Filing Your Taxes Online is Fast, Easy and Secure.
Start now and receive your tax refund in as little as 7 days.

1. Get Answers

Your online questions are customized to your unique tax situation.

2. Maximize your Refund

Find tax credits for everything from school tuition to buying a hybri

3. E-File for FREE

E-file free with direct deposit to get your refund in as few as 7 days.

Filing your taxes with paper mail can be difficult and it could take weeks for your refund to arrive. IRS e-file is easy, fast and secure. There is no paperwork going to the IRS so tax refunds can be processed in as little as 7 days with direct deposit. As you prepare your taxes online, you can see your tax refund in real time.

FREE audit support and representation from an enrolled agent – NEW and only from H&R Block

Amended Return Instructions

Free Tax ReturnTurbotax Free State FilingTurbo Tax Ez FormHow To Do An Amendment Tax ReturnForm 1040ez 20121040 Nr Tax FormFree Turbotax 2013Tax 1040ezFree State Tax FillingHrblock FreereturnHow To File A Tax Amendment1040 Tax FormFree Back Tax Filing2014 Tax Forms2011 1040 Ez Tax FormsHow To File A Amended Return1040x2011 Irs Form 1040aFile State Taxes For Free OnlineCan 1040x Filed ElectronicallyFree HrblockFederal Tax Forms 2009How Do I Refile My TaxesDo I Have To File State TaxesIrs FreeForm 1040nr 2011Can I Amend My 2010 Tax Return2010 Tax Return FormH&r Block Military TaxWww Freefillableforms ComWww Irs GovPast Year TaxTax Act OnlineWhere Get State Tax FormsForm 1040 XMilitary Tax DeductionCan I Still File Taxes For 20122012 Tax Preparation Software FreeCan I Efile Form 1040xTax Compliance Software

Amended Return Instructions

Amended return instructions 2. Amended return instructions   Source of Income Table of Contents Introduction Topics - This chapter discusses: Resident Aliens Nonresident AliensInterest Income Dividends Guarantee of Indebtedness Personal Services Transportation Income Scholarships, Grants, Prizes, and Awards Pensions and Annuities Rents or Royalties Real Property Personal Property Community Income Introduction After you have determined your alien status, you must determine the source of your income. Amended return instructions This chapter will help you determine the source of different types of income you may receive during the tax year. Amended return instructions This chapter also discusses special rules for married individuals who are domiciled in a country with community property laws. Amended return instructions Topics - This chapter discusses: Income source rules, and Community income. Amended return instructions Resident Aliens A resident alien's income is generally subject to tax in the same manner as a U. Amended return instructions S. Amended return instructions citizen. Amended return instructions If you are a resident alien, you must report all interest, dividends, wages, or other compensation for services, income from rental property or royalties, and other types of income on your U. Amended return instructions S. Amended return instructions tax return. Amended return instructions You must report these amounts from sources within and outside the United States. Amended return instructions Nonresident Aliens A nonresident alien usually is subject to U. Amended return instructions S. Amended return instructions income tax only on U. Amended return instructions S. Amended return instructions source income. Amended return instructions Under limited circumstances, certain foreign source income is subject to U. Amended return instructions S. Amended return instructions tax. Amended return instructions See Foreign Income in chapter 4. Amended return instructions The general rules for determining U. Amended return instructions S. Amended return instructions source income that apply to most nonresident aliens are shown in Table 2-1. Amended return instructions The following discussions cover the general rules as well as the exceptions to these rules. Amended return instructions Not all items of U. Amended return instructions S. Amended return instructions source income are taxable. Amended return instructions See chapter 3. Amended return instructions Interest Income Generally, U. Amended return instructions S. Amended return instructions source interest income includes the following items. Amended return instructions Interest on bonds, notes, or other interest-bearing obligations of U. Amended return instructions S. Amended return instructions residents or domestic corporations. Amended return instructions Interest paid by a domestic or foreign partnership or foreign corporation engaged in a U. Amended return instructions S. Amended return instructions trade or business at any time during the tax year. Amended return instructions Original issue discount. Amended return instructions Interest from a state, the District of Columbia, or the U. Amended return instructions S. Amended return instructions Government. Amended return instructions The place or manner of payment is immaterial in determining the source of the income. Amended return instructions A substitute interest payment made to the transferor of a security in a securities lending transaction or a sale-repurchase transaction is sourced in the same manner as the interest on the transferred security. Amended return instructions Exceptions. Amended return instructions   U. Amended return instructions S. Amended return instructions source interest income does not include the following items. Amended return instructions Interest paid by a resident alien or a domestic corporation on obligations issued before August 10, 2010, if for the 3-year period ending with the close of the payer's tax year preceding the interest payment, at least 80% of the payer's total gross income: Is from sources outside the United States, and Is attributable to the active conduct of a trade or business by the individual or corporation in a foreign country or a U. Amended return instructions S. Amended return instructions possession. Amended return instructions However, the interest will be considered U. Amended return instructions S. Amended return instructions source interest income if either of the following apply. Amended return instructions The recipient of the interest is related to the resident alien or domestic corporation. Amended return instructions See section 954(d)(3) for the definition of related person. Amended return instructions The terms of the obligation are significantly modified after August 9, 2010. Amended return instructions Any extension of the term of the obligation is considered a significant modification. Amended return instructions Interest paid by a foreign branch of a domestic corporation or a domestic partnership on deposits or withdrawable accounts with mutual savings banks, cooperative banks, credit unions, domestic building and loan associations, and other savings institutions chartered and supervised as savings and loan or similar associations under federal or state law if the interest paid or credited can be deducted by the association. Amended return instructions Interest on deposits with a foreign branch of a domestic corporation or domestic partnership, but only if the branch is in the commercial banking business. Amended return instructions Dividends In most cases, dividend income received from domestic corporations is U. Amended return instructions S. Amended return instructions source income. Amended return instructions Dividend income from foreign corporations is usually foreign source income. Amended return instructions Exceptions to both of these rules are discussed below. Amended return instructions A substitute dividend payment made to the transferor of a security in a securities lending transaction or a sale-repurchase transaction is sourced in the same manner as a distribution on the transferred security. Amended return instructions Dividend equivalent payments. Amended return instructions   U. Amended return instructions S. Amended return instructions source dividends also include all dividend equivalent payments. Amended return instructions Dividend equivalent payments include substitute dividends, payments made pursuant to a specified notional principal contract, and all similar payments that, directly or indirectly, are contingent on or determined by reference to, the payment of a dividend from U. Amended return instructions S. Amended return instructions sources. Amended return instructions    The Internal Revenue Service has issued final regulations that would affect the treatment of dividend equivalent payments and specified notional principal contracts. Amended return instructions You can view this regulation at www. Amended return instructions irs. Amended return instructions gov/irb/2013-52_IRB/ar08. Amended return instructions html. Amended return instructions First exception. Amended return instructions   Dividends received from a domestic corporation are not U. Amended return instructions S. Amended return instructions source income if the corporation elects to take the American Samoa economic development credit. Amended return instructions Second exception. Amended return instructions   Part of the dividends received from a foreign corporation is U. Amended return instructions S. Amended return instructions source income if 25% or more of its total gross income for the 3-year period ending with the close of its tax year preceding the declaration of dividends was effectively connected with a trade or business in the United States. Amended return instructions If the corporation was formed less than 3 years before the declaration, use its total gross income from the time it was formed. Amended return instructions Determine the part that is U. Amended return instructions S. Amended return instructions source income by multiplying the dividend by the following fraction. Amended return instructions   Foreign corporation's gross income connected with a U. Amended return instructions S. Amended return instructions trade or business for the 3-year period     Foreign corporation's gross income from all sources for that period   Guarantee of Indebtedness Certain amounts received directly or indirectly, for the provision of a guarantee of indebtedness issued after September 27, 2010, are U. Amended return instructions S. Amended return instructions source income. Amended return instructions They must be paid by a noncorporate resident or U. Amended return instructions S. Amended return instructions corporation or by any foreign person if the amounts are effectively connected with the conduct of a U. Amended return instructions S. Amended return instructions trade or business. Amended return instructions For more information, see Internal Revenue Code sections 861(a)(9) and 862(a)(9). Amended return instructions Personal Services All wages and any other compensation for services performed in the United States are considered to be from sources in the United States. Amended return instructions The only exceptions to this rule are discussed in chapter 3 under Employees of foreign persons, organizations, or offices, and under Crew members. Amended return instructions If you are an employee and receive compensation for labor or personal services performed both inside and outside the United States, special rules apply in determining the source of the compensation. Amended return instructions Compensation (other than certain fringe benefits) is sourced on a time basis. Amended return instructions Certain fringe benefits (such as housing and education) are sourced on a geographical basis. Amended return instructions Or, you may be permitted to use an alternative basis to determine the source of compensation. Amended return instructions See Alternative Basis , later. Amended return instructions Multi-level marketing. Amended return instructions   Certain companies sell products through a multi-level marketing arrangement, such that an upper-tier distributor, who has sponsored a lower-tier distributor, is entitled to a payment from the company based on certain activities of that lower-tier distributor. Amended return instructions Generally, depending on the facts, payments from such multi-level marketing companies to independent (non-employee) distributors (upper-tier distributors) that are based on the sales or purchases of persons whom they have sponsored (lower-tier distributors) constitute income for the performance of personal services in recruiting, training, and supporting the lower-tier distributors. Amended return instructions The source of such income is generally based on where the services of the upper-tier distributor are performed, and may, depending on the facts, be considered multi-year compensation, with the source of income determined over the period to which such compensation is attributable. Amended return instructions Self-employed individuals. Amended return instructions   If you are self-employed, you determine the source of compensation for labor or personal services from self-employment on the basis that most correctly reflects the proper source of that income under the facts and circumstances of your particular case. Amended return instructions In many cases, the facts and circumstances will call for an apportionment on a time basis as explained next. Amended return instructions Time Basis Use a time basis to figure your U. Amended return instructions S. Amended return instructions source compensation (other than the fringe benefits discussed later). Amended return instructions Do this by multiplying your total compensation (other than the fringe benefits discussed later) by the following fraction:   Number of days you performed services in the United States during the year     Total number of days you performed services during the year   You can use a unit of time less than a day in the above fraction, if appropriate. Amended return instructions The time period for which the compensation is made does not have to be a year. Amended return instructions Instead, you can use another distinct, separate, and continuous time period if you can establish to the satisfaction of the IRS that this other period is more appropriate. Amended return instructions Example 1. Amended return instructions Christina Brooks, a resident of the Netherlands, worked 240 days for a U. Amended return instructions S. Amended return instructions company during the tax year. Amended return instructions She received $80,000 in compensation. Amended return instructions None of it was for fringe benefits. Amended return instructions Christina performed services in the United States for 60 days and performed services in the Netherlands for 180 days. Amended return instructions Using the time basis for determining the source of compensation, $20,000 ($80,000 × 60/240) is her U. Amended return instructions S. Amended return instructions source income. Amended return instructions Example 2. Amended return instructions Rob Waters, a resident of South Africa, is employed by a corporation. Amended return instructions His annual salary is $100,000. Amended return instructions None of it is for fringe benefits. Amended return instructions During the first quarter of the year he worked entirely within the United States. Amended return instructions On April 1, Rob was transferred to Singapore for the remainder of the year. Amended return instructions Rob is able to establish that the first quarter of the year and the last 3 quarters of the year are two separate, distinct, and continuous periods of time. Amended return instructions Accordingly, $25,000 of Rob's annual salary is attributable to the first quarter of the year (. Amended return instructions 25 × $100,000). Amended return instructions All of it is U. Amended return instructions S. Amended return instructions source income because he worked entirely within the United States during that quarter. Amended return instructions The remaining $75,000 is attributable to the last three quarters of the year. Amended return instructions During those quarters, he worked 150 days in Singapore and 30 days in the United States. Amended return instructions His periodic performance of services in the United States did not result in distinct, separate, and continuous periods of time. Amended return instructions Of this $75,000, $12,500 ($75,000 × 30/180) is U. Amended return instructions S. Amended return instructions source income. Amended return instructions Multi-year compensation. Amended return instructions   The source of multi-year compensation is generally determined on a time basis over the period to which the compensation is attributable. Amended return instructions Multi-year compensation is compensation that is included in your income in one tax year but that is attributable to a period that includes two or more tax years. Amended return instructions   You determine the period to which the compensation is attributable based on the facts and circumstances of your case. Amended return instructions For example, an amount of compensation that specifically relates to a period of time that includes several calendar years is attributable to the entire multi-year period. Amended return instructions   The amount of compensation treated as from U. Amended return instructions S. Amended return instructions sources is figured by multiplying the total multi-year compensation by a fraction. Amended return instructions The numerator of the fraction is the number of days (or unit of time less than a day, if appropriate) that you performed labor or personal services in the United States in connection with the project. Amended return instructions The denominator of the fraction is the total number of days (or unit of time less than a day, if appropriate) that you performed labor or personal services in connection with the project. Amended return instructions Geographical Basis Compensation you receive as an employee in the form of the following fringe benefits is sourced on a geographical basis. Amended return instructions Housing. Amended return instructions Education. Amended return instructions Local transportation. Amended return instructions Tax reimbursement. Amended return instructions Hazardous or hardship duty pay as defined in Regulations section 1. Amended return instructions 861-4(b)(2)(ii)(D)(5). Amended return instructions Moving expense reimbursement. Amended return instructions The amount of fringe benefits must be reasonable and you must substantiate them by adequate records or by sufficient evidence. Amended return instructions Principal place of work. Amended return instructions   The above fringe benefits, except for tax reimbursement and hazardous or hardship duty pay, are sourced based on your principal place of work. Amended return instructions Your principal place of work is usually the place where you spend most of your working time. Amended return instructions This could be your office, plant, store, shop, or other location. Amended return instructions If there is no one place where you spend most of your working time, your main job location is the place where your work is centered, such as where you report for work or are otherwise required to “base” your work. Amended return instructions   If you have more than one job at any time, your main job location depends on the facts in each case. Amended return instructions The more important factors to be considered are: The total time you spend at each place, The amount of work you do at each place, and How much money you earn at each place. Amended return instructions Housing. Amended return instructions   The source of a housing fringe benefit is determined based on the location of your principal place of work. Amended return instructions A housing fringe benefit includes payments to you or on your behalf (and your family's if your family resides with you) only for the following. Amended return instructions Rent. Amended return instructions Utilities (except telephone charges). Amended return instructions Real and personal property insurance. Amended return instructions Occupancy taxes not deductible under section 164 or 216(a). Amended return instructions Nonrefundable fees for securing a leasehold. Amended return instructions Rental of furniture and accessories. Amended return instructions Household repairs. Amended return instructions Residential parking. Amended return instructions Fair rental value of housing provided in kind by your employer. Amended return instructions   A housing fringe benefit does not include: Deductible interest and taxes (including deductible interest and taxes of a tenant-stockholder in a cooperative housing corporation), The cost of buying property, including principal payments on a mortgage, The cost of domestic labor (maids, gardeners, etc. Amended return instructions ), Pay television subscriptions, Improvements and other expenses that increase the value or appreciably prolong the life of property, Purchased furniture or accessories, Depreciation or amortization of property or improvements, The value of meals or lodging that you exclude from gross income, or The value of meals or lodging that you deduct as moving expenses. Amended return instructions Education. Amended return instructions   The source of an education fringe benefit for the education expenses of your dependents is determined based on the location of your principal place of work. Amended return instructions An education fringe benefit includes payments only for the following expenses for education at an elementary or secondary school. Amended return instructions Tuition, fees, academic tutoring, special needs services for a special needs student, books, supplies, and other equipment. Amended return instructions Room and board and uniforms that are required or provided by the school in connection with enrollment or attendance. Amended return instructions Local transportation. Amended return instructions   The source of a local transportation fringe benefit is determined based on the location of your principal place of work. Amended return instructions Your local transportation fringe benefit is the amount that you receive as compensation for local transportation for you or your spouse or dependents at the location of your principal place of work. Amended return instructions The amount treated as a local transportation fringe benefit is limited to actual expenses incurred for local transportation and the fair rental value of any employer-provided vehicle used predominantly by you, your spouse, or your dependents for local transportation. Amended return instructions Actual expenses do not include the cost (including interest) of any vehicle purchased by you or on your behalf. Amended return instructions Tax reimbursement. Amended return instructions   The source of a tax reimbursement fringe benefit is determined based on the location of the jurisdiction that imposed the tax for which you are reimbursed. Amended return instructions Moving expense reimbursement. Amended return instructions   The source of a moving expense reimbursement is generally based on the location of your new principal place of work. Amended return instructions However, the source is determined based on the location of your former principal place of work if you provide sufficient evidence that such determination of source is more appropriate under the facts and circumstances of your case. Amended return instructions Sufficient evidence generally requires an agreement between you and your employer, or a written statement of company policy, which is reduced to writing before the move and which is entered into or established to induce you or other employees to move to another country. Amended return instructions The written statement or agreement must state that your employer will reimburse you for moving expenses that you incur to return to your former principal place of work regardless of whether you continue to work for your employer after returning to that location. Amended return instructions It may contain certain conditions upon which the right to reimbursement is determined as long as those conditions set forth standards that are definitely ascertainable and can only be fulfilled prior to, or through completion of, your return move to your former principal place of work. Amended return instructions Alternative Basis If you are an employee, you can determine the source of your compensation under an alternative basis if you establish to the satisfaction of the IRS that, under the facts and circumstances of your case, the alternative basis more properly determines the source of your compensation than the time or geographical basis. Amended return instructions If you use an alternative basis, you must keep (and have available for inspection) records to document why the alternative basis more properly determines the source of your compensation. Amended return instructions Also, if your total compensation from all sources is $250,000 or more, check “Yes” to both questions on line K on page 5 of Form 1040NR, and attach a written statement to your tax return that sets forth all of the following. Amended return instructions Your name and social security number (written across the top of the statement). Amended return instructions The specific compensation income, or the specific fringe benefit, for which you are using the alternative basis. Amended return instructions For each item in (2), the alternative basis of allocation of source used. Amended return instructions For each item in (2), a computation showing how the alternative allocation was computed. Amended return instructions A comparison of the dollar amount of the U. Amended return instructions S. Amended return instructions compensation and foreign compensation sourced under both the alternative basis and the time or geographical basis discussed earlier. Amended return instructions Transportation Income Transportation income is income from the use of a vessel or aircraft or for the performance of services directly related to the use of any vessel or aircraft. Amended return instructions This is true whether the vessel or aircraft is owned, hired, or leased. Amended return instructions The term “vessel or aircraft” includes any container used in connection with a vessel or aircraft. Amended return instructions All income from transportation that begins and ends in the United States is treated as derived from sources in the United States. Amended return instructions If the transportation begins or ends in the United States, 50% of the transportation income is treated as derived from sources in the United States. Amended return instructions For transportation income from personal services, 50% of the income is U. Amended return instructions S. Amended return instructions source income if the transportation is between the United States and a U. Amended return instructions S. Amended return instructions possession. Amended return instructions For nonresident aliens, this only applies to income derived from, or in connection with, an aircraft. Amended return instructions For information on how U. Amended return instructions S. Amended return instructions source transportation income is taxed, see chapter 4. Amended return instructions Scholarships, Grants, Prizes, and Awards Generally, the source of scholarships, fellowship grants, grants, prizes, and awards is the residence of the payer regardless of who actually disburses the funds. Amended return instructions However, see Activities to be performed outside the United States , later. Amended return instructions For example, payments for research or study in the United States made by the United States, a noncorporate U. Amended return instructions S. Amended return instructions resident, or a domestic corporation, are from U. Amended return instructions S. Amended return instructions sources. Amended return instructions Similar payments from a foreign government or foreign corporation are foreign source payments even though the funds may be disbursed through a U. Amended return instructions S. Amended return instructions agent. Amended return instructions Payments made by an entity designated as a public international organization under the International Organizations Immunities Act are from foreign sources. Amended return instructions Activities to be performed outside the United States. Amended return instructions   Scholarships, fellowship grants, targeted grants, and achievement awards received by nonresident aliens for activities performed, or to be performed, outside the United States are not U. Amended return instructions S. Amended return instructions source income. Amended return instructions    These rules do not apply to amounts paid as salary or other compensation for services. Amended return instructions See Personal Services, earlier, for the source rules that apply. Amended return instructions Pensions and Annuities If you receive a pension from a domestic trust for services performed both in and outside the United States, part of the pension payment is from U. Amended return instructions S. Amended return instructions sources. Amended return instructions That part is the amount attributable to earnings of the pension plan and the employer contributions made for services performed in the United States. Amended return instructions This applies whether the distribution is made under a qualified or nonqualified stock bonus, pension, profit-sharing, or annuity plan (whether or not funded). Amended return instructions If you performed services as an employee of the United States, you may receive a distribution from the U. Amended return instructions S. Amended return instructions Government under a plan, such as the Civil Service Retirement System, that is treated as a qualified pension plan. Amended return instructions Your U. Amended return instructions S. Amended return instructions source income is the otherwise taxable amount of the distribution that is attributable to your total U. Amended return instructions S. Amended return instructions Government basic pay other than tax-exempt pay for services performed outside the United States. Amended return instructions Rents or Royalties Your U. Amended return instructions S. Amended return instructions source income includes rent and royalty income received during the tax year from property located in the United States or from any interest in that property. Amended return instructions U. Amended return instructions S. Amended return instructions source income also includes rents or royalties for the use of, or for the privilege of using, in the United States, intangible property such as patents, copyrights, secret processes and formulas, goodwill, trademarks, franchises, and similar property. Amended return instructions Real Property Real property is land and buildings and generally anything built on, growing on, or attached to land. Amended return instructions Gross income from sources in the United States includes gains, profits, and income from the sale or other disposition of real property located in the United States. Amended return instructions Natural resources. Amended return instructions   The income from the sale of products of any farm, mine, oil or gas well, other natural deposit, or timber located in the United States and sold in a foreign country, or located in a foreign country and sold in the United States, is partly from sources in the United States. Amended return instructions For information on determining that part, see section 1. Amended return instructions 863-1(b) of the regulations. Amended return instructions Table 2-1. Amended return instructions Summary of Source Rules for Income of Nonresident Aliens Item of income Factor determining source Salaries, wages, other compensation Where services performed Business income:   Personal services Where services performed Sale of inventory—purchased Where sold Sale of inventory—produced Allocation Interest Residence of payer Dividends Whether a U. Amended return instructions S. Amended return instructions or foreign corporation* Rents Location of property Royalties:   Natural resources Location of property Patents, copyrights, etc. Amended return instructions Where property is used Sale of real property Location of property Sale of personal property Seller's tax home (but see Personal Property , later, for exceptions) Pension distributions attributable to contributions Where services were performed that earned the pension Investment earnings on pension contributions Location of pension trust Sale of natural resources Allocation based on fair market value of product at export terminal. Amended return instructions For more information, see section 1. Amended return instructions 863-1(b) of the regulations. Amended return instructions *Exceptions include: a) Dividends paid by a U. Amended return instructions S. Amended return instructions corporation are foreign source if the corporation elects the  American Samoa economic development credit. Amended return instructions  b) Part of a dividend paid by a foreign corporation is U. Amended return instructions S. Amended return instructions source if at least 25% of the  corporation's gross income is effectively connected with a U. Amended return instructions S. Amended return instructions trade or business for the  3 tax years before the year in which the dividends are declared. Amended return instructions Personal Property Personal property is property, such as machinery, equipment, or furniture, that is not real property. Amended return instructions Gain or loss from the sale or exchange of personal property generally has its source in the United States if you have a tax home in the United States. Amended return instructions If you do not have a tax home in the United States, the gain or loss generally is considered to be from sources outside the United States. Amended return instructions Tax home. Amended return instructions   Your tax home is the general area of your main place of business, employment, or post of duty, regardless of where you maintain your family home. Amended return instructions Your tax home is the place where you permanently or indefinitely work as an employee or a self-employed individual. Amended return instructions If you do not have a regular or main place of business because of the nature of your work, then your tax home is the place where you regularly live. Amended return instructions If you do not fit either of these categories, you are considered an itinerant and your tax home is wherever you work. Amended return instructions Inventory property. Amended return instructions   Inventory property is personal property that is stock in trade or that is held primarily for sale to customers in the ordinary course of your trade or business. Amended return instructions Income from the sale of inventory that you purchased is sourced where the property is sold. Amended return instructions Generally, this is where title to the property passes to the buyer. Amended return instructions For example, income from the sale of inventory in the United States is U. Amended return instructions S. Amended return instructions source income, whether you purchased it in the United States or in a foreign country. Amended return instructions   Income from the sale of inventory property that you produced in the United States and sold outside the United States (or vice versa) is partly from sources in the United States and partly from sources outside the United States. Amended return instructions For information on making this allocation, see section 1. Amended return instructions 863-3 of the regulations. Amended return instructions   These rules apply even if your tax home is not in the United States. Amended return instructions Depreciable property. Amended return instructions   To determine the source of any gain from the sale of depreciable personal property, you must first figure the part of the gain that is not more than the total depreciation adjustments on the property. Amended return instructions You allocate this part of the gain to sources in the United States based on the ratio of U. Amended return instructions S. Amended return instructions depreciation adjustments to total depreciation adjustments. Amended return instructions The rest of this part of the gain is considered to be from sources outside the United States. Amended return instructions   For this purpose, “U. Amended return instructions S. Amended return instructions depreciation adjustments” are the depreciation adjustments to the basis of the property that are allowable in figuring taxable income from U. Amended return instructions S. Amended return instructions sources. Amended return instructions However, if the property is used predominantly in the United States during a tax year, all depreciation deductions allowable for that year are treated as U. Amended return instructions S. Amended return instructions depreciation adjustments. Amended return instructions But there are some exceptions for certain transportation, communications, and other property used internationally. Amended return instructions   Gain from the sale of depreciable property that is more than the total depreciation adjustments on the property is sourced as if the property were inventory property, as discussed above. Amended return instructions   A loss is sourced in the same way as the depreciation deductions were sourced. Amended return instructions However, if the property was used predominantly in the United States, the entire loss reduces U. Amended return instructions S. Amended return instructions source income. Amended return instructions   The basis of property usually means the cost (money plus the fair market value of other property or services) of property you acquire. Amended return instructions Depreciation is an amount deducted to recover the cost or other basis of a trade or business asset. Amended return instructions The amount you can deduct depends on the property's cost, when you began using the property, how long it will take to recover your cost, and which depreciation method you use. Amended return instructions A depreciation deduction is any deduction for depreciation or amortization or any other allowable deduction that treats a capital expenditure as a deductible expense. Amended return instructions Intangible property. Amended return instructions   Intangible property includes patents, copyrights, secret processes or formulas, goodwill, trademarks, trade names, or other like property. Amended return instructions The gain from the sale of amortizable or depreciable intangible property, up to the previously allowable amortization or depreciation deductions, is sourced in the same way as the original deductions were sourced. Amended return instructions This is the same as the source rule for gain from the sale of depreciable property. Amended return instructions See Depreciable property , earlier, for details on how to apply this rule. Amended return instructions   Gain in excess of the amortization or depreciation deductions is sourced in the country where the property is used if the income from the sale is contingent on the productivity, use, or disposition of that property. Amended return instructions If the income is not contingent on the productivity, use, or disposition of the property, the income is sourced according to your tax home as discussed earlier. Amended return instructions If payments for goodwill do not depend on its productivity, use, or disposition, their source is the country in which the goodwill was generated. Amended return instructions Sales through offices or fixed places of business. Amended return instructions   Despite any of the earlier rules, if you do not have a tax home in the United States, but you maintain an office or other fixed place of business in the United States, treat the income from any sale of personal property (including inventory property) that is attributable to that office or place of business as U. Amended return instructions S. Amended return instructions source income. Amended return instructions However, this rule does not apply to sales of inventory property for use, disposition, or consumption outside the United States if your office or other fixed place of business outside the United States materially participated in the sale. Amended return instructions   If you have a tax home in the United States but maintain an office or other fixed place of business outside the United States, income from sales of personal property, other than inventory, depreciable property, or intangibles, that is attributable to that foreign office or place of business may be treated as U. Amended return instructions S. Amended return instructions source income. Amended return instructions The income is treated as U. Amended return instructions S. Amended return instructions source income if an income tax of less than 10% of the income from the sale is paid to a foreign country. Amended return instructions This rule also applies to losses if the foreign country would have imposed an income tax of less than 10% had the sale resulted in a gain. Amended return instructions Community Income If you are married and you or your spouse is subject to the community property laws of a foreign country, a U. Amended return instructions S. Amended return instructions state, or a U. Amended return instructions S. Amended return instructions possession, you generally must follow those laws to determine the income of yourself and your spouse for U. Amended return instructions S. Amended return instructions tax purposes. Amended return instructions But you must disregard certain community property laws if: Both you and your spouse are nonresident aliens, or One of you is a nonresident alien and the other is a U. Amended return instructions S. Amended return instructions citizen or resident and you do not both choose to be treated as U. Amended return instructions S. Amended return instructions residents as explained in chapter 1. Amended return instructions In these cases, you and your spouse must report community income as explained later. Amended return instructions Earned income. Amended return instructions   Earned income of a spouse, other than trade or business income and a partner's distributive share of partnership income, is treated as the income of the spouse whose services produced the income. Amended return instructions That spouse must report all of it on his or her separate return. Amended return instructions Trade or business income. Amended return instructions   Trade or business income, other than a partner's distributive share of partnership income, is treated as the income of the spouse carrying on the trade or business. Amended return instructions That spouse must report all of it on his or her separate return. Amended return instructions Partnership income (or loss). Amended return instructions   A partner's distributive share of partnership income (or loss) is treated as the income (or loss) of the partner. Amended return instructions The partner must report all of it on his or her separate return. Amended return instructions Separate property income. Amended return instructions   Income derived from the separate property of one spouse (and which is not earned income, trade or business income, or partnership distributive share income) is treated as the income of that spouse. Amended return instructions That spouse must report all of it on his or her separate return. Amended return instructions Use the appropriate community property law to determine what is separate property. Amended return instructions Other community income. Amended return instructions   All other community income is treated as provided by the applicable community property laws. Amended return instructions Prev  Up  Next   Home   More Online Publications
Español

The Amended Return Instructions

Amended return instructions Other Methods of Depreciation Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: How To Figure the DeductionBasis Useful Life Salvage Value Methods To UseStraight Line Method Declining Balance Method Income Forecast Method How To Change Methods DispositionsSale or exchange. Amended return instructions Property not disposed of or abandoned. Amended return instructions Special rule for normal retirements from item accounts. Amended return instructions Abandoned property. Amended return instructions Single item accounts. Amended return instructions Multiple property account. Amended return instructions Topics - This chapter discusses: How to figure the deduction Methods to use How to change methods 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 946 How To Depreciate Property Form (and Instructions) 3115 Application for Change in Accounting Method 4562 Depreciation and Amortization Schedule C (Form 1040) Profit or Loss From Business If your property is being depreciated under ACRS, you must continue to use rules for depreciation that applied when you placed the property in service. Amended return instructions If your property qualified for MACRS, you must depreciate it under MACRS. Amended return instructions See Publication 946. Amended return instructions However, you cannot use MACRS for certain property because of special rules that exclude it from MACRS. Amended return instructions Also, you can elect to exclude certain property from being depreciated under MACRS. Amended return instructions Property that you cannot depreciate using MACRS includes: Intangible property, Property you can elect to exclude from MACRS that you properly depreciate under a method that is not based on a term of years, Certain public utility property, Any motion picture film or video tape, Any sound recording, and Certain real and personal property placed in service before 1987. Amended return instructions Intangible property. Amended return instructions   You cannot depreciate intangible property under ACRS or MACRS. Amended return instructions You depreciate intangible property using any other reasonable method, usually, the straight line method. Amended return instructions Note. Amended return instructions The cost of certain intangible property that you acquire after August 10, 1993, must be amortized over a 15-year period. Amended return instructions For more information, see chapter 12 of Publication 535. Amended return instructions Public utility property. Amended return instructions   The law excludes from MACRS any public utility property for which the taxpayer does not use a normalization method of accounting. Amended return instructions This type of property is subject to depreciation under a special rule. Amended return instructions Videocassettes. Amended return instructions   If you are in the videocassette rental business, you can depreciate those videocassettes purchased for rental. Amended return instructions You can depreciate the cost less salvage value of those videocassettes that have a useful life over one year using either: The straight line method, or The income forecast method. Amended return instructions The straight line method, salvage value, and useful life are discussed later under Methods To Use. Amended return instructions You can deduct in the year of purchase as a business expense the cost of any cassette that has a useful life of one year or less. Amended return instructions How To Figure the Deduction Two other reasonable methods can be used to figure your deduction for property not covered under ACRS or MACRS. Amended return instructions These methods are straight line and declining balance. Amended return instructions To figure depreciation using these methods, you must generally determine three things about the property you intend to depreciate. Amended return instructions They are: The basis, The useful life, and The estimated salvage value at the end of its useful life. Amended return instructions The amount of the deduction in any year also depends on which method of depreciation you choose. Amended return instructions Basis To deduct the proper amount of depreciation each year, first determine your basis in the property you intend to depreciate. Amended return instructions The basis used for figuring depreciation is the same as the basis that would be used for figuring the gain on a sale. Amended return instructions Your original basis is usually the purchase price. Amended return instructions However, if you acquire property in some other way, such as inheriting it, getting it as a gift, or building it yourself, you have to figure your original basis in a different way. Amended return instructions Adjusted basis. Amended return instructions   Events will often change the basis of property. Amended return instructions When this occurs, the changed basis is called the adjusted basis. Amended return instructions Some events, such as improvements you make, increase basis. Amended return instructions Events such as deducting casualty losses and depreciation decrease basis. Amended return instructions If basis is adjusted, the depreciation deduction may also have to be changed, depending on the reason for the adjustment and the method of depreciation you are using. Amended return instructions   Publication 551 explains how to figure basis for property acquired in different ways. Amended return instructions It also discusses what items increase and decrease basis, how to figure adjusted basis, and how to allocate cost if you buy several pieces of property at one time. Amended return instructions Useful Life The useful life of a piece of property is an estimate of how long you can expect to use it in your trade or business, or to produce income. Amended return instructions It is the length of time over which you will make yearly depreciation deductions of your basis in the property. Amended return instructions It is how long it will continue to be useful to you, not how long the property will last. Amended return instructions Many things affect the useful life of property, such as: Frequency of use, Age when acquired, Your repair policy, and Environmental conditions. Amended return instructions The useful life can also be affected by technological improvements, progress in the arts, reasonably foreseeable economic changes, shifting of business centers, prohibitory laws, and other causes. Amended return instructions Consider all these factors before you arrive at a useful life for your property. Amended return instructions The useful life of the same type of property varies from user to user. Amended return instructions When you determine the useful life of your property, keep in mind your own experience with similar property. Amended return instructions You can use the general experience of the industry you are in until you are able to determine a useful life of your property from your own experience. Amended return instructions Change in useful life. Amended return instructions   You base your estimate of useful life on certain facts. Amended return instructions If these facts change significantly, you can adjust your estimate of the remaining useful life. Amended return instructions However, you redetermine the estimated useful life only when the change is substantial and there is a clear reason for making the change. Amended return instructions Salvage Value It is important for you to accurately determine the correct salvage value of the property you want to depreciate. Amended return instructions You generally cannot depreciate property below a reasonable salvage value. Amended return instructions Determining salvage value. Amended return instructions   Salvage value is the estimated value of property at the end of its useful life. Amended return instructions It is what you expect to get for the property if you sell it after you can no longer use it productively. Amended return instructions You must estimate the salvage value of a piece of property when you first acquire it. Amended return instructions   Salvage value is affected both by how you use the property and how long you use it. Amended return instructions If it is your policy to dispose of property that is still in good operating condition, the salvage value can be relatively large. Amended return instructions However, if your policy is to use property until it is no longer usable, its salvage value can be its junk value. Amended return instructions Changing salvage value. Amended return instructions   Once you determine the salvage value for property, you should not change it merely because prices have changed. Amended return instructions However, if you redetermine the useful life of property, as discussed earlier under Change in useful life, you can also redetermine the salvage value. Amended return instructions When you redetermine the salvage value, take into account the facts that exist at the time. Amended return instructions Net salvage. Amended return instructions   Net salvage is the salvage value of property minus what it costs to remove it when you dispose of it. Amended return instructions You can choose either salvage value or net salvage when you figure depreciation. Amended return instructions You must consistently use the one you choose and the treatment of the costs of removal must be consistent with the practice adopted. Amended return instructions However, if the cost to remove the property is more than the estimated salvage value, then net salvage is zero. Amended return instructions Your salvage value can never be less than zero. Amended return instructions Ten percent rule. Amended return instructions   If you acquire personal property that has a useful life of 3 years or more, you can use an amount for salvage value that is less than your actual estimate. Amended return instructions You can subtract from your estimate of salvage value an amount equal to 10% of your basis in the property. Amended return instructions If salvage value is less than 10% of basis, you can ignore salvage value when you figure depreciation. Amended return instructions Methods To Use Two methods of depreciation are the straight line and declining balance methods. Amended return instructions If ACRS or MACRS does not apply, you can use one of these methods. Amended return instructions The straight line and declining balance methods discussed in this section are not figured in the same way as straight line or declining balance methods under MACRS. Amended return instructions Straight Line Method Before 1981, you could use any reasonable method for every kind of depreciable property. Amended return instructions One of these methods was the straight line method. Amended return instructions This method was also used for intangible property. Amended return instructions It lets you deduct the same amount of depreciation each year. Amended return instructions To figure your deduction, determine the adjusted basis of your property, its salvage value, and its estimated useful life. Amended return instructions Subtract the salvage value, if any, from the adjusted basis. Amended return instructions The balance is the total amount of depreciation you can take over the useful life of the property. Amended return instructions Divide the balance by the number of years remaining in the useful life. Amended return instructions This gives you the amount of your yearly depreciation deduction. Amended return instructions Unless there is a big change in adjusted basis, or useful life, this amount will stay the same throughout the time you depreciate the property. Amended return instructions If, in the first year, you use the property for less than a full year, you must prorate your depreciation deduction for the number of months in use. Amended return instructions Example. Amended return instructions In April 1994, Frank bought a franchise for $5,600. Amended return instructions It expires in 10 years. Amended return instructions This property is intangible property that cannot be depreciated under MACRS. Amended return instructions Frank depreciates the franchise under the straight line method, using a 10-year useful life and no salvage value. Amended return instructions He takes the $5,600 basis and divides that amount by 10 years ($5,600 ÷ 10 = $560, a full year's use). Amended return instructions He must prorate the $560 for his 9 months of use in 1994. Amended return instructions This gives him a deduction of $420 ($560 ÷ 9/12). Amended return instructions In 1995, Frank can deduct $560 for the full year. Amended return instructions Declining Balance Method The declining balance method allows you to recover a larger amount of the cost of the property in the early years of your use of the property. Amended return instructions The rate cannot be more than twice the straight line rate. Amended return instructions Rate of depreciation. Amended return instructions   Under this method, you must determine your declining balance rate of depreciation. Amended return instructions The initial step is to: Divide the number 1 by the useful life of your property to get a straight line rate. Amended return instructions (For example, if property has a useful life of 5 years, its normal straight line rate of depreciation is ⅕, or 20%. Amended return instructions ) Multiply this straight line rate by a number that is more than 1 but not more than 2 to determine the declining balance rate. Amended return instructions Unless there is a change in the useful life during the time you depreciate the property, the rate of depreciation generally will not change. Amended return instructions Depreciation deductions. Amended return instructions   After you determine the rate of depreciation, multiply the adjusted basis of the property by it. Amended return instructions This gives you the amount of your deduction. Amended return instructions For example, if your adjusted basis at the beginning of the first year is $10,000, and your declining balance rate is 20%, your depreciation deduction for the first year is $2,000 ($10,000 ÷ 20%). Amended return instructions To figure your depreciation deduction in the second year, you must first adjust the basis for the amount of depreciation you deducted in the first year. Amended return instructions Subtract the previous year's depreciation from your basis ($10,000 - $2,000 = $8,000). Amended return instructions Multiply this amount by the rate of depreciation ($8,000 ÷ 20% = $1,600). Amended return instructions Your depreciation deduction for the second year is $1,600. Amended return instructions   As you can see from this example, your adjusted basis in the property gets smaller each year. Amended return instructions Also, under this method, deductions are larger in the earlier years and smaller in the later years. Amended return instructions You can make a change to the straight line method without consent. Amended return instructions Salvage value. Amended return instructions   Do not subtract salvage value when you figure your yearly depreciation deductions under the declining balance method. Amended return instructions However, you cannot depreciate the property below its reasonable salvage value. Amended return instructions Determine salvage value using the rules discussed earlier, including the special 10% rule. Amended return instructions Example. Amended return instructions If your adjusted basis has been decreased to $1,000 and the rate of depreciation is 20%, your depreciation deduction should be $200. Amended return instructions But if your estimate of salvage value was $900, you can only deduct $100. Amended return instructions This is because $100 is the amount that would lower your adjusted basis to equal salvage value. Amended return instructions Income Forecast Method The income forecast method requires income projections for each videocassette or group of videocassettes. Amended return instructions You can group the videocassettes by title for making this projection. Amended return instructions You determine the depreciation by applying a fraction to the cost less salvage value of the cassette. Amended return instructions The numerator is the income from the videocassette for the tax year and the denominator is the total projected income for the cassette. Amended return instructions For more information on the income forecast method, see Revenue Ruling 60-358 in Cumulative Bulletin 1960, Volume 2, on page 68. Amended return instructions How To Change Methods In some cases, you may change your method of depreciation for property depreciated under a reasonable method. Amended return instructions If you change your method of depreciation, it is generally a change in your method of accounting. Amended return instructions You must get IRS consent before making the change. Amended return instructions However, you do not need permission for certain changes in your method of depreciation. Amended return instructions The rules discussed in this section do not apply to property depreciated under ACRS or MACRS. Amended return instructions For information on ACRS elections,see Revocation of election, in chapter 1 under Alternate ACRS Method. Amended return instructions Change to the straight line method. Amended return instructions   You can change from the declining balance method to the straight line method at any time during the useful life of your property without IRS consent. Amended return instructions However, if you have a written agreement with the IRS that prohibits a change, you must first get IRS permission. Amended return instructions When the change is made, figure depreciation based on your adjusted basis in the property at that time. Amended return instructions Your adjusted basis takes into account all previous depreciation deductions. Amended return instructions Use the estimated remaining useful life of your property at the time of change and its estimated salvage value. Amended return instructions   You can change from the declining balance method to straight line only on the original tax return for the year you first use the straight line method. Amended return instructions You cannot make the change on an amended return filed after the due date of the original return (including extensions). Amended return instructions   When you make the change, attach a statement to your tax return showing: When you acquired the property, Its original cost or other original basis, The total amount claimed for depreciation and other allowances since you acquired it, Its salvage value and remaining useful life, and A description of the property and its use. Amended return instructions   After you change to straight line, you cannot change back to the declining balance method or to any other method for a period of 10 years without written permission from the IRS. Amended return instructions Changes that require permission. Amended return instructions   For most other changes in method of depreciation, you must get permission from the IRS. Amended return instructions To request a change in method of depreciation, file Form 3115. Amended return instructions File the application within the first 180 days of the tax year the change is to become effective. Amended return instructions In most cases, there is a user fee that must accompany Form 3115. Amended return instructions See the instructions for Form 3115 to determine if a fee is required. Amended return instructions Changes granted automatically. Amended return instructions   The IRS automatically approves certain changes of a method of depreciation. Amended return instructions But, you must file Form 3115 for these automatic changes. Amended return instructions   However, IRS can deny permission if Form 3115 is not filed on time. Amended return instructions For more information on automatic changes, see Revenue Procedure 74-11, 1974-1 C. Amended return instructions B. Amended return instructions 420. Amended return instructions Changes for which approval is not automatic. Amended return instructions   The automatic change procedures do not apply to: Property or an account where you made a change in depreciation within the last 10 tax years (unless the change was made under the Class Life System), Class Life Asset Depreciation Range System, and Public utility property. Amended return instructions   You must request and receive permission for these changes. Amended return instructions To make the request, file Form 3115 during the first 180 days of the tax year for which you want the change to be effective. Amended return instructions Change from an improper method. Amended return instructions   If the IRS disallows the method you are using, you do not need permission to change to a proper method. Amended return instructions You can adopt the straight line method, or any other method that would have been permitted if you had used it from the beginning. Amended return instructions If you file your tax return using an improper method, but later file an amended return, you can use a proper method on the amended return without getting IRS permission. Amended return instructions However, you must file the amended return before the filing date for the next tax year. Amended return instructions Dispositions Retirement is the permanent withdrawal of depreciable property from use in your trade or business or for the production of income. Amended return instructions You can do this by selling, exchanging, or abandoning the item of property. Amended return instructions You can also withdraw it from use without disposing of it. Amended return instructions For example, you could place it in a supplies or scrap account. Amended return instructions Retirements can be either normal or abnormal depending on all facts and circumstances. Amended return instructions The rules discussed next do not apply to MACRS and ACRS property. Amended return instructions Normal retirement. Amended return instructions   A normal retirement is a permanent withdrawal of depreciable property from use if the following apply: The retirement is made within the useful life you estimated originally, and The property has reached a condition at which you customarily retire or would retire similar property from use. Amended return instructions A retirement is generally considered normal unless you can show that you retired the property because of a reason you did not consider when you originally estimated the useful life of the property. Amended return instructions Abnormal retirement. Amended return instructions   A retirement can be abnormal if you withdraw the property early or under other circumstances. Amended return instructions For example, if the property is damaged by a fire or suddenly becomes obsolete and is now useless. Amended return instructions Gain or loss on retirement. Amended return instructions   There are special rules for figuring the gain or loss on retirement of property. Amended return instructions The gain or loss will depend on several factors. Amended return instructions These include the type of withdrawal, if the withdrawal was from a single property or multiple property account, and if the retirement was normal or abnormal. Amended return instructions A single property account contains only one item of property. Amended return instructions A multiple property account is one in which several items have been combined with a single rate of depreciation assigned to the entire account. Amended return instructions Sale or exchange. Amended return instructions   If property is retired by sale or exchange, you figure gain or loss by the usual rules that apply to sales or other dispositions of property. Amended return instructions See Publication 544. Amended return instructions Property not disposed of or abandoned. Amended return instructions   If property is retired permanently, but not disposed of or physically abandoned, you do not recognize gain. Amended return instructions You are allowed a loss in such a case, but only if the retirement is: An abnormal retirement, A normal retirement from a single property account in which you determined the life of each item of property separately, or A normal retirement from a multiple property account in which the depreciation rate is based on the maximum expected life of the longest lived item of property and the loss occurs before the expiration of the full useful life. Amended return instructions However, you are not allowed a loss if the depreciation rate is based on the average useful life of the items of property in the account. Amended return instructions   To figure your loss, subtract the estimated salvage or fair market value of the property at the date of retirement, whichever is more, from its adjusted basis. Amended return instructions Special rule for normal retirements from item accounts. Amended return instructions   You can generally deduct losses upon retirement of a few depreciable items of property with similar useful lives, if: You account for each one in a separate account, and You use the average useful life to figure depreciation. Amended return instructions However, you cannot deduct losses if you use the average useful life to figure depreciation and they have a wide range of useful lives. Amended return instructions   If you have a large number of depreciable property items and use average useful lives to figure depreciation, you cannot deduct the losses upon normal retirements from these accounts. Amended return instructions Abandoned property. Amended return instructions   If you physically abandon property, you can deduct as a loss the adjusted basis of the property at the time of its abandonment. Amended return instructions However, your intent must be to discard the property so that you will not use it again or retrieve it for sale, exchange, or other disposition. Amended return instructions Basis of property retired. Amended return instructions   The basis for figuring gain or loss on the retirement of property is its adjusted basis at the time of retirement, as determined in the following discussions. Amended return instructions Single item accounts. Amended return instructions   If an item of property is accounted for in a single item account, the adjusted basis is the basis you would use to figure gain or loss for a sale or exchange of the property. Amended return instructions This is generally the cost or other basis of the item of property less depreciation. Amended return instructions See Publication 551. Amended return instructions Multiple property account. Amended return instructions   For a normal retirement from a multiple property account, if you figured depreciation using the average expected useful life, the adjusted basis is the salvage value estimated for the item of property when it was originally acquired. Amended return instructions If you figured depreciation using the maximum expected useful life of the longest lived item of property in the account, you must use the depreciation method used for the multiple property account and a rate based on the maximum expected useful life of the item of property retired. Amended return instructions   You make the adjustment for depreciation for an abnormal retirement from a multiple property account at the rate that would be proper if the item of property was depreciated in a single property account. Amended return instructions The method of depreciation used for the multiple property account is used. Amended return instructions You base the rate on either the average expected useful life or the maximum expected useful life of the retired item of property, depending on the method used to determine the depreciation rate for the multiple property account. Amended return instructions Prev  Up  Next   Home   More Online Publications