Solved: Earned Income Tax Credit EITC
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Level 3

Earned Income Tax Credit EITC

I have a bare land renting out in my home country. I own the land directly which was inheritance after my mother passed away. The rent income was $6300 in 2019.

This income counts on Investing income, or not?

Turbo Tax shows I get $3060 EITC at the end after I entered the entire of my other information.   I am very confused now because the IRS checklist says if you have " Investing income more then $3600 " you are not qualified for EITC. So, the point I want to know is that this rent income is investing income or not in the IRS definition.

Am I eligible to get EITC?

I want to make sure to not get into any trouble.

If this counts as investing income and I am not eligible for EITC, how can I fix it in TT software?

Any answer would be appreciated.

Thank you very much.

1 Best answer

Accepted Solutions
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Level 10

Earned Income Tax Credit EITC

According to the IRS Publications, EIC is allowed.  According to the Tax Code, it seems questionable.

 

 

The Tax Code classifies several things that are considered "investment" income for purposes of the Earned Income Credit.  The two pertinent ones for your situation are (1) income from "rents or royalties" and (2) "passive" income.

 

Most real estate rental is "passive", which would disqualify EIC.  However, rental of land is NOT passive, so EIC is not disqualified under that category.

 

Although rental of land certainly would seem to be "rents" which would disqualify EIC, the IRS Publications state otherwise.  The IRS Publications refer to royalties or "rental of personal property" ("personal property" refers to non-real estate).  So if the Publication is correct, EIC is allowed because it is not passive income nor is it "rental of personal property".

 

As for whether or not the Publication is correct, I am not sure.  I have looked before and was not able to find any official IRS guidance that "rents" in that section of the Tax Code was to be interpreted as only referring to "personal property".  But if you want to rely on the IRS Publication, then EIC would be allowed.

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6 Replies
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Level 6

Earned Income Tax Credit EITC

NET rental income counts for the EITC limitations not the GROSS ... so look at the Sch E ... after expenses what is your bottom line on the Sch E ? 

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Level 3

Earned Income Tax Credit EITC

Gross  income $7000

Real estate tax I paid  $700

The bottom of Sch E is $6300 

 

So, this income $6300 is supposed to include for calculation for the limitation of EITC?

Then, I am not supposed to get any EITC?!

If so, I don't understand why TT software still shows I get $3060 EITC credit?!

 

 

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Level 15

Earned Income Tax Credit EITC

the information you provided doesn't make sense.  you say rental income $7,000 real estate taxes $700.  net $6,300.  what about depreciation on the real estate? what about other expenses.   also rental income is not earned income so you should receive $0 EITC based on that being your only income. 

 

earned income includes wages, net earnings from self employment (schedule c, f or se income from a partnership), and limited other sources. 

 

there should be a worksheet in your return which would show the calculation

we can not see your return. 

 

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Level 6

Earned Income Tax Credit EITC

Save a PDF of the return and review the worksheets that the program filled in to see what is happening ... see the IRS information below ...

 

 

Rule 6—Your Investment Income Must Be $3,600 or Less    https://www.irs.gov/publications/p596

 

You can’t claim the earned income credit unless your investment income is $3,600 or less. If your investment income is more than $3,600, you can’t claim the credit.

Use Worksheet 1 in this chapter to figure your investment income.

 

Worksheet 1. Investment Income

 

Use this worksheet to figure investment income for the earned income credit when you file Form 1040 or 1040-SR.

 

Interest and Dividends    
1.Enter any amount from Form 1040 or 1040-SR, line 2b1._____
2.Enter any amount from Form 1040 or 1040-SR, line 2a, plus any amount on Form 8814, line 1b2._____
3.Enter any amount from Form 1040 or 1040-SR, line 3b3._____
4.Enter the amount from Schedule 1 (Form 1040 or 1040-SR), line 8, that is from Form 8814 if you are filing that form to report your child's interest and dividend income on your return. (If your child received an Alaska Permanent Fund dividend, use Worksheet 2 in this chapter to figure the amount to enter on this line.)4._____
Capital Gain Net Income    
5.Enter the amount from Form 1040 or 1040-SR, line 6. If the amount on that line is a loss, enter -0-5._____  
6.Enter any gain from Form 4797, Sales of Business Property, line 7. If the amount on that line is a loss, enter -0-. (But, if you completed lines 8 and 9 of Form 4797, enter the amount from line 9 instead.)6._____  
7.Subtract line 6 of this worksheet from line 5 of this worksheet. (If the result is less than zero, enter -0-.)7._____
Royalties and Rental Income From Personal Property    
8.Enter any royalty income from Schedule E, line 23b, plus any income from the rental of personal property shown on Schedule 1 (Form 1040 or 1040-SR), line 88._____  
9.Enter any expenses from Schedule E, line 20, related to royalty income, plus any expenses from the rental of personal property deducted on Schedule 1 (Form 1040 or 1040-SR), line 229._____  
10.Subtract the amount on line 9 of this worksheet from the amount on line 8. (If the result is less than zero, enter -0-.)10._____
Passive Activities    
11.Enter the total of any net income from passive activities (such as income included on Schedule E, line 26, 29a (col. (h)), 34a (col. (d)), or 40; or an ordinary gain identified as "FPA" on Form 4797, line 10). (See instructions below for lines 11 and 12.)11._____  
12.Enter the total of any losses from passive activities (such as losses included on Schedule E, line 26, 29b (col. (g)), 34b (col. (c)), or 40; or an ordinary loss identified as "PAL" on Form 4797, line 10). (See instructions below for lines 11 and 12.)12._____  
13.Combine the amounts on lines 11 and 12 of this worksheet. (If the result is less than zero, enter -0-.)13._____
14.Add the amounts on lines 1, 2, 3, 4, 7, 10, and 13. Enter the total. This is your investment income14._____
15.Is the amount on line 14 more than $3,600?
 Yes. You can’t take the credit.
 No. Go to Step 3 of the Form 1040 and 1040-SR instructions for line 18a to find out if you can take the credit (unless you are using this publication to find out if you can take the credit; in that case, go to Rule 7, next).
  
 
Instructions for lines 11 and 12. In figuring the amount to enter on lines 11 and 12, don’t take into account any royalty income (or loss) included on line 26 of Schedule E or any income (or loss) included in your earned income or on line 1, 2, 3, 4, 7, or 10 of this worksheet. To find out if the income on line 26 or line 40 of Schedule E is from a passive activity, see the Schedule E instructions. If any of the rental real estate income (or loss) included on Schedule E, line 26, isn’t from a passive activity, print "NPA" and the amount of that income (or loss) on the dotted line next to line 26.

 

Worksheet 2. Worksheet for Line 4 of Worksheet 1

 

Complete this worksheet only if Form 8814 includes an Alaska Permanent Fund dividend.

 

Note. Fill out a separate Worksheet 2 for each Form 8814.  
1.Enter the amount from Form 8814, line 2a1._____
2.Enter the amount from Form 8814, line 2b2._____
3.Subtract line 2 from line 13._____
4.Enter the amount from Form 8814, line 1a4._____
5.Add lines 3 and 45._____
6.Enter the amount of the child's Alaska Permanent Fund dividend6._____
7.Divide line 6 by line 5. Enter the result as a decimal (rounded to at least three places)7._____
8.Enter the amount from Form 8814, line 128._____
9.Multiply line 7 by line 89._____
10.Subtract line 9 from line 8. Enter the result on line 4 of Worksheet 110._____
 (If filing more than one Form 8814, enter on line 4 of Worksheet 1 the total of the amounts on line 10 of all Worksheets 2.)  

 

Example—Completing Worksheet 2.

 

Your 10-year-old child has taxable interest income of $400, an Alaska Permanent Fund dividend of $1,000, and ordinary dividends of $1,100, of which $500 are qualified dividends. You choose to report this income on your return. You enter $400 on line 1a of Form 8814, $2,100 ($1,000 + $1,100) on line 2a, and $500 on line 2b. After completing lines 4 through 11, you enter $240 on line 12 of Form 8814 and line 8 of Schedule 1 (Form 1040 or 1040-SR). On Worksheet 2, you enter $2,100 on line 1, $500 on line 2, $1,600 on line 3, $400 on line 4, $2,000 on line 5, $1,000 on line 6, 0.500 on line 7, $240 on line 8, $120 on line 9, and $120 on line 10. You then enter $120 on line 4 of Worksheet 1.

Highlighted
Level 10

Earned Income Tax Credit EITC

According to the IRS Publications, EIC is allowed.  According to the Tax Code, it seems questionable.

 

 

The Tax Code classifies several things that are considered "investment" income for purposes of the Earned Income Credit.  The two pertinent ones for your situation are (1) income from "rents or royalties" and (2) "passive" income.

 

Most real estate rental is "passive", which would disqualify EIC.  However, rental of land is NOT passive, so EIC is not disqualified under that category.

 

Although rental of land certainly would seem to be "rents" which would disqualify EIC, the IRS Publications state otherwise.  The IRS Publications refer to royalties or "rental of personal property" ("personal property" refers to non-real estate).  So if the Publication is correct, EIC is allowed because it is not passive income nor is it "rental of personal property".

 

As for whether or not the Publication is correct, I am not sure.  I have looked before and was not able to find any official IRS guidance that "rents" in that section of the Tax Code was to be interpreted as only referring to "personal property".  But if you want to rely on the IRS Publication, then EIC would be allowed.

View solution in original post

Highlighted
Level 3

Earned Income Tax Credit EITC

Thank you very much for all who spent time and replied to my question.

Wow!  especially,  to AmeliesUncle, I want to say bunch of Thank you! 

The best in best!

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