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2013 Amended Tax Return

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2013 Amended Tax Return

2013 amended tax return 5. 2013 amended tax return   Additional Rules for Listed Property Table of Contents Introduction Useful Items - You may want to see: What Is Listed Property?Passenger Automobiles Other Property Used for Transportation Computers and Related Peripheral Equipment Can Employees Claim a Deduction? What Is the Business-Use Requirement?How To Allocate Use Qualified Business Use Recapture of Excess Depreciation Lessee's Inclusion Amount Do the Passenger Automobile Limits Apply?Maximum Depreciation Deduction Deductions After the Recovery Period Deductions For Passenger Automobiles Acquired in a Trade-in What Records Must Be Kept?Adequate Records How Is Listed Property Information Reported? Introduction This chapter discusses the deduction limits and other special rules that apply to certain listed property. 2013 amended tax return Listed property includes cars and other property used for transportation, property used for entertainment, and certain computers. 2013 amended tax return Deductions for listed property (other than certain leased property) are subject to the following special rules and limits. 2013 amended tax return Deduction for employees. 2013 amended tax return If your use of the property is not for your employer's convenience or is not required as a condition of your employment, you cannot deduct depreciation or rent expenses for your use of the property as an employee. 2013 amended tax return Business-use requirement. 2013 amended tax return If the property is not used predominantly (more than 50%) for qualified business use, you cannot claim the section 179 deduction or a special depreciation allowance. 2013 amended tax return In addition, you must figure any depreciation deduction under the Modified Accelerated Cost Recovery System (MACRS) using the straight line method over the ADS recovery period. 2013 amended tax return You may also have to recapture (include in income) any excess depreciation claimed in previous years. 2013 amended tax return A similar inclusion amount applies to certain leased property. 2013 amended tax return Passenger automobile limits and rules. 2013 amended tax return Annual limits apply to depreciation deductions (including section 179 deductions and any special depreciation allowance) for certain passenger automobiles. 2013 amended tax return You can continue to deduct depreciation for the unrecovered basis resulting from these limits after the end of the recovery period. 2013 amended tax return This chapter defines listed property and explains the special rules and depreciation deduction limits that apply, including the special inclusion amount rule for leased property. 2013 amended tax return It also discusses the recordkeeping rules for listed property and explains how to report information about the property on your tax return. 2013 amended tax return Useful Items - You may want to see: Publication 463 Travel, Entertainment, Gift, and Car Expenses 535 Business Expenses 587 Business Use of Your Home (Including Use by Daycare Providers) Form (and Instructions) 2106 Employee Business Expenses 2106-EZ Unreimbursed Employee Business Expenses 4562 Depreciation and Amortization 4797 Sales of Business Property See chapter 6 for information about getting publications and forms. 2013 amended tax return What Is Listed Property? Listed property is any of the following. 2013 amended tax return Passenger automobiles (as defined later). 2013 amended tax return Any other property used for transportation, unless it is an excepted vehicle. 2013 amended tax return Property generally used for entertainment, recreation, or amusement (including photographic, phonographic, communication, and video-recording equipment). 2013 amended tax return Computers and related peripheral equipment, unless used only at a regular business establishment and owned or leased by the person operating the establishment. 2013 amended tax return A regular business establishment includes a portion of a dwelling unit that is used both regularly and exclusively for business as discussed in Publication 587. 2013 amended tax return Improvements to listed property. 2013 amended tax return   An improvement made to listed property that must be capitalized is treated as a new item of depreciable property. 2013 amended tax return The recovery period and method of depreciation that apply to the listed property as a whole also apply to the improvement. 2013 amended tax return For example, if you must depreciate the listed property using the straight line method, you also must depreciate the improvement using the straight line method. 2013 amended tax return Passenger Automobiles A passenger automobile is any four-wheeled vehicle made primarily for use on public streets, roads, and highways and rated at 6,000 pounds or less of unloaded gross vehicle weight (6,000 pounds or less of gross vehicle weight for trucks and vans). 2013 amended tax return It includes any part, component, or other item physically attached to the automobile at the time of purchase or usually included in the purchase price of an automobile. 2013 amended tax return The following vehicles are not considered passenger automobiles for these purposes. 2013 amended tax return An ambulance, hearse, or combination ambulance-hearse used directly in a trade or business. 2013 amended tax return A vehicle used directly in the trade or business of transporting persons or property for pay or hire. 2013 amended tax return A truck or van that is a qualified nonpersonal use vehicle. 2013 amended tax return Qualified nonpersonal use vehicles. 2013 amended tax return   Qualified nonpersonal use vehicles are vehicles that by their nature are not likely to be used more than a minimal amount for personal purposes. 2013 amended tax return They include the trucks and vans listed as excepted vehicles under Other Property Used for Transportation , next. 2013 amended tax return They also include trucks and vans that have been specially modified so that they are not likely to be used more than a minimal amount for personal purposes, such as by installation of permanent shelving and painting the vehicle to display advertising or the company's name. 2013 amended tax return For a detailed discussion of passenger automobiles, including leased passenger automobiles, see  Publication 463. 2013 amended tax return Other Property Used for Transportation Although vehicles used to transport persons or property for pay or hire and vehicles rated at more than the 6,000-pound threshold are not passenger automobiles, they are still “other property used for transportation” and are subject to the special rules for listed property. 2013 amended tax return Other property used for transportation includes trucks, buses, boats, airplanes, motorcycles, and any other vehicles used to transport persons or goods. 2013 amended tax return Excepted vehicles. 2013 amended tax return   Other property used for transportation does not include the following qualified nonpersonal use vehicles (defined earlier under Passenger Automobiles ). 2013 amended tax return Clearly marked police and fire vehicles. 2013 amended tax return Unmarked vehicles used by law enforcement officers if the use is officially authorized. 2013 amended tax return Ambulances used as such and hearses used as such. 2013 amended tax return Any vehicle with a loaded gross vehicle weight of over 14,000 pounds that is designed to carry cargo. 2013 amended tax return Bucket trucks (cherry pickers), cement mixers, dump trucks (including garbage trucks), flatbed trucks, and refrigerated trucks. 2013 amended tax return Combines, cranes and derricks, and forklifts. 2013 amended tax return Delivery trucks with seating only for the driver, or only for the driver plus a folding jump seat. 2013 amended tax return Qualified moving vans. 2013 amended tax return Qualified specialized utility repair trucks. 2013 amended tax return School buses used in transporting students and employees of schools. 2013 amended tax return Other buses with a capacity of at least 20 passengers that are used as passenger buses. 2013 amended tax return Tractors and other special purpose farm vehicles. 2013 amended tax return Clearly marked police and fire vehicle. 2013 amended tax return   A clearly marked police or fire vehicle is a vehicle that meets all the following requirements. 2013 amended tax return It is owned or leased by a governmental unit or an agency or instrumentality of a governmental unit. 2013 amended tax return It is required to be used for commuting by a police officer or fire fighter who, when not on a regular shift, is on call at all times. 2013 amended tax return It is prohibited from being used for personal use (other than commuting) outside the limit of the police officer's arrest powers or the fire fighter's obligation to respond to an emergency. 2013 amended tax return It is clearly marked with painted insignia or words that make it readily apparent that it is a police or fire vehicle. 2013 amended tax return A marking on a license plate is not a clear marking for these purposes. 2013 amended tax return Qualified moving van. 2013 amended tax return   A qualified moving van is any truck or van used by a professional moving company for moving household or business goods if the following requirements are met. 2013 amended tax return No personal use of the van is allowed other than for travel to and from a move site or for minor personal use, such as a stop for lunch on the way from one move site to another. 2013 amended tax return Personal use for travel to and from a move site happens no more than five times a month on average. 2013 amended tax return Personal use is limited to situations in which it is more convenient to the employer, because of the location of the employee's residence in relation to the location of the move site, for the van not to be returned to the employer's business location. 2013 amended tax return Qualified specialized utility repair truck. 2013 amended tax return   A truck is a qualified specialized utility repair truck if it is not a van or pickup truck and all the following apply. 2013 amended tax return The truck was specifically designed for and is used to carry heavy tools, testing equipment, or parts. 2013 amended tax return Shelves, racks, or other permanent interior construction has been installed to carry and store the tools, equipment, or parts and would make it unlikely that the truck would be used, other than minimally, for personal purposes. 2013 amended tax return The employer requires the employee to drive the truck home in order to be able to respond in emergency situations for purposes of restoring or maintaining electricity, gas, telephone, water, sewer, or steam utility services. 2013 amended tax return Computers and Related Peripheral Equipment A computer is a programmable, electronically activated device capable of accepting information, applying prescribed processes to the information, and supplying the results of those processes with or without human intervention. 2013 amended tax return It consists of a central processing unit with extensive storage, logic, arithmetic, and control capabilities. 2013 amended tax return Related peripheral equipment is any auxiliary machine which is designed to be controlled by the central processing unit of a computer. 2013 amended tax return The following are neither computers nor related peripheral equipment. 2013 amended tax return Any equipment that is an integral part of other property that is not a computer. 2013 amended tax return Typewriters, calculators, adding and accounting machines, copiers, duplicating equipment, and similar equipment. 2013 amended tax return Equipment of a kind used primarily for the user's amusement or entertainment, such as video games. 2013 amended tax return Can Employees Claim a Deduction? If you are an employee, you can claim a depreciation deduction for the use of your listed property (whether owned or rented) in performing services as an employee only if your use is a business use. 2013 amended tax return The use of your property in performing services as an employee is a business use only if both the following requirements are met. 2013 amended tax return The use is for your employer's convenience. 2013 amended tax return The use is required as a condition of your employment. 2013 amended tax return If these requirements are not met, you cannot deduct depreciation (including the section 179 deduction) or rent expenses for your use of the property as an employee. 2013 amended tax return Employer's convenience. 2013 amended tax return   Whether the use of listed property is for your employer's convenience must be determined from all the facts. 2013 amended tax return The use is for your employer's convenience if it is for a substantial business reason of the employer. 2013 amended tax return The use of listed property during your regular working hours to carry on your employer's business generally is for the employer's convenience. 2013 amended tax return Condition of employment. 2013 amended tax return   Whether the use of listed property is a condition of your employment depends on all the facts and circumstances. 2013 amended tax return The use of property must be required for you to perform your duties properly. 2013 amended tax return Your employer does not have to require explicitly that you use the property. 2013 amended tax return However, a mere statement by the employer that the use of the property is a condition of your employment is not sufficient. 2013 amended tax return Example 1. 2013 amended tax return Virginia Sycamore is employed as a courier with We Deliver, which provides local courier services. 2013 amended tax return She owns and uses a motorcycle to deliver packages to downtown offices. 2013 amended tax return We Deliver explicitly requires all delivery persons to own a car or motorcycle for use in their employment. 2013 amended tax return Virginia's use of the motorcycle is for the convenience of We Deliver and is required as a condition of employment. 2013 amended tax return Example 2. 2013 amended tax return Bill Nelson is an inspector for Uplift, a construction company with many sites in the local area. 2013 amended tax return He must travel to these sites on a regular basis. 2013 amended tax return Uplift does not furnish an automobile or explicitly require him to use his own automobile. 2013 amended tax return However, it pays him for any costs he incurs in traveling to the various sites. 2013 amended tax return The use of his own automobile or a rental automobile is for the convenience of Uplift and is required as a condition of employment. 2013 amended tax return Example 3. 2013 amended tax return Assume the same facts as in Example 2 except that Uplift furnishes a car to Bill, who chooses to use his own car and receive payment for using it. 2013 amended tax return The use of his own car is neither for the convenience of Uplift nor required as a condition of employment. 2013 amended tax return Example 4. 2013 amended tax return Marilyn Lee is a pilot for Y Company, a small charter airline. 2013 amended tax return Y requires pilots to obtain 80 hours of flight time annually in addition to flight time spent with the airline. 2013 amended tax return Pilots usually can obtain these hours by flying with the Air Force Reserve or by flying part-time with another airline. 2013 amended tax return Marilyn owns her own airplane. 2013 amended tax return The use of her airplane to obtain the required flight hours is neither for the convenience of the employer nor required as a condition of employment. 2013 amended tax return Example 5. 2013 amended tax return David Rule is employed as an engineer with Zip, an engineering contracting firm. 2013 amended tax return He occasionally takes work home at night rather than work late in the office. 2013 amended tax return He owns and uses a home computer which is virtually identical to the office model. 2013 amended tax return His use of the computer is neither for the convenience of his employer nor required as a condition of employment. 2013 amended tax return What Is the Business-Use Requirement? You can claim the section 179 deduction and a special depreciation allowance for listed property and depreciate listed property using GDS and a declining balance method if the property meets the business-use requirement. 2013 amended tax return To meet this requirement, listed property must be used predominantly (more than 50% of its total use) for qualified business use. 2013 amended tax return If this requirement is not met, the following rules apply. 2013 amended tax return Property not used predominantly for qualified business use during the year it is placed in service does not qualify for the section 179 deduction. 2013 amended tax return Property not used predominantly for qualified business use during the year it is placed in service does not qualify for a special depreciation allowance. 2013 amended tax return Any depreciation deduction under MACRS for property not used predominantly for qualified business use during any year must be figured using the straight line method over the ADS recovery period. 2013 amended tax return This rule applies each year of the recovery period. 2013 amended tax return Excess depreciation on property previously used predominantly for qualified business use must be recaptured (included in income) in the first year in which it is no longer used predominantly for qualified business use. 2013 amended tax return A lessee must add an inclusion amount to income in the first year in which the leased property is not used predominantly for qualified business use. 2013 amended tax return Being required to use the straight line method for an item of listed property not used predominantly for qualified business use is not the same as electing the straight line method. 2013 amended tax return It does not mean that you have to use the straight line method for other property in the same class as the item of listed property. 2013 amended tax return Exception for leased property. 2013 amended tax return   The business-use requirement generally does not apply to any listed property leased or held for leasing by anyone regularly engaged in the business of leasing listed property. 2013 amended tax return   You are considered regularly engaged in the business of leasing listed property only if you enter into contracts for the leasing of listed property with some frequency over a continuous period of time. 2013 amended tax return This determination is made on the basis of the facts and circumstances in each case and takes into account the nature of your business in its entirety. 2013 amended tax return Occasional or incidental leasing activity is insufficient. 2013 amended tax return For example, if you lease only one passenger automobile during a tax year, you are not regularly engaged in the business of leasing automobiles. 2013 amended tax return An employer who allows an employee to use the employer's property for personal purposes and charges the employee for the use is not regularly engaged in the business of leasing the property used by the employee. 2013 amended tax return How To Allocate Use To determine whether the business-use requirement is met, you must allocate the use of any item of listed property used for more than one purpose during the year among its various uses. 2013 amended tax return For passenger automobiles and other means of transportation, allocate the property's use on the basis of mileage. 2013 amended tax return You determine the percentage of qualified business use by dividing the number of miles you drove the vehicle for business purposes during the year by the total number of miles you drove the vehicle for all purposes (including business miles) during the year. 2013 amended tax return For other listed property, allocate the property's use on the basis of the most appropriate unit of time the property is actually used (rather than merely being available for use). 2013 amended tax return For example, you can determine the percentage of business use of a computer by dividing the number of hours you used the computer for business purposes during the year by the total number of hours you used the computer for all purposes (including business use) during the year. 2013 amended tax return Entertainment use. 2013 amended tax return   Treat the use of listed property for entertainment, recreation, or amusement purposes as a business use only to the extent you can deduct expenses (other than interest and property tax expenses) due to its use as an ordinary and necessary business expense. 2013 amended tax return Commuting use. 2013 amended tax return   The use of an automobile for commuting is not business use, regardless of whether work is performed during the trip. 2013 amended tax return For example, a business telephone call made on a car telephone while commuting to work does not change the character of the trip from commuting to business. 2013 amended tax return This is also true for a business meeting held in a car while commuting to work. 2013 amended tax return Similarly, a business call made on an otherwise personal trip does not change the character of a trip from personal to business. 2013 amended tax return The fact that an automobile is used to display material that advertises the owner's or user's trade or business does not convert an otherwise personal use into business use. 2013 amended tax return Use of your automobile by another person. 2013 amended tax return   If someone else uses your automobile, do not treat that use as business use unless one of the following conditions applies. 2013 amended tax return That use is directly connected with your business. 2013 amended tax return You properly report the value of the use as income to the other person and withhold tax on the income where required. 2013 amended tax return You are paid a fair market rent. 2013 amended tax return Treat any payment to you for the use of the automobile as a rent payment for purposes of item (3). 2013 amended tax return Employee deductions. 2013 amended tax return   If you are an employee, do not treat your use of listed property as business use unless it is for your employer's convenience and is required as a condition of your employment. 2013 amended tax return See Can Employees Claim a Deduction , earlier. 2013 amended tax return Qualified Business Use Qualified business use of listed property is any use of the property in your trade or business. 2013 amended tax return However, it does not include the following uses. 2013 amended tax return The leasing of property to any 5% owner or related person (to the extent the property is used by a 5% owner or person related to the owner or lessee of the property). 2013 amended tax return The use of property as pay for the services of a 5% owner or related person. 2013 amended tax return The use of property as pay for services of any person (other than a 5% owner or related person), unless the value of the use is included in that person's gross income and income tax is withheld on that amount where required. 2013 amended tax return Property does not stop being used predominantly for qualified business use because of a transfer at death. 2013 amended tax return Exception for leasing or compensatory use of aircraft. 2013 amended tax return   Treat the leasing of any aircraft by a 5% owner or related person, or the compensatory use of any aircraft, as a qualified business use if at least 25% of the total use of the aircraft during the year is for a qualified business use. 2013 amended tax return 5% owner. 2013 amended tax return   For a business entity that is not a corporation, a 5% owner is any person who owns more than 5% of the capital or profits interest in the business. 2013 amended tax return   For a corporation, a 5% owner is any person who owns, or is considered to own, either of the following. 2013 amended tax return More than 5% of the outstanding stock of the corporation. 2013 amended tax return Stock possessing more than 5% of the total combined voting power of all stock in the corporation. 2013 amended tax return Related persons. 2013 amended tax return   For a description of related persons, see Related persons in the discussion on property owned or used in 1986 under What Method Can You Use To Depreciate Your Property in chapter 1 . 2013 amended tax return 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. 2013 amended tax return Examples. 2013 amended tax return   The following examples illustrate whether the use of business property is qualified business use. 2013 amended tax return Example 1. 2013 amended tax return John Maple is the sole proprietor of a plumbing contracting business. 2013 amended tax return John employs his brother, Richard, in the business. 2013 amended tax return As part of Richard's pay, he is allowed to use one of the company automobiles for personal use. 2013 amended tax return The company includes the value of the personal use of the automobile in Richard's gross income and properly withholds tax on it. 2013 amended tax return The use of the automobile is pay for the performance of services by a related person, so it is not a qualified business use. 2013 amended tax return Example 2. 2013 amended tax return John, in Example 1, allows unrelated employees to use company automobiles for personal purposes. 2013 amended tax return He does not include the value of the personal use of the company automobiles as part of their compensation and he does not withhold tax on the value of the use of the automobiles. 2013 amended tax return This use of company automobiles by employees is not a qualified business use. 2013 amended tax return Example 3. 2013 amended tax return James Company Inc. 2013 amended tax return owns several automobiles that its employees use for business purposes. 2013 amended tax return The employees also are allowed to take the automobiles home at night. 2013 amended tax return The fair market value of each employee's use of an automobile for any personal purpose, such as commuting to and from work, is reported as income to the employee and James Company withholds tax on it. 2013 amended tax return This use of company automobiles by employees, even for personal purposes, is a qualified business use for the company. 2013 amended tax return Investment Use The use of property to produce income in a nonbusiness activity (investment use) is not a qualified business use. 2013 amended tax return However, you can treat the investment use as business use to figure the depreciation deduction for the property in a given year. 2013 amended tax return Example 1. 2013 amended tax return Sarah Bradley uses a home computer 50% of the time to manage her investments. 2013 amended tax return She also uses the computer 40% of the time in her part-time consumer research business. 2013 amended tax return Sarah's home computer is listed property because it is not used at a regular business establishment. 2013 amended tax return She does not use the computer predominantly for qualified business use. 2013 amended tax return Therefore, she cannot elect a section 179 deduction or claim a special depreciation allowance for the computer. 2013 amended tax return She must depreciate it using the straight line method over the ADS recovery period. 2013 amended tax return Her combined business/investment use for determining her depreciation deduction is 90%. 2013 amended tax return Example 2. 2013 amended tax return If Sarah uses her computer 30% of the time to manage her investments and 60% of the time in her consumer research business, it is used predominantly for qualified business use. 2013 amended tax return She can elect a section 179 deduction and, if she does not deduct all the computer's cost, she can claim a special depreciation allowance and depreciate the computer using the 200% declining balance method over the GDS recovery period. 2013 amended tax return Her combined business/investment use for determining her depreciation deduction is 90%. 2013 amended tax return Recapture of Excess Depreciation If you used listed property more than 50% in a qualified business use in the year you placed it in service, you must recapture (include in income) excess depreciation in the first year you use it 50% or less. 2013 amended tax return You also increase the adjusted basis of your property by the same amount. 2013 amended tax return Excess depreciation is: The depreciation allowable for the property (including any section 179 deduction and special depreciation allowance claimed) for years before the first year you do not use the property predominantly for qualified business use, minus The depreciation that would have been allowable for those years if you had not used the property predominantly for qualified business use in the year you placed it in service. 2013 amended tax return To determine the amount in (2) above, you must refigure the depreciation using the straight line method and the ADS recovery period. 2013 amended tax return Example. 2013 amended tax return In June 2009, Ellen Rye purchased and placed in service a pickup truck that cost $18,000. 2013 amended tax return She used it only for qualified business use for 2009 through 2012. 2013 amended tax return Ellen claimed a section 179 deduction of $10,000 based on the purchase of the truck. 2013 amended tax return She began depreciating it using the 200% DB method over a 5-year GDS recovery period. 2013 amended tax return The pickup truck's gross vehicle weight was over 6,000 pounds, so it was not subject to the passenger automobile limits discussed later under Do the Passenger Automobile Limits Apply. 2013 amended tax return During 2013, she used the truck 50% for business and 50% for personal purposes. 2013 amended tax return She includes $4,018 excess depreciation in her gross income for 2013. 2013 amended tax return The excess depreciation is determined as follows. 2013 amended tax return Total section 179 deduction ($10,000) and depreciation claimed ($6,618) for 2009 through 2012. 2013 amended tax return (Depreciation is from Table A-1. 2013 amended tax return ) $16,618 Minus: Depreciation allowable (Table A-8):     2009 – 10% of $18,000 $1,800   2010 – 20% of $18,000 3,600   2011 – 20% of $18,000 3,600   2012 – 20% of $18,000 3,600 12,600 Excess depreciation $4,018 If Ellen's use of the truck does not change to 50% for business and 50% for personal purposes until 2015, there will be no excess depreciation. 2013 amended tax return The total depreciation allowable using Table A-8 through 2015 will be $18,000, which equals the total of the section 179 deduction and depreciation she will have claimed. 2013 amended tax return Where to figure and report recapture. 2013 amended tax return   Use Form 4797, Part IV, to figure the recapture amount. 2013 amended tax return Report the recapture amount as other income on the same form or schedule on which you took the depreciation deduction. 2013 amended tax return For example, report the recapture amount as other income on Schedule C (Form 1040) if you took the depreciation deduction on Schedule C. 2013 amended tax return If you took the depreciation deduction on Form 2106, report the recapture amount as other income on Form 1040, line 21. 2013 amended tax return Lessee's Inclusion Amount If you use leased listed property other than a passenger automobile for business/investment use, you must include an amount in your income in the first year your qualified business-use percentage is 50% or less. 2013 amended tax return Your qualified business-use percentage is the part of the property's total use that is qualified business use (defined earlier). 2013 amended tax return For the inclusion amount rules for a leased passenger automobile, see Leasing a Car in chapter 4 of Publication 463. 2013 amended tax return The inclusion amount is the sum of Amount A and Amount B, described next. 2013 amended tax return However, see the special rules for the inclusion amount, later, if your lease begins in the last 9 months of your tax year or is for less than one year. 2013 amended tax return Amount A. 2013 amended tax return   Amount A is: The fair market value of the property, multiplied by The business/investment use for the first tax year the qualified business-use percentage is 50% or less, multiplied by The applicable percentage from Table A-19 in Appendix A . 2013 amended tax return   The fair market value of the property is the value on the first day of the lease term. 2013 amended tax return If the capitalized cost of an item of listed property is specified in the lease agreement, you must treat that amount as the fair market value. 2013 amended tax return Amount B. 2013 amended tax return   Amount B is: The fair market value of the property, multiplied by The average of the business/investment use for all tax years the property was leased that precede the first tax year the qualified business-use percentage is 50% or less, multiplied by The applicable percentage from Table A–20 in Appendix A . 2013 amended tax return Maximum inclusion amount. 2013 amended tax return   The inclusion amount cannot be more than the sum of the deductible amounts of rent for the tax year in which the lessee must include the amount in gross income. 2013 amended tax return Inclusion amount worksheet. 2013 amended tax return   The following worksheet is provided to help you figure the inclusion amount for leased listed property. 2013 amended tax return Inclusion Amount Worksheet for Leased Listed Property 1. 2013 amended tax return Fair market value   2. 2013 amended tax return Business/investment use for first year business use is 50% or less   3. 2013 amended tax return Multiply line 1 by line 2. 2013 amended tax return   4. 2013 amended tax return Rate (%) from Table A-19   5. 2013 amended tax return Multiply line 3 by line 4. 2013 amended tax return This is Amount A. 2013 amended tax return   6. 2013 amended tax return Fair market value   7. 2013 amended tax return Average business/investment use for years property leased before the first year business use is 50% or less . 2013 amended tax return . 2013 amended tax return . 2013 amended tax return . 2013 amended tax return . 2013 amended tax return . 2013 amended tax return . 2013 amended tax return . 2013 amended tax return . 2013 amended tax return . 2013 amended tax return . 2013 amended tax return . 2013 amended tax return . 2013 amended tax return   8. 2013 amended tax return Multiply line 6 by line 7   9. 2013 amended tax return Rate (%) from Table A-20   10. 2013 amended tax return Multiply line 8 by line 9. 2013 amended tax return This is Amount B. 2013 amended tax return   11. 2013 amended tax return Add line 5 and line 10. 2013 amended tax return This is your inclusion amount. 2013 amended tax return Enter here and as other income on the form or schedule on which you originally took the deduction (for example, Schedule C or F (Form 1040), Form 1040, Form 1120, etc. 2013 amended tax return )         Example. 2013 amended tax return On February 1, 2011, Larry House, a calendar year taxpayer, leased and placed in service a computer with a fair market value of $3,000. 2013 amended tax return The lease is for a period of 5 years. 2013 amended tax return Larry does not use the computer at a regular business establishment, so it is listed property. 2013 amended tax return His business use of the property (all of which is qualified business use) is 80% in 2011, 60% in 2012, and 40% in 2013. 2013 amended tax return He must add an inclusion amount to gross income for 2013, the first tax year his qualified business-use percentage is 50% or less. 2013 amended tax return The computer has a 5-year recovery period under both GDS and ADS. 2013 amended tax return 2013 is the third tax year of the lease, so the applicable percentage from Table A-19 is −19. 2013 amended tax return 8%. 2013 amended tax return The applicable percentage from Table A-20 is 22. 2013 amended tax return 0%. 2013 amended tax return Larry's deductible rent for the computer for 2013 is $800. 2013 amended tax return Larry uses the Inclusion amount worksheet. 2013 amended tax return to figure the amount he must include in income for 2013. 2013 amended tax return His inclusion amount is $224, which is the sum of −$238 (Amount A) and $462 (Amount B). 2013 amended tax return Inclusion Amount Worksheet for Leased Listed Property 1. 2013 amended tax return Fair market value $3,000   2. 2013 amended tax return Business/investment use for first year business use is 50% or less 40 % 3. 2013 amended tax return Multiply line 1 by line 2. 2013 amended tax return 1,200   4. 2013 amended tax return Rate (%) from Table A-19 −19. 2013 amended tax return 8 % 5. 2013 amended tax return Multiply line 3 by line 4. 2013 amended tax return This is Amount A. 2013 amended tax return −238   6. 2013 amended tax return Fair market value 3,000   7. 2013 amended tax return Average business/investment use for years property leased before the first year business use is 50% or less 70 % 8. 2013 amended tax return Multiply line 6 by line 7 2,100   9. 2013 amended tax return Rate (%) from Table A-20 22. 2013 amended tax return 0 % 10. 2013 amended tax return Multiply line 8 by line 9. 2013 amended tax return This is Amount B. 2013 amended tax return 462   11. 2013 amended tax return Add line 5 and line 10. 2013 amended tax return This is your inclusion amount. 2013 amended tax return Enter here and as other income on the form or schedule on which you originally took the deduction (for example, Schedule C or F (Form 1040), Form 1040, Form 1120, etc. 2013 amended tax return ) $224           Lease beginning in the last 9 months of your tax year. 2013 amended tax return    The inclusion amount is subject to a special rule if all the following apply. 2013 amended tax return The lease term begins within 9 months before the close of your tax year. 2013 amended tax return You do not use the property predominantly (more than 50%) for qualified business use during that part of the tax year. 2013 amended tax return The lease term continues into your next tax year. 2013 amended tax return Under this special rule, add the inclusion amount to income in the next tax year. 2013 amended tax return Figure the inclusion amount by taking into account the average of the business/investment use for both tax years (line 2 of the Inclusion Amount Worksheet for Leased Listed Property) and the applicable percentage for the tax year the lease term begins. 2013 amended tax return Skip lines 6 through 9 of the worksheet and enter zero on line 10. 2013 amended tax return Example 1. 2013 amended tax return On August 1, 2012, Julie Rule, a calendar year taxpayer, leased and placed in service an item of listed property. 2013 amended tax return The property is 5-year property with a fair market value of $10,000. 2013 amended tax return Her property has a recovery period of 5 years under ADS. 2013 amended tax return The lease is for 5 years. 2013 amended tax return Her business use of the property was 50% in 2012 and 90% in 2013. 2013 amended tax return She paid rent of $3,600 for 2012, of which $3,240 is deductible. 2013 amended tax return She must include $147 in income in 2013. 2013 amended tax return The $147 is the sum of Amount A and Amount B. 2013 amended tax return Amount A is $147 ($10,000 × 70% × 2. 2013 amended tax return 1%), the product of the fair market value, the average business use for 2012 and 2013, and the applicable percentage for year one from Table A-19 . 2013 amended tax return Amount B is zero. 2013 amended tax return Lease for less than one year. 2013 amended tax return   A special rule for the inclusion amount applies if the lease term is less than one year and you do not use the property predominantly (more than 50%) for qualified business use. 2013 amended tax return The amount included in income is the inclusion amount (figured as described in the preceding discussions) multiplied by a fraction. 2013 amended tax return The numerator of the fraction is the number of days in the lease term and the denominator is 365 (or 366 for leap years). 2013 amended tax return   The lease term for listed property other than residential rental or nonresidential real property includes options to renew. 2013 amended tax return If you have two or more successive leases that are part of the same transaction (or a series of related transactions) for the same or substantially similar property, treat them as one lease. 2013 amended tax return Example 2. 2013 amended tax return On October 1, 2012, John Joyce, a calendar year taxpayer, leased and placed in service an item of listed property that is 3-year property. 2013 amended tax return This property had a fair market value of $15,000 and a recovery period of 5 years under ADS. 2013 amended tax return The lease term was 6 months (ending on March 31, 2013), during which he used the property 45% in business. 2013 amended tax return He must include $71 in income in 2013. 2013 amended tax return The $71 is the sum of Amount A and Amount B. 2013 amended tax return Amount A is $71 ($15,000 × 45% × 2. 2013 amended tax return 1% × 183/365), the product of the fair market value, the average business use for both years, and the applicable percentage for year one from Table A-19 , prorated for the length of the lease. 2013 amended tax return Amount B is zero. 2013 amended tax return Where to report inclusion amount. 2013 amended tax return   Report the inclusion amount figured as described in the preceding discussions as other income on the same form or schedule on which you took the deduction for your rental costs. 2013 amended tax return For example, report the inclusion amount as other income on Schedule C (Form 1040) if you took the deduction on Schedule C. 2013 amended tax return If you took the deduction for rental costs on Form 2106, report the inclusion amount as other income on Form 1040, line 21. 2013 amended tax return Do the Passenger Automobile Limits Apply? The depreciation deduction, including the section 179 deduction and special depreciation allowance, you can claim for a passenger automobile (defined earlier) each year is limited. 2013 amended tax return This section describes the maximum depreciation deduction amounts for 2013 and explains how to deduct, after the recovery period, the unrecovered basis of your property that results from applying the passenger automobile limit. 2013 amended tax return Exception for leased cars. 2013 amended tax return   The passenger automobile limits generally do not apply to passenger automobiles leased or held for leasing by anyone regularly engaged in the business of leasing passenger automobiles. 2013 amended tax return For information on when you are considered regularly engaged in the business of leasing listed property, including passenger automobiles, see Exception for leased property , earlier, under What Is the Business-Use Requirement . 2013 amended tax return Maximum Depreciation Deduction The passenger automobile limits are the maximum depreciation amounts you can deduct for a passenger automobile. 2013 amended tax return They are based on the date you placed the automobile in service. 2013 amended tax return Passenger Automobiles The maximum deduction amounts for most passenger automobiles are shown in the following table. 2013 amended tax return Maximum Depreciation Deduction for Passenger Automobiles Date       4th & Placed 1st 2nd 3rd Later In Service Year Year Year Years 2013 $11,1601 $5,100 $3,050 $1,875 2012 11,1601 5,100 3,050 1,875 2011 11,0602 4,900 2,950 1,775 2010 11,0602  4,900 2,950 1,775 2009 10,9603 4,800 2,850 1,775 2008 10,9603  4,800 2,850 1,775 2007 3,060 4,900 2,850 1,775 2006 2,960 4,800 2,850 1,775 2005 2,960 4,700 2,850 1,675 2004 10,6104 4,800 2,850 1,675 5/06/2003– 12/31/2003 10,7105 4,900 2,950 1,775 1/01/2003– 5/05/2003 7,6606 4,900 2,950 1,775 1If you elected not to claim any special depreciation allowance or the vehicle is not qualified property, the maximum deduction is $3,160. 2013 amended tax return 2If you elected not to claim any special depreciation allowance or the vehicle is not qualified property, the maximum deduction is $3,060. 2013 amended tax return 3If you elected not to claim any special depreciation allowance for the vehicle or the vehicle is not qualified property, the maximum deduction is $2,960. 2013 amended tax return 4If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $2,960. 2013 amended tax return 5If you acquired the vehicle before 5/06/03, the maximum deduction is $7,660. 2013 amended tax return If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $3,060. 2013 amended tax return 6If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $3,060. 2013 amended tax return If your business/investment use of the automobile is less than 100%, you must reduce the maximum deduction amount by multiplying the maximum amount by the percentage of business/investment use determined on an annual basis during the tax year. 2013 amended tax return If you have a short tax year, you must reduce the maximum deduction amount by multiplying the maximum amount by a fraction. 2013 amended tax return The numerator of the fraction is the number of months and partial months in the short tax year and the denominator is 12. 2013 amended tax return Example. 2013 amended tax return On April 15, 2013, Virginia Hart bought and placed in service a new car for $14,500. 2013 amended tax return She used the car only in her business. 2013 amended tax return She files her tax return based on the calendar year. 2013 amended tax return She does not elect a section 179 deduction and elected not to claim any special depreciation allowance for the car. 2013 amended tax return Under MACRS, a car is 5-year property. 2013 amended tax return Since she placed her car in service on April 15 and used it only for business, she uses the percentages in Table A-1 to figure her MACRS depreciation on the car. 2013 amended tax return Virginia multiplies the $14,500 unadjusted basis of her car by 0. 2013 amended tax return 20 to get her MACRS depreciation of $2,900 for 2013. 2013 amended tax return This $2,900 is below the maximum depreciation deduction of $3,160 for passenger automobiles placed in service in 2013. 2013 amended tax return She can deduct the full $2,900. 2013 amended tax return Electric Vehicles The maximum depreciation deductions for passenger automobiles that are produced to run primarily on electricity are higher than those for other automobiles. 2013 amended tax return The maximum deduction amounts for electric vehicles placed in service after August 5, 1997, and before January 1, 2007, are shown in the following table. 2013 amended tax return Owners of electric vehicles placed in service after December 31, 2006, should use the table of maximum deduction amounts later for electric vehicles classified as passenger automobiles or use the table of maximum deduction amounts for trucks and vans later, for electric vehicles classified as trucks and vans. 2013 amended tax return Maximum Depreciation Deduction For Electric Vehicles Date       4th & Placed 1st 2nd 3rd Later In Service Year Year Year Years 2006 $8,980 $14,400 $8,650 $5,225 2005 8,880 14,200 8,450 5,125 2004 31,8301 14,300 8,550 5,125 5/06/2003– 12/31/2003 32,0302 14,600 8,750 5,225 1/01/2003– 5/05/2003 22,8803 14,600 8,750 5,225 1If you elected not to claim any special depreciation allowance for the vehicle or the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $8,880. 2013 amended tax return 2If you acquired the vehicle before 5/06/03, the maximum deduction is $22,880. 2013 amended tax return If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $9,080. 2013 amended tax return 3 If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $9,080. 2013 amended tax return Trucks and Vans The maximum depreciation deductions for trucks and vans placed in service after 2002 are higher than those for other passenger automobiles. 2013 amended tax return The maximum deduction amounts for trucks and vans are shown in the following table. 2013 amended tax return Maximum Depreciation Deduction For Trucks and Vans Date       4th & Placed 1st 2nd 3rd Later In Service Year Year Year Years 2013 $11,3601 $5,400 $3,250 $1,975 2012 11,3601 5,300 3,150 1,875 2011 11,2602 5,200 3,150 1,875 2010 11,1603 5,100 3,050 1,875 2009 11,0604 4,900 2,950 1,775 2008 11,1605 5,100 3,050 1,875 2007 3,260 5,200 3,050 1,875 2006 3,260 5,200 3,150 1,875 2005 3,260 5,200 3,150 1,875 2004 10,9106 5,300 3,150 1,875 5/06/2003– 12/31/2003 11,0107 5,400 3,250 1,975 1/01/2003– 5/05/2003 7,9608 5,400 3,250 1,975 1 If you elected not to claim any special depreciation allowance or the vehicle is not qualified property, the maximum deduction is $3,360. 2013 amended tax return 2 If you elected not to claim any special depreciation allowance or the vehicle is not qualified property, the maximum deduction is $3,260. 2013 amended tax return 3 If you elected not to claim any special depreciation allowance or the vehicle is not qualified property, the maximum deduction is $3,160. 2013 amended tax return 4 If you elect not to claim any special depreciation allowance for the vehicle or the vehicle is not qualified property, the maximum deduction is $3,060. 2013 amended tax return 5If you elected not to claim any special depreciation allowance for the vehicle or the vehicle is not qualified property, the maximum deduction is $3,160. 2013 amended tax return 6If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, or the maximum deduction is $3,260. 2013 amended tax return 7 If you acquired the vehicle before 5/06/03, the maximum deduction is $7,960. 2013 amended tax return If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $3,360. 2013 amended tax return 8 If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $3,360. 2013 amended tax return Depreciation Worksheet for Passenger Automobiles You can use the following worksheet to figure your depreciation deduction using the percentage tables. 2013 amended tax return Then use the information from this worksheet to prepare Form 4562. 2013 amended tax return Depreciation Worksheet for Passenger Automobiles   Part I   1. 2013 amended tax return MACRS system (GDS or ADS)     2. 2013 amended tax return Property class     3. 2013 amended tax return Date placed in service     4. 2013 amended tax return Recovery period     5. 2013 amended tax return Method and convention     6. 2013 amended tax return Depreciation rate (from tables)     7. 2013 amended tax return Maximum depreciation deduction for this year from the appropriate table       8. 2013 amended tax return Business/investment-use percentage       9. 2013 amended tax return Multiply line 7 by line 8. 2013 amended tax return This is your adjusted maximum depreciation deduction       10. 2013 amended tax return Section 179 deduction claimed this year (not more than line 9). 2013 amended tax return Enter -0- if this is not the year you placed the car in service. 2013 amended tax return         Note. 2013 amended tax return  1) If line 10 is equal to line 9, stop here. 2013 amended tax return Your combined section 179 and depreciation deduction (including your special depreciation allowance) is limited to the amount on line 9. 2013 amended tax return  2) If line 10 is less than line 9, complete Part II. 2013 amended tax return   Part II   11. 2013 amended tax return Subtract line 10 from line 9. 2013 amended tax return This is the limit on the amount you can deduct for depreciation (including any special depreciation allowance )       12. 2013 amended tax return Cost or other basis (reduced by any alternative motor vehicle credit 1or credit for electric vehicles 2)       13. 2013 amended tax return Multiply line 12 by line 8. 2013 amended tax return This is your business/investment cost       14. 2013 amended tax return Section 179 deduction claimed in the year you placed the car in service       15. 2013 amended tax return Subtract line 14 from line 13. 2013 amended tax return This is your tentative basis for depreciation       16. 2013 amended tax return Multiply line 15 by . 2013 amended tax return 50 if the 50% special depreciation allowance applies. 2013 amended tax return This is your special depreciation allowance. 2013 amended tax return Enter -0- if this is not the year you placed the car in service, the car is not qualified property, or you elected not to claim a special depreciation allowance       Note 1) If line 16 is equal to line 11, stop here. 2013 amended tax return Your depreciation deduction (including your special depreciation allowance) is limited to the amount on line 11. 2013 amended tax return  2) If line 16 is less than line 11, complete Part III. 2013 amended tax return   Part III   17. 2013 amended tax return Subtract line 16 from 11. 2013 amended tax return This is the limit on the amount you can deduct for MACRS depreciation       18. 2013 amended tax return Subtract line 16 from line 15. 2013 amended tax return This is your basis for depreciation. 2013 amended tax return       19. 2013 amended tax return Multiply line 18 by line 6. 2013 amended tax return This is your tentative MACRS depreciation deduction. 2013 amended tax return       20. 2013 amended tax return Enter the lesser of line 17 or line 19. 2013 amended tax return This is your MACRS depreciation deduction. 2013 amended tax return     1 When figuring the amount to enter on line 12, do not reduce your cost or other basis by any section 179 deduction you claimed for your car. 2013 amended tax return 2 Reduce the basis by the lesser of $4,000 or 10% of the cost of the vehicle even if the credit is less than that amount. 2013 amended tax return             Deductions After the Recovery Period If the depreciation deductions for your automobile are reduced under the passenger automobile limits, you will have unrecovered basis in your automobile at the end of the recovery period. 2013 amended tax return If you continue to use the automobile for business, you can deduct that unrecovered basis after the recovery period ends. 2013 amended tax return You can claim a depreciation deduction in each succeeding tax year until you recover your full basis in the car. 2013 amended tax return The maximum amount you can deduct each year is determined by the date you placed the car in service and your business/investment-use percentage. 2013 amended tax return See Maximum Depreciation Deduction , earlier. 2013 amended tax return Unrecovered basis is the cost or other basis of the passenger automobile reduced by any clean-fuel vehicle deduction, electric vehicle credit, depreciation, and section 179 deductions that would have been allowable if you had used the car 100% for business and investment use and the passenger automobile limits had not applied. 2013 amended tax return You cannot claim a depreciation deduction for listed property other than passenger automobiles after the recovery period ends. 2013 amended tax return There is no unrecovered basis at the end of the recovery period because you are considered to have used this property 100% for business and investment purposes during all of the recovery period. 2013 amended tax return Example. 2013 amended tax return In May 2007, you bought and placed in service a car costing $31,500. 2013 amended tax return The car was 5-year property under GDS (MACRS). 2013 amended tax return You did not elect a section 179 deduction and elected not to claim any special depreciation allowance for the car. 2013 amended tax return You used the car exclusively for business during the recovery period (2007 through 2012). 2013 amended tax return You figured your depreciation as shown below. 2013 amended tax return Year Percentage Amount Limit   Allowed 2007 20. 2013 amended tax return 0% $6,300 $2,960   $2,960 2008 32. 2013 amended tax return 0 10,080 4,800   4,800 2009 19. 2013 amended tax return 2 6,048 2,850   2,850 2010 11. 2013 amended tax return 52 3,629 1,675   1,675 2011 11. 2013 amended tax return 52 3,629 1,675   1,675 2012 5. 2013 amended tax return 76 1,814 1,675   1,675 Total   $15,635 At the end of 2012, you had an unrecovered basis of $15,865 ($31,500 − $15,635). 2013 amended tax return If in 2013 and later years you continue to use the car 100% for business, you can deduct each year the lesser of $1,675 or your remaining unrecovered basis. 2013 amended tax return If your business use of the car had been less than 100% during any year, your depreciation deduction would have been less than the maximum amount allowable for that year. 2013 amended tax return However, in figuring your unrecovered basis in the car, you would still reduce your basis by the maximum amount allowable as if the business use had been 100%. 2013 amended tax return For example, if you had used your car 60% for business instead of 100%, your allowable depreciation deductions would have been $9,519 ($15,865 × 60%), but you still would have to reduce your basis by $15,865 to determine your unrecovered basis. 2013 amended tax return Deductions For Passenger Automobiles Acquired in a Trade-in If you acquire a passenger automobile in a trade-in, depreciate the carryover basis separately as if the trade-in did not occur. 2013 amended tax return Depreciate the part of the new automobile's basis that exceeds its carryover basis (excess basis) as if it were newly placed in service property. 2013 amended tax return This excess basis is the additional cash paid for the new automobile in the trade-in. 2013 amended tax return The depreciation figured for the two components of the basis (carryover basis and excess basis) is subject to a single passenger automobile limit. 2013 amended tax return Special rules apply in determining the passenger automobile limits. 2013 amended tax return These rules and examples are discussed in section 1. 2013 amended tax return 168(i)-6(d)(3) of the regulations. 2013 amended tax return Instead of figuring depreciation for the carryover basis and the excess basis separately, you can elect to treat the old automobile as disposed of and both of the basis components for the new automobile as if placed in service at the time of the trade-in. 2013 amended tax return For more information, including how to make this election, see Election out under Property Acquired in a Like-kind Exchange or Involuntary Conversion in chapter 4 and sections 1. 2013 amended tax return 168(i)-6(i) and 1. 2013 amended tax return 168(i)-6(j) of the regulations. 2013 amended tax return What Records Must Be Kept? You cannot take any depreciation or section 179 deduction for the use of listed property unless you can prove your business/investment use with adequate records or with sufficient evidence to support your own statements. 2013 amended tax return For listed property, you must keep records for as long as any recapture can still occur. 2013 amended tax return Recapture can occur in any tax year of the recovery period. 2013 amended tax return Adequate Records To meet the adequate records requirement, you must maintain an account book, diary, log, statement of expense, trip sheet, or similar record or other documentary evidence that, together with the receipt, is sufficient to establish each element of an expenditure or use. 2013 amended tax return You do not have to record information in an account book, diary, or similar record if the information is already shown on the receipt. 2013 amended tax return However, your records should back up your receipts in an orderly manner. 2013 amended tax return Elements of expenditure or use. 2013 amended tax return   Your records or other documentary evidence must support all the following. 2013 amended tax return The amount of each separate expenditure, such as the cost of acquiring the item, maintenance and repair costs, capital improvement costs, lease payments, and any other expenses. 2013 amended tax return The amount of each business and investment use (based on an appropriate measure, such as mileage for vehicles and time for other listed property), and the total use of the property for the tax year. 2013 amended tax return The date of the expenditure or use. 2013 amended tax return The business or investment purpose for the expenditure or use. 2013 amended tax return   Written documents of your expenditure or use are generally better evidence than oral statements alone. 2013 amended tax return You do not have to keep a daily log. 2013 amended tax return However, some type of record containing the elements of an expenditure or the business or investment use of listed property made at or near the time of the expenditure or use and backed up by other documents is preferable to a statement you prepare later. 2013 amended tax return Timeliness. 2013 amended tax return   You must record the elements of an expenditure or use at the time you have full knowledge of the elements. 2013 amended tax return An expense account statement made from an account book, diary, or similar record prepared or maintained at or near the time of the expenditure or use generally is considered a timely record if, in the regular course of business: The statement is given by an employee to the employer, or The statement is given by an independent contractor to the client or customer. 2013 amended tax return   For example, a log maintained on a weekly basis, that accounts for use during the week, will be considered a record made at or near the time of use. 2013 amended tax return Business purpose supported. 2013 amended tax return   Generally, an adequate record of business purpose must be in the form of a written statement. 2013 amended tax return However, the amount of detail necessary to establish a business purpose depends on the facts and circumstances of each case. 2013 amended tax return A written explanation of the business purpose will not be required if the purpose can be determined from the surrounding facts and circumstances. 2013 amended tax return For example, a salesperson visiting customers on an established sales route will not normally need a written explanation of the business purpose of his or her travel. 2013 amended tax return Business use supported. 2013 amended tax return   An adequate record contains enough information on each element of every business or investment use. 2013 amended tax return The amount of detail required to support the use depends on the facts and circumstances. 2013 amended tax return For example, a taxpayer who uses a truck for both business and personal purposes and whose only business use of the truck is to make customer deliveries on an established route can satisfy the requirement by recording the length of the route, including the total number of miles driven during the tax year and the date of each trip at or near the time of the trips. 2013 amended tax return   Although you generally must prepare an adequate written record, you can prepare a record of the business use of listed property in a computer memory device that uses a logging program. 2013 amended tax return Separate or combined expenditures or uses. 2013 amended tax return   Each use by you normally is considered a separate use. 2013 amended tax return However, you can combine repeated uses as a single item. 2013 amended tax return   Record each expenditure as a separate item. 2013 amended tax return Do not combine it with other expenditures. 2013 amended tax return If you choose, however, you can combine amounts you spent for the use of listed property during a tax year, such as for gasoline or automobile repairs. 2013 amended tax return If you combine these expenses, you do not need to support the business purpose of each expense. 2013 amended tax return Instead, you can divide the expenses based on the total business use of the listed property. 2013 amended tax return   You can account for uses that can be considered part of a single use, such as a round trip or uninterrupted business use, by a single record. 2013 amended tax return For example, you can account for the use of a truck to make deliveries at several locations that begin and end at the business premises and can include a stop at the business in between deliveries by a single record of miles driven. 2013 amended tax return You can account for the use of a passenger automobile by a salesperson for a business trip away from home over a period of time by a single record of miles traveled. 2013 amended tax return Minimal personal use (such as a stop for lunch between two business stops) is not an interruption of business use. 2013 amended tax return Confidential information. 2013 amended tax return   If any of the information on the elements of an expenditure or use is confidential, you do not need to include it in the account book or similar record if you record it at or near the time of the expenditure or use. 2013 amended tax return You must keep it elsewhere and make it available as support to the IRS director for your area on request. 2013 amended tax return Substantial compliance. 2013 amended tax return   If you have not fully supported a particular element of an expenditure or use, but have complied with the adequate records requirement for the expenditure or use to the satisfaction of the IRS director for your area, you can establish this element by any evidence the IRS director for your area deems adequate. 2013 amended tax return   If you fail to establish to the satisfaction of the IRS director for your area that you have substantially complied with the adequate records requirement for an element of an expenditure or use, you must establish the element as follows. 2013 amended tax return By your own oral or written statement containing detailed information as to the element. 2013 amended tax return By other evidence sufficient to establish the element. 2013 amended tax return   If the element is the cost or amount, time, place, or date of an expenditure or use, its supporting evidence must be direct evidence, such as oral testimony by witnesses or a written statement setting forth detailed information about the element or the documentary evidence. 2013 amended tax return If the element is the business purpose of an expenditure, its supporting evidence can be circumstantial evidence. 2013 amended tax return Sampling. 2013 amended tax return   You can maintain an adequate record for part of a tax year and use that record to support your business and investment use of listed property for the entire tax year if it can be shown by other evidence that the periods for which you maintain an adequate record are representative of the use throughout the year. 2013 amended tax return Example 1. 2013 amended tax return Denise Williams, a sole proprietor and calendar year taxpayer, operates an interior decorating business out of her home. 2013 amended tax return She uses her automobile for local business visits to the homes or offices of clients, for meetings with suppliers and subcontractors, and to pick up and deliver items to clients. 2013 amended tax return There is no other business use of the automobile, but she and family members also use it for personal purposes. 2013 amended tax return She maintains adequate records for the first 3 months of the year showing that 75% of the automobile use was for business. 2013 amended tax return Subcontractor invoices and paid bills show that her business continued at approximately the same rate for the rest of the year. 2013 amended tax return If there is no change in circumstances, such as the purchase of a second car for exclusive use in her business, the determination that her combined business/investment use of the automobile for the tax year is 75% rests on sufficient supporting evidence. 2013 amended tax return Example 2. 2013 amended tax return Assume the same facts as in Example 1, except that Denise maintains adequate records during the first week of every month showing that 75% of her use of the automobile is for business. 2013 amended tax return Her business invoices show that her business continued at the same rate during the later weeks of each month so that her weekly records are representative of the automobile's business use throughout the month. 2013 amended tax return The determination that her business/investment use of the automobile for the tax year is 75% rests on sufficient supporting evidence. 2013 amended tax return Example 3. 2013 amended tax return Bill Baker, a sole proprietor and calendar year taxpayer, is a salesman in a large metropolitan area for a company that manufactures household products. 2013 amended tax return For the first 3 weeks of each month, he occasionally uses his own automobile for business travel within the metropolitan area. 2013 amended tax return During these weeks, his business use of the automobile does not follow a consistent pattern. 2013 amended tax return During the fourth week of each month, he delivers all business orders taken during the previous month. 2013 amended tax return The business use of his automobile, as supported by adequate records, is 70% of its total use during that fourth week. 2013 amended tax return The determination based on the record maintained during the fourth week of the month that his business/investment use of the automobile for the tax year is 70% does not rest on sufficient supporting evidence because his use during that week is not representative of use during other periods. 2013 amended tax return Loss of records. 2013 amended tax return   When you establish that failure to produce adequate records is due to loss of the records through circumstances beyond your control, such as through fire, flood, earthquake, or other casualty, you have the right to support a deduction by reasonable reconstruction of your expenditures and use. 2013 amended tax return How Is Listed Property Information Reported? You must provide the information about your listed property requested in Part V of Form 4562, Section A, if you claim either of the following deductions. 2013 amended tax return Any deduction for a vehicle. 2013 amended tax return A depreciation deduction for any other listed property. 2013 amended tax return If you claim any deduction for a vehicle, you also must provide the information requested in Section B. 2013 amended tax return If you provide the vehicle for your employee's use, the employee must give you this information. 2013 amended tax return If you provide any vehicle for use by an employee, you must first answer the questions in Section C to see if you meet an exception to completing Section B for that vehicle. 2013 amended tax return Vehicles used by your employees. 2013 amended tax return   You do not have to complete Section B, Part V, for vehicles used by your employees who are not more-than-5% owners or related persons if you meet at least one of the following requirements. 2013 amended tax return You maintain a written policy statement that prohibits one of the following uses of the vehicles. 2013 amended tax return All personal use including commuting. 2013 amended tax return Personal use, other than commuting, by employees who are not officers, directors, or 1%-or-more owners. 2013 amended tax return You treat all use of the vehicles by your employees as personal use. 2013 amended tax return You provide more than five vehicles for use by your employees, and you keep in your records the information on their use given to you by the employees. 2013 amended tax return For demonstrator automobiles provided to full-time salespersons, you maintain a written policy statement that limits the total mileage outside the salesperson's normal working hours and prohibits use of the automobile by anyone else, for vacation trips, or to store personal possessions. 2013 amended tax return Exceptions. 2013 amended tax return   If you file Form 2106, 2106-EZ, or Schedule C-EZ (Form 1040), and you are not required to file Form 4562, report information about listed property on that form and not on Form 4562. 2013 amended tax return Also, if you file Schedule C (Form 1040) and are claiming the standard mileage rate or actual vehicle expenses (except depreciation) and you are not required to file Form 4562 for any other reason, report vehicle information in Part IV of Schedule C and not on Form 4562. 2013 amended tax return Prev  Up  Next   Home   More Online Publications
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Japan-United States Friendship Commission

The Japan-United States Friendship Commission is a grant-making organization that provides funds to private entities in order to stimulate engagement in business, educational, or cultural exchanges with Japan.

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The 2013 Amended Tax Return

2013 amended tax return Accelerated Cost Recovery System (ACRS) Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: ACRS Defined What Can and Cannot Be Depreciated Under ACRSRecovery Property Nonrecovery Property How To Figure the DeductionUnadjusted Basis Classes of Recovery Property Recovery Periods Alternate ACRS Method (Modified Straight Line Method) ACRS Deduction in Short Tax Year DispositionsEarly dispositions of ACRS property other than 15-, 18-, or 19-year real property. 2013 amended tax return Dispositions — mass asset accounts. 2013 amended tax return Early dispositions — 15-year real property. 2013 amended tax return Early dispositions — 18- and 19-year real property. 2013 amended tax return Depreciation Recapture Topics - This chapter discusses: The definition of ACRS What can and cannot be depreciated under ACRS How to figure the deduction Dispositions Useful Items - You may want to see: Publication 544 Sales and Other Dispositions of Assets 551 Basis of Assets 583 Starting a Business and Keeping Records Form (and Instructions) 3115 Application for Change in Accounting Method 4562 Depreciation and Amortization The Accelerated Cost Recovery System (ACRS) applies to property first used before 1987. 2013 amended tax return It is the name given to tax rules for getting back (recovering) through depreciation deductions the cost of property used in a trade or business or to produce income. 2013 amended tax return These rules are mandatory and generally apply to tangible property placed in service after 1980 and before 1987. 2013 amended tax return If you placed property in service during this period, you must continue to figure your depreciation under ACRS. 2013 amended tax return If you used listed property placed in service after June 18, 1984, less than 50% for business in 1995, see Predominant Use Test in chapter 3. 2013 amended tax return Listed property includes cars, other means of transportation, and certain computers. 2013 amended tax return Any additions or improvements placed in service after 1986, including any components of a building (such as plumbing, wiring, storm windows, etc. 2013 amended tax return ), are depreciated using MACRS, discussed in chapter 3 of Publication 946. 2013 amended tax return It does not matter that the underlying property is depreciated under ACRS or one of the other methods. 2013 amended tax return ACRS Defined ACRS consists of accelerated depreciation methods and an alternate ACRS method that could have been elected. 2013 amended tax return The alternate ACRS method used a recovery percentage based on a modified straight line method. 2013 amended tax return The law prescribes fixed percentages to be uses for each class of property. 2013 amended tax return Property depreciable under ACRS is called recovery property. 2013 amended tax return The recovery class of property determines the recovery period. 2013 amended tax return Generally, the class life of property places it in a 3-year, 5-year, 10-year, 15-year, 18-year, or 19-year recovery class. 2013 amended tax return Under ACRS, the prescribed percentages are used to recover the unadjusted basis of recovery property. 2013 amended tax return To figure a depreciation deduction, you multiply the prescribed percentage for the recovery class by the unadjusted basis of the recovery property. 2013 amended tax return You must continue to figure your depreciation under ACRS for property placed in service after 1980 and before 1987. 2013 amended tax return For property you placed in service after 1986, you must use MACRS, discussed in chapter 3 of Publication 946. 2013 amended tax return What Can and Cannot Be Depreciated Under ACRS ACRS applies to most depreciable tangible property placed in service after 1980 and before 1987. 2013 amended tax return It includes new or used and real or personal property. 2013 amended tax return The property must be for use in a trade or business or for the production of income. 2013 amended tax return Property you acquired before 1981 or after 1986 is not ACRS recovery property. 2013 amended tax return For information on depreciating property acquired before 1981, see chapter 2. 2013 amended tax return For information on depreciating property acquired after 1986, see chapter 3 of Publication 946. 2013 amended tax return Recovery Property Recovery property under ACRS is tangible depreciable property placed in service after 1980 and before 1987. 2013 amended tax return It generally includes new or used property that you acquired after 1980 and before 1987 for use in your trade or business or for the production of income. 2013 amended tax return Nonrecovery Property You cannot use ACRS for property you placed in service before 1981 or after 1986. 2013 amended tax return Nonrecovery property also includes: Intangible property, Property you elected to exclude from ACRS that is properly depreciated under a method of depreciation that is not based on a term of years, Certain public utility property, and Certain property acquired and excluded from ACRS because of the antichurning rules. 2013 amended tax return Intangible property. 2013 amended tax return   Intangible property is not depreciated under ACRS. 2013 amended tax return Property depreciated under methods not expressed in a term of years. 2013 amended tax return   Certain property depreciated under a method not expressed in a term of years is not depreciated under ACRS. 2013 amended tax return This included any property: If you made an irrevocable election to exclude such property, and In the first year that you could have claimed depreciation, you properly used the unit-of-production method or any method of depreciation not expressed in a term of years (not including the retirement-replacement-betterment method). 2013 amended tax return Public utility property. 2013 amended tax return   Public utility property for which the taxpayer does not use a normalization method of accounting is excluded from ACRS and is subject to depreciation under a special rule. 2013 amended tax return Additions or improvements to ACRS property after 1986. 2013 amended tax return   Any additions or improvements placed in service after 1986, including any components of a building (plumbing, wiring, storm windows, etc. 2013 amended tax return ) are depreciated using MACRS, discussed in chapter 3 of Publication 946. 2013 amended tax return It does not matter that the underlying property is depreciated under ACRS or one of the other methods. 2013 amended tax return How To Figure the Deduction After you determine that your property can be depreciated under ACRS, you are ready to figure your deduction. 2013 amended tax return Because the conventions are built into the percentage table rates, you only need to know the following: The unadjusted basis of your recovery property, The classes of recovery property, The recovery periods, and Whether to use the prescribed percentages based on accelerated methods or percentages based on using the alternate ACRS method. 2013 amended tax return Unadjusted Basis To figure your ACRS deduction, you multiply the unadjusted basis in your recovery property by its applicable percentage for the year. 2013 amended tax return Unadjusted basis is the same amount you would use to figure gain on a sale, but it is figured without taking into account any depreciation taken in earlier years. 2013 amended tax return However, reduce your original basis by the amount of amortization taken on the property and by any section 179 deduction claimed as discussed in chapter 2 of Publication 946. 2013 amended tax return If you buy property, your unadjusted basis is usually its cost minus any amortized amount and minus any section 179 deduction elected. 2013 amended tax return If you acquire property in some other way, such as by inheriting it, getting it as a gift, or building it yourself, you figure your unadjusted basis under other rules. 2013 amended tax return See Publication 551. 2013 amended tax return Classes of Recovery Property All recovery property under ACRS is in one of the following classes. 2013 amended tax return The class for your property was determined when you began to depreciate it. 2013 amended tax return 3-Year Property 3-year property includes automobiles, light-duty trucks (actual unloaded weight less than 13,000 pounds), and tractor units for use over-the-road. 2013 amended tax return Race horses over 2 years old when placed in service are 3-year property. 2013 amended tax return Any other horses over 12 years old when you placed them in service are also included in the 3-year property class. 2013 amended tax return The ACRS percentages for 3-year recovery property are: Recovery Period Percentage 1st year 25% 2nd year 38% 3rd year 37% If you used the percentages above to depreciate your 3-year recovery property, your property, except for certain passenger automobiles, is fully depreciated. 2013 amended tax return You cannot claim depreciation for this property after 1988. 2013 amended tax return 5-Year Property 5-year property includes computers, copiers, and equipment, such as office furniture and fixtures. 2013 amended tax return It also includes single purpose agricultural or horticultural structures and petroleum storage facilities (other than buildings and their structural components). 2013 amended tax return The ACRS percentages for 5-year recovery property are: Recovery period Percentage 1st year 15% 2nd year 22% 3rd through 5th year 21% If you used the percentages above to depreciate your 5-year recovery property, it is fully depreciated. 2013 amended tax return You cannot claim depreciation for this property after 1990. 2013 amended tax return 10-Year Property 10-year property includes certain real property such as theme-park structures and certain public utility property. 2013 amended tax return Manufactured homes (including mobile homes) and railroad tank cars are also 10-year property. 2013 amended tax return You do not treat a building, and its structural components, as 10-year property by reason of a change in use after you placed the property in service. 2013 amended tax return For example, a building (15-year real property) that was placed in service in 1981 and was converted to a theme-park structure in 1986 remains 15-year real property. 2013 amended tax return The ACRS percentages for 10-year recovery property are: Recovery Period Percentage 1st year 8% 2nd year 14% 3rd year 12% 4th through 6th year 10% 7th through 10th year 9% If you used the percentages above, you cannot claim depreciation for this property after 1995. 2013 amended tax return Example. 2013 amended tax return On April 21, 1986, you bought and placed in service a new mobile home for $26,000 to be used as rental property. 2013 amended tax return You paid $10,000 cash and signed a note for $16,000 giving you an unadjusted basis of $26,000. 2013 amended tax return On June 8, 1986, you bought and placed in service a used mobile home for use as rental property at a total cost of $11,500. 2013 amended tax return The total unadjusted basis of your 10-year recovery property placed in service in 1986 was $37,500 ($26,000 + $11,500). 2013 amended tax return Your ACRS deduction was $3,000 (8% × $37,500). 2013 amended tax return In 1987, your ACRS deduction was $5,250 (14% × $37,500). 2013 amended tax return In 1988, your ACRS deduction was $4,500 (12% × $37,500). 2013 amended tax return In 1989, 1990, and 1991, your ACRS deduction was $3,750 (10% × $37,500). 2013 amended tax return In 1992, 1993, 1994, and 1995 your deduction for each year is $3,375 (9% × $37,500). 2013 amended tax return 15-Year Real Property 15-year real property is real property that is recovery property placed in service before March 16, 1984. 2013 amended tax return It includes all real property, such as buildings, other than that designated as 5-year or 10-year property. 2013 amended tax return Unlike the 3-, 5-, or 10-year classes of property, the percentages for 15-year real property depend on when you placed the property in service during your tax year. 2013 amended tax return You could group 15-year real property by month and year placed in service. 2013 amended tax return In Table 1, at the end of this publication in the Appendix, find the month in your tax year that you placed the property in service in your trade or business or for the production of income. 2013 amended tax return You use the percentages listed under that month for each year of the recovery period to determine your depreciation deduction each year. 2013 amended tax return Example. 2013 amended tax return On March 5, 1984, you placed an apartment building in service in your business. 2013 amended tax return It is 15-year real property. 2013 amended tax return After subtracting the value of the land, your unadjusted basis in the building is $250,000. 2013 amended tax return You use the calendar year as your tax year. 2013 amended tax return March is the third month of your tax year. 2013 amended tax return Your ACRS deduction for 1984 was $25,000 (10% × $250,000). 2013 amended tax return For 1985, the percentage for the third month of the second year of the recovery period is 11%. 2013 amended tax return Your deduction was $27,500 (11% × $250,000). 2013 amended tax return For the third, fourth, and fifth years of the recovery period (1986, 1987, and 1988), the percentages are 9%, 8%, and 7%. 2013 amended tax return For 1989 through 1992, the percentage for the third month is 6%. 2013 amended tax return Your deduction each year is $15,000 (6% × $250,000). 2013 amended tax return For 1993, 1994, and 1995, the percentage for the third month is 5%. 2013 amended tax return Your depreciation deduction is $12,500 (5% × $250,000) for 1993, 1994, and 1995. 2013 amended tax return Low-Income Housing Low-income housing that was assigned a 15-year recovery period under ACRS includes the following types of property: Federally assisted housing projects where the mortgage is insured under section 221(d)(3) or 236 of the National Housing Act, or housing financed or assisted by direct loan or tax abatement under similar provisions of state or local laws. 2013 amended tax return Low-income rental housing for which a depreciation deduction for rehabilitation expenditures is allowed. 2013 amended tax return Low-income rental housing held for occupancy by families or individuals eligible to receive subsidies under section 8 of the United States Housing Act of 1937, as amended, or under the provisions of state or local laws that authorize similar subsidies for low-income families. 2013 amended tax return Housing financed or assisted by direct loan or insured under Title V of the Housing Act of 1949. 2013 amended tax return The ACRS percentages for low-income housing real property, like the regular 15-year real property percentages, depend on when you placed the property in service. 2013 amended tax return Find the month in your tax year in Table 2 or 3 at the end of this publication in the Appendix that you first placed the property in service as rental housing. 2013 amended tax return Use the percentages listed under that month for each year of the recovery period. 2013 amended tax return Table 2 shows percentages for low-income housing placed in service before May 9, 1985. 2013 amended tax return Table 3 shows percentages for low-income housing placed in service after May 8, 1985, and before 1987. 2013 amended tax return Example. 2013 amended tax return In May 1986, you acquired and placed in service a house that qualified as low-income rental housing under item 3) of the above listing. 2013 amended tax return You use the calendar year as your tax year. 2013 amended tax return You use Table C–3 because the property was placed in service after May 8, 1985. 2013 amended tax return Your unadjusted basis for the property, not including the land, was $59,000. 2013 amended tax return Your deduction for 1986 through 2001 is shown in the following table. 2013 amended tax return Year Rate Deduction 1986 8. 2013 amended tax return 9% $5,251 1987 12. 2013 amended tax return 1% 7,139 1988 10. 2013 amended tax return 5% 6,195 1989 9. 2013 amended tax return 1% 5,369 1990 7. 2013 amended tax return 9% 4,661 1991 6. 2013 amended tax return 9% 4,071 1992 5. 2013 amended tax return 9% 3,481 1993 5. 2013 amended tax return 2% 3,068 1994 4. 2013 amended tax return 6% 2,714 1995 4. 2013 amended tax return 6% 2,714 1996 4. 2013 amended tax return 6% 2,714 1997 4. 2013 amended tax return 6% 2,714 1998 4. 2013 amended tax return 6% 2,714 1999 4. 2013 amended tax return 5% 2,655 2000 4. 2013 amended tax return 5% 2,655 2001 1. 2013 amended tax return 5% 885 18-Year Real Property 18-year real property is real property that is recovery property placed in service after March 15, 1984, and before May 9, 1985. 2013 amended tax return It includes real property, such as buildings, other than that designated as 5-year, 10-year, 15-year real property, or low-income housing. 2013 amended tax return The ACRS percentages for 18-year real property depend on when you placed the property in service in your trade or business or for the production of income during your tax year. 2013 amended tax return There are also tables for 18-year real property in the Appendix. 2013 amended tax return Table 4 shows the percentages for 18-year real property you placed in service after June 22, 1984, and before May 9, 1985. 2013 amended tax return Table 5 is for 18-year real property placed in service after March 15, 1984, and before June 23, 1984. 2013 amended tax return Find the month in your tax year that you placed the property in service in a trade or business or for the production of income. 2013 amended tax return Use the percentages listed under that month for each year of the recovery period. 2013 amended tax return Example. 2013 amended tax return On April 28, 1985, you bought and placed in service a rental house. 2013 amended tax return The house, not including the land, cost $95,000. 2013 amended tax return This is your unadjusted basis for the house. 2013 amended tax return You use the calendar year as your tax year. 2013 amended tax return Because the house was placed in service after June 22, 1984, and before May 9, 1985, it is 18-year real property. 2013 amended tax return You use Table 4 to figure your deduction for the house. 2013 amended tax return April is the fourth month of your tax year. 2013 amended tax return Your deduction for 1985 through 2003 is shown in the following table. 2013 amended tax return Year Rate Deduction 1985 7. 2013 amended tax return 0% $6,650 1986 9. 2013 amended tax return 0% 8,550 1987 8. 2013 amended tax return 0% 7,600 1988 7. 2013 amended tax return 0% 6,650 1989 7. 2013 amended tax return 0% 6,650 1990 6. 2013 amended tax return 0% 5,700 1991 5. 2013 amended tax return 0% 4,750 1992 5. 2013 amended tax return 0% 4,750 1993 5. 2013 amended tax return 0% 4,750 1994 5. 2013 amended tax return 0% 4,750 1995 5. 2013 amended tax return 0% 4,750 1996 5. 2013 amended tax return 0% 4,750 1997 5. 2013 amended tax return 0% 4,750 1998 4. 2013 amended tax return 0% 3,800 1999 4. 2013 amended tax return 0% 3,800 2000 4. 2013 amended tax return 0% 3,800 2001 4. 2013 amended tax return 0% 3,800 2002 4. 2013 amended tax return 0% 3,800 2003 1. 2013 amended tax return 0% 950 19-Year Real Property 19-year real property is real property that is recovery property placed in service after May 8, 1985, and before 1987. 2013 amended tax return It includes all real property, other than that designated as 5-year, 10-year, 15-year, or 18-year real property, or low-income housing. 2013 amended tax return The ACRS percentages for 19-year real property depend on when you placed the property in service in a trade or business or for the production of income during your tax year. 2013 amended tax return Table 6 shows the percentages for 19-year real property. 2013 amended tax return You find the month in your tax year that you placed the property in service. 2013 amended tax return You use the percentages listed under that month for each year of the recovery period. 2013 amended tax return Recovery Periods Each item of recovery property is assigned to a class of property. 2013 amended tax return The classes of recovery property establish the recovery periods over which the unadjusted basis of items in a class is recovered. 2013 amended tax return The classes of property are: 3-Year property 5-Year property 10-Year property 15-Year real property Low-income housing 18-Year real property 19-Year real property Alternate ACRS Method (Modified Straight Line Method) ACRS provides an alternate ACRS method that could be elected. 2013 amended tax return This alternate ACRS method uses a recovery percentage based on a modified straight line method. 2013 amended tax return This alternate ACRS method generally uses percentages other than those from the tables. 2013 amended tax return If you elected the alternate ACRS method, you determine the recovery period by using the following schedule. 2013 amended tax return This schedule is for other than 18- and 19-year real property and low-income housing: In the case of: You could have elected a recovery period of: 3-year property 3, 5, or 12 years 5-year property 5, 12, or 25 years 15-year real property 15, 35, or 45 years Percentages. 2013 amended tax return   The straight-line percentages for the alternate ACRS method are: Recovery Period Percentage 5 years 20. 2013 amended tax return 00% 10 years 10. 2013 amended tax return 00% 12 years 8. 2013 amended tax return 333% 15 years 6. 2013 amended tax return 667% 25 years 4. 2013 amended tax return 00% 35 years 2. 2013 amended tax return 857%   You apply the percentage to the unadjusted basis(defined earlier) of the property to figure your ACRS deduction. 2013 amended tax return There are tables for 18- and 19-year real property later in this publication in the Appendix. 2013 amended tax return For 15-year real property, see 15-year real property, later. 2013 amended tax return 3-, 5-, and 10-year property. 2013 amended tax return   If you elected to use an alternate recovery percentage, you have to use the same recovery percentage for all property in that class that you placed in service in that tax year. 2013 amended tax return This applies throughout the recovery period you selected. 2013 amended tax return Half-year convention. 2013 amended tax return   If you elected the alternate method, only a half-year of depreciation was deducted for the year you placed the property in service. 2013 amended tax return This applied regardless of when in the tax year you placed the property in service. 2013 amended tax return For each of the remaining years in the recovery period, you take a full year's deduction. 2013 amended tax return If you hold the property for the entire recovery period, a half-year of depreciation is allowable for the year following the end of the recovery period. 2013 amended tax return Example. 2013 amended tax return You operate a small upholstery business. 2013 amended tax return On March 19, 1986, you bought and placed in service a $13,000 light-duty panel truck to be used in your business and a $500 electric saw. 2013 amended tax return You elected to use the alternate ACRS method. 2013 amended tax return You did not elect to take a section 179 deduction. 2013 amended tax return You decided to recover the cost of the truck, which is 3-year recovery property, over 5 years. 2013 amended tax return The saw is 5-year property, but you decided to recover its cost over 12 years. 2013 amended tax return For 1986, your ACRS deduction reflected the half-year convention. 2013 amended tax return In the first year, you deducted half of the amount determined for a full year. 2013 amended tax return Your ACRS deduction for 1986 is as follows: Light-duty truck   5 years straight line = 20% 20% ÷ $13,000 = $2,600 Half-year convention -½ of $2,600= $1,300. 2013 amended tax return 00     Electric saw   12 years straight line = 8. 2013 amended tax return 333% 8. 2013 amended tax return 333% ÷ $500 = $41. 2013 amended tax return 67 Half-year convention -½ of $41. 2013 amended tax return 67= 20. 2013 amended tax return 84 Total ACRS deduction for 1986 $1,320. 2013 amended tax return 84       You take a full year of depreciation for both the truck and the saw for the years 1987 through 1990. 2013 amended tax return Your ACRS deduction for each of those years is as follows: Light-duty truck   5 years straight line = 20% 20% ÷ $13,000 = $2,600     Electric saw     12 years straight line = 8. 2013 amended tax return 333% 8. 2013 amended tax return 333% ÷ $500 = $41. 2013 amended tax return 67 Total annual ACRS deduction for 1987 through 1990 $2,641. 2013 amended tax return 67       In 1991, you take a half-year of depreciation for the truck and a full year of depreciation for the saw. 2013 amended tax return Your ACRS deduction for 1991 is as follows: Light-duty truck   5 years straight line = 20% 20% ÷ $13,000 = $2,600 Half-year convention -½ of $2,600= $1,300. 2013 amended tax return 00     Electric saw   12 years straight line = 8. 2013 amended tax return 333% 8. 2013 amended tax return 333% ÷ $500 = $41. 2013 amended tax return 67 Total ACRS deduction for 1991 $1,341. 2013 amended tax return 67       The truck is fully depreciated after 1991. 2013 amended tax return You take a full year of depreciation for the saw for the years 1992 through 1997. 2013 amended tax return Your ACRS deduction for each of those years is as follows: Electric saw     12 years straight line = 8. 2013 amended tax return 333% 8. 2013 amended tax return 333% ÷ $500 = $41. 2013 amended tax return 67 Total annual ACRS deduction for 1992 through 1997 $41. 2013 amended tax return 67       You take a half-year of depreciation for the saw for 1998. 2013 amended tax return Your ACRS deduction for 1998 is as follows: Electric saw   12 years straight line = 8. 2013 amended tax return 333% 8. 2013 amended tax return 333% ÷ $500 = $41. 2013 amended tax return 67 Half-year convention -½ of $41. 2013 amended tax return 67= 20. 2013 amended tax return 84 Total ACRS deduction for 1998 $20. 2013 amended tax return 84       The saw is fully depreciated after 1998. 2013 amended tax return 15-year real property. 2013 amended tax return   Under ACRS, you could also elect to use the alternate ACRS method for 15-year real property. 2013 amended tax return The alternate ACRS method allows you to depreciate your 15-year real property using the straight line ACRS method over the alternate recovery periods of 15, 35, or 45 years. 2013 amended tax return If you selected a 15-year recovery period, you use the percentage (6. 2013 amended tax return 667%) from the schedule above. 2013 amended tax return You prorate this percentage for the number of months the property was in service in the first year. 2013 amended tax return If you selected a 35- or 45-year recovery period, you use either Table 11 or 15. 2013 amended tax return Alternate periods for 18-year real property. 2013 amended tax return   For 18-year real property, the alternate recovery periods are 18, 35, or 45 years. 2013 amended tax return The percentages for 18-year real property under the alternate method are in Tables 7, 8, 10, 11, 14, and 15 in the Appendix. 2013 amended tax return There are two tables for each alternate recovery period. 2013 amended tax return One table shows the percentage for property placed in service after June 22, 1984. 2013 amended tax return The other table has the percentages for property placed in service after March 15, 1984, and before June 23, 1984. 2013 amended tax return Alternate periods for 19-year real property. 2013 amended tax return   For 19-year real property, the alternate recovery periods are 19, 35, or 45 years. 2013 amended tax return If you selected a 19-year recovery period, use Table 9 to determine your deduction. 2013 amended tax return If you select a 35- or 45-year recovery period, use either Table 13 or 14. 2013 amended tax return Example. 2013 amended tax return You placed in service an apartment building on August 3, 1986. 2013 amended tax return The building is 19-year real property. 2013 amended tax return The sales contract allocated $300,000 to the building and $100,000 to the land. 2013 amended tax return You use the calendar year as your tax year. 2013 amended tax return You chose the alternate ACRS method over a recovery period of 35 years. 2013 amended tax return For 1986, you figure your ACRS deduction usingTable 13. 2013 amended tax return August is the eighth month of your tax year. 2013 amended tax return The percentage from Table 13 for the eighth month is 1. 2013 amended tax return 1%. 2013 amended tax return Your deduction was $3,300 ($300,000 ÷ 1. 2013 amended tax return 1%). 2013 amended tax return The deduction rate from ACRS Table 13 for years 2 through 20 is 2. 2013 amended tax return 9% so that your deduction in 1987 through 2005 is $8,700 ($300,000 ÷ 2. 2013 amended tax return 9%). 2013 amended tax return Alternate periods for low-income housing. 2013 amended tax return   For low-income housing, the alternate recovery periods are 15, 35, or 45 years. 2013 amended tax return If you selected a 15-year period for this property, use 6. 2013 amended tax return 667% as the percentage. 2013 amended tax return If you selected a 35- or 45-year period, use either Table 11, 12, or 15. 2013 amended tax return Election. 2013 amended tax return   You had to make the election to use the alternate ACRS method by the return due date (including extensions) for the tax year you placed the property in service. 2013 amended tax return Revocation of election. 2013 amended tax return   Your election to use an alternate ACRS method, once made, can be changed only with the consent of the Commissioner. 2013 amended tax return The Commissioner grants consent only in extraordinary circumstances. 2013 amended tax return Any request for a revocation will be considered a request for a ruling. 2013 amended tax return ACRS Deduction in Short Tax Year For a tax year that is less than 12 months, the ACRS deduction is prorated on a 12-month basis. 2013 amended tax return Figure the amount of the ACRS deduction for a short tax year as follows: First, you figure the ACRS deduction for a full year. 2013 amended tax return You figure this by multiplying the unadjusted basis by the recovery percentage. 2013 amended tax return You then multiply the ACRS deduction determined for a full tax year by a fraction. 2013 amended tax return The numerator (top number) of the fraction is the number of months in the short tax year and the denominator (bottom number) is 12. 2013 amended tax return For example, a corporation placed in service in June 1986 an item of 3-year property with an unadjusted basis of $10,000. 2013 amended tax return The corporation files a tax return, because of a change in its accounting period, for the 6-month short tax year ending June 30, 1986. 2013 amended tax return The full year's ACRS deduction for this item is $2,500 ($10,000 ÷ 25%), the first year percentage from the 3-year table. 2013 amended tax return The ACRS deduction for the short tax year is $1,250 ($2,500 ÷ 6/12). 2013 amended tax return You use the full ACRS percentages during the remaining years of the recovery period. 2013 amended tax return For the first tax year after the recovery period, the unrecovered basis will be deductible. 2013 amended tax return Exception. 2013 amended tax return   For the tax year in which you placed 15-, 18-, or 19-year real property in service or in the tax year you dispose of it, you compute the ACRS deduction for the number of months that the property is in service during that tax year. 2013 amended tax return You compute the number of months using either a full month or mid-month convention. 2013 amended tax return This is true regardless of the number of months in the tax year and the recovery period and method used. 2013 amended tax return Dispositions A disposition is the permanent withdrawal of property from use in your trade or business or in the production of income. 2013 amended tax return You can make a withdrawal by sale, exchange, retirement, abandonment, or destruction. 2013 amended tax return You generally recognize gain or loss on the disposition of an asset by sale. 2013 amended tax return However, nonrecognition rules can allow you to postpone some gain. 2013 amended tax return See Publication 544. 2013 amended tax return If you physically abandon property, you can deduct as a loss the adjusted basis of the asset at the time of its abandonment. 2013 amended tax return Your intent must be to discard the asset so that you will not use it again or retrieve it for sale, exchange, or other disposition. 2013 amended tax return Early dispositions. 2013 amended tax return   The disposal of an asset before the end of its specified recovery period, is referred to as an early disposition. 2013 amended tax return When an early disposition occurs, the depreciation deduction in the year of disposition depends on the class of property involved. 2013 amended tax return Early dispositions of ACRS property other than 15-, 18-, or 19-year real property. 2013 amended tax return   Generally, you get no ACRS deduction for the tax year in which you dispose of or retire recovery property, except for 15-, 18-, and 19-year real property. 2013 amended tax return This means there is no depreciation deduction under ACRS in the year you dispose of or retire any of your 3-, 5-, or 10-year recovery property. 2013 amended tax return Dispositions — mass asset accounts. 2013 amended tax return   The law provides a special rule to avoid the calculation of gain on the disposition of assets from mass asset accounts. 2013 amended tax return A mass asset account includes items usually minor in value in relation to the group, numerous in quantity, impractical to separately identify, and not usually accounted for on a separate basis, but on a total dollar value. 2013 amended tax return Examples of mass assets include minor items of office, plant, and store furniture and fixtures. 2013 amended tax return   Under the special rule, if you elected to use a mass asset account, you recognize gain to the extent of the proceeds from the disposition of the asset. 2013 amended tax return You leave the unadjusted basis of the property in the account until recovered in future years. 2013 amended tax return If you did this, include the total proceeds realized from the disposition in income on the tax return for the year of disposition. 2013 amended tax return Early dispositions — 15-year real property. 2013 amended tax return   If you dispose of 15-year real property, you base your ACRS deduction for the year of disposition on the number of months in use. 2013 amended tax return You use a full-month convention. 2013 amended tax return For a disposition at any time during a particular month before the end of the recovery period, no deduction is allowed for the month of disposition. 2013 amended tax return This applies whether you use the regular ACRS method or elected the alternate ACRS method. 2013 amended tax return Example. 2013 amended tax return You purchased and placed in service a rental house on March 2, 1984, for $98,000 (not including the cost of land). 2013 amended tax return You file your return based on a calendar year. 2013 amended tax return Your rate from Table 1 for the third month is 10%. 2013 amended tax return Your ACRS deduction for 1984 was $9,800 ($98. 2013 amended tax return 000 ÷ 10%). 2013 amended tax return For 1985 through 1988, you figured your ACRS deductions using 11%, 9%, 8%, and 7% ÷ $98,000. 2013 amended tax return For 1989 through 1992, you figured your ACRS deductions using 6% for each year. 2013 amended tax return The deduction each year was $98,000 ÷ 6%. 2013 amended tax return For 1993 and 1994, the ACRS deduction is ($98,000 ÷ 5%) $4,900 for each year. 2013 amended tax return You sell the house on June 1, 1995. 2013 amended tax return You figure your ACRS deduction for 1995 for the full year and then prorate that amount for the months of use. 2013 amended tax return The full ACRS deduction for 1995 is $4,900 ($98,000 ÷ 5%). 2013 amended tax return You then prorate this amount to the 5 months in 1995 during which it was rented. 2013 amended tax return Your ACRS deduction for 1995 is $2,042 ($4,900 ÷ 5/12). 2013 amended tax return Early dispositions — 18- and 19-year real property. 2013 amended tax return   If you dispose of 18- or 19-year real property, you base your ACRS deduction for the year of disposition on the number of months in use. 2013 amended tax return For 18-year property placed in service before June 23, 1984, use a full-month convention on a disposition. 2013 amended tax return For 18-year property placed in service after June 22, 1984, and for 19-year property, determine the number of months in use by using the mid-month convention. 2013 amended tax return Under the mid-month convention,treat real property disposed of any time during a month as disposed of in the middle of that month. 2013 amended tax return Count the month of disposition as half a month of use. 2013 amended tax return Example. 2013 amended tax return You purchased and placed in service a rental house on July 2, 1984, for $100,000 (not including the cost of land). 2013 amended tax return You file your return based on a calendar year. 2013 amended tax return Your rate from Table 4 for the seventh month is 4%. 2013 amended tax return You figured your ACRS deduction for 1984 was $4,000 ($100,000 ÷ 4%). 2013 amended tax return In 1985 through 1994, your ACRS deductions were 9%, 8%, 8%, 7%, 6%, 6%, 5%, 5%, and 5% ÷ $100,000. 2013 amended tax return You sell the house on September 24, 1995. 2013 amended tax return Figure your ACRS deduction for 1995 for the months of use. 2013 amended tax return The full ACRS deduction for 1995 is $5,000 ($100,000 ÷ 5%). 2013 amended tax return Prorate this amount for the 8. 2013 amended tax return 5 months in 1995 that you held the property. 2013 amended tax return Under the mid-month convention, you count September as half a month. 2013 amended tax return Your ACRS deduction for 1995 is $3,542 ($5,000 ÷ 8. 2013 amended tax return 5/12). 2013 amended tax return Depreciation Recapture If you dispose of property depreciated under ACRS that is section 1245 recovery property, you will generally recognize gain or loss. 2013 amended tax return Gain recognized on a disposition is ordinary income to the extent of prior depreciation deductions taken. 2013 amended tax return This recapture rule applies to all personal property in the 3-year, 5-year, and 10-year classes. 2013 amended tax return You recapture gain on manufactured homes and theme park structures in the 10-year class as section 1245 property. 2013 amended tax return Section 1245 property generally includes all personal property. 2013 amended tax return See Section 1245 property in chapter 4 of Publication 544 for more information. 2013 amended tax return You treat dispositions of section 1250 real property on which you have a gain as section 1245 recovery property. 2013 amended tax return You recognize gain on this property as ordinary income to the extent of prior depreciation deductions taken. 2013 amended tax return Section 1250 property includes most real property. 2013 amended tax return See Section 1250 property in chapter 4 of Publication 544 for more information. 2013 amended tax return This rule applies to all section 1250 real property except the following property: Any 15-, 18-, or 19-year real property that is residential rental property. 2013 amended tax return Any 15-, 18-, or 19-year real property that you elected to depreciate using the alternate ACRS method. 2013 amended tax return Any 15-, 18-, or 19-year real property that is subsidized low-income housing. 2013 amended tax return For these recapture rules, you treat the section 179 deduction and 50% of the investment credit that reduced your basis as depreciation. 2013 amended tax return See Publication 544 for further discussion of dispositions of section 1245 and 1250 property. 2013 amended tax return Prev  Up  Next   Home   More Online Publications