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2011 taxact login 1. 2011 taxact login   Overview of Depreciation Table of Contents Introduction Useful Items - You may want to see: What Property Can Be Depreciated?Property You Own Property Used in Your Business or Income-Producing Activity Property Having a Determinable Useful Life Property Lasting More Than One Year What Property Cannot Be Depreciated?Land Excepted Property When Does Depreciation Begin and End?Placed in Service Idle Property Cost or Other Basis Fully Recovered Retired From Service What Method Can You Use To Depreciate Your Property?Property You Placed in Service Before 1987 Property Owned or Used in 1986 Intangible Property Corporate or Partnership Property Acquired in a Nontaxable Transfer Election To Exclude Property From MACRS What Is the Basis of Your Depreciable Property?Cost as Basis Other Basis Adjusted Basis How Do You Treat Repairs and Improvements? Do You Have To File Form 4562? How Do You Correct Depreciation Deductions?Filing an Amended Return Changing Your Accounting Method Introduction Depreciation is an annual income tax deduction that allows you to recover the cost or other basis of certain property over the time you use the property. 2011 taxact login It is an allowance for the wear and tear, deterioration, or obsolescence of the property. 2011 taxact login This chapter discusses the general rules for depreciating property and answers the following questions. 2011 taxact login What property can be depreciated? What property cannot be depreciated? When does depreciation begin and end? What method can you use to depreciate your property? What is the basis of your depreciable property? How do you treat repairs and improvements? Do you have to file Form 4562? How do you correct depreciation deductions? Useful Items - You may want to see: Publication 534 Depreciating Property Placed in Service Before 1987 535 Business Expenses 538 Accounting Periods and Methods 551 Basis of Assets Form (and Instructions) Sch C (Form 1040) Profit or Loss From Business Sch C-EZ (Form 1040) Net Profit From Business 2106 Employee Business Expenses 2106-EZ Unreimbursed Employee Business Expenses 3115 Application for Change in Accounting Method 4562 Depreciation and Amortization See chapter 6 for information about getting publications and forms. 2011 taxact login What Property Can Be Depreciated? You can depreciate most types of tangible property (except land), such as buildings, machinery, vehicles, furniture, and equipment. 2011 taxact login You also can depreciate certain intangible property, such as patents, copyrights, and computer software. 2011 taxact login To be depreciable, the property must meet all the following requirements. 2011 taxact login It must be property you own. 2011 taxact login It must be used in your business or income-producing activity. 2011 taxact login It must have a determinable useful life. 2011 taxact login It must be expected to last more than one year. 2011 taxact login The following discussions provide information about these requirements. 2011 taxact login Property You Own To claim depreciation, you usually must be the owner of the property. 2011 taxact login You are considered as owning property even if it is subject to a debt. 2011 taxact login Example 1. 2011 taxact login You made a down payment to purchase rental property and assumed the previous owner's mortgage. 2011 taxact login You own the property and you can depreciate it. 2011 taxact login Example 2. 2011 taxact login You bought a new van that you will use only for your courier business. 2011 taxact login You will be making payments on the van over the next 5 years. 2011 taxact login You own the van and you can depreciate it. 2011 taxact login Leased property. 2011 taxact login   You can depreciate leased property only if you retain the incidents of ownership in the property (explained below). 2011 taxact login This means you bear the burden of exhaustion of the capital investment in the property. 2011 taxact login Therefore, if you lease property from someone to use in your trade or business or for the production of income, you generally cannot depreciate its cost because you do not retain the incidents of ownership. 2011 taxact login You can, however, depreciate any capital improvements you make to the property. 2011 taxact login See How Do You Treat Repairs and Improvements later in this chapter and Additions and Improvements under Which Recovery Period Applies in chapter 4. 2011 taxact login   If you lease property to someone, you generally can depreciate its cost even if the lessee (the person leasing from you) has agreed to preserve, replace, renew, and maintain the property. 2011 taxact login However, if the lease provides that the lessee is to maintain the property and return to you the same property or its equivalent in value at the expiration of the lease in as good condition and value as when leased, you cannot depreciate the cost of the property. 2011 taxact login Incidents of ownership. 2011 taxact login   Incidents of ownership in property include the following. 2011 taxact login The legal title to the property. 2011 taxact login The legal obligation to pay for the property. 2011 taxact login The responsibility to pay maintenance and operating expenses. 2011 taxact login The duty to pay any taxes on the property. 2011 taxact login The risk of loss if the property is destroyed, condemned, or diminished in value through obsolescence or exhaustion. 2011 taxact login Life tenant. 2011 taxact login   Generally, if you hold business or investment property as a life tenant, you can depreciate it as if you were the absolute owner of the property. 2011 taxact login However, see Certain term interests in property under Excepted Property, later. 2011 taxact login Cooperative apartments. 2011 taxact login   If you are a tenant-stockholder in a cooperative housing corporation and use your cooperative apartment in your business or for the production of income, you can depreciate your stock in the corporation, even though the corporation owns the apartment. 2011 taxact login   Figure your depreciation deduction as follows. 2011 taxact login Figure the depreciation for all the depreciable real property owned by the corporation in which you have a proprietary lease or right of tenancy. 2011 taxact login If you bought your cooperative stock after its first offering, figure the depreciable basis of this property as follows. 2011 taxact login Multiply your cost per share by the total number of outstanding shares, including any shares held by the corporation. 2011 taxact login Add to the amount figured in (a) any mortgage debt on the property on the date you bought the stock. 2011 taxact login Subtract from the amount figured in (b) any mortgage debt that is not for the depreciable real property, such as the part for the land. 2011 taxact login Subtract from the amount figured in (1) any depreciation for space owned by the corporation that can be rented but cannot be lived in by tenant-stockholders. 2011 taxact login Divide the number of your shares of stock by the total number of outstanding shares, including any shares held by the corporation. 2011 taxact login Multiply the result of (2) by the percentage you figured in (3). 2011 taxact login This is your depreciation on the stock. 2011 taxact login   Your depreciation deduction for the year cannot be more than the part of your adjusted basis in the stock of the corporation that is allocable to your business or income-producing property. 2011 taxact login You must also reduce your depreciation deduction if only a portion of the property is used in a business or for the production of income. 2011 taxact login Example. 2011 taxact login You figure your share of the cooperative housing corporation's depreciation to be $30,000. 2011 taxact login Your adjusted basis in the stock of the corporation is $50,000. 2011 taxact login You use one half of your apartment solely for business purposes. 2011 taxact login Your depreciation deduction for the stock for the year cannot be more than $25,000 (½ of $50,000). 2011 taxact login Change to business use. 2011 taxact login   If you change your cooperative apartment to business use, figure your allowable depreciation as explained earlier. 2011 taxact login The basis of all the depreciable real property owned by the cooperative housing corporation is the smaller of the following amounts. 2011 taxact login The fair market value of the property on the date you change your apartment to business use. 2011 taxact login This is considered to be the same as the corporation's adjusted basis minus straight line depreciation, unless this value is unrealistic. 2011 taxact login The corporation's adjusted basis in the property on that date. 2011 taxact login Do not subtract depreciation when figuring the corporation's adjusted basis. 2011 taxact login   If you bought the stock after its first offering, the corporation's adjusted basis in the property is the amount figured in (1), above. 2011 taxact login The fair market value of the property is considered to be the same as the corporation's adjusted basis figured in this way minus straight line depreciation, unless the value is unrealistic. 2011 taxact login   For a discussion of fair market value and adjusted basis, see Publication 551. 2011 taxact login Property Used in Your Business or Income-Producing Activity To claim depreciation on property, you must use it in your business or income-producing activity. 2011 taxact login If you use property to produce income (investment use), the income must be taxable. 2011 taxact login You cannot depreciate property that you use solely for personal activities. 2011 taxact login Partial business or investment use. 2011 taxact login   If you use property for business or investment purposes and for personal purposes, you can deduct depreciation based only on the business or investment use. 2011 taxact login For example, you cannot deduct depreciation on a car used only for commuting, personal shopping trips, family vacations, driving children to and from school, or similar activities. 2011 taxact login    You must keep records showing the business, investment, and personal use of your property. 2011 taxact login For more information on the records you must keep for listed property, such as a car, see What Records Must Be Kept in chapter 5. 2011 taxact login    Although you can combine business and investment use of property when figuring depreciation deductions, do not treat investment use as qualified business use when determining whether the business-use requirement for listed property is met. 2011 taxact login For information about qualified business use of listed property, see What Is the Business-Use Requirement in chapter 5. 2011 taxact login Office in the home. 2011 taxact login   If you use part of your home as an office, you may be able to deduct depreciation on that part based on its business use. 2011 taxact login For information about depreciating your home office, see Publication 587. 2011 taxact login Inventory. 2011 taxact login   You cannot depreciate inventory because it is not held for use in your business. 2011 taxact login Inventory is any property you hold primarily for sale to customers in the ordinary course of your business. 2011 taxact login   If you are a rent-to-own dealer, you may be able to treat certain property held in your business as depreciable property rather than as inventory. 2011 taxact login See Rent-to-own dealer under Which Property Class Applies Under GDS in chapter 4. 2011 taxact login   In some cases, it is not clear whether property is held for sale (inventory) or for use in your business. 2011 taxact login If it is unclear, examine carefully all the facts in the operation of the particular business. 2011 taxact login The following example shows how a careful examination of the facts in two similar situations results in different conclusions. 2011 taxact login Example. 2011 taxact login Maple Corporation is in the business of leasing cars. 2011 taxact login At the end of their useful lives, when the cars are no longer profitable to lease, Maple sells them. 2011 taxact login Maple does not have a showroom, used car lot, or individuals to sell the cars. 2011 taxact login Instead, it sells them through wholesalers or by similar arrangements in which a dealer's profit is not intended or considered. 2011 taxact login Maple can depreciate the leased cars because the cars are not held primarily for sale to customers in the ordinary course of business, but are leased. 2011 taxact login If Maple buys cars at wholesale prices, leases them for a short time, and then sells them at retail prices or in sales in which a dealer's profit is intended, the cars are treated as inventory and are not depreciable property. 2011 taxact login In this situation, the cars are held primarily for sale to customers in the ordinary course of business. 2011 taxact login Containers. 2011 taxact login   Generally, containers for the products you sell are part of inventory and you cannot depreciate them. 2011 taxact login However, you can depreciate containers used to ship your products if they have a life longer than one year and meet the following requirements. 2011 taxact login They qualify as property used in your business. 2011 taxact login Title to the containers does not pass to the buyer. 2011 taxact login   To determine if these requirements are met, consider the following questions. 2011 taxact login Does your sales contract, sales invoice, or other type of order acknowledgment indicate whether you have retained title? Does your invoice treat the containers as separate items? Do any of your records state your basis in the containers? Property Having a Determinable Useful Life To be depreciable, your property must have a determinable useful life. 2011 taxact login This means that it must be something that wears out, decays, gets used up, becomes obsolete, or loses its value from natural causes. 2011 taxact login Property Lasting More Than One Year To be depreciable, property must have a useful life that extends substantially beyond the year you place it in service. 2011 taxact login Example. 2011 taxact login You maintain a library for use in your profession. 2011 taxact login You can depreciate it. 2011 taxact login However, if you buy technical books, journals, or information services for use in your business that have a useful life of one year or less, you cannot depreciate them. 2011 taxact login Instead, you deduct their cost as a business expense. 2011 taxact login What Property Cannot Be Depreciated? Certain property cannot be depreciated. 2011 taxact login This includes land and certain excepted property. 2011 taxact login Land You cannot depreciate the cost of land because land does not wear out, become obsolete, or get used up. 2011 taxact login The cost of land generally includes the cost of clearing, grading, planting, and landscaping. 2011 taxact login Although you cannot depreciate land, you can depreciate certain land preparation costs, such as landscaping costs, incurred in preparing land for business use. 2011 taxact login These costs must be so closely associated with other depreciable property that you can determine a life for them along with the life of the associated property. 2011 taxact login Example. 2011 taxact login You constructed a new building for use in your business and paid for grading, clearing, seeding, and planting bushes and trees. 2011 taxact login Some of the bushes and trees were planted right next to the building, while others were planted around the outer border of the lot. 2011 taxact login If you replace the building, you would have to destroy the bushes and trees right next to it. 2011 taxact login These bushes and trees are closely associated with the building, so they have a determinable useful life. 2011 taxact login Therefore, you can depreciate them. 2011 taxact login Add your other land preparation costs to the basis of your land because they have no determinable life and you cannot depreciate them. 2011 taxact login Excepted Property Even if the requirements explained in the preceding discussions are met, you cannot depreciate the following property. 2011 taxact login Property placed in service and disposed of in the same year. 2011 taxact login Determining when property is placed in service is explained later. 2011 taxact login Equipment used to build capital improvements. 2011 taxact login You must add otherwise allowable depreciation on the equipment during the period of construction to the basis of your improvements. 2011 taxact login See Uniform Capitalization Rules in Publication 551. 2011 taxact login Section 197 intangibles. 2011 taxact login You must amortize these costs. 2011 taxact login Section 197 intangibles are discussed in detail in Chapter 8 of Publication 535. 2011 taxact login Intangible property, such as certain computer software, that is not section 197 intangible property, can be depreciated if it meets certain requirements. 2011 taxact login See Intangible Property , later. 2011 taxact login Certain term interests. 2011 taxact login Certain term interests in property. 2011 taxact login   You cannot depreciate a term interest in property created or acquired after July 27, 1989, for any period during which the remainder interest is held, directly or indirectly, by a person related to you. 2011 taxact login A term interest in property means a life interest in property, an interest in property for a term of years, or an income interest in a trust. 2011 taxact login Related persons. 2011 taxact login   For a description of related persons, see Related Persons, later. 2011 taxact login For this purpose, however, treat as related persons only the relationships listed in items (1) through (10) of that discussion and substitute “50%” for “10%” each place it appears. 2011 taxact login Basis adjustments. 2011 taxact login   If you would be allowed a depreciation deduction for a term interest in property except that the holder of the remainder interest is related to you, you generally must reduce your basis in the term interest by any depreciation or amortization not allowed. 2011 taxact login   If you hold the remainder interest, you generally must increase your basis in that interest by the depreciation not allowed to the term interest holder. 2011 taxact login However, do not increase your basis for depreciation not allowed for periods during which either of the following situations applies. 2011 taxact login The term interest is held by an organization exempt from tax. 2011 taxact login The term interest is held by a nonresident alien individual or foreign corporation, and the income from the term interest is not effectively connected with the conduct of a trade or business in the United States. 2011 taxact login Exceptions. 2011 taxact login   The above rules do not apply to the holder of a term interest in property acquired by gift, bequest, or inheritance. 2011 taxact login They also do not apply to the holder of dividend rights that were separated from any stripped preferred stock if the rights were purchased after April 30, 1993, or to a person whose basis in the stock is determined by reference to the basis in the hands of the purchaser. 2011 taxact login When Does Depreciation Begin and End? You begin to depreciate your property when you place it in service for use in your trade or business or for the production of income. 2011 taxact login You stop depreciating property either when you have fully recovered your cost or other basis or when you retire it from service, whichever happens first. 2011 taxact login Placed in Service You place property in service when it is ready and available for a specific use, whether in a business activity, an income-producing activity, a tax-exempt activity, or a personal activity. 2011 taxact login Even if you are not using the property, it is in service when it is ready and available for its specific use. 2011 taxact login Example 1. 2011 taxact login Donald Steep bought a machine for his business. 2011 taxact login The machine was delivered last year. 2011 taxact login However, it was not installed and operational until this year. 2011 taxact login It is considered placed in service this year. 2011 taxact login If the machine had been ready and available for use when it was delivered, it would be considered placed in service last year even if it was not actually used until this year. 2011 taxact login Example 2. 2011 taxact login On April 6, Sue Thorn bought a house to use as residential rental property. 2011 taxact login She made several repairs and had it ready for rent on July 5. 2011 taxact login At that time, she began to advertise it for rent in the local newspaper. 2011 taxact login The house is considered placed in service in July when it was ready and available for rent. 2011 taxact login She can begin to depreciate it in July. 2011 taxact login Example 3. 2011 taxact login James Elm is a building contractor who specializes in constructing office buildings. 2011 taxact login He bought a truck last year that had to be modified to lift materials to second-story levels. 2011 taxact login The installation of the lifting equipment was completed and James accepted delivery of the modified truck on January 10 of this year. 2011 taxact login The truck was placed in service on January 10, the date it was ready and available to perform the function for which it was bought. 2011 taxact login Conversion to business use. 2011 taxact login   If you place property in service in a personal activity, you cannot claim depreciation. 2011 taxact login However, if you change the property's use to use in a business or income-producing activity, then you can begin to depreciate it at the time of the change. 2011 taxact login You place the property in service in the business or income-producing activity on the date of the change. 2011 taxact login Example. 2011 taxact login You bought a home and used it as your personal home several years before you converted it to rental property. 2011 taxact login Although its specific use was personal and no depreciation was allowable, you placed the home in service when you began using it as your home. 2011 taxact login You can begin to claim depreciation in the year you converted it to rental property because its use changed to an income-producing use at that time. 2011 taxact login Idle Property Continue to claim a deduction for depreciation on property used in your business or for the production of income even if it is temporarily idle (not in use). 2011 taxact login For example, if you stop using a machine because there is a temporary lack of a market for a product made with that machine, continue to deduct depreciation on the machine. 2011 taxact login Cost or Other Basis Fully Recovered You stop depreciating property when you have fully recovered your cost or other basis. 2011 taxact login You recover your basis when your section 179 and allowed or allowable depreciation deductions equal your cost or investment in the property. 2011 taxact login See What Is the Basis of Your Depreciable Property , later. 2011 taxact login Retired From Service You stop depreciating property when you retire it from service, even if you have not fully recovered its cost or other basis. 2011 taxact login You retire property from service when you permanently withdraw it from use in a trade or business or from use in the production of income because of any of the following events. 2011 taxact login You sell or exchange the property. 2011 taxact login You convert the property to personal use. 2011 taxact login You abandon the property. 2011 taxact login You transfer the property to a supplies or scrap account. 2011 taxact login The property is destroyed. 2011 taxact login If you included the property in a general asset account, see How Do You Use General Asset Accounts in chapter 4 for the rules that apply when you dispose of that property. 2011 taxact login What Method Can You Use To Depreciate Your Property? You must use the Modified Accelerated Cost Recovery System (MACRS) to depreciate most property. 2011 taxact login MACRS is discussed in chapter 4. 2011 taxact login You cannot use MACRS to depreciate the following property. 2011 taxact login Property you placed in service before 1987. 2011 taxact login Certain property owned or used in 1986. 2011 taxact login Intangible property. 2011 taxact login Films, video tapes, and recordings. 2011 taxact login Certain corporate or partnership property acquired in a nontaxable transfer. 2011 taxact login Property you elected to exclude from MACRS. 2011 taxact login The following discussions describe the property listed above and explain what depreciation method should be used. 2011 taxact login Property You Placed in Service Before 1987 You cannot use MACRS for property you placed in service before 1987 (except property you placed in service after July 31, 1986, if MACRS was elected). 2011 taxact login Property placed in service before 1987 must be depreciated under the methods discussed in Publication 534. 2011 taxact login For a discussion of when property is placed in service, see When Does Depreciation Begin and End , earlier. 2011 taxact login Use of real property changed. 2011 taxact login   You generally must use MACRS to depreciate real property that you acquired for personal use before 1987 and changed to business or income-producing use after 1986. 2011 taxact login Improvements made after 1986. 2011 taxact login   You must treat an improvement made after 1986 to property you placed in service before 1987 as separate depreciable property. 2011 taxact login Therefore, you can depreciate that improvement as separate property under MACRS if it is the type of property that otherwise qualifies for MACRS depreciation. 2011 taxact login For more information about improvements, see How Do You Treat Repairs and Improvements , later and Additions and Improvements under Which Recovery Period Applies in chapter 4. 2011 taxact login Property Owned or Used in 1986 You may not be able to use MACRS for property you acquired and placed in service after 1986 if any of the situations described below apply. 2011 taxact login If you cannot use MACRS, the property must be depreciated under the methods discussed in Publication 534. 2011 taxact login For the following discussions, do not treat property as owned before you placed it in service. 2011 taxact login If you owned property in 1986 but did not place it in service until 1987, you do not treat it as owned in 1986. 2011 taxact login Personal property. 2011 taxact login   You cannot use MACRS for personal property (section 1245 property) in any of the following situations. 2011 taxact login You or someone related to you owned or used the property in 1986. 2011 taxact login You acquired the property from a person who owned it in 1986 and as part of the transaction the user of the property did not change. 2011 taxact login You lease the property to a person (or someone related to this person) who owned or used the property in 1986. 2011 taxact login You acquired the property in a transaction in which: The user of the property did not change, and The property was not MACRS property in the hands of the person from whom you acquired it because of (2) or (3) above. 2011 taxact login Real property. 2011 taxact login   You generally cannot use MACRS for real property (section 1250 property) in any of the following situations. 2011 taxact login You or someone related to you owned the property in 1986. 2011 taxact login You lease the property to a person who owned the property in 1986 (or someone related to that person). 2011 taxact login You acquired the property in a like-kind exchange, involuntary conversion, or repossession of property you or someone related to you owned in 1986. 2011 taxact login MACRS applies only to that part of your basis in the acquired property that represents cash paid or unlike property given up. 2011 taxact login It does not apply to the carried-over part of the basis. 2011 taxact login Exceptions. 2011 taxact login   The rules above do not apply to the following. 2011 taxact login Residential rental property or nonresidential real property. 2011 taxact login Any property if, in the first tax year it is placed in service, the deduction under the Accelerated Cost Recovery System (ACRS) is more than the deduction under MACRS using the half-year convention. 2011 taxact login For information on how to figure depreciation under ACRS, see Publication 534. 2011 taxact login Property that was MACRS property in the hands of the person from whom you acquired it because of (2) above. 2011 taxact login Related persons. 2011 taxact login   For this purpose, the following are related persons. 2011 taxact login An individual and a member of his or her family, including only a spouse, child, parent, brother, sister, half-brother, half-sister, ancestor, and lineal descendant. 2011 taxact login A corporation and an individual who directly or indirectly owns more than 10% of the value of the outstanding stock of that corporation. 2011 taxact login Two corporations that are members of the same controlled group. 2011 taxact login A trust fiduciary and a corporation if more than 10% of the value of the outstanding stock is directly or indirectly owned by or for the trust or grantor of the trust. 2011 taxact login The grantor and fiduciary, and the fiduciary and beneficiary, of any trust. 2011 taxact login The fiduciaries of two different trusts, and the fiduciaries and beneficiaries of two different trusts, if the same person is the grantor of both trusts. 2011 taxact login A tax-exempt educational or charitable organization and any person (or, if that person is an individual, a member of that person's family) who directly or indirectly controls the organization. 2011 taxact login Two S corporations, and an S corporation and a regular corporation, if the same persons own more than 10% of the value of the outstanding stock of each corporation. 2011 taxact login A corporation and a partnership if the same persons own both of the following. 2011 taxact login More than 10% of the value of the outstanding stock of the corporation. 2011 taxact login More than 10% of the capital or profits interest in the partnership. 2011 taxact login The executor and beneficiary of any estate. 2011 taxact login A partnership and a person who directly or indirectly owns more than 10% of the capital or profits interest in the partnership. 2011 taxact login Two partnerships, if the same persons directly or indirectly own more than 10% of the capital or profits interest in each. 2011 taxact login The related person and a person who is engaged in trades or businesses under common control. 2011 taxact login See section 52(a) and 52(b) of the Internal Revenue Code. 2011 taxact login When to determine relationship. 2011 taxact login   You must determine whether you are related to another person at the time you acquire the property. 2011 taxact login   A partnership acquiring property from a terminating partnership must determine whether it is related to the terminating partnership immediately before the event causing the termination. 2011 taxact login For this rule, a terminating partnership is one that sells or exchanges, within 12 months, 50% or more of its total interest in partnership capital or profits. 2011 taxact login Constructive ownership of stock or partnership interest. 2011 taxact login   To determine whether a person directly or indirectly owns any of the outstanding stock of a corporation or an interest in a partnership, apply the following rules. 2011 taxact login Stock or a partnership interest directly or indirectly owned by or for a corporation, partnership, estate, or trust is considered owned proportionately by or for its shareholders, partners, or beneficiaries. 2011 taxact login However, for a partnership interest owned by or for a C corporation, this applies only to shareholders who directly or indirectly own 5% or more of the value of the stock of the corporation. 2011 taxact login An individual is considered to own the stock or partnership interest directly or indirectly owned by or for the individual's family. 2011 taxact login An individual who owns, except by applying rule (2), any stock in a corporation is considered to own the stock directly or indirectly owned by or for the individual's partner. 2011 taxact login For purposes of rules (1), (2), or (3), stock or a partnership interest considered to be owned by a person under rule (1) is treated as actually owned by that person. 2011 taxact login However, stock or a partnership interest considered to be owned by an individual under rule (2) or (3) is not treated as owned by that individual for reapplying either rule (2) or (3) to make another person considered to be the owner of the same stock or partnership interest. 2011 taxact login Intangible Property Generally, if you can depreciate intangible property, you usually use the straight line method of depreciation. 2011 taxact login However, you can choose to depreciate certain intangible property under the income forecast method (discussed later). 2011 taxact login You cannot depreciate intangible property that is a section 197 intangible or that otherwise does not meet all the requirements discussed earlier under What Property Can Be Depreciated. 2011 taxact login Straight Line Method This method lets you deduct the same amount of depreciation each year over the useful life of the property. 2011 taxact login To figure your deduction, first determine the adjusted basis, salvage value, and estimated useful life of your property. 2011 taxact login Subtract the salvage value, if any, from the adjusted basis. 2011 taxact login The balance is the total depreciation you can take over the useful life of the property. 2011 taxact login Divide the balance by the number of years in the useful life. 2011 taxact login This gives you your yearly depreciation deduction. 2011 taxact login Unless there is a big change in adjusted basis or useful life, this amount will stay the same throughout the time you depreciate the property. 2011 taxact login If, in the first year, you use the property for less than a full year, you must prorate your depreciation deduction for the number of months in use. 2011 taxact login Example. 2011 taxact login In April, Frank bought a patent for $5,100 that is not a section 197 intangible. 2011 taxact login He depreciates the patent under the straight line method, using a 17-year useful life and no salvage value. 2011 taxact login He divides the $5,100 basis by 17 years to get his $300 yearly depreciation deduction. 2011 taxact login He only used the patent for 9 months during the first year, so he multiplies $300 by 9/12 to get his deduction of $225 for the first year. 2011 taxact login Next year, Frank can deduct $300 for the full year. 2011 taxact login Patents and copyrights. 2011 taxact login   If you can depreciate the cost of a patent or copyright, use the straight line method over the useful life. 2011 taxact login The useful life of a patent or copyright is the lesser of the life granted to it by the government or the remaining life when you acquire it. 2011 taxact login However, if the patent or copyright becomes valueless before the end of its useful life, you can deduct in that year any of its remaining cost or other basis. 2011 taxact login Computer software. 2011 taxact login   Computer software is generally a section 197 intangible and cannot be depreciated if you acquired it in connection with the acquisition of assets constituting a business or a substantial part of a business. 2011 taxact login   However, computer software is not a section 197 intangible and can be depreciated, even if acquired in connection with the acquisition of a business, if it meets all of the following tests. 2011 taxact login It is readily available for purchase by the general public. 2011 taxact login It is subject to a nonexclusive license. 2011 taxact login It has not been substantially modified. 2011 taxact login   If the software meets the tests above, it may also qualify for the section 179 deduction and the special depreciation allowance, discussed later. 2011 taxact login If you can depreciate the cost of computer software, use the straight line method over a useful life of 36 months. 2011 taxact login    Tax-exempt use property subject to a lease. 2011 taxact login   The useful life of computer software leased under a lease agreement entered into after March 12, 2004, to a tax-exempt organization, governmental unit, or foreign person or entity (other than a partnership), cannot be less than 125% of the lease term. 2011 taxact login Certain created intangibles. 2011 taxact login   You can amortize certain intangibles created on or after December 31, 2003, over a 15-year period using the straight line method and no salvage value, even though they have a useful life that cannot be estimated with reasonable accuracy. 2011 taxact login For example, amounts paid to acquire memberships or privileges of indefinite duration, such as a trade association membership, are eligible costs. 2011 taxact login   The following are not eligible. 2011 taxact login Any intangible asset acquired from another person. 2011 taxact login Created financial interests. 2011 taxact login Any intangible asset that has a useful life that can be estimated with reasonable accuracy. 2011 taxact login Any intangible asset that has an amortization period or limited useful life that is specifically prescribed or prohibited by the Code, regulations, or other published IRS guidance. 2011 taxact login Any amount paid to facilitate an acquisition of a trade or business, a change in the capital structure of a business entity, and certain other transactions. 2011 taxact login   You must also increase the 15-year safe harbor amortization period to a 25-year period for certain intangibles related to benefits arising from the provision, production, or improvement of real property. 2011 taxact login For this purpose, real property includes property that will remain attached to the real property for an indefinite period of time, such as roads, bridges, tunnels, pavements, and pollution control facilities. 2011 taxact login Income Forecast Method You can choose to use the income forecast method instead of the straight line method to depreciate the following depreciable intangibles. 2011 taxact login Motion picture films or video tapes. 2011 taxact login Sound recordings. 2011 taxact login Copyrights. 2011 taxact login Books. 2011 taxact login Patents. 2011 taxact login Under the income forecast method, each year's depreciation deduction is equal to the cost of the property, multiplied by a fraction. 2011 taxact login The numerator of the fraction is the current year's net income from the property, and the denominator is the total income anticipated from the property through the end of the 10th taxable year following the taxable year the property is placed in service. 2011 taxact login For more information, see section 167(g) of the Internal Revenue Code. 2011 taxact login Films, video tapes, and recordings. 2011 taxact login   You cannot use MACRS for motion picture films, video tapes, and sound recordings. 2011 taxact login For this purpose, sound recordings are discs, tapes, or other phonorecordings resulting from the fixation of a series of sounds. 2011 taxact login You can depreciate this property using either the straight line method or the income forecast method. 2011 taxact login Participations and residuals. 2011 taxact login   You can include participations and residuals in the adjusted basis of the property for purposes of computing your depreciation deduction under the income forecast method. 2011 taxact login The participations and residuals must relate to income to be derived from the property before the end of the 10th taxable year after the property is placed in service. 2011 taxact login For this purpose, participations and residuals are defined as costs which by contract vary with the amount of income earned in connection with the property. 2011 taxact login   Instead of including these amounts in the adjusted basis of the property, you can deduct the costs in the taxable year that they are paid. 2011 taxact login Videocassettes. 2011 taxact login   If you are in the business of renting videocassettes, you can depreciate only those videocassettes bought for rental. 2011 taxact login If the videocassette has a useful life of one year or less, you can currently deduct the cost as a business expense. 2011 taxact login Corporate or Partnership Property Acquired in a Nontaxable Transfer MACRS does not apply to property used before 1987 and transferred after 1986 to a corporation or partnership (except property the transferor placed in service after July 31, 1986, if MACRS was elected) to the extent its basis is carried over from the property's adjusted basis in the transferor's hands. 2011 taxact login You must continue to use the same depreciation method as the transferor and figure depreciation as if the transfer had not occurred. 2011 taxact login However, if MACRS would otherwise apply, you can use it to depreciate the part of the property's basis that exceeds the carried-over basis. 2011 taxact login The nontaxable transfers covered by this rule include the following. 2011 taxact login A distribution in complete liquidation of a subsidiary. 2011 taxact login A transfer to a corporation controlled by the transferor. 2011 taxact login An exchange of property solely for corporate stock or securities in a reorganization. 2011 taxact login A contribution of property to a partnership in exchange for a partnership interest. 2011 taxact login A partnership distribution of property to a partner. 2011 taxact login Election To Exclude Property From MACRS If you can properly depreciate any property under a method not based on a term of years, such as the unit-of-production method, you can elect to exclude that property from MACRS. 2011 taxact login You make the election by reporting your depreciation for the property on line 15 in Part II of Form 4562 and attaching a statement as described in the instructions for Form 4562. 2011 taxact login You must make this election by the return due date (including extensions) for the tax year you place your property in service. 2011 taxact login However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within six months of the due date of the return (excluding extensions). 2011 taxact login Attach the election to the amended return and write “Filed pursuant to section 301. 2011 taxact login 9100-2” on the election statement. 2011 taxact login File the amended return at the same address you filed the original return. 2011 taxact login Use of standard mileage rate. 2011 taxact login   If you use the standard mileage rate to figure your tax deduction for your business automobile, you are treated as having made an election to exclude the automobile from MACRS. 2011 taxact login See Publication 463 for a discussion of the standard mileage rate. 2011 taxact login What Is the Basis of Your Depreciable Property? To figure your depreciation deduction, you must determine the basis of your property. 2011 taxact login To determine basis, you need to know the cost or other basis of your property. 2011 taxact login Cost as Basis The basis of property you buy is its cost plus amounts you paid for items such as sales tax (see Exception , below), freight charges, and installation and testing fees. 2011 taxact login The cost includes the amount you pay in cash, debt obligations, other property, or services. 2011 taxact login Exception. 2011 taxact login   You can elect to deduct state and local general sales taxes instead of state and local income taxes as an itemized deduction on Schedule A (Form 1040). 2011 taxact login If you make that choice, you cannot include those sales taxes as part of your cost basis. 2011 taxact login Assumed debt. 2011 taxact login   If you buy property and assume (or buy subject to) an existing mortgage or other debt on the property, your basis includes the amount you pay for the property plus the amount of the assumed debt. 2011 taxact login Example. 2011 taxact login You make a $20,000 down payment on property and assume the seller's mortgage of $120,000. 2011 taxact login Your total cost is $140,000, the cash you paid plus the mortgage you assumed. 2011 taxact login Settlement costs. 2011 taxact login   The basis of real property also includes certain fees and charges you pay in addition to the purchase price. 2011 taxact login These generally are shown on your settlement statement and include the following. 2011 taxact login Legal and recording fees. 2011 taxact login Abstract fees. 2011 taxact login Survey charges. 2011 taxact login Owner's title insurance. 2011 taxact login 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. 2011 taxact login   For fees and charges you cannot include in the basis of property, see Real Property in Publication 551. 2011 taxact login Property you construct or build. 2011 taxact login   If you construct, build, or otherwise produce property for use in your business, you may have to use the uniform capitalization rules to determine the basis of your property. 2011 taxact login For information about the uniform capitalization rules, see Publication 551 and the regulations under section 263A of the Internal Revenue Code. 2011 taxact login Other Basis Other basis usually refers to basis that is determined by the way you received the property. 2011 taxact login For example, your basis is other than cost if you acquired the property in exchange for other property, as payment for services you performed, as a gift, or as an inheritance. 2011 taxact login If you acquired property in this or some other way, see Publication 551 to determine your basis. 2011 taxact login Property changed from personal use. 2011 taxact login   If you held property for personal use and later use it in your business or income-producing activity, your depreciable basis is the lesser of the following. 2011 taxact login The fair market value (FMV) of the property on the date of the change in use. 2011 taxact login Your original cost or other basis adjusted as follows. 2011 taxact login Increased by the cost of any permanent improvements or additions and other costs that must be added to basis. 2011 taxact login Decreased by any deductions you claimed for casualty and theft losses and other items that reduced your basis. 2011 taxact login Example. 2011 taxact login Several years ago, Nia paid $160,000 to have her home built on a lot that cost her $25,000. 2011 taxact login Before changing the property to rental use last year, she paid $20,000 for permanent improvements to the house and claimed a $2,000 casualty loss deduction for damage to the house. 2011 taxact login Land is not depreciable, so she includes only the cost of the house when figuring the basis for depreciation. 2011 taxact login Nia's adjusted basis in the house when she changed its use was $178,000 ($160,000 + $20,000 − $2,000). 2011 taxact login On the same date, her property had an FMV of $180,000, of which $15,000 was for the land and $165,000 was for the house. 2011 taxact login The basis for depreciation on the house is the FMV on the date of change ($165,000), because it is less than her adjusted basis ($178,000). 2011 taxact login Property acquired in a nontaxable transaction. 2011 taxact login   Generally, if you receive property in a nontaxable exchange, the basis of the property you receive is the same as the adjusted basis of the property you gave up. 2011 taxact login Special rules apply in determining the basis and figuring the MACRS depreciation deduction and special depreciation allowance for property acquired in a like-kind exchange or involuntary conversion. 2011 taxact login See Like-kind exchanges and involuntary conversions. 2011 taxact login under How Much Can You Deduct? in chapter 3 and Figuring the Deduction for Property Acquired in a Nontaxable Exchange in chapter 4. 2011 taxact login   There are also special rules for determining the basis of MACRS property involved in a like-kind exchange or involuntary conversion when the property is contained in a general asset account. 2011 taxact login See How Do You Use General Asset Accounts in chapter 4. 2011 taxact login Adjusted Basis To find your property's basis for depreciation, you may have to make certain adjustments (increases and decreases) to the basis of the property for events occurring between the time you acquired the property and the time you placed it in service. 2011 taxact login These events could include the following. 2011 taxact login Installing utility lines. 2011 taxact login Paying legal fees for perfecting the title. 2011 taxact login Settling zoning issues. 2011 taxact login Receiving rebates. 2011 taxact login Incurring a casualty or theft loss. 2011 taxact login For a discussion of adjustments to the basis of your property, see Adjusted Basis in Publication 551. 2011 taxact login If you depreciate your property under MACRS, you also may have to reduce your basis by certain deductions and credits with respect to the property. 2011 taxact login For more information, see What Is the Basis for Depreciation in chapter 4. 2011 taxact login . 2011 taxact login Basis adjustment for depreciation allowed or allowable. 2011 taxact login   You must reduce the basis of property by the depreciation allowed or allowable, whichever is greater. 2011 taxact login Depreciation allowed is depreciation you actually deducted (from which you received a tax benefit). 2011 taxact login Depreciation allowable is depreciation you are entitled to deduct. 2011 taxact login   If you do not claim depreciation you are entitled to deduct, you must still reduce the basis of the property by the full amount of depreciation allowable. 2011 taxact login   If you deduct more depreciation than you should, you must reduce your basis by any amount deducted from which you received a tax benefit (the depreciation allowed). 2011 taxact login How Do You Treat Repairs and Improvements? If you improve depreciable property, you must treat the improvement as separate depreciable property. 2011 taxact login Improvement means an addition to or partial replacement of property that adds to its value, appreciably lengthens the time you can use it, or adapts it to a different use. 2011 taxact login You generally deduct the cost of repairing business property in the same way as any other business expense. 2011 taxact login However, if a repair or replacement increases the value of your property, makes it more useful, or lengthens its life, you must treat it as an improvement and depreciate it. 2011 taxact login Example. 2011 taxact login You repair a small section on one corner of the roof of a rental house. 2011 taxact login You deduct the cost of the repair as a rental expense. 2011 taxact login However, if you completely replace the roof, the new roof is an improvement because it increases the value and lengthens the life of the property. 2011 taxact login You depreciate the cost of the new roof. 2011 taxact login Improvements to rented property. 2011 taxact login   You can depreciate permanent improvements you make to business property you rent from someone else. 2011 taxact login Do You Have To File Form 4562? Use Form 4562 to figure your deduction for depreciation and amortization. 2011 taxact login Attach Form 4562 to your tax return for the current tax year if you are claiming any of the following items. 2011 taxact login A section 179 deduction for the current year or a section 179 carryover from a prior year. 2011 taxact login See chapter 2 for information on the section 179 deduction. 2011 taxact login Depreciation for property placed in service during the current year. 2011 taxact login Depreciation on any vehicle or other listed property, regardless of when it was placed in service. 2011 taxact login See chapter 5 for information on listed property. 2011 taxact login A deduction for any vehicle if the deduction is reported on a form other than Schedule C (Form 1040) or Schedule C-EZ (Form 1040). 2011 taxact login Amortization of costs if the current year is the first year of the amortization period. 2011 taxact login Depreciation or amortization on any asset on a corporate income tax return (other than Form 1120S, U. 2011 taxact login S. 2011 taxact login Income Tax Return for an S Corporation) regardless of when it was placed in service. 2011 taxact login You must submit a separate Form 4562 for each business or activity on your return for which a Form 4562 is required. 2011 taxact login Table 1-1 presents an overview of the purpose of the various parts of Form 4562. 2011 taxact login Employee. 2011 taxact login   Do not use Form 4562 if you are an employee and you deduct job-related vehicle expenses using either actual expenses (including depreciation) or the standard mileage rate. 2011 taxact login Instead, use either Form 2106 or Form 2106-EZ. 2011 taxact login Use Form 2106-EZ if you are claiming the standard mileage rate and you are not reimbursed by your employer for any expenses. 2011 taxact login How Do You Correct Depreciation Deductions? If you deducted an incorrect amount of depreciation in any year, you may be able to make a correction by filing an amended return for that year. 2011 taxact login See Filing an Amended Return , next. 2011 taxact login If you are not allowed to make the correction on an amended return, you may be able to change your accounting method to claim the correct amount of depreciation. 2011 taxact login See Changing Your Accounting Method , later. 2011 taxact login Filing an Amended Return You can file an amended return to correct the amount of depreciation claimed for any property in any of the following situations. 2011 taxact login You claimed the incorrect amount because of a mathematical error made in any year. 2011 taxact login You claimed the incorrect amount because of a posting error made in any year. 2011 taxact login You have not adopted a method of accounting for property placed in service by you in tax years ending after December 29, 2003. 2011 taxact login You claimed the incorrect amount on property placed in service by you in tax years ending before December 30, 2003. 2011 taxact login Adoption of accounting method defined. 2011 taxact login   Generally, you adopt a method of accounting for depreciation by using a permissible method of determining depreciation when you file your first tax return, or by using the same impermissible method of determining depreciation in two or more consecutively filed tax returns. 2011 taxact login   For an exception to this 2-year rule, see Revenue Procedure 2011-14 on page 330 of the Internal Revenue Bulletin 2011-4, available at www. 2011 taxact login irs. 2011 taxact login gov/pub/irs-irbs/irb11-04. 2011 taxact login pdf. 2011 taxact login (Note. 2011 taxact login Revenue Procedure 2011-14 is clarified and modified by Revenue Procedure 2012-20. 2011 taxact login For more information, see Revenue Procedure 2012-20 on page 700 of the Internal Revenue Bulletin 2012-14, available at www. 2011 taxact login irs. 2011 taxact login gov/pub/irs-irbs/irb12-14. 2011 taxact login pdf. 2011 taxact login )   For a safe harbor method of accounting to treat rotable spare parts as depreciable assets and procedures to obtain automatic consent to change to the safe harbor method of accounting, see Revenue Procedure 2007-48 on page 110 of Internal Revenue Bulletin 2007-29, available at www. 2011 taxact login irs. 2011 taxact login gov/pub/irs-irbs/irb07-29. 2011 taxact login pdf. 2011 taxact login When to file. 2011 taxact login   If an amended return is allowed, you must file it by the later of the following. 2011 taxact login 3 years from the date you filed your original return for the year in which you did not deduct the correct amount. 2011 taxact login A return filed before an unextended due date is considered filed on that due date. 2011 taxact login 2 years from the time you paid your tax for that year. 2011 taxact login Changing Your Accounting Method Generally, you must get IRS approval to change your method of accounting. 2011 taxact login You generally must file Form 3115, Application for Change in Accounting Method, to request a change in your method of accounting for depreciation. 2011 taxact login The following are examples of a change in method of accounting for depreciation. 2011 taxact login A change from an impermissible method of determining depreciation for depreciable property, if the impermissible method was used in two or more consecutively filed tax returns. 2011 taxact login A change in the treatment of an asset from nondepreciable to depreciable or vice versa. 2011 taxact login A change in the depreciation method, period of recovery, or convention of a depreciable asset. 2011 taxact login A change from not claiming to claiming the special depreciation allowance if you did not make the election to not claim any special allowance. 2011 taxact login A change from claiming a 50% special depreciation allowance to claiming a 30% special depreciation allowance for qualified property (including property that is included in a class of property for which you elected a 30% special allowance instead of a 50% special allowance). 2011 taxact login Changes in depreciation that are not a change in method of accounting (and may only be made on an amended return) include the following. 2011 taxact login An adjustment in the useful life of a depreciable asset for which depreciation is determined under section 167. 2011 taxact login A change in use of an asset in the hands of the same taxpayer. 2011 taxact login Making a late depreciation election or revoking a timely valid depreciation election (including the election not to deduct the special depreciation allowance). 2011 taxact login If you elected not to claim any special allowance, a change from not claiming to claiming the special allowance is a revocation of the election and is not an accounting method change. 2011 taxact login Generally, you must get IRS approval to make a late depreciation election or revoke a depreciation election. 2011 taxact login You must submit a request for a letter ruling to make a late election or revoke an election. 2011 taxact login Any change in the placed in service date of a depreciable asset. 2011 taxact login See section 1. 2011 taxact login 446-1(e)(2)(ii)(d) of the regulations for more information and examples. 2011 taxact login IRS approval. 2011 taxact login   In some instances, you may be able to get approval from the IRS to change your method of accounting for depreciation under the automatic change request procedures generally covered in Revenue Procedure 2011-14. 2011 taxact login If you do not qualify to use the automatic procedures to get approval, you must use the advance consent request procedures generally covered in Revenue Procedure 97-27, 1997-1 C. 2011 taxact login B. 2011 taxact login 680. 2011 taxact login Also see the Instructions for Form 3115 for more information on getting approval, including lists of scope limitations and automatic accounting method changes. 2011 taxact login Additional guidance. 2011 taxact login    For additional guidance and special procedures for changing your accounting method, automatic change procedures, amending your return, and filing Form 3115, see Revenue Procedure 2011-14 on page 330 of the Internal Revenue Bulletin 2011-4, available at www. 2011 taxact login irs. 2011 taxact login gov/pub/irs-irbs/irb11-04. 2011 taxact login pdf. 2011 taxact login (Note. 2011 taxact login Revenue Procedure 2011-14 is clarified and modified by Revenue Procedure 2012-20. 2011 taxact login For more information, see Revenue Procedure 2012-20 on page 700 of the Internal Revenue Bulletin 2012-14, available at www. 2011 taxact login irs. 2011 taxact login gov/pub/irs-irbs/irb12-14. 2011 taxact login pdf. 2011 taxact login )   For a safe harbor method of accounting to treat rotable spare parts as depreciable assets, see Revenue Procedure 2007-48 on page 110 of Internal Revenue Bulletin 2007-29, available at www. 2011 taxact login irs. 2011 taxact login gov/pub/irs-irbs/irb07-29. 2011 taxact login pdf. 2011 taxact login Table 1-1. 2011 taxact login Purpose of Form 4562 This table describes the purpose of the various parts of Form 4562. 2011 taxact login For more information, see Form 4562 and its instructions. 2011 taxact login Part Purpose I • Electing the section 179 deduction • Figuring the maximum section 179 deduction for the current year • Figuring any section 179 deduction carryover to the next year II • Reporting the special depreciation allowance for property (other than listed property) placed in service during the tax year • Reporting depreciation deductions on property being depreciated under any method other than Modified Accelerated Cost Recovery System (MACRS) III • Reporting MACRS depreciation deductions for property placed in service before this year • Reporting MACRS depreciation deductions for property (other than listed property) placed in service during the current year IV • Summarizing other parts V • Reporting the special depreciation allowance for automobiles and other listed property • Reporting MACRS depreciation on automobiles and other listed property • Reporting the section 179 cost elected for automobiles and other listed property • Reporting information on the use of automobiles and other transportation vehicles VI • Reporting amortization deductions Section 481(a) adjustment. 2011 taxact login   If you file Form 3115 and change from an impermissible method to a permissible method of accounting for depreciation, you can make a section 481(a) adjustment for any unclaimed or excess amount of allowable depreciation. 2011 taxact login The adjustment is the difference between the total depreciation actually deducted for the property and the total amount allowable prior to the year of change. 2011 taxact login If no depreciation was deducted, the adjustment is the total depreciation allowable prior to the year of change. 2011 taxact login A negative section 481(a) adjustment results in a decrease in taxable income. 2011 taxact login It is taken into account in the year of change and is reported on your business tax returns as “other expenses. 2011 taxact login ” A positive section 481(a) adjustment results in an increase in taxable income. 2011 taxact login It is generally taken into account over 4 tax years and is reported on your business tax returns as “other income. 2011 taxact login ” However, you can elect to use a one-year adjustment period and report the adjustment in the year of change if the total adjustment is less than $25,000. 2011 taxact login Make the election by completing the appropriate line on Form 3115. 2011 taxact login   If you file a Form 3115 and change from one permissible method to another permissible method, the section 481(a) adjustment is zero. 2011 taxact login Prev  Up  Next   Home   More Online Publications
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President Barack Obama

Barack Obama is the winner of the 2012 presidential election.


2013 Inauguration

Tickets for President Obama's inaugural swearing-in ceremonies will be distributed in January 2013 by your U.S. senators and representatives.

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Inauguration at the U.S. Capitol

Presidential inaugural ceremonies are perhaps the most widely known of the many ceremonies held at the U.S. Capitol.

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Every four years, following the election of president of the united states, the U. S. Capitol hosts the inauguration of the president. Andrew Jackson was the first president to be inaugurated outdoors at the capitol, taking the oath from chief justice John Marshall.  This ceremony on the East Front Portico began a tradition observed by most presidents until 1981 when inaugurations were moved to the west front.

The Architect of the Capitol supports the inauguration in a number of ways; perhaps the most visible is the building of the platform upon which the incoming president receives his oath of office from the chief justice and conducts his inaugural speech.  The inaugural platform is constructed entirely from scratch in a period slightly more than three months for each inaugural ceremony.  The platform for the 2009 inauguration was more than 10,000 square feet, the same size as the platform used for the 2005 inaugural which was the largest platform ever built for an inauguration.  On inauguration day it held more than 1,600 people.  In addition, bleachers built above the platform on the upper west terrace will hold another 1,000 people including choirs and guests.

It is built entirely of lumber to protect the surfaces of the Capitol, and the platform is fully ADA compliant.  It is a stadium design which maximizes the sight lines for the guests on the platform.  It is also designed to blend architecturally with the U. S. Capitol.  In keeping with the sustainability efforts of the Architect of the Capitol, the entire structure is deconstructed, meaning each piece is carefully taken apart and then the lumber is donated to local charities to assist in housing projects.  The Architect of the Capitol is honored to play this behind the scene role in one of America's most revered events

The 2011 Taxact Login

2011 taxact login Publication 970 - Additional Material Table of Contents AppendicesAppendix A. 2011 taxact login Illustrated Example of Education Credits Glossary Appendices The following appendices are provided to help you claim the education benefits that will give you the lowest tax. 2011 taxact login Appendix A—An illustrated example of education credits, including a filled-in Form 8863 showing how to claim both the American opportunity credit and lifetime learning credit for 2013. 2011 taxact login Appendix B—A chart summarizing some of the major differences between the education tax benefits discussed in this publication. 2011 taxact login It is intended only as a guide. 2011 taxact login Look in this publication for more complete information. 2011 taxact login   Appendix A. 2011 taxact login Illustrated Example of Education Credits Dave and Valerie Jones are married and on their 2013 joint tax return they claim exemptions for their two dependent children, Sean (age 21, social security number: 000-00-0001) and Carey (age 18, social security number: 000–00–0002). 2011 taxact login Their modified adjusted gross income (MAGI) on Form 1040, line 38 is $110,000. 2011 taxact login Because Dave and Valerie have unusually high itemized deductions, their taxable income is $10,000 and their tax before credits is $1,000. 2011 taxact login Sean enrolled as a full-time graduate student in August 2013 at California State College. 2011 taxact login He graduated with his bachelor's degree in 2012 and did not attend school from January 2013 through July 2013. 2011 taxact login His parents claimed the Hope Scholarship Credit for Sean for 2008 and the American opportunity credit for Sean for 2010, 2011, and 2012. 2011 taxact login Carey enrolled full time as a freshman at the same college in January 2013 to begin working on her bachelor's degree. 2011 taxact login In 2013, Dave and Valerie paid $7,000 in tuition for Sean and $8,500 in tuition for Carey. 2011 taxact login California State College issued two Forms 1098-T, one for Sean and one for Carey, and sent them to the Joneses' residence. 2011 taxact login California State College reports amounts billed in 2013 instead of amounts paid during 2013. 2011 taxact login In completing Form 8863, the Joneses use the amounts they paid. 2011 taxact login Neither Sean nor Carey has been convicted of a felony for possession or distribution of a controlled substance before the end of 2013. 2011 taxact login Dave and Valerie figure their education credits by completing Form 8863. 2011 taxact login They begin Form 8863 on page 2 before completing Part I on page 1. 2011 taxact login Because the Joneses have two eligible students, they will complete page 2 twice, once for their son, Sean, and once for their daughter, Carey. 2011 taxact login The Joneses decide to complete Part III for Carey first, as shown later. 2011 taxact login They carry over the amount of $2,500 entered on Part III, line 30, to Part I, line 1. 2011 taxact login The Joneses complete a separate Part III for their son Sean. 2011 taxact login They check the “Yes” box on line 23, determine that Sean is not eligible for the American opportunity credit, and go to line 31 as instructed. 2011 taxact login They figure their line 31 adjusted qualified education expenses for Sean to be $7,000. 2011 taxact login Once they have completed Part III for each student, they figure their credits. 2011 taxact login The Joneses figure their refundable American opportunity credit of $1,000 by completing Form 8863, Part I, lines 1 through 8. 2011 taxact login They enter the amount from line 8, $1,000, on line 66 of their Form 1040. 2011 taxact login The Joneses enter $7,000 on Part II, line 10, of Form 8863 and figure their tentative lifetime learning credit for 2013 to be $1,400 (line 12). 2011 taxact login They cannot claim the full amount because their MAGI of $110,000 is greater than $107,000. 2011 taxact login They enter the reduced amount of $1,190 (figured on Part II, line 18) on the Credit Limit Worksheet, line 1. 2011 taxact login The $1,190 is added to their nonrefundable American opportunity credit ($1,500 on line 2 of the Credit Limit Worksheet) for a total nonrefundable credit of $2,690. 2011 taxact login The Joneses enter $1,000 on line 7 of the Credit Limit Worksheet, which is the smaller of their tax from line 46 of their Form 1040 (which is $1,000) or the $2,690 on line 3 of the Credit Limit Worksheet. 2011 taxact login They enter $1,000 on line 19, Part II of Form 8863 and on line 49 of Form 1040. 2011 taxact login This image is too large to be displayed in the current screen. 2011 taxact login Please click the link to view the image. 2011 taxact login Form 1098-T Adjusted Qualified Education Expenses Worksheet (Form 8863 instructions) 1. 2011 taxact login Total qualified education expenses paid for or on behalf of the student in 2013 for the academic period 8,500 2. 2011 taxact login Less adjustments:     a. 2011 taxact login Tax-free educational assistance received in 2013 allocable to the academic period   0     b. 2011 taxact login Tax-free educational assistance received in 2014 (and before you file your 2013 tax return) allocable to the academic period   0     c. 2011 taxact login Refunds of qualified education expenses paid in 2013 if the refund is received in 2013 or in 2014 before you file your 2013 tax return   0   3. 2011 taxact login Total adjustments (add lines 2a, 2b, and 2c) 0 4. 2011 taxact login Adjusted qualified education expenses. 2011 taxact login Subtract line 3 from line 1. 2011 taxact login If zero or less, enter -0- 8,500 This image is too large to be displayed in the current screen. 2011 taxact login Please click the link to view the image. 2011 taxact login Form 1098-T Adjusted Qualified Education Expenses Worksheet (Form 8863 instructions) 1. 2011 taxact login Total qualified education expenses paid for or on behalf of the student in 2013 for the academic period 7,000 2. 2011 taxact login Less adjustments:     a. 2011 taxact login Tax-free educational assistance received in 2013 allocable to the academic period   0     b. 2011 taxact login Tax-free educational assistance received in 2014 (and before you file your 2013 tax return) allocable to the academic period   0     c. 2011 taxact login Refunds of qualified education expenses paid in 2013 if the refund is received in 2013 or in 2014 before you file your 2013 tax return   0   3. 2011 taxact login Total adjustments (add lines 2a, 2b, and 2c) 0 4. 2011 taxact login Adjusted qualified education expenses. 2011 taxact login Subtract line 3 from line 1. 2011 taxact login If zero or less, enter -0- 7,000 Credit Limit Worksheet (Form 8863 instructions) Nonrefundable Credit Worksheet 1. 2011 taxact login Enter the amount from Form 8863, line 18 1. 2011 taxact login 1,190 2. 2011 taxact login Enter the amount from Form 8863, line 9 2. 2011 taxact login 1,500 3. 2011 taxact login Add lines 1 and 2 3. 2011 taxact login 2,690 4. 2011 taxact login Enter the amount from: Form 1040, line 46; or Form 1040A, line 28 4. 2011 taxact login 1,000 5. 2011 taxact login Enter the amount from either: Form 1040, lines 47 and 48, and the amount from Schedule R included on Form 1040, line 53; or Form 1040A, lines 29 and 30 5. 2011 taxact login 0 6. 2011 taxact login Subtract line 5 from line 4 6. 2011 taxact login 1,000 7. 2011 taxact login   Enter the smaller of line 3 or line 6 here and on Form 8863, line 19 7. 2011 taxact login 1,000 This image is too large to be displayed in the current screen. 2011 taxact login Please click the link to view the image. 2011 taxact login Form 8863 for Dave and Valerie Jones This image is too large to be displayed in the current screen. 2011 taxact login Please click the link to view the image. 2011 taxact login Carey Jones page 2 This image is too large to be displayed in the current screen. 2011 taxact login Please click the link to view the image. 2011 taxact login Filled-in Form 8863 Jones page 2 Appendix B. 2011 taxact login Highlights of Education Tax Benefits for Tax Year 2013 This chart highlights some differences among the benefits discussed in this publication. 2011 taxact login See the text for definitions and details. 2011 taxact login Do not rely on this chart alone. 2011 taxact login    Caution:You generally cannot claim more than one benefit for the same education expense. 2011 taxact login   Scholarships,  Fellowships, Grants, and  Tuition  Reductions American Opportunity Credit Lifetime Learning Credit Student Loan Interest Deduction Tuition and Fees Deduction Coverdell ESA† Qualified Tuition Program (QTP)† Education Exception to Additional Tax on Early IRA Distributions† Education Savings Bond Program† Employer- Provided Educational Assistance† Business Deduction for Work-Related Education What is your  benefit? Amounts received may not be taxable   Credits can reduce the amount of tax you have to pay. 2011 taxact login    40% of the credit may be refundable (limited to $1,000 per student). 2011 taxact login Credits can reduce amount of tax you must pay Can deduct interest paid Can deduct expenses Earnings not  taxed Earnings not taxed No 10%  additional tax on early distribution Interest not taxed Employer benefits not taxed Can deduct expenses What is the annual limit? None $2,500 credit per student $2,000 credit per tax return     $2,500 deduction $4,000 deduction $2,000 contribution per beneficiary None Amount of qualified  education expenses Amount of qualified  education expenses $5,250 exclusion Amount of qualifying work-related education expenses What expenses  qualify besides  tuition and required enrollment fees? Course-related expenses such as fees, books, supplies, and equipment Course-related books, supplies, and equipment Amounts paid for required books, etc. 2011 taxact login , that must be paid to the educational institution, etc. 2011 taxact login , are required fees Books Supplies Equipment  Room & board  Transportation  Other necessary expenses  None Books Supplies Equipment  Expenses for special needs services  Payments to QTP  Higher education: Room & board if  at least half-time  student  Elem/sec (K–12) education: Tutoring Room & board Uniforms Transportation Computer  access Supplementary expenses Books Supplies Equipment  Room & board if  at least half-time student  Expenses for special needs services Books Supplies Equipment  Room & board if  at least half-time student  Expenses for special needs services Payments to Coverdell ESA  Payments to QTP Books Supplies Equipment Transportation  Travel  Other necessary expenses   Scholarships,  Fellowships, Grants, and  Tuition  Reductions American Opportunity Credit Lifetime Learning Credit Student Loan Interest Deduction Tuition and Fees Deduction Coverdell ESA† Qualified Tuition Program (QTP)† Education Exception to Additional Tax on Early IRA Distributions† Education Savings Bond Program† Employer- Provided Educational Assistance† Business Deduction for Work-Related Education What education qualifies? Undergraduate & graduate  K–12 Undergraduate & graduate Undergraduate & graduate  Courses to acquire or improve job skills    Undergraduate & graduate Undergraduate & graduate Undergraduate & graduate  K–12 Undergraduate & graduate Undergraduate & graduate Undergraduate & graduate Undergraduate & graduate Required by employer or law to keep present job, salary, status  Maintain or improve job skills What are some of the other  conditions that  apply? Must be in degree or vocational program  Payment of tuition and required fees must be allowed under the grant Can be claimed for only 4 tax years (which includes years Hope Scholarship Credit claimed)  Must be enrolled at least half-time in degree program  No felony drug conviction(s)  Must not have completed first 4 years of postsecondary education before end of preceding tax year. 2011 taxact login   No other conditions Must have been at least half-time  student in degree program Cannot claim both deduction & education credit for same student in same year Assets must be distributed at age 30 unless special  needs beneficiary No other conditions No other conditions Applies only to qualified series  EE bonds issued after 1989 or series I bonds No other conditions Cannot be to  meet minimum educational requirements of present trade/business  Cannot qualify  you for new trade/business   In what income  range do benefits  phase out? No phaseout $80,000 – $90,000  $160,000 – $180,000 for joint returns $53,000 – $63,000  $107,000 – $127,000 for joint returns $60,000 – $75,000  $125,000 –  $155,000 for  joint returns  $60,000 – $80,000  $130,000 –  $160,000 for  joint returns  $95,000 – $110,000  $190,000 – $220,000 for  joint returns No phaseout No phaseout   No phaseout No phaseout † Any nontaxable distribution is limited to the amount that does not exceed qualified education expenses. 2011 taxact login Glossary The education benefits included in this publication were enacted over many years, leading to a number of common terms being defined differently from one benefit to the next. 2011 taxact login For example, an eligible educational institution means one thing when determining if earnings from a Coverdell education savings account are not taxable and something else when determining if a scholarship or fellowship is not taxable. 2011 taxact login For each term listed below that has more than one definition, the definition for each education benefit is listed. 2011 taxact login Academic period:   A semester, trimester, quarter, or other period of study (such as a summer school session) as reasonably determined by an educational institution. 2011 taxact login If an educational institution uses credit hours or clock hours and does not have academic terms, each payment period can be treated as an academic period. 2011 taxact login Adjusted qualified education expenses (AQEE):    Qualified education expenses (defined later) reduced by any tax-free educational assistance, such as a tax-free scholarship or employer-provided educational assistance. 2011 taxact login They must also be reduced by any qualified education expenses deducted elsewhere on your return, used to determine an education credit or other benefit, or used to determine a tax-free distribution. 2011 taxact login For information on a specific benefit, see the appropriate chapter in this publication. 2011 taxact login Candidate for a degree:   A student who meets either of the following requirements. 2011 taxact login Attends a primary or secondary school or pursues a degree at a college or university, or Attends an accredited educational institution that is authorized to provide: A program that is acceptable for full credit toward a bachelor's or higher degree, or A program of training to prepare students for gainful employment in a recognized occupation. 2011 taxact login Designated beneficiary:   The individual named in the document creating the account/plan who is to receive the benefit of the funds in the account/plan. 2011 taxact login Eligible educational institution:    American opportunity credit. 2011 taxact login Any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the Department of Education. 2011 taxact login It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. 2011 taxact login Coverdell education savings account (ESA). 2011 taxact login Any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the Department of Education. 2011 taxact login It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. 2011 taxact login Also included is any public, private, or religious school that provides elementary or secondary education (kindergarten through grade 12), as determined under state law. 2011 taxact login Education savings bond program. 2011 taxact login Same as American opportunity credit in this category. 2011 taxact login IRA, early distributions from. 2011 taxact login Same as American opportunity credit in this category. 2011 taxact login Lifetime learning credit. 2011 taxact login Same as American opportunity credit in this category. 2011 taxact login Qualified tuition program (QTP). 2011 taxact login Same as American opportunity credit in this category. 2011 taxact login Scholarships and fellowships. 2011 taxact login An institution that maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance at the place where it carries on its educational activities. 2011 taxact login Student loan, cancellation of. 2011 taxact login Same as Scholarships and fellowships in this category. 2011 taxact login Student loan interest deduction. 2011 taxact login Any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the Department of Education. 2011 taxact login It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. 2011 taxact login Also included is an institution that conducts an internship or residency program leading to a degree or certificate from an institution of higher education, a hospital, or a health care facility that offers postgraduate training. 2011 taxact login Tuition and fees deduction. 2011 taxact login Same as American opportunity credit in this category. 2011 taxact login Eligible student:    American opportunity credit. 2011 taxact login A student who meets all of the following requirements for the tax year for which the credit is being determined. 2011 taxact login Did not have expenses that were used to figure an American opportunity or Hope Scholarship Credit in any 4 earlier tax years. 2011 taxact login Had not completed the first 4 years of postsecondary education (generally the freshman through senior years). 2011 taxact login For at least one academic period beginning in the tax year, was enrolled at least half-time in a program leading to a degree, certificate, or other recognized educational credential at an eligible educational institution. 2011 taxact login Was free of any federal or state felony conviction for possessing or distributing a controlled substance as of the end of the tax year. 2011 taxact login Lifetime learning credit. 2011 taxact login A student who is enrolled in one or more courses at an eligible educational institution. 2011 taxact login Student loan interest deduction. 2011 taxact login A student who was enrolled at least half-time in a program leading to a postsecondary degree, certificate, or other recognized educational credential at an eligible educational institution. 2011 taxact login Tuition and fees deduction. 2011 taxact login A student who is enrolled in one or more courses at an eligible educational institution. 2011 taxact login Half-time student:   A student who is enrolled for at least half the full-time academic work load for the course of study the student is pursuing, as determined under the standards of the school where the student is enrolled. 2011 taxact login Modified adjusted gross income (MAGI):    American opportunity credit. 2011 taxact login Adjusted gross income (AGI) as figured on the federal income tax return, modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, and Exclusion of income by bona fide residents of Puerto Rico. 2011 taxact login Coverdell education savings account (ESA). 2011 taxact login Same as American opportunity credit in this category. 2011 taxact login Education savings bond program. 2011 taxact login Adjusted gross income (AGI) as figured on the federal income tax return without taking into account any savings bond interest exclusion and modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, Exclusion of income by bona fide residents of Puerto Rico, Exclusion for adoption benefits received under an employer's adoption assistance program, Deduction for student loan interest, Deduction for tuition and fees, and Deduction for domestic production activities. 2011 taxact login Lifetime learning credit. 2011 taxact login Same as American opportunity credit in this category. 2011 taxact login Student loan interest deduction. 2011 taxact login Adjusted gross income (AGI) as figured on the federal income tax return without taking into account any student loan interest deduction, tuition and fees deduction, or domestic production activities deduction, and modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, and Exclusion of income by bona fide residents of Puerto Rico. 2011 taxact login Tuition and fees deduction. 2011 taxact login Adjusted gross income (AGI) as figured on the federal income tax return without taking into account any tuition and fees deduction, or domestic production activities deduction, and modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, and Exclusion of income by bona fide residents of Puerto Rico. 2011 taxact login Phaseout:   The amount of credit or deduction allowed is reduced when modified adjusted gross income (MAGI) is greater than a specified amount of income. 2011 taxact login Qualified education expenses:   See pertinent chapter for specific items. 2011 taxact login    American opportunity credit. 2011 taxact login Tuition and certain related expenses (including student activity fees) required for enrollment or attendance at an eligible educational institution. 2011 taxact login Books, supplies, and equipment needed for a course of study are included even if not purchased from the educational institution. 2011 taxact login Does not include expenses for room and board. 2011 taxact login Does not include expenses for courses involving sports, games, or hobbies (including noncredit courses) that are not part of the student's postsecondary degree program. 2011 taxact login Coverdell education savings account (ESA). 2011 taxact login Expenses related to or required for enrollment or attendance of the designated beneficiary at an eligible elementary, secondary, or postsecondary school. 2011 taxact login Many specialized expenses included for K–12. 2011 taxact login Also includes expenses for special needs services and contribution to qualified tuition program (QTP). 2011 taxact login Education savings bond program. 2011 taxact login Tuition and fees required to enroll at or attend an eligible educational institution. 2011 taxact login Also includes contributions to a qualified tuition program (QTP) or Coverdell education savings account (ESA). 2011 taxact login Does not include expenses for room and board. 2011 taxact login Does not include expenses for courses involving sports, games, or hobbies that are not part of a degree or certificate granting program. 2011 taxact login IRA, early distributions from. 2011 taxact login Tuition, fees, books, supplies, and equipment required for enrollment or attendance at an eligible educational institution, plus certain limited costs of room and board for students who are enrolled at least half-time. 2011 taxact login Also includes expenses for special needs services incurred by or for special needs students in connection with their enrollment or attendance. 2011 taxact login Lifetime learning credit. 2011 taxact login Tuition and certain related expenses required for enrollment or attendance at an eligible educational institution. 2011 taxact login Student-activity fees and expenses for course-related books, supplies, and equipment are included only if the fees and expenses must be paid to the institution as a condition of enrollment or attendance. 2011 taxact login Does not include expenses for room and board. 2011 taxact login Does not include expenses for courses involving sports, games, or hobbies (including noncredit courses) that are not part of the student's postsecondary degree program, unless taken by the student to acquire or improve job skills. 2011 taxact login Qualified tuition program (QTP). 2011 taxact login Tuition, fees, books, supplies, and equipment required for enrollment or attendance at an eligible educational institution, plus certain limited costs of room and board for students who are enrolled at least half-time. 2011 taxact login Includes expenses for special needs services and computer access. 2011 taxact login Scholarships and fellowships. 2011 taxact login Expenses for tuition and fees required to enroll at or attend an eligible educational institution, and course-related expenses, such as fees, books, supplies, and equipment that are required for the courses at the eligible educational institution. 2011 taxact login Course-related items must be required of all students in the course of instruction. 2011 taxact login Student loan interest deduction. 2011 taxact login Total costs of attending an eligible educational institution, including graduate school (however, limitations may apply to the cost of room and board allowed). 2011 taxact login Tuition and fees deduction. 2011 taxact login Tuition and certain related expenses required for enrollment or attendance at an eligible educational institution. 2011 taxact login Student-activity fees and expenses for course-related books, supplies, and equipment are included only if the fees and expenses must be paid to the institution as a condition of enrollment or attendance. 2011 taxact login Recapture:   To include as income on your current year's return an amount allowed as a deduction in a prior year. 2011 taxact login To include as tax on your current year's return an amount allowed as a credit in a prior year. 2011 taxact login Rollover:   A tax-free distribution to you of cash or other assets from a tax-favored plan that you contribute to another tax-favored plan. 2011 taxact login Transfer:   A movement of funds in a tax-favored plan from one trustee directly to another, either at your request or at the trustee's request. 2011 taxact login Prev  Up  Next   Home   More Online Publications