1040 Ez OnlineCan I Efile 2011 TaxesFiling State Taxes OnlyFiling TaxesHow Do I File My 2012 Taxes OnlineTax Act 20081040ez TelefileSample 1040x Filled OutOhio Free FileFile An Amended Tax ReturnFree Online Tax Extension1040ex Form1040x Processing TimeStudents And Tax ReturnsFederal Tax Forms 2012State Taxes Free OnlineFiling An Ammended Return2013 Tax Form 1040xCan I File 1040x OnlineFile TaxesState Tax PreparationWhere Can I File My 2011 Taxes OnlineExtensionCollege Student TaxesEfile Taxes Free2012 Ez Tax FormHow To File An Amended Tax Return For 20132009 Tax ReturnIrs Free Tax Filing Online Irs E-file2010 Federal Tax FormsFile Amended Return1040ez Tax Forms And Instructions1040ez Fill In FormTax Amendment Forms1040x 2010State Tax FormFree File State ReturnAmended Tax FormsFile Federal And State Taxes Online FreeAmend Tax
Ez1040 Publication 537 - Introductory Material Table of Contents Future Developments Reminder IntroductionOrdering forms and publications. Ez1040 Tax questions. Ez1040 Useful Items - You may want to see: Future Developments For the latest information about developments related to Publication 537, such as legislation enacted after it was published, go to www. Ez1040 irs. Ez1040 gov/pub537. Ez1040 Reminder Photographs of missing children. Ez1040 The Internal Revenue Service (IRS) is a proud partner with the National Center for Missing and Exploited Children. Ez1040 Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. Ez1040 You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. Ez1040 Introduction Note. Ez1040 Section references within this publication are to the Internal Revenue Code and regulation references are to the Income Tax Regulations under the Code. Ez1040 An installment sale is a sale of property where you receive at least one payment after the tax year of the sale. Ez1040 If you realize a gain on an installment sale, you may be able to report part of your gain when you receive each payment. Ez1040 This method of reporting gain is called the installment method. Ez1040 You cannot use the installment method to report a loss. Ez1040 You can choose to report all of your gain in the year of sale. Ez1040 This publication discusses the general rules that apply to using the installment method. Ez1040 It also discusses more complex rules that apply only when certain conditions exist or certain types of property are sold. Ez1040 If you sell your home or other nonbusiness property under an installment plan, you may need to read only the General Rules . Ez1040 If you sell business or rental property or have a like-kind exchange or other complex situation, also see the appropriate discussion under Other Rules . Ez1040 Comments and suggestions. Ez1040 We welcome your comments about this publication and your suggestions for future editions. Ez1040 You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. Ez1040 NW, IR-6526 Washington, DC 20224 We respond to many letters by telephone. Ez1040 Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Ez1040 You can send your comments from www. Ez1040 irs. Ez1040 gov/formspubs/. Ez1040 Click on “More Information” and then on “Comment on Tax Forms and Publications. Ez1040 ” Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. Ez1040 Ordering forms and publications. Ez1040 Visit www. Ez1040 irs. Ez1040 gov/formspubs/ to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received. Ez1040 Internal Revenue Service 1201 N. Ez1040 Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. Ez1040 If you have a tax question, check the information available on IRS. Ez1040 gov or call 1-800-829-1040. Ez1040 We cannot answer tax questions sent to either of the above addresses. Ez1040 Useful Items - You may want to see: Publication 523 Selling Your Home 541 Partnerships 544 Sales and Other Dispositions of Assets 550 Investment Income and Expenses 551 Basis of Assets 4895 Tax Treatment of Property Acquired From a Decedent Dying in 2010 Form (and Instructions) 4797 Sales of Business Property 6252 Installment Sale Income See How To Get Tax Help near the end of this publication for information about getting publications and forms. Ez1040 Prev Up Next Home More Online Publications
Understanding your CP259B Notice
Your organization didn’t file a Form 990-PF.
What you need to do
- File a Form 990-PF
- Complete the response page
- Mail it to the address on the notice
Answers to Common Questions
What should I do if I have all ready filed Form 990-PF?
If you filed within the last four weeks using the same name and Employer ID number (EIN) on your notice, you don’t have to do anything. Our system may not have processed your return at the time we mailed the notice.
If you filed more than four weeks ago or used a different name or EIN, complete the Response form starting on Page 3, and mail it to us with a signed and dated copy of the return.
What should I do if I don’t think I have to file a Form 990-PF?
Complete the response form starting on Page 3 of the notice and mail it to us.
Understanding your notice
Reading your notice
Your notice may look different from the sample because the information contained in your notice is tailored to your situation.
Notice CP259B, Page 1
Notice CP259B, Page 2
Notice CP259B, Page 3
Notice CP259B, Page 4
Page Last Reviewed or Updated: 15-Jan-2014
Printable samples of this notice (PDF)
Tax publications you may find useful
How to get help
- Call the 1-800 number listed on the top right corner of your notice.
- Authorize someone (e.g., accountant) to contact the IRS on your behalf using Form 2848.
- See if you qualify for help from a Low Income Taxpayer Clinic.
Ez1040 1. Ez1040 Overview of Depreciation Table of Contents Introduction Useful Items - You may want to see: What Property Can Be Depreciated?Property You Own Property Used in Your Business or Income-Producing Activity Property Having a Determinable Useful Life Property Lasting More Than One Year What Property Cannot Be Depreciated?Land Excepted Property When Does Depreciation Begin and End?Placed in Service Idle Property Cost or Other Basis Fully Recovered Retired From Service What Method Can You Use To Depreciate Your Property?Property You Placed in Service Before 1987 Property Owned or Used in 1986 Intangible Property Corporate or Partnership Property Acquired in a Nontaxable Transfer Election To Exclude Property From MACRS What Is the Basis of Your Depreciable Property?Cost as Basis Other Basis Adjusted Basis How Do You Treat Repairs and Improvements? Do You Have To File Form 4562? How Do You Correct Depreciation Deductions?Filing an Amended Return Changing Your Accounting Method Introduction Depreciation is an annual income tax deduction that allows you to recover the cost or other basis of certain property over the time you use the property. Ez1040 It is an allowance for the wear and tear, deterioration, or obsolescence of the property. Ez1040 This chapter discusses the general rules for depreciating property and answers the following questions. Ez1040 What property can be depreciated? What property cannot be depreciated? When does depreciation begin and end? What method can you use to depreciate your property? What is the basis of your depreciable property? How do you treat repairs and improvements? Do you have to file Form 4562? How do you correct depreciation deductions? Useful Items - You may want to see: Publication 534 Depreciating Property Placed in Service Before 1987 535 Business Expenses 538 Accounting Periods and Methods 551 Basis of Assets Form (and Instructions) Sch C (Form 1040) Profit or Loss From Business Sch C-EZ (Form 1040) Net Profit From Business 2106 Employee Business Expenses 2106-EZ Unreimbursed Employee Business Expenses 3115 Application for Change in Accounting Method 4562 Depreciation and Amortization See chapter 6 for information about getting publications and forms. Ez1040 What Property Can Be Depreciated? You can depreciate most types of tangible property (except land), such as buildings, machinery, vehicles, furniture, and equipment. Ez1040 You also can depreciate certain intangible property, such as patents, copyrights, and computer software. Ez1040 To be depreciable, the property must meet all the following requirements. Ez1040 It must be property you own. Ez1040 It must be used in your business or income-producing activity. Ez1040 It must have a determinable useful life. Ez1040 It must be expected to last more than one year. Ez1040 The following discussions provide information about these requirements. Ez1040 Property You Own To claim depreciation, you usually must be the owner of the property. Ez1040 You are considered as owning property even if it is subject to a debt. Ez1040 Example 1. Ez1040 You made a down payment to purchase rental property and assumed the previous owner's mortgage. Ez1040 You own the property and you can depreciate it. Ez1040 Example 2. Ez1040 You bought a new van that you will use only for your courier business. Ez1040 You will be making payments on the van over the next 5 years. Ez1040 You own the van and you can depreciate it. Ez1040 Leased property. Ez1040 You can depreciate leased property only if you retain the incidents of ownership in the property (explained below). Ez1040 This means you bear the burden of exhaustion of the capital investment in the property. Ez1040 Therefore, if you lease property from someone to use in your trade or business or for the production of income, you generally cannot depreciate its cost because you do not retain the incidents of ownership. Ez1040 You can, however, depreciate any capital improvements you make to the property. Ez1040 See How Do You Treat Repairs and Improvements later in this chapter and Additions and Improvements under Which Recovery Period Applies in chapter 4. Ez1040 If you lease property to someone, you generally can depreciate its cost even if the lessee (the person leasing from you) has agreed to preserve, replace, renew, and maintain the property. Ez1040 However, if the lease provides that the lessee is to maintain the property and return to you the same property or its equivalent in value at the expiration of the lease in as good condition and value as when leased, you cannot depreciate the cost of the property. Ez1040 Incidents of ownership. Ez1040 Incidents of ownership in property include the following. Ez1040 The legal title to the property. Ez1040 The legal obligation to pay for the property. Ez1040 The responsibility to pay maintenance and operating expenses. Ez1040 The duty to pay any taxes on the property. Ez1040 The risk of loss if the property is destroyed, condemned, or diminished in value through obsolescence or exhaustion. Ez1040 Life tenant. Ez1040 Generally, if you hold business or investment property as a life tenant, you can depreciate it as if you were the absolute owner of the property. Ez1040 However, see Certain term interests in property under Excepted Property, later. Ez1040 Cooperative apartments. Ez1040 If you are a tenant-stockholder in a cooperative housing corporation and use your cooperative apartment in your business or for the production of income, you can depreciate your stock in the corporation, even though the corporation owns the apartment. Ez1040 Figure your depreciation deduction as follows. Ez1040 Figure the depreciation for all the depreciable real property owned by the corporation in which you have a proprietary lease or right of tenancy. Ez1040 If you bought your cooperative stock after its first offering, figure the depreciable basis of this property as follows. Ez1040 Multiply your cost per share by the total number of outstanding shares, including any shares held by the corporation. Ez1040 Add to the amount figured in (a) any mortgage debt on the property on the date you bought the stock. Ez1040 Subtract from the amount figured in (b) any mortgage debt that is not for the depreciable real property, such as the part for the land. Ez1040 Subtract from the amount figured in (1) any depreciation for space owned by the corporation that can be rented but cannot be lived in by tenant-stockholders. Ez1040 Divide the number of your shares of stock by the total number of outstanding shares, including any shares held by the corporation. Ez1040 Multiply the result of (2) by the percentage you figured in (3). Ez1040 This is your depreciation on the stock. Ez1040 Your depreciation deduction for the year cannot be more than the part of your adjusted basis in the stock of the corporation that is allocable to your business or income-producing property. Ez1040 You must also reduce your depreciation deduction if only a portion of the property is used in a business or for the production of income. Ez1040 Example. Ez1040 You figure your share of the cooperative housing corporation's depreciation to be $30,000. Ez1040 Your adjusted basis in the stock of the corporation is $50,000. Ez1040 You use one half of your apartment solely for business purposes. Ez1040 Your depreciation deduction for the stock for the year cannot be more than $25,000 (½ of $50,000). Ez1040 Change to business use. Ez1040 If you change your cooperative apartment to business use, figure your allowable depreciation as explained earlier. Ez1040 The basis of all the depreciable real property owned by the cooperative housing corporation is the smaller of the following amounts. Ez1040 The fair market value of the property on the date you change your apartment to business use. Ez1040 This is considered to be the same as the corporation's adjusted basis minus straight line depreciation, unless this value is unrealistic. Ez1040 The corporation's adjusted basis in the property on that date. Ez1040 Do not subtract depreciation when figuring the corporation's adjusted basis. Ez1040 If you bought the stock after its first offering, the corporation's adjusted basis in the property is the amount figured in (1), above. Ez1040 The fair market value of the property is considered to be the same as the corporation's adjusted basis figured in this way minus straight line depreciation, unless the value is unrealistic. Ez1040 For a discussion of fair market value and adjusted basis, see Publication 551. Ez1040 Property Used in Your Business or Income-Producing Activity To claim depreciation on property, you must use it in your business or income-producing activity. Ez1040 If you use property to produce income (investment use), the income must be taxable. Ez1040 You cannot depreciate property that you use solely for personal activities. Ez1040 Partial business or investment use. Ez1040 If you use property for business or investment purposes and for personal purposes, you can deduct depreciation based only on the business or investment use. Ez1040 For example, you cannot deduct depreciation on a car used only for commuting, personal shopping trips, family vacations, driving children to and from school, or similar activities. Ez1040 You must keep records showing the business, investment, and personal use of your property. Ez1040 For more information on the records you must keep for listed property, such as a car, see What Records Must Be Kept in chapter 5. Ez1040 Although you can combine business and investment use of property when figuring depreciation deductions, do not treat investment use as qualified business use when determining whether the business-use requirement for listed property is met. Ez1040 For information about qualified business use of listed property, see What Is the Business-Use Requirement in chapter 5. Ez1040 Office in the home. Ez1040 If you use part of your home as an office, you may be able to deduct depreciation on that part based on its business use. Ez1040 For information about depreciating your home office, see Publication 587. Ez1040 Inventory. Ez1040 You cannot depreciate inventory because it is not held for use in your business. Ez1040 Inventory is any property you hold primarily for sale to customers in the ordinary course of your business. Ez1040 If you are a rent-to-own dealer, you may be able to treat certain property held in your business as depreciable property rather than as inventory. Ez1040 See Rent-to-own dealer under Which Property Class Applies Under GDS in chapter 4. Ez1040 In some cases, it is not clear whether property is held for sale (inventory) or for use in your business. Ez1040 If it is unclear, examine carefully all the facts in the operation of the particular business. Ez1040 The following example shows how a careful examination of the facts in two similar situations results in different conclusions. Ez1040 Example. Ez1040 Maple Corporation is in the business of leasing cars. Ez1040 At the end of their useful lives, when the cars are no longer profitable to lease, Maple sells them. Ez1040 Maple does not have a showroom, used car lot, or individuals to sell the cars. Ez1040 Instead, it sells them through wholesalers or by similar arrangements in which a dealer's profit is not intended or considered. Ez1040 Maple can depreciate the leased cars because the cars are not held primarily for sale to customers in the ordinary course of business, but are leased. Ez1040 If Maple buys cars at wholesale prices, leases them for a short time, and then sells them at retail prices or in sales in which a dealer's profit is intended, the cars are treated as inventory and are not depreciable property. Ez1040 In this situation, the cars are held primarily for sale to customers in the ordinary course of business. Ez1040 Containers. Ez1040 Generally, containers for the products you sell are part of inventory and you cannot depreciate them. Ez1040 However, you can depreciate containers used to ship your products if they have a life longer than one year and meet the following requirements. Ez1040 They qualify as property used in your business. Ez1040 Title to the containers does not pass to the buyer. Ez1040 To determine if these requirements are met, consider the following questions. Ez1040 Does your sales contract, sales invoice, or other type of order acknowledgment indicate whether you have retained title? Does your invoice treat the containers as separate items? Do any of your records state your basis in the containers? Property Having a Determinable Useful Life To be depreciable, your property must have a determinable useful life. Ez1040 This means that it must be something that wears out, decays, gets used up, becomes obsolete, or loses its value from natural causes. Ez1040 Property Lasting More Than One Year To be depreciable, property must have a useful life that extends substantially beyond the year you place it in service. Ez1040 Example. Ez1040 You maintain a library for use in your profession. Ez1040 You can depreciate it. Ez1040 However, if you buy technical books, journals, or information services for use in your business that have a useful life of one year or less, you cannot depreciate them. Ez1040 Instead, you deduct their cost as a business expense. Ez1040 What Property Cannot Be Depreciated? Certain property cannot be depreciated. Ez1040 This includes land and certain excepted property. Ez1040 Land You cannot depreciate the cost of land because land does not wear out, become obsolete, or get used up. Ez1040 The cost of land generally includes the cost of clearing, grading, planting, and landscaping. Ez1040 Although you cannot depreciate land, you can depreciate certain land preparation costs, such as landscaping costs, incurred in preparing land for business use. Ez1040 These costs must be so closely associated with other depreciable property that you can determine a life for them along with the life of the associated property. Ez1040 Example. Ez1040 You constructed a new building for use in your business and paid for grading, clearing, seeding, and planting bushes and trees. Ez1040 Some of the bushes and trees were planted right next to the building, while others were planted around the outer border of the lot. Ez1040 If you replace the building, you would have to destroy the bushes and trees right next to it. Ez1040 These bushes and trees are closely associated with the building, so they have a determinable useful life. Ez1040 Therefore, you can depreciate them. Ez1040 Add your other land preparation costs to the basis of your land because they have no determinable life and you cannot depreciate them. Ez1040 Excepted Property Even if the requirements explained in the preceding discussions are met, you cannot depreciate the following property. Ez1040 Property placed in service and disposed of in the same year. Ez1040 Determining when property is placed in service is explained later. Ez1040 Equipment used to build capital improvements. Ez1040 You must add otherwise allowable depreciation on the equipment during the period of construction to the basis of your improvements. Ez1040 See Uniform Capitalization Rules in Publication 551. Ez1040 Section 197 intangibles. Ez1040 You must amortize these costs. Ez1040 Section 197 intangibles are discussed in detail in Chapter 8 of Publication 535. Ez1040 Intangible property, such as certain computer software, that is not section 197 intangible property, can be depreciated if it meets certain requirements. Ez1040 See Intangible Property , later. Ez1040 Certain term interests. Ez1040 Certain term interests in property. Ez1040 You cannot depreciate a term interest in property created or acquired after July 27, 1989, for any period during which the remainder interest is held, directly or indirectly, by a person related to you. Ez1040 A term interest in property means a life interest in property, an interest in property for a term of years, or an income interest in a trust. Ez1040 Related persons. Ez1040 For a description of related persons, see Related Persons, later. Ez1040 For this purpose, however, treat as related persons only the relationships listed in items (1) through (10) of that discussion and substitute “50%” for “10%” each place it appears. Ez1040 Basis adjustments. Ez1040 If you would be allowed a depreciation deduction for a term interest in property except that the holder of the remainder interest is related to you, you generally must reduce your basis in the term interest by any depreciation or amortization not allowed. Ez1040 If you hold the remainder interest, you generally must increase your basis in that interest by the depreciation not allowed to the term interest holder. Ez1040 However, do not increase your basis for depreciation not allowed for periods during which either of the following situations applies. Ez1040 The term interest is held by an organization exempt from tax. Ez1040 The term interest is held by a nonresident alien individual or foreign corporation, and the income from the term interest is not effectively connected with the conduct of a trade or business in the United States. Ez1040 Exceptions. Ez1040 The above rules do not apply to the holder of a term interest in property acquired by gift, bequest, or inheritance. Ez1040 They also do not apply to the holder of dividend rights that were separated from any stripped preferred stock if the rights were purchased after April 30, 1993, or to a person whose basis in the stock is determined by reference to the basis in the hands of the purchaser. Ez1040 When Does Depreciation Begin and End? You begin to depreciate your property when you place it in service for use in your trade or business or for the production of income. Ez1040 You stop depreciating property either when you have fully recovered your cost or other basis or when you retire it from service, whichever happens first. Ez1040 Placed in Service You place property in service when it is ready and available for a specific use, whether in a business activity, an income-producing activity, a tax-exempt activity, or a personal activity. Ez1040 Even if you are not using the property, it is in service when it is ready and available for its specific use. Ez1040 Example 1. Ez1040 Donald Steep bought a machine for his business. Ez1040 The machine was delivered last year. Ez1040 However, it was not installed and operational until this year. Ez1040 It is considered placed in service this year. Ez1040 If the machine had been ready and available for use when it was delivered, it would be considered placed in service last year even if it was not actually used until this year. Ez1040 Example 2. Ez1040 On April 6, Sue Thorn bought a house to use as residential rental property. Ez1040 She made several repairs and had it ready for rent on July 5. Ez1040 At that time, she began to advertise it for rent in the local newspaper. Ez1040 The house is considered placed in service in July when it was ready and available for rent. Ez1040 She can begin to depreciate it in July. Ez1040 Example 3. Ez1040 James Elm is a building contractor who specializes in constructing office buildings. Ez1040 He bought a truck last year that had to be modified to lift materials to second-story levels. Ez1040 The installation of the lifting equipment was completed and James accepted delivery of the modified truck on January 10 of this year. Ez1040 The truck was placed in service on January 10, the date it was ready and available to perform the function for which it was bought. Ez1040 Conversion to business use. Ez1040 If you place property in service in a personal activity, you cannot claim depreciation. Ez1040 However, if you change the property's use to use in a business or income-producing activity, then you can begin to depreciate it at the time of the change. Ez1040 You place the property in service in the business or income-producing activity on the date of the change. Ez1040 Example. Ez1040 You bought a home and used it as your personal home several years before you converted it to rental property. Ez1040 Although its specific use was personal and no depreciation was allowable, you placed the home in service when you began using it as your home. Ez1040 You can begin to claim depreciation in the year you converted it to rental property because its use changed to an income-producing use at that time. Ez1040 Idle Property Continue to claim a deduction for depreciation on property used in your business or for the production of income even if it is temporarily idle (not in use). Ez1040 For example, if you stop using a machine because there is a temporary lack of a market for a product made with that machine, continue to deduct depreciation on the machine. Ez1040 Cost or Other Basis Fully Recovered You stop depreciating property when you have fully recovered your cost or other basis. Ez1040 You recover your basis when your section 179 and allowed or allowable depreciation deductions equal your cost or investment in the property. Ez1040 See What Is the Basis of Your Depreciable Property , later. Ez1040 Retired From Service You stop depreciating property when you retire it from service, even if you have not fully recovered its cost or other basis. Ez1040 You retire property from service when you permanently withdraw it from use in a trade or business or from use in the production of income because of any of the following events. Ez1040 You sell or exchange the property. Ez1040 You convert the property to personal use. Ez1040 You abandon the property. Ez1040 You transfer the property to a supplies or scrap account. Ez1040 The property is destroyed. Ez1040 If you included the property in a general asset account, see How Do You Use General Asset Accounts in chapter 4 for the rules that apply when you dispose of that property. Ez1040 What Method Can You Use To Depreciate Your Property? You must use the Modified Accelerated Cost Recovery System (MACRS) to depreciate most property. Ez1040 MACRS is discussed in chapter 4. Ez1040 You cannot use MACRS to depreciate the following property. Ez1040 Property you placed in service before 1987. Ez1040 Certain property owned or used in 1986. Ez1040 Intangible property. Ez1040 Films, video tapes, and recordings. Ez1040 Certain corporate or partnership property acquired in a nontaxable transfer. Ez1040 Property you elected to exclude from MACRS. Ez1040 The following discussions describe the property listed above and explain what depreciation method should be used. Ez1040 Property You Placed in Service Before 1987 You cannot use MACRS for property you placed in service before 1987 (except property you placed in service after July 31, 1986, if MACRS was elected). Ez1040 Property placed in service before 1987 must be depreciated under the methods discussed in Publication 534. Ez1040 For a discussion of when property is placed in service, see When Does Depreciation Begin and End , earlier. Ez1040 Use of real property changed. Ez1040 You generally must use MACRS to depreciate real property that you acquired for personal use before 1987 and changed to business or income-producing use after 1986. Ez1040 Improvements made after 1986. Ez1040 You must treat an improvement made after 1986 to property you placed in service before 1987 as separate depreciable property. Ez1040 Therefore, you can depreciate that improvement as separate property under MACRS if it is the type of property that otherwise qualifies for MACRS depreciation. Ez1040 For more information about improvements, see How Do You Treat Repairs and Improvements , later and Additions and Improvements under Which Recovery Period Applies in chapter 4. Ez1040 Property Owned or Used in 1986 You may not be able to use MACRS for property you acquired and placed in service after 1986 if any of the situations described below apply. Ez1040 If you cannot use MACRS, the property must be depreciated under the methods discussed in Publication 534. Ez1040 For the following discussions, do not treat property as owned before you placed it in service. Ez1040 If you owned property in 1986 but did not place it in service until 1987, you do not treat it as owned in 1986. Ez1040 Personal property. Ez1040 You cannot use MACRS for personal property (section 1245 property) in any of the following situations. Ez1040 You or someone related to you owned or used the property in 1986. Ez1040 You acquired the property from a person who owned it in 1986 and as part of the transaction the user of the property did not change. Ez1040 You lease the property to a person (or someone related to this person) who owned or used the property in 1986. Ez1040 You acquired the property in a transaction in which: The user of the property did not change, and The property was not MACRS property in the hands of the person from whom you acquired it because of (2) or (3) above. Ez1040 Real property. Ez1040 You generally cannot use MACRS for real property (section 1250 property) in any of the following situations. Ez1040 You or someone related to you owned the property in 1986. Ez1040 You lease the property to a person who owned the property in 1986 (or someone related to that person). Ez1040 You acquired the property in a like-kind exchange, involuntary conversion, or repossession of property you or someone related to you owned in 1986. Ez1040 MACRS applies only to that part of your basis in the acquired property that represents cash paid or unlike property given up. Ez1040 It does not apply to the carried-over part of the basis. Ez1040 Exceptions. Ez1040 The rules above do not apply to the following. Ez1040 Residential rental property or nonresidential real property. Ez1040 Any property if, in the first tax year it is placed in service, the deduction under the Accelerated Cost Recovery System (ACRS) is more than the deduction under MACRS using the half-year convention. Ez1040 For information on how to figure depreciation under ACRS, see Publication 534. Ez1040 Property that was MACRS property in the hands of the person from whom you acquired it because of (2) above. Ez1040 Related persons. Ez1040 For this purpose, the following are related persons. Ez1040 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. Ez1040 A corporation and an individual who directly or indirectly owns more than 10% of the value of the outstanding stock of that corporation. Ez1040 Two corporations that are members of the same controlled group. Ez1040 A trust fiduciary and a corporation if more than 10% of the value of the outstanding stock is directly or indirectly owned by or for the trust or grantor of the trust. Ez1040 The grantor and fiduciary, and the fiduciary and beneficiary, of any trust. Ez1040 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. Ez1040 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. Ez1040 Two S corporations, and an S corporation and a regular corporation, if the same persons own more than 10% of the value of the outstanding stock of each corporation. Ez1040 A corporation and a partnership if the same persons own both of the following. Ez1040 More than 10% of the value of the outstanding stock of the corporation. Ez1040 More than 10% of the capital or profits interest in the partnership. Ez1040 The executor and beneficiary of any estate. Ez1040 A partnership and a person who directly or indirectly owns more than 10% of the capital or profits interest in the partnership. Ez1040 Two partnerships, if the same persons directly or indirectly own more than 10% of the capital or profits interest in each. Ez1040 The related person and a person who is engaged in trades or businesses under common control. Ez1040 See section 52(a) and 52(b) of the Internal Revenue Code. Ez1040 When to determine relationship. Ez1040 You must determine whether you are related to another person at the time you acquire the property. Ez1040 A partnership acquiring property from a terminating partnership must determine whether it is related to the terminating partnership immediately before the event causing the termination. Ez1040 For this rule, a terminating partnership is one that sells or exchanges, within 12 months, 50% or more of its total interest in partnership capital or profits. Ez1040 Constructive ownership of stock or partnership interest. Ez1040 To determine whether a person directly or indirectly owns any of the outstanding stock of a corporation or an interest in a partnership, apply the following rules. Ez1040 Stock or a partnership interest directly or indirectly owned by or for a corporation, partnership, estate, or trust is considered owned proportionately by or for its shareholders, partners, or beneficiaries. Ez1040 However, for a partnership interest owned by or for a C corporation, this applies only to shareholders who directly or indirectly own 5% or more of the value of the stock of the corporation. Ez1040 An individual is considered to own the stock or partnership interest directly or indirectly owned by or for the individual's family. Ez1040 An individual who owns, except by applying rule (2), any stock in a corporation is considered to own the stock directly or indirectly owned by or for the individual's partner. Ez1040 For purposes of rules (1), (2), or (3), stock or a partnership interest considered to be owned by a person under rule (1) is treated as actually owned by that person. Ez1040 However, stock or a partnership interest considered to be owned by an individual under rule (2) or (3) is not treated as owned by that individual for reapplying either rule (2) or (3) to make another person considered to be the owner of the same stock or partnership interest. Ez1040 Intangible Property Generally, if you can depreciate intangible property, you usually use the straight line method of depreciation. Ez1040 However, you can choose to depreciate certain intangible property under the income forecast method (discussed later). Ez1040 You cannot depreciate intangible property that is a section 197 intangible or that otherwise does not meet all the requirements discussed earlier under What Property Can Be Depreciated. Ez1040 Straight Line Method This method lets you deduct the same amount of depreciation each year over the useful life of the property. Ez1040 To figure your deduction, first determine the adjusted basis, salvage value, and estimated useful life of your property. Ez1040 Subtract the salvage value, if any, from the adjusted basis. Ez1040 The balance is the total depreciation you can take over the useful life of the property. Ez1040 Divide the balance by the number of years in the useful life. Ez1040 This gives you your yearly depreciation deduction. Ez1040 Unless there is a big change in adjusted basis or useful life, this amount will stay the same throughout the time you depreciate the property. Ez1040 If, in the first year, you use the property for less than a full year, you must prorate your depreciation deduction for the number of months in use. Ez1040 Example. Ez1040 In April, Frank bought a patent for $5,100 that is not a section 197 intangible. Ez1040 He depreciates the patent under the straight line method, using a 17-year useful life and no salvage value. Ez1040 He divides the $5,100 basis by 17 years to get his $300 yearly depreciation deduction. Ez1040 He only used the patent for 9 months during the first year, so he multiplies $300 by 9/12 to get his deduction of $225 for the first year. Ez1040 Next year, Frank can deduct $300 for the full year. Ez1040 Patents and copyrights. Ez1040 If you can depreciate the cost of a patent or copyright, use the straight line method over the useful life. Ez1040 The useful life of a patent or copyright is the lesser of the life granted to it by the government or the remaining life when you acquire it. Ez1040 However, if the patent or copyright becomes valueless before the end of its useful life, you can deduct in that year any of its remaining cost or other basis. Ez1040 Computer software. Ez1040 Computer software is generally a section 197 intangible and cannot be depreciated if you acquired it in connection with the acquisition of assets constituting a business or a substantial part of a business. Ez1040 However, computer software is not a section 197 intangible and can be depreciated, even if acquired in connection with the acquisition of a business, if it meets all of the following tests. Ez1040 It is readily available for purchase by the general public. Ez1040 It is subject to a nonexclusive license. Ez1040 It has not been substantially modified. Ez1040 If the software meets the tests above, it may also qualify for the section 179 deduction and the special depreciation allowance, discussed later. Ez1040 If you can depreciate the cost of computer software, use the straight line method over a useful life of 36 months. Ez1040 Tax-exempt use property subject to a lease. Ez1040 The useful life of computer software leased under a lease agreement entered into after March 12, 2004, to a tax-exempt organization, governmental unit, or foreign person or entity (other than a partnership), cannot be less than 125% of the lease term. Ez1040 Certain created intangibles. Ez1040 You can amortize certain intangibles created on or after December 31, 2003, over a 15-year period using the straight line method and no salvage value, even though they have a useful life that cannot be estimated with reasonable accuracy. Ez1040 For example, amounts paid to acquire memberships or privileges of indefinite duration, such as a trade association membership, are eligible costs. Ez1040 The following are not eligible. Ez1040 Any intangible asset acquired from another person. Ez1040 Created financial interests. Ez1040 Any intangible asset that has a useful life that can be estimated with reasonable accuracy. Ez1040 Any intangible asset that has an amortization period or limited useful life that is specifically prescribed or prohibited by the Code, regulations, or other published IRS guidance. Ez1040 Any amount paid to facilitate an acquisition of a trade or business, a change in the capital structure of a business entity, and certain other transactions. Ez1040 You must also increase the 15-year safe harbor amortization period to a 25-year period for certain intangibles related to benefits arising from the provision, production, or improvement of real property. Ez1040 For this purpose, real property includes property that will remain attached to the real property for an indefinite period of time, such as roads, bridges, tunnels, pavements, and pollution control facilities. Ez1040 Income Forecast Method You can choose to use the income forecast method instead of the straight line method to depreciate the following depreciable intangibles. Ez1040 Motion picture films or video tapes. Ez1040 Sound recordings. Ez1040 Copyrights. Ez1040 Books. Ez1040 Patents. Ez1040 Under the income forecast method, each year's depreciation deduction is equal to the cost of the property, multiplied by a fraction. Ez1040 The numerator of the fraction is the current year's net income from the property, and the denominator is the total income anticipated from the property through the end of the 10th taxable year following the taxable year the property is placed in service. Ez1040 For more information, see section 167(g) of the Internal Revenue Code. Ez1040 Films, video tapes, and recordings. Ez1040 You cannot use MACRS for motion picture films, video tapes, and sound recordings. Ez1040 For this purpose, sound recordings are discs, tapes, or other phonorecordings resulting from the fixation of a series of sounds. Ez1040 You can depreciate this property using either the straight line method or the income forecast method. Ez1040 Participations and residuals. Ez1040 You can include participations and residuals in the adjusted basis of the property for purposes of computing your depreciation deduction under the income forecast method. Ez1040 The participations and residuals must relate to income to be derived from the property before the end of the 10th taxable year after the property is placed in service. Ez1040 For this purpose, participations and residuals are defined as costs which by contract vary with the amount of income earned in connection with the property. Ez1040 Instead of including these amounts in the adjusted basis of the property, you can deduct the costs in the taxable year that they are paid. Ez1040 Videocassettes. Ez1040 If you are in the business of renting videocassettes, you can depreciate only those videocassettes bought for rental. Ez1040 If the videocassette has a useful life of one year or less, you can currently deduct the cost as a business expense. Ez1040 Corporate or Partnership Property Acquired in a Nontaxable Transfer MACRS does not apply to property used before 1987 and transferred after 1986 to a corporation or partnership (except property the transferor placed in service after July 31, 1986, if MACRS was elected) to the extent its basis is carried over from the property's adjusted basis in the transferor's hands. Ez1040 You must continue to use the same depreciation method as the transferor and figure depreciation as if the transfer had not occurred. Ez1040 However, if MACRS would otherwise apply, you can use it to depreciate the part of the property's basis that exceeds the carried-over basis. Ez1040 The nontaxable transfers covered by this rule include the following. Ez1040 A distribution in complete liquidation of a subsidiary. Ez1040 A transfer to a corporation controlled by the transferor. Ez1040 An exchange of property solely for corporate stock or securities in a reorganization. Ez1040 A contribution of property to a partnership in exchange for a partnership interest. Ez1040 A partnership distribution of property to a partner. Ez1040 Election To Exclude Property From MACRS If you can properly depreciate any property under a method not based on a term of years, such as the unit-of-production method, you can elect to exclude that property from MACRS. Ez1040 You make the election by reporting your depreciation for the property on line 15 in Part II of Form 4562 and attaching a statement as described in the instructions for Form 4562. Ez1040 You must make this election by the return due date (including extensions) for the tax year you place your property in service. Ez1040 However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within six months of the due date of the return (excluding extensions). Ez1040 Attach the election to the amended return and write “Filed pursuant to section 301. Ez1040 9100-2” on the election statement. Ez1040 File the amended return at the same address you filed the original return. Ez1040 Use of standard mileage rate. Ez1040 If you use the standard mileage rate to figure your tax deduction for your business automobile, you are treated as having made an election to exclude the automobile from MACRS. Ez1040 See Publication 463 for a discussion of the standard mileage rate. Ez1040 What Is the Basis of Your Depreciable Property? To figure your depreciation deduction, you must determine the basis of your property. Ez1040 To determine basis, you need to know the cost or other basis of your property. Ez1040 Cost as Basis The basis of property you buy is its cost plus amounts you paid for items such as sales tax (see Exception , below), freight charges, and installation and testing fees. Ez1040 The cost includes the amount you pay in cash, debt obligations, other property, or services. Ez1040 Exception. Ez1040 You can elect to deduct state and local general sales taxes instead of state and local income taxes as an itemized deduction on Schedule A (Form 1040). Ez1040 If you make that choice, you cannot include those sales taxes as part of your cost basis. Ez1040 Assumed debt. Ez1040 If you buy property and assume (or buy subject to) an existing mortgage or other debt on the property, your basis includes the amount you pay for the property plus the amount of the assumed debt. Ez1040 Example. Ez1040 You make a $20,000 down payment on property and assume the seller's mortgage of $120,000. Ez1040 Your total cost is $140,000, the cash you paid plus the mortgage you assumed. Ez1040 Settlement costs. Ez1040 The basis of real property also includes certain fees and charges you pay in addition to the purchase price. Ez1040 These generally are shown on your settlement statement and include the following. Ez1040 Legal and recording fees. Ez1040 Abstract fees. Ez1040 Survey charges. Ez1040 Owner's title insurance. Ez1040 Amounts the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, charges for improvements or repairs, and sales commissions. Ez1040 For fees and charges you cannot include in the basis of property, see Real Property in Publication 551. Ez1040 Property you construct or build. Ez1040 If you construct, build, or otherwise produce property for use in your business, you may have to use the uniform capitalization rules to determine the basis of your property. Ez1040 For information about the uniform capitalization rules, see Publication 551 and the regulations under section 263A of the Internal Revenue Code. Ez1040 Other Basis Other basis usually refers to basis that is determined by the way you received the property. Ez1040 For example, your basis is other than cost if you acquired the property in exchange for other property, as payment for services you performed, as a gift, or as an inheritance. Ez1040 If you acquired property in this or some other way, see Publication 551 to determine your basis. Ez1040 Property changed from personal use. Ez1040 If you held property for personal use and later use it in your business or income-producing activity, your depreciable basis is the lesser of the following. Ez1040 The fair market value (FMV) of the property on the date of the change in use. Ez1040 Your original cost or other basis adjusted as follows. Ez1040 Increased by the cost of any permanent improvements or additions and other costs that must be added to basis. Ez1040 Decreased by any deductions you claimed for casualty and theft losses and other items that reduced your basis. Ez1040 Example. Ez1040 Several years ago, Nia paid $160,000 to have her home built on a lot that cost her $25,000. Ez1040 Before changing the property to rental use last year, she paid $20,000 for permanent improvements to the house and claimed a $2,000 casualty loss deduction for damage to the house. Ez1040 Land is not depreciable, so she includes only the cost of the house when figuring the basis for depreciation. Ez1040 Nia's adjusted basis in the house when she changed its use was $178,000 ($160,000 + $20,000 − $2,000). Ez1040 On the same date, her property had an FMV of $180,000, of which $15,000 was for the land and $165,000 was for the house. Ez1040 The basis for depreciation on the house is the FMV on the date of change ($165,000), because it is less than her adjusted basis ($178,000). Ez1040 Property acquired in a nontaxable transaction. Ez1040 Generally, if you receive property in a nontaxable exchange, the basis of the property you receive is the same as the adjusted basis of the property you gave up. Ez1040 Special rules apply in determining the basis and figuring the MACRS depreciation deduction and special depreciation allowance for property acquired in a like-kind exchange or involuntary conversion. Ez1040 See Like-kind exchanges and involuntary conversions. Ez1040 under How Much Can You Deduct? in chapter 3 and Figuring the Deduction for Property Acquired in a Nontaxable Exchange in chapter 4. Ez1040 There are also special rules for determining the basis of MACRS property involved in a like-kind exchange or involuntary conversion when the property is contained in a general asset account. Ez1040 See How Do You Use General Asset Accounts in chapter 4. Ez1040 Adjusted Basis To find your property's basis for depreciation, you may have to make certain adjustments (increases and decreases) to the basis of the property for events occurring between the time you acquired the property and the time you placed it in service. Ez1040 These events could include the following. Ez1040 Installing utility lines. Ez1040 Paying legal fees for perfecting the title. Ez1040 Settling zoning issues. Ez1040 Receiving rebates. Ez1040 Incurring a casualty or theft loss. Ez1040 For a discussion of adjustments to the basis of your property, see Adjusted Basis in Publication 551. Ez1040 If you depreciate your property under MACRS, you also may have to reduce your basis by certain deductions and credits with respect to the property. Ez1040 For more information, see What Is the Basis for Depreciation in chapter 4. Ez1040 . Ez1040 Basis adjustment for depreciation allowed or allowable. Ez1040 You must reduce the basis of property by the depreciation allowed or allowable, whichever is greater. Ez1040 Depreciation allowed is depreciation you actually deducted (from which you received a tax benefit). Ez1040 Depreciation allowable is depreciation you are entitled to deduct. Ez1040 If you do not claim depreciation you are entitled to deduct, you must still reduce the basis of the property by the full amount of depreciation allowable. Ez1040 If you deduct more depreciation than you should, you must reduce your basis by any amount deducted from which you received a tax benefit (the depreciation allowed). Ez1040 How Do You Treat Repairs and Improvements? If you improve depreciable property, you must treat the improvement as separate depreciable property. Ez1040 Improvement means an addition to or partial replacement of property that adds to its value, appreciably lengthens the time you can use it, or adapts it to a different use. Ez1040 You generally deduct the cost of repairing business property in the same way as any other business expense. Ez1040 However, if a repair or replacement increases the value of your property, makes it more useful, or lengthens its life, you must treat it as an improvement and depreciate it. Ez1040 Example. Ez1040 You repair a small section on one corner of the roof of a rental house. Ez1040 You deduct the cost of the repair as a rental expense. Ez1040 However, if you completely replace the roof, the new roof is an improvement because it increases the value and lengthens the life of the property. Ez1040 You depreciate the cost of the new roof. Ez1040 Improvements to rented property. Ez1040 You can depreciate permanent improvements you make to business property you rent from someone else. Ez1040 Do You Have To File Form 4562? Use Form 4562 to figure your deduction for depreciation and amortization. Ez1040 Attach Form 4562 to your tax return for the current tax year if you are claiming any of the following items. Ez1040 A section 179 deduction for the current year or a section 179 carryover from a prior year. Ez1040 See chapter 2 for information on the section 179 deduction. Ez1040 Depreciation for property placed in service during the current year. Ez1040 Depreciation on any vehicle or other listed property, regardless of when it was placed in service. Ez1040 See chapter 5 for information on listed property. Ez1040 A deduction for any vehicle if the deduction is reported on a form other than Schedule C (Form 1040) or Schedule C-EZ (Form 1040). Ez1040 Amortization of costs if the current year is the first year of the amortization period. Ez1040 Depreciation or amortization on any asset on a corporate income tax return (other than Form 1120S, U. Ez1040 S. Ez1040 Income Tax Return for an S Corporation) regardless of when it was placed in service. Ez1040 You must submit a separate Form 4562 for each business or activity on your return for which a Form 4562 is required. Ez1040 Table 1-1 presents an overview of the purpose of the various parts of Form 4562. Ez1040 Employee. Ez1040 Do not use Form 4562 if you are an employee and you deduct job-related vehicle expenses using either actual expenses (including depreciation) or the standard mileage rate. Ez1040 Instead, use either Form 2106 or Form 2106-EZ. Ez1040 Use Form 2106-EZ if you are claiming the standard mileage rate and you are not reimbursed by your employer for any expenses. Ez1040 How Do You Correct Depreciation Deductions? If you deducted an incorrect amount of depreciation in any year, you may be able to make a correction by filing an amended return for that year. Ez1040 See Filing an Amended Return , next. Ez1040 If you are not allowed to make the correction on an amended return, you may be able to change your accounting method to claim the correct amount of depreciation. Ez1040 See Changing Your Accounting Method , later. Ez1040 Filing an Amended Return You can file an amended return to correct the amount of depreciation claimed for any property in any of the following situations. Ez1040 You claimed the incorrect amount because of a mathematical error made in any year. Ez1040 You claimed the incorrect amount because of a posting error made in any year. Ez1040 You have not adopted a method of accounting for property placed in service by you in tax years ending after December 29, 2003. Ez1040 You claimed the incorrect amount on property placed in service by you in tax years ending before December 30, 2003. Ez1040 Adoption of accounting method defined. Ez1040 Generally, you adopt a method of accounting for depreciation by using a permissible method of determining depreciation when you file your first tax return, or by using the same impermissible method of determining depreciation in two or more consecutively filed tax returns. Ez1040 For an exception to this 2-year rule, see Revenue Procedure 2011-14 on page 330 of the Internal Revenue Bulletin 2011-4, available at www. Ez1040 irs. Ez1040 gov/pub/irs-irbs/irb11-04. Ez1040 pdf. Ez1040 (Note. Ez1040 Revenue Procedure 2011-14 is clarified and modified by Revenue Procedure 2012-20. Ez1040 For more information, see Revenue Procedure 2012-20 on page 700 of the Internal Revenue Bulletin 2012-14, available at www. Ez1040 irs. Ez1040 gov/pub/irs-irbs/irb12-14. Ez1040 pdf. Ez1040 ) For a safe harbor method of accounting to treat rotable spare parts as depreciable assets and procedures to obtain automatic consent to change to the safe harbor method of accounting, see Revenue Procedure 2007-48 on page 110 of Internal Revenue Bulletin 2007-29, available at www. Ez1040 irs. Ez1040 gov/pub/irs-irbs/irb07-29. Ez1040 pdf. Ez1040 When to file. Ez1040 If an amended return is allowed, you must file it by the later of the following. Ez1040 3 years from the date you filed your original return for the year in which you did not deduct the correct amount. Ez1040 A return filed before an unextended due date is considered filed on that due date. Ez1040 2 years from the time you paid your tax for that year. Ez1040 Changing Your Accounting Method Generally, you must get IRS approval to change your method of accounting. Ez1040 You generally must file Form 3115, Application for Change in Accounting Method, to request a change in your method of accounting for depreciation. Ez1040 The following are examples of a change in method of accounting for depreciation. Ez1040 A change from an impermissible method of determining depreciation for depreciable property, if the impermissible method was used in two or more consecutively filed tax returns. Ez1040 A change in the treatment of an asset from nondepreciable to depreciable or vice versa. Ez1040 A change in the depreciation method, period of recovery, or convention of a depreciable asset. Ez1040 A change from not claiming to claiming the special depreciation allowance if you did not make the election to not claim any special allowance. Ez1040 A change from claiming a 50% special depreciation allowance to claiming a 30% special depreciation allowance for qualified property (including property that is included in a class of property for which you elected a 30% special allowance instead of a 50% special allowance). Ez1040 Changes in depreciation that are not a change in method of accounting (and may only be made on an amended return) include the following. Ez1040 An adjustment in the useful life of a depreciable asset for which depreciation is determined under section 167. Ez1040 A change in use of an asset in the hands of the same taxpayer. Ez1040 Making a late depreciation election or revoking a timely valid depreciation election (including the election not to deduct the special depreciation allowance). Ez1040 If you elected not to claim any special allowance, a change from not claiming to claiming the special allowance is a revocation of the election and is not an accounting method change. Ez1040 Generally, you must get IRS approval to make a late depreciation election or revoke a depreciation election. Ez1040 You must submit a request for a letter ruling to make a late election or revoke an election. Ez1040 Any change in the placed in service date of a depreciable asset. Ez1040 See section 1. Ez1040 446-1(e)(2)(ii)(d) of the regulations for more information and examples. Ez1040 IRS approval. Ez1040 In some instances, you may be able to get approval from the IRS to change your method of accounting for depreciation under the automatic change request procedures generally covered in Revenue Procedure 2011-14. Ez1040 If you do not qualify to use the automatic procedures to get approval, you must use the advance consent request procedures generally covered in Revenue Procedure 97-27, 1997-1 C. Ez1040 B. Ez1040 680. Ez1040 Also see the Instructions for Form 3115 for more information on getting approval, including lists of scope limitations and automatic accounting method changes. Ez1040 Additional guidance. Ez1040 For additional guidance and special procedures for changing your accounting method, automatic change procedures, amending your return, and filing Form 3115, see Revenue Procedure 2011-14 on page 330 of the Internal Revenue Bulletin 2011-4, available at www. Ez1040 irs. Ez1040 gov/pub/irs-irbs/irb11-04. Ez1040 pdf. Ez1040 (Note. Ez1040 Revenue Procedure 2011-14 is clarified and modified by Revenue Procedure 2012-20. Ez1040 For more information, see Revenue Procedure 2012-20 on page 700 of the Internal Revenue Bulletin 2012-14, available at www. Ez1040 irs. Ez1040 gov/pub/irs-irbs/irb12-14. Ez1040 pdf. Ez1040 ) For a safe harbor method of accounting to treat rotable spare parts as depreciable assets, see Revenue Procedure 2007-48 on page 110 of Internal Revenue Bulletin 2007-29, available at www. Ez1040 irs. Ez1040 gov/pub/irs-irbs/irb07-29. Ez1040 pdf. Ez1040 Table 1-1. Ez1040 Purpose of Form 4562 This table describes the purpose of the various parts of Form 4562. Ez1040 For more information, see Form 4562 and its instructions. Ez1040 Part Purpose I • Electing the section 179 deduction • Figuring the maximum section 179 deduction for the current year • Figuring any section 179 deduction carryover to the next year II • Reporting the special depreciation allowance for property (other than listed property) placed in service during the tax year • Reporting depreciation deductions on property being depreciated under any method other than Modified Accelerated Cost Recovery System (MACRS) III • Reporting MACRS depreciation deductions for property placed in service before this year • Reporting MACRS depreciation deductions for property (other than listed property) placed in service during the current year IV • Summarizing other parts V • Reporting the special depreciation allowance for automobiles and other listed property • Reporting MACRS depreciation on automobiles and other listed property • Reporting the section 179 cost elected for automobiles and other listed property • Reporting information on the use of automobiles and other transportation vehicles VI • Reporting amortization deductions Section 481(a) adjustment. Ez1040 If you file Form 3115 and change from an impermissible method to a permissible method of accounting for depreciation, you can make a section 481(a) adjustment for any unclaimed or excess amount of allowable depreciation. Ez1040 The adjustment is the difference between the total depreciation actually deducted for the property and the total amount allowable prior to the year of change. Ez1040 If no depreciation was deducted, the adjustment is the total depreciation allowable prior to the year of change. Ez1040 A negative section 481(a) adjustment results in a decrease in taxable income. Ez1040 It is taken into account in the year of change and is reported on your business tax returns as “other expenses. Ez1040 ” A positive section 481(a) adjustment results in an increase in taxable income. Ez1040 It is generally taken into account over 4 tax years and is reported on your business tax returns as “other income. Ez1040 ” However, you can elect to use a one-year adjustment period and report the adjustment in the year of change if the total adjustment is less than $25,000. Ez1040 Make the election by completing the appropriate line on Form 3115. Ez1040 If you file a Form 3115 and change from one permissible method to another permissible method, the section 481(a) adjustment is zero. Ez1040 Prev Up Next Home More Online Publications