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

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(line 20) in the “Totals” column even if you have only one property. In general, to determine the interest expense allocable to your rental activities, business for individuals with disabilities. you must have records to show how the proceeds of each debt were used. Specific Line 20 See Form 8826 for details. tracing rules apply for allocating debt pro- Depreciation is the annual deduction you You can also deduct up to $15,000 of ceeds and repayment. See Pub. 535 for dequalified costs paid or incurred in 2004 to tails. of business or investment property having a must take to recover the cost or other basis remove architectural or transportation bar- If you have a mortgage on your rental useful life substantially beyond the tax riers to individuals with disabilities and the property, enter on line 12 the amount of year. Land is not depreciable. elderly. interest you paid for 2004 to banks or other Depreciation starts when you first use You cannot take both the credit and the financial institutions. Be sure to fill in the the property in your business or for the deduction for the same expenditures. See “Totals” column. production of income. It ends when you Pub. 535 for details. Do not deduct prepaid interest when you deduct all your depreciable cost or other Credit or deduction for access expenditures. You may be able to claim a tax credit for eligible expenditures paid or incurred in 2004 to provide access to your Do not deduct legal fees paid or incurred to defend or protect title to property, to recover property, or to develop or improve property. Instead, you must capitalize these fees and add them to the property’s basis. Lines 12 and 13 Line 17 Renting out part of your home. If you rent out only part of your home or other property, deduct the part of your expenses that applies to the rented part. You can deduct the cost of ordinary and necessary telephone calls related to your rental activities or royalty income (for ex- ample, calls to the renter). However, the base rate (including taxes and other charges) for local telephone service for the first telephone line into your residence is a personal expense and is not deductible. paid it. You can deduct it only in the year to basis or no longer use the property in your Line 6 which it is properly allocable. Points, in- business or for the production of income. You can deduct ordinary and necessary cluding loan origination fees, charged only See the Instructions for Form 4562 to auto and travel expenses related to your for the use of money must be deducted over figure the amount of depreciation to enter rental activities, including 50% of meal ex- the life of the loan. on line 20. Be sure to fill in the “Totals” penses incurred while traveling away from If you paid $600 or more in interest on a column. home. You generally can either deduct mortgage during 2004, the recipient should your actual expenses or take the standard send you a Form 1098 or similar statement You must complete and attach Form mileage rate. You must use actual expenses by January 31, 2005, showing the total inif you used more than four vehicles simul- terest received from you. • Depreciation on property first placed 4562 only if you are claiming: taneously in your rental activities (as in in service during 2004; fleet operations). You cannot use actual ex- If you paid more mortgage interest than is shown on your Form 1098 or similar • Depreciation on listed property (de- penses for a leased vehicle if you previfined in the Instructions for Form 4562), statement, see Pub. 535 to find out if you ously used the standard mileage rate for can deduct part or all of the additional interthat vehicle. including a vehicle, regardless of the date it est. If you can, enter the entire deductible was placed in service; or You can use the standard mileage rate amount on line 12. Attach a statement to • A section 179 expense deduction or for 2004 only if: your return explaining the difference. Write amortization of costs that began in 2004. • You owned the vehicle and used the “See attached” in the left margin next to standard mileage rate for the first year you See Pub. 527 for more information on line 12. placed the vehicle in service, or depreciation of residential rental property. Note. If the recipient was not a financial See Pub. 946 for a more comprehensive • You leased the vehicle and are using institution or you did not receive a Form guide to depreciation. the standard mileage rate for the entire lease period (except the period, if any, 1098 from the recipient, report your de- If you own mineral property or an oil, before 1998). ductible mortgage interest on line 13. gas, or geothermal well, you may be able to If you and at least one other person take a deduction for depletion. See Pub. If you deduct actual auto expenses: (other than your spouse if you file a joint 535 for details. • Include on line 6 the rental activity return) were liable for and paid interest on portion of the cost of gasoline, oil, repairs, the mortgage, and the other person received Line 22 insurance, tires, etc., and Form 1098, report your share of the deduct- • Show auto rental or lease payments on If you have amounts for which you are not ible interest on line 13. Attach a statement line 18 and depreciation on line 20. at risk, use Form 6198 to determine the to your return showing the name and adamount of your deductible loss. Enter that If you take the standard mileage rate, dress of the person who received Form amount in the appropriate column of multiply the number of miles you drove 1098. In the left margin next to line 13, Schedule E, line 22. In the space to the left your auto in connection with your rental write “See attached.” of line 22, write “Form 6198.” Attach Form activities by 37.5 cents. Include this 6198 to your return. For details on the amount and your parking fees and tolls on Line 14 at-risk rules, see page E-1. line 6. You can deduct the cost of repairs made to If you claim any auto expenses (actual keep your property in good working condi- Line 23 or the standard mileage rate), you must complete Part V of Form 4562 and attach Form 4562 to your tax return. See Pub. 527 and Pub. 463 for details. tion. Repairs generally do not add significant value to the property or extend its life. Examples of repairs are fixing a broken lock or painting a room. Improvements that increase the value of the property or extend its life, such as replacing a roof or renovat- Do not complete line 23 if the amount on line 22 is from royalty properties. If you have a rental real estate loss from a passive activity (defined on page E-1), the amount of loss you can deduct may be lim- Line 10 ing a kitchen, must be capitalized and de- ited by the passive activity loss rules. You Include on line 10 fees for tax advice and preciated (that is, they cannot be deducted may need to complete Form 8582 to figure the preparation of tax forms related to your in full in the year they are paid or incurred). the amount of loss, if any, to enter on line rental real estate or royalty properties. See the instructions for line 20. 23. E-4
If your rental real estate loss is not from Partners and S corporation shareholders 2. You owned at least a 10% direct or a passive activity or you meet the exception should get a separate statement of income, indirect interest in a foreign partnership for certain rental real estate activities (exactivity engaged in by the partnership and S ship. expenses, deductions, and credits for each while U.S. persons controlled that partner- plained on page E-2), you do not have to complete Form 8582. Enter the loss from corporation. If you are subject to the at-risk 3. You had an acquisition, disposition, line 22 on line 23. rules for any activity, use Form 6198 to or change in proportional interest of a for- figure the amount of any deductible loss. If eign partnership that: the activity is nonpassive, enter any deducta. Increased your direct interest to at ible loss from Form 6198 on the approprileast 10% or reduced your direct interest of ate line in Part II, column (h), of Schedule Parts II and III E. at least 10% to less than 10%, or • If you have a passive activity loss, you b. Changed your direct interest by at If you need more space in Part II or III to generally need to complete Form 8582 to least a 10% interest. list your income or losses, attach a continuation sheet using the same format as shown figure the amount of the allowable loss to 4. You contributed property to a foreign in Part II or III. However, be sure to cominterest if: enter in Part II, column (f), for that activity. partnership in exchange for a partnership But if you are a general partner or an S plete the “Totals” columns for lines 29a corporation shareholder reporting your and 29b, or lines 34a and 34b, as appropri- a. Immediately after the contribution, share of a partnership or an S corporation ate. If you also completed Part I on more you owned, directly or indirectly, at least a loss from a rental real estate activity and than one Schedule E, use the same Sched- 10% interest in the partnership, or you meet all three of the conditions listed ule E on which you entered the combined on page E-2 under Exception for Certain b. The fair market value of the property totals in Part I. Rental Real Estate Activities, you do not you contributed to the partnership in exhave to complete Form 8582. Instead, enter change for a partnership interest, when ad- Tax preference items. If you are a partner, your allowable loss in Part II, column (f). ded to other contributions of property you a shareholder in an S corporation, or a ben- made to the partnership during the precedeficiary of an estate or trust, you must take If you have passive activity income, ing 12-month period, exceeds $100,000. into account your share of preferences and complete Part II, column (g), for that activ- adjustments from these entities for the alreport certain dispositions by a foreign ity. Also, you may have to file Form 8865 to ternative minimum tax on Form 6251 or If you have nonpassive income or Schedule I of Form 1041. losses, complete Part II, columns (h) partnership of property you previously con- through (j), as appropriate. tributed to that partnership if you were a partner at the time of the disposition. Partnerships For more details, including penalties for See the Schedule K-1 instructions before failing to file Form 8865, see Form 8865 Part II entering on your return other partnership and its separate instructions. Income or Loss From items from a passive activity or income or loss from any publicly traded partnership. S Corporations Partnerships and S You can deduct unreimbursed ordinary If you are a shareholder in an S corporation, Corporations and necessary expenses you paid on behalf your share of the corporation’s aggregate If you are a member of a partnership or of the partnership if you were required to losses and deductions (combined income, joint venture or a shareholder in an S corpojusted basis of your corporate stock and any pay these expenses under the partnership losses, and deductions) is limited to the ad- ration, use Part II to report your share of the agreement. See the instructions for line 27 partnership or S corporation income (even on page E-6 for how to report these ex- debt the corporation owes you. Any loss or if not received) or loss. penses. deduction not allowed this year because of Report allowable interest expense paid the basis limitation can be carried forward You should receive a Schedule K-1 or incurred from debt-financed acquisitions and deducted in a later year subject to the from the partnership or S corporation. You in Part II or on Schedule A depending on basis limitation for that year. should also receive a copy of the Partner’s or Shareholder’s Instructions for Schedule the type of expenditure to which the inter- If you are claiming a deduction for your K-1. Your copy of Schedule K-1 and its est is allocated. See Pub. 535 for details. share of an aggregate loss, attach to your instructions will tell you where on your If you claimed a credit for federal tax on return a computation of the adjusted basis return to report your share of the items. If gasoline or other fuels on your 2003 Form of your corporate stock and of any debt the you did not receive these instructions with 1040 based on information received from corporation owes you. See the Schedule your Schedule K-1, see page 7 of the Form the partnership, enter as income in column K-1 instructions for details. 1040 instructions for how to get a copy. Do (g) or column (j), whichever applies, the After applying the basis limitation, the not attach Schedules K-1 to your return. amount of the credit claimed for 2003. deductible amount of your aggregate losses Keep them for your records. Part or all of your share of partnership and deductions may be further reduced by If you are treating items on your tax income or loss from the operation of the the at-risk rules and the passive activity return differently from the way the partner- business may be considered net earnings loss rules. See page E-1. ship (other than an electing large partner- from self-employment that must be reship) or S corporation reported them on its ported on Schedule SE. Enter the amount earnings and profits of S corporations are Distributions of prior year accumulated return, you may have to file Form 8082. If from Schedule K-1 (Form 1065), box 14, dividends and are reported on Form 1040, you are a partner in an electing large part- code A (or from Schedule K-1 (Form line 9a. nership, you must report the items shown 1065-B), box 9 (code K1)), on Schedule Interest expense relating to the acquision Schedule K-1 (Form 1065-B) on your SE, after you reduce this amount by any tion of shares in an S corporation may be tax return the same way that the partnership allowable expenses attributable to that in- fully deductible on Schedule E. For details, reported the items on Schedule K-1. come. see Pub. 535. Special rules that limit losses. Please note Foreign partnerships. If you are a U.S. Your share of the net income of an S the following. person, you may have to file Form 8865 if corporation is not subject to self-employany of the following applies. ment tax. • If you have a current year loss, or a prior year unallowed loss, from a partner- 1. You controlled a foreign partnership ship or an S corporation, see At-Risk Rules (that is, you owned more than a 50% direct and Passive Activity Loss Rules on page or indirect interest in the partnership). E-1. E-5
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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 Instructions for Form 1040 (ALL) - Supreme Law Firm

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