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 Tax Return Forms

E File 1040xFile Taxes For FreeHow To File My 2012 Tax ReturnAmend State Tax ReturnEz Forms 20131040x Processing TimeTax Form 1040ez 2011Irs Free EfileFreefileH And R Block FreeIrs Form 1040a2010 1040ez Instructions2011 104010 40 Ez FormHow To File Tax ReturnFederal Tax Form 941 2012Free Online Tax Software 2010Www Irs GovFile Late Taxes FreeAmend Tax FormFree Tax Preparation SoftwareE-file 2012 TaxesFree Electronic Federal Tax FilingAmended 2009 Tax Return2014 1040 Ez Form1040x FormsFree Tax Act 20121040ez Tax ReturnH&r Block Free File Tax Return2011 Irs FormsIrs Gov 1040x2013 1040 EzDownload 1040ezFile 1040ezFile Free State Tax ReturnFree Tax PrepFile A 1040x Amended ReturnHow To File My 2011 Taxes Online For FreeFree Tax Usa 2010Can I File A 1040ez

Amended Tax Return Forms

Amended tax return forms 4. Amended tax return forms   Unrelated Business Taxable Income Table of Contents IncomeExclusions Dues of Agricultural Organizations and Business Leagues DeductionsDirectly Connected Exploitation of Exempt Activity—Advertising Sales Modifications Partnership Income or Loss S Corporation Income or Loss Special Rules for Foreign Organizations Special Rules for Social Clubs, VEBAs, SUBs, and GLSOsIncome that is set aside. Amended tax return forms Special Rules for Veterans' Organizations Income From Controlled OrganizationsAddition to tax for valuation misstatements. Amended tax return forms Net unrelated income. Amended tax return forms Net unrelated loss. Amended tax return forms Control. Amended tax return forms Income from property financed with qualified 501(c)(3) bonds. Amended tax return forms Disposition of property received from taxable subsidiary and used in unrelated business. Amended tax return forms Income From Debt-Financed Property Debt-Financed PropertyAcquisition Indebtedness Computation of Debt-Financed Income Deductions for Debt-Financed Property Allocation Rules How to Get Tax Help The term “unrelated business taxable income” generally means the gross income derived from any unrelated trade or business regularly conducted by the exempt organization, less the deductions directly connected with carrying on the trade or business. Amended tax return forms If an organization regularly carries on two or more unrelated business activities, its unrelated business taxable income is the total of gross income from all such activities less the total allowable deductions attributable to all the activities. Amended tax return forms In computing unrelated business taxable income, gross income and deductions are subject to the modifications and special rules explained in this chapter. Amended tax return forms Whether a particular item of income or expense falls within any of these modifications or special rules must be determined by all the facts and circumstances in each specific case. Amended tax return forms For example, if the organization received a payment termed rent that is in fact a return of profits by a person operating the property for the benefit of the organization, or that is a share of the profits retained by the organization as a partner or joint venturer, the payment is not within the income exclusion for rents, discussed later under Exclusions. Amended tax return forms Income Generally, unrelated business income is taxable, but there are exclusions and special rules that must be considered when figuring the income. Amended tax return forms Exclusions The following types of income (and deductions directly connected with the income) are generally excluded when figuring unrelated business taxable income. Amended tax return forms Dividends, interest, annuities and other investment income. Amended tax return forms   All dividends, interest, annuities, payments with respect to securities loans, income from notional principal contracts, and other income from an exempt organization's ordinary and routine investments that the IRS determines are substantially similar to these types of income are excluded in computing unrelated business taxable income. Amended tax return forms Exception for insurance activity income of a controlled foreign corporation. Amended tax return forms   This exclusion does not apply to income from certain insurance activities of an exempt organization's controlled foreign corporation. Amended tax return forms The income is not excludable dividend income, but instead is unrelated business taxable income to the extent it would be so treated if the exempt organization had earned it directly. Amended tax return forms Certain exceptions to this rule apply. Amended tax return forms For more information, see section 512(b)(17). Amended tax return forms Other exceptions. Amended tax return forms   This exclusion does not apply to unrelated debt-financed income (discussed under Income From Debt-Financed Property, later), to interest or annuities received from a controlled corporation (discussed under Income From Controlled Organizations, later). Amended tax return forms Income from lending securities. Amended tax return forms   Payments received with respect to a security loan are excluded in computing unrelated business taxable income only if the loan is made under an agreement that:    Provides for the return to the exempt organization of securities identical to the securities loaned, Requires payments to the organization of amounts equivalent to all interest, dividends, and other distributions that the owner of the securities is entitled to receive during the period of the loan, Does not reduce the organization's risk of loss or opportunity for gain on the securities, Contains reasonable procedures to implement the obligation of the borrower to furnish collateral to the organization with a fair market value each business day during the period of the loan in an amount not less than the fair market value of the securities at the close of the preceding business day, and Permits the organization to terminate the loan upon notice of not more than 5 business days. Amended tax return forms   Payments with respect to securities loans include: Amounts in respect of dividends, interest, and other distributions, Fees based on the period of time the loan is in effect and the fair market value of the security during that period, Income from collateral security for the loan, and Income from the investment of collateral security. Amended tax return forms The payments are considered to be from the securities loaned and not from collateral security or the investment of collateral security from the loans. Amended tax return forms Any deductions that are directly connected with collateral security for the loan, or with the investment of collateral security, are considered deductions that are directly connected with the securities loaned. Amended tax return forms Royalties. Amended tax return forms   Royalties, including overriding royalties, are excluded in computing unrelated business taxable income. Amended tax return forms   To be considered a royalty, a payment must relate to the use of a valuable right. Amended tax return forms Payments for trademarks, trade names, or copyrights are ordinarily considered royalties. Amended tax return forms Similarly, payments for the use of a professional athlete's name, photograph, likeness, or facsimile signature are ordinarily considered royalties. Amended tax return forms However, royalties do not include payments for personal services. Amended tax return forms Therefore, payments for personal appearances and interviews are not excluded as royalties and must be included in figuring unrelated business taxable income. Amended tax return forms   Unrelated business taxable income does not include royalty income received from licensees by an exempt organization that is the legal and beneficial owner of patents assigned to it by inventors for specified percentages of future royalties. Amended tax return forms   Mineral royalties are excluded whether measured by production or by gross or taxable income from the mineral property. Amended tax return forms However, the exclusion does not apply to royalties that stem from an arrangement whereby the organization owns a working interest in a mineral property and is liable for its share of the development and operating costs under the terms of its agreement with the operator of the property. Amended tax return forms To the extent they are not treated as loans under section 636 (relating to income tax treatment of mineral production payments), payments for mineral production are treated in the same manner as royalty payments for the purpose of computing unrelated business taxable income. Amended tax return forms To the extent they are treated as loans, any payments for production that are the equivalent of interest are treated as interest and are excluded. Amended tax return forms Exceptions. Amended tax return forms   This exclusion does not apply to debt-financed income (discussed under Income From Debt-Financed Property, later) or to royalties received from a controlled corporation (discussed under Income From Controlled Organizations, later). Amended tax return forms Rents. Amended tax return forms   Rents from real property, including elevators and escalators, are excluded in computing unrelated business taxable income. Amended tax return forms Rents from personal property are not excluded. Amended tax return forms However, special rules apply to “mixed leases” of both real and personal property. Amended tax return forms Mixed leases. Amended tax return forms   In a mixed lease, all of the rents are excluded if the rents attributable to the personal property are not more than 10% of the total rents under the lease, as determined when the personal property is first placed in service by the lessee. Amended tax return forms If the rents attributable to personal property are more than 10% but not more than 50% of the total rents, only the rents attributable to the real property are excluded. Amended tax return forms If the rents attributable to the personal property are more than 50% of the total rents, none of the rents are excludable. Amended tax return forms   Property is placed in service when the lessee first may use it under the terms of a lease. Amended tax return forms For example, property subject to a lease entered into on November 1, for a term starting on January 1 of the next year, is considered placed in service on January 1, regardless of when the lessee first actually uses it. Amended tax return forms   If separate leases are entered into for real and personal property and the properties have an integrated use (for example, one or more leases for real property and another lease or leases for personal property to be used on the real property), all the leases will be considered as one lease. Amended tax return forms   The rent attributable to the personal property must be recomputed, and the treatment of the rents must be redetermined, if: The rent attributable to all the leased personal property increases by 100% or more because additional or substitute personal property is placed in service, or The lease is modified to change the rent charged (whether or not the amount of rented personal property changes). Amended tax return forms Any change in the treatment of rents resulting from the recomputation is effective only for the period beginning with the event that caused the recomputation. Amended tax return forms Exception for rents based on net profit. Amended tax return forms   The exclusion for rents does not apply if the amount of the rent depends on the income or profits derived by any person from the leased property, other than an amount based on a fixed percentage of the gross receipts or sales. Amended tax return forms Exception for income from personal services. Amended tax return forms   Payment for occupying space when personal services are also rendered to the occupant does not constitute rent from real property. Amended tax return forms Therefore, the exclusion does not apply to transactions such as renting hotel rooms, rooms in boarding houses or tourist homes, and space in parking lots or warehouses. Amended tax return forms Other exceptions. Amended tax return forms   This exclusion does not apply to unrelated debt-financed income (discussed under Income From Debt-Financed Property, later), or to interest, annuities, royalties and rents received from a controlled corporation (discussed under Income From Controlled Organizations, later), investment income (dividends, interest, rents, etc. Amended tax return forms ) received by organizations described in sections 501(c)(7), 501(c)(9), 501(c)(17), and 501(c)(20). Amended tax return forms See Special Rules for Social Clubs, VEBAs, SUBs, and GLSOs, discussed later for more information. Amended tax return forms Income from research. Amended tax return forms   A tax-exempt organization may exclude income from research grants or contracts from unrelated business taxable income. Amended tax return forms However, the extent of the exclusion depends on the nature of the organization and the type of research. Amended tax return forms   Income from research for the United States, any of its agencies or instrumentalities, or a state or any of its political subdivisions is excluded when computing unrelated business taxable income. Amended tax return forms   For a college, university, or hospital, all income from research, whether fundamental or applied, is excluded in computing unrelated business taxable income. Amended tax return forms   When an organization is operated primarily to conduct fundamental research (as distinguished from applied research) and the results are freely available to the general public, all income from research performed for any person is excluded in computing unrelated business taxable income. Amended tax return forms   The term research, for this purpose, does not include activities of a type normally conducted as an incident to commercial or industrial operations, such as testing or inspecting materials or products, or designing or constructing equipment, buildings, etc. Amended tax return forms In addition, the term fundamental research does not include research conducted for the primary purpose of commercial or industrial application. Amended tax return forms Gains and losses from disposition of property. Amended tax return forms   Also excluded from unrelated business taxable income are gains or losses from the sale, exchange, or other disposition of property other than: Stock in trade or other property of a kind that would properly be includable in inventory if on hand at the close of the tax year, Property held primarily for sale to customers in the ordinary course of a trade or business, or Cutting of timber that an organization has elected to consider as a sale or exchange of the timber. Amended tax return forms   It should be noted that the last exception relates only to cut timber. Amended tax return forms The sale, exchange, or other disposition of standing timber is excluded from the computation of unrelated business income, unless it constitutes property held for sale to customers in the ordinary course of business. Amended tax return forms Lapse or termination of options. Amended tax return forms   Any gain from the lapse or termination of options to buy or sell securities is excluded from unrelated business taxable income. Amended tax return forms The exclusion applies only if the option is written in connection with the exempt organization's investment activities. Amended tax return forms Therefore, this exclusion is not available if the organization is engaged in the trade or business of writing options or the options are held by the organization as inventory or for sale to customers in the ordinary course of a trade or business. Amended tax return forms Exception. Amended tax return forms   This exclusion does not apply to unrelated debt-financed income, discussed later under Income From Debt-Financed Property. Amended tax return forms Gain or loss on disposition of certain brownfield property. Amended tax return forms   Gain or loss from the qualifying sale, exchange, or other disposition of a qualifying brownfield property (as defined in section 512(b)(19)(C)), which was acquired by the organization after December 31, 2005 and before January 1, 2011, is excluded from unrelated business taxable income and is excepted from the debt-financed rules for such property. Amended tax return forms See sections 512(b)(19) and 514(b)(1)(E). Amended tax return forms Income from services provided under federal license. Amended tax return forms   There is a further exclusion from unrelated business taxable income of income from a trade or business conducted by a religious order or by an educational organization maintained by the order. Amended tax return forms   This exclusion applies only if the following requirements are met. Amended tax return forms The trade or business must have been operated by the order or by the institution before May 27, 1959. Amended tax return forms The trade or business must provide services under a license issued by a federal regulatory agency. Amended tax return forms More than 90% of the net income from the business for the tax year must be devoted to religious, charitable, or educational purposes that constitute the basis for the religious order's exemption. Amended tax return forms The rates or other charges for these services must be fully competitive with the rates or other charges of similar taxable businesses. Amended tax return forms Rates or other charges for these services will be considered as fully competitive if they are neither materially higher nor materially lower than the rates charged by similar businesses operating in the same general area. Amended tax return forms Exception. Amended tax return forms    This exclusion does not apply to unrelated debt-financed income (discussed under Income From Debt-Financed Property, later). Amended tax return forms Member income of mutual or cooperative electric companies. Amended tax return forms   Income of a mutual or cooperative electric company described in section 501(c)(12) which is treated as member income under subparagraph (H) of that section is excluded from unrelated business taxable income. Amended tax return forms Dues of Agricultural Organizations and Business Leagues Dues received from associate members by organizations exempt under section 501(c)(5) or section 501(c)(6) may be treated as gross income from an unrelated trade or business if the associate member category exists for the principal purpose of producing unrelated business income. Amended tax return forms For example, if an organization creates an associate member category solely to allow associate members to purchase insurance through the organization, the associate member dues may be unrelated business income. Amended tax return forms Exception. Amended tax return forms   Associate member dues received by an agricultural or horticultural organization are not treated as gross income from an unrelated trade or business, regardless of their purpose, if they are not more than the annual limit. Amended tax return forms The limit on dues paid by an associate member is $148 for 2011. Amended tax return forms   If the required annual dues are more than the limit, the entire amount is treated as income from an unrelated business unless the associate member category was formed or availed of for the principal purpose of furthering the organization's exempt purposes. Amended tax return forms Deductions To qualify as allowable deductions in computing unrelated business taxable income, the expenses, depreciation, and similar items generally must be allowable income tax deductions that are directly connected with carrying on an unrelated trade or business. Amended tax return forms They cannot be directly connected with excluded income. Amended tax return forms For an exception to the “directly connected” requirement, see Charitable contributions deduction, under Modifications, later. Amended tax return forms Directly Connected To be directly connected with the conduct of an unrelated business, deductions must have a proximate and primary relationship to carrying on that business. Amended tax return forms For an exception, see Expenses attributable to exploitation of exempt activities, later. Amended tax return forms Expenses attributable solely to unrelated business. Amended tax return forms   Expenses, depreciation, and similar items attributable solely to the conduct of an unrelated business are proximately and primarily related to that business and qualify for deduction to the extent that they are otherwise allowable income tax deductions. Amended tax return forms   For example, salaries of personnel employed full-time to conduct the unrelated business and depreciation of a building used entirely in the conduct of that business are deductible to the extent otherwise allowable. Amended tax return forms Expenses attributable to dual use of facilities or personnel. Amended tax return forms   When facilities or personnel are used both to conduct exempt functions and to conduct an unrelated trade or business, expenses, depreciation, and similar items attributable to the facilities or personnel must be allocated between the two uses on a reasonable basis. Amended tax return forms The part of an item allocated to the unrelated trade or business is proximately and primarily related to that business and is allowable as a deduction in computing unrelated business taxable income if the expense is otherwise an allowable income tax deduction. Amended tax return forms Example 1. Amended tax return forms A school recognized as a tax-exempt organization contracts with an individual to conduct a summer tennis camp. Amended tax return forms The school provides the tennis courts, housing, and dining facilities. Amended tax return forms The contracted individual hires the instructors, recruits campers, and provides supervision. Amended tax return forms The income the school receives from this activity is from a dual use of the facilities and personnel. Amended tax return forms The school, in computing its unrelated business taxable income, may deduct an allocable part of the expenses attributable to the facilities and personnel. Amended tax return forms Example 2. Amended tax return forms An exempt organization with gross income from an unrelated trade or business pays its president $90,000 a year. Amended tax return forms The president devotes approximately 10% of his time to the unrelated business. Amended tax return forms To figure the organization's unrelated business taxable income, a deduction of $9,000 ($90,000 × 10%) is allowed for the salary paid to its president. Amended tax return forms Expenses attributable to exploitation of exempt activities. Amended tax return forms   Generally, expenses, depreciation, and similar items attributable to the conduct of an exempt activity are not deductible in computing unrelated business taxable income from an unrelated trade or business that exploits the exempt activity. Amended tax return forms (See Exploitation of exempt functions under Not substantially related in chapter 3. Amended tax return forms ) This is because they do not have a proximate and primary relationship to the unrelated trade or business, and therefore, they do not qualify as directly connected with that business. Amended tax return forms Exception. Amended tax return forms   Expenses, depreciation, and similar items may be treated as directly connected with the conduct of the unrelated business if all the following statements are true. Amended tax return forms The unrelated business exploits the exempt activity. Amended tax return forms The unrelated business is a type normally conducted for profit by taxable organizations. Amended tax return forms The exempt activity is a type normally conducted by taxable organizations in carrying on that type of business. Amended tax return forms The amount treated as directly connected is the smaller of: The excess of these expenses, depreciation, and similar items over the income from, or attributable to, the exempt activity; or The gross unrelated business income reduced by all other expenses, depreciation, and other items that are actually directly connected. Amended tax return forms   The application of these rules to an advertising activity that exploits an exempt publishing activity is explained next. Amended tax return forms Exploitation of Exempt Activity—Advertising Sales The sale of advertising in a periodical of an exempt organization that contains editorial material related to the accomplishment of the organization's exempt purpose is an unrelated business that exploits an exempt activity, the circulation and readership of the periodical. Amended tax return forms Therefore, in addition to direct advertising costs, exempt activity costs (expenses, depreciation, and similar expenses attributable to the production and distribution of the editorial or readership content) can be treated as directly connected with the conduct of the advertising activity. Amended tax return forms (See Expenses attributable to exploitation of exempt activities under Directly Connected, earlier. Amended tax return forms ) Figuring unrelated business taxable income (UBTI). Amended tax return forms   The UBTI of an advertising activity is the amount shown in the following chart. Amended tax return forms IF gross advertising income is . Amended tax return forms . Amended tax return forms . Amended tax return forms THEN UBTI is . Amended tax return forms . Amended tax return forms . Amended tax return forms More than direct advertising costs The excess advertising income, reduced (but not below zero) by the excess, if any, of readership costs over circulation income. Amended tax return forms Equal to or less than direct advertising costs Zero. Amended tax return forms   • Circulation income and readership costs are not taken into account. Amended tax return forms   • Any excess advertising costs reduce (but not below zero) UBTI from any other unrelated business activity. Amended tax return forms   The terms used in the chart are explained in the following discussions. Amended tax return forms Periodical Income Gross advertising income. Amended tax return forms   This is all the income from the unrelated advertising activities of an exempt organization periodical. Amended tax return forms Circulation income. Amended tax return forms   This is all the income from the production, distribution, or circulation of an exempt organization's periodical (other than gross advertising income). Amended tax return forms It includes all amounts from the sale or distribution of the readership content of the periodical, such as income from subscriptions. Amended tax return forms It also includes allocable membership receipts if the right to receive the periodical is associated with a membership or similar status in the organization. Amended tax return forms Allocable membership receipts. Amended tax return forms   This is the part of membership receipts (dues, fees, or other charges associated with membership) equal to the amount that would have been charged and paid for the periodical if: The periodical was published by a taxable organization, The periodical was published for profit, and The member was an unrelated party dealing with the taxable organization at arm's length. Amended tax return forms   The amount used to allocate membership receipts is the amount shown in the following chart. Amended tax return forms   For this purpose, the total periodical costs are the sum of the direct advertising costs and the readership costs, explained under Periodical Costs, later. Amended tax return forms The cost of other exempt activities means the total expenses incurred by the organization in connection with its other exempt activities, not offset by any income earned by the organization from those activities. Amended tax return forms IF . Amended tax return forms . Amended tax return forms . Amended tax return forms THEN the amount used to allocate membership receipts is . Amended tax return forms . Amended tax return forms . Amended tax return forms 20% or more of the total circulation consists of sales to nonmembers The subscription price charged nonmembers. Amended tax return forms The above condition does not apply, and 20% or more of the members pay reduced dues because they do not receive the periodical The reduction in dues for a member not receiving the periodical. Amended tax return forms Neither of the above conditions applies The membership receipts multiplied by this fraction:   Total periodical costs Total periodical costs Plus Cost of other exempt activities Example 1. Amended tax return forms U is an exempt scientific organization with 10,000 members who pay annual dues of $15. Amended tax return forms One of U's activities is publishing a monthly periodical distributed to all of its members. Amended tax return forms U also distributes 5,000 additional copies of its periodical to nonmembers, who subscribe for $10 a year. Amended tax return forms Since the nonmember circulation of U's periodical represents one-third (more than 20%) of its total circulation, the subscription price charged to nonmembers is used to determine the part of U's membership receipts allocable to the periodical. Amended tax return forms Thus, U's allocable membership receipts are $100,000 ($10 times 10,000 members), and U's total circulation income for the periodical is $150,000 ($100,000 from members plus $50,000 from sales to nonmembers). Amended tax return forms Example 2. Amended tax return forms Assume the same facts except that U sells only 500 copies of its periodical to nonmembers, at a price of $10 a year. Amended tax return forms Assume also that U's members may elect not to receive the periodical, in which case their dues are reduced from $15 a year to $6 a year, and that only 3,000 members elect to receive the periodical and pay the full dues of $15 a year. Amended tax return forms U's stated subscription price of $9 to members consistently results in an excess of total income (including gross advertising income) attributable to the periodical over total costs of the periodical. Amended tax return forms Since the 500 copies of the periodical distributed to nonmembers represent only 14% of the 3,500 copies distributed, the $10 subscription price charged to nonmembers is not used to determine the part of membership receipts allocable to the periodical. Amended tax return forms Instead, since 70% of the members elect not to receive the periodical and pay $9 less per year in dues, the $9 price is used to determine the subscription price charged to members. Amended tax return forms Thus, the allocable membership receipts will be $9 a member, or $27,000 ($9 times 3,000 copies). Amended tax return forms U's total circulation income is $32,000 ($27,000 plus the $5,000 from nonmember subscriptions). Amended tax return forms Periodical Costs Direct advertising costs. Amended tax return forms   These are expenses, depreciation, and similar items of deduction directly connected with selling and publishing advertising in the periodical. Amended tax return forms   Examples of allowable deductions under this classification include agency commissions and other direct selling costs, such as transportation and travel expenses, office salaries, promotion and research expenses, and office overhead directly connected with the sale of advertising lineage in the periodical. Amended tax return forms Also included are other deductions commonly classified as advertising costs under standard account classifications, such as artwork and copy preparation, telephone, telegraph, postage, and similar costs directly connected with advertising. Amended tax return forms   In addition, direct advertising costs include the part of mechanical and distribution costs attributable to advertising lineage. Amended tax return forms For this purpose, the general account classifications of items includable in mechanical and distribution costs ordinarily employed in business-paper and consumer-publication accounting provide a guide for the computation. Amended tax return forms Accordingly, the mechanical and distribution costs include the part of the costs and other expenses of composition, press work, binding, mailing (including paper and wrappers used for mailing), and bulk postage attributable to the advertising lineage of the publication. Amended tax return forms   In the absence of specific and detailed records, the part of mechanical and distribution costs attributable to the periodical's advertising lineage can be based on the ratio of advertising lineage to total lineage in the periodical, if this allocation is reasonable. Amended tax return forms Readership costs. Amended tax return forms   These are all expenses, depreciation, and similar items that are directly connected with the production and distribution of the readership content of the periodical. Amended tax return forms Costs partly attributable to other activities. Amended tax return forms   Deductions properly attributable to exempt activities other than publishing the periodical may not be allocated to the periodical. Amended tax return forms When expenses are attributable both to the periodical and to the organization's other activities, an allocation must be made on a reasonable basis. Amended tax return forms The method of allocation will vary with the nature of the item, but once adopted, should be used consistently. Amended tax return forms Allocations based on dollar receipts from various exempt activities generally are not reasonable since receipts usually do not accurately reflect the costs associated with specific activities that an exempt organization conducts. Amended tax return forms Consolidated Periodicals If an exempt organization publishes more than one periodical to produce income, it may treat all of them (but not less than all) as one in determining unrelated business taxable income from selling advertising. Amended tax return forms It treats the gross income from all the periodicals, and the deductions directly connected with them, on a consolidated basis. Amended tax return forms Consolidated treatment, once adopted, must be followed consistently and is binding. Amended tax return forms This treatment can be changed only with the consent of the Internal Revenue Service. Amended tax return forms An exempt organization's periodical is published to produce income if: The periodical generates gross advertising income to the organization equal to at least 25% of its readership costs, and Publishing the periodical is an activity engaged in for profit. Amended tax return forms Whether the publication of a periodical is an activity engaged in for profit can be determined only by all the facts and circumstances in each case. Amended tax return forms The facts and circumstances must show that the organization carries on the activity for economic profit, although there may not be a profit in a particular year. Amended tax return forms For example, if an organization begins publishing a new periodical whose total costs exceed total income in the start-up years because of lack of advertising sales, that does not mean that the organization did not have as its objective an economic profit. Amended tax return forms The organization may establish that it had this objective by showing it can reasonably expect advertising sales to increase, so that total income will exceed costs within a reasonable time. Amended tax return forms Example. Amended tax return forms Y, an exempt trade association, publishes three periodicals that it distributes to its members: a weekly newsletter, a monthly magazine, and a quarterly journal. Amended tax return forms Both the monthly magazine and the quarterly journal contain advertising that accounts for gross advertising income equal to more than 25% of their respective readership costs. Amended tax return forms Similarly, the total income attributable to each periodical has exceeded the total deductions attributable to each periodical for substantially all the years they have been published. Amended tax return forms The newsletter carries no advertising and its annual subscription price is not intended to cover the cost of publication. Amended tax return forms The newsletter is a service that Y distributes to all of its members in an effort to keep them informed of changes occurring in the business world. Amended tax return forms It is not engaged in for profit. Amended tax return forms Under these circumstances, Y may consolidate the income and deductions from the monthly and quarterly journals in computing its unrelated business taxable income. Amended tax return forms It may not consolidate the income and deductions from the newsletter with the income and deductions of its other periodicals, since the newsletter is not published for the production of income. Amended tax return forms Modifications Net operating loss deduction. Amended tax return forms   The net operating loss (NOL) deduction (as provided in section 172) is allowed in computing unrelated business taxable income. Amended tax return forms However, the NOL for any tax year, the carrybacks and carryovers of NOLs, and the NOL deduction are determined without taking into account any amount of income or deduction that has been specifically excluded in computing unrelated business taxable income. Amended tax return forms For example, a loss from an unrelated trade or business is not diminished because dividend income was received. Amended tax return forms   If this were not done, organizations would, in effect, be taxed on their exempt income, since unrelated business losses then would be offset by dividends, interest, and other excluded income. Amended tax return forms This would reduce the loss that could be applied against unrelated business income of prior or future tax years. Amended tax return forms Therefore, to preserve the immunity of exempt income, all NOL computations are limited to those items of income and deductions that affect the unrelated business taxable income. Amended tax return forms   In line with this concept, an NOL carryback or carryover is allowed only from a tax year for which the organization is subject to tax on unrelated business income. Amended tax return forms   For example, if an organization just became subject to the tax last year, its NOL for that year is not a carryback to a prior year when it had no unrelated business taxable income, nor is its NOL carryover to succeeding years reduced by the related income of those prior years. Amended tax return forms   However, in determining the span of years for which an NOL may be carried back or forward, the tax years for which the organization is not subject to the tax on unrelated business income are counted. Amended tax return forms For example, if an organization was subject to the tax for 2009 and had an NOL for that year, the last tax year to which any part of that loss may be carried over is 2029, regardless of whether the organization was subject to the unrelated business income tax in any of the intervening years. Amended tax return forms   For more details on the NOL deduction, including property eligible for an extended carryback period, see sections 172 and 1400N, Publication 536, Net Operating Losses (NOLs) for Individuals, Estates, and Trusts, and Publication 4492-B, Information for Affected Taxpayers in the Midwestern Disaster Areas. Amended tax return forms Charitable contributions deduction. Amended tax return forms   An exempt organization is allowed to deduct its charitable contributions in computing its unrelated business taxable income whether or not the contributions are directly connected with the unrelated business. Amended tax return forms   To be deductible, the contribution must be paid to another qualified organization. Amended tax return forms For example, an exempt university that operates an unrelated business may deduct a contribution made to another university for educational work, but may not claim a deduction for contributions of amounts spent for carrying out its own educational program. Amended tax return forms   For purposes of the deduction, a distribution by a trust made under the trust instrument to a beneficiary, which itself is a qualified organization, is treated the same as a contribution. Amended tax return forms Deduction limits. Amended tax return forms   An exempt organization that is subject to the unrelated business income tax at corporate rates is allowed a deduction for charitable contributions up to 10% of its unrelated business taxable income computed without regard to the deduction for contributions. Amended tax return forms See the Instructions for Form 990-T for more information. Amended tax return forms    An exempt trust that is subject to the unrelated business income tax at trust rates generally is allowed a deduction for charitable contributions in the same amounts as allowed for individuals. Amended tax return forms However, the limit on the deduction is determined in relation to the trust's unrelated business taxable income computed without regard to the deduction, rather than in relation to adjusted gross income. Amended tax return forms   Contributions in excess of the limits just described may be carried over to the next 5 tax years. Amended tax return forms A contribution carryover is not allowed, however, to the extent that it increases an NOL carryover. Amended tax return forms Suspension of deduction limits for farmers and ranchers. Amended tax return forms   The limitations discussed above are temporarily suspended for certain qualified conservation contributions of property used in agriculture or livestock production. Amended tax return forms See the Instructions for Form 990-T for details. Amended tax return forms Specific deduction. Amended tax return forms   In computing unrelated business taxable income, a specific deduction of $1,000 is allowed. Amended tax return forms However, the specific deduction is not allowed in computing an NOL or the NOL deduction. Amended tax return forms   Generally, the deduction is limited to $1,000 regardless of the number of unrelated businesses in which the organization is engaged. Amended tax return forms Exception. Amended tax return forms   An exception is provided in the case of a diocese, province of a religious order, or a convention or association of churches that may claim a specific deduction for each parish, individual church, district, or other local unit. Amended tax return forms In these cases, the specific deduction for each local unit is limited to the lower of: $1,000, or Gross income derived from an unrelated trade or business regularly conducted by the local unit. Amended tax return forms   This exception applies only to parishes, districts, or other local units that are not separate legal entities, but are components of a larger entity (diocese, province, convention, or association) filing Form 990-T. Amended tax return forms The parent organization must file a return reporting the unrelated business gross income and related deductions of all units that are not separate legal entities. Amended tax return forms The local units cannot file separate returns. Amended tax return forms However, each local unit that is separately incorporated must file its own return and cannot include, or be included with, any other entity. Amended tax return forms See Title-holding corporations in chapter 1 for a discussion of the only situation in which more than one legal entity may be included on the same Form 990-T. Amended tax return forms Example. Amended tax return forms X is an association of churches and is divided into local units A, B, C, and D. Amended tax return forms Last year, A, B, C, and D derived gross income of, respectively, $1,200, $800, $1,500, and $700 from unrelated businesses that they regularly conduct. Amended tax return forms X may claim a specific deduction of $1,000 with respect to A, $800 with respect to B, $1,000 with respect to C, and $700 with respect to D. Amended tax return forms Partnership Income or Loss An organization may have unrelated business income or loss as a member of a partnership, rather than through direct business dealings with the public. Amended tax return forms If so, it must treat its share of the partnership income or loss as if it had conducted the business activity in its own capacity as a corporation or trust. Amended tax return forms No distinction is made between limited and general partners. Amended tax return forms The organization is required to notify the partnership of its tax-exempt status. Amended tax return forms Thus, if an organization is a member of a partnership regularly engaged in a trade or business that is an unrelated trade or business with respect to the organization, the organization must include in its unrelated business taxable income its share of the partnership's gross income from the unrelated trade or business (whether or not distributed), and the deductions attributable to it. Amended tax return forms The partnership income and deductions to be included in the organization's unrelated business taxable income are figured the same way as any income and deductions from an unrelated trade or business conducted directly by the organization. Amended tax return forms The partnership is required to provide the organization this information on Schedule K-1. Amended tax return forms Example. Amended tax return forms An exempt educational organization is a partner in a partnership that operates a factory. Amended tax return forms The partnership also holds stock in a corporation. Amended tax return forms The exempt organization must include its share of the gross income from operating the factory in its unrelated business taxable income but may exclude its share of any dividends the partnership received from the corporation. Amended tax return forms Different tax years. Amended tax return forms   If the exempt organization and the partnership of which it is a member have different tax years, the partnership items that enter into the computation of the organization's unrelated business taxable income must be based on the income and deductions of the partnership for the partnership's tax year that ends within or with the organization's tax year. Amended tax return forms S Corporation Income or Loss An organization that owns S corporation stock must take into account its share of the S corporation's income, deductions, or losses in figuring unrelated business taxable income, regardless of the actual source or nature of the income, deductions, and losses. Amended tax return forms For example, the organization's share of the S corporation's interest and dividend income will be taxable, even though interest and dividends are normally excluded from unrelated business taxable income. Amended tax return forms The organization must also take into account its gain or loss on the sale or other disposition of the S corporation stock in figuring unrelated business taxable income. Amended tax return forms Special Rules for Foreign Organizations The unrelated business taxable income of a foreign organization exempt from tax under section 501(a) consists of the organization's: Unrelated business taxable income derived from sources within the United States but not effectively connected with the conduct of a trade or business within the United States, and Unrelated business taxable income effectively connected with the conduct of a trade or business within the United States, whether or not this income is derived from sources within the United States. Amended tax return forms To determine whether income realized by a foreign organization is derived from sources within the United States or is effectively connected with the conduct of a trade or business within the United States, see sections 861 through 865 and the related regulations. Amended tax return forms Special Rules for Social Clubs, VEBAs, SUBs, and GLSOs The following discussion applies to: Social clubs described in section 501(c)(7), Voluntary employees' beneficiary associations (VEBAs) described in section 501(c)(9), Supplemental unemployment compensation benefit trusts (SUBs) described in section 501(c)(17), and Group legal services organizations (GLSOs) described in section 501(c)(20). Amended tax return forms These organizations must figure unrelated business taxable income under special rules. Amended tax return forms Unlike other exempt organizations, they cannot exclude their investment income (dividends, interest, rents, etc. Amended tax return forms ). Amended tax return forms (See Exclusions under Income, earlier. Amended tax return forms ) Therefore, they are generally subject to unrelated business income tax on this income. Amended tax return forms The unrelated business taxable income of these organizations includes all gross income, less deductions directly connected with the production of that income, except that gross income for this purpose does not include exempt function income. Amended tax return forms The dividends received by a corporation are not allowed in computing unrelated business taxable income because it is not an expense incurred in the production of income. Amended tax return forms Losses from nonexempt activities. Amended tax return forms   Losses from nonexempt activities of these organizations cannot be used to offset investment income unless the activities were undertaken with the intent to make a profit. Amended tax return forms Example. Amended tax return forms A private golf and country club that is a qualified tax-exempt social club has nonexempt function income from interest and from the sale of food and beverages to nonmembers. Amended tax return forms The club sells food and beverages as a service to members and their guests rather than for the purpose of making a profit. Amended tax return forms Therefore, any loss resulting from sales to nonmembers cannot be used to offset the club's interest income. Amended tax return forms Modifications. Amended tax return forms   The unrelated business taxable income is modified by any NOL or charitable contributions deduction and by the specific deduction (described earlier under Deductions). Amended tax return forms Exempt function income. Amended tax return forms   This is gross income from dues, fees, charges or similar items paid by members for goods, facilities, or services to the members or their dependents or guests, to further the organization's exempt purposes. Amended tax return forms Exempt function income also includes income set aside for qualified purposes. Amended tax return forms Income that is set aside. Amended tax return forms   This is income set aside to be used for religious, charitable, scientific, literary, or educational purposes or for the prevention of cruelty to children or animals. Amended tax return forms In addition, for a VEBA, SUB, or GLSO, it is income set aside to provide for the payment of life, sick, accident, or other benefits. Amended tax return forms   However, any amounts set aside by a VEBA or SUB that exceed the organization's qualified asset account limit (determined under section 419A) are unrelated business income. Amended tax return forms Special rules apply to the treatment of existing reserves for post-retirement medical or life insurance benefits. Amended tax return forms These rules are explained in section 512(a)(3)(E)(ii). Amended tax return forms   Income derived from an unrelated trade or business may not be set aside and therefore cannot be exempt function income. Amended tax return forms In addition, any income set aside and later spent for other purposes must be included in unrelated business taxable income. Amended tax return forms   Set-aside income is generally excluded from gross income only if it is set aside in the tax year in which it is otherwise includible in gross income. Amended tax return forms However, income set aside on or before the date for filing Form 990-T, including extensions of time, may, at the election of the organization, be treated as having been set aside in the tax year for which the return was filed. Amended tax return forms The income set aside must have been includible in gross income for that earlier year. Amended tax return forms Nonrecognition of gain. Amended tax return forms   If the organization sells property used directly in performing an exempt function and purchases other property used directly in performing an exempt function, any gain on the sale is recognized only to the extent that the sales price of the old property exceeds the cost of the new property. Amended tax return forms The purchase of the new property must be made within 1 year before the date of sale of the old property or within 3 years after the date of sale. Amended tax return forms   This rule also applies to gain from an involuntary conversion of the property resulting from its destruction in whole or in part, theft, seizure, requisition, or condemnation. Amended tax return forms Special Rules for Veterans' Organizations Unrelated business taxable income of a veterans' organization that is exempt under section 501(c)(19) does not include the net income from insurance business that is properly set aside. Amended tax return forms The organization may set aside income from payments received for life, sick, accident, or health insurance for the organization's members or their dependents for the payment of insurance benefits or reasonable costs of insurance administration, or for use exclusively for religious, charitable, scientific, literary, or educational purposes, or the prevention of cruelty to children or animals. Amended tax return forms For details, see section 512(a)(4) and the regulations under that section. Amended tax return forms Income From Controlled Organizations The exclusions for interest, annuities, royalties, and rents, explained earlier in this chapter under Income, may not apply to a payment of these items received by a controlling organization from its controlled organization. Amended tax return forms The payment is included in the controlling organization's unrelated business taxable income to the extent it reduced the net unrelated income (or increased the net unrelated loss) of the controlled organization. Amended tax return forms All deductions of the controlling organization directly connected with the amount included in its unrelated business taxable income are allowed. Amended tax return forms Excess qualifying specified payments. Amended tax return forms   Excess qualifying specified payments received or accrued from a controlled entity are included in a controlling exempt organization's unrelated business taxable income only on the amount that exceeds that which would have been paid or accrued if the payments had been determined under section 482. Amended tax return forms Qualifying specified payments means any payments of interest, annuities, royalties, or rents received or accrued from the controlled organization pursuant to a binding written contract in effect on August 17, 2006, or to a contract which is a renewal, under substantially similar terms of a binding written contract in effect on August 17, 2006, and the payments are received or accrued before January 1, 2012. Amended tax return forms   If a controlled participant is not required to file a U. Amended tax return forms S. Amended tax return forms income tax return, the participant must ensure that the copy or copies of the Regulations section 1. Amended tax return forms 482-7 Cost Sharing Arrangement Statement and any updates are attached to Schedule M of any Form 5471, Information Return of U. Amended tax return forms S. Amended tax return forms Persons With Respect To Certain Foreign Corporations, any Form 5472, Information Return of a 25% Foreign-Owned U. Amended tax return forms S. Amended tax return forms Corporation or a Foreign Corporation Engaged in a U. Amended tax return forms S. Amended tax return forms Trade or Business, or any Form 8865, Return of U. Amended tax return forms S. Amended tax return forms Persons With Respect to Certain Foreign Partnerships, filed for that participant. Amended tax return forms Addition to tax for valuation misstatements. Amended tax return forms   Under section 512(b)(13)(E)(ii), the tax imposed on a controlling organization will be increased by 20 percent of the excess qualifying specified payments that are determined with or without any amendments or supplements, whichever is larger. Amended tax return forms See section 512(b)(13)(E)(ii) for more information. Amended tax return forms Net unrelated income. Amended tax return forms   This is: For an exempt organization, its unrelated business taxable income, or For a nonexempt organization, the part of its taxable income that would be unrelated business taxable income if it were exempt and had the same exempt purposes as the controlling organization. Amended tax return forms Net unrelated loss. Amended tax return forms   This is: For an exempt organization, its NOL, or For a nonexempt organization, the part of its NOL that would be its NOL if it were exempt and had the same exempt purposes as the controlling organization. Amended tax return forms Control. Amended tax return forms   An organization is controlled if: For a corporation, the controlling organization owns (by vote or value) more than 50% of the stock, For a partnership, the controlling organization owns more than 50% of the profits or capital interests, or For any other organization, the controlling organization owns more than 50% of the beneficial interest. Amended tax return forms For this purpose, constructive ownership of stock (determined under section 318) or other interests is taken into account. Amended tax return forms   As a result, an exempt parent organization is treated as controlling any subsidiary in which it holds more than 50% of the voting power or value, whether directly (as in the case of a first-tier subsidiary) or indirectly (as in the case of a second-tier subsidiary). Amended tax return forms Income from property financed with qualified 501(c)(3) bonds. Amended tax return forms If any part of a 501(c)(3) organization's property financed with qualified 501(c)(3) bonds is used in a trade or business of any person other than a section 501(c)(3) organization or a governmental unit, and such use is not consistent with the requirements for qualified 501(c)(3) bonds under section 145, the section 501(c)(3) organization is considered to have received unrelated business income in the amount of the greater of the actual rental income or the fair rental value of the property for the period it is used. Amended tax return forms No deduction is allowed for interest on the private activity bond. Amended tax return forms See sections 150(b)(3) and (c) for more information. Amended tax return forms Disposition of property received from taxable subsidiary and used in unrelated business. Amended tax return forms A taxable 80%-owned subsidiary corporation of one or more tax-exempt entities is generally subject to tax on a distribution in liquidation of its assets to its exempt parent (or parents). Amended tax return forms The assets are treated as if sold at fair market value. Amended tax return forms Tax-exempt entities include organizations described in sections 501(a), 529, and 115, charitable remainder trusts, U. Amended tax return forms S. Amended tax return forms and foreign governments, Indian tribal governments, international organizations, and similar non-taxable organizations. Amended tax return forms A taxable corporation that transfers substantially all of its assets to a tax-exempt entity in a transaction that otherwise qualifies for nonrecognition treatment must recognize gain on the transaction as if it sold the assets at fair market value. Amended tax return forms However, such a transfer is not taxable if it qualifies as a like-kind exchange under section 1031 or an involuntary conversion under section 1033. Amended tax return forms In such a case the built-in appreciation is preserved in the replacement property received in the transaction. Amended tax return forms A corporation that changes status from taxable to tax-exempt is treated generally as if it transferred all of its assets to a tax-exempt entity immediately before the change in status (thus subjecting it to the tax on a deemed sale for fair market value). Amended tax return forms This rule does not apply where the taxable corporation becomes exempt within 3 years of formation, or had previously been exempt and within several years (generally a period of 3 years) regains exemption, unless the principal purpose of the transactions is to avoid the tax on the change in status. Amended tax return forms In the transactions described above, the taxable event is deferred for property that the tax-exempt entity immediately uses in an unrelated business. Amended tax return forms If the parent later disposes of the property, then any gain (not in excess of the amount not recognized) is included in the parent's unrelated business taxable income. Amended tax return forms If there is partial use of the assets in unrelated business, then there is partial recognition of gain or loss. Amended tax return forms Property is treated as disposed if the tax-exempt entity no longer uses it in an unrelated business. Amended tax return forms Losses on the transfer of assets to a tax-exempt entity are disallowed if part of a plan with a principal purpose of recognizing losses. Amended tax return forms Income From Debt-Financed Property Investment income that would otherwise be excluded from an exempt organization's unrelated business taxable income (see Exclusions under Income earlier) must be included to the extent it is derived from debt-financed property. Amended tax return forms The amount of income included is proportionate to the debt on the property. Amended tax return forms Debt-Financed Property In general, the term “debt-financed property” means any property held to produce income (including gain from its disposition) for which there is an acquisition indebtedness at any time during the tax year (or during the 12-month period before the date of the property's disposal, if it was disposed of during the tax year). Amended tax return forms It includes rental real estate, tangible personal property, and corporate stock. Amended tax return forms Acquisition Indebtedness For any debt-financed property, acquisition indebtedness is the unpaid amount of debt incurred by an organization: When acquiring or improving the property, Before acquiring or improving the property if the debt would not have been incurred except for the acquisition or improvement, and After acquiring or improving the property if: The debt would not have been incurred except for the acquisition or improvement, and Incurring the debt was reasonably foreseeable when the property was acquired or improved. Amended tax return forms The facts and circumstances of each situation determine whether incurring a debt was reasonably foreseeable. Amended tax return forms That an organization may not have foreseen the need to incur a debt before acquiring or improving the property does not necessarily mean that incurring the debt later was not reasonably foreseeable. Amended tax return forms Example 1. Amended tax return forms Y, an exempt scientific organization, mortgages its laboratory to replace working capital used in remodeling an office building that Y rents to an insurance company for nonexempt purposes. Amended tax return forms The debt is acquisition indebtedness since the debt, though incurred after the improvement of the office building, would not have been incurred without the improvement, and the debt was reasonably foreseeable when, to make the improvement, Y reduced its working capital below the amount necessary to continue current operations. Amended tax return forms Example 2. Amended tax return forms X, an exempt organization, forms a partnership with A and B. Amended tax return forms The partnership agreement provides that all three partners will share equally in the profits of the partnership, each will invest $3 million, and X will be a limited partner. Amended tax return forms X invests $1 million of its own funds in the partnership and $2 million of borrowed funds. Amended tax return forms The partnership buys as its sole asset an office building that it leases to the public for nonexempt purposes. Amended tax return forms The office building costs the partnership $24 million, of which $15 million is borrowed from Y bank. Amended tax return forms The loan is secured by a mortgage on the entire office building. Amended tax return forms By agreement with Y bank, X is not personally liable for payment of the mortgage. Amended tax return forms X has acquisition indebtedness of $7 million. Amended tax return forms This amount is the $2 million debt X incurred in acquiring the partnership interest, plus the $5 million that is X's allocable part of the partnership's debt incurred to buy the office building (one-third of $15 million). Amended tax return forms Example 3. Amended tax return forms A labor union advanced funds, from existing resources and without any borrowing, to its tax-exempt subsidiary title-holding company. Amended tax return forms The subsidiary used the funds to pay a debt owed to a third party that was previously incurred in acquiring two income-producing office buildings. Amended tax return forms Neither the union nor the subsidiary has incurred any further debt in acquiring or improving the property. Amended tax return forms The union has no outstanding debt on the property. Amended tax return forms The subsidiary's debt to the union is represented by a demand note on which the subsidiary makes payments whenever it has the available cash. Amended tax return forms The books of the union and the subsidiary list the outstanding debt as interorganizational indebtedness. Amended tax return forms Although the subsidiary's books show a debt to the union, it is not the type subject to the debt-financed property rules. Amended tax return forms In this situation, the very nature of the title-holding company and the parent-subsidiary relationship shows this debt to be merely a matter of accounting between the two organizations. Amended tax return forms Accordingly, the debt is not acquisition indebtedness. Amended tax return forms Change in use of property. Amended tax return forms   If an organization converts property that is not debt-financed property to a use that results in its treatment as debt-financed property, the outstanding principal debt on the property is thereafter treated as acquisition indebtedness. Amended tax return forms Example. Amended tax return forms Four years ago a university borrowed funds to acquire an apartment building as housing for married students. Amended tax return forms Last year, the university rented the apartment building to the public for nonexempt purposes. Amended tax return forms The outstanding principal debt becomes acquisition indebtedness as of the time the building was first rented to the public. Amended tax return forms Continued debt. Amended tax return forms   If an organization sells property and, without paying off debt that would be acquisition indebtedness if the property were debt-financed property, buys property that is otherwise debt-financed property, the unpaid debt is acquisition indebtedness for the new property. Amended tax return forms This is true even if the original property was not debt-financed property. Amended tax return forms Example. Amended tax return forms To house its administration offices, an exempt organization bought a building using $600,000 of its own funds and $400,000 of borrowed funds secured by a pledge of its securities. Amended tax return forms The office building was not debt-financed property. Amended tax return forms The organization later sold the building for $1 million without repaying the $400,000 loan. Amended tax return forms It used the sale proceeds to buy an apartment building it rents to the general public. Amended tax return forms The unpaid debt of $400,000 is acquisition indebtedness with respect to the apartment building. Amended tax return forms Property acquired subject to mortgage or lien. Amended tax return forms   If property (other than certain gifts, bequests, and devises) is acquired subject to a mortgage, the outstanding principal debt secured by that mortgage is treated as acquisition indebtedness even if the organization did not assume or agree to pay the debt. Amended tax return forms Example. Amended tax return forms An exempt organization paid $50,000 for real property valued at $150,000 and subject to a $100,000 mortgage. Amended tax return forms The $100,000 of outstanding principal debt is acquisition indebtedness, as though the organization had borrowed $100,000 to buy the property. Amended tax return forms Liens similar to a mortgage. Amended tax return forms   In determining acquisition indebtedness, a lien similar to a mortgage is treated as a mortgage. Amended tax return forms A lien is similar to a mortgage if title to property is encumbered by the lien for a creditor's benefit. Amended tax return forms However, when state law provides that a lien for taxes or assessments attaches to property before the taxes or assessments become due and payable, the lien is not treated as a mortgage until after the taxes or assessments have become due and payable and the organization has had an opportunity to pay the lien in accordance with state law. Amended tax return forms Liens similar to mortgages include (but are not limited to): Deeds of trust, Conditional sales contracts, Chattel mortgages, Security interests under the Uniform Commercial Code, Pledges, Agreements to hold title in escrow, and Liens for taxes or assessments (other than those discussed earlier in this paragraph). Amended tax return forms Exception for property acquired by gift, bequest, or devise. Amended tax return forms   If property subject to a mortgage is acquired by gift, bequest, or devise, the outstanding principal debt secured by the mortgage is not treated as acquisition indebtedness during the 10-year period following the date the organization receives the property. Amended tax return forms However, this applies to a gift of property only if:    The mortgage was placed on the property more than 5 years before the date the organization received it, and The donor held the property for more than 5 years before the date the organization received it. Amended tax return forms   This exception does not apply if an organization assumes and agrees to pay all or part of the debt secured by the mortgage or makes any payment for the equity in the property owned by the donor or decedent (other than a payment under an annuity obligation excluded from the definition of acquisition indebtedness, discussed under Debt That Is Not Acquisition Indebtedness, later). Amended tax return forms   Whether an organization has assumed and agreed to pay all or part of a debt in order to acquire the property is determined by the facts and circumstances of each situation. Amended tax return forms Modifying existing debt. Amended tax return forms   Extending, renewing, or refinancing an existing debt is considered a continuation of that debt to the extent its outstanding principal does not increase. Amended tax return forms When the principal of the modified debt is more than the outstanding principal of the old debt, the excess is treated as a separate debt. Amended tax return forms Extension or renewal. Amended tax return forms   In general, any modification or substitution of the terms of a debt by an organization is considered an extension or renewal of the original debt, rather than the start of a new one, to the extent that the outstanding principal of the debt does not increase. Amended tax return forms   The following are examples of acts resulting in the extension or renewal of a debt: Substituting liens to secure the debt, Substituting obligees whether or not with the organization's consent, Renewing, extending, or accelerating the payment terms of the debt, and Adding, deleting, or substituting sureties or other primary or secondary obligors. Amended tax return forms Debt increase. Amended tax return forms   If the outstanding principal of a modified debt is more than that of the unmodified debt, and only part of the refinanced debt is acquisition indebtedness, the payments on the refinanced debt must be allocated between the old debt and the excess. Amended tax return forms Example. Amended tax return forms An organization has an outstanding principal debt of $500,000 that is treated as acquisition indebtedness. Amended tax return forms The organization borrows another $100,000, which is not acquisition indebtedness, from the same lender, resulting in a $600,000 note for the total obligation. Amended tax return forms A payment of $60,000 on the total obligation would reduce the acquisition indebtedness by $50,000 ($60,000 x $500,000/$600,000) and the excess debt by $10,000. Amended tax return forms Debt That Is Not Acquisition Indebtedness Certain debt and obligations are not acquisition indebtedness. Amended tax return forms These include the following. Amended tax return forms Debts incurred in performing an exempt purpose. Amended tax return forms Annuity obligations. Amended tax return forms Securities loans. Amended tax return forms Real property debts of qualified organizations. Amended tax return forms Certain Federal financing. Amended tax return forms Debt incurred in performing exempt purpose. Amended tax return forms   A debt incurred in performing an exempt purpose is not acquisition indebtedness. Amended tax return forms For example, acquisition indebtedness does not include the debt an exempt credit union incurs in accepting deposits from its members or the debt an exempt organization incurs in accepting payments from its members to provide them with insurance, retirement, or other benefits. Amended tax return forms Annuity obligation. Amended tax return forms   The organization's obligation to pay an annuity is not acquisition indebtedness if the annuity meets all the following requirements. Amended tax return forms It must be the sole consideration (other than a mortgage on property acquired by gift, bequest, or devise that meets the exception discussed under Property acquired subject to mortgage or lien, earlier in this chapter) issued in exchange for the property received. Amended tax return forms Its present value, at the time of exchange, must be less than 90% of the value of the prior owner's equity in the property received. Amended tax return forms It must be payable over the lives of either one or two individuals living when issued. Amended tax return forms It must be payable under a contract that: Does not guarantee a minimum nor specify a maximum number of payments, and Does not provide for any adjustment of the amount of the annuity payments based on the income received from the transferred property or any other property. Amended tax return forms Example. Amended tax return forms X, an exempt organization, receives property valued at $100,000 from donor A, a male age 60. Amended tax return forms In return X promises to pay A $6,000 a year for the rest of A's life, with neither a minimum nor maximum number of payments specified. Amended tax return forms The amounts paid under the annuity are not dependent on the income derived from the property transferred to X. Amended tax return forms The present value of this annuity is $81,156, determined from IRS valuation tables. Amended tax return forms Since the value of the annuity is less than 90 percent of A's $100,000 equity in the property transferred and the annuity meets all the other requirements just discussed, the obligation to make annuity payments is not acquisition indebtedness. Amended tax return forms Securities loans. Amended tax return forms   Acquisition indebtedness does not include an obligation of the exempt organization to return collateral security provided by the borrower of the exempt organization's securities under a securities loan agreement (discussed under Exclusions earlier in this chapter). Amended tax return forms This transaction is not treated as the borrowing by the exempt organization of the collateral furnished by the borrower (usually a broker) of the securities. Amended tax return forms   However, if the exempt organization incurred debt to buy the loaned securities, any income from the securities (including income from
Español

Home Buying and Selling

Get help with buying or selling a home and learn more about insurance and housing laws.

The Amended Tax Return Forms

Amended tax return forms 3. Amended tax return forms   Claiming the Special Depreciation Allowance Table of Contents Introduction What Is Qualified Property?Qualified Reuse and Recycling Property Qualified Cellulosic Biofuel Plant Property Qualified Disaster Assistance Property Certain Qualified Property Acquired After December 31, 2007 Election to Accelerate Certain Credits in Lieu of the Special Depreciation Allowance How Much Can You Deduct? How Can You Elect Not To Claim an Allowance? When Must You Recapture an Allowance? Introduction You can take a special depreciation allowance to recover part of the cost of qualified property (defined next), placed in service during the tax year. Amended tax return forms The allowance applies only for the first year you place the property in service. Amended tax return forms For qualified property placed in service in 2013, you can take an additional 50% special allowance. Amended tax return forms The allowance is an additional deduction you can take after any section 179 deduction and before you figure regular depreciation under MACRS for the year you place the property in service. Amended tax return forms This chapter explains what is qualified property. Amended tax return forms It also includes rules regarding how to figure an allowance, how to elect not to claim an allowance, and when you must recapture an allowance. Amended tax return forms Corporations can elect to accelerate certain minimum tax credits in lieu of claiming the special depreciation allowance for eligible qualified property. Amended tax return forms See Election to Accelerate Certain Credits in Lieu of the Special Depreciation Allowance , later. Amended tax return forms See chapter 6 for information about getting publications and forms. Amended tax return forms What Is Qualified Property? Your property is qualified property if it is one of the following. Amended tax return forms Qualified reuse and recycling property. Amended tax return forms Qualified cellulosic biofuel plant property. Amended tax return forms Qualified disaster assistance property. Amended tax return forms Certain qualified property acquired after December 31, 2007. Amended tax return forms The following discussions provide information about the types of qualified property listed above for which you can take the special depreciation allowance. Amended tax return forms Qualified Reuse and Recycling Property You can take a 50% special depreciation allowance for qualified reuse and recycling property. Amended tax return forms Qualified reuse and recycling property is any machinery or equipment (not including buildings or real estate), along with any appurtenance, that is used exclusively to collect, distribute, or recycle qualified reuse and recyclable materials (as defined in section 168(m)(3)(B) of the Internal Revenue Code). Amended tax return forms Qualified reuse and recycling property also includes software necessary to operate such equipment. Amended tax return forms The property must meet the following requirements. Amended tax return forms The property must be depreciated under MACRS. Amended tax return forms The property must have a useful life of at least 5 years. Amended tax return forms The original use of the property must begin with you after August 31, 2008. Amended tax return forms You must have acquired the property by purchase (as discussed under Property Acquired by Purchase in chapter 2 ) after August 31, 2008, with no binding written contract for the acquisition in effect before September 1, 2008. Amended tax return forms The property must be placed in service for use in your trade or business after August 31, 2008. Amended tax return forms Excepted Property Qualified reuse and recycling property does not include any of the following. Amended tax return forms Any rolling stock or other equipment used to transport reuse or recyclable materials. Amended tax return forms Property required to be depreciated using the Alternative Depreciation System (ADS). Amended tax return forms For other property required to be depreciated using ADS, see Required use of ADS under Which Depreciation System (GDS or ADS) Applies , in chapter 4 . Amended tax return forms Other bonus depreciation property to which section 168(k) of the Internal Revenue Code applies. Amended tax return forms Property for which you elected not to claim any special depreciation allowance (discussed later). Amended tax return forms Property placed in service and disposed of in the same tax year. Amended tax return forms Property converted from business use to personal use in the same tax year acquired. Amended tax return forms Property converted from personal use to business use in the same or later tax year may be qualified reuse and recycling property. Amended tax return forms Qualified Cellulosic Biofuel Plant Property You can take a 50% special depreciation allowance for qualified cellulosic biofuel plant property. Amended tax return forms Cellulosic biofuel is any liquid fuel which is produced from any lignocellulosic or hemicellulosic matter that is available on a renewable or recurring basis. Amended tax return forms Examples include bagasse (from sugar cane), corn stalks, and switchgrass. Amended tax return forms The property must meet the following requirements. Amended tax return forms The property is used in the United States solely to produce cellulosic biofuel. Amended tax return forms The original use of the property must begin with you after December 20, 2006. Amended tax return forms You must have acquired the property by purchase (as discussed under Property Acquired by Purchase in chapter 2 ) after December 20, 2006, with no binding written contract for acquisition in effect before December 21, 2006. Amended tax return forms The property must be placed in service for use in your trade or business or for the production of income after October 3, 2008, and before January 3, 2013. Amended tax return forms Note. Amended tax return forms For property placed in service after January 2, 2013, and before January 1, 2014, you can take a 50% special depreciation allowance for qualified second generation biofuel plant property that is used solely in the United States to produce second generation biofuel (as defined in section 40(b)(6)(E)). Amended tax return forms The other requirements for qualified second generation biofuel plant property to be eligible for the special depreciation allowance are identical to the requirements discussed for Qualified Cellulosic Biofuel Plant Property above. Amended tax return forms Special Rules Sale-leaseback. Amended tax return forms   If you sold qualified cellulosic biofuel plant property you placed in service after October 3, 2008, and leased it back within 3 months after you originally placed it in service, the property is treated as originally placed in service no earlier than the date it is used by you under the leaseback. Amended tax return forms   The property will not qualify for the special allowance if the lessee or a related person to the lessee or lessor had a written binding contract in effect for the acquisition of the property before December 21, 2006. Amended tax return forms Syndicated leasing transactions. Amended tax return forms   If qualified cellulosic biofuel plant property is originally placed in service by a lessor after October 3, 2008, the property is sold within 3 months of the date it was placed in service, and the user of the property does not change, then the property is treated as originally placed in service by the taxpayer no earlier than the date of the last sale. Amended tax return forms   Multiple units of property subject to the same lease will be treated as originally placed in service no earlier than the date of sale if the property is sold within 3 months after the final unit is placed in service and the period between the times the first and last units are placed in service does not exceed 12 months. Amended tax return forms Excepted Property Qualified cellulosic biofuel plant property does not include any of the following. Amended tax return forms Property placed in service and disposed of in the same tax year. Amended tax return forms Property converted from business use to personal use in the same tax year it is acquired. Amended tax return forms Property converted from personal use to business use in the same or later tax year may be qualified cellulosic biomass ethanol plant property. Amended tax return forms Property required to be depreciated using the Alternative Depreciation System (ADS). Amended tax return forms For other property required to be depreciated using ADS, see Required use of ADS under Which Depreciation System (GDS or ADS) Applies , in chapter 4 . Amended tax return forms Property any portion of which is financed with the proceeds of any obligation the interest on which is exempt from tax under section 103 of the Internal Revenue Code. Amended tax return forms Property for which you elected not to claim any special depreciation allowance (discussed later). Amended tax return forms Property for which a deduction was taken under section 179C for certain qualified refinery property. Amended tax return forms Other bonus depreciation property to which section 168(k) of the Internal Revenue Code applies. Amended tax return forms Qualified Disaster Assistance Property You can take a 50% special depreciation allowance for qualified disaster assistance property placed in service in federally declared disaster areas in which the disaster occurred in 2009. Amended tax return forms A list of the federally declared disaster areas is available at the FEMA website at www. Amended tax return forms fema. Amended tax return forms gov. Amended tax return forms Your property is qualified disaster assistance property if it meets the following requirements. Amended tax return forms The property is nonresidential real property or residential real property placed in service before January 1, 2014, in a federally declared disaster area in which the disaster occurred in 2009. Amended tax return forms You must have acquired the property by purchase (as discussed under Property Acquired by Purchase in chapter 2 ) on or after the applicable disaster date, with no binding written contract for the acquisition in effect before the applicable disaster date. Amended tax return forms The property must rehabilitate property damaged, or replace property destroyed or condemned, as a result of the applicable federally declared disaster. Amended tax return forms The property must be similar in nature to, and located in the same county as, the rehabilitated or replaced property. Amended tax return forms The original use of the property within the applicable disaster area must have begun with you on or after the applicable disaster date. Amended tax return forms The property is placed in service by you on or before the date which is the last day of the fourth calendar year. Amended tax return forms Substantially all (80% or more) of the use of the property must be in the active conduct of your trade or business in a federally declared disaster area, occurring in 2009. Amended tax return forms It is not excepted property (explained later in Excepted Property ). Amended tax return forms Special Rules Sale-leaseback. Amended tax return forms   If you sold qualified disaster assistance property you placed in service after the applicable disaster date and leased it back within 3 months after you originally placed it in service, the property is treated as originally placed in service no earlier than the date it is used by you under the leaseback. Amended tax return forms   The property will not qualify for the special allowance if the lessee or a related person to the lessee or lessor had a written binding contract in effect for the acquisition of the property before the applicable disaster date. Amended tax return forms Syndicated leasing transactions. Amended tax return forms   If qualified disaster assistance property is originally placed in service by a lessor after the applicable disaster date, the property is sold within 3 months of the date it was placed in service, and the user of the property does not change, then the property is treated as originally placed in service by the taxpayer no earlier than the date of the last sale. Amended tax return forms   Multiple units of property subject to the same lease will be treated as originally placed in service no earlier than the date of sale if the property is sold within 3 months after the final unit is placed in service and the period between the times the first and last units are placed in service does not exceed 12 months. Amended tax return forms Excepted Property Qualified disaster assistance property does not include any of the following. Amended tax return forms Property required to be depreciated using the Alternative Depreciation System (ADS). Amended tax return forms For other property required to be depreciated using ADS, see Required use of ADS under Which Depreciation System (GDS or ADS) Applies , in chapter 4 . Amended tax return forms Property any portion of which is financed with the proceeds of a tax-exempt obligation under section 103 of the Internal Revenue Code. Amended tax return forms Any qualified revitalization building (defined later) placed in service before January 1, 2010, for which you have elected to claim a commercial revitalization deduction for qualified revitalization expenditures. Amended tax return forms Any property used in connection with any private or commercial golf course, country club, massage parlor, hot tub facility, suntan facility, or any store, the principal business of which is the sale of alcoholic beverages for consumption off premises. Amended tax return forms Any property for which the special allowance under section 168(k) or section 1400N(d) of the Internal Revenue Code applies. Amended tax return forms Property for which you elected not to claim any special depreciation allowance (discussed later). Amended tax return forms Property placed in service and disposed of in the same tax year. Amended tax return forms Property converted from business use to personal use in the same tax year acquired. Amended tax return forms Property converted from personal use to business use in the same or later tax year may be qualified disaster assistance property. Amended tax return forms Any gambling or animal racing property (defined later). Amended tax return forms Qualified revitalization building. Amended tax return forms   This is a commercial building and its structural components that you placed in service in a renewal community before January 1, 2010. Amended tax return forms If the building is new, the original use of the building must begin with you. Amended tax return forms If the building is not new, you must substantially rehabilitate the building and then place it in service. Amended tax return forms For more information, including definitions of substantially rehabilitated building and qualified revitalization expenditure, see section 1400I(b) of the Internal Revenue Code. Amended tax return forms Gambling or animal racing property. Amended tax return forms   Gambling or animal racing property includes the following personal and real property. Amended tax return forms Any equipment, furniture, software, or other property used directly in connection with gambling, the racing of animals, or the on-site viewing of such racing. Amended tax return forms Any real property determined by square footage (other than any portion that is less than 100 square feet) that is dedicated to gambling, the racing of animals, or the on-site viewing of such racing. Amended tax return forms Certain Qualified Property Acquired After December 31, 2007 You can take a 50% special depreciation deduction allowance for certain qualified property acquired after December 31, 2007. Amended tax return forms Your property is qualified property if it meets the following requirements. Amended tax return forms It is one of the following types of property. Amended tax return forms Tangible property depreciated under MACRS with a recovery period of 20 years or less. Amended tax return forms Water utility property. Amended tax return forms Computer software that is readily available for purchase by the general public, is subject to a nonexclusive license, and has not been substantially modified. Amended tax return forms (The cost of some computer software is treated as part of the cost of hardware and is depreciated under MACRS. Amended tax return forms ) Qualified leasehold improvement property (defined under Qualified leasehold improvement property later). Amended tax return forms You must have acquired the property after December 31, 2007, with no binding written contract for the acquisition in effect before January 1, 2008. Amended tax return forms The property must be placed in service for use in your trade or business or for the production of income before January 1, 2014 (before January 1, 2015, for certain property with a long production period and certain aircraft (defined next)). Amended tax return forms The original use of the property must begin with you after December 31, 2007. Amended tax return forms It is not excepted property (explained later in Excepted property). Amended tax return forms Qualified leasehold improvement property. Amended tax return forms    Generally, this is any improvement to an interior part of a building that is nonresidential real property, if all the following requirements are met. Amended tax return forms The improvement is made under or according to a lease by the lessee (or any sublessee) or the lessor of that part of the building. Amended tax return forms That part of the building is to be occupied exclusively by the lessee (or any sublessee) of that part. Amended tax return forms The improvement is placed in service more than 3 years after the date the building was first placed in service by any person. Amended tax return forms The improvement is section 1250 property. Amended tax return forms See chapter 3 in Publication 544, Sales and Other Dispositions of Assets, for the definition of section 1250 property. Amended tax return forms   However, a qualified leasehold improvement does not include any improvement for which the expenditure is attributable to any of the following. Amended tax return forms The enlargement of the building. Amended tax return forms Any elevator or escalator. Amended tax return forms Any structural component benefiting a common area. Amended tax return forms The internal structural framework of the building. Amended tax return forms   Generally, a binding commitment to enter into a lease is treated as a lease and the parties to the commitment are treated as the lessor and lessee. Amended tax return forms However, a lease between related persons is not treated as a lease. Amended tax return forms Related persons. Amended tax return forms   For this purpose, the following are related persons. Amended tax return forms Members of an affiliated group. Amended tax return forms An individual and a member of his or her family, including only a spouse, child, parent, brother, sister, half-brother, half-sister, ancestor, and lineal descendant. Amended tax return forms A corporation and an individual who directly or indirectly owns 80% or more of the value of the outstanding stock of that corporation. Amended tax return forms Two corporations that are members of the same controlled group. Amended tax return forms A trust fiduciary and a corporation if 80% or more of the value of the outstanding stock is directly or indirectly owned by or for the trust or grantor of the trust. Amended tax return forms The grantor and fiduciary, and the fiduciary and beneficiary, of any trust. Amended tax return forms The fiduciaries of two different trusts, and the fiduciaries and beneficiaries of two different trusts, if the same person is the grantor of both trusts. Amended tax return forms A tax-exempt educational or charitable organization and any person (or, if that person is an individual, a member of that person's family) who directly or indirectly controls the organization. Amended tax return forms Two S corporations, and an S corporation and a regular corporation, if the same persons own 80% or more of the value of the outstanding stock of each corporation. Amended tax return forms A corporation and a partnership if the same persons own both of the following. Amended tax return forms 80% or more of the value of the outstanding stock of the corporation. Amended tax return forms 80% or more of the capital or profits interest in the partnership. Amended tax return forms The executor and beneficiary of any estate. Amended tax return forms Long Production Period Property To be qualified property, long production period property must meet the following requirements. Amended tax return forms It must meet the requirements in (2)-(5), above. Amended tax return forms The property has a recovery period of at least 10 years or is transportation property. Amended tax return forms Transportation property is tangible personal property used in the trade or business of transporting persons or property. Amended tax return forms The property is subject to section 263A of the Internal Revenue Code. Amended tax return forms The property has an estimated production period exceeding 1 year and an estimated production cost exceeding $1,000,000. Amended tax return forms Noncommercial Aircraft To be qualified property, noncommercial aircraft must meet the following requirements. Amended tax return forms It must meet the requirements in (2)-(5), above. Amended tax return forms The aircraft must not be tangible personal property used in the trade or business of transporting persons or property (except for agricultural or firefighting purposes). Amended tax return forms The aircraft must be purchased (as discussed under Property Acquired by Purchase in chapter 2 ) by a purchaser who at the time of the contract for purchase, makes a nonrefundable deposit of the lesser of 10% of the cost or $100,000. Amended tax return forms The aircraft must have an estimated production period exceeding four months and a cost exceeding $200,000. Amended tax return forms Special Rules Sale-leaseback. Amended tax return forms   If you sold qualified property you placed in service after December 31, 2007, and leased it back within 3 months after you originally placed in service, the property is treated as originally placed in service no earlier than the date it is used by you under the leaseback. Amended tax return forms   The property will not qualify for the special depreciation allowance if the lessee or a related person to the lessee or lessor had a written binding contract in effect for the acquisition of the property before January 1, 2008. Amended tax return forms Syndicated leasing transactions. Amended tax return forms   If qualified property is originally placed in service by a lessor after December 31, 2007, the property is sold within 3 months of the date it was placed in service, and the user of the property does not change, then the property is treated as originally placed in service by the taxpayer no earlier than the date of the last sale. Amended tax return forms   Multiple units of property subject to the same lease will be treated as originally placed in service no earlier than the date of the last sale if the property is sold within 3 months after the final unit is placed in service and the period between the time the first and last units are placed in service does not exceed 12 months. Amended tax return forms Excepted Property Qualified property does not include any of the following. Amended tax return forms Property placed in service and disposed of in the same tax year. Amended tax return forms Property converted from business use to personal use in the same tax year acquired. Amended tax return forms Property converted from personal use to business use in the same or later tax year may be qualified property. Amended tax return forms Property required to be depreciated under the Alternative Depreciation System (ADS). Amended tax return forms This includes listed property used 50% or less in a qualified business use. Amended tax return forms For other property required to be depreciated using ADS, see Required use of ADS under Which Depreciation System (GDS or ADS) Applies , in chapter 4 . Amended tax return forms Qualified restaurant property (as defined in section 168(e)(7) of the Internal Revenue Code). Amended tax return forms Qualified retail improvement property (as defined in section 168(e)(8) of the Internal Revenue Code). Amended tax return forms Property for which you elected not to claim any special depreciation allowance (discussed later). Amended tax return forms Property for which you elected to accelerate certain credits in lieu of the special depreciation allowance (discussed next). Amended tax return forms Election to Accelerate Certain Credits in Lieu of the Special Depreciation Allowance An election made by a corporation to claim pre-2006 unused minimum tax credits in lieu of claiming the special depreciation allowance for either its first tax year ending after March 31, 2008, its first tax year ending after December 31, 2008, or its first tax year ending after December 31, 2010, continues to apply to round 2 extension property (as defined in section 168(k)(4)(I)(iv)), unless the corporation made an election not to apply the section 168(k)(4) election to round 2 extension property for its first tax year ending after December 31, 2010. Amended tax return forms For 2013, round 2 extension property generally is long production period and noncommercial aircraft if acquired after March 31, 2008, and placed in service after December 31, 2012, but before January 1, 2014. Amended tax return forms An election made by a corporation to claim pre-2006 unused minimum tax credits in lieu of claiming the special depreciation allowance for either its first tax year ending after March 31, 2008, its first tax year ending after December 31, 2008, or its first tax year ending after December 31, 2010, continues to apply to round 3 extension property (as defined in section 168(k)(4)(J)(iv)), unless the corporation makes an election not to apply the section 168(k)(4) election to round 3 extension property. Amended tax return forms If a corporation did not make a section 168(k)(4) election for either its first tax year ending after March 31, 2008, its first tax year ending after December 31, 2008, or its first tax year ending after December 31, 2010, the corporation may elect for its first tax year ending after December 31, 2012, to claim pre-2006 unused minimum tax credits in lieu of claiming the special depreciation allowance for only round 3 extension property. Amended tax return forms If you make an election to accelerate these credits in lieu of claiming the special depreciation allowance for eligible property, you must not take the 50% special depreciation allowance for the property and must depreciate the basis in the property under MACRS using the straight line method. Amended tax return forms See Which Depreciation Method Applies in chapter 4 . Amended tax return forms Once made, the election cannot be revoked without IRS consent. Amended tax return forms Additional guidance. Amended tax return forms   For additional guidance on the election to accelerate the research or minimum tax credit in lieu of claiming the special depreciation allowance, see Rev. Amended tax return forms Proc. Amended tax return forms 2008-65 on page 1082 of Internal Revenue Bulletin 2008-44, available at www. Amended tax return forms irs. Amended tax return forms gov/pub/irs-irbs/irb08-44. Amended tax return forms pdf, Rev. Amended tax return forms Proc. Amended tax return forms 2009-16 on page 449 of Internal Revenue Bulletin 2009-06, available at www. Amended tax return forms irs. Amended tax return forms gov/pub/irs-irbs/irb09-06. Amended tax return forms pdf, and Rev. Amended tax return forms Proc. Amended tax return forms 2009-33 on page 150 of Internal Revenue Bulletin 2009-29, available at www. Amended tax return forms irs. Amended tax return forms gov/pub/irs-irbs/irb09-29. Amended tax return forms pdf. Amended tax return forms Also, see Form 3800, General Business Credit; Form 8827, Credit for Prior Year Minimum Tax — Corporations; and related instructions. Amended tax return forms   Additional guidance regarding the election to accelerate the minimum tax credit in lieu of claiming the special depreciation allowance for round 2 extension property and round 3 extension property may also be available in later Internal Revenue Bulletins available at www. Amended tax return forms irs. Amended tax return forms gov/irb. Amended tax return forms How Much Can You Deduct? Figure the special depreciation allowance by multiplying the depreciable basis of qualified reuse and recycling property, qualified cellulosic biofuel plant property, qualified disaster assistance property, and certain qualified property acquired after December 31, 2007, by 50%. Amended tax return forms For qualified property other than listed property, enter the special allowance on line 14 in Part II of Form 4562. Amended tax return forms For qualified property that is listed property, enter the special allowance on line 25 in Part V of Form 4562. Amended tax return forms If you place qualified property in service in a short tax year, you can take the full amount of a special depreciation allowance. Amended tax return forms Depreciable basis. Amended tax return forms   This is the property's cost or other basis multiplied by the percentage of business/investment use, reduced by the total amount of any credits and deductions allocable to the property. Amended tax return forms   The following are examples of some credits and deductions that reduce depreciable basis. Amended tax return forms Any section 179 deduction. Amended tax return forms Any deduction for removal of barriers to the disabled and the elderly. Amended tax return forms Any disabled access credit, enhanced oil recovery credit, and credit for employer-provided childcare facilities and services. Amended tax return forms Basis adjustment to investment credit property under section 50(c) of the Internal Revenue Code. Amended tax return forms   For additional credits and deductions that affect basis, see section 1016 of the Internal Revenue Code. Amended tax return forms   For information about how to determine the cost or other basis of property, see What Is the Basis of Your Depreciable Property in chapter 1 . Amended tax return forms For a discussion of business/investment use, see Partial business or investment use under Property Used in Your Business or Income-Producing Activity in chapter 1 . Amended tax return forms Depreciating the remaining cost. Amended tax return forms   After you figure your special depreciation allowance for your qualified property, you can use the remaining cost to figure your regular MACRS depreciation deduction (discussed in chapter 4 . Amended tax return forms Therefore, you must reduce the depreciable basis of the property by the special depreciation allowance before figuring your regular MACRS depreciation deduction. Amended tax return forms Example. Amended tax return forms On November 1, 2013, Tom Brown bought and placed in service in his business qualified property that cost $450,000. Amended tax return forms He did not elect to claim a section 179 deduction. Amended tax return forms He deducts 50% of the cost ($225,000) as a special depreciation allowance for 2013. Amended tax return forms He uses the remaining $225,000 of cost to figure his regular MACRS depreciation deduction for 2013 and later years. Amended tax return forms Like-kind exchanges and involuntary conversions. Amended tax return forms   If you acquire qualified property in a like-kind exchange or involuntary conversion, the carryover basis of the acquired property is eligible for a special depreciation allowance. Amended tax return forms After you figure your special allowance, you can use the remaining carryover basis to figure your regular MACRS depreciation deduction. Amended tax return forms In the year you claim the allowance (the year you place in service the property received in the exchange or dispose of involuntarily converted property), you must reduce the carryover basis of the property by the allowance before figuring your regular MACRS depreciation deduction. Amended tax return forms See Figuring the Deduction for Property Acquired in a Nontaxable Exchange , in chapter 4 under How Is the Depreciation Deduction Figured . Amended tax return forms The excess basis (the part of the acquired property's basis that exceeds its carryover basis) is also eligible for a special depreciation allowance. Amended tax return forms How Can You Elect Not To Claim an Allowance? You can elect, for any class of property, not to deduct any special allowances for all property in such class placed in service during the tax year. Amended tax return forms To make an election, attach a statement to your return indicating what election you are making and the class of property for which you are making the election. Amended tax return forms When to make election. Amended tax return forms   Generally, you must make the election on a timely filed tax return (including extensions) for the year in which you place the property in service. Amended tax return forms   However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the original return (not including extensions). Amended tax return forms Attach the election statement to the amended return. Amended tax return forms On the amended return, write “Filed pursuant to section 301. Amended tax return forms 9100-2. Amended tax return forms ” Revoking an election. Amended tax return forms   Once you elect not to deduct a special depreciation allowance for a class of property, you cannot revoke the election without IRS consent. Amended tax return forms A request to revoke the election is a request for a letter ruling. Amended tax return forms If you elect not to have any special allowance apply, the property may be subject to an alternative minimum tax adjustment for depreciation. Amended tax return forms When Must You Recapture an Allowance? When you dispose of property for which you claimed a special depreciation allowance, any gain on the disposition is generally recaptured (included in income) as ordinary income up to the amount of the special depreciation allowance previously allowed or allowable. Amended tax return forms See When Do You Recapture MACRS Depreciation in chapter 4 or more information. Amended tax return forms Recapture of allowance deducted for qualified GO Zone property. Amended tax return forms   If, in any year after the year you claim the special depreciation allowance for qualified GO Zone property (including specified GO Zone extension property), the property ceases to be used in the GO Zone, you may have to recapture as ordinary income the excess benefit you received from claiming the special depreciation allowance. Amended tax return forms For additional guidance, see Notice 2008-25 on page 484 of Internal Revenue Bulletin 2008-9. Amended tax return forms Qualified cellulosic biomass ethanol plant property and qualified cellulosic biofuel plant property. Amended tax return forms   If, in any year after the year you claim the special depreciation allowance for any qualified cellulosic biomass ethanol plant property or qualified biofuel plant property, the property ceases to be qualified cellulosic biomass ethanol plant property or qualified biofuel plant property, you may have to recapture as ordinary income the excess benefit you received from claiming the special depreciation allowance. Amended tax return forms Recapture of allowance for qualified Recovery Assistance property. Amended tax return forms   If, in any year after the year you claim the special depreciation allowance for qualified Recovery Assistance property, the property ceases to be used in the Kansas disaster area, you may have to recapture as ordinary income the excess benefit you received from claiming the special depreciation allowance. Amended tax return forms For additional guidance, see Notice 2008-67 on page 307 of Internal Revenue Bulletin 2008-32. Amended tax return forms Recapture of allowance for qualified disaster assistance property. Amended tax return forms   If, in any year after the year you claim the special depreciation allowance for qualified disaster assistance property, the property ceases to be used in the applicable disaster area, you may have to recapture as ordinary income the excess benefit you received from claiming the special depreciation allowance. Amended tax return forms   For additional guidance, see Notice 2008-67 on page 307 of Internal Revenue Bulletin 2008-32. Amended tax return forms Prev  Up  Next   Home   More Online Publications