Page 73 - 2020 Publication 17

14:38 - 19-Jan-2021
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The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
local income tax refunds on Form 1040 or on Schedule 1 (Form 1040), line 1, and the bal- Reporting business income and expenses.
1040-SR, line 2b. ance of your recoveries, $525, on Schedule 1 If you’re in the business of renting personal
Recovery and expense in same year. If the (Form 1040), line 8. property, report your income and expenses on
Schedule C (Form 1040). The form instructions
refund or other recovery and the expense occur Standard deduction for earlier years. To de- have information on how to complete them.
in the same year, the recovery reduces the de- termine if amounts recovered in the current year
duction or credit and isn’t reported as income. must be included in your income, you must Reporting nonbusiness income. If you aren’t
Recovery for 2 or more years. If you receive know the standard deduction for your filing sta- in the business of renting personal property, re-
port your rental income on Schedule 1 (Form
tus for the year the deduction was claimed.
a refund or other recovery that’s for amounts Look in the instructions for your tax return from 1040), line 8. List the type and amount of the in-
you paid in 2 or more separate years, you must prior years to locate the standard deduction for come on the dotted line next to line 8.
allocate, on a pro rata basis, the recovered the filing status for that prior year.
amount between the years in which you paid it. Reporting nonbusiness expenses. If you
This allocation is necessary to determine the Example. You filed a joint return on Form rent personal property for profit, include your
amount of recovery from any earlier years and 1040 for 2019 with taxable income of $45,000. rental expenses in the total amount you enter
to determine the amount, if any, of your allowa- Your itemized deductions were $24,550. The on Schedule 1 (Form 1040), line 22, and see
ble deduction for this item for the current year. standard deduction that you could have claimed the instructions there.
For information on how to figure the allocation, was $24,400. In 2020, you recovered $2,100 of If you don’t rent personal property for profit,
see Recoveries in Pub. 525. your 2019 itemized deductions. None of the re- your deductions are limited and you can’t report
a loss to offset other income. See Activity not
Itemized Deduction coveries were more than the actual deductions for profit under Other Income, later.
for 2019. Include $150 of the recoveries in your
Recoveries 2020 income. This is the smaller of your recov-
eries ($2,100) or the amount by which your Repayments
If you recover any amount that you deducted in itemized deductions were more than the stand-
an earlier year on Schedule A (Form 1040), you ard deduction ($24,550 − $24,400 = $150). If you had to repay an amount that you included
must generally include the full amount of the re- Recovery limited to deduction. You don’t in- in your income in an earlier year, you may be
covery in your income in the year you receive it. clude in your income any amount of your recov- able to deduct the amount repaid from your in-
come for the year in which you repaid it. Or, if
Where to report. Enter your state or local in- ery that’s more than the amount you deducted the amount you repaid is more than $3,000, you
come tax refund on Schedule 1 (Form 1040), in the earlier year. The amount you include in may be able to take a credit against your tax for
line 1, and the total of all other recoveries as your income is limited to the smaller of: the year in which you repaid it. Generally, you
other income on Schedule 1 (Form 1040), • The amount deducted on Schedule A can claim a deduction or credit only if the repay-
line 8. (Form 1040), or ment qualifies as an expense or loss incurred in
Standard deduction limit. You are generally • The amount recovered. your trade or business or in a for-profit transac-
allowed to claim the standard deduction if you tion.
don’t itemize your deductions. Only your item- Example. During 2019, you paid $1,700 for Type of deduction. The type of deduction
ized deductions that are more than your stand- medical expenses. Of this amount, you deduc- you’re allowed in the year of repayment de-
ard deduction are subject to the recovery rule ted $200 on your 2019 Schedule A (Form pends on the type of income you included in the
(unless you’re required to itemize your deduc- 1040). In 2020, you received a $500 reimburse- earlier year. You generally deduct the repay-
tions). If your total deductions on the earlier ment from your medical insurance for your 2019 ment on the same form or schedule on which
year return weren’t more than your income for expenses. The only amount of the $500 reim- you previously reported it as income. For exam-
that year, include in your income this year the bursement that must be included in your in- ple, if you reported it as self-employment in-
lesser of: come for 2020 is $200—the amount actually come, deduct it as a business expense on
• Your recoveries, or deducted. Schedule C (Form 1040) or Schedule F (Form
1040). If you reported it as a capital gain, de-
• The amount by which your itemized deduc- Other recoveries. See Recoveries in Pub. duct it as a capital loss as explained in the In-
525 if:
tions exceeded the standard deduction. structions for Schedule D (Form 1040). If you
• You have recoveries of items other than reported it as wages, unemployment compen-
Example. For 2019, you filed a joint return. itemized deductions, or sation, or other nonbusiness income, you may
Your taxable income was $60,000 and you • You received a recovery for an item for be able to deduct it as an other itemized deduc-
weren’t entitled to any tax credits. Your stand- which you claimed a tax credit (other than tion if the amount repaid is over $3,000.
ard deduction was $24,400, and you had item- investment credit or foreign tax credit) in a
ized deductions of $26,200. In 2020, you re- prior year. Beginning in 2018, you can no longer
ceived the following recoveries for amounts ! claim any miscellaneous itemized de-
deducted on your 2019 return. CAUTION ductions, so if the amount repaid was
Rents From Personal $3,000 or less, you are not able to deduct it
Medical expenses . . . . . . . . . . . . . . . $200 Property from your income in the year you repaid it.
State and local income tax refund . . . . . . . 400
Refund of mortgage interest . . . . . . . . . . 325 Repaid social security benefits. If you repaid
If you rent out personal property, such as equip- social security benefits or equivalent railroad re-
Total recoveries . . . . . . . . . . . . . . . . $925 ment or vehicles, how you report your income tirement benefits, see Repayment of benefits. in
and expenses is in most cases determined by: chapter 7.
None of the recoveries were more than the de- • Whether or not the rental activity is a busi-
ductions taken for 2019. The difference be- ness, and Repayment of $3,000 or less. If the amount
tween the state and local income tax you de- you repaid was $3,000 or less, deduct it from
ducted and your local general sales tax was • Whether or not the rental activity is con- your income in the year you repaid it.
more than $400. ducted for profit. Repayment over $3,000. If the amount you
Your total recoveries are less than the In most cases, if your primary purpose is in- repaid was more than $3,000, you can deduct
amount by which your itemized deductions ex- come or profit and you’re involved in the rental the repayment as an other itemized deduction
ceeded the standard deduction ($26,200 − activity with continuity and regularity, your rental on Schedule A (Form 1040), line 16, if you in-
$24,400 = $1,800), so you must include your to- activity is a business. See Pub. 535, Business cluded the income under a claim of right. This
tal recoveries in your income for 2020. Report Expenses, for details on deducting expenses means that at the time you included the income,
the state and local income tax refund of $400 for both business and not-for-profit activities. it appeared that you had an unrestricted right to
it. However, you can choose to take a credit for

Chapter 8 Other Income Page 69