The entire acquisition cost of a computer purchased for business use can be expensed under Code section 179 in the first year if qualified, or depreciated under MACRS (Modified Accelerated Cost Recovery System) over a 5-year recovery period. Under section 179, you can elect to recover all or part of the cost of certain qualifying property, up to a dollar limit, by deducting it in the year you place the property in service. You can elect to expense the cost of qualifying property instead of recovering the cost by taking depreciation. To claim the expense in the first year, the property must be used more than 50% for business use, and meet the other requirements for expensing. One of those requirements is that the total cost of qualifying property you can deduct after you apply the dollar limit is limited to the taxable income from the active conduct of any trade or business during the year. Any cost not deductible in one year under section 179 because of the business income limit can be carried to the next year.

If substantially all of the use of the property will be in the active conduct of a trade or business in the New York Liberty Zone or the GO Zone (a specified area affected by Hurricane Katrina) there are increased section 179 deductions available (through section 1400L(f) and section 1400N(e) of the Code) and there are different rules for a one time special or bonus depreciation allowance which is an additional deduction equal to 50% (or 30% for New York Liberty Zone property) of the property's depreciable basis (after any section 179 deduction and before figuring your regular depreciation deduction under MACRS for the year you place the property in service). For more information on the increased section179 deductions and the special depreciation allowance, see Publication 946, How to Depreciate Property or Publication 44924492, Information for Taxpayers Affected by Hurricanes Katrina, Rita and Wilma.

References:

• Publication 946, How to Depreciate Property
• Publication 535, Business Expenses

Depreciation can only be claimed on property owned by a taxpayer and used by the taxpayer in a trade or business or for production of income. Additionally, the property must be something that wears out or becomes obsolete and it must have a determinable useful life substantially beyond the tax year. The kinds of property that can be depreciated include, but are not limited to, machinery, equipment, buildings, vehicles, and furniture. Some intangible property may also be depreciable (e.g. patents). Depreciation is a complex topic. For more information, refer to Tax Topic 704, Depreciation, or Publication 946, How to Depreciate Property , or Publication 534 (PDF) , Depreciating Property Placed in Service Before 1987.

References:

• Publication 534 (PDF), Depreciating Property Placed in Service Before 1987
• Publication 946, How to Depreciate Property
• Tax Topic 704 , Depreciation

You may deduct investment expenses (other than interest expenses) as miscellaneous itemized deductions on Form 1040, Schedule A, line 22, Itemized Deductions. This would include depreciation on the portion of your computer used for investment purposes, and the portion of your internet access charges used for investment purposes.

The acquisition cost of a computer purchased for investment use can be depreciated over a 5-year recovery period. To elect to recover (expense) all or part of the acquisition cost of the computer in the first year under section 179, the property must be used more than 50% for business use (as opposed to investment use), and meet the other requirements for expensing under section 179. One of those section 179 requirements is that the total cost of qualifying property you can deduct after you apply the dollar limit is limited to the taxable income from the active conduct of any trade or business during the year. See Publication 946, How to Depreciate Property for additional information on the section 179 deduction.

Because these deductions (described in the 1st paragraph) are for investment expenses rather than for business expenses, the sum of these deduction amounts and other expense and deduction amounts included in Job Expenses and Certain Miscellaneous Deductions of Form 1040, Schedule A must be reduced by 2% of your adjusted gross income. Use Form 4562 (PDF), Depreciation and Amortization, to compute the depreciation for the portion of your computer used for investment purposes and Form 1040, Schedule A to determine your reduced total amount under Job Expenses and Certain Miscellaneous Deductions..

References:

• Form 1040, Schedule A, Itemized Deductions
• Form 4562 (PDF), Depreciation and Amortization
• Publication 946, How to Depreciate Property
• Publication 535, Business Expenses

You can claim a section 179 deduction or a depreciation deduction for a computer that you use in your work as an employee if its use is:

1. For the convenience of your employer, and
2. Required as a condition of your employment.

Use Form 4562 (PDF), Depreciation and Amortization, to compute the section 179 deduction and the depreciation.

The entire acquisition cost of a computer purchased for business use can be expensed under Code section 179 in the first year if qualified, or depreciated over a 5-year recovery period. Under section 179, you can elect to recover all or part of the cost of certain qualifying property, up to a dollar limit, by deducting it in the year you place the property in service. The dollar limit varies depending on the year you are making the election. You can find the dollar limitation in Chapter 2, Electing the Section 179 Deduction, of Publication 946, How to Depreciate Property. You can elect to expense the cost of qualifying property instead of recovering the cost by taking depreciation. To claim the expense in the first year, the property must be used more than 50% for business use, and meet the other requirements for expensing. One of those requirements is that the total cost of qualifying property you can deduct after you apply the dollar limit is limited to the taxable income from the active conduct of any trade or business during the year. Any cost not deductible in one year under section 179 because of the business income limit can be carried to the next year.

If you are depreciating the property, and the property is located within the New York Liberty Zone, you may be eligible for a special depreciation allowance if the property meets certain conditions. For more information see Chapter 3, Claiming the Special Depreciation Allowance, in Publication 946, How to Depreciate Property.

You cannot take a section 179 deduction for the item unless your use of the computer is more than 50% business or job-related use (and you meet the two conditions listed above).

Section 179 deductions and MACRS depreciation methods are explained in Chapter 2, Electing the Section 179 Deduction, and Chapter 4, Figuring Depreciation under MACRS, respectively, of Publication 946, How to Depreciate Property.

References:

• Publication 946, How to Depreciate Property

The maximum depreciation allowed for depreciation on a passenger automobile depends on several factors. These include, the year you are filing, the amount paid for the automobile, how long it has been in service, whether the special depreciation rules apply, the type of vehicle, and whether it is subject to the depreciation limits under 280F(a) (generally applicable to a vehicle with a gross vehicle weight of 6000 pounds or less). You can find the limits in the Form 4562 Instructions for the year are filing.

References:

• Publication 946, How to Depreciate Property
• Form 4562 Instructions, Depreciation and Amortization (Including Information on Listed Property)

A Sole Proprietor's business use of a car or truck is claimed on line 9 of Form 1040, Schedule C (PDF), Schedule C, Profit or Loss from Business or, if eligible, line 2 of Form 1040, Schedule C-EZ (PDF), Net Profit from Business. You may use either the actual expense method in calculating your car or truck expense or, if eligible, the standard mileage rate. Depreciation expense is already included in this standard mileage rate. Depreciation is only calculated as a separate expense when using the actual expense method. Deductible employee business use of a car or truck may be taken on Form 2106 (PDF), Employee Business Expenses , or if, eligible, line 1 of Form 2106-EZ (PDF), Unreimbursed Employee Business Expenses. The car and truck expenses are then taken with other employee business expenses on line 20, Form 1040, Schedule A&B (PDF) Itemized Deductions . For more information, refer to Publication 463, Travel, Entertainment, Gift, and Car Expenses , and Publication 535, Business Expenses .

References:

• Publication 535, Business Expenses
• Publication 463, Travel, Entertainment, Gift, and Car Expenses
• Form 1040, Schedule C (PDF), Profit or Loss from Business (Sole Proprietorship)
• Form 1040, Schedule C-EZ (PDF), Unreimbursed Employee Business Expenses.
• Form 2106 (PDF), Employee Business Expenses
• Form 2106EZ (PDF), Unreimbursed Employee Business Expenses

If you qualify to deduct expenses for the business use of your home, you can claim depreciation for the part of your home that is a home office. Generally, the part of your home that is a home office is depreciated over a recovery period of 39 years using the straight line method of depreciation and a mid-month convention. If you do not claim depreciation on that part of your home that is a home office, you are still required to reduce the basis of your home for the allowable depreciation of that part of your home that is a home office when reporting the sale of your home. For more information, refer to Publication 587, Business Use of Your Home.

References:

• Publication 946, How to Depreciate Property
• Publication 544, Sales and Other Dispositions of Assets
• Publication 587, Business Use of Your Home

You do not have to claim depreciation on your rental property on your tax return. However, when reporting the sale of the rental property you are required to reduce the basis of the property for allowable depreciation regardless of whether the depreciation deduction was taken or not. For more information, refer to Publication 544, Sales or Other Dispositions of Assets, the Form 4797 Instructions, Sale of Business Property, and Publication 527, Residential Rental Property (including vacation homes).

References:

• Publication 544, Sales or Other Dispositions of Assets
• Form 4797 Instructions, Sales of Business Property
• Publication 527, Residential Rental Property (including Vacation Homes)

Since the rental apartment building is residential rental property, the building is generally depreciated over a recovery period of 27.5 years using the straight line method of depreciation and a mid-month convention.

Because the furniture is used in a residential rental real estate activity and is not typically used in an office, the furniture is included in asset class 57.0, Distributive Trades and Services, of Revenue Procedure 87-56. As a result, the furniture is generally depreciated over a recovery period of 5 years using the 200% declining balance method of depreciation and a half-year convention.

If your property is located within the New York Liberty Zone, you may be eligible for a special depreciation allowance if the property meets certain conditions. For more information see Chapter 3, Claiming the Special Depreciation Allowance, in Publication 946, How to depreciate Property.

References:

• Publication 527, Residential Rental Property
• Publication 946, How to Depreciate Property

Replacement of a roof on a residential rental property is a capital improvement to the structure. The roof is in the same class of property as the property to which it is attached. Since the property is residential rental property, the roof is generally depreciated over a recovery period of 27.5 years using the straight line method of depreciation and a mid-month convention. You cannot write off (or take a loss on) any remaining basis in the replaced roof. For more information, refer to Publication 527, Residential Rental Property, and Chapter 4, Figuring Depreciation Under MACRS in Publication 946, How to Depreciate Property.

References:

• Publication 527, Residential Rental Property
• Publication 946, How to Depreciate Property

Replacement of windows and siding on a residential rental property is a capital improvement to the structure, provided the replacement improves the value of this property or substantiality prolongs its life. The windows and siding, in that event, are in the same class of property as the property to which they are affixed. In this case, the windows and siding are generally depreciated over a recovery period of 27.5 years using the straight line method of depreciation and a mid-month convention. For more information, refer to Publication 527, Residential Rental Property, and Chapter 4, Figuring Depreciation Under MACRS, in Publication 946, How to Depreciate Property.

References:

• Publication 527, Residential Rental Property
• Publication 946, How to Depreciate Property

Replacements of roof, rain gutters, windows, and furnace on a residential rental property are capital improvements to the structure because they materially add to the value of your property or substantially prolong its life. The items would be in the same class of property as the rental property to which they are attached. Since the property is residential rental property, the items are generally depreciated over a recovery period of 27.5 years using the straight line method of depreciation and a mid-month convention.

Repairs, such as repainting the residential rental property, are currently deductible expenses. A repair keeps your property in good operating condition. It does not materially add to the value of your property or substantially prolong its life. Repainting your property inside or out, fixing gutters or floors, fixing leaks, plastering, and replacing broken windows are examples of repairs. If you make repairs as part of an extensive remodeling or restoration of your property, the whole job is an improvement. In that case, you should capitalize and depreciate the repair costs as the same class of property that you have restored or remodeled as discussed above. For more information, refer to Publication 527, Residential Rental Property, and Publication 946, How to Depreciate Property.

References:

• Publication 527, Residential Rental Property
• Publication 946, How to Depreciate Property

Replacement of a furnace in a residential rental property is a capital improvement to the structure. The furnace is in the same class of property as the property in which it is installed. Since the property is residential rental property, the furnace is, generally, depreciated over a recovery period of 27.5 years using the straight line method of depreciation and a mid-month convention. For more information, refer to Publication 527, Residential Rental Property, and Chapter 4, Figuring Depreciation Under MACRS, in Publication 946,How to Depreciate Property.

References:

• Publication 527, Residential Rental Property
• Publication 946, How to Depreciate Property

You cannot claim section 179 expense for property used in connection with the furnishing of lodging. These assets are classified as 5-year property and must be depreciated under MACRS (Modified Accelerated Cost Recovery System).

If the property is located within the New York Liberty Zone, you may be eligible for a special depreciation allowance if the property meets certain conditions. For more information see Chapter 3,Claiming the Special Depreciation Allowance, in Publication 946,How to depreciate Property.

References:

• Publication 527,Residential Rental Property
• Publication 946,How to Depreciate Property

If you claim a section 179 deduction for the cost of property in the year you place the property in service, and in a subsequent year, you do not use it more than 50 percent for business, you may have to recapture part of the section 179 deduction. This can occur in any year during the recovery period for the property even though the items have not been sold. Refer to Chapter 2, Electing the Section 179 Deduction, in Publication 946,How to Depreciate Property, on how to calculate the recapture amount. The recapture amount is computed on part IV of Form 4797 (PDF),Sale of Business Property', and is included as other income on line 6 of Form 1040, Schedule C (PDF), Profit or Loss from Business (Sole Proprietorship).

References:

• Publication 946, How to Depreciate Property
• Form 4797 (PDF), Sale of Business Property

Generally, the amount of depreciation you must recapture for residential rental property or nonresidential real property is the excess of the depreciation allowed or allowable over straight line depreciation for the property. Thus, if you sell a building placed in service after 1986 and you used the straight-line method, you would not have any depreciation to recapture. However, if you used an accelerated method of depreciation (for example, the 150% declining balance method) for the building, you would have to recapture the depreciation taken in excess of the amount allowable using the straight-line method. Also, if you took the 30% or 50% special depreciation allowance for your building, this allowance may be subject to recapture.

In addition to Section 1250 depreciation to recapture, if any, a taxpayer may be taxed at a special capital gains rate on gain due to straight-line depreciation that was previously claimed. This is referred to as "unrecaptured section 1250 gain." The amount of unrecaptured section 1250 gain is generally that portion of the total gain from the sale of section 1250 property equal to depreciation allowed or allowable, less recaptured section 1250 gain, if any. Unrecaptured section 1250 gain IS NOT SUBJECT TO the normal capital gains rates. Instead, it is taxed at its own special capital gains rate. Schedule D will direct you to complete the Worksheet in your Form 1040 Instructions Booklet to determine what the unrecaptured section 1250 gain is, if any.

For property placed in service in 1986 and earlier, see Publication 534 (PDF), Depreciate Property Placed in Service Before 1987. For further information, refer to Chapter 3, Ordinary or Capital Gain or Loss for Business Property, in Publication 544, Sales or Other Disposition of Assets, and Publication 946, How to Depreciate Property.

References:

• Publication 544, Sales or Other Dispositions of Assets
• Supplemental to Publication 946 How to Depreciate Property
• Publication 534 (PDF), Depreciating Property Placed in Service Before 1987

If you dispose of residential rental property placed in service after 1986 (or after July 31, 1986, if the election to use MACRS was made), you would not have any depreciation to recapture because you used a straight-line method. If you did not meet this condition or you took the 30% or 50% special depreciation allowance for the residential rental property, use Form 4797 (PDF), Sale of Business Property, to compute the amount of depreciation recapture.

In addition to Section 1250 depreciation to recapture, if any, a taxpayer may be taxed at a special capital gains rate on gain due to straight-line depreciation that was previously claimed. This is referred to as "unrecaptured section 1250 gain." The amount of unrecaptured section 1250 gain is generally that portion of the total gain from the sale of section 1250 property equal to depreciation allowed or allowable, less recaptured section 1250 gain, if any. Unrecaptured section 1250 gain IS NOT SUBJECT TO the normal capital gains rates. Instead, it is taxed at its own special capital gains rate. Schedule D will direct you to complete the Worksheet (in your Form 1040 Instruction Booklet) to determine what the unrecaptured section 1250 gain is, if any.

For property placed in service in 1986 and earlier, see Publication 534 (PDF), Depreciating Property Placed in Service Before 1987. For further information, refer to Chapter 3, Ordinary or Capital Gain or Loss for Business Property, in Publication 544, Sales or Other Disposition of Assets, and Publication 946, How to Depreciate Property.

References:

• Publication 544, Sales or Other Dispositions of Assets
• Form 4797 (PDF), Sale of Business Property
• Publication 534 (PDF), Depreciating Property Placed in Service Before 1987

The only deductible closing costs are those for interest, and deductible real estate taxes. Other settlement fees and closing costs for buying the property become additions to your basis in the property. These basis adjustments include:

• Abstract fees,
• Charges for installing utility services,
• Legal fees,
• Recording fees,
• Surveys,
• Transfer taxes,
• Title insurance, and
• Any amounts the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, charges for improvements or repairs, and sales commissions.
• Those costs that are basis adjustments can be part of your yearly depreciation deduction for the rental property.

References:

• Publication 527, Residential Rental Property
• Publication 17, Your Individual Income Tax Guide
• Publication 535, Business Expenses

No. Assuming that the loan is secured by the duplex, only the mortgage interest and property taxes for the portion you are renting are deductible on Form 1040, Schedule E (PDF), Supplemental Income and Loss. If you receive one bill, you should prorate the rental portion based on square footage. Your portion can be deducted on Form 1040, Schedule A, Itemized Deductions, if you itemize and meet the requirements for Deductible Home Mortgage Interest. For more information, refer to Publication 527, Residential Rental Property (including Vacation Homes), Form 1040, Schedule E Instructions, Supplemental Income and Loss, and Publication 936, Home Mortgage Interest.

References:

• Publication 527, Residential Rental Property (including Vacation Homes)
• Form 1040, Schedule E Instructions, Supplemental Income and Loss
• Publication 936, Home Mortgage Interest

Yes. You can deduct Private Mortgage Insurance premium on line 9 of Form 1040, Schedule E (PDF), Supplemental Income and Loss. Write "PMI" on the dotted line.

References:

• Publication 527, Residential Rental Property
• Form 1040, Schedule E (PDF), Supplemental Income and Loss
• Form 1040, Schedule E Instructions, Supplemental Income and Loss

Expenses you pay to obtain a mortgage on your rental property cannot be deducted as interest. These expenses, which include mortgage commissions, abstract fees, points and recording fees, are capital expenses. You may amortize them over the life of the mortgage on line 18 of Form 1040, Schedule E (PDF), Supplemental Income and Loss.

References:

• Form 1040, Schedule E (PDF), Supplemental Income and Loss
• Publication 527, Residential Rental Property

Generally, your rental of real estate is a passive activity. You may offset a loss up to the dollar limit allowed for your filing status and modified adjusted gross income, if you actively participate in the activity. However, married persons filing separate returns who lived together at any time during the year may not claim this offset. For additional information on limits on rental losses, refer to Publication 527, Residential Rental Property and, Tax Topic 425, Passive Activities - Losses and Credits, as well as Form 1040, Schedule E Instructions, Supplemental Income and Loss.

References:

• Tax Topic 425, Passive Activities - Losses and Credits
• Publication 527, Residential Rental Property
• Form 1040, Schedule E Instructions Supplemental Income and Loss

If you use the time share dwelling unit as a home (based on degree of personal use) and you rent it for fewer than 15 days during the year, do not include any of the rent in your income and do not deduct any of the rental expenses. If you do not meet the tests for using your timeshare as your home, the income is reportable on Form 1040, Schedule E (PDF), Supplemental Income and Loss.

References:

• Form 1040, Schedule E (PDF), Supplemental Income and Loss
• Publication 527, Residential Rental Property

You must first consider if you use your dwelling as a home. You are considered to use a dwelling as a home if you use it for personal purposes during the tax year for more than the greater of 14 days or 10% of the total days it is rented to others at a fair rental price. It is possible that you will use more than one dwelling unit as a home during the year. For example, if you live in your main home for 11 months and in your vacation home for 30 days, your home is a dwelling unit and your vacation home is also a dwelling unit, unless you rent your vacation home to others at a fair rental value for more than 300 days during the year.

There is a special rule if you use a dwelling as a home and rent it for fewer than 15 days. In this case, do not report any of the rental income and do not deduct any expenses as rental expenses. If you itemize your deduction on Form 1040, Schedule A Itemized Deductions, you may be able to deduct mortgage interest, property taxes, and any casualty losses. For additional information, refer to Tax Topic 415, Renting Vacation Property/Renting to Relatives and Publication 527, Residential Rental Property (including Rental of Vacation Homes).

References:

• Form 1040, Schedule A, Itemized Deductions
• Tax Topic 415, Renting Vacation Property/Renting to Relatives
• Publication 527, Residential Rental Property (Including Rental of Vacation Homes).

In general, if you receive income from the rental of a dwelling unit, such as a house, apartment, or duplex, there are certain expenses you may deduct.

Besides knowing which expenses may be deductible, it is important to understand potential limitations on the amounts of rental expenses that may be deducted in a tax year.

There are several types of limitations that may apply.

• Passive Activity losses : In general, you can deduct passive activity losses only from passive activity income (a limit on loss deductions). You carry any excess loss forward to the following year or years until used, or until deducted in the year you dispose of your entire interest in the activity in a fully taxable transaction. There are several exceptions that may apply to the passive activity limitations. Refer to Publication 527, Residential Rental Property and Publication 925, Passive Activity and At-Risk Rules .
• At risk rules: The at-risk rules limit your losses from most activities to your amount at risk in the activity. You treat any loss that is disallowed because of the at-risk limits as a deduction from the same activity in the next tax year. If your losses from an at-risk activity are allowed, they are subject to recapture in later years if your amount at risk is reduced below zero. Refer to Publication 925, Passive Activity and At-Risk Rules.

• Not for profit activities: If you do not rent your property to make a profit, you can deduct your rental expenses only up to the amount of your rental income. Any rental expenses in excess of rental income cannot be carried forward to the next year. Refer to Publication 527, Residential Rental Property and Publication 535 , Business Expenses .

• Rental of a dwelling unit: The tax treatment of rental income and expenses for a dwelling unit that you also use for personal purposes (renting to a relative may be considered personal use even if they are paying you rent) depends on whether you use it as a home. Refer to Publication 527, Residential Rental Property .

• Expenses in connection with rental of a dwelling unit for less than 15 days per year . Refer to Publication 527, Residential Rental Property .

References:

• Publication 527, Residential Rental Property
• Tax Topic 414, Rental Income and Expenses
• Tax Topic 415, Renting Vacation Property/Renting to Relatives

The gain or loss on the sale of rental property is reported on Form 4797 (PDF), Sale of Business Property. Form 1040, Schedule D (PDF), Capital Gains and Losses, is often used in conjunction with Form 4797. For further information, refer to Publication 544, Sales on Other Disposition of Assets,Publication 550, Investment Income and Expense, the Instructions to Form 4797 (PDF), Sale of Business Property, and the Instructions to Form 1040, Schedule D, Capital Gain and Losses.

References:

• Form 4797 (PDF), Sale of Business Property
• Form 4797 Instructions
• Publication 544, Sales and Other Dispositions of Assets
• Publication 550,Investment Income and Expense
• Form 1040 Schedule D (PDF), Capital Gains and Losses

When reporting the sale of or computing gain or loss on rental property, you are required to make an adjustment to your basis for allowable depreciation regardless of whether the deduction was taken. For more information refer to Publication 544, Sales or Other Dispositions of Assets, and the Form 4797 Instructions, Sales of Business Property.

You can claim the depreciation not taken for the rental property in the years before the year of sale. How to do this depends on when you placed in service the rental property. If you placed the rental property into service in the year immediately preceding the year of sale, you may amend your income tax return for that prior year by using Form 1040X (PDF), Amended U.S. Individual Income Tax Return, to take the depreciation deduction for the rental property that should have been taken. Or, you may file a Form 3115 (PDF), Application for Change in Accounting Method, to claim the depreciation for the rental property that should have been taken for the prior year. The Form 3115 must be timely filed for the same tax year in which you sell the rental property.

If you placed the rental in service more than a year preceding the year of sale and if you took no depreciation deduction, or a deduction of less than the allowable amount for two or more consecutive years , you must use Form 3115 (PDF), Application for Change in Accounting Method, to claim the depreciation for the rental property that should have been taken for the years before the year of the sale. The Form 3115 must be timely filed for the same tax year in which you sell the rental property.

References:

• Publication 544, Sales or Other Dispositions of Assets
• Form 1040X (PDF), Amended U.S. Individual Income Tax Return
• Form 3115 (PDF), Application for Change in Accounting Method
• Form 3115 Instructions, Application for Accounting Method
• Form 4797 Instructions, Sales of Business Property
• Publication 527, Residential Rental Property (including Vacation Homes)

In computing your gain or loss on the sale, reduce your proceeds from the sale by your selling expenses, including the buyer's closing costs that you agree to pay. Refer to Publication 544, Sales and Other Dispositions of Assets, for additional information.

References:

• Publication 544, Sales and Other Dispositions of Assets

Use Form 6252 (PDF), Installment Sale Income, to figure your installment sale income each year. This form does not account for taxable interest income from the sale that needs to be reported each year by the seller, usually on Form 1040, Schedule B (PDF), Interest and Ordinary Dividends.

You may also need Form 1040, Schedule D (PDF), Capital Gains and Losses, and Form 4797 (PDF), Sales of Business Property. For additional information including forms and instructions, refer to Publication 537, Installment Sales

References:

• Publication 537, Installment Sales
• Form 1040, Schedule D (PDF), Capital Gains and Losses
• Form 4797 (PDF), Sales of Business Property
• Form 6252 (PDF), Installment Sale Income
• Form 1040, Schedule B (PDF), Interest and Ordinary Dividends

The loss on the sale of rental property is reported on Form 4797 (PDF), (Sale of Business Property) as ordinary loss.

References:

• Form 4797 (PDF), Sale of Business Property
• Publication 544, Sales and Other Dispositions of Assets

The losses (but not credits) that have not been allowed from your rental property in previous years including the current year generally are allowed in full in the tax year you dispose of the entire interest in the property.

More than one form or schedule may be required for reporting the loss. SeePublication 925, Passive Activity and At-Risk Rules and Publication 544, Sales and Other Disposition of Assets for information on the reporting of the sale of activities with unallowed losses.

References:

• Publication 925, Passive Activity and At-Risk Rules
• Publication 544, Sales and Other Disposition of Assets

What you have heard about is a like-kind exchange. A like-kind exchange, when properly executed, represents a way to postpone the recognition (taxation) of gain essentially by shifting the basis of old property to new property. If, in addition to giving up like-kind property, you pay money in a like-kind exchange, you still have no recognized gain or loss. The basis of the property received is the basis of the property given up, increased by the money paid. There are several rules and restrictions that must be strictly adhered to in order for a successful exchange to take place. Deferred exchanges will be treated as a sale rather than an exchange to the extent that the taxpayer actually or constructively receives money or other (not like kind) property in exchange for the like-kind property given up. For more information refer to Chapter 1, Gain or Loss, inPublication 544, Sales and Other Disposition of Assets , and Form 8824 (PDF) Instructions, Like-Kind Exchanges.

References:

• Publication 544, Sales and Other Dispositions of Assets
• Form 8824 (PDF), Instructions, Like Kind Exchanges

Report the exchange of like-kind property on Form 8824 (PDF), Like-Kind Exchanges. The instructions for the form explain how to report the details of the exchange. Report the exchange even though no gain or loss is recognized.

If you have any taxable gain, resulting from the transaction, because you had a partially deferred exchange or otherwise received money or unlike kind property, report it on Form 4797 (PDF), Sale of Business Property, and Form 1040, Schedule D (PDF), Capital Gains and Losses. Refer to Chapter 1, Gain or Loss, in Publication 544, Sales and Other Dispositions of Assets, which has a detailed section on qualifying like-kind exchanges.

References:

• Publication 544, Sales and Other Dispositions of Assets
• Form 8824 (PDF), Like-Kind Exchanges
• Form 4797 (PDF), Sale of Business Property
• Form 1040, Schedule D (PDF), Capital Gains and Losses

You may be able to exclude your gain from the sale of your main home that you have also used for business or to produce rental income if you meet the ownership and use tests, detailed in Publication 523, Sale of Your Home.

However, if you were entitled to take depreciation deductions because you used your home for business purposes or as rental property, you cannot exclude the part of your gain equal to any depreciation allowed or allowable as a deduction for periods after May 6, 1997. (Note: If you can show by adequate records or other evidence that the depreciation deduction allowed (did deduct) was less than the amount allowable (could have deducted), the amount you cannot exclude is the smaller of those two figures.)

The gain, exclusion, and depreciation recapture should be reported on Form 1040, Schedule D (PDF), Capital Gains and Losses, as described in Publication 523, Selling Your Home.

References:

• Publication 523, Selling Your Home
• Form 1040, Schedule D (PDF), Capital Gains and Losses

The answer depends on in which state you live in. Generally, the basis of property you inherit is its Fair Market Value (FMV) at the date of the decedent's death. If you live in a community property state (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin), and inherit your spouse's interest in a property held as community property, then the basis for the entire property becomes the FMV at the date of your spouse's death. This also assumes that at least half the value of the community property interest is included in the deceased spouse's gross estate. In other states, assuming the property is owned by you and your spouse as joint tenants, tenants by the entireties, or tenants-in-common, the basis of the one-half that your spouse owned would be increased to one-half of the FMV of the property at the date of death. The basis in the one-half that you owned would remain at the one-half of the pre-death adjusted basis. The new adjusted basis is, naturally, subject to all future routine basis adjustments until the property is either sold or otherwise disposed of.

References:

• Publication 551, Basis of Assets
• Publication 559, Survivors, Executors, and Administrators
• Publication 555, Community Property