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File taxes online 24. File taxes online   Contributions Table of Contents Introduction Useful Items - You may want to see: Organizations That Qualify To Receive Deductible ContributionsTypes of Qualified Organizations Contributions You Can DeductContributions From Which You Benefit Expenses Paid for Student Living With You Out-of-Pocket Expenses in Giving Services Contributions You Cannot DeductContributions to Individuals Contributions to Nonqualified Organizations Contributions From Which You Benefit Value of Time or Services Personal Expenses Appraisal Fees Contributions of PropertyException. File taxes online Household items. File taxes online Deduction more than $500. File taxes online Form 1098-C. File taxes online Filing deadline approaching and still no Form 1098-C. File taxes online Exception 1—vehicle used or improved by organization. File taxes online Exception 2—vehicle given or sold to needy individual. File taxes online Deduction $500 or less. File taxes online Right to use property. File taxes online Tangible personal property. File taxes online Future interest. File taxes online Determining Fair Market Value Giving Property That Has Decreased in Value Giving Property That Has Increased in Value When To DeductChecks. File taxes online Text message. File taxes online Credit card. File taxes online Pay-by-phone account. File taxes online Stock certificate. File taxes online Promissory note. File taxes online Option. File taxes online Borrowed funds. File taxes online Limits on DeductionsCarryovers Records To KeepCash Contributions Noncash Contributions Out-of-Pocket Expenses How To Report Introduction This chapter explains how to claim a deduction for your charitable contributions. File taxes online It discusses the following topics. File taxes online The types of organizations to which you can make deductible charitable contributions. File taxes online The types of contributions you can deduct. File taxes online How much you can deduct. File taxes online What records you must keep. File taxes online How to report your charitable contributions. File taxes online A charitable contribution is a donation or gift to, or for the use of, a qualified organization. File taxes online It is voluntary and is made without getting, or expecting to get, anything of equal value. File taxes online Form 1040 required. File taxes online    To deduct a charitable contribution, you must file Form 1040 and itemize deductions on Schedule A. File taxes online The amount of your deduction may be limited if certain rules and limits explained in this chapter apply to you. File taxes online The limits are explained in detail in Publication 526. File taxes online Useful Items - You may want to see: Publication 526 Charitable Contributions 561 Determining the Value of Donated Property Form (and Instructions) Schedule A (Form 1040) Itemized Deductions 8283 Noncash Charitable Contributions Organizations That Qualify To Receive Deductible Contributions You can deduct your contributions only if you make them to a qualified organization. File taxes online Most organizations other than churches and governments must apply to the IRS to become a qualified organization. File taxes online How to check whether an organization can receive deductible charitable contributions. File taxes online   You can ask any organization whether it is a qualified organization, and most will be able to tell you. File taxes online Or go to IRS. File taxes online gov. File taxes online Click on “Tools” and then on “Exempt Organizations Select Check” (www. File taxes online irs. File taxes online gov/Charities-&-Non-Profits/Exempt-Organizations-Select-Check). File taxes online This online tool will enable you to search for qualified organizations. File taxes online You can also call the IRS to find out if an organization is qualified. File taxes online Call 1-877-829-5500. File taxes online People who are deaf, hard of hearing, or have a speech disability and who have access to TTY/TDD equipment can call 1-800-829-4059. File taxes online Deaf or hard of hearing individuals can also contact the IRS through relay services such as the Federal Relay Service at www. File taxes online gsa. File taxes online gov/fedrelay. File taxes online Types of Qualified Organizations Generally, only the following types of organizations can be qualified organizations. File taxes online A community chest, corporation, trust, fund, or foundation organized or created in or under the laws of the United States, any state, the District of Columbia, or any possession of the United States (including Puerto Rico). File taxes online It must, however, be organized and operated only for charitable, religious, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals. File taxes online Certain organizations that foster national or international amateur sports competition also qualify. File taxes online War veterans' organizations, including posts, auxiliaries, trusts, or foundations, organized in the United States or any of its possessions (including Puerto Rico). File taxes online Domestic fraternal societies, orders, and associations operating under the lodge system. File taxes online (Your contribution to this type of organization is deductible only if it is to be used solely for charitable, religious, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals. File taxes online ) Certain nonprofit cemetery companies or corporations. File taxes online (Your contribution to this type of organization is not deductible if it can be used for the care of a specific lot or mausoleum crypt. File taxes online ) The United States or any state, the District of Columbia, a U. File taxes online S. File taxes online possession (including Puerto Rico), a political subdivision of a state or U. File taxes online S. File taxes online possession, or an Indian tribal government or any of its subdivisions that perform substantial government functions. File taxes online (Your contribution to this type of organization is only deductible if it is to be used solely for public purposes. File taxes online ) Examples. File taxes online    The following list gives some examples of qualified organizations. File taxes online Churches, a convention or association of churches, temples, synagogues, mosques, and other religious organizations. File taxes online Most nonprofit charitable organizations such as the American Red Cross and the United Way. File taxes online Most nonprofit educational organizations, including the Boy Scouts of America, Girl Scouts of America, colleges, and museums. File taxes online This also includes nonprofit daycare centers that provide childcare to the general public if substantially all the childcare is provided to enable parents and guardians to be gainfully employed. File taxes online However, if your contribution is a substitute for tuition or other enrollment fee, it is not deductible as a charitable contribution, as explained later under Contributions You Cannot Deduct . File taxes online Nonprofit hospitals and medical research organizations. File taxes online Utility company emergency energy programs, if the utility company is an agent for a charitable organization that assists individuals with emergency energy needs. File taxes online Nonprofit volunteer fire companies. File taxes online Nonprofit organizations that develop and maintain public parks and recreation facilities. File taxes online Civil defense organizations. File taxes online Certain foreign charitable organizations. File taxes online   Under income tax treaties with Canada, Israel, and Mexico, you may be able to deduct contributions to certain Canadian, Israeli, or Mexican charitable organizations. File taxes online Generally, you must have income from sources in that country. File taxes online For additional information on the deduction of contributions to Canadian charities, see Publication 597, Information on the United States–Canada Income Tax Treaty. File taxes online If you need more information on how to figure your contribution to Mexican and Israeli charities, see Publication 526. File taxes online Contributions You Can Deduct Generally, you can deduct contributions of money or property you make to, or for the use of, a qualified organization. File taxes online A contribution is “for the use of” a qualified organization when it is held in a legally enforceable trust for the qualified organization or in a similar legal arrangement. File taxes online The contributions must be made to a qualified organization and not set aside for use by a specific person. File taxes online If you give property to a qualified organization, you generally can deduct the fair market value of the property at the time of the contribution. File taxes online See Contributions of Property , later in this chapter. File taxes online Your deduction for charitable contributions generally cannot be more than 50% of your adjusted gross income (AGI), but in some cases 20% and 30% limits may apply. File taxes online See Limits on Deductions , later. File taxes online In addition, the total of your charitable contribution deduction and certain other itemized deductions may be limited. File taxes online See chapter 29. File taxes online Table 24-1 gives examples of contributions you can and cannot deduct. File taxes online Contributions From Which You Benefit If you receive a benefit as a result of making a contribution to a qualified organization, you can deduct only the amount of your contribution that is more than the value of the benefit you receive. File taxes online Also see Contributions From Which You Benefit under Contributions You Cannot Deduct, later. File taxes online If you pay more than fair market value to a qualified organization for goods or services, the excess may be a charitable contribution. File taxes online For the excess amount to qualify, you must pay it with the intent to make a charitable contribution. File taxes online Example 1. File taxes online You pay $65 for a ticket to a dinner-dance at a church. File taxes online Your entire $65 payment goes to the church. File taxes online The ticket to the dinner-dance has a fair market value of $25. File taxes online When you buy your ticket, you know that its value is less than your payment. File taxes online To figure the amount of your charitable contribution, subtract the value of the benefit you receive ($25) from your total payment ($65). File taxes online You can deduct $40 as a contribution to the church. File taxes online Example 2. File taxes online At a fundraising auction conducted by a charity, you pay $600 for a week's stay at a beach house. File taxes online The amount you pay is no more than the fair rental value. File taxes online You have not made a deductible charitable contribution. File taxes online Athletic events. File taxes online   If you make a payment to, or for the benefit of, a college or university and, as a result, you receive the right to buy tickets to an athletic event in the athletic stadium of the college or university, you can deduct 80% of the payment as a charitable contribution. File taxes online   If any part of your payment is for tickets (rather than the right to buy tickets), that part is not deductible. File taxes online Subtract the price of the tickets from your payment. File taxes online You can deduct 80% of the remaining amount as a charitable contribution. File taxes online Example 1. File taxes online You pay $300 a year for membership in a university's athletic scholarship program. File taxes online The only benefit of membership is that you have the right to buy one season ticket for a seat in a designated area of the stadium at the university's home football games. File taxes online You can deduct $240 (80% of $300) as a charitable contribution. File taxes online Table 24-1. File taxes online Examples of Charitable Contributions—A Quick Check Use the following lists for a quick check of whether you can deduct a contribution. File taxes online See the rest of this chapter for more information and additional rules and limits that may apply. File taxes online Deductible As  Charitable Contributions Not Deductible  As Charitable Contributions Money or property you give to:  Churches, synagogues, temples, mosques, and other religious organizations Federal, state, and local governments, if your contribution is solely for public purposes (for example, a gift to reduce the public debt or maintain a public park) Nonprofit schools and hospitals The Salvation Army, American Red Cross, CARE, Goodwill Industries, United Way, Boy Scouts of America, Girl Scouts of America, Boys and Girls Clubs of America, etc. File taxes online War veterans groups   Expenses paid for a student living with you, sponsored by a qualified organization  Out-of-pocket expenses when you serve a qualified organization as a volunteer Money or property you give to:  Civic leagues, social and sports clubs, labor unions, and chambers of commerce Foreign organizations (except certain Canadian, Israeli, and Mexican charities) Groups that are run for personal profit Groups whose purpose is to lobby for law changes Homeowners' associations Individuals Political groups or candidates for public office   Cost of raffle, bingo, or lottery tickets  Dues, fees, or bills paid to country clubs, lodges, fraternal orders, or similar groups  Tuition  Value of your time or services  Value of blood given to a blood bank    Example 2. File taxes online The facts are the same as in Example 1 except your $300 payment includes the purchase of one season ticket for the stated ticket price of $120. File taxes online You must subtract the usual price of a ticket ($120) from your $300 payment. File taxes online The result is $180. File taxes online Your deductible charitable contribution is $144 (80% of $180). File taxes online Charity benefit events. File taxes online   If you pay a qualified organization more than fair market value for the right to attend a charity ball, banquet, show, sporting event, or other benefit event, you can deduct only the amount that is more than the value of the privileges or other benefits you receive. File taxes online   If there is an established charge for the event, that charge is the value of your benefit. File taxes online If there is no established charge, the reasonable value of the right to attend the event is the value of your benefit. File taxes online Whether you use the tickets or other privileges has no effect on the amount you can deduct. File taxes online However, if you return the ticket to the qualified organization for resale, you can deduct the entire amount you paid for the ticket. File taxes online    Even if the ticket or other evidence of payment indicates that the payment is a “contribution,” this does not mean you can deduct the entire amount. File taxes online If the ticket shows the price of admission and the amount of the contribution, you can deduct the contribution amount. File taxes online Example. File taxes online You pay $40 to see a special showing of a movie for the benefit of a qualified organization. File taxes online Printed on the ticket is “Contribution—$40. File taxes online ” If the regular price for the movie is $8, your contribution is $32 ($40 payment − $8 regular price). File taxes online Membership fees or dues. File taxes online    You may be able to deduct membership fees or dues you pay to a qualified organization. File taxes online However, you can deduct only the amount that is more than the value of the benefits you receive. File taxes online    You cannot deduct dues, fees, or assessments paid to country clubs and other social organizations. File taxes online They are not qualified organizations. File taxes online Certain membership benefits can be disregarded. File taxes online   Both you and the organization can disregard the following membership benefits if you receive them in return for an annual payment of $75 or less. File taxes online Any rights or privileges, other than those discussed under Athletic events , earlier, that you can use frequently while you are a member, such as: Free or discounted admission to the organization's facilities or events, Free or discounted parking, Preferred access to goods or services, and Discounts on the purchase of goods and services. File taxes online Admission, while you are a member, to events open only to members of the organization, if the organization reasonably projects that the cost per person (excluding any allocated overhead) is not more than $10. File taxes online 20. File taxes online Token items. File taxes online   You do not have to reduce your contribution by the value of any benefit you receive if both of the following are true. File taxes online You receive only a small item or other benefit of token value. File taxes online The qualified organization correctly determines that the value of the item or benefit you received is not substantial and informs you that you can deduct your payment in full. File taxes online Written statement. File taxes online   A qualified organization must give you a written statement if you make a payment of more than $75 that is partly a contribution and partly for goods or services. File taxes online The statement must say that you can deduct only the amount of your payment that is more than the value of the goods or services you received. File taxes online It must also give you a good faith estimate of the value of those goods or services. File taxes online   The organization can give you the statement either when it solicits or when it receives the payment from you. File taxes online Exception. File taxes online   An organization will not have to give you this statement if one of the following is true. File taxes online The organization is: A governmental organization described in (5) under Types of Qualified Organizations , earlier, or An organization formed only for religious purposes, and the only benefit you receive is an intangible religious benefit (such as admission to a religious ceremony) that generally is not sold in commercial transactions outside the donative context. File taxes online You receive only items whose value is not substantial as described under Token items , earlier. File taxes online You receive only membership benefits that can be disregarded, as described earlier. File taxes online Expenses Paid for Student Living With You You may be able to deduct some expenses of having a student live with you. File taxes online You can deduct qualifying expenses for a foreign or American student who: Lives in your home under a written agreement between you and a qualified organization as part of a program of the organization to provide educational opportunities for the student, Is not your relative or dependent, and Is a full-time student in the twelfth or any lower grade at a school in the United States. File taxes online You can deduct up to $50 a month for each full calendar month the student lives with you. File taxes online Any month when conditions (1) through (3) are met for 15 days or more counts as a full month. File taxes online For additional information, see Expenses Paid for Student Living With You in Publication 526. File taxes online Mutual exchange program. File taxes online   You cannot deduct the costs of a foreign student living in your home under a mutual exchange program through which your child will live with a family in a foreign country. File taxes online Table 24-2. File taxes online Volunteers' Questions and Answers If you volunteer for a qualified organization, the following questions and answers may apply to you. File taxes online All of the rules explained in this chapter also apply. File taxes online See, in particular, Out-of-Pocket Expenses in Giving Services . File taxes online Question Answer I volunteer 6 hours a week in the office of a qualified organization. File taxes online The receptionist is paid $10 an hour for the same work. File taxes online Can I deduct $60 a week for my time?    No, you cannot deduct the value of your time or services. File taxes online The office is 30 miles from my home. File taxes online Can I deduct any of my car expenses for these trips? Yes, you can deduct the costs of gas and oil that are directly related to getting to and from the place where you volunteer. File taxes online If you don't want to figure your actual costs, you can deduct 14 cents for each mile. File taxes online I volunteer as a Red Cross nurse's aide at a hospital. File taxes online Can I deduct the cost of the uniforms I must wear? Yes, you can deduct the cost of buying and cleaning your uniforms if the hospital is a qualified organization, the uniforms are not suitable for everyday use, and you must wear them when volunteering. File taxes online I pay a babysitter to watch my children while I volunteer for a qualified organization. File taxes online Can I deduct these costs? No, you cannot deduct payments for childcare expenses as a charitable contribution, even if you would be unable to volunteer without childcare. File taxes online (If you have childcare expenses so you can work for pay, see chapter 32. File taxes online ) Out-of-Pocket Expenses in Giving Services Although you cannot deduct the value of your services given to a qualified organization, you may be able to deduct some amounts you pay in giving services to a qualified organization. File taxes online The amounts must be: Unreimbursed, Directly connected with the services, Expenses you had only because of the services you gave, and Not personal, living, or family expenses. File taxes online Table 24-2 contains questions and answers that apply to some individuals who volunteer their services. File taxes online Conventions. File taxes online   If a qualified organization selects you to attend a convention as its representative, you can deduct unreimbursed expenses for travel, including reasonable amounts for meals and lodging, while away from home overnight in connection with the convention. File taxes online However, see Travel , later. File taxes online   You cannot deduct personal expenses for sightseeing, fishing parties, theater tickets, or nightclubs. File taxes online You also cannot deduct transportation, meals and lodging, and other expenses for your spouse or children. File taxes online    You cannot deduct your travel expenses in attending a church convention if you go only as a member of your church rather than as a chosen representative. File taxes online You can, however, deduct unreimbursed expenses that are directly connected with giving services for your church during the convention. File taxes online Uniforms. File taxes online   You can deduct the cost and upkeep of uniforms that are not suitable for everyday use and that you must wear while performing donated services for a charitable organization. File taxes online Foster parents. File taxes online   You may be able to deduct as a charitable contribution some of the costs of being a foster parent (foster care provider) if you have no profit motive in providing the foster care and are not, in fact, making a profit. File taxes online A qualified organization must select the individuals you take into your home for foster care. File taxes online    You can deduct expenses that meet both of the following requirements. File taxes online They are unreimbursed out-of-pocket expenses to feed, clothe, and care for the foster child. File taxes online They are incurred primarily to benefit the qualified organization. File taxes online   Unreimbursed expenses that you cannot deduct as charitable contributions may be considered support provided by you in determining whether you can claim the foster child as a dependent. File taxes online For details, see chapter 3. File taxes online Example. File taxes online You cared for a foster child because you wanted to adopt her, not to benefit the agency that placed her in your home. File taxes online Your unreimbursed expenses are not deductible as charitable contributions. File taxes online Car expenses. File taxes online   You can deduct as a charitable contribution any unreimbursed out-of-pocket expenses, such as the cost of gas and oil, that are directly related to the use of your car in giving services to a charitable organization. File taxes online You cannot deduct general repair and maintenance expenses, depreciation, registration fees, or the costs of tires or insurance. File taxes online    If you do not want to deduct your actual expenses, you can use a standard mileage rate of 14 cents a mile to figure your contribution. File taxes online   You can deduct parking fees and tolls whether you use your actual expenses or the standard mileage rate. File taxes online   You must keep reliable written records of your car expenses. File taxes online For more information, see Car expenses under Records To Keep, later. File taxes online Travel. File taxes online   Generally, you can claim a charitable contribution deduction for travel expenses necessarily incurred while you are away from home performing services for a charitable organization only if there is no significant element of personal pleasure, recreation, or vacation in the travel. File taxes online This applies whether you pay the expenses directly or indirectly. File taxes online You are paying the expenses indirectly if you make a payment to the charitable organization and the organization pays for your travel expenses. File taxes online   The deduction for travel expenses will not be denied simply because you enjoy providing services to the charitable organization. File taxes online Even if you enjoy the trip, you can take a charitable contribution deduction for your travel expenses if you are on duty in a genuine and substantial sense throughout the trip. File taxes online However, if you have only nominal duties, or if for significant parts of the trip you do not have any duties, you cannot deduct your travel expenses. File taxes online Example 1. File taxes online You are a troop leader for a tax-exempt youth group and you take the group on a camping trip. File taxes online You are responsible for overseeing the setup of the camp and for providing adult supervision for other activities during the entire trip. File taxes online You participate in the activities of the group and enjoy your time with them. File taxes online You oversee the breaking of camp and you transport the group home. File taxes online You can deduct your travel expenses. File taxes online Example 2. File taxes online You sail from one island to another and spend 8 hours a day counting whales and other forms of marine life. File taxes online The project is sponsored by a charitable organization. File taxes online In most circumstances, you cannot deduct your expenses. File taxes online Example 3. File taxes online You work for several hours each morning on an archaeological dig sponsored by a charitable organization. File taxes online The rest of the day is free for recreation and sightseeing. File taxes online You cannot take a charitable contribution deduction even though you work very hard during those few hours. File taxes online Example 4. File taxes online You spend the entire day attending a charitable organization's regional meeting as a chosen representative. File taxes online In the evening you go to the theater. File taxes online You can claim your travel expenses as charitable contributions, but you cannot claim the cost of your evening at the theater. File taxes online Daily allowance (per diem). File taxes online   If you provide services for a charitable organization and receive a daily allowance to cover reasonable travel expenses, including meals and lodging while away from home overnight, you must include in income any part of the allowance that is more than your deductible travel expenses. File taxes online You may be able to deduct any necessary travel expenses that are more than the allowance. File taxes online Deductible travel expenses. File taxes online   These include: Air, rail, and bus transportation, Out-of-pocket expenses for your car, Taxi fares or other costs of transportation between the airport or station and your hotel, Lodging costs, and The cost of meals. File taxes online Because these travel expenses are not business-related, they are not subject to the same limits as business-related expenses. File taxes online For information on business travel expenses, see Travel Expenses in chapter 26. File taxes online Contributions You Cannot Deduct There are some contributions you cannot deduct, such as those made to specific individuals and those made to nonqualified organizations. File taxes online (See Contributions to Individuals and Contributions to Nonqualified Organizations , next. File taxes online ) There are others you can deduct only part of, as discussed later under Contributions From Which You Benefit . File taxes online Contributions to Individuals You cannot deduct contributions to specific individuals, including the following. File taxes online Contributions to fraternal societies made for the purpose of paying medical or burial expenses of deceased members. File taxes online Contributions to individuals who are needy or worthy. File taxes online You cannot deduct these contributions even if you make them to a qualified organization for the benefit of a specific person. File taxes online But you can deduct a contribution to a qualified organization that helps needy or worthy individuals if you do not indicate that your contribution is for a specific person. File taxes online Example. File taxes online You can deduct contributions to a qualified organization for flood relief, hurricane relief, or other disaster relief. File taxes online However, you cannot deduct contributions earmarked for relief of a particular individual or family. File taxes online Payments to a member of the clergy that can be spent as he or she wishes, such as for personal expenses. File taxes online Expenses you paid for another person who provided services to a qualified organization. File taxes online Example. File taxes online Your son does missionary work. File taxes online You pay his expenses. File taxes online You cannot claim a deduction for your son's unreimbursed expenses related to his contribution of services. File taxes online Payments to a hospital that are for a specific patient's care or for services for a specific patient. File taxes online You cannot deduct these payments even if the hospital is operated by a city, a state, or other qualified organization. File taxes online Contributions to Nonqualified Organizations You cannot deduct contributions to organizations that are not qualified to receive tax-deductible contributions, including the following. File taxes online Certain state bar associations if: The bar is not a political subdivision of a state, The bar has private, as well as public, purposes, such as promoting the professional interests of members, and Your contribution is unrestricted and can be used for private purposes. File taxes online Chambers of commerce and other business leagues or organizations (but see chapter 28). File taxes online Civic leagues and associations. File taxes online Communist organizations. File taxes online Country clubs and other social clubs. File taxes online Most foreign organizations (other than certain Canadian, Israeli, or Mexican charitable organizations). File taxes online For details, see Publication 526. File taxes online Homeowners' associations. File taxes online Labor unions (but see chapter 28). File taxes online Political organizations and candidates. File taxes online Contributions From Which You Benefit If you receive or expect to receive a financial or economic benefit as a result of making a contribution to a qualified organization, you cannot deduct the part of the contribution that represents the value of the benefit you receive. File taxes online See Contributions From Which You Benefit under Contributions You Can Deduct, earlier. File taxes online These contributions include the following. File taxes online Contributions for lobbying. File taxes online This includes amounts that you earmark for use in, or in connection with, influencing specific legislation. File taxes online Contributions to a retirement home for room, board, maintenance, or admittance. File taxes online Also, if the amount of your contribution depends on the type or size of apartment you will occupy, it is not a charitable contribution. File taxes online Costs of raffles, bingo, lottery, etc. File taxes online You cannot deduct as a charitable contribution amounts you pay to buy raffle or lottery tickets or to play bingo or other games of chance. File taxes online For information on how to report gambling winnings and losses, see Gambling winnings in chapter 12 and Gambling Losses Up to the Amount of Gambling Winnings in chapter 28. File taxes online Dues to fraternal orders and similar groups. File taxes online However, see Membership fees or dues , earlier, under Contributions You Can Deduct. File taxes online Tuition, or amounts you pay instead of tuition. File taxes online You cannot deduct as a charitable contribution amounts you pay as tuition even if you pay them for children to attend parochial schools or qualifying nonprofit daycare centers. File taxes online You also cannot deduct any fixed amount you must pay in addition to, or instead of, tuition to enroll in a private school, even if it is designated as a “donation. File taxes online ” Value of Time or Services You cannot deduct the value of your time or services, including: Blood donations to the American Red Cross or to blood banks, and The value of income lost while you work as an unpaid volunteer for a qualified organization. File taxes online Personal Expenses You cannot deduct personal, living, or family expenses, such as the following items. File taxes online The cost of meals you eat while you perform services for a qualified organization unless it is necessary for you to be away from home overnight while performing the services. File taxes online Adoption expenses, including fees paid to an adoption agency and the costs of keeping a child in your home before adoption is final (but see Adoption Credit in chapter 37, and the instructions for Form 8839, Qualified Adoption Expenses). File taxes online You also may be able to claim an exemption for the child. File taxes online See Adopted child in chapter 3. File taxes online Appraisal Fees You cannot deduct as a charitable contribution any fees you pay to find the fair market value of donated property (but see chapter 28). File taxes online Contributions of Property If you contribute property to a qualified organization, the amount of your charitable contribution is generally the fair market value of the property at the time of the contribution. File taxes online However, if the property has increased in value, you may have to make some adjustments to the amount of your deduction. File taxes online See Giving Property That Has Increased in Value , later. File taxes online For information about the records you must keep and the information you must furnish with your return if you donate property, see Records To Keep and How To Report , later. File taxes online Clothing and household items. File taxes online   You cannot take a deduction for clothing or household items you donate unless the clothing or household items are in good used condition or better. File taxes online Exception. File taxes online   You can take a deduction for a contribution of an item of clothing or household item that is not in good used condition or better if you deduct more than $500 for it and include a qualified appraisal of it with your return. File taxes online Household items. File taxes online   Household items include: Furniture and furnishings, Electronics, Appliances, Linens, and Other similar items. File taxes online   Household items do not include: Food, Paintings, antiques, and other objects of art, Jewelry and gems, and Collections. File taxes online Cars, boats, and airplanes. File taxes online    The following rules apply to any donation of a qualified vehicle. File taxes online A qualified vehicle is: A car or any motor vehicle manufactured mainly for use on public streets, roads, and highways, A boat, or An airplane. File taxes online Deduction more than $500. File taxes online   If you donate a qualified vehicle with a claimed fair market value of more than $500, you can deduct the smaller of: The gross proceeds from the sale of the vehicle by the organization, or The vehicle's fair market value on the date of the contribution. File taxes online If the vehicle's fair market value was more than your cost or other basis, you may have to reduce the fair market value to figure the deductible amount, as described under Giving Property That Has Increased in Value , later. File taxes online Form 1098-C. File taxes online   You must attach to your return Copy B of the Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes, (or other statement containing the same information as Form 1098-C) you received from the organization. File taxes online The Form 1098-C (or other statement) will show the gross proceeds from the sale of the vehicle. File taxes online   If you e-file your return, you must: Attach Copy B of Form 1098-C to Form 8453 and mail the forms to the IRS, or Include Copy B of Form 1098-C as a pdf attachment if your software program allows it. File taxes online   If you do not attach Form 1098-C (or other statement), you cannot deduct your contribution. File taxes online    You must get Form 1098-C (or other statement) within 30 days of the sale of the vehicle. File taxes online But if exception 1 or 2 (described later) applies, you must get Form 1098-C (or other statement) within 30 days of your donation. File taxes online Filing deadline approaching and still no Form 1098-C. File taxes online   If the filing deadline is approaching and you still do not have a Form 1098-C, you have two choices. File taxes online Request an automatic 6-month extension of time to file your return. File taxes online You can get this extension by filing Form 4868, Application for Automatic Extension of Time to File U. File taxes online S. File taxes online Individual Income Tax Return. File taxes online  For more information, see Automatic Extension in chapter 1. File taxes online File the return on time without claiming the deduction for the qualified vehicle. File taxes online After receiving the Form 1098-C, file an amended return, Form 1040X, claiming the deduction. File taxes online Attach Copy B of Form 1098-C (or other statement) to the amended return. File taxes online For more information about amended returns, see Amended Returns and Claims for Refund in chapter 1. File taxes online Exceptions. File taxes online   There are two exceptions to the rules just described for deductions of more than $500. File taxes online Exception 1—vehicle used or improved by organization. File taxes online   If the qualified organization makes a significant intervening use of or material improvement to the vehicle before transferring it, you generally can deduct the vehicle's fair market value at the time of the contribution. File taxes online But if the vehicle's fair market value was more than your cost or other basis, you may have to reduce the fair market value to get the deductible amount, as described under Giving Property That Has Increased in Value , later. File taxes online The Form 1098-C (or other statement) will show whether this exception applies. File taxes online Exception 2—vehicle given or sold to needy individual. File taxes online   If the qualified organization will give the vehicle, or sell it for a price well below fair market value, to a needy individual to further the organization's charitable purpose, you generally can deduct the vehicle's fair market value at the time of the contribution. File taxes online But if the vehicle's fair market value was more than your cost or other basis, you may have to reduce the fair market value to get the deductible amount, as described under Giving Property That Has Increased in Value , later. File taxes online The Form 1098-C (or other statement) will show whether this exception applies. File taxes online   This exception does not apply if the organization sells the vehicle at auction. File taxes online In that case, you cannot deduct the vehicle's fair market value. File taxes online Example. File taxes online Anita donates a used car to a qualified organization. File taxes online She bought it 3 years ago for $9,000. File taxes online A used car guide shows the fair market value for this type of car is $6,000. File taxes online However, Anita gets a Form 1098-C from the organization showing the car was sold for $2,900. File taxes online Neither exception 1 nor exception 2 applies. File taxes online If Anita itemizes her deductions, she can deduct $2,900 for her donation. File taxes online She must attach Form 1098-C and Form 8283 to her return. File taxes online Deduction $500 or less. File taxes online   If the qualified organization sells the vehicle for $500 or less and exceptions 1 and 2 do not apply, you can deduct the smaller of: $500, or The vehicle's fair market value on the date of the contribution. File taxes online But if the vehicle's fair market value was more than your cost or other basis, you may have to reduce the fair market value to get the deductible amount, as described under Giving Property That Has Increased in Value , later. File taxes online   If the vehicle's fair market value is at least $250 but not more than $500, you must have a written statement from the qualified organization acknowledging your donation. File taxes online The statement must contain the information and meet the tests for an acknowledgment described under Deductions of At Least $250 But Not More Than $500 under Records To Keep, later. File taxes online Partial interest in property. File taxes online   Generally, you cannot deduct a charitable contribution of less than your entire interest in property. File taxes online Right to use property. File taxes online   A contribution of the right to use property is a contribution of less than your entire interest in that property and is not deductible. File taxes online For exceptions and more information, see Partial Interest in Property Not in Trust in Publication 561. File taxes online Future interests in tangible personal property. File taxes online   You cannot deduct the value of a charitable contribution of a future interest in tangible personal property until all intervening interests in and rights to the actual possession or enjoyment of the property have either expired or been turned over to someone other than yourself, a related person, or a related organization. File taxes online Tangible personal property. File taxes online   This is any property, other than land or buildings, that can be seen or touched. File taxes online It includes furniture, books, jewelry, paintings, and cars. File taxes online Future interest. File taxes online   This is any interest that is to begin at some future time, regardless of whether it is designated as a future interest under state law. File taxes online Determining Fair Market Value This section discusses general guidelines for determining the fair market value of various types of donated property. File taxes online Publication 561 contains a more complete discussion. File taxes online Fair market value is the price at which property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all the relevant facts. File taxes online Used clothing and household items. File taxes online   The fair market value of used clothing and household goods is usually far less than what you paid for them when they were new. File taxes online   For used clothing, you should claim as the value the price that buyers of used items actually pay in used clothing stores, such as consignment or thrift shops. File taxes online See Household Goods in Publication 561 for information on the valuation of household goods, such as furniture, appliances, and linens. File taxes online Example. File taxes online Dawn Greene donated a coat to a thrift store operated by her church. File taxes online She paid $300 for the coat 3 years ago. File taxes online Similar coats in the thrift store sell for $50. File taxes online The fair market value of the coat is $50. File taxes online Dawn's donation is limited to $50. File taxes online Cars, boats, and airplanes. File taxes online   If you contribute a car, boat, or airplane to a charitable organization, you must determine its fair market value. File taxes online Certain commercial firms and trade organizations publish used car pricing guides, commonly called “blue books,” containing complete dealer sale prices or dealer average prices for recent model years. File taxes online The guides may be published monthly or seasonally and for different regions of the country. File taxes online These guides also provide estimates for adjusting for unusual equipment, unusual mileage, and physical condition. File taxes online The prices are not “official” and these publications are not considered an appraisal of any specific donated property. File taxes online But they do provide clues for making an appraisal and suggest relative prices for comparison with current sales and offerings in your area. File taxes online   You can also find used car pricing information on the Internet. File taxes online Example. File taxes online You donate a used car in poor condition to a local high school for use by students studying car repair. File taxes online A used car guide shows the dealer retail value for this type of car in poor condition is $1,600. File taxes online However, the guide shows the price for a private party sale of the car is only $750. File taxes online The fair market value of the car is considered to be $750. File taxes online Large quantities. File taxes online   If you contribute a large number of the same item, fair market value is the price at which comparable numbers of the item are being sold. File taxes online Giving Property That Has Decreased in Value If you contribute property with a fair market value that is less than your basis in it, your deduction is limited to its fair market value. File taxes online You cannot claim a deduction for the difference between the property's basis and its fair market value. File taxes online Giving Property That Has Increased in Value If you contribute property with a fair market value that is more than your basis in it, you may have to reduce the fair market value by the amount of appreciation (increase in value) when you figure your deduction. File taxes online Your basis in property is generally what you paid for it. File taxes online See chapter 13 if you need more information about basis. File taxes online Different rules apply to figuring your deduction, depending on whether the property is: Ordinary income property, or Capital gain property. File taxes online Ordinary income property. File taxes online   Property is ordinary income property if you would have recognized ordinary income or short-term capital gain had you sold it at fair market value on the date it was contributed. File taxes online Examples of ordinary income property are inventory, works of art created by the donor, manuscripts prepared by the donor, and capital assets (defined in chapter 14) held 1 year or less. File taxes online Amount of deduction. File taxes online   The amount you can deduct for a contribution of ordinary income property is its fair market value minus the amount that would be ordinary income or short-term capital gain if you sold the property for its fair market value. File taxes online Generally, this rule limits the deduction to your basis in the property. File taxes online Example. File taxes online You donate stock you held for 5 months to your church. File taxes online The fair market value of the stock on the day you donate it is $1,000, but you paid only $800 (your basis). File taxes online Because the $200 of appreciation would be short-term capital gain if you sold the stock, your deduction is limited to $800 (fair market value minus the appreciation). File taxes online Capital gain property. File taxes online   Property is capital gain property if you would have recognized long-term capital gain had you sold it at fair market value on the date of the contribution. File taxes online It includes capital assets held more than 1 year, as well as certain real property and depreciable property used in your trade or business and, generally, held more than 1 year. File taxes online Amount of deduction — general rule. File taxes online   When figuring your deduction for a contribution of capital gain property, you generally can use the fair market value of the property. File taxes online Exceptions. File taxes online   In certain situations, you must reduce the fair market value by any amount that would have been long-term capital gain if you had sold the property for its fair market value. File taxes online Generally, this means reducing the fair market value to the property's cost or other basis. File taxes online Bargain sales. File taxes online   A bargain sale of property is a sale or exchange for less than the property's fair market value. File taxes online A bargain sale to a qualified organization is partly a charitable contribution and partly a sale or exchange. File taxes online A bargain sale may result in a taxable gain. File taxes online More information. File taxes online   For more information on donating appreciated property, see Giving Property That Has Increased in Value in Publication 526. File taxes online When To Deduct You can deduct your contributions only in the year you actually make them in cash or other property (or in a later carryover year, as explained later under Carryovers ). File taxes online This applies whether you use the cash or an accrual method of accounting. File taxes online Time of making contribution. File taxes online   Usually, you make a contribution at the time of its unconditional delivery. File taxes online Checks. File taxes online   A check you mail to a charity is considered delivered on the date you mail it. File taxes online Text message. File taxes online   Contributions made by text message are deductible in the year you send the text message if the contribution is charged to your telephone or wireless account. File taxes online Credit card. File taxes online    Contributions charged on your credit card are deductible in the year you make the charge. File taxes online Pay-by-phone account. File taxes online    Contributions made through a pay-by-phone account are considered delivered on the date the financial institution pays the amount. File taxes online Stock certificate. File taxes online   A properly endorsed stock certificate is considered delivered on the date of mailing or other delivery to the charity or to the charity's agent. File taxes online However, if you give a stock certificate to your agent or to the issuing corporation for transfer to the name of the charity, your contribution is not delivered until the date the stock is transferred on the books of the corporation. File taxes online Promissory note. File taxes online   If you issue and deliver a promissory note to a charity as a contribution, it is not a contribution until you make the note payments. File taxes online Option. File taxes online    If you grant a charity an option to buy real property at a bargain price, it is not a contribution until the organization exercises the option. File taxes online Borrowed funds. File taxes online   If you contribute borrowed funds, you can deduct the contribution in the year you deliver the funds to the charity, regardless of when you repay the loan. File taxes online Limits on Deductions The amount you can deduct for charitable contributions cannot be more than 50% of your adjusted gross income (AGI). File taxes online Your deduction may be further limited to 30% or 20% of your AGI, depending on the type of property you give and the type of organization you give it to. File taxes online If your total contributions for the year are 20% or less of your AGI, these limits do not apply to you. File taxes online The limits are discussed in detail under Limits on Deductions in Publication 526. File taxes online A higher limit applies to certain qualified conservation contributions. File taxes online See Publication 526 for details. File taxes online Carryovers You can carry over any contributions you cannot deduct in the current year because they exceed your adjusted-gross-income limits. File taxes online You can deduct the excess in each of the next 5 years until it is used up, but not beyond that time. File taxes online For more information, see Carryovers in Publication 526. File taxes online Records To Keep You must keep records to prove the amount of the contributions you make during the year. File taxes online The kind of records you must keep depends on the amount of your contributions and whether they are: Cash contributions, Noncash contributions, or Out-of-pocket expenses when donating your services. File taxes online Note. File taxes online An organization generally must give you a written statement if it receives a payment from you that is more than $75 and is partly a contribution and partly for goods or services. File taxes online (See Contributions From Which You Benefit under Contributions You Can Deduct, earlier. File taxes online ) Keep the statement for your records. File taxes online It may satisfy all or part of the recordkeeping requirements explained in the following discussions. File taxes online Cash Contributions Cash contributions include those paid by cash, check, electronic funds transfer, debit card, credit card, or payroll deduction. File taxes online You cannot deduct a cash contribution, regardless of the amount, unless you keep one of the following. File taxes online A bank record that shows the name of the qualified organization, the date of the contribution, and the amount of the contribution. File taxes online Bank records may include: A canceled check, A bank or credit union statement, or A credit card statement. File taxes online A receipt (or a letter or other written communication) from the qualified organization showing the name of the organization, the date of the contribution, and the amount of the contribution. File taxes online The payroll deduction records described next. File taxes online Payroll deductions. File taxes online   If you make a contribution by payroll deduction, you must keep: A pay stub, Form W-2, or other document furnished by your employer that shows the date and amount of the contribution, and A pledge card or other document prepared by or for the qualified organization that shows the name of the organization. File taxes online If your employer withheld $250 or more from a single paycheck, see Contributions of $250 or More , next. File taxes online Contributions of $250 or More You can claim a deduction for a contribution of $250 or more only if you have an acknowledgment of your contribution from the qualified organization or certain payroll deduction records. File taxes online If you made more than one contribution of $250 or more, you must have either a separate acknowledgment for each or one acknowledgment that lists each contribution and the date of each contribution and shows your total contributions. File taxes online Amount of contribution. File taxes online   In figuring whether your contribution is $250 or more, do not combine separate contributions. File taxes online For example, if you gave your church $25 each week, your weekly payments do not have to be combined. File taxes online Each payment is a separate contribution. File taxes online   If contributions are made by payroll deduction, the deduction from each paycheck is treated as a separate contribution. File taxes online   If you made a payment that is partly for goods and services, as described earlier under Contributions From Which You Benefit , your contribution is the amount of the payment that is more than the value of the goods and services. File taxes online Acknowledgment. File taxes online   The acknowledgment must meet these tests. File taxes online It must be written. File taxes online It must include: The amount of cash you contributed, Whether the qualified organization gave you any goods or services as a result of your contribution (other than certain token items and membership benefits), A description and good faith estimate of the value of any goods or services described in (b) (other than intangible religious benefits), and A statement that the only benefit you received was an intangible religious benefit, if that was the case. File taxes online The acknowledgment does not need to describe or estimate the value of an intangible religious benefit. File taxes online An intangible religious benefit is a benefit that generally is not sold in commercial transactions outside a donative (gift) context. File taxes online An example is admission to a religious ceremony. File taxes online You must get it on or before the earlier of: The date you file your return for the year you make the contribution, or The due date, including extensions, for filing the return. File taxes online   If the acknowledgment does not show the date of the contribution, you must also have a bank record or receipt, as described earlier, that does show the date of the contribution. File taxes online If the acknowledgment shows the date of the contribution and meets the other tests just described, you do not need any other records. File taxes online Payroll deductions. File taxes online   If you make a contribution by payroll deduction and your employer withholds $250 or more from a single paycheck, you must keep: A pay stub, Form W-2, or other document furnished by your employer that shows the amount withheld as a contribution, and A pledge card or other document prepared by or for the qualified organization that shows the name of the organization and states the organization does not provide goods or services in return for any contribution made to it by payroll deduction. File taxes online A single pledge card may be kept for all contributions made by payroll deduction regardless of amount as long as it contains all the required information. File taxes online   If the pay stub, Form W-2, pledge card, or other document does not show the date of the contribution, you must have another document that does show the date of the contribution. File taxes online If the pay stub, Form W-2, pledge card, or other document shows the date of the contribution, you do not need any other records except those just described in (1) and (2). File taxes online Noncash Contributions For a contribution not made in cash, the records you must keep depend on whether your deduction for the contribution is: Less than $250, At least $250 but not more than $500, Over $500 but not more than $5,000, or Over $5,000. File taxes online Amount of deduction. File taxes online   In figuring whether your deduction is $500 or more, combine your claimed deductions for all similar items of property donated to any charitable organization during the year. File taxes online   If you received goods or services in return, as described earlier in Contributions From Which You Benefit , reduce your contribution by the value of those goods or services. File taxes online If you figure your deduction by reducing the fair market value of the donated property by its appreciation, as described earlier in Giving Property That Has Increased in Value , your contribution is the reduced amount. File taxes online Deductions of Less Than $250 If you make any noncash contribution, you must get and keep a receipt from the charitable organization showing: The name of the charitable organization, The date and location of the charitable contribution, and A reasonably detailed description of the property. File taxes online A letter or other written communication from the charitable organization acknowledging receipt of the contribution and containing the information in (1), (2), and (3) will serve as a receipt. File taxes online You are not required to have a receipt where it is impractical to get one (for example, if you leave property at a charity's unattended drop site). File taxes online Additional records. File taxes online   You must also keep reliable written records for each item of contributed property. File taxes online Your written records must include the following information. File taxes online The name and address of the organization to which you contributed. File taxes online The date and location of the contribution. File taxes online A description of the property in detail reasonable under the circumstances. File taxes online For a security, keep the name of the issuer, the type of security, and whether it is regularly traded on a stock exchange or in an over-the-counter market. File taxes online The fair market value of the property at the time of the contribution and how you figured the fair market value. File taxes online If it was determined by appraisal, keep a signed copy of the appraisal. File taxes online The cost or other basis of the property, if you must reduce its fair market value by appreciation. File taxes online Your records should also include the amount of the reduction and how you figured it. File taxes online The amount you claim as a deduction for the tax year as a result of the contribution, if you contribute less than your entire interest in the property during the tax year. File taxes online Your records must include the amount you claimed as a deduction in any earlier years for contributions of other interests in this property. File taxes online They must also include the name and address of each organization to which you contributed the other interests, the place where any such tangible property is located or kept, and the name of any person in possession of the property, other than the organization to which you contributed it. File taxes online The terms of any conditions attached to the contribution of property. File taxes online Deductions of At Least $250 But Not More Than $500 If you claim a deduction of at least $250 but not more than $500 for a noncash charitable contribution, you must get and keep an acknowledgment of your contribution from the qualified organization. File taxes online If you made more than one contribution of $250 or more, you must have either a separate acknowledgment for each or one acknowledgment that shows your total contributions. File taxes online The acknowledgment must contain the information in items (1) through (3) under Deductions of Less Than $250 , earlier, and your written records must include the information listed in that discussion under Additional records . File taxes online The acknowledgment must also meet these tests. File taxes online It must be written. File taxes online It must include: A description (but not necessarily the value) of any property you contributed, Whether the qualified organization gave you any goods or services as a result of your contribution (other than certain token items and membership benefits), and A description and good faith estimate of the value of any goods or services described in (b). File taxes online If the only benefit you received was an intangible religious benefit (such as admission to a religious ceremony) that generally is not sold in a commercial transaction outside the donative context, the acknowledgment must say so and does not need to describe or estimate the value of the benefit. File taxes online You must get it on or before the earlier of: The date you file your return for the year you make the contribution, or The due date, including extensions, for filing the return. File taxes online Deductions Over $500 You are required to give additional information if you claim a deduction over $500 for noncash charitable contributions. File taxes online See Records To Keep in Publication 526 for more information. File taxes online Out-of-Pocket Expenses If you give services to a qualified organization and have unreimbursed out-of-pocket expenses related to those services, the following two rules apply. File taxes online You must have adequate records to prove the amount of the expenses. File taxes online If any of your unreimbursed out-of-pocket expenses, considered separately, are $250 or more (for example, you pay $250 or more for an airline ticket to attend a convention of a qualified organization as a chosen representative), you must get an acknowledgment from the qualified organization that contains: A description of the services you provided, A statement of whether or not the organization provided you any goods or services to reimburse you for the expenses you incurred, A description and a good faith estimate of the value of any goods or services (other than intangible religious benefits) provided to reimburse you, and A statement that the only benefit you received was an intangible religious benefit, if that was the case. File taxes online The acknowledgment does not need to describe or estimate the value of an intangible religious benefit (defined earlier under Acknowledgment ). File taxes online You must get the acknowledgment on or before the earlier of: The date you file your return for the year you make the contribution, or The due date, including extensions, for filing the return. File taxes online Car expenses. File taxes online   If you claim expenses directly related to use of your car in giving services to a qualified organization, you must keep reliable written records of your expenses. File taxes online Whether your records are considered reliable depends on all the facts and circumstances. File taxes online Generally, they may be considered reliable if you made them regularly and at or near the time you had the expenses. File taxes online   For example, your records might show the name of the organization you were serving and the dates you used your car for a charitable purpose. File taxes online If you use the standard mileage rate of 14 cents a mile, your records must show the miles you drove your car for the charitable purpose. File taxes online If you deduct your actual expenses, your records must show the costs of operating the car that are directly related to a charitable purpose. File taxes online   See Car expenses under Out-of-Pocket Expenses in Giving Services, earlier, for the expenses you can deduct. File taxes online How To Report Report your charitable contributions on Schedule A (Form 1040). File taxes online If your total deduction for all noncash contributions for the year is over $500, you must also file Form 8283. File taxes online See How To Report in Publication 526 for more information. File taxes online Prev  Up  Next   Home   More Online Publications
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File taxes online 8. File taxes online   Amortization Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: How To Deduct Amortization Starting a BusinessBusiness Start-Up Costs Costs of Organizing a Corporation Costs of Organizing a Partnership How To Amortize Getting a Lease Section 197 IntangiblesSection 197 Intangibles Defined Assets That Are Not Section 197 Intangibles Safe Harbor for Creative Property Costs Anti-Churning Rules Incorrect Amount of Amortization Deducted Disposition of Section 197 Intangibles Reforestation Costs Geological and Geophysical Costs Pollution Control FacilitiesNew identifiable treatment facility. File taxes online Research and Experimental Costs Optional Write-off of Certain Tax Preferences Introduction Amortization is a method of recovering (deducting) certain capital costs over a fixed period of time. File taxes online It is similar to the straight line method of depreciation. File taxes online The various amortizable costs covered in this chapter are included in the list below. File taxes online However, this chapter does not discuss amortization of bond premium. File taxes online For information on that topic, see chapter 3 of Publication 550, Investment Income and Expenses. File taxes online Topics - This chapter discusses: Deducting amortization Amortizing costs of starting a business Amortizing costs of getting a lease Amortizing costs of section 197 intangibles Amortizing reforestation costs Amortizing costs of geological and geophysical costs Amortizing costs of pollution control facilities Amortizing costs of research and experimentation Amortizing costs of certain tax preferences Useful Items - You may want to see: Publication 544 Sales and Other Dispositions of Assets 550 Investment Income and Expenses 946 How To Depreciate Property Form (and Instructions) 4562 Depreciation and Amortization 4626 Alternative Minimum Tax—Corporations 6251 Alternative Minimum Tax—Individuals See chapter 12 for information about getting publications and forms. File taxes online How To Deduct Amortization To deduct amortization that begins during the current tax year, complete Part VI of Form 4562 and attach it to your income tax return. File taxes online To report amortization from previous years, in addition to amortization that begins in the current year, list on Form 4562 each item separately. File taxes online For example, in 2012, you began to amortize a lease. File taxes online In 2013, you began to amortize a second lease. File taxes online Report amortization from the new lease on line 42 of your 2013 Form 4562. File taxes online Report amortization from the 2012 lease on line 43 of your 2013 Form 4562. File taxes online If you do not have any new amortizable expenses for the current year, you are not required to complete Form 4562 (unless you are claiming depreciation). File taxes online Report the current year's deduction for amortization that began in a prior year directly on the “Other deduction” or “Other expense line” of your return. File taxes online Starting a Business When you start a business, treat all eligible costs you incur before you begin operating the business as capital expenditures which are part of your basis in the business. File taxes online Generally, you recover costs for particular assets through depreciation deductions. File taxes online However, you generally cannot recover other costs until you sell the business or otherwise go out of business. File taxes online For a discussion on how to treat these costs, see If your attempt to go into business is unsuccessful under Capital Expenses in chapter 1. File taxes online For costs paid or incurred after September 8, 2008, you can deduct a limited amount of start-up and organizational costs. File taxes online The costs that are not deducted currently can be amortized ratably over a 180-month period. File taxes online The amortization period starts with the month you begin operating your active trade or business. File taxes online You are not required to attach a statement to make this election. File taxes online You can choose to forgo this election by affirmatively electing to capitalize your start-up costs on your income tax return filed by the due date (including extensions) for the tax year in which the active trade or business begins. File taxes online Once made, the election to either amortize or capitalize start-up costs is irrevocable and applies to all start-up costs that are related to your trade or business. File taxes online See Regulations sections 1. File taxes online 195-1, 1. File taxes online 248-1, and 1. File taxes online 709-1. File taxes online For costs paid or incurred after October 22, 2004, and before September 9, 2008, you can elect to deduct a limited amount of business start-up and organizational costs in the year your active trade or business begins. File taxes online Any costs not deducted can be amortized ratably over a 180-month period, beginning with the month you begin business. File taxes online If the election is made, you must attach any statement required by Regulations sections 1. File taxes online 195-1(b), 1. File taxes online 248-1(c), and 1. File taxes online 709-1(c), as in effect before September 9, 2008. File taxes online Note. File taxes online You can apply the provisions of Regulations sections 1. File taxes online 195-1, 1. File taxes online 248-1, and 1. File taxes online 709-1 to all business start-up and organizational costs paid or incurred after October 22, 2004, provided the period of limitations on assessment has not expired for the year of the election. File taxes online Otherwise, the provisions under Regulations sections 1. File taxes online 195-1(b), 1. File taxes online 248-1(c), and 1. File taxes online 709-1(c), as in effect before September 9, 2008, will apply. File taxes online For costs paid or incurred before October 23, 2004, you can elect to amortize business start-up and organization costs over an amortization period of 60 months or more. File taxes online See How To Make the Election , later. File taxes online The cost must qualify as one of the following. File taxes online A business start-up cost. File taxes online An organizational cost for a corporation. File taxes online An organizational cost for a partnership. File taxes online Business Start-Up Costs Start-up costs are amounts paid or incurred for: (a) creating an active trade or business; or (b) investigating the creation or acquisition of an active trade or business. File taxes online Start-up costs include amounts paid or incurred in connection with an existing activity engaged in for profit; and for the production of income in anticipation of the activity becoming an active trade or business. File taxes online Qualifying costs. File taxes online   A start-up cost is amortizable if it meets both of the following tests. File taxes online It is a cost you could deduct if you paid or incurred it to operate an existing active trade or business (in the same field as the one you entered into). File taxes online It is a cost you pay or incur before the day your active trade or business begins. File taxes online   Start-up costs include amounts paid for the following: An analysis or survey of potential markets, products, labor supply, transportation facilities, etc. File taxes online Advertisements for the opening of the business. File taxes online Salaries and wages for employees who are being trained and their instructors. File taxes online Travel and other necessary costs for securing prospective distributors, suppliers, or customers. File taxes online Salaries and fees for executives and consultants, or for similar professional services. File taxes online Nonqualifying costs. File taxes online   Start-up costs do not include deductible interest, taxes, or research and experimental costs. File taxes online See Research and Experimental Costs , later. File taxes online Purchasing an active trade or business. File taxes online   Amortizable start-up costs for purchasing an active trade or business include only investigative costs incurred in the course of a general search for or preliminary investigation of the business. File taxes online These are costs that help you decide whether to purchase a business. File taxes online Costs you incur in an attempt to purchase a specific business are capital expenses that you cannot amortize. File taxes online Example. File taxes online On June 1st, you hired an accounting firm and a law firm to assist you in the potential purchase of XYZ, Inc. File taxes online They researched XYZ's industry and analyzed the financial projections of XYZ, Inc. File taxes online In September, the law firm prepared and submitted a letter of intent to XYZ, Inc. File taxes online The letter stated that a binding commitment would result only after a purchase agreement was signed. File taxes online The law firm and accounting firm continued to provide services including a review of XYZ's books and records and the preparation of a purchase agreement. File taxes online On October 22nd, you signed a purchase agreement with XYZ, Inc. File taxes online All amounts paid or incurred to investigate the business before October 22nd are amortizable investigative costs. File taxes online Amounts paid on or after that date relate to the attempt to purchase the business and therefore must be capitalized. File taxes online Disposition of business. File taxes online   If you completely dispose of your business before the end of the amortization period, you can deduct any remaining deferred start-up costs. File taxes online However, you can deduct these deferred start-up costs only to the extent they qualify as a loss from a business. File taxes online Costs of Organizing a Corporation Amounts paid to organize a corporation are the direct costs of creating the corporation. File taxes online Qualifying costs. File taxes online   To qualify as an organizational cost, it must be: For the creation of the corporation, Chargeable to a capital account (see chapter 1), Amortized over the life of the corporation if the corporation had a fixed life, and Incurred before the end of the first tax year in which the corporation is in business. File taxes online   A corporation using the cash method of accounting can amortize organizational costs incurred within the first tax year, even if it does not pay them in that year. File taxes online   Examples of organizational costs include: The cost of temporary directors. File taxes online The cost of organizational meetings. File taxes online State incorporation fees. File taxes online The cost of legal services. File taxes online Nonqualifying costs. File taxes online   The following items are capital expenses that cannot be amortized: Costs for issuing and selling stock or securities, such as commissions, professional fees, and printing costs. File taxes online Costs associated with the transfer of assets to the corporation. File taxes online Costs of Organizing a Partnership The costs to organize a partnership are the direct costs of creating the partnership. File taxes online Qualifying costs. File taxes online   A partnership can amortize an organizational cost only if it meets all the following tests. File taxes online It is for the creation of the partnership and not for starting or operating the partnership trade or business. File taxes online It is chargeable to a capital account (see chapter 1). File taxes online It could be amortized over the life of the partnership if the partnership had a fixed life. File taxes online It is incurred by the due date of the partnership return (excluding extensions) for the first tax year in which the partnership is in business. File taxes online However, if the partnership uses the cash method of accounting and pays the cost after the end of its first tax year, see Cash method partnership under How To Amortize, later. File taxes online It is for a type of item normally expected to benefit the partnership throughout its entire life. File taxes online   Organizational costs include the following fees. File taxes online Legal fees for services incident to the organization of the partnership, such as negotiation and preparation of the partnership agreement. File taxes online Accounting fees for services incident to the organization of the partnership. File taxes online Filing fees. File taxes online Nonqualifying costs. File taxes online   The following costs cannot be amortized. File taxes online The cost of acquiring assets for the partnership or transferring assets to the partnership. File taxes online The cost of admitting or removing partners, other than at the time the partnership is first organized. File taxes online The cost of making a contract concerning the operation of the partnership trade or business including a contract between a partner and the partnership. File taxes online The costs for issuing and marketing interests in the partnership such as brokerage, registration, and legal fees and printing costs. File taxes online These “syndication fees” are capital expenses that cannot be depreciated or amortized. File taxes online Liquidation of partnership. File taxes online   If a partnership is liquidated before the end of the amortization period, the unamortized amount of qualifying organizational costs can be deducted in the partnership's final tax year. File taxes online However, these costs can be deducted only to the extent they qualify as a loss from a business. File taxes online How To Amortize Deduct start-up and organizational costs in equal amounts over the applicable amortization period (discussed earlier). File taxes online You can choose an amortization period for start-up costs that is different from the period you choose for organizational costs, as long as both are not less than the applicable amortization period. File taxes online Once you choose an amortization period, you cannot change it. File taxes online To figure your deduction, divide your total start-up or organizational costs by the months in the amortization period. File taxes online The result is the amount you can deduct for each month. File taxes online Cash method partnership. File taxes online   A partnership using the cash method of accounting can deduct an organizational cost only if it has been paid by the end of the tax year. File taxes online However, any cost the partnership could have deducted as an organizational cost in an earlier tax year (if it had been paid that year) can be deducted in the tax year of payment. File taxes online How To Make the Election To elect to amortize start-up or organizational costs, you must complete and attach Form 4562 to your return for the first tax year you are in business. File taxes online You may also be required to attach an accompanying statement (described later) to your return. File taxes online For start-up or organizational costs paid or incurred after September 8, 2008, an accompanying statement is not required. File taxes online Generally, for start-up or organizational costs paid or incurred before September 9, 2008, and after October 22, 2004, unless you choose to apply Regulations sections 1. File taxes online 195-1, 1. File taxes online 248-1, and 1. File taxes online 709-1, you must also attach an accompanying statement to elect to amortize the costs. File taxes online If you have both start-up and organizational costs, attach a separate statement (if required) to your return for each type of cost. File taxes online See Starting a Business , earlier, for more information. File taxes online Generally, you must file the return by the due date (including any extensions). File taxes online 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 return (excluding extensions). File taxes online For more information, see the instructions for Part VI of Form 4562. File taxes online You can choose to forgo the election to amortize by affirmatively electing to capitalize your start-up or organizational costs on your income tax return filed by the due date (including extensions) for the tax year in which the active trade or business begins. File taxes online Note. File taxes online The election to either amortize or capitalize start-up or organizational costs is irrevocable and applies to all start-up and organizational costs that are related to the trade or business. File taxes online If your business is organized as a corporation or partnership, only the corporation or partnership can elect to amortize its start-up or organizational costs. File taxes online A shareholder or partner cannot make this election. File taxes online You, as a shareholder or partner, cannot amortize any costs you incur in setting up your corporation or partnership. File taxes online Only the corporation or partnership can amortize these costs. File taxes online However, you, as an individual, can elect to amortize costs you incur to investigate an interest in an existing partnership. File taxes online These costs qualify as business start-up costs if you acquire the partnership interest. File taxes online Start-up costs election statement. File taxes online   If you elect to amortize your start-up costs, attach a separate statement (if required) that contains the following information. File taxes online A description of the business to which the start-up costs relate. File taxes online A description of each start-up cost incurred. File taxes online The month your active business began (or was acquired). File taxes online The number of months in your amortization period (which is generally 180 months). File taxes online Filing the statement early. File taxes online   You can elect to amortize your start-up costs by filing the statement with a return for any tax year before the year your active business begins. File taxes online If you file the statement early, the election becomes effective in the month of the tax year your active business begins. File taxes online Revised statement. File taxes online   You can file a revised statement to include any start-up costs not included in your original statement. File taxes online However, you cannot include on the revised statement any cost you previously treated on your return as a cost other than a start-up cost. File taxes online You can file the revised statement with a return filed after the return on which you elected to amortize your start-up costs. File taxes online Organizational costs election statement. File taxes online   If you elect to amortize your corporation's or partnership's organizational costs, attach a separate statement (if required) that contains the following information. File taxes online A description of each cost. File taxes online The amount of each cost. File taxes online The date each cost was incurred. File taxes online The month your corporation or partnership began active business (or acquired the business). File taxes online The number of months in your amortization period (which is generally 180 months). File taxes online Partnerships. File taxes online   The statement prepared for a cash basis partnership must also indicate the amount paid before the end of the year for each cost. File taxes online   You do not need to separately list any partnership organizational cost that is less than $10. File taxes online Instead, you can list the total amount of these costs with the dates the first and last costs were incurred. File taxes online   After a partnership makes the election to amortize organizational costs, it can later file an amended return to include additional organizational costs not included in the partnership's original return and statement. File taxes online Getting a Lease If you get a lease for business property, you may recover the cost of acquiring the lease by amortizing it over the term of the lease. File taxes online The term of the lease for amortization purposes generally includes all renewal options (and any other period for which you and the lessor reasonably expect the lease to be renewed). File taxes online However, renewal periods are not included if 75% or more of the cost of acquiring the lease is for the term of the lease remaining on the acquisition date (not including any period for which you may choose to renew, extend, or continue the lease). File taxes online For more information on the costs of getting a lease, see Cost of Getting a Lease in  chapter 3. File taxes online How to amortize. File taxes online   Enter your deduction in Part VI of Form 4562 if you are deducting amortization that begins during the current year, or on the appropriate line of your tax return if you are not otherwise required to file Form 4562. File taxes online Section 197 Intangibles Generally, you may amortize the capitalized costs of “section 197 intangibles” (defined later) ratably over a 15-year period. File taxes online You must amortize these costs if you hold the section 197 intangibles in connection with your trade or business or in an activity engaged in for the production of income. File taxes online You may not be able to amortize section 197 intangibles acquired in a transaction that did not result in a significant change in ownership or use. File taxes online See Anti-Churning Rules, later. File taxes online Your amortization deduction each year is the applicable part of the intangible's adjusted basis (for purposes of determining gain), figured by amortizing it ratably over 15 years (180 months). File taxes online The 15-year period begins with the later of: The month the intangible is acquired, or The month the trade or business or activity engaged in for the production of income begins. File taxes online You cannot deduct amortization for the month you dispose of the intangible. File taxes online If you pay or incur an amount that increases the basis of an amortizable section 197 intangible after the 15-year period begins, amortize it over the remainder of the 15-year period beginning with the month the basis increase occurs. File taxes online You are not allowed any other depreciation or amortization deduction for an amortizable section 197 intangible. File taxes online Tax-exempt use property subject to a lease. File taxes online   The amortization period for any section 197 intangible 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), shall not be less than 125 percent of the lease term. File taxes online Cost attributable to other property. File taxes online   The rules for section 197 intangibles do not apply to any amount that is included in determining the cost of property that is not a section 197 intangible. File taxes online For example, if the cost of computer software is not separately stated from the cost of hardware or other tangible property and you consistently treat it as part of the cost of the hardware or other tangible property, these rules do not apply. File taxes online Similarly, none of the cost of acquiring real property held for the production of rental income is considered the cost of goodwill, going concern value, or any other section 197 intangible. File taxes online Section 197 Intangibles Defined The following assets are section 197 intangibles and must be amortized over 180 months: Goodwill; Going concern value; Workforce in place; Business books and records, operating systems, or any other information base, including lists or other information concerning current or prospective customers; A patent, copyright, formula, process, design, pattern, know-how, format, or similar item; A customer-based intangible; A supplier-based intangible; Any item similar to items (3) through (7); A license, permit, or other right granted by a governmental unit or agency (including issuances and renewals); A covenant not to compete entered into in connection with the acquisition of an interest in a trade or business; Any franchise, trademark, or trade name; and A contract for the use of, or a term interest in, any item in this list. File taxes online You cannot amortize any of the intangibles listed in items (1) through (8) that you created rather than acquired unless you created them in acquiring assets that make up a trade or business or a substantial part of a trade or business. File taxes online Goodwill. File taxes online   This is the value of a trade or business based on expected continued customer patronage due to its name, reputation, or any other factor. File taxes online Going concern value. File taxes online   This is the additional value of a trade or business that attaches to property because the property is an integral part of an ongoing business activity. File taxes online It includes value based on the ability of a business to continue to function and generate income even though there is a change in ownership (but does not include any other section 197 intangible). File taxes online It also includes value based on the immediate use or availability of an acquired trade or business, such as the use of earnings during any period in which the business would not otherwise be available or operational. File taxes online Workforce in place, etc. File taxes online   This includes the composition of a workforce (for example, its experience, education, or training). File taxes online It also includes the terms and conditions of employment, whether contractual or otherwise, and any other value placed on employees or any of their attributes. File taxes online   For example, you must amortize the part of the purchase price of a business that is for the existence of a highly skilled workforce. File taxes online Also, you must amortize the cost of acquiring an existing employment contract or relationship with employees or consultants. File taxes online Business books and records, etc. File taxes online   This includes the intangible value of technical manuals, training manuals or programs, data files, and accounting or inventory control systems. File taxes online It also includes the cost of customer lists, subscription lists, insurance expirations, patient or client files, and lists of newspaper, magazine, radio, and television advertisers. File taxes online Patents, copyrights, etc. File taxes online   This includes package design, computer software, and any interest in a film, sound recording, videotape, book, or other similar property, except as discussed later under Assets That Are Not Section 197 Intangibles . File taxes online Customer-based intangible. File taxes online   This is the composition of market, market share, and any other value resulting from the future provision of goods or services because of relationships with customers in the ordinary course of business. File taxes online For example, you must amortize the part of the purchase price of a business that is for the existence of the following intangibles. File taxes online A customer base. File taxes online A circulation base. File taxes online An undeveloped market or market growth. File taxes online Insurance in force. File taxes online A mortgage servicing contract. File taxes online An investment management contract. File taxes online Any other relationship with customers involving the future provision of goods or services. File taxes online   Accounts receivable or other similar rights to income for goods or services provided to customers before the acquisition of a trade or business are not section 197 intangibles. File taxes online Supplier-based intangible. File taxes online   A supplier-based intangible is the value resulting from the future acquisitions, (through contract or other relationships with suppliers in the ordinary course of business) of goods or services that you will sell or use. File taxes online The amount you pay or incur for supplier-based intangibles includes, for example, any portion of the purchase price of an acquired trade or business that is attributable to the existence of a favorable relationship with persons providing distribution services (such as a favorable shelf or display space or a retail outlet), or the existence of favorable supply contracts. File taxes online Do not include any amount required to be paid for the goods or services to honor the terms of the agreement or other relationship. File taxes online Also, see Assets That Are Not Section 197 Intangibles below. File taxes online Government-granted license, permit, etc. File taxes online   This is any right granted by a governmental unit or an agency or instrumentality of a governmental unit. File taxes online For example, you must amortize the capitalized costs of acquiring (including issuing or renewing) a liquor license, a taxicab medallion or license, or a television or radio broadcasting license. File taxes online Covenant not to compete. File taxes online   Section 197 intangibles include a covenant not to compete (or similar arrangement) entered into in connection with the acquisition of an interest in a trade or business, or a substantial portion of a trade or business. File taxes online An interest in a trade or business includes an interest in a partnership or a corporation engaged in a trade or business. File taxes online   An arrangement that requires the former owner to perform services (or to provide property or the use of property) is not similar to a covenant not to compete to the extent the amount paid under the arrangement represents reasonable compensation for those services or for that property or its use. File taxes online Franchise, trademark, or trade name. File taxes online   A franchise, trademark, or trade name is a section 197 intangible. File taxes online You must amortize its purchase or renewal costs, other than certain contingent payments that you can deduct currently. File taxes online For information on currently deductible contingent payments, see chapter 11. File taxes online Professional sports franchise. File taxes online   A franchise engaged in professional sports and any intangible assets acquired in connection with acquiring the franchise (including player contracts) is a section 197 intangible amortizable over a 15-year period. File taxes online Contract for the use of, or a term interest in, a section 197 intangible. File taxes online   Section 197 intangibles include any right under a license, contract, or other arrangement providing for the use of any section 197 intangible. File taxes online It also includes any term interest in any section 197 intangible, whether the interest is outright or in trust. File taxes online Assets That Are Not Section 197 Intangibles The following assets are not section 197 intangibles. File taxes online Any interest in a corporation, partnership, trust, or estate. File taxes online Any interest under an existing futures contract, foreign currency contract, notional principal contract, interest rate swap, or similar financial contract. File taxes online Any interest in land. File taxes online Most computer software. File taxes online (See Computer software , later. File taxes online ) Any of the following assets not acquired in connection with the acquisition of a trade or business or a substantial part of a trade or business. File taxes online An interest in a film, sound recording, video tape, book, or similar property. File taxes online A right to receive tangible property or services under a contract or from a governmental agency. File taxes online An interest in a patent or copyright. File taxes online Certain rights that have a fixed duration or amount. File taxes online (See Rights of fixed duration or amount , later. File taxes online ) An interest under either of the following. File taxes online An existing lease or sublease of tangible property. File taxes online A debt that was in existence when the interest was acquired. File taxes online A right to service residential mortgages unless the right is acquired in connection with the acquisition of a trade or business or a substantial part of a trade or business. File taxes online Certain transaction costs incurred by parties to a corporate organization or reorganization in which any part of a gain or loss is not recognized. File taxes online Intangible property that is not amortizable under the rules for section 197 intangibles can be depreciated if it meets certain requirements. File taxes online You generally must use the straight line method over its useful life. File taxes online For certain intangibles, the depreciation period is specified in the law and regulations. File taxes online For example, the depreciation period for computer software that is not a section 197 intangible is generally 36 months. File taxes online For more information on depreciating intangible property, see Intangible Property under What Method Can You Use To Depreciate Your Property? in chapter 1 of Publication 946. File taxes online Computer software. File taxes online   Section 197 intangibles do not include the following types of computer software. File taxes online Software that meets all the following requirements. File taxes online It is, or has been, readily available for purchase by the general public. File taxes online It is subject to a nonexclusive license. File taxes online It has not been substantially modified. File taxes online This requirement is considered met if the cost of all modifications is not more than the greater of 25% of the price of the publicly available unmodified software or $2,000. File taxes online Software that is not acquired in connection with the acquisition of a trade or business or a substantial part of a trade or business. File taxes online Computer software defined. File taxes online   Computer software includes all programs designed to cause a computer to perform a desired function. File taxes online It also includes any database or similar item that is in the public domain and is incidental to the operation of qualifying software. File taxes online Rights of fixed duration or amount. File taxes online   Section 197 intangibles do not include any right under a contract or from a governmental agency if the right is acquired in the ordinary course of a trade or business (or in an activity engaged in for the production of income) but not as part of a purchase of a trade or business and either: Has a fixed life of less than 15 years, or Is of a fixed amount that, except for the rules for section 197 intangibles, would be recovered under a method similar to the unit-of-production method of cost recovery. File taxes online However, this does not apply to the following intangibles. File taxes online Goodwill. File taxes online Going concern value. File taxes online A covenant not to compete. File taxes online A franchise, trademark, or trade name. File taxes online A customer-related information base, customer-based intangible, or similar item. File taxes online Safe Harbor for Creative Property Costs If you are engaged in the trade or business of film production, you may be able to amortize the creative property costs for properties not set for production within 3 years of the first capitalized transaction. File taxes online You may amortize these costs ratably over a 15-year period beginning on the first day of the second half of the tax year in which you properly write off the costs for financial accounting purposes. File taxes online If, during the 15-year period, you dispose of the creative property rights, you must continue to amortize the costs over the remainder of the 15-year period. File taxes online Creative property costs include costs paid or incurred to acquire and develop screenplays, scripts, story outlines, motion picture production rights to books and plays, and other similar properties for purposes of potential future film development, production, and exploitation. File taxes online Amortize these costs using the rules of Revenue Procedure 2004-36. File taxes online For more information, see Revenue Procedure 2004-36, 2004-24 I. File taxes online R. File taxes online B. File taxes online 1063, available at  www. File taxes online irs. File taxes online gov/irb/2004-24_IRB/ar16. File taxes online html. File taxes online A change in the treatment of creative property costs is a change in method of accounting. File taxes online Anti-Churning Rules Anti-churning rules prevent you from amortizing most section 197 intangibles if the transaction in which you acquired them did not result in a significant change in ownership or use. File taxes online These rules apply to goodwill and going concern value, and to any other section 197 intangible that is not otherwise depreciable or amortizable. File taxes online Under the anti-churning rules, you cannot use 15-year amortization for the intangible if any of the following conditions apply. File taxes online You or a related person (defined later) held or used the intangible at any time from July 25, 1991, through August 10, 1993. File taxes online You acquired the intangible from a person who held it at any time during the period in (1) and, as part of the transaction, the user did not change. File taxes online You granted the right to use the intangible to a person (or a person related to that person) who held or used it at any time during the period in (1). File taxes online This applies only if the transaction in which you granted the right and the transaction in which you acquired the intangible are part of a series of related transactions. File taxes online See Related person , later, for more information. File taxes online Exceptions. File taxes online   The anti-churning rules do not apply in the following situations. File taxes online You acquired the intangible from a decedent and its basis was stepped up to its fair market value. File taxes online The intangible was amortizable as a section 197 intangible by the seller or transferor you acquired it from. File taxes online This exception does not apply if the transaction in which you acquired the intangible and the transaction in which the seller or transferor acquired it are part of a series of related transactions. File taxes online The gain-recognition exception, discussed later, applies. File taxes online Related person. File taxes online   For purposes of the anti-churning rules, the following are related persons. File taxes online An individual and his or her brothers, sisters, half-brothers, half-sisters, spouse, ancestors (parents, grandparents, etc. File taxes online ), and lineal descendants (children, grandchildren, etc. File taxes online ). File taxes online A corporation and an individual who owns, directly or indirectly, more than 20% of the value of the corporation's outstanding stock. File taxes online Two corporations that are members of the same controlled group as defined in section 1563(a) of the Internal Revenue Code, except that “more than 20%” is substituted for “at least 80%” in that definition and the determination is made without regard to subsections (a)(4) and (e)(3)(C) of section 1563. File taxes online (For an exception, see section 1. File taxes online 197-2(h)(6)(iv) of the regulations. File taxes online ) A trust fiduciary and a corporation if more than 20% of the value of the corporation's outstanding stock is owned, directly or indirectly, by or for the trust or grantor of the trust. File taxes online The grantor and fiduciary, and the fiduciary and beneficiary, of any trust. File taxes online 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 online The executor and beneficiary of an estate. File taxes online A tax-exempt educational or charitable organization and a person who directly or indirectly controls the organization (or whose family members control it). File taxes online A corporation and a partnership if the same persons own more than 20% of the value of the outstanding stock of the corporation and more than 20% of the capital or profits interest in the partnership. File taxes online Two S corporations, and an S corporation and a regular corporation, if the same persons own more than 20% of the value of the outstanding stock of each corporation. File taxes online Two partnerships if the same persons own, directly or indirectly, more than 20% of the capital or profits interests in both partnerships. File taxes online A partnership and a person who owns, directly or indirectly, more than 20% of the capital or profits interests in the partnership. File taxes online Two persons who are engaged in trades or businesses under common control (as described in section 41(f)(1) of the Internal Revenue Code). File taxes online When to determine relationship. File taxes online   Persons are treated as related if the relationship existed at the following time. File taxes online In the case of a single transaction, immediately before or immediately after the transaction in which the intangible was acquired. File taxes online In the case of a series of related transactions (or a series of transactions that comprise a qualified stock purchase under section 338(d)(3) of the Internal Revenue Code), immediately before the earliest transaction or immediately after the last transaction. File taxes online Ownership of stock. File taxes online   In determining whether an individual directly or indirectly owns any of the outstanding stock of a corporation, the following rules apply. File taxes online Rule 1. File taxes online   Stock 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 online Rule 2. File taxes online   An individual is considered to own the stock directly or indirectly owned by or for his or her family. File taxes online Family includes only brothers and sisters, half-brothers and half-sisters, spouse, ancestors, and lineal descendants. File taxes online Rule 3. File taxes online   An individual owning (other than by applying Rule 2) any stock in a corporation is considered to own the stock directly or indirectly owned by or for his or her partner. File taxes online Rule 4. File taxes online   For purposes of applying Rule 1, 2, or 3, treat stock constructively owned by a person under Rule 1 as actually owned by that person. File taxes online Do not treat stock constructively owned by an individual under Rule 2 or 3 as owned by the individual for reapplying Rule 2 or 3 to make another person the constructive owner of the stock. File taxes online Gain-recognition exception. File taxes online   This exception to the anti-churning rules applies if the person you acquired the intangible from (the transferor) meets both of the following requirements. File taxes online That person would not be related to you (as described under Related person , earlier) if the 20% test for ownership of stock and partnership interests were replaced by a 50% test. File taxes online That person chose to recognize gain on the disposition of the intangible and pay income tax on the gain at the highest tax rate. File taxes online See chapter 2 in Publication 544 for information on making this choice. File taxes online   If this exception applies, the anti-churning rules apply only to the amount of your adjusted basis in the intangible that is more than the gain recognized by the transferor. File taxes online Notification. File taxes online   If the person you acquired the intangible from chooses to recognize gain under the rules for this exception, that person must notify you in writing by the due date of the return on which the choice is made. File taxes online Anti-abuse rule. File taxes online   You cannot amortize any section 197 intangible acquired in a transaction for which the principal purpose was either of the following. File taxes online To avoid the requirement that the intangible be acquired after August 10, 1993. File taxes online To avoid any of the anti-churning rules. File taxes online More information. File taxes online   For more information about the anti-churning rules, including additional rules for partnerships, see Regulations section 1. File taxes online 197-2(h). File taxes online Incorrect Amount of Amortization Deducted If you later discover that you deducted an incorrect amount for amortization for a section 197 intangible in any year, you may be able to make a correction for that year by filing an amended return. File taxes online See Amended Return , next. File taxes online If you are not allowed to make the correction on an amended return, you can change your accounting method to claim the correct amortization. File taxes online See Changing Your Accounting Method , later. File taxes online Amended Return If you deducted an incorrect amount for amortization, you can file an amended return to correct the following. File taxes online A mathematical error made in any year. File taxes online A posting error made in any year. File taxes online An amortization deduction for a section 197 intangible for which you have not adopted a method of accounting. File taxes online When to file. File taxes online   If an amended return is allowed, you must file it by the later of the following dates. File taxes online 3 years from the date you filed your original return for the year in which you did not deduct the correct amount. File taxes online (A return filed early is considered filed on the due date. File taxes online ) 2 years from the time you paid your tax for that year. File taxes online Changing Your Accounting Method Generally, you must get IRS approval to change your method of accounting. File taxes online File Form 3115, Application for Change in Accounting Method, to request a change to a permissible method of accounting for amortization. File taxes online The following are examples of a change in method of accounting for amortization. File taxes online A change in the amortization method, period of recovery, or convention of an amortizable asset. File taxes online A change in the accounting for amortizable assets from a single asset account to a multiple asset account (pooling), or vice versa. File taxes online A change in the accounting for amortizable assets from one type of multiple asset account to a different type of multiple asset account. File taxes online Changes in amortization that are not a change in method of accounting include the following: A change in computing amortization in the tax year in which your use of the asset changes. File taxes online An adjustment in the useful life of an amortizable asset. File taxes online Generally, the making of a late amortization election or the revocation of a timely valid amortization election. File taxes online Any change in the placed-in-service date of an amortizable asset. File taxes online See Regulations section 1. File taxes online 446-1(e)(2)(ii)(a) for more information and examples. File taxes online Automatic approval. File taxes online   In some instances, you may be able to get automatic approval from the IRS to change your method of accounting for amortization. File taxes online For a list of automatic accounting method changes, see the Instructions for Form 3115. File taxes online Also see the Instructions for Form 3115 for more information on getting approval, automatic approval procedures, and a list of exceptions to the automatic approval process. File taxes online For more information, see Revenue Procedure 2006-12, as modified by Revenue Procedure 2006-37, and Revenue Procedure 2008-52, as amplified, clarified, and modified by Revenue Procedure 2009-39, as clarified and modified by Revenue Procedure 2011-14, as modified and amplified by Revenue Procedure 2011-22, as modified by Revenue Procedure 2012-39, or any successor. File taxes online See Revenue Procedure 2006-12, 2006-3 I. File taxes online R. File taxes online B. File taxes online 310, available at  www. File taxes online irs. File taxes online gov/irb/2006-03_IRB/ar14. File taxes online html. File taxes online  See Revenue Procedure 2006-37, 2006-38 I. File taxes online R. File taxes online B. File taxes online 499, available at  www. File taxes online irs. File taxes online gov/irb/2006-38_IRB/ar10. File taxes online html. File taxes online  See Revenue Procedure 2008-52, 2008-36 I. File taxes online R. File taxes online B. File taxes online 587, available at www. File taxes online irs. File taxes online gov/irb/2008-36_IRB/ar09. File taxes online html. File taxes online  See Revenue Procedure 2009-39, 2009-38 I. File taxes online R. File taxes online B. File taxes online 371, available at  www. File taxes online irs. File taxes online gov/irb/2009-38_IRB/ar08. File taxes online html. File taxes online  See Revenue Procedure 2011-14, 2011-4 I. File taxes online R. File taxes online B. File taxes online 330, available at  www. File taxes online irs. File taxes online gov/irb/2011-04_IRB/ar08. File taxes online html. File taxes online  See Revenue Procedure 2011-22, 2011-18 I. File taxes online R. File taxes online B. File taxes online 737, available at  www. File taxes online irs. File taxes online gov/irb/2011-18_IRB/ar08. File taxes online html. File taxes online Also, see Revenue Procedure 2012-39, 2012-41 I. File taxes online R. File taxes online B. File taxes online 470 available at www. File taxes online irs. File taxes online gov/irb/2012-41_IRB/index. File taxes online html. File taxes online Disposition of Section 197 Intangibles A section 197 intangible is treated as depreciable property used in your trade or business. File taxes online If you held the intangible for more than 1 year, any gain on its disposition, up to the amount of allowable amortization, is ordinary income (section 1245 gain). File taxes online If multiple section 197 intangibles are disposed of in a single transaction or a series of related transactions, treat all of the section 197 intangibles as if they were a single asset for purposes of determining the amount of gain that is ordinary income. File taxes online Any remaining gain, or any loss, is a section 1231 gain or loss. File taxes online If you held the intangible 1 year or less, any gain or loss on its disposition is an ordinary gain or loss. File taxes online For more information on ordinary or capital gain or loss on business property, see chapter 3 in Publication 544. File taxes online Nondeductible loss. File taxes online   You cannot deduct any loss on the disposition or worthlessness of a section 197 intangible that you acquired in the same transaction (or series of related transactions) as other section 197 intangibles you still have. File taxes online Instead, increase the adjusted basis of each remaining amortizable section 197 intangible by a proportionate part of the nondeductible loss. File taxes online Figure the increase by multiplying the nondeductible loss on the disposition of the intangible by the following fraction. File taxes online The numerator is the adjusted basis of each remaining intangible on the date of the disposition. File taxes online The denominator is the total adjusted bases of all remaining amortizable section 197 intangibles on the date of the disposition. File taxes online Covenant not to compete. File taxes online   A covenant not to compete, or similar arrangement, is not considered disposed of or worthless before you dispose of your entire interest in the trade or business for which you entered into the covenant. File taxes online Nonrecognition transfers. File taxes online   If you acquire a section 197 intangible in a nonrecognition transfer, you are treated as the transferor with respect to the part of your adjusted basis in the intangible that is not more than the transferor's adjusted basis. File taxes online You amortize this part of the adjusted basis over the intangible's remaining amortization period in the hands of the transferor. File taxes online Nonrecognition transfers include transfers to a corporation, partnership contributions and distributions, like-kind exchanges, and involuntary conversions. File taxes online   In a like-kind exchange or involuntary conversion of a section 197 intangible, you must continue to amortize the part of your adjusted basis in the acquired intangible that is not more than your adjusted basis in the exchanged or converted intangible over the remaining amortization period of the exchanged or converted intangible. File taxes online Amortize over a new 15-year period the part of your adjusted basis in the acquired intangible that is more than your adjusted basis in the exchanged or converted intangible. File taxes online Example. File taxes online You own a section 197 intangible you have amortized for 4 full years. File taxes online It has a remaining unamortized basis of $30,000. File taxes online You exchange the asset plus $10,000 for a like-kind section 197 intangible. File taxes online The nonrecognition provisions of like-kind exchanges apply. File taxes online You amortize $30,000 of the $40,000 adjusted basis of the acquired intangible over the 11 years remaining in the original 15-year amortization period for the transferred asset. File taxes online You amortize the other $10,000 of adjusted basis over a new 15-year period. File taxes online For more information, see Regulations section 1. File taxes online 197-2(g). File taxes online Reforestation Costs You can elect to deduct a limited amount of reforestation costs paid or incurred during the tax year. File taxes online See Reforestation Costs in chapter 7. File taxes online You can elect to amortize the qualifying costs that are not deducted currently over an 84-month period. File taxes online There is no limit on the amount of your amortization deduction for reforestation costs paid or incurred during the tax year. File taxes online The election to amortize reforestation costs incurred by a partnership, S corporation, or estate must be made by the partnership, corporation, or estate. File taxes online A partner, shareholder, or beneficiary cannot make that election. File taxes online A partner's or shareholder's share of amortizable costs is figured under the general rules for allocating items of income, loss, deduction, etc. File taxes online , of a partnership or S corporation. File taxes online The amortizable costs of an estate are divided between the estate and the income beneficiary based on the income of the estate allocable to each. File taxes online Qualifying costs. File taxes online   Reforestation costs are the direct costs of planting or seeding for forestation or reforestation. File taxes online Qualifying costs include only those costs you must capitalize and include in the adjusted basis of the property. File taxes online They include costs for the following items. File taxes online Site preparation. File taxes online Seeds or seedlings. File taxes online Labor. File taxes online Tools. File taxes online Depreciation on equipment used in planting and seeding. File taxes online Qualifying costs do not include costs for which the government reimburses you under a cost-sharing program, unless you include the reimbursement in your income. File taxes online Qualified timber property. File taxes online   Qualified timber property is property that contains trees in significant commercial quantities. File taxes online It can be a woodlot or other site that you own or lease. File taxes online The property qualifies only if it meets all of the following requirements. File taxes online It is located in the United States. File taxes online It is held for the growing and cutting of timber you will either use in, or sell for use in, the commercial production of timber products. File taxes online It consists of at least one acre planted with tree seedlings in the manner normally used in forestation or reforestation. File taxes online Qualified timber property does not include property on which you have planted shelter belts or ornamental trees, such as Christmas trees. File taxes online Amortization period. File taxes online   The 84-month amortization period starts on the first day of the first month of the second half of the tax year you incur the costs (July 1 for a calendar year taxpayer), regardless of the month you actually incur the costs. File taxes online You can claim amortization deductions for no more than 6 months of the first and last (eighth) tax years of the period. File taxes online Life tenant and remainderman. File taxes online   If one person holds the property for life with the remainder going to another person, the life tenant is entitled to the full amortization for qualifying reforestation costs incurred by the life tenant. File taxes online Any remainder interest in the property is ignored for amortization purposes. File taxes online Recapture. File taxes online   If you dispose of qualified timber property within 10 years after the tax year you incur qualifying reforestation expenses, report any gain as ordinary income up to the amortization you took. File taxes online See chapter 3 of Publication 544 for more information. File taxes online How to make the election. File taxes online   To elect to amortize qualifying reforestation costs, complete Part VI of Form 4562 and attach a statement that contains the following information. File taxes online A description of the costs and the dates you incurred them. File taxes online A description of the type of timber being grown and the purpose for which it is grown. File taxes online Attach a separate statement for each property for which you amortize reforestation costs. File taxes online   Generally, you must make the election on a timely filed return (including extensions) for the tax year in which you incurred the costs. File taxes online 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 return (excluding extensions). File taxes online Attach Form 4562 and the statement to the amended return and write “Filed pursuant to section 301. File taxes online 9100-2” on Form 4562. File taxes online File the amended return at the same address you filed the original return. File taxes online Revoking the election. File taxes online   You must get IRS approval to revoke your election to amortize qualifying reforestation costs. File taxes online Your application to revoke the election must include your name, address, the years for which your election was in effect, and your reason for revoking it. File taxes online Please provide your daytime telephone number (optional), in case we need to contact you. File taxes online You, or your duly authorized representative, must sign the application and file it at least 90 days before the due date (without extensions) for filing your income tax return for the first tax year for which your election is to end. File taxes online    Send the application to: Internal Revenue Service Associate Chief Counsel Passthroughs and Special Industries CC:PSI:6 1111 Constitution Ave. File taxes online NW, IR-5300 Washington, DC 20224 Geological and Geophysical Costs You can amortize the cost of geological and geophysical expenses paid or incurred in connection with oil and gas exploration or development within the United States. File taxes online These costs can be amortized ratably over a 24-month period beginning on the mid-point of the tax year in which the expenses were paid or incurred. File taxes online For major integrated oil companies (as defined in section 167(h)(5)), these costs must be amortized ratably over a 5-year period for costs paid or incurred after May 17, 2006 (a 7-year period for costs paid or incurred after December 19, 2007). File taxes online If you retire or abandon the property during the amortization period, no amortization deduction is allowed in the year of retirement or abandonment. File taxes online Pollution Control Facilities You can elect to amortize the cost of a certified pollution control facility over 60 months. File taxes online However, see Atmospheric pollution control facilities for an exception. File taxes online The cost of a pollution control facility that is not eligible for amortization can be depreciated under the regular rules for depreciation. File taxes online Also, you can claim a special depreciation allowance on a certified pollution control facility that is qualified property even if you elect to amortize its cost. File taxes online You must reduce its cost (amortizable basis) by the amount of any special allowance you claim. File taxes online See chapter 3 of Publication 946. File taxes online A certified pollution control facility is a new identifiable treatment facility used in connection with a plant or other property in operation before 1976, to reduce or control water or atmospheric pollution or contamination. File taxes online The facility must do so by removing, changing, disposing, storing, or preventing the creation or emission of pollutants, contaminants, wastes, or heat. File taxes online The facility must be certified by state and federal certifying authorities. File taxes online The facility must not significantly increase the output or capacity, extend the useful life, or reduce the total operating costs of the plant or other property. File taxes online Also, it must not significantly change the nature of the manufacturing or production process or facility. File taxes online The federal certifying authority will not certify your property to the extent it appears you will recover (over the property's useful life) all or part of its cost from the profit based on its operation (such as through sales of recovered wastes). File taxes online The federal certifying authority will describe the nature of the potential cost recovery. File taxes online You must then reduce the amortizable basis of the facility by this potential recovery. File taxes online New identifiable treatment facility. File taxes online   A new identifiable treatment facility is tangible depreciable property that is identifiable as a treatment facility. File taxes online It does not include a building and its structural components unless the building is exclusively a treatment facility. File taxes online Atmospheric pollution control facilities. File taxes online   Certain atmospheric pollution control facilities can be amortized over 84 months. File taxes online To qualify, the following must apply. File taxes online The facility must be acquired and placed in service after April 11, 2005. File taxes online If acquired, the original use must begin with you after April 11, 2005. File taxes online The facility must be used in connection with an electric generation plant or other property placed in operation after December 31, 1975, that is primarily coal fired. File taxes online If you construct, reconstruct, or erect the facility, only the basis attributable to the construction, reconstruction, or erection completed after April 11, 2005, qualifies. File taxes online Basis reduction for corporations. File taxes online   A corporation must reduce the amortizable basis of a pollution control facility by 20% before figuring the amortization deduction. File taxes online More information. File taxes online   For more information on the amortization of pollution control facilities, see Code sections 169 and 291(c) and the related regulations. File taxes online Research and Experimental Costs You can elect to amortize your research and experimental costs, deduct them as current business expenses, or write them off over a 10-year period (see Optional write-off method below). File taxes online If you elect to amortize these costs, deduct them in equal amounts over 60 months or more. File taxes online The amortization period begins the month you first receive an economic benefit from the costs. File taxes online For a definition of “research and experimental costs” and information on deducting them as current business expenses, see chapter 7. File taxes online Optional write-off method. File taxes online   Rather than amortize these costs or deduct them as a current expense, you have the option of deducting (writing off) research and experimental costs ratably over a 10-year period beginning with the tax year in which you incurred the costs. File taxes online For more information, see Optional Write-off of Certain Tax Preferences , later, and section 59(e) of the Internal Revenue Code. File taxes online Costs you can amortize. File taxes online   You can amortize costs chargeable to a capital account (see chapter 1) if you meet both of the following requirements. File taxes online You paid or incurred the costs in your trade or business. File taxes online You are not deducting the costs currently. File taxes online How to make the election. File taxes online   To elect to amortize research and experimental costs, complete Part VI of Form 4562 and attach it to your income tax return. File taxes online Generally, you must file the return by the due date (including extensions). File taxes online 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 return (excluding extensions). File taxes online Attach Form 4562 to the amended return and write “Filed pursuant to section 301. File taxes online 9100-2” on Form 4562. File taxes online File the amended return at the same address you filed the original return. File taxes online   Your election is binding for the year it is made and for all later years unless you obtain approval from the IRS to change to a different method. File taxes online Optional Write-off of Certain Tax Preferences You can elect to amortize certain tax preference items over an optional period beginning in the tax year in which you incurred the costs. File taxes online If you make this election, there is no AMT adjustment. File taxes online The applicable costs and the optional recovery periods are as follows: Circulation costs — 3 years, Intangible drilling and development costs — 60 months, Mining exploration and development costs — 10 years, and Research and experimental costs — 10 years. File taxes online How to make the election. File taxes online   To elect to amortize qualifying costs over the optional recovery period, complete Part VI of Form 4562 and attach a statement containing the following information to your return for the tax year in which the election begins: Your name, address, and taxpayer identification number; and The type of cost and the specific amount of the cost for which you are making the election. File taxes online   Generally, the election must be made on a timely filed return (including extensions) for the tax year in which you incurred the costs. File taxes online 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 return (excluding extensions). File taxes online Attach Form 4562 to the amended return and write “Filed pursuant to section 301. File taxes online 9100-2” on Form 4562. File taxes online File the amended return at the same address you filed the original return. File taxes online Revoking the election. File taxes online   You must obtain consent from the IRS to revoke your election. File taxes online Your request to revoke the election must be submitted to the IRS in the form of a letter ruling before the end of the tax year in which the optional recovery period ends. File taxes online The request must contain all of the information necessary to demonstrate the rare and unusual circumstances that would justify granting revocation. File taxes online If the request for revocation is approved, any unamortized costs are deductible in the year the revocation is effective. File taxes online Prev  Up  Next   Home   More Online Publications