br />

Activities of real estate professionals. If<br />

was placed in service be<strong>for</strong>e 1987. The ac- • The seller of the property (or a person you were a real estate professional in <strong>2004</strong>,<br />

tivity of holding mineral property does not related to the seller), or any rental real estate activity in which you<br />

qualify <strong>for</strong> this exception. • A person who receives a fee due to materially participated is not a passive acyour<br />

investment in real property (or a per- tivity. You were a real estate professional<br />

In most cases, you are not at risk <strong>for</strong><br />

amounts such as the following.<br />

son related to that person).<br />

only if you met both of the following con-<br />

• Nonrecourse loans used to finance the<br />

ditions.<br />

activity, to acquire property used in the ac-<br />

Passive Activity Loss Rules<br />

1. More than half of the personal servtivity,<br />

or to acquire your interest in the ac- The passive activity loss rules may limit the ices you per<strong>for</strong>med in trades or businesses<br />

tivity that are not secured by your own amount of losses you can deduct. These were per<strong>for</strong>med in real property trades or<br />

property (other than property used in the rules apply to losses in Parts I, II, and III, businesses in which you materially particiand<br />

line 40 of Schedule E.<br />

pated.<br />

activity). However, there is an exception<br />

<strong>for</strong> certain nonrecourse financing borrowed Losses from passive activities may be 2. You per<strong>for</strong>med more than 750 hours<br />

by you in connection with holding real subject first to the at-risk rules. Losses de- of services in real property trades or busiproperty.<br />

See Qualified nonrecourse fi- ductible under the at-risk rules are then nesses in which you materially particinancing<br />

below. subject to the passive activity loss rules. pated.<br />

• Cash, property, or borrowed amounts<br />

used in the activity (or contributed to the<br />

You generally can deduct losses from<br />

passive activities only to the extent of inactivity,<br />

or used to acquire your interest in<br />

For purposes of this rule, each interest in<br />

come from passive activities. An exception rental real estate is a separate activity, un-<br />

the activity) that are protected against loss<br />

applies to certain rental real estate activities less you elect to treat all your interests in<br />

by a guarantee, stop-loss agreement, or<br />

(explained on page E-2).<br />

rental real estate as one activity. To make<br />

other similar arrangement (excluding casu-<br />

this election, attach a statement to your<br />

alty insurance and insurance against tort Passive Activity original tax return that declares you are a<br />

liability).<br />

A passive activity is any business activity qualifying taxpayer <strong>for</strong> the year and you are<br />

• Amounts borrowed <strong>for</strong> use in the ac- in which you did not materially participate making the election under section<br />

tivity from a person who has an interest in and any rental activity, except as explained 469(c)(7)(A). The election applies <strong>for</strong> the<br />

the activity (other than as a creditor) or who on this page and page E-2. If you are a year made and all later years in which you<br />

is related, under section 465(b)(3), to a per- limited partner, you generally are not are a real estate professional. You can re-<br />

son (other than you) having such an inter- treated as having materially participated in voke the election only if your facts and<br />

est.<br />

the partnership’s activities <strong>for</strong> the year. circumstances materially change.<br />

Qualified nonrecourse financing. Quali- The rental of real or personal property is If you are married filing jointly, either<br />

fied nonrecourse financing is treated as an generally a rental activity under the passive you or your spouse must separately meet<br />

amount at risk if it is secured by real prop- activity loss rules, but exceptions apply. If both of the above conditions, without takerty<br />

used in an activity of holding real prop- your rental of property is not treated as a ing into account services per<strong>for</strong>med by the<br />

erty that is subject to the at-risk rules. rental activity, you must determine whether other spouse.<br />

E-1<br />

Cat. No. 24332T

Hooray! Your file is uploaded and ready to be published.

Saved successfully!

Ooh no, something went wrong!