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

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A real property trade or business is any significant and bona fide sense. Such man- • Any transaction resulting in a tax real property development, redevelopment, agement decisions include: credit of more than $250,000, if you held construction, reconstruction, acquisition, • Approving new tenants, the asset generating the credit for 45 days conversion, rental, operation, management, or less. • Deciding on rental terms, leasing, or brokerage trade or business. • Approving capital or repair expendi- See the Instructions for Form 8886 for Services you performed as an employee are tures, and more details and exceptions. not treated as performed in a real property trade or business unless you owned more • Other similar decisions. Tax Shelter Registration than 5% of the stock (or more than 5% of You are not considered to actively parthe capital or profits interest) in the em- Number ticipate if, at any time during the tax year, ployer. your interest (including your spouse’s inclaiming or reporting any income, deduc- Complete and attach Form 8271 if you are terest) in the activity was less than 10% by If you were a real estate professional for value of all interests in the activity. tion, loss, credit, or other tax benefit, from 2004, complete line 43 on page 2 of Schedan interest purchased or otherwise acquired ule E. Modified adjusted gross income. This is in a tax shelter required to be registered Other activities. The rental of your home your adjusted gross income from Form with the IRS. that you also used for personal purposes is 1040, line 36, without taking into account: Form 8271 is used to report the name, not a passive activity. See the instructions • Any passive activity loss, tax shelter registration number, and identifor line 2 on page E-3. • Rental real estate losses allowed fying number of the tax shelter. There is a A working interest in an oil or gas well under the exception for real estate profes- $250 penalty if you do not report the regis- that you held directly or through an entity sionals (explained on page E-1), tration number of the tax shelter on your tax that did not limit your liability is not a • Taxable social security or tier 1 railpassive activity even if you did not materi- road retirement benefits, return. ally participate. • Deductible contributions to a traditional IRA or certain other qualified retire- Royalty income not derived in the ordinary course of a trade or business reported ment plans under section 219, on Schedule E generally is not considered • The student loan interest deduction, Specific Instructions income from a passive activity. • The tuition and fees deduction, Filers of Form 1041 For more details on passive activities, • The deduction for one-half of self-emsee the Instructions for Form 8582 and Pub. ployment tax, and 925. • Any excluded amounts under an Exception for Certain Rental Real employer’s adoption assistance program. Estate Activities However, if you file Form 8815, include If you meet all three of the following condisavings bond interest excluded on line 14 in your modified adjusted gross income the tions, your rental real estate losses are not limited by the passive activity loss rules. If of that form. you do not meet all three of these conditions, see the Instructions for Form 8582 to Reportable Transaction find out if you must complete and attach Disclosure Statement If you are a fiduciary filing Schedule E with Form 1041, enter the estate’s or trust’s employer identification number (EIN) in the space for “Your social security number.” Part I Income or Loss From Form 8582 to figure any losses allowed. Use Form 8886 to disclose information for Rental Real Estate and 1. Rental real estate activities are your each reportable transaction in which you only passive activities. participated. Form 8886 must be filed for Royalties 2. You do not have any prior year unalliability is affected by your participation in • Income and expenses from rental real each tax year that your federal income tax Use Part I to report: lowed losses from any passive activities. the transaction. You may have to pay a 3. All of the following apply if you have estate (including personal property leased penalty if you are required to file Form an overall net loss from these activities: with real estate), and 8886 but do not do so. The following are reportable transactions. • Royalty income and expenses. a. You actively participated (defined below) in all of the rental real estate activities; • Any transaction that is the same as or See the instructions for lines 3 and 4 to b. If married filing separately, you lived substantially similar to tax avoidance trans- determine if you should report your rental apart from your spouse all year; actions identified by the IRS. real estate and royalty income on Schedule • Any transaction offered under condic. Your overall net loss from these ac- C, Schedule C-EZ, or Form 4835 instead of tions of confidentiality for which you paid Schedule E. tivities is $25,000 or less ($12,500 or less if married filing separately); an advisor a minimum fee. If you own a part interest in a rental real • Any transaction for which you have estate property, report only your part of the d. You have no current or prior year contractual protection against disallowance income and expenses on Schedule E. unallowed credits from passive activities; and of the tax benefits. Complete lines 1 and 2 for each rental e. Your modified adjusted gross income • Any transaction resulting in a loss of real estate property. Leave these lines blank (defined later) is $100,000 or less ($50,000 at least $2 million in any single tax year or for each royalty property. or less if married filing separately). $4 million in any combination of tax years. If you have more than three rental real (At least $50,000 for a single tax year if the estate or royalty properties, complete and Active participation. You can meet the ac- loss arose from a foreign currency transac- attach as many Schedules E as you need to tive participation requirement without reg- tion defined in section 988(c)(1), whether list them. But fill in the “Totals” column on ular, continuous, and substantial or not the loss flows through from an S only one Schedule E. The figures in the involvement in real estate activities. But corporation or partnership.) “Totals” column on that Schedule E should you must have participated in making man- • Any transaction resulting in a be the combined totals of all your Schedagement decisions or arranging for others book-tax difference of more than $10 mil- ules E. If you are also using page 2 of to provide services (such as repairs) in a lion on a gross basis. Schedule E, use the same Schedule E on E-2
which you entered the combined totals for • Any days you used the unit as your If you were in the real estate sales busi- Part I. main home before or after renting it or of- ness, include on line 3 only the rent refering it for rent, if you rented or tried to ceived from real estate (including personal Personal property. Do not use Schedule E rent it for at least 12 consecutive months (or property leased with real estate) you held to report income and expenses from the for a period of less than 12 consecutive for investment or speculation. Do not use rental of personal property, such as equip- months at the end of which you sold or Schedule E to report income and expenses ment or vehicles. Instead, use Schedule C exchanged it). from rentals of real estate held for sale to or C-EZ if you are in the business of renting Check “Yes” if you or your family used customers in the ordinary course of your personal property. You are in the business the unit for personal purposes in 2004 more real estate sales business. Instead, use of renting personal property if the primary than the greater of: Schedule C or C-EZ for these rentals. purpose for renting the property is income or profit and you are involved in the rental 1. 14 days, or For more details on rental income, use activity with continuity and regularity. TeleTax topic 414 (see page 8 of the Form 2. 10% of the total days it was rented to 1040 instructions) or see Pub. 527. If your rental of personal property is not others at a fair rental price. a business, see the Instructions for Form Rental income from farm production or 1040, lines 21 and 35, to find out how to Otherwise, check “No.” crop shares. Report farm rental income report the income and expenses. and expenses on Form 4835 if: If you checked “No,” you can deduct all your expenses for the rental part, subject to • You received rental income based on Extraterritorial income exclusion. Except the At-Risk Rules and the Passive Activity crops or livestock produced by the tenant, as otherwise provided in the Internal Reve- Loss Rules explained beginning on page and nue Code, gross income includes all in- E-1. • You did not manage or operate the come from whatever source derived. Gross farm to any great extent. income, however, does not include extraunit out for fewer than 15 days, do not If you checked “Yes” and rented the territorial income that is qualifying foreign trade income. Use Form 8873 to figure the report the rental income and do not deduct Line 4 extraterritorial income exclusion. Report it any rental expenses. If you itemize deduc- Report on line 4 royalties from oil, gas, or on Schedule E as explained in the Instrucable interest, taxes, and casualty losses. interests); copyrights; and patents. Use a tions on Schedule A, you can deduct allow- mineral properties (not including operating tions for Form 8873. If you checked “Yes” and rented the separate column (A, B, or C) for each roy- Line 1 unit out for at least 15 days, you may not be alty property. Be sure to enter the total of able to deduct all your rental expenses. You all your royalties in the “Totals” column For rental real estate property only, show can deduct all of the following expenses for even if you have only one source of royal- all of the following. the rental part on Schedule E. ties. • The kind of property you rented (for example, townhouse). • Mortgage interest. If you received $10 or more in royalties • Real estate taxes. during 2004, the payer should send you a • The street address, city or town, and Form 1099-MISC or similar statement by state. You do not have to give the ZIP code. • Casualty losses. January 31, 2005, showing the amount you • Your percentage of ownership in the • Other rental expenses not related to received. property, if less than 100%. your use of the unit as a home, such as advertising expenses and rental agents’ If you are in business as a self-employed fees. writer, inventor, artist, etc., report your roy- Line 2 alty income and expenses on Schedule C or If you rented out a dwelling unit that you If any income is left after deducting C-EZ. also used for personal purposes during the these expenses, you can deduct other expenses, including depreciation, up to the You may be able to treat amounts re- year, you may not be able to deduct all the amount of remaining income. You can ceived as “royalties” for the transfer of a expenses for the rental part. “Dwelling carry over to 2005 the amounts you cannot patent or amounts received on the disposal unit” (unit) means a house, apartment, conof coal and iron ore as the sale of a capital deduct. dominium, or similar property. asset. For details, see Pub. 544. A day of personal use is any day, or part See Pub. 527 for details. Enter on line 4 the gross amount of royof a day, that the unit was used by: alty income, even if state or local taxes • You for personal purposes; Line 3 were withheld from oil or gas payments • Any other person for personal purtate (including personal property leased producer on line 16. If you received rental income from real es- you received. Include taxes withheld by the poses, if that person owns part of the unit (unless rented to that person under a with real estate) and you were not in the “shared equity” financing agreement); real estate business, report the income on General Instructions for line 3. Include income received for renting • Anyone in your family (or in the fama room or other space. If you received servily of someone else who owns part of the Lines 5 Through 21 ices or property instead of money as rent, Enter your rental and royalty expenses for unit), unless the unit is rented at a fair rental report the fair market value of what you each property in the appropriate column. price to that person as his or her main received as rental income. You can deduct all ordinary and necessary home; expenses, such as taxes, interest, repairs, • Anyone who pays less than a fair Be sure to enter the total of all your rents insurance, management fees, agents’ comin the “Totals” column even if you have rental price for the unit; or missions, and depreciation. only one property. • Anyone under an agreement that lets If you provided significant services to Do not deduct the value of your own you use some other unit. the renter, such as maid service, report the labor or amounts paid for capital invest- Do not count as personal use: rental activity on Schedule C or C-EZ, not ments or capital improvements. • Any day you spent working substan- on Schedule E. Significant services do not Enter your total expenses for mortgage tially full time repairing and maintaining include the furnishing of heat and light, interest (line 12), total expenses before dethe unit, even if family members used it for cleaning of public areas, trash collection, or preciation expense or depletion (line 19), recreational purposes on that day, or similar services. and depreciation expenses or depletion E-3
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Note. This booklet does not contain
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What is IRS e-file? It’s the fast
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Tax Return Page Reference Questions
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Quick and Easy Access to Tax Help a
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Topic TeleTax Topics No. Subject No
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Before You Fill In Form 1040 See Ho
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Chart B—For Children and Other De
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Form Item and Box in Which it Shoul
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Line 2 December 31, 2004, you were
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Form 1040—Lines 7 and 8a less tha
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gross income was over $139,500 ($69
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Form 1040—Lines 16a and 16b Age (
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Form 1040—Lines 20a and 20b Socia
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Form 1040—Line 25 IRA Deduction W
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Form 1040—Lines 27 Through 29 for
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Line 35 Include in the total on lin
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Form 1040—Lines 41 and 43 Tax Tab
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Line 44 • Tax-exempt interest fro
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Line 51—Child Tax Credit What Is
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ured the credit. Check box c and en
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Lines 65a and 65b— Earned Income
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Form 1040—Lines 65a and 65b Conti
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Worksheet A—Earned Income Credit
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Form 1040—Lines 65a and 65b Works
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2004 Earned Income Credit (EIC) Tab
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2004 Earned Income Credit (EIC) Tab
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Page 55 and 56: number is 20202086. Do not include
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Page 61 and 62: 2004 Tax Table—Continued If line
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Page 127 and 128: Index to Instructions A Foreign Tax
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2004 Instructions for Form 1040 (ALL) - Supreme Law Firm

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