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File An Amended Tax Return For 2010

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File An Amended Tax Return For 2010

File an amended tax return for 2010 Depreciation Table of Contents Introduction Special Depreciation AllowanceQualified Property Election Not To Claim the Allowance Rules for Returns Filed Before June 1, 2002 Passenger Automobiles New York Liberty Zone BenefitsSpecial Liberty Zone Depreciation Allowance Increased Section 179 Deduction Liberty Zone Leasehold Improvement Property If you depreciate business property that you acquired and placed in service after September 10, 2001, new law contains provisions that may affect your depreciation deduction for that property. File an amended tax return for 2010 Publication 946, How To Depreciate Property, contains information on depreciation. File an amended tax return for 2010 However, Publication 946 does not contain the new provisions because it was printed before the law was enacted. File an amended tax return for 2010 The new provisions are in the Supplement to Publication 946, which is reprinted below. File an amended tax return for 2010 Supplement to Publication 946 How To Depreciate Property   Introduction After Publication 946 was printed, the Job Creation and Worker Assistance Act of 2002 was signed into law by the President. File an amended tax return for 2010 The new law made several changes in the tax rules explained in the publication. File an amended tax return for 2010 Some of the changes apply to property placed in service during 2001. File an amended tax return for 2010 This supplemental publication describes those changes and explains what you should do if you are affected by them. File an amended tax return for 2010 The situations and examples in Publication 946 do not reflect any of the changes made by the Job Creation and Worker Assistance Act of 2002. File an amended tax return for 2010 The new law contains the following provisions. File an amended tax return for 2010 30% depreciation deductions (special depreciation allowance and special New York Liberty Zone (Liberty Zone) depreciation allowance) for the year qualified property is placed in service after September 10, 2001. File an amended tax return for 2010 An increased dollar limit on the section 179 deduction for qualified Liberty Zone property purchased after September 10, 2001. File an amended tax return for 2010 A shorter recovery period for qualified Liberty Zone leasehold improvement property placed in service after September 10, 2001. File an amended tax return for 2010 An increase in the maximum depreciation deduction for 2001 for a qualified passenger automobile placed in service after September 10, 2001. File an amended tax return for 2010 If you believe you qualify for an increased deduction under any of these new rules, you must file the revised 2001 Form 4562 (dated March 2002) for 2001 calendar or fiscal years and 2000 fiscal years ending after September 10, 2001. File an amended tax return for 2010 If you have already filed a tax return, this supplemental publication explains how to claim these benefits and how to elect not to claim the special depreciation allowance or special Liberty Zone depreciation allowance. File an amended tax return for 2010 See Table 2 at the end of the supplement for an overview of the rules that apply if you filed your return before June 1, 2002. File an amended tax return for 2010 Special Depreciation Allowance You can take a special depreciation allowance for qualified property you place in service after September 10, 2001. File an amended tax return for 2010 The allowance is an additional deduction of 30% of the property's depreciable basis. File an amended tax return for 2010 To figure the depreciable basis, you must first multiply the property's cost or other basis by the percentage of business/investment use and then reduce that amount by any section 179 deduction and certain other deductions and credits for the property. File an amended tax return for 2010 See What Is the Basis for Depreciation? on page 23 in Publication 946 for more information on figuring depreciable basis. File an amended tax return for 2010 The allowance is deductible for both regular tax and alternative minimum tax (AMT) purposes. File an amended tax return for 2010 There is no AMT adjustment required for any depreciation figured on the remaining basis of the property. File an amended tax return for 2010 In the year you claim the allowance (generally the year you place the property in service), you must reduce the depreciable basis of the property by the allowance before figuring your regular depreciation deduction. File an amended tax return for 2010 Example 1. File an amended tax return for 2010 On November 1, 2001, you bought and placed in service in your business qualified property that cost $100,000. File an amended tax return for 2010 You did not elect to claim a section 179 deduction. File an amended tax return for 2010 You can deduct 30% of the cost ($30,000) as a special depreciation allowance for 2001. File an amended tax return for 2010 You use the remaining $70,000 of cost to figure your regular depreciation deduction for 2001 and later years. File an amended tax return for 2010 Example 2. File an amended tax return for 2010 The facts are the same as in Example 1, except that you choose to deduct $24,000 of the property's cost as a section 179 deduction. File an amended tax return for 2010 You use the remaining $76,000 of cost to figure your special depreciation allowance of $22,800 ($76,000 × 30%). File an amended tax return for 2010 You use the remaining $53,200 of cost to figure your regular depreciation deduction for 2001 and later years. File an amended tax return for 2010 Qualified Property To qualify for the special depreciation allowance, your property must meet the following requirements. File an amended tax return for 2010 It is new property of one of the following types. File an amended tax return for 2010 Property depreciated under the modified accelerated cost recovery system (MACRS) with a recovery period of 20 years or less. File an amended tax return for 2010 See Can You Use MACRS To Depreciate Your Property and Which Recovery Period Applies? on pages 7 and 23, respectively, in Publication 946. File an amended tax return for 2010 Water utility property. File an amended tax return for 2010 See 25-year property on page 22 in Publication 946. File an amended tax return for 2010 Computer software that is not a section 197 intangible as described in Computer software on page 5 in Publication 946. File an amended tax return for 2010 (The cost of some computer software is treated as part of the cost of hardware and is depreciated under MACRS. File an amended tax return for 2010 ) Qualified leasehold improvement property (defined later). File an amended tax return for 2010 It meets the following tests (explained later under Tests To Be Met). File an amended tax return for 2010 Acquisition date test. File an amended tax return for 2010 Placed in service date test. File an amended tax return for 2010 Original use test. File an amended tax return for 2010 It is not excepted property (explained later under Excepted Property). File an amended tax return for 2010 Qualified leasehold improvement property. File an amended tax return for 2010    Generally, this is any improvement to an interior part of a building that is nonresidential real property, provided all of the following requirements are met. File an amended tax return for 2010 The improvement is made under or pursuant to a lease by the lessee (or any sublessee) or the lessor of that part of the building. File an amended tax return for 2010 That part of the building is to be occupied exclusively by the lessee (or any sublessee) of that part. File an amended tax return for 2010 The improvement is placed in service more than 3 years after the date the building was first placed in service. File an amended tax return for 2010   However, a qualified leasehold improvement does not include any improvement for which the expenditure is attributable to any of the following. File an amended tax return for 2010 The enlargement of the building. File an amended tax return for 2010 Any elevator or escalator. File an amended tax return for 2010 Any structural component benefiting a common area. File an amended tax return for 2010 The internal structural framework of the building. File an amended tax return for 2010   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. File an amended tax return for 2010 However, a binding commitment between related persons is not treated as a lease. File an amended tax return for 2010 Related persons. File an amended tax return for 2010   For this purpose, the following are related persons. File an amended tax return for 2010 Members of an affiliated group. File an amended tax return for 2010 The persons listed in items (1) through (9) under Related persons on page 8 of Publication 946 (except that “80% or more” should be substituted for “more than 10%” each place it appears). File an amended tax return for 2010 An executor and a beneficiary of the same estate. File an amended tax return for 2010 Tests To Be Met To qualify for the special depreciation allowance, the property must meet all of the following tests. File an amended tax return for 2010 Acquisition date test. File an amended tax return for 2010    Generally, you must have acquired the property either: After September 10, 2001, and before September 11, 2004, but only if no written binding contract for the acquisition was in effect before September 11, 2001, or Pursuant to a written binding contract entered into after September 10, 2001, and before September 11, 2004. File an amended tax return for 2010   Property you manufacture, construct, or produce for your own use meets this test if you began the manufacture, construction, or production of the property after September 10, 2001, and before September 11, 2004. File an amended tax return for 2010 Placed in service date test. File an amended tax return for 2010   Generally, the property must be placed in service for use in your trade or business or for the production of income after September 10, 2001, and before January 1, 2005. File an amended tax return for 2010   If you sold property you placed in service after September 10, 2001, and you leased it back within 3 months after the property was originally placed in service, the property is treated as placed in service no earlier than the date it is used under the leaseback. File an amended tax return for 2010 Original use test. File an amended tax return for 2010   The original use of the property must have begun with you after September 10, 2001. File an amended tax return for 2010 “Original use” means the first use to which the property is put, whether or not by you. File an amended tax return for 2010 Additional capital expenditures you incurred after September 10, 2001, to recondition or rebuild your property meet the original use test. File an amended tax return for 2010 Excepted Property The following property does not qualify for the special depreciation allowance. File an amended tax return for 2010 Property used by any person before September 11, 2001. File an amended tax return for 2010 Property required to be depreciated using ADS. File an amended tax return for 2010 This includes listed property used 50% or less in a qualified business use. File an amended tax return for 2010 Qualified New York Liberty Zone leasehold improvement property (defined next). File an amended tax return for 2010 Qualified New York Liberty Zone leasehold improvement property. File an amended tax return for 2010   This is any qualified leasehold improvement property (as defined earlier) if all of the following requirements are met. File an amended tax return for 2010 The improvement is to a building located in the New York Liberty Zone (defined later under New York Liberty Zone Benefits). File an amended tax return for 2010 The improvement is placed in service after September 10, 2001, and before January 1, 2007. File an amended tax return for 2010 No written binding contract for the improvement was in effect before September 11, 2001. File an amended tax return for 2010 Election Not To Claim the Allowance You can elect not to claim the special depreciation allowance for qualified property. File an amended tax return for 2010 If you make this election for any property, it applies to all property in the same property class placed in service during the year. File an amended tax return for 2010 To make this election, attach a statement to your return indicating you elect not to claim the allowance and the class of property for which you are making the election. File an amended tax return for 2010 When to make election. File an amended tax return for 2010   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. File an amended tax return for 2010   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). File an amended tax return for 2010 Attach the election statement to the amended return. File an amended tax return for 2010 At the top of the election statement, write “Filed pursuant to section 301. File an amended tax return for 2010 9100–2. File an amended tax return for 2010 ” Revoking an election. File an amended tax return for 2010   Once you elect not to deduct the special depreciation allowance for a class of property, you cannot revoke the election without IRS consent. File an amended tax return for 2010 A request to revoke the election is subject to a user fee. File an amended tax return for 2010 Rules for Returns Filed Before June 1, 2002 The following rules apply if you placed qualified property in service after September 10, 2001, and filed your return before June 1, 2002. File an amended tax return for 2010 The rules apply to returns for the following years. File an amended tax return for 2010 2000 fiscal years that end after September 10, 2001. File an amended tax return for 2010 2001 calendar and fiscal years. File an amended tax return for 2010 Claiming the allowance. File an amended tax return for 2010   If you did not claim the allowance on your return and did not make the election not to claim the allowance, you can do either of the following to claim the allowance. File an amended tax return for 2010 File an amended return by the due date (not including extensions) of your return for the year following the year the property was placed in service. File an amended tax return for 2010 Write “Filed Pursuant to Rev. File an amended tax return for 2010 Proc. File an amended tax return for 2010 2002–33” at the top of the amended return. File an amended tax return for 2010 File Form 3115, Application for Change in Accounting Method, with your return for the year following the year the property was placed in service. File an amended tax return for 2010 Your return must be filed by the due date (including extensions). File an amended tax return for 2010 Write “Automatic Change Filed Under Rev. File an amended tax return for 2010 Proc. File an amended tax return for 2010 2002–33” on the appropriate line of Form 3115. File an amended tax return for 2010 You must also file a copy (with signature) of the completed Form 3115 with the IRS National Office no later than when you file the original with your return. File an amended tax return for 2010 For more information about filing Form 3115, including the address to send it to, see Revenue Procedure 2002–9, Revenue Procedure 2002–19, and Revenue Procedure 2002–33. File an amended tax return for 2010 Example 1. File an amended tax return for 2010 You are an individual and you use the calendar year. File an amended tax return for 2010 You placed qualified property in service for your business in December 2001. File an amended tax return for 2010 You filed your 2001 income tax return before April 15, 2002. File an amended tax return for 2010 You did not claim the special depreciation allowance for the property and did not make the election not to claim the allowance. File an amended tax return for 2010 You can claim the special allowance by filing an amended 2001 return by April 15, 2003, with “Filed Pursuant to Rev. File an amended tax return for 2010 Proc. File an amended tax return for 2010 2002–33” at the top of the amended return. File an amended tax return for 2010 You must file an amended return by April 15, 2003, even if you get an extension of time to file your 2002 tax return. File an amended tax return for 2010 Example 2. File an amended tax return for 2010 The facts concerning your 2001 return are the same as in Example 1. File an amended tax return for 2010 In addition, you got an automatic 4-month extension of time (to August 15, 2003) to file your 2002 return. File an amended tax return for 2010 You can claim the special allowance by filing a Form 3115 (with “Filed Pursuant to Rev. File an amended tax return for 2010 Proc. File an amended tax return for 2010 2002–33” on the appropriate line) with your 2002 return by August 15, 2003. File an amended tax return for 2010 You must also file a copy of this Form 3115 with the IRS National Office no later than when you file your 2002 return. File an amended tax return for 2010 Electing not to claim the allowance. File an amended tax return for 2010   Generally, you have elected not to claim the special depreciation allowance for a class of property if you: Filed your return timely (including extensions) for the year you placed qualified property in service and indicated on a statement with the return that you are not claiming the allowance, or Filed your return timely and filed an amended return within 6 months of the due date of the original return (not including extensions) and indicated on a statement with the amended return that you are not claiming the allowance. File an amended tax return for 2010 The statement must indicate that you are not deducting the special depreciation allowance and the class of property to which the election applies. File an amended tax return for 2010 The statement can be either attached to or written on the return. File an amended tax return for 2010 You can, for example, write “not deducting 30%” on Form 4562. File an amended tax return for 2010 Deemed election. File an amended tax return for 2010   If you have not followed either of the procedures described above to elect not to claim the allowance, you may still be treated as making the election. File an amended tax return for 2010 You will be treated as making the election if you meet both of the following conditions. File an amended tax return for 2010 You filed your return for the year you placed the property in service and claimed depreciation, but not the special allowance, for any class of property. File an amended tax return for 2010 You do not file an amended return or a Form 3115 within the time prescribed for claiming the special allowance. File an amended tax return for 2010 See Claiming the allowance, earlier. File an amended tax return for 2010 Passenger Automobiles The limit on your depreciation deduction (including any section 179 deduction) for any passenger automobile that is qualified property (defined earlier) placed in service after September 10, 2001, and for which you claim the special depreciation allowance is increased. File an amended tax return for 2010 Generally, the limit is increased from $3,060 to $7,660. File an amended tax return for 2010 However, if the automobile is a qualified electric car, the limit is increased from $9,280 to $23,080 ($22,980 if placed in service in 2002). File an amended tax return for 2010 Table 1 shows the maximum deduction amounts for 2001. File an amended tax return for 2010 Table 1. File an amended tax return for 2010 Maximum Deduction for 2001 Qualified Vehicle Placed in Service Before Sept. File an amended tax return for 2010 11 Placed in Service After Sept. File an amended tax return for 2010 10 Passenger automobile $3,060 $7,660 Electric car 9,280 23,080 1 1$22,980 if you place an electric car in service in 2002. File an amended tax return for 2010 Election not to claim the allowance. File an amended tax return for 2010   The increased maximum depreciation deduction does not apply if you elected not to claim the special depreciation allowance as explained earlier under Election Not To Claim the Allowance and Rules for Returns Filed Before June 1, 2002. File an amended tax return for 2010 New York Liberty Zone Benefits Several benefits are available for property you place in service in the New York Liberty Zone (Liberty Zone). File an amended tax return for 2010 They include a special depreciation allowance for the year you place the property in service, an increased section 179 deduction, and the classification of certain leasehold improvement property as 5-year property. File an amended tax return for 2010 Area defined. File an amended tax return for 2010   The New York Liberty Zone is the area located on or south of Canal Street, East Broadway (east of its intersection with Canal Street), or Grand Street (east of its intersection with East Broadway) in the Borough of Manhattan in the City of New York, New York. File an amended tax return for 2010 Special Liberty Zone Depreciation Allowance You can take a special depreciation allowance for qualified Liberty Zone property you place in service after September 10, 2001. File an amended tax return for 2010 The allowance is an additional deduction of 30% of the property's depreciable basis. File an amended tax return for 2010 To figure the depreciable basis, you must first multiply the property's cost or other basis by the percentage of business/investment use and then reduce that amount by any section 179 deduction and certain other deductions and credits for the property. File an amended tax return for 2010 See What Is the Basis for Depreciation? on page 23 in Publication 946 for more information on figuring depreciable basis. File an amended tax return for 2010 The allowance is deductible for both regular tax and alternative minimum tax (AMT) purposes. File an amended tax return for 2010 There is no AMT adjustment required for any depreciation figured on the remaining basis of the property. File an amended tax return for 2010 In the year you claim the allowance (generally the year you place the property in service), you must reduce the depreciable basis of the property by the allowance before figuring your regular depreciation deduction. File an amended tax return for 2010 You cannot claim the special Liberty Zone depreciation allowance for property eligible for the special depreciation allowance explained earlier in Qualified Property under Special Depreciation Allowance. File an amended tax return for 2010 Qualified property is eligible for only one special depreciation allowance. File an amended tax return for 2010 Example 1. File an amended tax return for 2010 On November 1, 2001, you bought and placed in service in your business, which is in the Liberty Zone, qualified Liberty Zone property that cost $200,000. File an amended tax return for 2010 You did not elect to claim a section 179 deduction. File an amended tax return for 2010 You can deduct 30% of the cost ($60,000) as a special Liberty Zone depreciation allowance for 2001. File an amended tax return for 2010 You use the remaining $140,000 of cost to figure your regular depreciation deduction for 2001 and later years. File an amended tax return for 2010 Example 2. File an amended tax return for 2010 The facts are the same as in Example 1, except that you choose to deduct $59,000 of the property's cost as a section 179 deduction. File an amended tax return for 2010 (See Increased Section 179 Deduction, later, for information concerning how this section 179 deduction amount is figured). File an amended tax return for 2010 You use the remaining $141,000 of cost to figure your special Liberty Zone depreciation allowance of $42,300 ($141,000 × 30%). File an amended tax return for 2010 You use the remaining $98,700 of cost to figure your regular depreciation deduction for 2001 and later years. File an amended tax return for 2010 Qualified Liberty Zone Property For a 2001 calendar or fiscal year and a 2000 fiscal year that ends after September 10, 2001, property qualifies for the special Liberty Zone depreciation allowance if it meets the following requirements. File an amended tax return for 2010 It is one of the following types of property. File an amended tax return for 2010 Used property depreciated under MACRS with a recovery period of 20 years or less. File an amended tax return for 2010 See Can You Use MACRS To Depreciate Your Property and Which Recovery Period Applies? on pages 7 and 23, respectively, in Publication 946. File an amended tax return for 2010 Used water utility property. File an amended tax return for 2010 See 25-year property on page 22 in Publication 946. File an amended tax return for 2010 Used computer software that is not a section 197 intangible as described in Computer software on page 5 in Publication 946. File an amended tax return for 2010 (The cost of some computer software is treated as part of the cost of hardware and is depreciated under MACRS. File an amended tax return for 2010 ) Certain nonresidential real property and residential rental property (defined later). File an amended tax return for 2010 It meets the following tests (explained later under Tests to be met). File an amended tax return for 2010 Acquisition date test. File an amended tax return for 2010 Placed in service date test. File an amended tax return for 2010 Substantial use test. File an amended tax return for 2010 Original use test. File an amended tax return for 2010 It is not excepted property (explained later under Excepted property). File an amended tax return for 2010 Nonresidential real property and residential rental property. File an amended tax return for 2010   This property is qualifying property only to the extent it rehabilitates real property damaged, or replaces real property destroyed or condemned, as a result of the terrorist attack of September 11, 2001. File an amended tax return for 2010 Property is treated as replacing destroyed or condemned property if, as part of an integrated plan, such property replaces real property included in a continuous area that includes real property destroyed or condemned. File an amended tax return for 2010   For these purposes, real property is considered destroyed (or condemned) only if an entire building or structure was destroyed (or condemned) as a result of the terrorist attack. File an amended tax return for 2010 Otherwise, the property is considered damaged real property. File an amended tax return for 2010 For example, if certain structural components of a building (such as walls, floors, or plumbing fixtures) are damaged or destroyed as a result of the terrorist attack, but the building is not destroyed (or condemned), then only costs related to replacing the damaged or destroyed structural components qualify for the special Liberty Zone depreciation allowance. File an amended tax return for 2010 Tests to be met. File an amended tax return for 2010   To qualify for the special Liberty Zone depreciation allowance, your property must meet all of the following tests. File an amended tax return for 2010 Acquisition date test. File an amended tax return for 2010   You must have acquired the property by purchase after September 10, 2001, and there must not have been a binding written contract for the acquisition in effect before September 11, 2001. File an amended tax return for 2010   For information on the acquisition of property by purchase, see Property Acquired by Purchase on page 15 of Publication 946. File an amended tax return for 2010   Property you manufacture, construct, or produce for your own use meets this test if you began the manufacture, construction, or production of the property after September 10, 2001. File an amended tax return for 2010 Placed in service date test. File an amended tax return for 2010   Generally, the property must be placed in service for use in your trade or business or for the production of income before January 1, 2007 (January 1, 2010, in the case of qualifying nonresidential real property and residential rental property). File an amended tax return for 2010   If you sold property you placed in service after September 10, 2001, and you leased it back within 3 months after the property was originally placed in service, the property is treated as placed in service no earlier than the date it is used under the leaseback. File an amended tax return for 2010 Substantial use test. File an amended tax return for 2010   Substantially all use of the property must be in the Liberty Zone and in the active conduct of your trade or business in the Liberty Zone. File an amended tax return for 2010 Original use test. File an amended tax return for 2010   The original use of the property in the Liberty Zone must have begun with you after September 10, 2001. File an amended tax return for 2010   Used property can be qualified Liberty Zone property if it has not previously been used within the Liberty Zone. File an amended tax return for 2010 Also, additional capital expenditures you incurred after September 10, 2001, to recondition or rebuild your property meet the original use test if the original use of the property in the Liberty Zone began with you. File an amended tax return for 2010 Excepted property. File an amended tax return for 2010   The following property does not qualify for the special Liberty Zone depreciation allowance. File an amended tax return for 2010 Property eligible for the special depreciation allowance explained earlier in Qualified Property under Special Depreciation Allowance. File an amended tax return for 2010 Property required to be depreciated using ADS. File an amended tax return for 2010 This includes listed property used 50% or less in a qualified business use. File an amended tax return for 2010 Qualified New York Liberty Zone leasehold improvement property (defined earlier in Excepted Property under Special Depreciation Allowance). File an amended tax return for 2010 Example. File an amended tax return for 2010 In December 2001, you bought and placed in service in your business in the Liberty Zone the following property. File an amended tax return for 2010 New office furniture with a MACRS recovery period of 7 years. File an amended tax return for 2010 A used computer with a MACRS recovery period of 5 years. File an amended tax return for 2010 The computer had not previously been used within the Liberty Zone. File an amended tax return for 2010 Because the office furniture is new property, it qualifies for the special depreciation allowance, but not the special Liberty Zone depreciation allowance. File an amended tax return for 2010 Because the computer is used property that had not previously been used in the Liberty Zone, it qualifies for the special Liberty Zone depreciation allowance, but not the special depreciation allowance. File an amended tax return for 2010 Election Not To Claim the Liberty Zone Allowance You can elect not to claim the special Liberty Zone depreciation allowance for qualified property. File an amended tax return for 2010 If you make this election for any property, it applies to all property in the same property class placed in service during the year. File an amended tax return for 2010 To make this election, attach a statement to your return indicating you elect not to claim the allowance and the class of property for which you are making the election. File an amended tax return for 2010 When to make the election. File an amended tax return for 2010   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. File an amended tax return for 2010   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). File an amended tax return for 2010 Attach the election statement to the amended return. File an amended tax return for 2010 At the top of the election statement, write “Filed pursuant to section 301. File an amended tax return for 2010 9100–2. File an amended tax return for 2010 ” Revoking an election. File an amended tax return for 2010   Once you elect not to deduct the special Liberty Zone depreciation allowance for a class of property, you cannot revoke the election without IRS consent. File an amended tax return for 2010 A request to revoke the election is subject to a user fee. File an amended tax return for 2010 Returns filed before June 1, 2002. File an amended tax return for 2010   The rules that apply to the special depreciation allowance discussed earlier in Rules for Returns Filed Before June 1, 2002 under Special Depreciation Allowance also apply to the special Liberty Zone depreciation allowance. File an amended tax return for 2010 Increased Section 179 Deduction Under section 179 of the Internal Revenue Code, you can choose to recover all or part of the cost of certain qualifying property, up to a limit, by deducting it in the year you place the property in service. File an amended tax return for 2010 For tax years beginning in 2000, that limit was $20,000. File an amended tax return for 2010 For tax years beginning in 2001 and 2002, that limit is generally $24,000. File an amended tax return for 2010 If the cost of qualifying section 179 property placed in service in a year is over $200,000, you must reduce the dollar limit (but not below zero) by the amount of the cost over $200,000. File an amended tax return for 2010 Increased Dollar Limit The dollar limit on the section 179 deduction is increased for certain property placed in service in the Liberty Zone. File an amended tax return for 2010 The increase is the smaller of the following amounts. File an amended tax return for 2010 $35,000. File an amended tax return for 2010 The cost of section 179 property that is qualified Liberty Zone property placed in service during the year. File an amended tax return for 2010 If you use the revised 2001 Form 4562 (dated March 2002) for a tax year beginning in 2000, you must reduce the section 179 dollar limit to $20,000 before adding the additional amount for qualified property. File an amended tax return for 2010 Qualified property. File an amended tax return for 2010   To qualify for the increased section 179 deduction, your property must be section 179 property that is either: Qualified Liberty Zone property, or Property that would be qualified Liberty Zone property except that it is eligible for the special depreciation allowance. File an amended tax return for 2010 Qualified Liberty Zone property is explained earlier in Qualified Liberty Zone Property under Special Liberty Zone Depreciation Allowance. File an amended tax return for 2010 Property eligible for the special depreciation allowance is explained earlier in Qualified Property under Special Depreciation Allowance. File an amended tax return for 2010 For information on the requirements that must be met for property to qualify for the section 179 deduction, see What Property Qualifies? on page 14 of Publication 946. File an amended tax return for 2010 Example 1. File an amended tax return for 2010 In 2002, you place in service in your business, which is in the Liberty Zone, qualified property (defined earlier) costing $25,000. File an amended tax return for 2010 Because this cost is less than $35,000, the dollar limit on the section 179 deduction is increased by $25,000 to $49,000 ($24,000 + $25,000). File an amended tax return for 2010 Example 2. File an amended tax return for 2010 In 2002, you place in service in your business, which is in the Liberty Zone, qualified property (defined earlier) costing $75,000. File an amended tax return for 2010 Because $35,000 is less than the cost of the property you place in service, the dollar limit on the section 179 deduction you can claim is increased by $35,000 to $59,000 ($24,000 + $35,000). File an amended tax return for 2010 Reduced Dollar Limit Generally, you must reduce the dollar limit for a year by the cost of qualifying section 179 property placed in service in the year that is more than $200,000. File an amended tax return for 2010 However, if the cost of your Liberty Zone property exceeds $200,000, you take into account only 50% (instead of 100%) of the cost of qualified property placed in service in a year. File an amended tax return for 2010 Example. File an amended tax return for 2010 In 2002, you place in service in your business, which is in the Liberty Zone, qualified property costing $460,000. File an amended tax return for 2010 Your increased dollar limit is $59,000 ($35,000 + $24,000). File an amended tax return for 2010 Because 50% of the cost of the property you place in service ($230,000) is $30,000 more than $200,000, you must reduce your $59,000 dollar limit to $29,000 ($59,000 - $30,000). File an amended tax return for 2010 Recapture Rules Rules similar to those explained on page 20 of Publication 946 under When Must You Recapture the Deduction? apply with respect to any qualified property you stop using in the Liberty Zone. File an amended tax return for 2010 Returns Filed Before June 1, 2002 If you filed a return before June 1, 2002, and did not deduct the increased section 179 amount for qualified property placed in service after September 10, 2001, you can deduct the increased amount by filing an amended return by the due date (not including extensions) of the return for the year after the year the property was placed in service. File an amended tax return for 2010 This rule applies to returns for the following years. File an amended tax return for 2010 2000 fiscal years that end after September 10, 2001. File an amended tax return for 2010 2001 calendar and fiscal years. File an amended tax return for 2010 On the amended return, write “Filed Pursuant to Rev. File an amended tax return for 2010 Proc. File an amended tax return for 2010 2002–33. File an amended tax return for 2010 ” Liberty Zone Leasehold Improvement Property Qualified Liberty Zone leasehold improvement property (described earlier in Qualified Property under Special Depreciation Allowance) is 5-year property. File an amended tax return for 2010 This means that it is depreciated over a recovery period of 5 years. File an amended tax return for 2010 For information about recovery periods, see Which Recovery Period Applies? on page 23 of Publication 946. File an amended tax return for 2010 The straight-line method must be used with respect to qualified Liberty Zone leasehold improvement property. File an amended tax return for 2010 Under ADS, the recovery period for qualified Liberty Zone leasehold improvement property is 9 years. File an amended tax return for 2010 Returns Filed Before June 1, 2002 If you filed either of the following returns before June 1, 2002, and did not depreciate qualified Liberty Zone leasehold improvement property placed in service during the tax year as 5-year property using the straight line method, you should file an amended return before you file your return for the year after the year the property was placed in service. File an amended tax return for 2010 Your 2000 fiscal year return (for a 2000 fiscal year that ends after September 10, 2001). File an amended tax return for 2010 Your 2001 calendar or fiscal year return. File an amended tax return for 2010 On the amended return, write “Filed Pursuant to Rev. File an amended tax return for 2010 Proc. File an amended tax return for 2010 2002–33. File an amended tax return for 2010 ” Table 2. File an amended tax return for 2010 Rules for Returns Filed Before June 1, 2002 Note:This chart highlights the rules for returns affected by the Job Creation and Worker Assistance Act of 2002 that were filed before June 1, 2002, without accounting for any of the new benefits under the law. File an amended tax return for 2010 See the text for definitions and examples. File an amended tax return for 2010 Do not rely on this chart alone. File an amended tax return for 2010 IF you want to. File an amended tax return for 2010 . File an amended tax return for 2010 . File an amended tax return for 2010 THEN you. File an amended tax return for 2010 . File an amended tax return for 2010 . File an amended tax return for 2010 BY. File an amended tax return for 2010 . File an amended tax return for 2010 . File an amended tax return for 2010 claim the special depreciation allowance or special Liberty Zone depreciation allowance • must file an amended return • the due date (not including extensions) of your return for the year after the year the property was placed in service, or • must file Form 3115, Application for Change in Accounting Method, with your return for the year after the year the property was placed in service • the due date (including extensions) of your return for the year after the year the property was placed in service, and • must file a copy of your completed Form 3115 with the IRS National Office • the date you file the original Form 3115 with your return for the year after the year the property was placed in service. File an amended tax return for 2010 elect not to claim the special depreciation allowance or the special Liberty Zone depreciation allowance 1 • must have filed your return timely for the year the property was placed in service, and   • must file an amended return stating you are not claiming the allowance • the date that is 6 months after the due date of the original return (not including extensions). File an amended tax return for 2010 deduct the increased section 179 amount • must file an amended return • the due date (not including extensions) of your return for the year after the year the property was placed in service. File an amended tax return for 2010 use a 5-year recovery period for depreciating qualified Liberty Zone leasehold improvement property • should file an amended return • the date you file your return for the year after the year the property was placed in service. File an amended tax return for 2010 1See also Deemed election under Rules for Returns Filed Before June 1, 2002, earlier. File an amended tax return for 2010 Prev  Up  Next   Home   More Online Publications
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File an amended tax return for 2010 5. File an amended tax return for 2010   Soil and Water Conservation Expenses Table of Contents Introduction Topics - This chapter discusses: Business of Farming Plan Certification Conservation ExpensesWater well. File an amended tax return for 2010 Assessment by Conservation DistrictAssessment for Depreciable Property 25% Limit on DeductionNet operating loss. File an amended tax return for 2010 When to Deduct or Capitalize Sale of a Farm Introduction If you are in the business of farming, you can choose to deduct certain expenses for: Soil or water conservation, Prevention of erosion of land used in farming, or Endangered species recovery. File an amended tax return for 2010 Otherwise, these are capital expenses that must be added to the basis of the land. File an amended tax return for 2010 (See chapter 6 for information on determining basis. File an amended tax return for 2010 ) Conservation expenses for land in a foreign country do not qualify for this special treatment. File an amended tax return for 2010 The deduction for conservation expenses cannot be more than 25% of your gross income from farming. File an amended tax return for 2010 See 25% Limit on Deduction , later. File an amended tax return for 2010 Although some expenses are not deductible as soil and water conservation expenses, they may be deductible as ordinary and necessary farm expenses. File an amended tax return for 2010 These include interest and taxes, the cost of periodically clearing brush from productive land, the regular removal of sediment from a drainage ditch, and expenses paid or incurred primarily to produce an agricultural crop that may also conserve soil. File an amended tax return for 2010 You must include in income most government payments for approved conservation practices. File an amended tax return for 2010 However, you can exclude some payments you receive under certain cost-sharing conservation programs. File an amended tax return for 2010 For more information, see Agricultural Program Payments in chapter 3. File an amended tax return for 2010 To get the full deduction to which you are entitled, you should maintain your records to clearly distinguish between your ordinary and necessary farm business expenses and your soil and water conservation expenses. File an amended tax return for 2010 Topics - This chapter discusses: Business of farming Plan certification Conservation expenses Assessment by conservation district 25% limit on deduction When to deduct or capitalize Sale of a farm Business of Farming For purposes of soil and water conservation expenses, you are in the business of farming if you cultivate, operate, or manage a farm for profit, either as an owner or a tenant. File an amended tax return for 2010 You are not in the business of farming if you cultivate or operate a farm for recreation or pleasure, rather than for profit. File an amended tax return for 2010 You are not farming if you are engaged only in forestry or the growing of timber. File an amended tax return for 2010 Farm defined. File an amended tax return for 2010   A farm includes livestock, dairy, poultry, fish, fruit, and truck farms. File an amended tax return for 2010 It also includes plantations, ranches, ranges, and orchards. File an amended tax return for 2010 A fish farm is an area where fish and other marine animals are grown or raised and artificially fed, protected, etc. File an amended tax return for 2010 It does not include an area where they are merely caught or harvested. File an amended tax return for 2010 A plant nursery is a farm for purposes of deducting soil and water conservation expenses. File an amended tax return for 2010 Farm rental. File an amended tax return for 2010   If you own a farm and receive farm rental payments based on farm production, either in cash or crop shares, you are in the business of farming. File an amended tax return for 2010 If you get cash rental for a farm you own that is not used in farm production, you cannot deduct soil and water conservation expenses for that farm. File an amended tax return for 2010   If you receive a fixed rental payment that is not based on farm production, you are in the business of farming only if you materially participate in operating or managing the farm. File an amended tax return for 2010 Example. File an amended tax return for 2010 You own a farm in Iowa and live in California. File an amended tax return for 2010 You rent the farm for $175 in cash per acre and do not materially participate in producing or managing production of the crops grown on the farm. File an amended tax return for 2010 You cannot deduct your soil conservation expenses for this farm. File an amended tax return for 2010 You must capitalize the expenses and add them to the basis of the land. File an amended tax return for 2010     For more information, see Material participation for landlords under Landlord Participation in Farming in chapter 12. File an amended tax return for 2010 Plan Certification You can deduct soil and water conservation expenses only if they are consistent with a plan approved by the Natural Resources Conservation Service (NRCS) of the Department of Agriculture. File an amended tax return for 2010 If no such plan exists, the expenses must be consistent with a soil conservation plan of a comparable state agency. File an amended tax return for 2010 Keep a copy of the plan with your books and records to support your deductions. File an amended tax return for 2010 Conservation plan. File an amended tax return for 2010   A conservation plan includes the farming conservation practices approved for the area where your farmland is located. File an amended tax return for 2010 There are three types of approved plans. File an amended tax return for 2010 NRCS individual site plans. File an amended tax return for 2010 These plans are issued individually to farmers who request assistance from NRCS to develop a conservation plan designed specifically for their farmland. File an amended tax return for 2010 NRCS county plans. File an amended tax return for 2010 These plans include a listing of farm conservation practices approved for the county where the farmland is located. File an amended tax return for 2010 You can deduct expenses for conservation practices not included on the NRCS county plans only if the practice is a part of an individual site plan. File an amended tax return for 2010 Comparable state agency plans. File an amended tax return for 2010 These plans are approved by state agencies and can be approved individual site plans or county plans. File an amended tax return for 2010   A list of NRCS conservation programs is available at www. File an amended tax return for 2010 nrcs. File an amended tax return for 2010 usda. File an amended tax return for 2010 gov/programs. File an amended tax return for 2010 Individual site plans can be obtained from NRCS offices and the comparable state agencies. File an amended tax return for 2010 Conservation Expenses You can deduct conservation expenses only for land you or your tenant are using, or have used in the past, for farming. File an amended tax return for 2010 These expenses include, but are not limited to, the following. File an amended tax return for 2010 The treatment or movement of earth, such as: Leveling, Conditioning, Grading, Terracing, Contour furrowing, and Restoration of soil fertility. File an amended tax return for 2010 The construction, control, and protection of: Diversion channels, Drainage ditches, Irrigation ditches, Earthen dams, and Watercourses, outlets, and ponds. File an amended tax return for 2010 The eradication of brush. File an amended tax return for 2010 The planting of windbreaks. File an amended tax return for 2010 You cannot deduct expenses to drain or fill wetlands, or to prepare land for center pivot irrigation systems, as soil and water conservation expenses. File an amended tax return for 2010 These expenses are added to the basis of the land. File an amended tax return for 2010 If you choose to deduct soil and water conservation expenses, you cannot exclude from gross income any cost-sharing payments you receive for those expenses. File an amended tax return for 2010 See chapter 3 for information about payments eligible for the cost-sharing exclusion. File an amended tax return for 2010 New farm or farmland. File an amended tax return for 2010   If you acquire a new farm or new farmland from someone who was using it in farming immediately before you acquired the land, soil and water conservation expenses you incur on it will be treated as made on land used in farming at the time the expenses were paid or incurred. File an amended tax return for 2010 You can deduct soil and water conservation expenses for this land if your use of it is substantially a continuation of its use in farming. File an amended tax return for 2010 The new farming activity does not have to be the same as the old farming activity. File an amended tax return for 2010 For example, if you buy land that was used for grazing cattle and then prepare it for use as an apple orchard, you can deduct your conservation expenses. File an amended tax return for 2010 Land not used for farming. File an amended tax return for 2010   If your conservation expenses benefit both land that does not qualify as land used for farming and land that does qualify, you must allocate the expenses between the two types of land. File an amended tax return for 2010 For example, if the expenses benefit 200 acres of your land, but only 120 acres of this land are used for farming, then you can deduct 60% (120 ÷ 200) of the expenses. File an amended tax return for 2010 You can use another method to allocate these expenses if you can clearly show that your method is more reasonable. File an amended tax return for 2010 Depreciable conservation assets. File an amended tax return for 2010   You generally cannot deduct your expenses for depreciable conservation assets. File an amended tax return for 2010 However, you can deduct certain amounts you pay or incur for an assessment for depreciable property that a soil and water conservation or drainage district levies against your farm. File an amended tax return for 2010 See Assessment for Depreciable Property , later. File an amended tax return for 2010   You must capitalize expenses to buy, build, install, or improve depreciable structures or facilities. File an amended tax return for 2010 These expenses include those for materials, supplies, wages, fuel, hauling, and moving dirt when making structures such as tanks, reservoirs, pipes, culverts, canals, dams, wells, or pumps composed of masonry, concrete, tile, metal, or wood. File an amended tax return for 2010 You recover your capital investment through annual allowances for depreciation. File an amended tax return for 2010   You can deduct soil and water conservation expenses for nondepreciable earthen items. File an amended tax return for 2010 Nondepreciable earthen items include certain dams, ponds, and terraces described under Property Having a Determinable Useful Life in chapter 7. File an amended tax return for 2010 Water well. File an amended tax return for 2010   You cannot deduct the cost of drilling a water well for irrigation and other agricultural purposes as a soil and water conservation expense. File an amended tax return for 2010 It is a capital expense. File an amended tax return for 2010 You recover your cost through depreciation. File an amended tax return for 2010 You also must capitalize your cost for drilling a test hole. File an amended tax return for 2010 If the test hole produces no water and you continue drilling, the cost of the test hole is added to the cost of the producing well. File an amended tax return for 2010 You can recover the total cost through depreciation deductions. File an amended tax return for 2010   If a test hole, dry hole, or dried-up well (resulting from prolonged lack of rain, for instance) is abandoned, you can deduct your unrecovered cost in the year of abandonment. File an amended tax return for 2010 Abandonment means that all economic benefits from the well are terminated. File an amended tax return for 2010 For example, filling or sealing a well excavation or casing so that all economic benefits from the well are terminated constitutes an abandonment. File an amended tax return for 2010 Endangered species recovery expenses. File an amended tax return for 2010   If you are in the business of farming and meet other specific requirements, you can choose to deduct the conservation expenses discussed earlier as endangered species recovery expenses. File an amended tax return for 2010 Otherwise, these are capital expenses that must be added to the basis of the land. File an amended tax return for 2010   The expenses must be paid or incurred for the purpose of achieving site-specific management actions recommended in a recovery plan approved under section 4(f) of the Endangered Species Act of 1973. File an amended tax return for 2010 See Internal Revenue Code section 175 for more information. File an amended tax return for 2010 Assessment by Conservation District In some localities, a soil or water conservation or drainage district incurs expenses for soil or water conservation and levies an assessment against the farmers who benefit from the expenses. File an amended tax return for 2010 You can deduct as a conservation expense amounts you pay or incur for the part of an assessment that: Covers expenses you could deduct if you had paid them directly, or Covers expenses for depreciable property used in the district's business. File an amended tax return for 2010 Assessment for Depreciable Property You generally can deduct as a conservation expense amounts you pay or incur for the part of a conservation or drainage district assessment that covers expenses for depreciable property. File an amended tax return for 2010 This includes items such as pumps, locks, concrete structures (including dams and weir gates), draglines, and similar equipment. File an amended tax return for 2010 The depreciable property must be used in the district's soil and water conservation activities. File an amended tax return for 2010 However, the following limits apply to these assessments. File an amended tax return for 2010 The total assessment limit. File an amended tax return for 2010 The yearly assessment limit. File an amended tax return for 2010 After you apply these limits, the amount you can deduct is added to your other conservation expenses for the year. File an amended tax return for 2010 The total for these expenses is then subject to the 25% of gross income from farming limit on the deduction, discussed later. File an amended tax return for 2010 See Table 5-1 for a brief summary of these limits. File an amended tax return for 2010 Table 5-1. File an amended tax return for 2010 Limits on Deducting an Assessment by a Conservation District for Depreciable Property Total Limit on Deduction for Assessment for Depreciable Property Yearly Limit on Deduction for Assessment for Depreciable Property Yearly Limit for All Conservation Expenses 10% of: $500 + 10% of: 25% of: Total assessment against all members of the district for the property. File an amended tax return for 2010 Your deductible share of the cost to the district for the property. File an amended tax return for 2010 Your gross income from farming. File an amended tax return for 2010 No one taxpayer can deduct more than 10% of the total assessment. File an amended tax return for 2010 Any amount over 10% is a capital expense and is added to the basis of your land. File an amended tax return for 2010 If an assessment is paid in installments, each payment must be prorated between the conservation expense and the capital expense. File an amended tax return for 2010 If the amount you pay or incur for any year is more than the limit, you can deduct for that year only 10% of your deductible share of the cost. File an amended tax return for 2010 You can deduct the remainder in equal amounts over the next 9 tax years. File an amended tax return for 2010 Limit for all conservation expenses, including assessments for depreciable property. File an amended tax return for 2010 Amounts greater than 25% can be carried to the following year and added to that year's expenses. File an amended tax return for 2010 The total is then subject to the 25% of gross income from farming limit in that year. File an amended tax return for 2010 To ensure your deduction is within the deduction limits, keep records to show the following. File an amended tax return for 2010 The total assessment against all members of the district for the depreciable property. File an amended tax return for 2010 Your deductible share of the cost to the district for the depreciable property. File an amended tax return for 2010 Your gross income from farming. File an amended tax return for 2010 Total assessment limit. File an amended tax return for 2010   You cannot deduct more than 10% of the total amount assessed to all members of the conservation or drainage district for the depreciable property. File an amended tax return for 2010 This applies whether you pay the assessment in one payment or in installments. File an amended tax return for 2010 If your assessment is more than 10% of the total amount assessed, both the following rules apply. File an amended tax return for 2010 The amount over 10% is a capital expense and is added to the basis of your land. File an amended tax return for 2010 If the assessment is paid in installments, each payment must be prorated between the conservation expense and the capital expense. File an amended tax return for 2010 Yearly assessment limit. File an amended tax return for 2010   The maximum amount you can deduct in any one year is the total of 10% of your deductible share of the cost as explained earlier, plus $500. File an amended tax return for 2010 If the amount you pay or incur is equal to or less than the maximum amount, you can deduct it in the year it is paid or incurred. File an amended tax return for 2010 If the amount you pay or incur is more, you can deduct in that year only 10% of your deductible share of the cost. File an amended tax return for 2010 You can deduct the remainder in equal amounts over the next 9 tax years. File an amended tax return for 2010 Your total conservation expense deduction for each year is also subject to the 25% of gross income from farming limit on the deduction, discussed later. File an amended tax return for 2010 Example 1. File an amended tax return for 2010 This year, the soil conservation district levies and you pay an assessment of $2,400 against your farm. File an amended tax return for 2010 Of the assessment, $1,500 is for digging drainage ditches. File an amended tax return for 2010 You can deduct this part as a soil or conservation expense as if you had paid it directly. File an amended tax return for 2010 The remaining $900 is for depreciable equipment to be used in the district's irrigation activities. File an amended tax return for 2010 The total amount assessed by the district against all its members for the depreciable equipment is $7,000. File an amended tax return for 2010 The total amount you can deduct for the depreciable equipment is limited to 10% of the total amount assessed by the district against all its members for depreciable equipment, or $700. File an amended tax return for 2010 The $200 excess ($900 − $700) is a capital expense you must add to the basis of your farm. File an amended tax return for 2010 To figure the maximum amount you can deduct for the depreciable equipment this year, multiply your deductible share of the total assessment ($700) by 10%. File an amended tax return for 2010 Add $500 to the result for a total of $570. File an amended tax return for 2010 Your deductible share, $700, is greater than the maximum amount deductible in one year, so you can deduct only $70 of the amount you paid or incurred for depreciable property this year (10% of $700). File an amended tax return for 2010 You can deduct the balance at the rate of $70 a year over the next 9 years. File an amended tax return for 2010 You add $70 to the $1,500 portion of the assessment for drainage ditches. File an amended tax return for 2010 You can deduct $1,570 of the $2,400 assessment as a soil and water conservation expense this year, subject to the 25% of gross income from farming limit on the deduction, discussed later. File an amended tax return for 2010 Example 2. File an amended tax return for 2010 Assume the same facts in Example 1 except that $1,850 of the $2,400 assessment is for digging drainage ditches and $550 is for depreciable equipment. File an amended tax return for 2010 The total amount assessed by the district against all its members for depreciable equipment is $5,500. File an amended tax return for 2010 The total amount you can deduct for the depreciable equipment is limited to 10% of this amount, or $550. File an amended tax return for 2010 The maximum amount you can deduct this year for the depreciable equipment is $555 (10% of your deductible share of the total assessment, $55, plus $500). File an amended tax return for 2010 Since your deductible share is less than the maximum amount deductible in one year, you can deduct the entire $550 this year. File an amended tax return for 2010 You can deduct the entire assessment, $2,400, as a soil and water conservation expense this year, subject to the 25% of gross income from farming limit on the deduction, discussed below. File an amended tax return for 2010 Sale or other disposal of land during 9-year period. File an amended tax return for 2010   If you dispose of the land during the 9-year period for deducting conservation expenses subject to the yearly limit, any amounts you have not yet deducted because of this limit are added to the basis of the property. File an amended tax return for 2010 Death of farmer during 9-year period. File an amended tax return for 2010   If a farmer dies during the 9-year period, any remaining amounts not yet deducted are deducted in the year of death. File an amended tax return for 2010 25% Limit on Deduction The total deduction for conservation expenses in any tax year is limited to 25% of your gross income from farming for the year. File an amended tax return for 2010 Gross income from farming. File an amended tax return for 2010   Gross income from farming is the income you derive in the business of farming from the production of crops, fish, fruits, other agricultural products, or livestock. File an amended tax return for 2010 Gains from sales of draft, breeding, or dairy livestock are included. File an amended tax return for 2010 Gains from sales of assets such as farm machinery, or from the disposition of land, are not included. File an amended tax return for 2010 Carryover of deduction. File an amended tax return for 2010   If your deductible conservation expenses in any year are more than 25% of your gross income from farming for that year, you can carry the unused deduction over to later years. File an amended tax return for 2010 However, the deduction in any later year is limited to 25% of the gross income from farming for that year as well. File an amended tax return for 2010 Example. File an amended tax return for 2010 In 2012, you have gross income of $32,000 from two farms. File an amended tax return for 2010 During the year, you incurred $10,000 of deductible soil and water conservation expenses for one of the farms. File an amended tax return for 2010 However, your deduction is limited to 25% of $32,000, or $8,000. File an amended tax return for 2010 The $2,000 excess ($10,000 − $8,000) is carried over to 2013 and added to deductible soil and water conservation expenses made in that year. File an amended tax return for 2010 The total of the 2012 carryover plus 2013 expenses is deductible in 2013, subject to the limit of 25% of your gross income from farming in 2013. File an amended tax return for 2010 Any expenses over the limit in that year are carried to 2014 and later years. File an amended tax return for 2010 Net operating loss. File an amended tax return for 2010   The deduction for soil and water conservation expenses, after applying the 25% limit, is included when figuring a net operating loss (NOL) for the year. File an amended tax return for 2010 If the NOL is carried to another year, the soil and water conservation deduction included in the NOL is not subject to the 25% limit in the year to which it is carried. File an amended tax return for 2010 When to Deduct or Capitalize If you choose to deduct soil and water conservation expenses, you must deduct the total allowable amount on your tax return for the first year you pay or incur these expenses. File an amended tax return for 2010 If you do not choose to deduct the expenses, you must capitalize them. File an amended tax return for 2010 Change of method. File an amended tax return for 2010   If you want to change your method for the treatment of soil and water conservation expenses, or you want to treat the expenses for a particular project or a single farm in a different manner, you must get the approval of the IRS. File an amended tax return for 2010 To get this approval, submit a written request by the due date of your return for the first tax year you want the new method to apply. File an amended tax return for 2010 You or your authorized representative must sign the request. File an amended tax return for 2010   The request must include the following information. File an amended tax return for 2010 Your name and address. File an amended tax return for 2010 The first tax year the method or change of method is to apply. File an amended tax return for 2010 Whether the method or change of method applies to all your soil and water conservation expenses or only to those for a particular project or farm. File an amended tax return for 2010 If the method or change of method does not apply to all your expenses, identify the project or farm to which the expenses apply. File an amended tax return for 2010 The total expenses you paid or incurred in the first tax year the method or change of method is to apply. File an amended tax return for 2010 A statement that you will account separately in your books for the expenses to which this method or change of method relates. File an amended tax return for 2010 Send your request to the following  address. File an amended tax return for 2010  Department of the Treasury Internal Revenue Service Center Cincinnati, OH 45999  For more information, see Change in  Accounting Method in chapter 2. File an amended tax return for 2010 Sale of a Farm If you sell your farm, you cannot adjust the basis of the land at the time of the sale for any unused carryover of soil and water conservation expenses (except for deductions of assessments for depreciable property, discussed earlier). File an amended tax return for 2010 However, if you acquire another farm and return to the business of farming, you can start taking deductions again for the unused carryovers. File an amended tax return for 2010 Gain on sale of farmland. File an amended tax return for 2010   If you held the land 5 years or less before you sold it, gain on the sale of the land is treated as ordinary income up to the amount you previously deducted for soil and water conservation expenses. File an amended tax return for 2010 If you held the land less than 10 but more than 5 years, the gain is treated as ordinary income up to a specified percentage of the previous deductions. File an amended tax return for 2010 See Section 1252 property under Other Gains in chapter 9. File an amended tax return for 2010 Prev  Up  Next   Home   More Online Publications