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File Taxes 2009

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File Taxes 2009

File taxes 2009 Part Two -   Income The eight chapters in this part discuss many kinds of income. File taxes 2009 They explain which income is and is not taxed. File taxes 2009 See Part Three for information on gains and losses you report on Form 8949 and Schedule D (Form 1040) and for information on selling your home. File taxes 2009 Table of Contents 5. File taxes 2009   Wages, Salaries, and Other EarningsReminder Introduction Useful Items - You may want to see: Employee CompensationBabysitting. File taxes 2009 Miscellaneous Compensation Fringe Benefits Retirement Plan Contributions Stock Options Restricted Property Special Rules for Certain EmployeesClergy Members of Religious Orders Foreign Employer Military Volunteers Sickness and Injury BenefitsDisability Pensions Long-Term Care Insurance Contracts Workers' Compensation Other Sickness and Injury Benefits 6. File taxes 2009   Tip IncomeIntroduction Useful Items - You may want to see: Keeping a Daily Tip RecordElectronic tip record. File taxes 2009 Reporting Tips to Your EmployerElectronic tip statement. File taxes 2009 Final report. File taxes 2009 Reporting Tips on Your Tax Return Allocated Tips 7. File taxes 2009   Interest IncomeReminder Introduction Useful Items - You may want to see: General InformationSSN for joint account. File taxes 2009 Custodian account for your child. File taxes 2009 Penalty for failure to supply SSN. File taxes 2009 Reporting backup withholding. File taxes 2009 Savings account with parent as trustee. File taxes 2009 Interest not reported on Form 1099-INT. File taxes 2009 Nominees. File taxes 2009 Incorrect amount. File taxes 2009 Information reporting requirement. File taxes 2009 Taxable InterestInterest subject to penalty for early withdrawal. File taxes 2009 Money borrowed to invest in certificate of deposit. File taxes 2009 U. File taxes 2009 S. File taxes 2009 Savings Bonds Education Savings Bond Program U. File taxes 2009 S. File taxes 2009 Treasury Bills, Notes, and Bonds Bonds Sold Between Interest Dates Insurance State or Local Government Obligations Original Issue Discount (OID) When To Report Interest IncomeConstructive receipt. File taxes 2009 How To Report Interest IncomeSchedule B (Form 1040A or 1040). File taxes 2009 Reporting tax-exempt interest. File taxes 2009 U. File taxes 2009 S. File taxes 2009 savings bond interest previously reported. File taxes 2009 8. File taxes 2009   Dividends and Other DistributionsReminder Introduction Useful Items - You may want to see: General InformationDividends not reported on Form 1099-DIV. File taxes 2009 Reporting tax withheld. File taxes 2009 Nominees. File taxes 2009 Ordinary DividendsQualified Dividends Dividends Used to Buy More Stock Money Market Funds Capital Gain DistributionsBasis adjustment. File taxes 2009 Nondividend DistributionsLiquidating Distributions Distributions of Stock and Stock Rights Other DistributionsInformation reporting requirement. File taxes 2009 Alternative minimum tax treatment. File taxes 2009 How To Report Dividend IncomeInvestment interest deducted. File taxes 2009 9. File taxes 2009   Rental Income and ExpensesIntroduction Useful Items - You may want to see: Rental Income Rental ExpensesVacant while listed for sale. File taxes 2009 Repairs and Improvements Other Expenses Property Changed to Rental Use Renting Part of Property Not Rented for Profit Personal Use of Dwelling Unit (Including Vacation Home)Example. File taxes 2009 Dividing Expenses Dwelling Unit Used as a Home Reporting Income and Deductions DepreciationChanging your accounting method to deduct unclaimed depreciation. File taxes 2009 Limits on Rental LossesAt-Risk Rules Passive Activity Limits How To Report Rental Income and ExpensesSchedule E (Form 1040) 10. File taxes 2009   Retirement Plans, Pensions, and AnnuitiesWhat's New Reminder IntroductionThe General Rule. File taxes 2009 Individual retirement arrangements (IRAs). File taxes 2009 Civil service retirement benefits. File taxes 2009 Useful Items - You may want to see: General InformationIn-plan rollovers to designated Roth accounts. File taxes 2009 How To Report Cost (Investment in the Contract) Taxation of Periodic PaymentsExclusion limited to cost. File taxes 2009 Exclusion not limited to cost. File taxes 2009 Simplified Method Taxation of Nonperiodic PaymentsLump-Sum Distributions RolloversIn-plan rollovers to designated Roth accounts. File taxes 2009 Special Additional TaxesTax on Early Distributions Tax on Excess Accumulation Survivors and Beneficiaries 11. File taxes 2009   Social Security and Equivalent Railroad Retirement BenefitsIntroduction Useful Items - You may want to see: Are Any of Your Benefits Taxable? How To Report Your BenefitsHow Much Is Taxable? Examples Deductions Related to Your BenefitsRepayments More Than Gross Benefits 12. File taxes 2009   Other IncomeIntroduction Useful Items - You may want to see: Bartering Canceled DebtsInterest included in canceled debt. File taxes 2009 Exceptions Host or Hostess Life Insurance ProceedsSurviving spouse. File taxes 2009 Endowment Contract Proceeds Accelerated Death Benefits Public Safety Officer Killed in the Line of Duty Partnership Income S Corporation Income RecoveriesItemized Deduction Recoveries Rents from Personal Property RepaymentsMethod 1. File taxes 2009 Method 2. File taxes 2009 RoyaltiesDepletion. File taxes 2009 Coal and iron ore. File taxes 2009 Sale of property interest. File taxes 2009 Part of future production sold. File taxes 2009 Unemployment BenefitsTypes of unemployment compensation. File taxes 2009 Governmental program. File taxes 2009 Repayment of unemployment compensation. File taxes 2009 Tax withholding. File taxes 2009 Repayment of benefits. File taxes 2009 Welfare and Other Public Assistance Benefits Other IncomeEmotional distress. File taxes 2009 Deduction for costs involved in unlawful discrimination suits. File taxes 2009 Energy conservation measure. File taxes 2009 Dwelling unit. File taxes 2009 Current income required to be distributed. File taxes 2009 Current income not required to be distributed. File taxes 2009 How to report. File taxes 2009 Losses. File taxes 2009 Grantor trust. File taxes 2009 Nonemployee compensation. File taxes 2009 Corporate director. File taxes 2009 Personal representatives. File taxes 2009 Manager of trade or business for bankruptcy estate. File taxes 2009 Notary public. File taxes 2009 Election precinct official. File taxes 2009 Difficulty-of-care payments. File taxes 2009 Maintaining space in home. File taxes 2009 Reporting taxable payments. File taxes 2009 Lotteries and raffles. File taxes 2009 Form W-2G. File taxes 2009 Reporting winnings and recordkeeping. File taxes 2009 Inherited pension or IRA. File taxes 2009 Employee awards or bonuses. File taxes 2009 Pulitzer, Nobel, and similar prizes. File taxes 2009 Payment for services. File taxes 2009 VA payments. File taxes 2009 Prizes. File taxes 2009 Strike and lockout benefits. File taxes 2009 Prev  Up  Next   Home   More Online Publications
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Awards and Recognitions

USA.gov (formerly FirstGov.gov) has won many awards, and has been widely recognized for its information and services since it launched in 2000.


Awards by Date


September 2012

July 2011

August 2010

June 2009

March 2009

  • USA.gov Director winner, Fed 100
  • Government Information Technology Executive Council (GITEC) Project Management Excellence Award for outstanding project management in Collaborative Government/Web 2.0 Vision.

January 2008

  • Government Customer Support Excellence Award Finalist

January 2009

August 2008

May 2008

April 2008

November 2007

  • President's Quality Award – Office of Personnel Management

October 2007

  • Vignette Village 2007 Excellence Award - Vignette Corporation

September 2007

  • WebAward - Web Marketing Association

August 2007

July 2007

February 2007

  • Top Ten Most Useful Sites for Web-Based Research - XooxleAnswers

September 2006

August 2006

  • #1 in Overall Federal Agency E-Government Performance, Taubman Center for Public Policy at Brown University

July 2006

April 2006

March 2006

  • Showcase of Excellence Award Winner - Federal Leadership Councils at FOSE
  • Stockholm Challenge Award Finalist 2006

January 2006

  • Favorite Places on the Web - Chicago Sun Times
  • Hot Sites - USATODAY.com
  • Website of the Day - kdsk.com

December 2005

  • #1 in Global E-Government Readiness - United Nations Global E-Government Readiness Report 2005

September 2005

  • Web Content Managers Best Practices Award for FirstGov en español (now GobiernoUSA.gov)

June 2005

  • Webby Worthy Award - International Academy of Digital Arts and Sciences

April 2005

  • PC Magazine's Top 100 Classic Sites
  • Kim Komando Cool Site of the Day

January 2005

  • Favorite Website - The Atlanta Journal-Constitution

September 2004

  • IRMCO Team Award Finalist
  • #1 in Overall Federal e-Government - Taubman Center for Public Policy at Brown University

August 2004

  • Kim Komando Cool Site of the Day

May 2004

  • Top Site of the Day - widders.com

April 2004

  • Forbes.com Best of the Web, Expatriate Resources
  • PC Magazine's Top 100 Classic Sites

March 2004

  • FirstGov (now USA.gov) Director winner, Fed 100

February 2004

January 2004

  • Site of the Day - Charlotte Observer (North Carolina)

December 2003

  • "EContent 100" - EContent Magazine
  • Finalist, World Summit Award - United Nations International Telecommunications Union

November 2003

  • #1 in Web-Quality & E-Government Readiness - United Nations "World Public Sector Report 2003 - E-Government at the Crossroads"
  • Cool Site of the Day - coolsiteoftheday.com
  • Top Three Government Sites - WABC TV, New York

October 2003

  • 101 Most Incredibly Useful Sites - PC Magazine

September 2003

  • #1 in Overall Federal e-Government - Taubman Center for Public Policy at Brown University

August 2003

  • Site of the Day - Charlotte Observer (North Carolina)
  • Site of the Week - Post-Standard (Syracuse, NY)

May 2003

  • Innovations in American Government Award Winner

March 2003

  • Innovations in American Government Award Finalist
  • PC Magazine's Top 100 Classic Sites

November 2002

  • Innovations in American Government Award Semi-Finalist

July 2002

  • Public Access to Government Information Award - American Association Law Libraries
  • Yahoo! Internet Life Magazine's 50 Most Incredibly Useful Sites

June 2002

  • Best New Government Website - Women's World Magazine
  • Pioneer Award, E-Gov

February 2002

  • Hot Site - USA Today.com

January 2002

  • Excellence.Gov Award Finalist

December 2001

  • Grace Hopper Government Technology Leadership Award

November 2001

  • Federal Line - FederalNewsRadio.com

October 2001

  • Hot Site - USA Today.com
  • Pick of the Week - Yahoo!

August 2001

  • Innovations in American Government Award Finalist

July 2001

  • Hot Site - USA Today.com

June 2001

  • Intergovernmental Solutions Award
  • Site of the Week - The Washington Times
  • Top 100 Sites of the Day - The Legendinc.com
  • Web Map: News You Can Use - USNews.com

May 2001

  • #1 in 100 Top Government Sites - 100.com
  • Golden Web Award (2001-2002)

April 2001

  • Innovations in American Government Award Semi-Finalist
  • Pioneer Award, E-Gov
  • Site of the Day - The Wall Street Journal Classroom Edition
  • Top 100 Sites for Small Business - Entrepreneur Magazine

March 2001

  • Azimuth Award (awarded to Dave Barram and Eric Brewer)
  • FOSE and Chief Information Officers Council of Excellence Award
  • Site of the Month - Chief Executives' Forum (Belfast, Ireland)
  • Site of the Month - Research Data Management Service, University of Delaware
  • Site of the Month - The CyberSkeptic's Guide to Internet Research
  • Site of the Week - Web Watch
  • Site of the Week - Worksupport.com

February 2001

  • Recognized among "40 Great Web Sites," Reader's Digest, New Choices Magazine
  • Cool Website of the Day - "Topical" Tipworld
  • Site of the Day - Canton Public Library (Canton, Michigan)
  • Site of the Month - Internet Resources for Nonprofits
  • Site of the Week - Legal Engine

January 2001

  • Government Computer News Award
  • Hot Site of the Year - USA Today
  • Interesting Worldwide Website - Computer Times
  • Site of the Day - New York Times
  • Vice President's Hammer Award for Reinventing Government

December 2000

  • Site of the Day - E-mazing

November 2000

  • Site of the Month - King County Library (Washington State)

October 2000

  • A - Education World
  • Site of the Week - RefDesk.com
  • Site of the Day - Kathy Schrock's Guide for Educators
  • Site of the Day - Mountain Home School District 193 (Mountain Home, Idaho)
  • Site of the Month - New York State Library
  • Site of the Week - Boston Bar Association
  • Site of the Week - Fort Smith, Arkansas Public Library

September 2000

  • Site of the Day - Alpha-Pro Net
  • Site of the Week - University of Texas Southwestern Medical Library

Awards by Title

  • #1 Federal Government Website - Comparing Technology Innovation in the Private and Public Sectors, Brookings Institution
  • #1 in 100 Top Government Sites - 100.com
  • #1 in About.com's Top 20 Essential U.S. Government Websites
  • #1 in Global E-Government Readiness - United Nations Global E-Government Readiness Report 2005
  • #1 in Overall Federal Agency E-Government Performance, Taubman Center for Public Policy at Brown University (2003, 2004, 2006, 2007)
  • #1 in Web-Quality & E-Government Readiness - United Nations "World Public Sector Report 2003 - E-Government at the Crossroads"
  • 25 Websites We Can't Live Without, Time Magazine
  • 101 Most Incredibly Useful Sites - PC Magazine
  • A - Education World
  • Arroba de oro, ("the golden @") Finalist
  • Azimuth Award
  • Best Government Web Sites: USA.gov - Government Computer News
  • Best New Government Website - Women's World Magazine
  • Best of the Web - Forbes.com
  • Cool Site of the Day - coolsiteoftheday.com
  • Cool Site of the Day - Kim Komando
  • Cool Website of the Day - "Topical" Tipworld
  • "EContent 100" - EContent MagazineExcellence.Gov
  • Excellence.Gov
  • Excellent rating for GovGab.gov blog by blogged.com
  • Fed 100
  • Favorite Places on the Web - Chicago Sun-Times
  • Favorite Website - The Atlanta Journal-Constitution
  • Federal Line - FederalNewsRadio.com
  • FOSE and Chief Information Officers Council of Excellence Award
  • Golden Web Award
  • Government Computer News Award
  • Government Customer Support Excellence Award Finalist
  • Grace Hopper Government Technology Leadership Award
  • Hot Site - USA Today.com
  • Hot Site of the Year - USA Today.com
  • Innovations in American Government Award Winner (2002)
  • Intergovernmental Solutions Award
  • Interesting Worldwide Website - Computer Times
  • IRMCO Team Award Finalist
  • Link You Can't Live Without - WUSA9.com
  • Model of Collaboration - Center for Technology in Government at University at Albany, SUNY
  • Most Effective Federal Web Site at Using Interactive Features to Engage the Public - Brookings Institution
  • Outstanding Federal Civilian Marketing Program, GovMark Council
  • PC Magazine's Top 100 Classic Sites
  • Pick of the Week - Yahoo!
  • Pioneer Award, E-Gov
  • Pioneer Award - Federal Computer Week
  • President's Quality Award – Office of Personnel Management
  • Project Management Excellence in Collaborative Government/Web 2.0 Vision, Government Information Technology Executive Council (GITEC)
  • Public Access to Government Information Award - American Association Law Libraries
  • Recognized among "40 Great Web Sites," Reader's Digest, New Choices Magazine
  • Showcase of Excellence Award Winner - Federal Leadership Councils at FOSE
  • Site of the Day - Alpha-Pro Net
  • Site of the Day - Canton Public Library (Canton, Michigan)
  • Site of the Day - Charlotte Observer (North Carolina)
  • Site of the Day - E-mazing
  • Site of the Day - Entertainment Weekly
  • Site of the Day - Kathy Schrock's Guide for Educators
  • Site of the Day - Mountain Home School District 193 (Mountain Home, Idaho)
  • Site of the Day - The New York Times
  • Site of the Day - The Wall Street Journal Classroom Edition
  • Site of the Month - Chief Executives' Forum (Belfast, Ireland)
  • Site of the Month - Internet Resources for Nonprofits
  • Site of the Month - King County Library (Washington State)
  • Site of the Month - New York State Library
  • Site of the Month - Research Data Management Service, University of Delaware
  • Site of the Month - The CyberSkeptic's Guide to Internet Research
  • Site of the Week - Boston Bar Association
  • Site of the Week - Fort Smith, Arkansas Public Library
  • Site of the Week - Legal Engine
  • Site of the Week - Post-Standard (Syracuse, NY)
  • Site of the Week - RefDesk.com
  • Site of the Week - The Washington Times
  • Site of the Week - University of Texas Southwestern Medical Library
  • Site of the Week - Web Watch
  • Site of the Week - Worksupport.com
  • Stockholm Challenge Award Finalist 2006
  • The 50 Most-Mentioned Agencies on Twitter
  • "The Best of..." - Money Magazine
  • Top 100 Sites for Small Business - Entrepreneur Magazine
  • Top 100 Sites of the Day - The Legendinc.com
  • Top 100 Websites, WEB100.com
  • Top Government Blog, Juggle.com
  • Top Site of the Day - widders.com
  • Top Ten Most Useful Sites for Web-Based Research - XooxleAnswers
  • Top Three Government Sites - WABC TV, New York
  • U.S. Government Web Sites You Didn't Know You Could Use, lifehacker.com
  • Vice President's Hammer Award for Reinventing Government
  • Vignette Village 2007 Excellence Award - Vignette Corporation
  • WebAward - Web Marketing Association
  • Website of the Day - kdsk.com
  • Web Content Managers Best Practices Award for FirstGov en español (now GobiernoUSA.gov)
  • Web Map: News You Can Use - USNews.com
  • Webby Awards Official Honoree - International Academy of Digital Arts and Sciences
  • Webby Worthy Award - International Academy of Digital Arts and Sciences
  • World Summit Award Finalist - United Nations International Telecommunications Union
  • Yahoo! Internet Life Magazine's 50 Most Incredibly Useful Sites

The File Taxes 2009

File taxes 2009 1. File taxes 2009   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. File taxes 2009 It is an allowance for the wear and tear, deterioration, or obsolescence of the property. File taxes 2009 This chapter discusses the general rules for depreciating property and answers the following questions. File taxes 2009 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. File taxes 2009 What Property Can Be Depreciated? You can depreciate most types of tangible property (except land), such as buildings, machinery, vehicles, furniture, and equipment. File taxes 2009 You also can depreciate certain intangible property, such as patents, copyrights, and computer software. File taxes 2009 To be depreciable, the property must meet all the following requirements. File taxes 2009 It must be property you own. File taxes 2009 It must be used in your business or income-producing activity. File taxes 2009 It must have a determinable useful life. File taxes 2009 It must be expected to last more than one year. File taxes 2009 The following discussions provide information about these requirements. File taxes 2009 Property You Own To claim depreciation, you usually must be the owner of the property. File taxes 2009 You are considered as owning property even if it is subject to a debt. File taxes 2009 Example 1. File taxes 2009 You made a down payment to purchase rental property and assumed the previous owner's mortgage. File taxes 2009 You own the property and you can depreciate it. File taxes 2009 Example 2. File taxes 2009 You bought a new van that you will use only for your courier business. File taxes 2009 You will be making payments on the van over the next 5 years. File taxes 2009 You own the van and you can depreciate it. File taxes 2009 Leased property. File taxes 2009   You can depreciate leased property only if you retain the incidents of ownership in the property (explained below). File taxes 2009 This means you bear the burden of exhaustion of the capital investment in the property. File taxes 2009 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. File taxes 2009 You can, however, depreciate any capital improvements you make to the property. File taxes 2009 See How Do You Treat Repairs and Improvements later in this chapter and Additions and Improvements under Which Recovery Period Applies in chapter 4. File taxes 2009   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. File taxes 2009 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. File taxes 2009 Incidents of ownership. File taxes 2009   Incidents of ownership in property include the following. File taxes 2009 The legal title to the property. File taxes 2009 The legal obligation to pay for the property. File taxes 2009 The responsibility to pay maintenance and operating expenses. File taxes 2009 The duty to pay any taxes on the property. File taxes 2009 The risk of loss if the property is destroyed, condemned, or diminished in value through obsolescence or exhaustion. File taxes 2009 Life tenant. File taxes 2009   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. File taxes 2009 However, see Certain term interests in property under Excepted Property, later. File taxes 2009 Cooperative apartments. File taxes 2009   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. File taxes 2009   Figure your depreciation deduction as follows. File taxes 2009 Figure the depreciation for all the depreciable real property owned by the corporation in which you have a proprietary lease or right of tenancy. File taxes 2009 If you bought your cooperative stock after its first offering, figure the depreciable basis of this property as follows. File taxes 2009 Multiply your cost per share by the total number of outstanding shares, including any shares held by the corporation. File taxes 2009 Add to the amount figured in (a) any mortgage debt on the property on the date you bought the stock. File taxes 2009 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. File taxes 2009 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. File taxes 2009 Divide the number of your shares of stock by the total number of outstanding shares, including any shares held by the corporation. File taxes 2009 Multiply the result of (2) by the percentage you figured in (3). File taxes 2009 This is your depreciation on the stock. File taxes 2009   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. File taxes 2009 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. File taxes 2009 Example. File taxes 2009 You figure your share of the cooperative housing corporation's depreciation to be $30,000. File taxes 2009 Your adjusted basis in the stock of the corporation is $50,000. File taxes 2009 You use one half of your apartment solely for business purposes. File taxes 2009 Your depreciation deduction for the stock for the year cannot be more than $25,000 (½ of $50,000). File taxes 2009 Change to business use. File taxes 2009   If you change your cooperative apartment to business use, figure your allowable depreciation as explained earlier. File taxes 2009 The basis of all the depreciable real property owned by the cooperative housing corporation is the smaller of the following amounts. File taxes 2009 The fair market value of the property on the date you change your apartment to business use. File taxes 2009 This is considered to be the same as the corporation's adjusted basis minus straight line depreciation, unless this value is unrealistic. File taxes 2009 The corporation's adjusted basis in the property on that date. File taxes 2009 Do not subtract depreciation when figuring the corporation's adjusted basis. File taxes 2009   If you bought the stock after its first offering, the corporation's adjusted basis in the property is the amount figured in (1), above. File taxes 2009 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. File taxes 2009   For a discussion of fair market value and adjusted basis, see Publication 551. File taxes 2009 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. File taxes 2009 If you use property to produce income (investment use), the income must be taxable. File taxes 2009 You cannot depreciate property that you use solely for personal activities. File taxes 2009 Partial business or investment use. File taxes 2009   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. File taxes 2009 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. File taxes 2009    You must keep records showing the business, investment, and personal use of your property. File taxes 2009 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. File taxes 2009    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. File taxes 2009 For information about qualified business use of listed property, see What Is the Business-Use Requirement in chapter 5. File taxes 2009 Office in the home. File taxes 2009   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. File taxes 2009 For information about depreciating your home office, see Publication 587. File taxes 2009 Inventory. File taxes 2009   You cannot depreciate inventory because it is not held for use in your business. File taxes 2009 Inventory is any property you hold primarily for sale to customers in the ordinary course of your business. File taxes 2009   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. File taxes 2009 See Rent-to-own dealer under Which Property Class Applies Under GDS in chapter 4. File taxes 2009   In some cases, it is not clear whether property is held for sale (inventory) or for use in your business. File taxes 2009 If it is unclear, examine carefully all the facts in the operation of the particular business. File taxes 2009 The following example shows how a careful examination of the facts in two similar situations results in different conclusions. File taxes 2009 Example. File taxes 2009 Maple Corporation is in the business of leasing cars. File taxes 2009 At the end of their useful lives, when the cars are no longer profitable to lease, Maple sells them. File taxes 2009 Maple does not have a showroom, used car lot, or individuals to sell the cars. File taxes 2009 Instead, it sells them through wholesalers or by similar arrangements in which a dealer's profit is not intended or considered. File taxes 2009 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. File taxes 2009 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. File taxes 2009 In this situation, the cars are held primarily for sale to customers in the ordinary course of business. File taxes 2009 Containers. File taxes 2009   Generally, containers for the products you sell are part of inventory and you cannot depreciate them. File taxes 2009 However, you can depreciate containers used to ship your products if they have a life longer than one year and meet the following requirements. File taxes 2009 They qualify as property used in your business. File taxes 2009 Title to the containers does not pass to the buyer. File taxes 2009   To determine if these requirements are met, consider the following questions. File taxes 2009 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. File taxes 2009 This means that it must be something that wears out, decays, gets used up, becomes obsolete, or loses its value from natural causes. File taxes 2009 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. File taxes 2009 Example. File taxes 2009 You maintain a library for use in your profession. File taxes 2009 You can depreciate it. File taxes 2009 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. File taxes 2009 Instead, you deduct their cost as a business expense. File taxes 2009 What Property Cannot Be Depreciated? Certain property cannot be depreciated. File taxes 2009 This includes land and certain excepted property. File taxes 2009 Land You cannot depreciate the cost of land because land does not wear out, become obsolete, or get used up. File taxes 2009 The cost of land generally includes the cost of clearing, grading, planting, and landscaping. File taxes 2009 Although you cannot depreciate land, you can depreciate certain land preparation costs, such as landscaping costs, incurred in preparing land for business use. File taxes 2009 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. File taxes 2009 Example. File taxes 2009 You constructed a new building for use in your business and paid for grading, clearing, seeding, and planting bushes and trees. File taxes 2009 Some of the bushes and trees were planted right next to the building, while others were planted around the outer border of the lot. File taxes 2009 If you replace the building, you would have to destroy the bushes and trees right next to it. File taxes 2009 These bushes and trees are closely associated with the building, so they have a determinable useful life. File taxes 2009 Therefore, you can depreciate them. File taxes 2009 Add your other land preparation costs to the basis of your land because they have no determinable life and you cannot depreciate them. File taxes 2009 Excepted Property Even if the requirements explained in the preceding discussions are met, you cannot depreciate the following property. File taxes 2009 Property placed in service and disposed of in the same year. File taxes 2009 Determining when property is placed in service is explained later. File taxes 2009 Equipment used to build capital improvements. File taxes 2009 You must add otherwise allowable depreciation on the equipment during the period of construction to the basis of your improvements. File taxes 2009 See Uniform Capitalization Rules in Publication 551. File taxes 2009 Section 197 intangibles. File taxes 2009 You must amortize these costs. File taxes 2009 Section 197 intangibles are discussed in detail in Chapter 8 of Publication 535. File taxes 2009 Intangible property, such as certain computer software, that is not section 197 intangible property, can be depreciated if it meets certain requirements. File taxes 2009 See Intangible Property , later. File taxes 2009 Certain term interests. File taxes 2009 Certain term interests in property. File taxes 2009   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. File taxes 2009 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. File taxes 2009 Related persons. File taxes 2009   For a description of related persons, see Related Persons, later. File taxes 2009 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. File taxes 2009 Basis adjustments. File taxes 2009   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. File taxes 2009   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. File taxes 2009 However, do not increase your basis for depreciation not allowed for periods during which either of the following situations applies. File taxes 2009 The term interest is held by an organization exempt from tax. File taxes 2009 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. File taxes 2009 Exceptions. File taxes 2009   The above rules do not apply to the holder of a term interest in property acquired by gift, bequest, or inheritance. File taxes 2009 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. File taxes 2009 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. File taxes 2009 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. File taxes 2009 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. File taxes 2009 Even if you are not using the property, it is in service when it is ready and available for its specific use. File taxes 2009 Example 1. File taxes 2009 Donald Steep bought a machine for his business. File taxes 2009 The machine was delivered last year. File taxes 2009 However, it was not installed and operational until this year. File taxes 2009 It is considered placed in service this year. File taxes 2009 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. File taxes 2009 Example 2. File taxes 2009 On April 6, Sue Thorn bought a house to use as residential rental property. File taxes 2009 She made several repairs and had it ready for rent on July 5. File taxes 2009 At that time, she began to advertise it for rent in the local newspaper. File taxes 2009 The house is considered placed in service in July when it was ready and available for rent. File taxes 2009 She can begin to depreciate it in July. File taxes 2009 Example 3. File taxes 2009 James Elm is a building contractor who specializes in constructing office buildings. File taxes 2009 He bought a truck last year that had to be modified to lift materials to second-story levels. File taxes 2009 The installation of the lifting equipment was completed and James accepted delivery of the modified truck on January 10 of this year. File taxes 2009 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. File taxes 2009 Conversion to business use. File taxes 2009   If you place property in service in a personal activity, you cannot claim depreciation. File taxes 2009 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. File taxes 2009 You place the property in service in the business or income-producing activity on the date of the change. File taxes 2009 Example. File taxes 2009 You bought a home and used it as your personal home several years before you converted it to rental property. File taxes 2009 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. File taxes 2009 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. File taxes 2009 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). File taxes 2009 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. File taxes 2009 Cost or Other Basis Fully Recovered You stop depreciating property when you have fully recovered your cost or other basis. File taxes 2009 You recover your basis when your section 179 and allowed or allowable depreciation deductions equal your cost or investment in the property. File taxes 2009 See What Is the Basis of Your Depreciable Property , later. File taxes 2009 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. File taxes 2009 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. File taxes 2009 You sell or exchange the property. File taxes 2009 You convert the property to personal use. File taxes 2009 You abandon the property. File taxes 2009 You transfer the property to a supplies or scrap account. File taxes 2009 The property is destroyed. File taxes 2009 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. File taxes 2009 What Method Can You Use To Depreciate Your Property? You must use the Modified Accelerated Cost Recovery System (MACRS) to depreciate most property. File taxes 2009 MACRS is discussed in chapter 4. File taxes 2009 You cannot use MACRS to depreciate the following property. File taxes 2009 Property you placed in service before 1987. File taxes 2009 Certain property owned or used in 1986. File taxes 2009 Intangible property. File taxes 2009 Films, video tapes, and recordings. File taxes 2009 Certain corporate or partnership property acquired in a nontaxable transfer. File taxes 2009 Property you elected to exclude from MACRS. File taxes 2009 The following discussions describe the property listed above and explain what depreciation method should be used. File taxes 2009 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). File taxes 2009 Property placed in service before 1987 must be depreciated under the methods discussed in Publication 534. File taxes 2009 For a discussion of when property is placed in service, see When Does Depreciation Begin and End , earlier. File taxes 2009 Use of real property changed. File taxes 2009   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. File taxes 2009 Improvements made after 1986. File taxes 2009   You must treat an improvement made after 1986 to property you placed in service before 1987 as separate depreciable property. File taxes 2009 Therefore, you can depreciate that improvement as separate property under MACRS if it is the type of property that otherwise qualifies for MACRS depreciation. File taxes 2009 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. File taxes 2009 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. File taxes 2009 If you cannot use MACRS, the property must be depreciated under the methods discussed in Publication 534. File taxes 2009 For the following discussions, do not treat property as owned before you placed it in service. File taxes 2009 If you owned property in 1986 but did not place it in service until 1987, you do not treat it as owned in 1986. File taxes 2009 Personal property. File taxes 2009   You cannot use MACRS for personal property (section 1245 property) in any of the following situations. File taxes 2009 You or someone related to you owned or used the property in 1986. File taxes 2009 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. File taxes 2009 You lease the property to a person (or someone related to this person) who owned or used the property in 1986. File taxes 2009 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. File taxes 2009 Real property. File taxes 2009   You generally cannot use MACRS for real property (section 1250 property) in any of the following situations. File taxes 2009 You or someone related to you owned the property in 1986. File taxes 2009 You lease the property to a person who owned the property in 1986 (or someone related to that person). File taxes 2009 You acquired the property in a like-kind exchange, involuntary conversion, or repossession of property you or someone related to you owned in 1986. File taxes 2009 MACRS applies only to that part of your basis in the acquired property that represents cash paid or unlike property given up. File taxes 2009 It does not apply to the carried-over part of the basis. File taxes 2009 Exceptions. File taxes 2009   The rules above do not apply to the following. File taxes 2009 Residential rental property or nonresidential real property. File taxes 2009 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. File taxes 2009 For information on how to figure depreciation under ACRS, see Publication 534. File taxes 2009 Property that was MACRS property in the hands of the person from whom you acquired it because of (2) above. File taxes 2009 Related persons. File taxes 2009   For this purpose, the following are related persons. File taxes 2009 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. File taxes 2009 A corporation and an individual who directly or indirectly owns more than 10% of the value of the outstanding stock of that corporation. File taxes 2009 Two corporations that are members of the same controlled group. File taxes 2009 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. File taxes 2009 The grantor and fiduciary, and the fiduciary and beneficiary, of any trust. File taxes 2009 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. File taxes 2009 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. File taxes 2009 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. File taxes 2009 A corporation and a partnership if the same persons own both of the following. File taxes 2009 More than 10% of the value of the outstanding stock of the corporation. File taxes 2009 More than 10% of the capital or profits interest in the partnership. File taxes 2009 The executor and beneficiary of any estate. File taxes 2009 A partnership and a person who directly or indirectly owns more than 10% of the capital or profits interest in the partnership. File taxes 2009 Two partnerships, if the same persons directly or indirectly own more than 10% of the capital or profits interest in each. File taxes 2009 The related person and a person who is engaged in trades or businesses under common control. File taxes 2009 See section 52(a) and 52(b) of the Internal Revenue Code. File taxes 2009 When to determine relationship. File taxes 2009   You must determine whether you are related to another person at the time you acquire the property. File taxes 2009   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. File taxes 2009 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. File taxes 2009 Constructive ownership of stock or partnership interest. File taxes 2009   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. File taxes 2009 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. File taxes 2009 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. File taxes 2009 An individual is considered to own the stock or partnership interest directly or indirectly owned by or for the individual's family. File taxes 2009 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. File taxes 2009 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. File taxes 2009 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. File taxes 2009 Intangible Property Generally, if you can depreciate intangible property, you usually use the straight line method of depreciation. File taxes 2009 However, you can choose to depreciate certain intangible property under the income forecast method (discussed later). File taxes 2009 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. File taxes 2009 Straight Line Method This method lets you deduct the same amount of depreciation each year over the useful life of the property. File taxes 2009 To figure your deduction, first determine the adjusted basis, salvage value, and estimated useful life of your property. File taxes 2009 Subtract the salvage value, if any, from the adjusted basis. File taxes 2009 The balance is the total depreciation you can take over the useful life of the property. File taxes 2009 Divide the balance by the number of years in the useful life. File taxes 2009 This gives you your yearly depreciation deduction. File taxes 2009 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. File taxes 2009 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. File taxes 2009 Example. File taxes 2009 In April, Frank bought a patent for $5,100 that is not a section 197 intangible. File taxes 2009 He depreciates the patent under the straight line method, using a 17-year useful life and no salvage value. File taxes 2009 He divides the $5,100 basis by 17 years to get his $300 yearly depreciation deduction. File taxes 2009 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. File taxes 2009 Next year, Frank can deduct $300 for the full year. File taxes 2009 Patents and copyrights. File taxes 2009   If you can depreciate the cost of a patent or copyright, use the straight line method over the useful life. File taxes 2009 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. File taxes 2009 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. File taxes 2009 Computer software. File taxes 2009   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. File taxes 2009   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. File taxes 2009 It is readily available for purchase by the general public. File taxes 2009 It is subject to a nonexclusive license. File taxes 2009 It has not been substantially modified. File taxes 2009   If the software meets the tests above, it may also qualify for the section 179 deduction and the special depreciation allowance, discussed later. File taxes 2009 If you can depreciate the cost of computer software, use the straight line method over a useful life of 36 months. File taxes 2009    Tax-exempt use property subject to a lease. File taxes 2009   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. File taxes 2009 Certain created intangibles. File taxes 2009   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. File taxes 2009 For example, amounts paid to acquire memberships or privileges of indefinite duration, such as a trade association membership, are eligible costs. File taxes 2009   The following are not eligible. File taxes 2009 Any intangible asset acquired from another person. File taxes 2009 Created financial interests. File taxes 2009 Any intangible asset that has a useful life that can be estimated with reasonable accuracy. File taxes 2009 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. File taxes 2009 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. File taxes 2009   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. File taxes 2009 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. File taxes 2009 Income Forecast Method You can choose to use the income forecast method instead of the straight line method to depreciate the following depreciable intangibles. File taxes 2009 Motion picture films or video tapes. File taxes 2009 Sound recordings. File taxes 2009 Copyrights. File taxes 2009 Books. File taxes 2009 Patents. File taxes 2009 Under the income forecast method, each year's depreciation deduction is equal to the cost of the property, multiplied by a fraction. File taxes 2009 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. File taxes 2009 For more information, see section 167(g) of the Internal Revenue Code. File taxes 2009 Films, video tapes, and recordings. File taxes 2009   You cannot use MACRS for motion picture films, video tapes, and sound recordings. File taxes 2009 For this purpose, sound recordings are discs, tapes, or other phonorecordings resulting from the fixation of a series of sounds. File taxes 2009 You can depreciate this property using either the straight line method or the income forecast method. File taxes 2009 Participations and residuals. File taxes 2009   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. File taxes 2009 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. File taxes 2009 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. File taxes 2009   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. File taxes 2009 Videocassettes. File taxes 2009   If you are in the business of renting videocassettes, you can depreciate only those videocassettes bought for rental. File taxes 2009 If the videocassette has a useful life of one year or less, you can currently deduct the cost as a business expense. File taxes 2009 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. File taxes 2009 You must continue to use the same depreciation method as the transferor and figure depreciation as if the transfer had not occurred. File taxes 2009 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. File taxes 2009 The nontaxable transfers covered by this rule include the following. File taxes 2009 A distribution in complete liquidation of a subsidiary. File taxes 2009 A transfer to a corporation controlled by the transferor. File taxes 2009 An exchange of property solely for corporate stock or securities in a reorganization. File taxes 2009 A contribution of property to a partnership in exchange for a partnership interest. File taxes 2009 A partnership distribution of property to a partner. File taxes 2009 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. File taxes 2009 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. File taxes 2009 You must make this election by the return due date (including extensions) for the tax year you place your property in service. File taxes 2009 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). File taxes 2009 Attach the election to the amended return and write “Filed pursuant to section 301. File taxes 2009 9100-2” on the election statement. File taxes 2009 File the amended return at the same address you filed the original return. File taxes 2009 Use of standard mileage rate. File taxes 2009   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. File taxes 2009 See Publication 463 for a discussion of the standard mileage rate. File taxes 2009 What Is the Basis of Your Depreciable Property? To figure your depreciation deduction, you must determine the basis of your property. File taxes 2009 To determine basis, you need to know the cost or other basis of your property. File taxes 2009 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. File taxes 2009 The cost includes the amount you pay in cash, debt obligations, other property, or services. File taxes 2009 Exception. File taxes 2009   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). File taxes 2009 If you make that choice, you cannot include those sales taxes as part of your cost basis. File taxes 2009 Assumed debt. File taxes 2009   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. File taxes 2009 Example. File taxes 2009 You make a $20,000 down payment on property and assume the seller's mortgage of $120,000. File taxes 2009 Your total cost is $140,000, the cash you paid plus the mortgage you assumed. File taxes 2009 Settlement costs. File taxes 2009   The basis of real property also includes certain fees and charges you pay in addition to the purchase price. File taxes 2009 These generally are shown on your settlement statement and include the following. File taxes 2009 Legal and recording fees. File taxes 2009 Abstract fees. File taxes 2009 Survey charges. File taxes 2009 Owner's title insurance. File taxes 2009 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. File taxes 2009   For fees and charges you cannot include in the basis of property, see Real Property in Publication 551. File taxes 2009 Property you construct or build. File taxes 2009   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. File taxes 2009 For information about the uniform capitalization rules, see Publication 551 and the regulations under section 263A of the Internal Revenue Code. File taxes 2009 Other Basis Other basis usually refers to basis that is determined by the way you received the property. File taxes 2009 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. File taxes 2009 If you acquired property in this or some other way, see Publication 551 to determine your basis. File taxes 2009 Property changed from personal use. File taxes 2009   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. File taxes 2009 The fair market value (FMV) of the property on the date of the change in use. File taxes 2009 Your original cost or other basis adjusted as follows. File taxes 2009 Increased by the cost of any permanent improvements or additions and other costs that must be added to basis. File taxes 2009 Decreased by any deductions you claimed for casualty and theft losses and other items that reduced your basis. File taxes 2009 Example. File taxes 2009 Several years ago, Nia paid $160,000 to have her home built on a lot that cost her $25,000. File taxes 2009 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. File taxes 2009 Land is not depreciable, so she includes only the cost of the house when figuring the basis for depreciation. File taxes 2009 Nia's adjusted basis in the house when she changed its use was $178,000 ($160,000 + $20,000 − $2,000). File taxes 2009 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. File taxes 2009 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). File taxes 2009 Property acquired in a nontaxable transaction. File taxes 2009   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. File taxes 2009 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. File taxes 2009 See Like-kind exchanges and involuntary conversions. File taxes 2009 under How Much Can You Deduct? in chapter 3 and Figuring the Deduction for Property Acquired in a Nontaxable Exchange in chapter 4. File taxes 2009   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. File taxes 2009 See How Do You Use General Asset Accounts in chapter 4. File taxes 2009 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. File taxes 2009 These events could include the following. File taxes 2009 Installing utility lines. File taxes 2009 Paying legal fees for perfecting the title. File taxes 2009 Settling zoning issues. File taxes 2009 Receiving rebates. File taxes 2009 Incurring a casualty or theft loss. File taxes 2009 For a discussion of adjustments to the basis of your property, see Adjusted Basis in Publication 551. File taxes 2009 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. File taxes 2009 For more information, see What Is the Basis for Depreciation in chapter 4. File taxes 2009 . File taxes 2009 Basis adjustment for depreciation allowed or allowable. File taxes 2009   You must reduce the basis of property by the depreciation allowed or allowable, whichever is greater. File taxes 2009 Depreciation allowed is depreciation you actually deducted (from which you received a tax benefit). File taxes 2009 Depreciation allowable is depreciation you are entitled to deduct. File taxes 2009   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. File taxes 2009   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). File taxes 2009 How Do You Treat Repairs and Improvements? If you improve depreciable property, you must treat the improvement as separate depreciable property. File taxes 2009 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. File taxes 2009 You generally deduct the cost of repairing business property in the same way as any other business expense. File taxes 2009 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. File taxes 2009 Example. File taxes 2009 You repair a small section on one corner of the roof of a rental house. File taxes 2009 You deduct the cost of the repair as a rental expense. File taxes 2009 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. File taxes 2009 You depreciate the cost of the new roof. File taxes 2009 Improvements to rented property. File taxes 2009   You can depreciate permanent improvements you make to business property you rent from someone else. File taxes 2009 Do You Have To File Form 4562? Use Form 4562 to figure your deduction for depreciation and amortization. File taxes 2009 Attach Form 4562 to your tax return for the current tax year if you are claiming any of the following items. File taxes 2009 A section 179 deduction for the current year or a section 179 carryover from a prior year. File taxes 2009 See chapter 2 for information on the section 179 deduction. File taxes 2009 Depreciation for property placed in service during the current year. File taxes 2009 Depreciation on any vehicle or other listed property, regardless of when it was placed in service. File taxes 2009 See chapter 5 for information on listed property. File taxes 2009 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). File taxes 2009 Amortization of costs if the current year is the first year of the amortization period. File taxes 2009 Depreciation or amortization on any asset on a corporate income tax return (other than Form 1120S, U. File taxes 2009 S. File taxes 2009 Income Tax Return for an S Corporation) regardless of when it was placed in service. File taxes 2009 You must submit a separate Form 4562 for each business or activity on your return for which a Form 4562 is required. File taxes 2009 Table 1-1 presents an overview of the purpose of the various parts of Form 4562. File taxes 2009 Employee. File taxes 2009   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. File taxes 2009 Instead, use either Form 2106 or Form 2106-EZ. File taxes 2009 Use Form 2106-EZ if you are claiming the standard mileage rate and you are not reimbursed by your employer for any expenses. File taxes 2009 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. File taxes 2009 See Filing an Amended Return , next. File taxes 2009 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. File taxes 2009 See Changing Your Accounting Method , later. File taxes 2009 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. File taxes 2009 You claimed the incorrect amount because of a mathematical error made in any year. File taxes 2009 You claimed the incorrect amount because of a posting error made in any year. File taxes 2009 You have not adopted a method of accounting for property placed in service by you in tax years ending after December 29, 2003. File taxes 2009 You claimed the incorrect amount on property placed in service by you in tax years ending before December 30, 2003. File taxes 2009 Adoption of accounting method defined. File taxes 2009   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. File taxes 2009   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. File taxes 2009 irs. File taxes 2009 gov/pub/irs-irbs/irb11-04. File taxes 2009 pdf. File taxes 2009 (Note. File taxes 2009 Revenue Procedure 2011-14 is clarified and modified by Revenue Procedure 2012-20. File taxes 2009 For more information, see Revenue Procedure 2012-20 on page 700 of the Internal Revenue Bulletin 2012-14, available at www. File taxes 2009 irs. File taxes 2009 gov/pub/irs-irbs/irb12-14. File taxes 2009 pdf. File taxes 2009 )   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. File taxes 2009 irs. File taxes 2009 gov/pub/irs-irbs/irb07-29. File taxes 2009 pdf. File taxes 2009 When to file. File taxes 2009   If an amended return is allowed, you must file it by the later of the following. File taxes 2009 3 years from the date you filed your original return for the year in which you did not deduct the correct amount. File taxes 2009 A return filed before an unextended due date is considered filed on that due date. File taxes 2009 2 years from the time you paid your tax for that year. File taxes 2009 Changing Your Accounting Method Generally, you must get IRS approval to change your method of accounting. File taxes 2009 You generally must file Form 3115, Application for Change in Accounting Method, to request a change in your method of accounting for depreciation. File taxes 2009 The following are examples of a change in method of accounting for depreciation. File taxes 2009 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. File taxes 2009 A change in the treatment of an asset from nondepreciable to depreciable or vice versa. File taxes 2009 A change in the depreciation method, period of recovery, or convention of a depreciable asset. File taxes 2009 A change from not claiming to claiming the special depreciation allowance if you did not make the election to not claim any special allowance. File taxes 2009 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). File taxes 2009 Changes in depreciation that are not a change in method of accounting (and may only be made on an amended return) include the following. File taxes 2009 An adjustment in the useful life of a depreciable asset for which depreciation is determined under section 167. File taxes 2009 A change in use of an asset in the hands of the same taxpayer. File taxes 2009 Making a late depreciation election or revoking a timely valid depreciation election (including the election not to deduct the special depreciation allowance). File taxes 2009 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. File taxes 2009 Generally, you must get IRS approval to make a late depreciation election or revoke a depreciation election. File taxes 2009 You must submit a request for a letter ruling to make a late election or revoke an election. File taxes 2009 Any change in the placed in service date of a depreciable asset. File taxes 2009 See section 1. File taxes 2009 446-1(e)(2)(ii)(d) of the regulations for more information and examples. File taxes 2009 IRS approval. File taxes 2009   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. File taxes 2009 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. File taxes 2009 B. File taxes 2009 680. File taxes 2009 Also see the Instructions for Form 3115 for more information on getting approval, including lists of scope limitations and automatic accounting method changes. File taxes 2009 Additional guidance. File taxes 2009    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. File taxes 2009 irs. File taxes 2009 gov/pub/irs-irbs/irb11-04. File taxes 2009 pdf. File taxes 2009 (Note. File taxes 2009 Revenue Procedure 2011-14 is clarified and modified by Revenue Procedure 2012-20. File taxes 2009 For more information, see Revenue Procedure 2012-20 on page 700 of the Internal Revenue Bulletin 2012-14, available at www. File taxes 2009 irs. File taxes 2009 gov/pub/irs-irbs/irb12-14. File taxes 2009 pdf. File taxes 2009 )   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. File taxes 2009 irs. File taxes 2009 gov/pub/irs-irbs/irb07-29. File taxes 2009 pdf. File taxes 2009 Table 1-1. File taxes 2009 Purpose of Form 4562 This table describes the purpose of the various parts of Form 4562. File taxes 2009 For more information, see Form 4562 and its instructions. File taxes 2009 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. File taxes 2009   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. File taxes 2009 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. File taxes 2009 If no depreciation was deducted, the adjustment is the total depreciation allowable prior to the year of change. File taxes 2009 A negative section 481(a) adjustment results in a decrease in taxable income. File taxes 2009 It is taken into account in the year of change and is reported on your business tax returns as “other expenses. File taxes 2009 ” A positive section 481(a) adjustment results in an increase in taxable income. File taxes 2009 It is generally taken into account over 4 tax years and is reported on your business tax returns as “other income. File taxes 2009 ” 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. File taxes 2009 Make the election by completing the appropriate line on Form 3115. File taxes 2009   If you file a Form 3115 and change from one permissible method to another permissible method, the section 481(a) adjustment is zero. File taxes 2009 Prev  Up  Next   Home   More Online Publications