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Filing Taxes For 2013

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Filing Taxes For 2013

Filing taxes for 2013 4. Filing taxes for 2013   Farm Business Expenses Table of Contents What's New for 2013 Introduction Topics - This chapter discusses: Useful Items - You may want to see: Deductible ExpensesReasonable allocation. Filing taxes for 2013 Prepaid Farm Supplies Prepaid Livestock Feed Labor Hired Repairs and Maintenance Interest Breeding Fees Fertilizer and Lime Taxes Insurance Rent and Leasing Depreciation Business Use of Your Home Truck and Car Expenses Travel Expenses Marketing Quota Penalties Tenant House Expenses Items Purchased for Resale Other Expenses Domestic Production Activities Deduction Capital ExpensesForestation and reforestation costs. Filing taxes for 2013 Nondeductible ExpensesPersonal, Living, and Family Expenses Other Nondeductible Items Losses From Operating a FarmAt-Risk Limits Passive Activity Limits Excess Farm Loss Limit Not-for-Profit FarmingUsing the presumption later. Filing taxes for 2013 Category 1. Filing taxes for 2013 Category 2. Filing taxes for 2013 Category 3. Filing taxes for 2013 What's New for 2013 Standard mileage rate. Filing taxes for 2013  For 2013, the standard mileage rate for the cost of operating your car, van, pickup, or panel truck for each mile of business use is 56. Filing taxes for 2013 5 cents. Filing taxes for 2013 See Truck and Car Expenses , later. Filing taxes for 2013 Simplified method for business use of home deduction. Filing taxes for 2013  The IRS now provides a simplified method to determine your expenses for business use of your home. Filing taxes for 2013 For more information, see Schedule C (Form 1040), Part II, and its instructions. Filing taxes for 2013 Introduction You can generally deduct the current costs of operating your farm. Filing taxes for 2013 Current costs are expenses you do not have to capitalize or include in inventory costs. Filing taxes for 2013 However, your deduction for the cost of livestock feed and certain other supplies may be limited. Filing taxes for 2013 If you have an operating loss, you may not be able to deduct all of it. Filing taxes for 2013 Topics - This chapter discusses: Deductible expenses Domestic production activities deduction Capital expenses Nondeductible expenses Losses from operating a farm Not-for-profit farming Useful Items - You may want to see: Publication 463 Travel, Entertainment, Gift, and Car Expenses 535 Business Expenses 587 Business Use of Your Home 925 Passive Activity and At-Risk Rules 936 Home Mortgage Interest Deduction Form (and Instructions) Sch A (Form 1040) Itemized Deductions Sch F (Form 1040) Profit or Loss From Farming 1045 Application for Tentative Refund 5213 Election To Postpone Determination as To Whether the Presumption Applies That an Activity Is Engaged in for Profit 8903 Domestic Production Activities Deduction See chapter 16 for information about getting publications and forms. Filing taxes for 2013 Deductible Expenses The ordinary and necessary costs of operating a farm for profit are deductible business expenses. Filing taxes for 2013 “Ordinary” means what most farmers do and “necessary” means what is useful and helpful in farming. Filing taxes for 2013 Schedule F, Part II, lists some common farm expenses that are typically deductible. Filing taxes for 2013 This chapter discusses many of these expenses, as well as others not listed on Schedule F. Filing taxes for 2013 Reimbursed expenses. Filing taxes for 2013   If the reimbursement is received in the same year that the expense is claimed, reduce the expense by the amount of the reimbursement. Filing taxes for 2013 If the reimbursement is received in a year after the expense is claimed, include the reimbursement amount in income. Filing taxes for 2013 See Refund or reimbursement under Income From Other Sources in chapter 3. Filing taxes for 2013 Personal and business expenses. Filing taxes for 2013   Some expenses you pay during the tax year may be part personal and part business. Filing taxes for 2013 These may include expenses for gasoline, oil, fuel, water, rent, electricity, telephone, automobile upkeep, repairs, insurance, interest, and taxes. Filing taxes for 2013   You must allocate these mixed expenses between their business and personal parts. Filing taxes for 2013 Generally, the personal part of these expenses is not deductible. Filing taxes for 2013 The business portion of the expenses is deductible on Schedule F. Filing taxes for 2013 Example. Filing taxes for 2013 You paid $1,500 for electricity during the tax year. Filing taxes for 2013 You used 1/3 of the electricity for personal purposes and 2/3 for farming. Filing taxes for 2013 Under these circumstances, you can deduct $1,000 (2/3 of $1,500) of your electricity expense as a farm business expense. Filing taxes for 2013 Reasonable allocation. Filing taxes for 2013   It is not always easy to determine the business and nonbusiness parts of an expense. Filing taxes for 2013 There is no method of allocation that applies to all mixed expenses. Filing taxes for 2013 Any reasonable allocation is acceptable. Filing taxes for 2013 What is reasonable depends on the circumstances in each case. Filing taxes for 2013 Prepaid Farm Supplies Prepaid farm supplies include the following items if paid for during the year. Filing taxes for 2013 Feed, seed, fertilizer, and similar farm supplies not used or consumed during the year, but not including farm supplies that you would have consumed during the year if not for a fire, storm, flood, other casualty, disease, or drought. Filing taxes for 2013 Poultry (including egg-laying hens and baby chicks) bought for use (or for both use and resale) in your farm business. Filing taxes for 2013 However, include only the amount that would be deductible in the following year if you had capitalized the cost and deducted it ratably over the lesser of 12 months or the useful life of the poultry. Filing taxes for 2013 Poultry bought for resale and not resold during the year. Filing taxes for 2013 Deduction limit. Filing taxes for 2013   If you use the cash method of accounting to report your income and expenses, your deduction for prepaid farm supplies in the year you pay for them may be limited to 50% of your other deductible farm expenses for the year (all Schedule F deductions except prepaid farm supplies). Filing taxes for 2013 This limit does not apply if you meet one of the exceptions described later. Filing taxes for 2013 See Chapter 2 for a discussion of the cash method of accounting. Filing taxes for 2013   If the limit applies, you can deduct the excess cost of farm supplies other than poultry in the year you use or consume the supplies. Filing taxes for 2013 The excess cost of poultry bought for use (or for both use and resale) in your farm business is deductible in the year following the year you pay for it. Filing taxes for 2013 The excess cost of poultry bought for resale is deductible in the year you sell or otherwise dispose of that poultry. Filing taxes for 2013 Example. Filing taxes for 2013 You may not qualify for the exception described next. Filing taxes for 2013 During 2013, you bought fertilizer ($4,000), feed ($1,000), and seed ($500) for use on your farm in the following year. Filing taxes for 2013 Your total prepaid farm supplies expense for 2013 is $5,500. Filing taxes for 2013 Your other deductible farm expenses totaled $10,000 for 2013. Filing taxes for 2013 Therefore, your deduction for prepaid farm supplies cannot be more than $5,000 (50% of $10,000) for 2013. Filing taxes for 2013 The excess prepaid farm supplies expense of $500 ($5,500 − $5,000) is deductible in a later tax year when you use or consume the supplies. Filing taxes for 2013 Exceptions. Filing taxes for 2013   This limit on the deduction for prepaid farm supplies expense does not apply if you are a farm-related taxpayer and either of the following apply. Filing taxes for 2013 Your prepaid farm supplies expense is more than 50% of your other deductible farm expenses because of a change in business operations caused by unusual circumstances. Filing taxes for 2013 Your total prepaid farm supplies expense for the preceding 3 tax years is less than 50% of your total other deductible farm expenses for those 3 tax years. Filing taxes for 2013   You are a farm-related taxpayer if any of the following tests apply. Filing taxes for 2013 Your main home is on a farm. Filing taxes for 2013 Your principal business is farming. Filing taxes for 2013 A member of your family meets (1) or (2). Filing taxes for 2013 For this purpose, your family includes your brothers and sisters, half-brothers and half-sisters, spouse, parents, grandparents, children, grandchildren, and aunts and uncles and their children. Filing taxes for 2013    Whether or not the deduction limit for prepaid farm supplies applies, your expenses for prepaid livestock feed may be subject to the rules for advance payment of livestock feed, discussed next. Filing taxes for 2013 Prepaid Livestock Feed If you report your income and expenses under the cash method of accounting, you cannot deduct in the year paid the cost of feed your livestock will consume in a later year unless you meet all the following tests. Filing taxes for 2013 The payment is for the purchase of feed rather than a deposit. Filing taxes for 2013 The prepayment has a business purpose and is not merely for tax avoidance. Filing taxes for 2013 Deducting the prepayment does not result in a material distortion of your income. Filing taxes for 2013 If you meet all three tests, you can deduct the prepaid feed, subject to the limit on prepaid farm supplies discussed earlier. Filing taxes for 2013 If you fail any of these tests, you can deduct the prepaid feed only in the year it is consumed. Filing taxes for 2013 This rule does not apply to the purchase of commodity futures contracts. Filing taxes for 2013 Payment for the purchase of feed. Filing taxes for 2013   Whether a payment is for the purchase of feed or a deposit depends on the facts and circumstances in each case. Filing taxes for 2013 It is for the purchase of feed if you can show you made it under a binding commitment to accept delivery of a specific quantity of feed at a fixed price and you are not entitled, by contract or business custom, to a refund or repurchase. Filing taxes for 2013   The following are some factors that show a payment is a deposit rather than for the purchase of feed. Filing taxes for 2013 The absence of specific quantity terms. Filing taxes for 2013 The right to a refund of any unapplied payment credit at the end of the contract. Filing taxes for 2013 The seller's treatment of the payment as a deposit. Filing taxes for 2013 The right to substitute other goods or products for those specified in the contract. Filing taxes for 2013   A provision permitting substitution of ingredients to vary the particular feed mix to meet your livestock's current diet requirements will not suggest a deposit. Filing taxes for 2013 Further, a price adjustment to reflect market value at the date of delivery is not, by itself, proof of a deposit. Filing taxes for 2013 Business purpose. Filing taxes for 2013   The prepayment has a business purpose only if you have a reasonable expectation of receiving some business benefit from prepaying the cost of livestock feed. Filing taxes for 2013 The following are some examples of business benefits. Filing taxes for 2013 Fixing maximum prices and securing an assured feed supply. Filing taxes for 2013 Securing preferential treatment in anticipation of a feed shortage. Filing taxes for 2013   Other factors considered in determining the existence of a business purpose are whether the prepayment was a condition imposed by the seller and whether that condition was meaningful. Filing taxes for 2013 No material distortion of income. Filing taxes for 2013   The following are some factors considered in determining whether deducting prepaid livestock feed materially distorts income. Filing taxes for 2013 Your customary business practice in conducting your livestock operations. Filing taxes for 2013 The expense in relation to past purchases. Filing taxes for 2013 The time of year you made the purchase. Filing taxes for 2013 The expense in relation to your income for the year. Filing taxes for 2013 Labor Hired You can deduct reasonable wages paid for regular farm labor, piecework, contract labor, and other forms of labor hired to perform your farming operations. Filing taxes for 2013 You can pay wages in cash or in noncash items such as inventory, capital assets, or assets used in your business. Filing taxes for 2013 The cost of boarding farm labor is a deductible labor cost. Filing taxes for 2013 Other deductible costs you incur for farm labor include health insurance, workers' compensation insurance, and other benefits. Filing taxes for 2013 If you must withhold social security, Medicare, and income taxes from your employees' cash wages, you can still deduct the full amount of wages before withholding. Filing taxes for 2013 See chapter 13 for more information on employment taxes. Filing taxes for 2013 Also, deduct the employer's share of the social security and Medicare taxes you must pay on your employees' wages as a farm business expense on Schedule F, line 29. Filing taxes for 2013 See Taxes , later. Filing taxes for 2013 Property for services. Filing taxes for 2013   If you transfer property to an employee in payment for services, you can deduct as wages paid the fair market value of the property on the date of transfer. Filing taxes for 2013 If the employee pays you anything for the property, deduct as wages the fair market value of the property minus the payment by the employee for the property. Filing taxes for 2013   Treat the wages deducted as an amount received for the property. Filing taxes for 2013 You may have a gain or loss to report if the property's adjusted basis on the date of transfer is different from its fair market value. Filing taxes for 2013 Any gain or loss has the same character the exchanged property had in your hands. Filing taxes for 2013 For more information, see chapter 8. Filing taxes for 2013 Child as an employee. Filing taxes for 2013   You can deduct reasonable wages or other compensation you pay to your child for doing farmwork if a true employer-employee relationship exists between you and your child. Filing taxes for 2013 Include these wages in the child's income. Filing taxes for 2013 The child may have to file an income tax return. Filing taxes for 2013 These wages may also be subject to social security and Medicare taxes if your child is age 18 or older. Filing taxes for 2013 For more information, see Family Employees in chapter 13. Filing taxes for 2013    A Form W-2, Wage and Tax Statement, should be issued to the child employee. Filing taxes for 2013   The fact that your child spends the wages to buy clothes or other necessities you normally furnish does not prevent you from deducting your child's wages as a farm expense. Filing taxes for 2013 The amount of wages paid to the child could cause a loss of the dependency exemption depending on how the child uses the money. Filing taxes for 2013 Spouse as an employee. Filing taxes for 2013   You can deduct reasonable wages or other compensation you pay to your spouse if a true employer-employee relationship exists between you and your spouse. Filing taxes for 2013 Wages you pay to your spouse are subject to social security and Medicare taxes. Filing taxes for 2013 For more information, see Family Employees in chapter 13. Filing taxes for 2013 Nondeductible Pay You cannot deduct wages paid for certain household work, construction work, and maintenance of your home. Filing taxes for 2013 However, those wages may be subject to the employment taxes discussed in chapter 13. Filing taxes for 2013 Household workers. Filing taxes for 2013   Do not deduct amounts paid to persons engaged in household work, except to the extent their services are used in boarding or otherwise caring for farm laborers. Filing taxes for 2013 Construction labor. Filing taxes for 2013   Do not deduct wages paid to hired help for the construction of new buildings or other improvements. Filing taxes for 2013 These wages are part of the cost of the building or other improvement. Filing taxes for 2013 You must capitalize them. Filing taxes for 2013 Maintaining your home. Filing taxes for 2013   If your farm employee spends time maintaining or repairing your home, the wages and employment taxes you pay for that work are nondeductible personal expenses. Filing taxes for 2013 For example, assume you have a farm employee for the entire tax year and the employee spends 5% of the time maintaining your home. Filing taxes for 2013 The employee devotes the remaining time to work on your farm. Filing taxes for 2013 You cannot deduct 5% of the wages and employment taxes you pay for that employee. Filing taxes for 2013 Employment Credits Reduce your deduction for wages by the amount of any employment credits you claim such as the work opportunity credit for qualified tax-exempt organizations hiring qualified veterans (Form 5884-C). Filing taxes for 2013 Repairs and Maintenance You can deduct most expenses for the repair and maintenance of your farm property. Filing taxes for 2013 Common items of repair and maintenance are repainting, replacing shingles and supports on farm buildings, and periodic or routine maintenance of trucks, tractors, and other farm machinery. Filing taxes for 2013 However, repairs to, or overhauls of, depreciable property that substantially prolong the life of the property, increase its value, or adapt it to a different use are capital expenses. Filing taxes for 2013 For example, if you repair the barn roof, the cost is deductible. Filing taxes for 2013 But if you replace the roof, it is a capital expense. Filing taxes for 2013 For more information, see Capital Expenses , later. Filing taxes for 2013 Interest You can deduct as a farm business expense interest paid on farm mortgages and other obligations you incur in your farm business. Filing taxes for 2013 Cash method. Filing taxes for 2013   If you use the cash method of accounting, you can generally deduct interest paid during the tax year. Filing taxes for 2013 You cannot deduct interest paid with funds received from the original lender through another loan, advance, or other arrangement similar to a loan. Filing taxes for 2013 You can, however, deduct the interest when you start making payments on the new loan. Filing taxes for 2013 For more information, see Cash Method in chapter 2. Filing taxes for 2013 Prepaid interest. Filing taxes for 2013   Under the cash method, you generally cannot deduct any interest paid before the year it is due. Filing taxes for 2013 Interest paid in advance may be deducted only in the tax year in which it is due. Filing taxes for 2013 Accrual method. Filing taxes for 2013   If you use an accrual method of accounting, you can deduct only interest that has accrued during the tax year. Filing taxes for 2013 However, you cannot deduct interest owed to a related person who uses the cash method until payment is made and the interest is includible in the gross income of that person. Filing taxes for 2013 For more information, see Accrual Method in chapter 2. Filing taxes for 2013 Allocation of interest. Filing taxes for 2013   If you use the proceeds of a loan for more than one purpose, you must allocate the interest on that loan to each use. Filing taxes for 2013 Allocate the interest to the following categories. Filing taxes for 2013 Trade or business interest. Filing taxes for 2013 Passive activity interest. Filing taxes for 2013 Investment interest. Filing taxes for 2013 Portfolio interest. Filing taxes for 2013 Personal interest. Filing taxes for 2013   You generally allocate interest on a loan the same way you allocate the loan proceeds. Filing taxes for 2013 You allocate loan proceeds by tracing disbursements to specific uses. Filing taxes for 2013 The easiest way to trace disbursements to specific uses is to keep the proceeds of a particular loan separate from any other funds. Filing taxes for 2013 Secured loan. Filing taxes for 2013   The allocation of loan proceeds and the related interest is generally not affected by the use of property that secures the loan. Filing taxes for 2013 Example. Filing taxes for 2013 You secure a loan with property used in your farming business. Filing taxes for 2013 You use the loan proceeds to buy a car for personal use. Filing taxes for 2013 You must allocate interest expense on the loan to personal use (purchase of the car) even though the loan is secured by farm business property. Filing taxes for 2013 If the property that secures the loan is your home, you generally do not allocate the loan proceeds or the related interest. Filing taxes for 2013 The interest is usually deductible as qualified home mortgage interest, regardless of how the loan proceeds are used. Filing taxes for 2013 However, you can choose to treat the loan as not secured by your home. Filing taxes for 2013 For more information, see Publication 936. Filing taxes for 2013 Allocation period. Filing taxes for 2013   The period for which a loan is allocated to a particular use begins on the date the proceeds are used and ends on the earlier of the following dates. Filing taxes for 2013 The date the loan is repaid. Filing taxes for 2013 The date the loan is reallocated to another use. Filing taxes for 2013 More information. Filing taxes for 2013   For more information on interest, see chapter 4 in Publication 535. Filing taxes for 2013 Breeding Fees You can deduct breeding fees as a farm business expense. Filing taxes for 2013 However, if you use an accrual method of accounting, you must capitalize breeding fees and allocate them to the cost basis of the calf, foal, etc. Filing taxes for 2013 For more information on who must use an accrual method of accounting, see Accrual Method Required under Accounting Methods in chapter 2. Filing taxes for 2013 Fertilizer and Lime You can deduct in the year paid or incurred the cost of fertilizer, lime, and other materials applied to farmland to enrich, neutralize, or condition it if the benefits last a year or less. Filing taxes for 2013 You can also deduct the cost of applying these materials in the year you pay or incur it. Filing taxes for 2013 However, see Prepaid Farm Supplies , earlier, for a rule that may limit your deduction for these materials. Filing taxes for 2013 If the benefits of the fertilizer, lime, or other materials last substantially more than one year, you generally capitalize their cost and deduct a part each year the benefits last. Filing taxes for 2013 However, you can choose to deduct these expenses in the year paid or incurred. Filing taxes for 2013 If you make this choice, you will need IRS approval if you later decide to capitalize the cost of previously deducted items. Filing taxes for 2013 If you sell farmland on which fertilizer or lime has been applied and if the selling price of the land includes part or all of the cost of the fertilizer or lime, you report the sale amount attributable to the fertilizer or lime as ordinary income. Filing taxes for 2013 Farmland, for these purposes, is land used for producing crops, fruits, or other agricultural products or for sustaining livestock. Filing taxes for 2013 It does not include land you have never used previously for producing crops or sustaining livestock. Filing taxes for 2013 You cannot deduct initial land preparation costs. Filing taxes for 2013 (See Capital Expenses , later. Filing taxes for 2013 ) Include government payments you receive for lime or fertilizer in income. Filing taxes for 2013 See Fertilizer and Lime under Agricultural Program Payments in chapter 3. Filing taxes for 2013 Taxes You can deduct as a farm business expense the real estate and personal property taxes on farm business assets, such as farm equipment, animals, farmland, and farm buildings. Filing taxes for 2013 You also can deduct the social security and Medicare taxes you pay to match the amount withheld from the wages of farm employees and any federal unemployment tax you pay. Filing taxes for 2013 For information on employment taxes, see chapter 13. Filing taxes for 2013 Allocation of taxes. Filing taxes for 2013   The taxes on the part of your farm you use as your home (including the furnishings and surrounding land not used for farming) are nonbusiness taxes. Filing taxes for 2013 You may be able to deduct these nonbusiness taxes as itemized deductions on Schedule A (Form 1040). Filing taxes for 2013 To determine the nonbusiness part, allocate the taxes between the farm assets and nonbusiness assets. Filing taxes for 2013 The allocation can be done from the assessed valuations. Filing taxes for 2013 If your tax statement does not show the assessed valuations, you can usually get them from the tax assessor. Filing taxes for 2013 State and local general sales taxes. Filing taxes for 2013   State and local general sales taxes on nondepreciable farm business expense items are deductible as part of the cost of those items. Filing taxes for 2013 Include state and local general sales taxes imposed on the purchase of assets for use in your farm business as part of the cost you depreciate. Filing taxes for 2013 Also treat the taxes as part of your cost if they are imposed on the seller and passed on to you. Filing taxes for 2013 State and federal income taxes. Filing taxes for 2013   Individuals cannot deduct state and federal income taxes as farm business expenses. Filing taxes for 2013 Individuals can deduct state and local income taxes only as an itemized deduction on Schedule A (Form 1040). Filing taxes for 2013 However, you cannot deduct federal income tax. Filing taxes for 2013 Highway use tax. Filing taxes for 2013   You can deduct the federal use tax on highway motor vehicles paid on a truck or truck tractor used in your farm business. Filing taxes for 2013 For information on the tax itself, including information on vehicles subject to the tax, see the Instructions for Form 2290, Heavy Highway Vehicle Use Tax Return. Filing taxes for 2013 Self-employment tax deduction. Filing taxes for 2013   You can deduct as an adjustment to income on Form 1040 one-half of your self-employment tax in figuring your adjusted gross income. Filing taxes for 2013 For more information, see chapter 12. Filing taxes for 2013 Insurance You generally can deduct the ordinary and necessary cost of insurance for your farm business as a business expense. Filing taxes for 2013 This includes premiums you pay for the following types of insurance. Filing taxes for 2013 Fire, storm, crop, theft, liability, and other insurance on farm business assets. Filing taxes for 2013 Health and accident insurance on your farm employees. Filing taxes for 2013 Workers' compensation insurance set by state law that covers any claims for job-related bodily injuries or diseases suffered by employees on your farm, regardless of fault. Filing taxes for 2013 Business interruption insurance. Filing taxes for 2013 State unemployment insurance on your farm employees (deductible as taxes if they are considered taxes under state law). Filing taxes for 2013 Insurance to secure a loan. Filing taxes for 2013   If you take out a policy on your life or on the life of another person with a financial interest in your farm business to get or protect a business loan, you cannot deduct the premiums as a business expense. Filing taxes for 2013 In the event of death, the proceeds of the policy are not taxed as income even if they are used to liquidate the debt. Filing taxes for 2013 Advance premiums. Filing taxes for 2013   Deduct advance payments of insurance premiums only in the year to which they apply, regardless of your accounting method. Filing taxes for 2013 Example. Filing taxes for 2013 On June 28, 2013, you paid a premium of $3,000 for fire insurance on your barn. Filing taxes for 2013 The policy will cover a period of 3 years beginning on July 1, 2013. Filing taxes for 2013 Only the cost for the 6 months in 2013 is deductible as an insurance expense on your 2013 calendar year tax return. Filing taxes for 2013 Deduct $500, which is the premium for 6 months of the 36-month premium period, or 6/36 of $3,000. Filing taxes for 2013 In both 2014 and 2015, deduct $1,000 (12/36 of $3,000). Filing taxes for 2013 Deduct the remaining $500 in 2016. Filing taxes for 2013 Had the policy been effective on January 1, 2013, the deductible expense would have been $1,000 for each of the years 2013, 2014, and 2015, based on one-third of the premium used each year. Filing taxes for 2013 Business interruption insurance. Filing taxes for 2013   Use and occupancy and business interruption insurance premiums are deductible as a business expense. Filing taxes for 2013 This insurance pays for lost profits if your business is shut down due to a fire or other cause. Filing taxes for 2013 Report any proceeds in full on Schedule F, Part I. Filing taxes for 2013 Self-employed health insurance deduction. Filing taxes for 2013   If you are self-employed, you can deduct as an adjustment to income on Form 1040 your payments for medical, dental, and qualified long-term care insurance coverage for yourself, your spouse, and your dependents when figuring your adjusted gross income on your Form 1040. Filing taxes for 2013 Effective March 30, 2010, the insurance can also cover any child of yours under age 27 at the end of 2013, even if the child was not your dependent. Filing taxes for 2013 Generally, this deduction cannot be more than the net profit from the business under which the plan was established. Filing taxes for 2013   If you or your spouse is also an employee of another person, you cannot take the deduction for any month in which you are eligible to participate in a subsidized health plan maintained by your employer or your spouse's employer. Filing taxes for 2013   Generally, use the Self-Employed Health Insurance Deduction Worksheet in the Instructions for Form 1040 to figure your deduction. Filing taxes for 2013 Include the remaining part of the insurance payment in your medical expenses on Schedule A (Form 1040) if you itemize your deductions. Filing taxes for 2013   For more information, see Deductible Premiums in Publication 535, chapter 6. Filing taxes for 2013 Rent and Leasing If you lease property for use in your farm business, you can generally deduct the rent you pay on Schedule F. Filing taxes for 2013 However, you cannot deduct rent you pay in crop shares if you deduct the cost of raising the crops as farm expenses. Filing taxes for 2013 Advance payments. Filing taxes for 2013   Deduct advance payments of rent only in the year to which they apply, regardless of your accounting method. Filing taxes for 2013 Farm home. Filing taxes for 2013   If you rent a farm, do not deduct the part of the rental expense that represents the fair rental value of the farm home in which you live. Filing taxes for 2013 Lease or Purchase If you lease a farm building or equipment, you must determine whether or not the agreement must be treated as a conditional sales contract rather than a lease. Filing taxes for 2013 If the agreement is treated as a conditional sales contract, the payments under the agreement (so far as they do not represent interest or other charges) are payments for the purchase of the property. Filing taxes for 2013 Do not deduct these payments as rent, but capitalize the cost of the property and recover this cost through depreciation. Filing taxes for 2013 Conditional sales contract. Filing taxes for 2013   Whether an agreement is a conditional sales contract depends on the intent of the parties. Filing taxes for 2013 Determine intent based on the provisions of the agreement and the facts and circumstances that exist when you make the agreement. Filing taxes for 2013 No single test, or special combination of tests, always applies. Filing taxes for 2013 However, in general, an agreement may be considered a conditional sales contract rather than a lease if any of the following is true. Filing taxes for 2013 The agreement applies part of each payment toward an equity interest you will receive. Filing taxes for 2013 You get title to the property after you make a stated amount of required payments. Filing taxes for 2013 The amount you must pay to use the property for a short time is a large part of the amount you would pay to get title to the property. Filing taxes for 2013 You pay much more than the current fair rental value of the property. Filing taxes for 2013 You have an option to buy the property at a nominal price compared to the value of the property when you may exercise the option. Filing taxes for 2013 Determine this value when you make the agreement. Filing taxes for 2013 You have an option to buy the property at a nominal price compared to the total amount you have to pay under the agreement. Filing taxes for 2013 The agreement designates part of the payments as interest, or part of the payments can be easily recognized as interest. Filing taxes for 2013 Example. Filing taxes for 2013 You lease new farm equipment from a dealer who both sells and leases. Filing taxes for 2013 The agreement includes an option to purchase the equipment for a specified price. Filing taxes for 2013 The lease payments and the specified option price equal the sales price of the equipment plus interest. Filing taxes for 2013 Under the agreement, you are responsible for maintenance, repairs, and the risk of loss. Filing taxes for 2013 For federal income tax purposes, the agreement is a conditional sales contract. Filing taxes for 2013 You cannot deduct any of the lease payments as rent. Filing taxes for 2013 You can deduct interest, repairs, insurance, depreciation, and other expenses related to the equipment. Filing taxes for 2013 Motor vehicle leases. Filing taxes for 2013   Special rules apply to lease agreements that have a terminal rental adjustment clause. Filing taxes for 2013 In general, this is a clause that provides for a rental price adjustment based on the amount the lessor is able to sell the vehicle for at the end of the lease. Filing taxes for 2013 If your rental agreement contains a terminal rental adjustment clause, treat the agreement as a lease if the agreement otherwise qualifies as a lease. Filing taxes for 2013 For more information, see Internal Revenue Code (IRC) section 7701(h). Filing taxes for 2013 Leveraged leases. Filing taxes for 2013   Special rules apply to leveraged leases of equipment (arrangements in which the equipment is financed by a nonrecourse loan from a third party). Filing taxes for 2013 For more information, see Publication 535, chapter 3, and Revenue Procedure 2001-28, which begins on page 1156 of Internal Revenue Bulletin 2001-19 at www. Filing taxes for 2013 irs. Filing taxes for 2013 gov/pub/irs-irbs/irb01-19. Filing taxes for 2013 pdf. Filing taxes for 2013 Depreciation If property you acquire to use in your farm business is expected to last more than one year, you generally cannot deduct the entire cost in the year you acquire it. Filing taxes for 2013 You must recover the cost over more than one year and deduct part of it each year on Schedule F as depreciation or amortization. Filing taxes for 2013 However, you can choose to deduct part or all of the cost of certain qualifying property, up to a limit, as a section 179 deduction in the year you place it in service. Filing taxes for 2013 Depreciation, amortization, and the section 179 deduction are discussed in chapter 7. Filing taxes for 2013 Business Use of Your Home You can deduct expenses for the business use of your home if you use part of your home exclusively and regularly: As the principal place of business for any trade or business in which you engage, As a place to meet or deal with patients, clients, or customers in the normal course of your trade or business, or In connection with your trade or business, if you are using a separate structure that is not attached to your home. Filing taxes for 2013 Your home office will qualify as your principal place of business for deducting expenses for its use if you meet both of the following requirements. Filing taxes for 2013 You use it exclusively and regularly for the administrative or management activities of your trade or business. Filing taxes for 2013 You have no other fixed location where you conduct substantial administrative or management activities of your trade or business. Filing taxes for 2013 If you use part of your home for business, you must divide the expenses of operating your home between personal and business use. Filing taxes for 2013 The IRS now provides a simplified method to determine your expenses for business use of your home. Filing taxes for 2013 For more information, see Schedule C (Form 1040), Part II, and its instructions. Filing taxes for 2013 Deduction limit. Filing taxes for 2013   If your gross income from farming equals or exceeds your total farm expenses (including expenses for the business use of your home), you can deduct all your farm expenses. Filing taxes for 2013 But if your gross income from farming is less than your total farm expenses, your deduction for certain expenses for the use of your home in your farming business is limited. Filing taxes for 2013   Your deduction for otherwise nondeductible expenses, such as utilities, insurance, and depreciation (with depreciation taken last), cannot be more than the gross income from farming minus the following expenses. Filing taxes for 2013 The business part of expenses you could deduct even if you did not use your home for business (such as deductible mortgage interest, real estate taxes, and casualty and theft losses). Filing taxes for 2013 Farm expenses other than expenses that relate to the use of your home. Filing taxes for 2013 If you are self-employed, do not include your deduction for half of your self-employment tax. Filing taxes for 2013   Deductions over the current year's limit can be carried over to your next tax year. Filing taxes for 2013 They are subject to the deduction limit for the next tax year. Filing taxes for 2013 More information. Filing taxes for 2013   See Publication 587 for more information on deducting expenses for the business use of your home. Filing taxes for 2013 Telephone expense. Filing taxes for 2013   You cannot deduct the cost of basic local telephone service (including any taxes) for the first telephone line you have in your home, even if you have an office in your home. Filing taxes for 2013 However, charges for business long-distance phone calls on that line, as well as the cost of a second line into your home used exclusively for your farm business, are deductible business expenses. Filing taxes for 2013 Cell phone charges for calls relating to your farm business are deductible. Filing taxes for 2013 If the cell phone you use for your farm business is part of a family cell phone plan, you must allocate and deduct only the portion of the charges attributable to farm business calls. Filing taxes for 2013 Truck and Car Expenses You can deduct the actual cost of operating a truck or car in your farm business. Filing taxes for 2013 Only expenses for business use are deductible. Filing taxes for 2013 These include such items as gasoline, oil, repairs, license tags, insurance, and depreciation (subject to certain limits). Filing taxes for 2013 Standard mileage rate. Filing taxes for 2013   Instead of using actual costs, under certain conditions you can use the standard mileage rate. Filing taxes for 2013 The standard mileage rate for each mile of business use is 56. Filing taxes for 2013 5 cents in 2013. Filing taxes for 2013 You can use the standard mileage rate for a car or a light truck, such as a van, pickup, or panel truck, you own or lease. Filing taxes for 2013   You cannot use the standard mileage rate if you operate five or more cars or light trucks at the same time. Filing taxes for 2013 You are not using five or more vehicles at the same time if you alternate using the vehicles (you use them at different times) for business. Filing taxes for 2013 Example. Filing taxes for 2013 Maureen owns a car and four pickup trucks that are used in her farm business. Filing taxes for 2013 Her farm employees use the trucks and she uses the car for business. Filing taxes for 2013 Maureen cannot use the standard mileage rate for the car or the trucks. Filing taxes for 2013 This is because all five vehicles are used in Maureen's farm business at the same time. Filing taxes for 2013 She must use actual expenses for all vehicles. Filing taxes for 2013 Business use percentage. Filing taxes for 2013   You can claim 75% of the use of a car or light truck as business use without any records if you used the vehicle during most of the normal business day directly in connection with the business of farming. Filing taxes for 2013 You choose this method of substantiating business use the first year the vehicle is placed in service. Filing taxes for 2013 Once you make this choice, you may not change to another method later. Filing taxes for 2013 The following are uses directly connected with the business of farming. Filing taxes for 2013 Cultivating land. Filing taxes for 2013 Raising or harvesting any agricultural or horticultural commodity. Filing taxes for 2013 Raising, shearing, feeding, caring for, training, and managing animals. Filing taxes for 2013 Driving to the feed or supply store. Filing taxes for 2013   If you keep records and they show that your business use was more than 75%, you may be able to claim more. Filing taxes for 2013 See Recordkeeping requirements under Travel Expenses , below. Filing taxes for 2013 More information. Filing taxes for 2013   For more information on deductible truck and car expenses, see Publication 463, chapter 4. Filing taxes for 2013 If you pay your employees for the use of their truck or car in your farm business, see Reimbursements to employees under Travel Expenses next. Filing taxes for 2013 Travel Expenses You can deduct ordinary and necessary expenses you incur while traveling away from home for your farm business. Filing taxes for 2013 You cannot deduct lavish or extravagant expenses. Filing taxes for 2013 Usually, the location of your farm business is considered your home for tax purposes. Filing taxes for 2013 You are traveling away from home if: Your duties require you to be absent from your farm substantially longer than an ordinary work day, and You need to get sleep or rest to meet the demands of your work while away from home. Filing taxes for 2013 If you meet these requirements and can prove the time, place, and business purpose of your travel, you can deduct your ordinary and necessary travel expenses. Filing taxes for 2013 The following are some types of deductible travel expenses. Filing taxes for 2013 Air, rail, bus, and car transportation; Meals and lodging; Dry cleaning and laundry; Telephone and fax; Transportation between your hotel and your temporary work or business meeting location; and Tips for any of the above expenses. Filing taxes for 2013 Meals. Filing taxes for 2013   You ordinarily can deduct only 50% of your business-related meals expenses. Filing taxes for 2013 You can deduct the cost of your meals while traveling on business only if your business trip is overnight or long enough to require you to stop for sleep or rest to properly perform your duties. Filing taxes for 2013 You cannot deduct any of the cost of meals if it is not necessary for you to rest, unless you meet the rules for business entertainment. Filing taxes for 2013 For information on entertainment expenses, see Publication 463, chapter 2. Filing taxes for 2013   The expense of a meal includes amounts you spend for your food, beverages, taxes, and tips relating to the meal. Filing taxes for 2013 You can deduct either 50% of the actual cost or 50% of a standard meal allowance that covers your daily meal and incidental expenses. Filing taxes for 2013    Recordkeeping requirements. Filing taxes for 2013 You must be able to prove your deductions for travel by adequate records or other evidence that will support your own statement. Filing taxes for 2013 Estimates or approximations do not qualify as proof of an expense. Filing taxes for 2013   You should keep an account book or similar record, supported by adequate documentary evidence, such as receipts, that together support each element of an expense. Filing taxes for 2013 Generally, it is best to record the expense and get documentation of it at the time you pay it. Filing taxes for 2013   If you choose to deduct a standard meal allowance rather than the actual expense, you do not have to keep records to prove amounts spent for meals and incidental items. Filing taxes for 2013 However, you must still keep records to prove the actual amount of other travel expenses, and the time, place, and business purpose of your travel. Filing taxes for 2013 More information. Filing taxes for 2013   For detailed information on travel, recordkeeping, and the standard meal allowance, see Publication 463. Filing taxes for 2013 Reimbursements to employees. Filing taxes for 2013   You generally can deduct reimbursements you pay to your employees for travel and transportation expenses they incur in the conduct of your business. Filing taxes for 2013 Employees may be reimbursed under an accountable or nonaccountable plan. Filing taxes for 2013 Under an accountable plan, the employee must provide evidence of expenses. Filing taxes for 2013 Under a nonaccountable plan, no evidence of expenses is required. Filing taxes for 2013 If you reimburse expenses under an accountable plan, deduct them as travel and transportation expenses. Filing taxes for 2013 If you reimburse expenses under a nonaccountable plan, you must report the reimbursements as wages on Form W-2 and deduct them as wages. Filing taxes for 2013 For more information, see Publication 535, chapter 11. Filing taxes for 2013 Marketing Quota Penalties You can deduct as Other expenses on Schedule F penalties you pay for marketing crops in excess of farm marketing quotas. Filing taxes for 2013 However, if you do not pay the penalty, but instead the purchaser of your crop deducts it from the payment to you, include in gross income only the amount you received. Filing taxes for 2013 Do not take a separate deduction for the penalty. Filing taxes for 2013 Tenant House Expenses You can deduct the costs of maintaining houses and their furnishings for tenants or hired help as farm business expenses. Filing taxes for 2013 These costs include repairs, utilities, insurance, and depreciation. Filing taxes for 2013 The value of a dwelling you furnish to a tenant under the usual tenant-farmer arrangement is not taxable income to the tenant. Filing taxes for 2013 Items Purchased for Resale If you use the cash method of accounting, you ordinarily deduct the cost of livestock and other items purchased for resale only in the year of sale. Filing taxes for 2013 You deduct this cost, including freight charges for transporting the livestock to the farm, on Schedule F, Part I. Filing taxes for 2013 However, see Chickens, seeds, and young plants , below. Filing taxes for 2013 Example. Filing taxes for 2013 You use the cash method of accounting. Filing taxes for 2013 In 2013, you buy 50 steers you will sell in 2014. Filing taxes for 2013 You cannot deduct the cost of the steers on your 2013 tax return. Filing taxes for 2013 You deduct their cost on your 2014 Schedule F, Part I. Filing taxes for 2013 Chickens, seeds, and young plants. Filing taxes for 2013   If you are a cash method farmer, you can deduct the cost of hens and baby chicks bought for commercial egg production, or for raising and resale, as an expense on Schedule F, Part I, in the year paid if you do it consistently and it does not distort income. Filing taxes for 2013 You also can deduct the cost of seeds and young plants bought for further development and cultivation before sale as an expense on Schedule F, Part I, when paid if you do this consistently and you do not figure your income on the crop method. Filing taxes for 2013 However, see Prepaid Farm Supplies , earlier, for a rule that may limit your deduction for these items. Filing taxes for 2013   If you deduct the cost of chickens, seeds, and young plants as an expense, report their entire selling price as income. Filing taxes for 2013 You cannot also deduct the cost from the selling price. Filing taxes for 2013   You cannot deduct the cost of seeds and young plants for Christmas trees and timber as an expense. Filing taxes for 2013 Deduct the cost of these seeds and plants through depletion allowances. Filing taxes for 2013 For more information, see Depletion in chapter 7. Filing taxes for 2013   The cost of chickens and plants used as food for your family is never deductible. Filing taxes for 2013   Capitalize the cost of plants with a preproductive period of more than 2 years, unless you can elect out of the uniform capitalization rules. Filing taxes for 2013 These rules are discussed in chapter 6. Filing taxes for 2013 Example. Filing taxes for 2013 You use the cash method of accounting. Filing taxes for 2013 In 2013, you buy 500 baby chicks to raise for resale in 2014. Filing taxes for 2013 You also buy 50 bushels of winter wheat seed in 2013 that you sow in the fall. Filing taxes for 2013 Unless you previously adopted the method of deducting these costs in the year you sell the chickens or the harvested crops, you can deduct the cost of both the baby chicks and the seed wheat in 2013. Filing taxes for 2013 Election to use crop method. Filing taxes for 2013   If you use the crop method, you can delay deducting the cost of seeds and young plants until you sell them. Filing taxes for 2013 You must get IRS approval to use the crop method. Filing taxes for 2013 If you follow this method, deduct the cost from the selling price to determine your profit on Schedule F, Part I. Filing taxes for 2013 For more information, see Crop method under Special Methods of Accounting in chapter 2. Filing taxes for 2013 Choosing a method. Filing taxes for 2013   You can adopt either the crop method or the cash method for deducting the cost in the first year you buy egg-laying hens, pullets, chicks, or seeds and young plants. Filing taxes for 2013   Although you must use the same method for egg-laying hens, pullets, and chicks, you can use a different method for seeds and young plants. Filing taxes for 2013 Once you use a particular method for any of these items, use it for those items until you get IRS approval to change your method. Filing taxes for 2013 For more information, see Change in Accounting Method in chapter 2. Filing taxes for 2013 Other Expenses The following list, while not all-inclusive, shows some expenses you can deduct as other farm expenses on Schedule F, Part II. Filing taxes for 2013 These expenses must be for business purposes and  (1) paid, if you use the cash method of accounting, or (2) incurred, if you use an accrual method of accounting. Filing taxes for 2013 Accounting fees. Filing taxes for 2013 Advertising. Filing taxes for 2013 Business travel and meals. Filing taxes for 2013 Commissions. Filing taxes for 2013 Consultant fees. Filing taxes for 2013 Crop scouting expenses. Filing taxes for 2013 Dues to cooperatives. Filing taxes for 2013 Educational expenses (to maintain and improve farming skills). Filing taxes for 2013 Farm-related attorney fees. Filing taxes for 2013 Farm magazines. Filing taxes for 2013 Ginning. Filing taxes for 2013 Insect sprays and dusts. Filing taxes for 2013 Litter and bedding. Filing taxes for 2013 Livestock fees. Filing taxes for 2013 Marketing fees. Filing taxes for 2013 Milk assessment. Filing taxes for 2013 Recordkeeping expenses. Filing taxes for 2013 Service charges. Filing taxes for 2013 Small tools expected to last one year or less. Filing taxes for 2013 Stamps and stationery. Filing taxes for 2013 Subscriptions to professional, technical, and trade journals that deal with farming. Filing taxes for 2013 Tying material and containers. Filing taxes for 2013 Loan expenses. Filing taxes for 2013   You prorate and deduct loan expenses, such as legal fees and commissions, you pay to get a farm loan over the term of the loan. Filing taxes for 2013 Tax preparation fees. Filing taxes for 2013   You can deduct as a farm business expense on Schedule F the cost of preparing that part of your tax return relating to your farm business. Filing taxes for 2013 You may be able to deduct the remaining cost on Schedule A (Form 1040) if you itemize your deductions. Filing taxes for 2013   You also can deduct on Schedule F the amount you pay or incur in resolving tax issues relating to your farm business. Filing taxes for 2013 Domestic Production Activities Deduction Generally, you are allowed a deduction for income attributable to domestic production activities. Filing taxes for 2013 You can deduct 9% of the lesser of your qualified production activities income or your taxable income (adjusted gross income for individuals) for the tax year. Filing taxes for 2013 Your deduction is limited to 50% of the Form W-2 wages you paid for the tax year that are properly allocable to domestic production gross receipts. Filing taxes for 2013 For this purpose, Form W-2 wages do not include noncash wages paid for agricultural labor, such as compensation paid as commodities. Filing taxes for 2013 Also, excluded from Form W-2 wages are wages paid to your children under age 18 and nontaxable fringe benefits. Filing taxes for 2013 Income from cooperatives. Filing taxes for 2013   If you receive a patronage dividend or qualified per-unit retain allocation from a cooperative which is engaged in the manufacturing, production, growth, or extraction in whole or in significant part of any agricultural or horticultural product or in the marketing of agricultural or horticultural products, your income from the cooperative can give rise to a domestic production activities deduction. Filing taxes for 2013 This deduction amount is reported on Form 1099-PATR, box 6. Filing taxes for 2013 In order for you to qualify for the deduction, the cooperative is required to send you a written notice designating your portion of the domestic production activities deduction. Filing taxes for 2013 More information. Filing taxes for 2013   For more information on the domestic production activities deduction, see the Instructions for Form 8903. Filing taxes for 2013 Capital Expenses A capital expense is a payment, or a debt incurred, for the acquisition, improvement, or restoration of an asset that is expected to last more than one year. Filing taxes for 2013 You include the expense in the basis of the asset. Filing taxes for 2013 Uniform capitalization rules also require you to capitalize or include in inventory certain other expenses. Filing taxes for 2013 See chapters 2  and 6. Filing taxes for 2013 Capital expenses are generally not deductible, but they may be depreciable. Filing taxes for 2013 However, you can elect to deduct certain capital expenses, such as the following. Filing taxes for 2013 The cost of fertilizer, lime, etc. Filing taxes for 2013 (See Fertilizer and Lime under Deductible Expenses , earlier. Filing taxes for 2013 ) Soil and water conservation expenses. Filing taxes for 2013 (See chapter 5. Filing taxes for 2013 ) The cost of property that qualifies for a deduction under section 179. Filing taxes for 2013 (See chapter 7. Filing taxes for 2013 ) Business start-up costs. Filing taxes for 2013 (See Business start-up and organizational costs , later. Filing taxes for 2013 ) Forestation and reforestation costs. Filing taxes for 2013 (See Forestation and reforestation costs , later. Filing taxes for 2013 ) Generally, the costs of the following items, including the costs of material, hired labor, and installation, are capital expenses. Filing taxes for 2013 Land and buildings. Filing taxes for 2013 Additions, alterations, and improvements to buildings, etc. Filing taxes for 2013 Cars and trucks. Filing taxes for 2013 Equipment and machinery. Filing taxes for 2013 Fences. Filing taxes for 2013 Draft, breeding, sport, and dairy livestock. Filing taxes for 2013 Repairs to machinery, equipment, trucks, and cars that prolong their useful life, increase their value, or adapt them to different use. Filing taxes for 2013 Water wells, including drilling and equipping costs. Filing taxes for 2013 Land preparation costs, such as: Clearing land for farming, Leveling and conditioning land, Purchasing and planting trees, Building irrigation canals and ditches, Laying irrigation pipes, Installing drain tile, Modifying channels or streams, Constructing earthen, masonry, or concrete tanks, reservoirs, or dams, and Building roads. Filing taxes for 2013 Business start-up and organizational costs. Filing taxes for 2013   You can elect to deduct up to $5,000 of business start-up costs and $5,000 of organizational costs paid or incurred after October 22, 2004. Filing taxes for 2013 The $5,000 deduction is reduced by the amount your total start-up or organizational costs exceed $50,000. Filing taxes for 2013 Any remaining costs must be amortized. Filing taxes for 2013 See chapter 7. Filing taxes for 2013   You elect to deduct start-up or organizational costs by claiming the deduction on the income tax return filed by the due date (including extensions) for the tax year in which the active trade or business begins. Filing taxes for 2013 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). Filing taxes for 2013 Clearly indicate the election on your amended return and write “Filed pursuant to section 301. Filing taxes for 2013 9100-2” at the top of the amended return. Filing taxes for 2013 File the amended return at the same address you filed the original return. Filing taxes for 2013 The election applies when figuring taxable income for the current tax year and all subsequent years. Filing taxes for 2013   You can choose to forgo the election by clearly electing to capitalize your start-up or organizational costs on an income tax return filed by the due date (including extensions) for the tax year in which the active trade or business begins. Filing taxes for 2013 For more information about start-up and organizational costs, see chapter 7. Filing taxes for 2013 Crop production expenses. Filing taxes for 2013   The uniform capitalization rules generally require you to capitalize expenses incurred in producing plants. Filing taxes for 2013 However, except for certain taxpayers required to use an accrual method of accounting, the capitalization rules do not apply to plants with a preproductive period of 2 years or less. Filing taxes for 2013 For more information, see Uniform Capitalization Rules in chapter 6. Filing taxes for 2013 Timber. Filing taxes for 2013   Capitalize the cost of acquiring timber. Filing taxes for 2013 Do not include the cost of land in the cost of the timber. Filing taxes for 2013 You must generally capitalize direct costs incurred in reforestation. Filing taxes for 2013 However, you can elect to deduct some forestation and reforestation costs. Filing taxes for 2013 See Forestation and reforestation costs next. Filing taxes for 2013 Reforestation costs include the following. Filing taxes for 2013 Site preparation costs, such as: Girdling, Applying herbicide, Baiting rodents, and Clearing and controlling brush. Filing taxes for 2013 The cost of seed or seedlings. Filing taxes for 2013 Labor and tool expenses. Filing taxes for 2013 Depreciation on equipment used in planting or seeding. Filing taxes for 2013 Costs incurred in replanting to replace lost seedlings. Filing taxes for 2013 You can choose to capitalize certain indirect reforestation costs. Filing taxes for 2013   These capitalized amounts are your basis for the timber. Filing taxes for 2013 Recover your basis when you sell the timber or take depletion allowances when you cut the timber. Filing taxes for 2013 See Depletion in chapter 7. Filing taxes for 2013 Forestation and reforestation costs. Filing taxes for 2013   You can elect to deduct up to $10,000 ($5,000 if married filing separately; $0 for a trust) of qualifying reforestation costs paid or incurred after October 22, 2004, for each qualified timber property. Filing taxes for 2013 Any remaining costs can be amortized over an 84-month period. Filing taxes for 2013 See chapter 7. Filing taxes for 2013 If you make an election to deduct or amortize qualifying reforestation costs, you should create and maintain separate timber accounts for each qualified timber property. Filing taxes for 2013 The accounts should include all reforestation treatments and the dates they were applied. Filing taxes for 2013 Any qualified timber property that is subject to the deduction or amortization election cannot be included in any other timber account for which depletion is allowed. Filing taxes for 2013 The timber account should be maintained until the timber is disposed of. Filing taxes for 2013 For more information, see Notice 2006-47, 2006-20 I. Filing taxes for 2013 R. Filing taxes for 2013 B. Filing taxes for 2013 892, available at  www. Filing taxes for 2013 irs. Filing taxes for 2013 gov/irb/2006-20_IRB/ar11. Filing taxes for 2013 html. Filing taxes for 2013   You elect to deduct forestation and reforestation costs by claiming the deduction on the income tax return filed by the due date (including extensions) for the tax year in which the expenses were paid or incurred. Filing taxes for 2013 If you are filing Form T (Timber), Forest Activities Schedule, also complete Form T (Timber), Part IV. Filing taxes for 2013 If you are not filing Form T (Timber), attach a statement to your return with the following information. Filing taxes for 2013 The unique stand identification numbers. Filing taxes for 2013 The total number of acres reforested during the tax year. Filing taxes for 2013 The nature of the reforestation treatments. Filing taxes for 2013 The total amounts of the qualified reforestation expenditures eligible to be amortized or deducted. Filing taxes for 2013   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). Filing taxes for 2013 Clearly indicate the election on your amended return and write “Filed pursuant to section 301. Filing taxes for 2013 9100-2” at the top of the amended return. Filing taxes for 2013 File the amended return at the same address you filed the original return. Filing taxes for 2013    For more information about forestation and reforestation costs, see chapter 7. Filing taxes for 2013    For more information about timber, see Agriculture Handbook Number 731, Forest Landowners' Guide to the Federal Income Tax. Filing taxes for 2013 You can view this publication on the Internet at  www. Filing taxes for 2013 fs. Filing taxes for 2013 fed. Filing taxes for 2013 us/publications. Filing taxes for 2013 Christmas tree cultivation. Filing taxes for 2013   If you are in the business of planting and cultivating Christmas trees to sell when they are more than 6 years old, capitalize expenses incurred for planting and stump culture and add them to the basis of the standing trees. Filing taxes for 2013 Recover these expenses as part of your adjusted basis when you sell the standing trees or as depletion allowances when you cut the trees. Filing taxes for 2013 For more information, see Timber Depletion under Depletion in chapter 7. Filing taxes for 2013   You can deduct as business expenses the costs incurred for shearing and basal pruning of these trees. Filing taxes for 2013 Expenses incurred for silvicultural practices, such as weeding or cleaning, and noncommercial thinning are also deductible as business expenses. Filing taxes for 2013   Capitalize the cost of land improvements, such as road grading, ditching, and fire breaks, that have a useful life beyond the tax year. Filing taxes for 2013 If the improvements do not have a determinable useful life, add their cost to the basis of the land. Filing taxes for 2013 The cost is recovered when you sell or otherwise dispose of it. Filing taxes for 2013 If the improvements have a determinable useful life, recover their cost through depreciation. Filing taxes for 2013 Capitalize the cost of equipment and other depreciable assets, such as culverts and fences, to the extent you do not use them in planting Christmas trees. Filing taxes for 2013 Recover these costs through depreciation. Filing taxes for 2013 Nondeductible Expenses You cannot deduct personal expenses and certain other items on your tax return even if they relate to your farm. Filing taxes for 2013 Personal, Living, and Family Expenses You cannot deduct certain personal, living, and family expenses as business expenses. Filing taxes for 2013 These include rent and insurance premiums paid on property used as your home, life insurance premiums on yourself or your family, the cost of maintaining cars, trucks, or horses for personal use, allowances to minor children, attorneys' fees and legal expenses incurred in personal matters, and household expenses. Filing taxes for 2013 Likewise, the cost of purchasing or raising produce or livestock consumed by you or your family is not deductible. Filing taxes for 2013 Other Nondeductible Items You cannot deduct the following items on your tax return. Filing taxes for 2013 Loss of growing plants, produce, and crops. Filing taxes for 2013   Losses of plants, produce, and crops raised for sale are generally not deductible. Filing taxes for 2013 However, you may have a deductible loss on plants with a preproductive period of more than 2 years. Filing taxes for 2013 See chapter 11 for more information. Filing taxes for 2013 Repayment of loans. Filing taxes for 2013   You cannot deduct the repayment of a loan. Filing taxes for 2013 However, if you use the proceeds of a loan for farm business expenses, you can deduct the interest on the loan. Filing taxes for 2013 See Interest , earlier. Filing taxes for 2013 Estate, inheritance, legacy, succession, and gift taxes. Filing taxes for 2013   You cannot deduct estate, inheritance, legacy, succession, and gift taxes. Filing taxes for 2013 Loss of livestock. Filing taxes for 2013   You cannot deduct as a loss the value of raised livestock that die if you deducted the cost of raising them as an expense. Filing taxes for 2013 Losses from sales or exchanges between related persons. Filing taxes for 2013   You cannot deduct losses from sales or exchanges of property between you and certain related persons, including your spouse, brother, sister, ancestor, or lineal descendant. Filing taxes for 2013 For more information, see chapter 2 of Publication 544, Sales and Other Dispositions of Assets. Filing taxes for 2013 Cost of raising unharvested crops. Filing taxes for 2013   You cannot deduct the cost of raising unharvested crops sold with land owned more than one year if you sell both at the same time and to the same person. Filing taxes for 2013 Add these costs to the basis of the land to determine the gain or loss on the sale. Filing taxes for 2013 For more information, see Section 1231 Gains and Losses in chapter 9. Filing taxes for 2013 Cost of unharvested crops bought with land. Filing taxes for 2013   Capitalize the purchase price of land, including the cost allocable to unharvested crops. Filing taxes for 2013 You cannot deduct the cost of the crops at the time of purchase. Filing taxes for 2013 However, you can deduct this cost in figuring net profit or loss in the tax year you sell the crops. Filing taxes for 2013 Cost related to gifts. Filing taxes for 2013   You cannot deduct costs related to your gifts of agricultural products or property held for sale in the ordinary course of your business. Filing taxes for 2013 The costs are not deductible in the year of the gift or any later year. Filing taxes for 2013 For example, you cannot deduct the cost of raising cattle or the cost of planting and raising unharvested wheat on parcels of land given as a gift to your children. Filing taxes for 2013 Club dues and membership fees. Filing taxes for 2013   Generally, you cannot deduct amounts you pay or incur for membership in any club organized for business, pleasure, recreation, or any other social purpose. Filing taxes for 2013 This includes country clubs, golf and athletic clubs, hotel clubs, sporting clubs, airline clubs, and clubs operated to provide meals under circumstances generally considered to be conducive to business discussions. Filing taxes for 2013 Exception. Filing taxes for 2013   The following organizations will not be treated as a club organized for business, pleasure, recreation, or other social purposes, unless one of its main purposes is to conduct entertainment activities for members or their guests or to provide members or their guests with access to entertainment facilities. Filing taxes for 2013 Boards of trade. Filing taxes for 2013 Business leagues. Filing taxes for 2013 Chambers of commerce. Filing taxes for 2013 Civic or public service organizations. Filing taxes for 2013 Professional associations. Filing taxes for 2013 Trade associations. Filing taxes for 2013 Real estate boards. Filing taxes for 2013 Fines and penalties. Filing taxes for 2013   You cannot deduct fines and penalties, except penalties for exceeding marketing quotas, discussed earlier. Filing taxes for 2013 Losses From Operating a Farm If your deductible farm expenses are more than your farm income, you have a loss from the operation of your farm. Filing taxes for 2013 The amount of the loss you can deduct when figuring your taxable income may be limited. Filing taxes for 2013 To figure your deductible loss, you must apply the following limits. Filing taxes for 2013 The at-risk limits. Filing taxes for 2013 The passive activity limits. Filing taxes for 2013 The following discussions explain these limits. Filing taxes for 2013 If your deductible loss after applying these limits is more than your other income for the year, you may have a net operating loss. Filing taxes for 2013 See Publication 536, Net Operating Losses (NOLs) for Individuals, Estates, and Trusts. Filing taxes for 2013 If you do not carry on your farming activity to make a profit, your loss deduction may be limited by the not-for-profit rules. Filing taxes for 2013 See Not-for-Profit Farming, later. Filing taxes for 2013 At-Risk Limits The at-risk rules limit your deduction for losses from most business or income-producing activities, including farming. Filing taxes for 2013 These rules limit the losses you can deduct when figuring your taxable income. Filing taxes for 2013 The deductible loss from an activity is limited to the amount you have at risk in the activity. Filing taxes for 2013 You are at risk in any activity for: The money and adjusted basis of property you contribute to the activity, and Amounts you borrow for use in the activity if: You are personally liable for repayment, or You pledge property (other than property used in the activity) as security for the loan. Filing taxes for 2013 You are not at risk, however, for amounts you borrow for use in a farming activity from a person who has an interest in the activity (other than as a creditor) or a person related to someone (other than you) having such an interest. Filing taxes for 2013 For more information, see Publication 925. Filing taxes for 2013 Passive Activity Limits A passive activity is generally any activity involving the conduct of any trade or business in which you do not materially participate. Filing taxes for 2013 Generally, a rental activity is a passive activity. Filing taxes for 2013 If you have a passive activity, special rules limit the loss you can deduct in the tax year. Filing taxes for 2013 You generally can deduct losses from passive activities only up to income from passive activities. Filing taxes for 2013 Credits are similarly limited. Filing taxes for 2013 For more information, see Publication 925. Filing taxes for 2013 Excess Farm Loss Limit For tax years beginning after 2009, excess farm losses (defined below) are not deductible if you received certain applicable subsidies. Filing taxes for 2013 This limit applies to any farming businesses, other than a C corporation, that received a direct or counter-cyclical payment (or any payment in lieu of such payments) under title I of the Food, Conservation, and Energy Act of 2008, or from a Commodity Credit Corporation loan. Filing taxes for 2013 Your farming losses are limited to the greater of: $300,000 ($150,000 for a married person filing a separate return), or The total net farm income for the prior five tax years. Filing taxes for 2013 Farming losses from casualty losses or losses by reason of disease or drought are disregarded for purposes of figuring this limitation. Filing taxes for 2013 Also, the limitation on farm losses should be applied before the passive activity loss rules are applied. Filing taxes for 2013 For more details, see IRC section 461(j). Filing taxes for 2013 Excess farm loss. Filing taxes for 2013   Generally, an excess farm loss is the amount of your farming loss that exceeds the amount of the limitation (as described above). Filing taxes for 2013 This loss can be determined by taking the excess of: The total deductions for the tax year from your farming businesses, over The total gross income or gain for the tax year from your farming businesses, plus the greater of: $300,000 ($150,000 for a married person filing a separate return), or The excess (if any) of the total gross income or gain from your farming businesses for the prior five tax years over the total deductions from your farming businesses for the prior five tax years. Filing taxes for 2013   Excess farm losses that are disallowed can be carried forward to the next tax year and treated as a deduction from that year. Filing taxes for 2013 Not-for-Profit Farming If you operate a farm for profit, you can deduct all the ordinary and necessary expenses of carrying on the business of farming on Schedule F. Filing taxes for 2013 However, if you do not carry on your farming activity, or other activity you engage or invest in, to make a profit, you report the income from the activity on Form 1040, line 21, and you can deduct expenses of carrying on the activity only if you itemize your deductions on Schedule A (Form 1040). Filing taxes for 2013 Also, there is a limit on the deductions you can take. Filing taxes for 2013 You cannot use a loss from that activity to offset income from other activities. Filing taxes for 2013 Activities you do as a hobby, or mainly for sport or recreation, come under this limit. Filing taxes for 2013 An investment activity intended only to produce tax losses for the investors also comes under this limit. Filing taxes for 2013 The limit on not-for-profit losses applies to individuals, partnerships, estates, trusts, and S corporations. Filing taxes for 2013 It does not apply to corporations other than S corporations. Filing taxes for 2013 In determining whether you are carrying on your farming activity for profit, all the facts are taken into account. Filing taxes for 2013 No one factor alone is decisive. Filing taxes for 2013 Among the factors to consider are whether: You operate your farm in a businesslike manner; The time and effort you spend on farming indicate you intend to make it profitable; You depend on income from farming for your livelihood; Your losses are due to circumstances beyond your control or are normal in the start-up phase of farming; You change your methods of operation in an attempt to improve profitability; You, or your advisors, have the knowledge needed to carry on the farming activity as a successful business; You were successful in making a profit in similar activities in the past; You make a profit from farming in some years and the amount of profit you make; and You can expect to make a future profit from the appreciation of the assets used in the farming activity. Filing taxes for 2013 Presumption of profit. Filing taxes for 2013   Your farming or other activity is presumed carried on for profit if it produced a profit in at least 3 of the last 5 tax years, including the current year. Filing taxes for 2013 Activities that consist primarily of breeding, training, showing, or racing horses are presumed carried on for profit if they produced a profit in at least 2 of the last 7 tax years, including the current year. Filing taxes for 2013 The activity must be substantially the same for each year within this period. Filing taxes for 2013 You have a profit when the gross income from an activity is more than the deductions for it. Filing taxes for 2013   If a taxpayer dies before the end of the 5-year (or 7-year) period, the period ends on the date of the taxpayer's death. Filing taxes for 2013   If your business or investment activity passes this 3- (or 2-) years-of-profit test, presume it is carried on for profit. Filing taxes for 2013 This means the limits discussed here do not apply. Filing taxes for 2013 You can take all your business deductions from the activity on Schedule F, even for the years that you have a loss. Filing taxes for 2013 You can rely on this presumption in every case, unless the IRS shows it is not valid. Filing taxes for 2013   If you fail the 3- (or 2-) years-of-profit test, you still may be considered to operate your farm for profit by considering the factors listed earlier. Filing taxes for 2013 Using the presumption later. Filing taxes for 2013   If you are starting out in farming and do not have 3 (or 2) years showing a profit, you may want to take advantage of this presumption later, after you have had the 5 (or 7) years of experience allowed by the test. Filing taxes for 2013   You can choose to do this by filing Form 5213. Filing taxes for 2013 Filing this form postpones any determination that your farming activity is not carried on for profit until 5 (or 7) years have passed since you first started farming. Filing taxes for 2013 You must file Form 5213 within 3 years after the due date of your return for the year in which you first carried on the activity, or, if earlier, within 60 days after receiving a written notice from the IRS proposing to disallow deductions attributable to the activity. Filing taxes for 2013   The benefit gained by making this choice is that the IRS will not immediately question whether your farming activity is engaged in for profit. Filing taxes for 2013 Accordingly, it will not limit your deductions. Filing taxes for 2013 Rather, you will gain time to earn a profit in 3 (or 2) out of the first 5 (or 7) years you carry on the farming activity. Filing taxes for 2013 If you show 3 (or 2) years of profit at the end of this period, your deductions are not limited under these rules. Filing taxes for 2013 If you do not have 3 (or 2) years of profit (and cannot otherwise show that you operated your farm for profit), the limit applies retroactively to any year in the 5-year (or 7-year) period with a loss. Filing taxes for 2013   Filing Form 5213 automatically extends the period of limitations on any year
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J

The Filing Taxes For 2013

Filing taxes for 2013 4. Filing taxes for 2013   Transportation Table of Contents Parking fees. Filing taxes for 2013 Advertising display on car. Filing taxes for 2013 Car pools. Filing taxes for 2013 Hauling tools or instruments. Filing taxes for 2013 Union members' trips from a union hall. Filing taxes for 2013 Car ExpensesStandard Mileage Rate Actual Car Expenses Leasing a Car Disposition of a Car This chapter discusses expenses you can deduct for business transportation when you are not traveling away from home as defined in chapter 1. Filing taxes for 2013 These expenses include the cost of transportation by air, rail, bus, taxi, etc. Filing taxes for 2013 , and the cost of driving and maintaining your car. Filing taxes for 2013 Transportation expenses include the ordinary and necessary costs of all of the following. Filing taxes for 2013 Getting from one workplace to another in the course of your business or profession when you are traveling within the city or general area that is your tax home. Filing taxes for 2013 Tax home is defined in chapter 1. Filing taxes for 2013 Visiting clients or customers. Filing taxes for 2013 Going to a business meeting away from your regular workplace. Filing taxes for 2013 Getting from your home to a temporary workplace when you have one or more regular places of work. Filing taxes for 2013 These temporary workplaces can be either within the area of your tax home or outside that area. Filing taxes for 2013 Transportation expenses do not include expenses you have while traveling away from home overnight. Filing taxes for 2013 Those expenses are travel expenses discussed in chapter 1 . Filing taxes for 2013 However, if you use your car while traveling away from home overnight, use the rules in this chapter to figure your car expense deduction. Filing taxes for 2013 See Car Expenses , later. Filing taxes for 2013 Daily transportation expenses you incur while traveling from home to one or more regular places of business are generally nondeductible commuting expenses. Filing taxes for 2013 However, there may be exceptions to this general rule. Filing taxes for 2013 You can deduct daily transportation expenses incurred going between your residence and a temporary work station outside the metropolitan area where you live. Filing taxes for 2013 Also, daily transportation expenses can be deducted if: (1) you have one or more regular work locations away from your residence or (2) your residence is your principal place of business and you incur expenses going between the residence and another work location in the same trade or business, regardless of whether the work is temporary or permanent and regardless of the distance. Filing taxes for 2013 Illustration of transportation expenses. Filing taxes for 2013    Figure B , earlier, illustrates the rules that apply for deducting transportation expenses when you have a regular or main job away from your home. Filing taxes for 2013 You may want to refer to it when deciding whether you can deduct your transportation expenses. Filing taxes for 2013 Temporary work location. Filing taxes for 2013   If you have one or more regular work locations away from your home and you commute to a temporary work location in the same trade or business, you can deduct the expenses of the daily round-trip transportation between your home and the temporary location, regardless of distance. Filing taxes for 2013   If your employment at a work location is realistically expected to last (and does in fact last) for 1 year or less, the employment is temporary unless there are facts and circumstances that would indicate otherwise. Filing taxes for 2013   If your employment at a work location is realistically expected to last for more than 1 year or if there is no realistic expectation that the employment will last for 1 year or less, the employment is not temporary, regardless of whether it actually lasts for more than 1 year. Filing taxes for 2013   If employment at a work location initially is realistically expected to last for 1 year or less, but at some later date the employment is realistically expected to last more than 1 year, that employment will be treated as temporary (unless there are facts and circumstances that would indicate otherwise) until your expectation changes. Filing taxes for 2013 It will not be treated as temporary after the date you determine it will last more than 1 year. Filing taxes for 2013   If the temporary work location is beyond the general area of your regular place of work and you stay overnight, you are traveling away from home. Filing taxes for 2013 You may have deductible travel expenses as discussed in chapter 1 . Filing taxes for 2013 No regular place of work. Filing taxes for 2013   If you have no regular place of work but ordinarily work in the metropolitan area where you live, you can deduct daily transportation costs between home and a temporary work site outside that metropolitan area. Filing taxes for 2013   Generally, a metropolitan area includes the area within the city limits and the suburbs that are considered part of that metropolitan area. Filing taxes for 2013   You cannot deduct daily transportation costs between your home and temporary work sites within your metropolitan area. Filing taxes for 2013 These are nondeductible commuting expenses. Filing taxes for 2013 Two places of work. Filing taxes for 2013   If you work at two places in one day, whether or not for the same employer, you can deduct the expense of getting from one workplace to the other. Filing taxes for 2013 However, if for some personal reason you do not go directly from one location to the other, you cannot deduct more than the amount it would have cost you to go directly from the first location to the second. Filing taxes for 2013   Transportation expenses you have in going between home and a part-time job on a day off from your main job are commuting expenses. Filing taxes for 2013 You cannot deduct them. Filing taxes for 2013 Armed Forces reservists. Filing taxes for 2013   A meeting of an Armed Forces reserve unit is a second place of business if the meeting is held on a day on which you work at your regular job. Filing taxes for 2013 You can deduct the expense of getting from one workplace to the other as just discussed under Two places of work . Filing taxes for 2013   You usually cannot deduct the expense if the reserve meeting is held on a day on which you do not work at your regular job. Filing taxes for 2013 In this case, your transportation generally is a nondeductible commuting expense. Filing taxes for 2013 However, you can deduct your transportation expenses if the location of the meeting is temporary and you have one or more regular places of work. Filing taxes for 2013   If you ordinarily work in a particular metropolitan area but not at any specific location and the reserve meeting is held at a temporary location outside that metropolitan area, you can deduct your transportation expenses. Filing taxes for 2013   If you travel away from home overnight to attend a guard or reserve meeting, you can deduct your travel expenses. Filing taxes for 2013 These expenses are discussed in chapter 1 . Filing taxes for 2013   If you travel more than 100 miles away from home in connection with your performance of services as a member of the reserves, you may be able to deduct some of your reserve-related travel costs as an adjustment to gross income rather than as an itemized deduction. Filing taxes for 2013 For more information, see Armed Forces Reservists Traveling More Than 100 Miles From Home under Special Rules, in chapter 6. Filing taxes for 2013 Commuting expenses. Filing taxes for 2013   You cannot deduct the costs of taking a bus, trolley, subway, or taxi, or of driving a car between your home and your main or regular place of work. Filing taxes for 2013 These costs are personal commuting expenses. Filing taxes for 2013 You cannot deduct commuting expenses no matter how far your home is from your regular place of work. Filing taxes for 2013 You cannot deduct commuting expenses even if you work during the commuting trip. Filing taxes for 2013 Example. Filing taxes for 2013 You sometimes use your cell phone to make business calls while commuting to and from work. Filing taxes for 2013 Sometimes business associates ride with you to and from work, and you have a business discussion in the car. Filing taxes for 2013 These activities do not change the trip from personal to business. Filing taxes for 2013 You cannot deduct your commuting expenses. Filing taxes for 2013 Parking fees. Filing taxes for 2013    Fees you pay to park your car at your place of business are nondeductible commuting expenses. Filing taxes for 2013 You can, however, deduct business-related parking fees when visiting a customer or client. Filing taxes for 2013 Advertising display on car. Filing taxes for 2013   Putting display material that advertises your business on your car does not change the use of your car from personal use to business use. Filing taxes for 2013 If you use this car for commuting or other personal uses, you still cannot deduct your expenses for those uses. Filing taxes for 2013 Car pools. Filing taxes for 2013   You cannot deduct the cost of using your car in a nonprofit car pool. Filing taxes for 2013 Do not include payments you receive from the passengers in your income. Filing taxes for 2013 These payments are considered reimbursements of your expenses. Filing taxes for 2013 However, if you operate a car pool for a profit, you must include payments from passengers in your income. Filing taxes for 2013 You can then deduct your car expenses (using the rules in this publication). Filing taxes for 2013 Hauling tools or instruments. Filing taxes for 2013   Hauling tools or instruments in your car while commuting to and from work does not make your car expenses deductible. Filing taxes for 2013 However, you can deduct any additional costs you have for hauling tools or instruments (such as for renting a trailer you tow with your car). Filing taxes for 2013 Union members' trips from a union hall. Filing taxes for 2013   If you get your work assignments at a union hall and then go to your place of work, the costs of getting from the union hall to your place of work are nondeductible commuting expenses. Filing taxes for 2013 Although you need the union to get your work assignments, you are employed where you work, not where the union hall is located. Filing taxes for 2013 Office in the home. Filing taxes for 2013   If you have an office in your home that qualifies as a principal place of business, you can deduct your daily transportation costs between your home and another work location in the same trade or business. Filing taxes for 2013 (See Publication 587, Business Use of Your Home, for information on determining if your home office qualifies as a principal place of business. Filing taxes for 2013 ) Examples of deductible transportation. Filing taxes for 2013   The following examples show when you can deduct transportation expenses based on the location of your work and your home. Filing taxes for 2013 Example 1. Filing taxes for 2013 You regularly work in an office in the city where you live. Filing taxes for 2013 Your employer sends you to a 1-week training session at a different office in the same city. Filing taxes for 2013 You travel directly from your home to the training location and return each day. Filing taxes for 2013 You can deduct the cost of your daily round-trip transportation between your home and the training location. Filing taxes for 2013 Example 2. Filing taxes for 2013 Your principal place of business is in your home. Filing taxes for 2013 You can deduct the cost of round-trip transportation between your qualifying home office and your client's or customer's place of business. Filing taxes for 2013 Example 3. Filing taxes for 2013 You have no regular office, and you do not have an office in your home. Filing taxes for 2013 In this case, the location of your first business contact inside the metropolitan area is considered your office. Filing taxes for 2013 Transportation expenses between your home and this first contact are nondeductible commuting expenses. Filing taxes for 2013 Transportation expenses between your last business contact and your home are also nondeductible commuting expenses. Filing taxes for 2013 While you cannot deduct the costs of these trips, you can deduct the costs of going from one client or customer to another. Filing taxes for 2013 Car Expenses If you use your car for business purposes, you ordinarily can deduct car expenses. Filing taxes for 2013 You generally can use one of the two following methods to figure your deductible expenses. Filing taxes for 2013 Standard mileage rate. Filing taxes for 2013 Actual car expenses. Filing taxes for 2013 If you use actual expenses to figure your deduction for a car you lease, there are rules that affect the amount of your lease payments you can deduct. Filing taxes for 2013 See Leasing a Car , later. Filing taxes for 2013 In this publication, “car” includes a van, pickup, or panel truck. Filing taxes for 2013 For the definition of “car” for depreciation purposes, see Car defined under Actual Car Expenses, later. Filing taxes for 2013 Rural mail carriers. Filing taxes for 2013   If you are a rural mail carrier, you may be able to treat the qualified reimbursement you received as your allowable expense. Filing taxes for 2013 Because the qualified reimbursement is treated as paid under an accountable plan, your employer should not include the reimbursement in your income. Filing taxes for 2013   If your vehicle expenses are more than the amount of your reimbursement, you can deduct the unreimbursed expenses as an itemized deduction on Schedule A (Form 1040). Filing taxes for 2013 You must complete Form 2106 and attach it to your Form 1040, U. Filing taxes for 2013 S. Filing taxes for 2013 Individual Income Tax Return. Filing taxes for 2013   A “qualified reimbursement” is the reimbursement you receive that meets both of the following conditions. Filing taxes for 2013 It is given as an equipment maintenance allowance (EMA) to employees of the U. Filing taxes for 2013 S. Filing taxes for 2013 Postal Service. Filing taxes for 2013 It is at the rate contained in the 1991 collective bargaining agreement. Filing taxes for 2013 Any later agreement cannot increase the qualified reimbursement amount by more than the rate of inflation. Filing taxes for 2013 See your employer for information on your reimbursement. Filing taxes for 2013    If you are a rural mail carrier and received a qualified reimbursement, you cannot use the standard mileage rate. Filing taxes for 2013 Standard Mileage Rate You may be able to use the standard mileage rate to figure the deductible costs of operating your car for business purposes. Filing taxes for 2013 For 2013, the standard mileage rate for the cost of operating your car for business use is 56½ cents per mile. Filing taxes for 2013 If you use the standard mileage rate for a year, you cannot deduct your actual car expenses for that year. Filing taxes for 2013 You cannot deduct depreciation, lease payments, maintenance and repairs, gasoline (including gasoline taxes), oil, insurance, or vehicle registration fees. Filing taxes for 2013 See Choosing the standard mileage rate and Standard mileage rate not allowed, later. Filing taxes for 2013 You generally can use the standard mileage rate whether or not you are reimbursed and whether or not any reimbursement is more or less than the amount figured using the standard mileage rate. Filing taxes for 2013 See chapter 6 for more information on reimbursements . Filing taxes for 2013 Choosing the standard mileage rate. Filing taxes for 2013   If you want to use the standard mileage rate for a car you own, you must choose to use it in the first year the car is available for use in your business. Filing taxes for 2013 Then, in later years, you can choose to use either the standard mileage rate or actual expenses. Filing taxes for 2013   If you want to use the standard mileage rate for a car you lease, you must use it for the entire lease period. Filing taxes for 2013 For leases that began on or before December 31, 1997, the standard mileage rate must be used for the entire portion of the lease period (including renewals) that is after 1997. Filing taxes for 2013   You must make the choice to use the standard mileage rate by the due date (including extensions) of your return. Filing taxes for 2013 You cannot revoke the choice. Filing taxes for 2013 However, in later years, you can switch from the standard mileage rate to the actual expenses method. Filing taxes for 2013 If you change to the actual expenses method in a later year, but before your car is fully depreciated, you have to estimate the remaining useful life of the car and use straight line depreciation. Filing taxes for 2013 Example. Filing taxes for 2013 Larry is an employee who occasionally uses his own car for business purposes. Filing taxes for 2013 He purchased the car in 2011, but he did not claim any unreimbursed employee expenses on his 2011 tax return. Filing taxes for 2013 Because Larry did not use the standard mileage rate the first year the car was available for business use, he cannot use the standard mileage rate in 2013 to claim unreimbursed employee business expenses. Filing taxes for 2013   For more information about depreciation included in the standard mileage rate, see Exception under Methods of depreciation, later. Filing taxes for 2013 Standard mileage rate not allowed. Filing taxes for 2013   You cannot use the standard mileage rate if you: Use five or more cars at the same time (such as in fleet operations), Claimed a depreciation deduction for the car using any method other than straight line, for example, MACRS (as discussed later under Depreciation Deduction), Claimed a section 179 deduction (discussed later) on the car, Claimed the special depreciation allowance on the car, Claimed actual car expenses after 1997 for a car you leased, or Are a rural mail carrier who received a qualified reimbursement. Filing taxes for 2013 (See Rural mail carriers , earlier. Filing taxes for 2013 ) Note. Filing taxes for 2013 You can elect to use the standard mileage rate if you used a car for hire (such as a taxi) unless the standard mileage rate is otherwise not allowed, as discussed above. Filing taxes for 2013 Five or more cars. Filing taxes for 2013   If you own or lease five or more cars that are used for business at the same time, you cannot use the standard mileage rate for the business use of any car. Filing taxes for 2013 However, you may be able to deduct your actual expenses for operating each of the cars in your business. Filing taxes for 2013 See Actual Car Expenses , later, for information on how to figure your deduction. Filing taxes for 2013   You are not using five or more cars for business at the same time if you alternate using (use at different times) the cars for business. Filing taxes for 2013   The following examples illustrate the rules for when you can and cannot use the standard mileage rate for five or more cars. Filing taxes for 2013 Example 1. Filing taxes for 2013 Marcia, a salesperson, owns three cars and two vans that she alternates using for calling on her customers. Filing taxes for 2013 She can use the standard mileage rate for the business mileage of the three cars and the two vans because she does not use them at the same time. Filing taxes for 2013 Example 2. Filing taxes for 2013 Tony and his employees use his four pickup trucks in his landscaping business. Filing taxes for 2013 During the year, he traded in two of his old trucks for two newer ones. Filing taxes for 2013 Tony can use the standard mileage rate for the business mileage of all six of the trucks he owned during the year. Filing taxes for 2013 Example 3. Filing taxes for 2013 Chris owns a repair shop and an insurance business. Filing taxes for 2013 He and his employees use his two pickup trucks and van for the repair shop. Filing taxes for 2013 Chris alternates using his two cars for the insurance business. Filing taxes for 2013 No one else uses the cars for business purposes. Filing taxes for 2013 Chris can use the standard mileage rate for the business use of the pickup trucks, van, and the cars because he never has more than four vehicles used for business at the same time. Filing taxes for 2013 Example 4. Filing taxes for 2013 Maureen owns a car and four vans that are used in her housecleaning business. Filing taxes for 2013 Her employees use the vans, and she uses the car to travel to various customers. Filing taxes for 2013 Maureen cannot use the standard mileage rate for the car or the vans. Filing taxes for 2013 This is because all five vehicles are used in Maureen's business at the same time. Filing taxes for 2013 She must use actual expenses for all vehicles. Filing taxes for 2013 Interest. Filing taxes for 2013   If you are an employee, you cannot deduct any interest paid on a car loan. Filing taxes for 2013 This applies even if you use the car 100% for business as an employee. Filing taxes for 2013   However, if you are self-employed and use your car in your business, you can deduct that part of the interest expense that represents your business use of the car. Filing taxes for 2013 For example, if you use your car 60% for business, you can deduct 60% of the interest on Schedule C (Form 1040). Filing taxes for 2013 You cannot deduct the part of the interest expense that represents your personal use of the car. Filing taxes for 2013    If you use a home equity loan to purchase your car, you may be able to deduct the interest. Filing taxes for 2013 See Publication 936, Home Mortgage Interest Deduction, for more information. Filing taxes for 2013 Personal property taxes. Filing taxes for 2013   If you itemize your deductions on Schedule A (Form 1040), you can deduct on line 7 state and local personal property taxes on motor vehicles. Filing taxes for 2013 You can take this deduction even if you use the standard mileage rate or if you do not use the car for business. Filing taxes for 2013   If you are self-employed and use your car in your business, you can deduct the business part of state and local personal property taxes on motor vehicles on Schedule C (Form 1040), Schedule C-EZ (Form 1040), or Schedule F (Form 1040). Filing taxes for 2013 If you itemize your deductions, you can include the remainder of your state and local personal property taxes on the car on Schedule A (Form 1040). Filing taxes for 2013 Parking fees and tolls. Filing taxes for 2013   In addition to using the standard mileage rate, you can deduct any business-related parking fees and tolls. Filing taxes for 2013 (Parking fees you pay to park your car at your place of work are nondeductible commuting expenses. Filing taxes for 2013 ) Sale, trade-in, or other disposition. Filing taxes for 2013   If you sell, trade in, or otherwise dispose of your car, you may have a gain or loss on the transaction or an adjustment to the basis of your new car. Filing taxes for 2013 See Disposition of a Car , later. Filing taxes for 2013 Actual Car Expenses If you do not use the standard mileage rate, you may be able to deduct your actual car expenses. Filing taxes for 2013 If you qualify to use both methods, you may want to figure your deduction both ways to see which gives you a larger deduction. Filing taxes for 2013 Actual car expenses include: Depreciation Licenses Lease  payments Registration  fees Gas Insurance Repairs Oil Garage rent Tires Tolls Parking fees   If you have fully depreciated a car that you still use in your business, you can continue to claim your other actual car expenses. Filing taxes for 2013 Continue to keep records, as explained later in chapter 5 . Filing taxes for 2013 Business and personal use. Filing taxes for 2013   If you use your car for both business and personal purposes, you must divide your expenses between business and personal use. Filing taxes for 2013 You can divide your expense based on the miles driven for each purpose. Filing taxes for 2013 Example. Filing taxes for 2013 You are a sales representative for a clothing firm and drive your car 20,000 miles during the year: 12,000 miles for business and 8,000 miles for personal use. Filing taxes for 2013 You can claim only 60% (12,000 ÷ 20,000) of the cost of operating your car as a business expense. Filing taxes for 2013 Employer-provided vehicle. Filing taxes for 2013   If you use a vehicle provided by your employer for business purposes, you can deduct your actual unreimbursed car expenses. Filing taxes for 2013 You cannot use the standard mileage rate. Filing taxes for 2013 See Vehicle Provided by Your Employer in chapter 6. Filing taxes for 2013 Interest on car loans. Filing taxes for 2013   If you are an employee, you cannot deduct any interest paid on a car loan. Filing taxes for 2013 This interest is treated as personal interest and is not deductible. Filing taxes for 2013 If you are self-employed and use your car in that business, see Interest , earlier, under Standard Mileage Rate. Filing taxes for 2013 Taxes paid on your car. Filing taxes for 2013   If you are an employee, you can deduct personal property taxes paid on your car if you itemize deductions. Filing taxes for 2013 Enter the amount paid on line 7 of Schedule A (Form 1040). Filing taxes for 2013 Sales taxes. Filing taxes for 2013   Generally, sales taxes on your car are part of your car's basis and are recovered through depreciation, discussed later. Filing taxes for 2013 Fines and collateral. Filing taxes for 2013   You cannot deduct fines you pay or collateral you forfeit for traffic violations. Filing taxes for 2013 Casualty and theft losses. Filing taxes for 2013   If your car is damaged, destroyed, or stolen, you may be able to deduct part of the loss not covered by insurance. Filing taxes for 2013 See Publication 547, Casualties, Disasters, and Thefts, for information on deducting a loss on your car. Filing taxes for 2013 Depreciation and section 179 deductions. Filing taxes for 2013   Generally, the cost of a car, plus sales tax and improvements, is a capital expense. Filing taxes for 2013 Because the benefits last longer than 1 year, you generally cannot deduct a capital expense. Filing taxes for 2013 However, you can recover this cost through the section 179 deduction (the deduction allowed by section 179 of the Internal Revenue Code), special depreciation allowance, and depreciation deductions. Filing taxes for 2013 Depreciation allows you to recover the cost over more than 1 year by deducting part of it each year. Filing taxes for 2013 The section 179 deduction , special depreciation allowance , and depreciation deductions are discussed later. Filing taxes for 2013   Generally, there are limits on these deductions. Filing taxes for 2013 Special rules apply if you use your car 50% or less in your work or business. Filing taxes for 2013   You can claim a section 179 deduction and use a depreciation method other than straight line only if you do not use the standard mileage rate to figure your business-related car expenses in the year you first place a car in service. Filing taxes for 2013   If, in the year you first place a car in service, you claim either a section 179 deduction or use a depreciation method other than straight line for its estimated useful life, you cannot use the standard mileage rate on that car in any future year. Filing taxes for 2013 Car defined. Filing taxes for 2013   For depreciation purposes, a car is any four-wheeled vehicle (including a truck or van) made primarily for use on public streets, roads, and highways. Filing taxes for 2013 Its unloaded gross vehicle weight must not be more than 6,000 pounds. Filing taxes for 2013 A car includes any part, component, or other item physically attached to it or usually included in the purchase price. Filing taxes for 2013   A car does not include: An ambulance, hearse, or combination ambulance-hearse used directly in a business, A vehicle used directly in the business of transporting persons or property for pay or hire, or A truck or van that is a qualified nonpersonal use vehicle. Filing taxes for 2013 Qualified nonpersonal use vehicles. Filing taxes for 2013   These are vehicles that by their nature are not likely to be used more than a minimal amount for personal purposes. Filing taxes for 2013 They include trucks and vans that have been specially modified so that they are not likely to be used more than a minimal amount for personal purposes, such as by installation of permanent shelving and painting the vehicle to display advertising or the company's name. Filing taxes for 2013 Delivery trucks with seating only for the driver, or only for the driver plus a folding jump seat, are qualified nonpersonal use vehicles. Filing taxes for 2013 More information. Filing taxes for 2013   See Depreciation Deduction , later, for more information on how to depreciate your vehicle. Filing taxes for 2013 Section 179 Deduction The section 179 deduction allows you to treat a portion or all of the cost of a car as a current expense. Filing taxes for 2013 If you choose to deduct all or part of the cost as a current expense, you must reduce your depreciable basis in the car by the amount of the section 179 deduction. Filing taxes for 2013 There is a limit on the total section 179 deduction, special depreciation allowance, and depreciation deduction for cars, trucks, and vans that may reduce or eliminate any benefit from claiming the section 179 deduction. Filing taxes for 2013 See Depreciation Limits, later. Filing taxes for 2013 You can claim the section 179 deduction only in the year you place the car in service. Filing taxes for 2013 For this purpose, a car is placed in service when it is ready and available for a specifically assigned use, whether in a trade or business, a tax-exempt activity, a personal activity, or for the production of income. Filing taxes for 2013 Even if you are not using the property, it is in service when it is ready and available for its specifically assigned use. Filing taxes for 2013 A car first used for personal purposes cannot qualify for the deduction in a later year when its use changes to business. Filing taxes for 2013 Example. Filing taxes for 2013 In 2012, you bought a new car and used it for personal purposes. Filing taxes for 2013 In 2013, you began to use it for business. Filing taxes for 2013 Changing its use to business use does not qualify the cost of your car for a section 179 deduction in 2013. Filing taxes for 2013 However, you can claim a depreciation deduction for the business use of the car starting in 2013. Filing taxes for 2013 See Depreciation Deduction , later. Filing taxes for 2013 More than 50% business use requirement. Filing taxes for 2013   You must use the property more than 50% for business to claim any section 179 deduction. Filing taxes for 2013 If you used the property more than 50% for business, multiply the cost of the property by the percentage of business use. Filing taxes for 2013 The result is the cost of the property that can qualify for the section 179 deduction. Filing taxes for 2013 Example. Filing taxes for 2013 Peter purchased a car in April 2013 for $24,500 and used it 60% for business. Filing taxes for 2013 Based on his business usage, the total cost of Peter's car that qualifies for the section 179 deduction is $14,700 ($24,500 cost × 60% business use). Filing taxes for 2013 But see Limit on total section 179, special depreciation allowance, and depreciation deduction , discussed later. Filing taxes for 2013 Limits. Filing taxes for 2013   There are limits on: The amount of the section 179 deduction, The section 179 deduction for sport utility and certain other vehicles, and The total amount of the section 179 deduction, special depreciation allowance, and depreciation deduction (discussed later ) you can claim for a qualified property. Filing taxes for 2013 Limit on the amount of the section 179 deduction. Filing taxes for 2013   For 2013, the total amount you can choose to deduct under section 179 generally cannot be more than $500,000. Filing taxes for 2013   If the cost of your section 179 property placed in service in 2013 is over $2,000,000, you must reduce the $500,000 dollar limit (but not below zero) by the amount of cost over $2,000,000. Filing taxes for 2013 If the cost of your section 179 property placed in service during 2013 is $2,500,000 or more, you cannot take a section 179 deduction. Filing taxes for 2013   The total amount you can deduct under section 179 each year after you apply the limits listed above cannot be more than the taxable income from the active conduct of any trade or business during the year. Filing taxes for 2013   If you are married and file a joint return, you and your spouse are treated as one taxpayer in determining any reduction to the dollar limit, regardless of which of you purchased the property or placed it in service. Filing taxes for 2013   If you and your spouse file separate returns, you are treated as one taxpayer for the dollar limit. Filing taxes for 2013 You must allocate the dollar limit (after any reduction) between you. Filing taxes for 2013   For more information on the above section 179 deduction limits, see Publication 946. Filing taxes for 2013 Limit for sport utility and certain other vehicles. Filing taxes for 2013   For sport utility and certain other vehicles placed in service in 2013, the portion of the vehicle's cost taken into account in figuring your section 179 deduction is limited to $25,000. Filing taxes for 2013 This rule applies to any four-wheeled vehicle primarily designed or used to carry passengers over public streets, roads, or highways, that is not subject to any of the passenger automobile limits explained under Depreciation Limits , later, and that is rated at no more than 14,000 pounds gross vehicle weight. Filing taxes for 2013 However, the $25,000 limit does not apply to any vehicle: Designed to have a seating capacity of more than nine persons behind the driver's seat, Equipped with a cargo area of at least 6 feet in interior length that is an open area or is designed for use as an open area but is enclosed by a cap and is not readily accessible directly from the passenger compartment, or That has an integral enclosure, fully enclosing the driver compartment and load carrying device, does not have seating rearward of the driver's seat, and has no body section protruding more than 30 inches ahead of the leading edge of the windshield. Filing taxes for 2013    Limit on total section 179, special depreciation allowance, and depreciation deduction. Filing taxes for 2013   Generally, the total amount of section 179, special depreciation allowance, and depreciation deduction you can claim for a car that is qualified property and that you placed in service in 2013 is $11,160. Filing taxes for 2013 The limit is reduced if your business use of the car is less than 100%. Filing taxes for 2013 See Depreciation Limits , later, for more information. Filing taxes for 2013 Example. Filing taxes for 2013 In the earlier example under More than 50% business use requirement, Peter had a car with a cost (for purposes of the section 179 deduction) of $14,700. Filing taxes for 2013 However, based on Peter's business usage of his car, the total of his section 179, special depreciation allowance, and depreciation deductions is limited to $6,696 ($11,160 limit x 60% business use). Filing taxes for 2013 Cost of car. Filing taxes for 2013   For purposes of the section 179 deduction, the cost of the car does not include any amount figured by reference to any other property held by you at any time. Filing taxes for 2013 For example, if you buy (for cash and a trade-in) a new car to use in your business, your cost for purposes of the section 179 deduction does not include your adjusted basis in the car you trade in for the new car. Filing taxes for 2013 Your cost includes only the cash you paid. Filing taxes for 2013 Basis of car for depreciation. Filing taxes for 2013   The amount of the section 179 deduction reduces your basis in your car. Filing taxes for 2013 If you choose the section 179 deduction, you must subtract the amount of the deduction from the cost of your car. Filing taxes for 2013 The resulting amount is the basis in your car you use to figure your depreciation deduction. Filing taxes for 2013 When to choose. Filing taxes for 2013   If you want to take the section 179 deduction, you must make the choice in the tax year you place the car in service for business or work. Filing taxes for 2013 How to choose. Filing taxes for 2013    Employees use Form 2106 to make this choice and report the section 179 deduction. Filing taxes for 2013 All others use Form 4562. Filing taxes for 2013   File the appropriate form with either of the following. Filing taxes for 2013 Your original tax return filed for the year the property was placed in service (whether or not you file it timely). Filing taxes for 2013 An amended return filed within the time prescribed by law. Filing taxes for 2013 An election made on an amended return must specify the item of section 179 property to which the election applies and the part of the cost of each such item to be taken into account. Filing taxes for 2013 The amended return must also include any resulting adjustments to taxable income. Filing taxes for 2013    You must keep records that show the specific identification of each piece of qualifying section 179 property. Filing taxes for 2013 These records must show how you acquired the property, the person you acquired it from, and when you placed it in service. Filing taxes for 2013 Revoking an election. Filing taxes for 2013   An election (or any specification made in the election) to take a section 179 deduction for 2013 can only be revoked with the Commissioner's approval. Filing taxes for 2013 Recapture of section 179 deduction. Filing taxes for 2013   To be eligible to claim the section 179 deduction, you must use your car more than 50% for business or work in the year you acquired it. Filing taxes for 2013 If your business use of the car is 50% or less in a later tax year during the recovery period, you have to recapture (include in income) in that later year any excess depreciation. Filing taxes for 2013 Any section 179 deduction claimed on the car is included in calculating the excess depreciation. Filing taxes for 2013 For information on this calculation, see Excess depreciation , later in this chapter under Car Used 50% or Less for Business. Filing taxes for 2013 Dispositions. Filing taxes for 2013   If you dispose of a car on which you had claimed the section 179 deduction, the amount of that deduction is treated as a depreciation deduction for recapture purposes. Filing taxes for 2013 You treat any gain on the disposition of the property as ordinary income up to the amount of the section 179 deduction and any allowable depreciation (unless you establish the amount actually allowed). Filing taxes for 2013 For information on the disposition of a car, see Disposition of a Car , later. Filing taxes for 2013 Special Depreciation Allowance You may be able to claim the special depreciation allowance for your car, truck, or van, if it is qualified property and was placed in service in 2013. Filing taxes for 2013 The allowance is an additional depreciation deduction of 50% of the car's depreciable basis (after any section 179 deduction, but before figuring your regular depreciation deduction under MACRS). Filing taxes for 2013 The special depreciation allowance applies only for the first year the car is placed in service. Filing taxes for 2013 To qualify for the allowance more than 50% of the use of the car must be in a qualified business use (as defined under Depreciation Deduction, later). Filing taxes for 2013 Combined depreciation. Filing taxes for 2013   Your combined section 179 deduction, special depreciation allowance, and regular MACRS depreciation deduction is limited to the maximum allowable depreciation deduction for cars of $11,160 ($3,160 if you elect not to claim the special depreciation allowance). Filing taxes for 2013 For trucks and vans, the first-year limit remains at $11,360 ($3,360 if you elect not to claim the special depreciation allowance). Filing taxes for 2013 See Depreciation Limits , later in this chapter. Filing taxes for 2013 Qualified car. Filing taxes for 2013   To be a qualified car (including trucks and vans), the car must meet all of the following tests. Filing taxes for 2013 You purchased the car new on or after January 1, 2008, but only if no binding written contract to acquire the car existed before January 1, 2008, You placed the car in service in your trade or business before January 1, 2014, You used the car more than 50% in a qualified business use. Filing taxes for 2013 Election not to claim the special depreciation allowance. Filing taxes for 2013   You can elect not to claim the special depreciation allowance for your car, truck, or van, that is qualified property. Filing taxes for 2013 If you make this election, it applies to all 5-year property placed in service during the year. Filing taxes for 2013   To make the election, attach a statement to your timely filed return (including extensions) indicating the class of property (5-year for cars) for which you are making the election and that you are electing not to claim the special depreciation allowance for qualified property acquired on or after January 1, 2008. Filing taxes for 2013    Unless you elect not to claim the special depreciation allowance, you must reduce the car's adjusted basis by the amount of the allowance, even if the allowance was not claimed. Filing taxes for 2013 Depreciation Deduction If you use actual car expenses to figure your deduction for a car you own and use in your business, you can claim a depreciation deduction. Filing taxes for 2013 This means you can deduct a certain amount each year as a recovery of your cost or other basis in your car. Filing taxes for 2013 You generally need to know the following things about the car you intend to depreciate. Filing taxes for 2013 Your basis in the car. Filing taxes for 2013 The date you place the car in service. Filing taxes for 2013 The method of depreciation and recovery period you will use. Filing taxes for 2013 Basis. Filing taxes for 2013   Your basis in a car for figuring depreciation is generally its cost. Filing taxes for 2013 This includes any amount you borrow or pay in cash, other property, or services. Filing taxes for 2013   Generally, you figure depreciation on your car, truck, or van using your unadjusted basis (see Unadjusted basis , later). Filing taxes for 2013 However, in some situations you will use your adjusted basis (your basis reduced by depreciation allowed or allowable in earlier years). Filing taxes for 2013 For one of these situations see Exception under Methods of depreciation, later. Filing taxes for 2013   If you change the use of a car from personal to business, your basis for depreciation is the lesser of the fair market value or your adjusted basis in the car on the date of conversion. Filing taxes for 2013 Additional rules concerning basis are discussed later in this chapter under Unadjusted basis . Filing taxes for 2013 Placed in service. Filing taxes for 2013   You generally place a car in service when it is available for use in your work or business, in an income-producing activity, or in a personal activity. Filing taxes for 2013 Depreciation begins when the car is placed in service for use in your work or business or for the production of income. Filing taxes for 2013   For purposes of computing depreciation, if you first start using the car only for personal use and later convert it to business use, you place the car in service on the date of conversion. Filing taxes for 2013 Car placed in service and disposed of in the same year. Filing taxes for 2013   If you place a car in service and dispose of it in the same tax year, you cannot claim any depreciation deduction for that car. Filing taxes for 2013 Methods of depreciation. Filing taxes for 2013   Generally, you figure depreciation on cars using the Modified Accelerated Cost Recovery System (MACRS). Filing taxes for 2013 MACRS is discussed later in this chapter. Filing taxes for 2013 Exception. Filing taxes for 2013   If you used the standard mileage rate in the first year of business use and change to the actual expenses method in a later year, you cannot depreciate your car under the MACRS rules. Filing taxes for 2013 You must use straight line depreciation over the estimated remaining useful life of the car. Filing taxes for 2013   To figure depreciation under the straight line method, you must reduce your basis in the car (but not below zero) by a set rate per mile for all miles for which you used the standard mileage rate. Filing taxes for 2013 The rate per mile varies depending on the year(s) you used the standard mileage rate. Filing taxes for 2013 For the rate(s) to use, see Depreciation adjustment when you used the standard mileage rate under Disposition of a Car, later. Filing taxes for 2013   This reduction of basis is in addition to those basis adjustments described later under Unadjusted basis . Filing taxes for 2013 You must use your adjusted basis in your car to figure your depreciation deduction. Filing taxes for 2013 For additional information on the straight line method of depreciation, see Publication 946. Filing taxes for 2013 More-than-50%-use test. Filing taxes for 2013   Generally, you must use your car more than 50% for qualified business use (defined next) during the year to use MACRS. Filing taxes for 2013 You must meet this more-than-50%-use test each year of the recovery period (6 years under MACRS) for your car. Filing taxes for 2013   If your business use is 50% or less, you must use the straight line method to depreciate your car. Filing taxes for 2013 This is explained later under Car Used 50% or Less for Business . Filing taxes for 2013 Qualified business use. Filing taxes for 2013   A qualified business use is any use in your trade or business. Filing taxes for 2013 It does not include use for the production of income (investment use). Filing taxes for 2013 However, you do combine your business and investment use to compute your depreciation deduction for the tax year. Filing taxes for 2013 Use of your car by another person. Filing taxes for 2013   Do not treat any use of your car by another person as use in your trade or business unless that use meets one of the following conditions. Filing taxes for 2013 It is directly connected with your business. Filing taxes for 2013 It is properly reported by you as income to the other person (and, if you have to, you withhold tax on the income). Filing taxes for 2013 It results in a payment of fair market rent. Filing taxes for 2013 This includes any payment to you for the use of your car. Filing taxes for 2013 Business use changes. Filing taxes for 2013   If you used your car more than 50% in qualified business use in the year you placed it in service, but 50% or less in a later year (including the year of disposition), you have to change to the straight line method of depreciation. Filing taxes for 2013 See Qualified business use 50% or less in a later year under Car Used 50% or Less for Business, later. Filing taxes for 2013    Property does not cease to be used more than 50% in qualified business use by reason of a transfer at death. Filing taxes for 2013 Use for more than one purpose. Filing taxes for 2013   If you use your car for more than one purpose during the tax year, you must allocate the use to the various purposes. Filing taxes for 2013 You do this on the basis of mileage. Filing taxes for 2013 Figure the percentage of qualified business use by dividing the number of miles you drive your car for business purposes during the year by the total number of miles you drive the car during the year for any purpose. Filing taxes for 2013 Change from personal to business use. Filing taxes for 2013   If you change the use of a car from 100% personal use to business use during the tax year, you may not have mileage records for the time before the change to business use. Filing taxes for 2013 In this case, you figure the percentage of business use for the year as follows. Filing taxes for 2013 Determine the percentage of business use for the period following the change. Filing taxes for 2013 Do this by dividing business miles by total miles driven during that period. Filing taxes for 2013 Multiply the percentage in (1) by a fraction. Filing taxes for 2013 The numerator (top number) is the number of months the car is used for business and the denominator (bottom number) is 12. Filing taxes for 2013 Example. Filing taxes for 2013 You use a car only for personal purposes during the first 6 months of the year. Filing taxes for 2013 During the last 6 months of the year, you drive the car a total of 15,000 miles of which 12,000 miles are for business. Filing taxes for 2013 This gives you a business use percentage of 80% (12,000 ÷ 15,000) for that period. Filing taxes for 2013 Your business use for the year is 40% (80% × 6/12). Filing taxes for 2013 Limits. Filing taxes for 2013   The amount you can claim for section 179, special depreciation allowance, and depreciation deductions may be limited. Filing taxes for 2013 The maximum amount you can claim depends on the year in which you placed your car in service. Filing taxes for 2013 You have to reduce the maximum amount if you did not use the car exclusively for business. Filing taxes for 2013 See Depreciation Limits , later. Filing taxes for 2013 Unadjusted basis. Filing taxes for 2013   You use your unadjusted basis (often referred to as your basis or your basis for depreciation) to figure your depreciation using the MACRS depreciation chart, explained later under Modified Accelerated Cost Recovery System (MACRS) . Filing taxes for 2013 Your unadjusted basis for figuring depreciation is your original basis increased or decreased by certain amounts. Filing taxes for 2013   To figure your unadjusted basis, begin with your car's original basis, which generally is its cost. Filing taxes for 2013 Cost includes sales taxes (see Sales taxes , earlier), destination charges, and dealer preparation. Filing taxes for 2013 Increase your basis by any substantial improvements you make to your car, such as adding air conditioning or a new engine. Filing taxes for 2013 Decrease your basis by any section 179 deduction, special depreciation allowance, gas guzzler tax, clean-fuel vehicle deduction (for vehicles placed in service before Jan. Filing taxes for 2013 1, 2006), and alternative motor vehicle credit. Filing taxes for 2013   See Form 8910 for information on the alternative motor vehicle credit. Filing taxes for 2013 If your business use later falls to 50% or less, you may have to recapture (include in your income) any excess depreciation. Filing taxes for 2013 See Car Used 50% or Less for Business, later, for more information. Filing taxes for 2013 If you acquired the car by gift or inheritance, see Publication 551, Basis of Assets, for information on your basis in the car. Filing taxes for 2013 Improvements. Filing taxes for 2013   A major improvement to a car is treated as a new item of 5-year recovery property. Filing taxes for 2013 It is treated as placed in service in the year the improvement is made. Filing taxes for 2013 It does not matter how old the car is when the improvement is added. Filing taxes for 2013 Follow the same steps for depreciating the improvement as you would for depreciating the original cost of the car. Filing taxes for 2013 However, you must treat the improvement and the car as a whole when applying the limits on the depreciation deductions. Filing taxes for 2013 Your car's depreciation deduction for the year (plus any section 179 deduction, special depreciation allowance, and depreciation on any improvements) cannot be more than the depreciation limit that applies for that year. Filing taxes for 2013 See Depreciation Limits , later. Filing taxes for 2013 Car trade-in. Filing taxes for 2013   If you traded one car (the “old car”) for another car (the “new car”) in 2013, there are two ways you can treat the transaction. Filing taxes for 2013 You can elect to treat the transaction as a tax-free disposition of the old car and the purchase of the new car. Filing taxes for 2013 If you make this election, you treat the old car as disposed of at the time of the trade-in. Filing taxes for 2013 The depreciable basis of the new car is the adjusted basis of the old car (figured as if 100% of the car's use had been for business purposes) plus any additional amount you paid for the new car. Filing taxes for 2013 You then figure your depreciation deduction for the new car beginning with the date you placed it in service. Filing taxes for 2013 You make this election by completing Form 2106, Part II, Section D. Filing taxes for 2013 This method is explained later, beginning at Effect of trade-in on basis . Filing taxes for 2013 If you do not make the election described in (1), you must figure depreciation separately for the remaining basis of the old car and for any additional amount you paid for the new car. Filing taxes for 2013 You must apply two depreciation limits (see Depreciation Limits , later). Filing taxes for 2013 The limit that applies to the remaining basis of the old car generally is the amount that would have been allowed had you not traded in the old car. Filing taxes for 2013 The limit that applies to the additional amount you paid for the new car generally is the limit that applies for the tax year, reduced by the depreciation allowance for the remaining basis of the old car. Filing taxes for 2013 You must use Form 4562 to compute your depreciation deduction. Filing taxes for 2013 You cannot use Form 2106, Part II, Section D. Filing taxes for 2013 This method is explained in Publication 946. Filing taxes for 2013   If you elect to use the method described in (1), you must do so on a timely filed tax return (including extensions). Filing taxes for 2013 Otherwise, you must use the method described in (2). Filing taxes for 2013 Effect of trade-in on basis. Filing taxes for 2013   The discussion that follows applies to trade-ins of cars in 2013, where the election was made to treat the transaction as a tax-free disposition of the old car and the purchase of the new car. Filing taxes for 2013 For information on how to figure depreciation for cars involved in a like-kind exchange (trade-in) in 2013, for which the election was not made, see Publication 946 and Regulations section 1. Filing taxes for 2013 168(i)-6(d)(3). Filing taxes for 2013 Traded car used only for business. Filing taxes for 2013   If you trade in a car you used only in your business for another car that will be used only in your business, your original basis in the new car is your adjusted basis in the old car, plus any additional amount you pay for the new car. Filing taxes for 2013 Example. Filing taxes for 2013 Paul trades in a car that has an adjusted basis of $5,000 for a new car. Filing taxes for 2013 In addition, he pays cash of $20,000 for the new car. Filing taxes for 2013 His original basis of the new car is $25,000 (his $5,000 adjusted basis in the old car plus the $20,000 cash paid). Filing taxes for 2013 Paul's unadjusted basis is $25,000 unless he claims the section 179 deduction, special depreciation allowance, or has other increases or decreases to his original basis, discussed under Unadjusted basis , earlier. Filing taxes for 2013 Traded car used partly in business. Filing taxes for 2013   If you trade in a car you used partly in your business for a new car you will use in your business, you must make a “trade-in” adjustment for the personal use of the old car. Filing taxes for 2013 This adjustment has the effect of reducing your basis in your old car, but not below zero, for purposes of figuring your depreciation deduction for the new car. Filing taxes for 2013 (This adjustment is not used, however, when you determine the gain or loss on the later disposition of the new car. Filing taxes for 2013 See Publication 544, Sales and Other Dispositions of Assets, for information on how to report the disposition of your car. Filing taxes for 2013 )   To figure the unadjusted basis of your new car for depreciation, first add to your adjusted basis in the old car any additional amount you pay for the new car. Filing taxes for 2013 Then subtract from that total the excess, if any, of: The total of the amounts that would have been allowable as depreciation during the tax years before the trade if 100% of the use of the car had been business and investment use, over The total of the amounts actually allowed as depreciation during those years. Filing taxes for 2013 For information about figuring depreciation, see Modified Accelerated Cost Recovery System (MACRS) , which follows Example 2, later. Filing taxes for 2013 Modified Accelerated Cost Recovery System (MACRS). Filing taxes for 2013   The Modified Accelerated Cost Recovery System (MACRS) is the name given to the tax rules for getting back (recovering) through depreciation deductions the cost of property used in a trade or business or to produce income. Filing taxes for 2013   The maximum amount you can deduct is limited, depending on the year you placed your car in service. Filing taxes for 2013 See Depreciation Limits , later. Filing taxes for 2013 Recovery period. Filing taxes for 2013   Under MACRS, cars are classified as 5-year property. Filing taxes for 2013 You actually depreciate the cost of a car, truck, or van over a period of 6 calendar years. Filing taxes for 2013 This is because your car is generally treated as placed in service in the middle of the year, and you claim depreciation for one-half of both the first year and the sixth year. Filing taxes for 2013 Depreciation deduction for certain Indian reservation property. Filing taxes for 2013   Shorter recovery periods are provided under MACRS for qualified Indian reservation property placed in service on Indian reservations after 1993 and before 2014. Filing taxes for 2013 The recovery that applies for a business-use car is 3 years instead of 5 years. Filing taxes for 2013 However, the depreciation limits, discussed later, will still apply. Filing taxes for 2013   For more information on the qualifications for this shorter recovery period and the percentages to use in figuring the depreciation deduction, see chapter 4 of Publication 946. Filing taxes for 2013 Depreciation methods. Filing taxes for 2013   You can use one of the following methods to depreciate your car. Filing taxes for 2013 The 200% declining balance method (200% DB) over a 5-year recovery period that switches to the straight line method when that method provides an equal or greater deduction. Filing taxes for 2013 The 150% declining balance method (150% DB) over a 5-year recovery period that switches to the straight line method when that method provides an equal or greater deduction. Filing taxes for 2013 The straight line method (SL) over a 5-year recovery period. Filing taxes for 2013    If you use Table 4-1 (discussed later under MACRS depreciation chart) to determine your depreciation rate for 2013, you do not need to determine in what year using the straight line method provides an equal or greater deduction. Filing taxes for 2013 This is because the chart has the switch to the straight line method built into its rates. Filing taxes for 2013   Before choosing a method, you may wish to consider the following facts. Filing taxes for 2013 Using the straight line method provides equal yearly deductions throughout the recovery period. Filing taxes for 2013 Using the declining balance methods provides greater deductions during the earlier recovery years with the deductions generally getting smaller each year. Filing taxes for 2013 MACRS depreciation chart. Filing taxes for 2013   A 2013 MACRS Depreciation Chart and instructions are included in this chapter as Table 4-1 . Filing taxes for 2013 Using this table will make it easy for you to figure the 2013 depreciation deduction for your car. Filing taxes for 2013 A similar chart appears in the Instructions for Form 2106. Filing taxes for 2013    You may have to use the tables in Publication 946 instead of using this MACRS Depreciation Chart. Filing taxes for 2013   You must use the Depreciation Tables in Publication 946 rather than the 2013 MACRS Depreciation Chart in this publication if any one of the following four conditions applies to you. Filing taxes for 2013 You file your return on a fiscal year basis. Filing taxes for 2013 You file your return for a short tax year (less than 12 months). Filing taxes for 2013 During the year, all of the following conditions apply. Filing taxes for 2013 You placed some property in service from January through September. Filing taxes for 2013 You placed some property in service from October through December. Filing taxes for 2013 Your basis in the property you placed in service from October through December (excluding nonresidential real property, residential rental property, and property placed in service and disposed of in the same year) was more than 40% of your total bases in all property you placed in service during the year. Filing taxes for 2013   You placed qualified property in service on an Indian reservation. Filing taxes for 2013 Depreciation in future years. Filing taxes for 2013   If you use the percentages from the chart, you generally must continue to use them for the entire recovery period of your car. Filing taxes for 2013 However, you cannot continue to use the chart if your basis in your car is adjusted because of a casualty. Filing taxes for 2013 In that case, for the year of the adjustment and the remaining recovery period, figure the depreciation without the chart using your adjusted basis in the car at the end of the year of the adjustment and over the remaining recovery period. Filing taxes for 2013 See Figuring the Deduction Without Using the Tables in chapter 4 of Publication 946. Filing taxes for 2013    In future years, do not use the chart in this edition of the publication. Filing taxes for 2013 Instead, use the chart in the publication or the form instructions for those future years. Filing taxes for 2013 Disposition of car during recovery period. Filing taxes for 2013   If you dispose of the car before the end of the recovery period, you are generally allowed a half year of depreciation in the year of disposition unless you purchased the car during the last quarter of a year. Filing taxes for 2013 See Depreciation deduction for the year of disposition under Disposition of a Car, later, for information on how to figure the depreciation allowed in the year of disposition. Filing taxes for 2013 How to use the 2013 chart. Filing taxes for 2013   To figure your depreciation deduction for 2013, find the percentage in the column of Table 4-1 based on the date that you first placed the car in service and the depreciation method that you are using. Filing taxes for 2013 Multiply the unadjusted basis of your car (defined earlier) by that percentage to determine the amount of your depreciation deduction. Filing taxes for 2013 If you prefer to figure your depreciation deduction without the help of the chart, see Publication 946. Filing taxes for 2013    Your deduction cannot be more than the maximum depreciation limit for cars. Filing taxes for 2013 See Depreciation Limits, later. Filing taxes for 2013 Example. Filing taxes for 2013 Phil bought a used truck in February 2012 to use exclusively in his landscape business. Filing taxes for 2013 He paid $9,200 for the truck with no trade-in. Filing taxes for 2013 Phil did not claim any section 179 deduction, the truck did not qualify for the special depreciation allowance, and he chose to use the 200% DB method to get the largest depreciation deduction in the early years. Filing taxes for 2013 Phil used the MACRS depreciation chart in 2012 to find his percentage. Filing taxes for 2013 The unadjusted basis of his truck equals its cost because Phil used it exclusively for business. Filing taxes for 2013 He multiplied the unadjusted basis of his truck, $9,200, by the percentage that applied, 20%, to figure his 2012 depreciation deduction of $1,840. Filing taxes for 2013 In 2013, Phil used the truck for personal purposes when he repaired his father's cabin. Filing taxes for 2013 His records show that the business use of his truck was 90% in 2013. Filing taxes for 2013 Phil used Table 4-1 to find his percentage. Filing taxes for 2013 Reading down the first column for the date placed in service and across to the 200% DB column, he locates his percentage, 32%. Filing taxes for 2013 He multiplies the unadjusted basis of his truck, $8,280 ($9,200 cost × 90% business use), by 32% to figure his 2013 depreciation deduction of $2,650. Filing taxes for 2013 Depreciation Limits There are limits on the amount you can deduct for depreciation of your car, truck, or van. Filing taxes for 2013 The section 179 deduction and special depreciation allowance are treated as depreciation for purposes of the limits. Filing taxes for 2013 The maximum amount you can deduct each year depends on the year you place the car in service. Filing taxes for 2013 These limits are shown in the following tables. Filing taxes for 2013   Maximum Depreciation Deduction for Cars Date       4th & Placed 1st 2nd 3rd Later In Service Year Year Year Years 2012–2013 $11,1601 $5,100 $3,050 $1,875 2010–2011 11,0602 4,900 2,950 1,775 2008–2009 10,9603 4,800 2,850 1,775 2007 3,060 4,900 2,850 1,775 2006 2,960 4,800 2,850 1,775 2005 2,960 4,700 2,850 1,675 2004 10,6103 4,800 2,850 1,675 5/06/2003– 12/31/2003 10,7104 4,900 2,950 1,775 1/01/2003– 5/05/2003 7,6605 4,900 2,950 1,775 2001–2002 7,6605 4,900 2,950 1,775 2000 3,060 4,900 2,950 1,775 1$3,160 if the car is not qualified property or if you elect not to claim the special depreciation allowance. Filing taxes for 2013 2$3,060 if the car is not qualified property or if you elect not to claim the special depreciation allowance. Filing taxes for 2013 3$2,960 if the car is not qualified property or if you elect not to claim the special depreciation allowance. Filing taxes for 2013 4$7,660 if you acquired the car before 5/6/2003. Filing taxes for 2013 $3,060 if the car is not qualified property or if you elect not to claim any special depreciation allowance. Filing taxes for 2013 5$3,060 if you acquired the car before 9/11/2001, the car is not qualified property, or you elect not to claim the special depreciation allowance. Filing taxes for 2013 Trucks and vans. Filing taxes for 2013   For 2013, the maximum depreciation deductions for trucks and vans are generally higher than those for cars. Filing taxes for 2013 A truck or van is a passenger automobile that is classified by the manufacturer as a truck or van and rated at 6,000 pounds gross vehicle weight or less. Filing taxes for 2013 For trucks and vans placed in service before 2003, use the Maximum Depreciation Deduction for Cars table. Filing taxes for 2013 Maximum Depreciation Deduction for Trucks and Vans Date       4th & Placed 1st 2nd 3rd Later In Service Year Year Year Years 2013 $11,3601 $5,400 $3,250 $1,975 2012 $11,3601 $5,300 $3,150 $1,875 2011 11,2601 5,200 3,150 1,875 2010 11,1601 5,100 3,050 1,875 2009 11,0601 4,900 2,950 1,775 2008 11,1601 5,100 3,050 1,875 2007 3,260 5,200 3,050 1,875 2005–2006 3,260 5,200 3,150 1,875 2004 10,9101 5,300 3,150 1,875 2003 11,0101,2 5,400 3,250 1,975 1If the special depreciation allowance does not apply or you make the election not to claim the special depreciation allowance, the first-year limit is $3,360 for 2012 and 2013, $3,260 for 2011, $3,160 for 2010, $3,060 for 2009, $3,160 for 2008, $3,260 for 2004, and $3,360 for 2003. Filing taxes for 2013 2If the truck or van was acquired before 5/06/2003, the truck or van is qualified property, and you claim the special depreciation allowance for the truck or van, the maximum deduction is $7,960. Filing taxes for 2013 Car used less than full year. Filing taxes for 2013   The depreciation limits are not reduced if you use a car for less than a full year. Filing taxes for 2013 This means that you do not reduce the limit when you either place a car in service or dispose of a car during the year. Filing taxes for 2013 However, the depreciation limits are reduced if you do not use the car exclusively for business and investment purposes. Filing taxes for 2013 See Reduction for personal use , next. Filing taxes for 2013 Reduction for personal use. Filing taxes for 2013   The depreciation limits are reduced based on your percentage of personal use. Filing taxes for 2013 If you use a car less than 100% in your business or work, you must determine the depreciation deduction limit by multiplying the limit amount by the percentage of business and investment use during the tax year. Filing taxes for 2013 Section 179 deduction. Filing taxes for 2013   The section 179 deduction is treated as a depreciation deduction. Filing taxes for 2013 If you place a car that is not a truck or van in service in 2013, use it only for business, and choose the section 179 deduction, the special depreciation allowance, and the depreciation deduction for that car for 2013 is limited to $11,160. Filing taxes for 2013 Example. Filing taxes for 2013 On September 4, 2013, Jack bought a used car for $10,000 and placed it in service. Filing taxes for 2013 He used it 80% for his business, and he chooses to take a section 179 deduction for the car. Filing taxes for 2013 The car is not qualified property for purposes of the special depreciation allowance. Filing taxes for 2013 Before applying the limit, Jack figures his maximum section 179 deduction to be $8,000. Filing taxes for 2013 This is the cost of his qualifying property (up to the maximum $500,000 amount) multiplied by his business use ($10,000 × 80%). Filing taxes for 2013 Jack then figures that his section 179 deduction for 2013 is limited to $2,528 (80% of $3,160). Filing taxes for 2013 He then figures his unadjusted basis of $5,472 (($10,000 × 80%) − $2,528) for determining his depreciation deduction. Filing taxes for 2013 Jack has reached his maximum depreciation deduction for 2013. Filing taxes for 2013 For 2014, Jack will use his unadjusted basis of $5,472 to figure his depreciation deduction. Filing taxes for 2013 Deductions in years after the recovery period. Filing taxes for 2013   If the depreciation deductions for your car are reduced under the passenger automobile limits (discussed earlier), you will have unrecovered basis in your car at the end of the recovery period. Filing taxes for 2013 If you continue to use your car for business, you can deduct that unrecovered basis (subject to depreciation limits) after the recovery period ends. Filing taxes for 2013 Unrecovered basis. Filing taxes for 2013   This is your cost or other basis in the car reduced by any clean-fuel vehicle deduction (for vehicles placed in service before January 1, 2006), alternative motor vehicle credit, electric vehicle credit, gas guzzler tax, and depreciation (including any special depreciation allowance , discussed earlier, unless you elect not to claim it) and section 179 deductions that would have been allowable if you had used the car 100% for business and investment use. Filing taxes for 2013 The recovery period. Filing taxes for 2013   For 5-year property, your recovery period is 6 calendar years. Filing taxes for 2013 A part year's depreciation is allowed in the first calendar year, a full year's depreciation is allowed in each of the next 4 calendar years, and a part year's depreciation is allowed in the 6th calendar year. Filing taxes for 2013   Under MACRS, your recovery period is the same whether you use declining balance or straight line depreciation. Filing taxes for 2013 You determine your unrecovered basis in the 7th year after you placed the car in service. Filing taxes for 2013 How to treat unrecovered basis. Filing taxes for 2013   If you continue to use your car for business after the recovery period, you can claim a depreciation deduction in each succeeding tax year until you recover your basis in the car. Filing taxes for 2013 The maximum amount you can deduct each year is determined by the date you placed the car in service and your business-use percentage. Filing taxes for 2013 For example, no deduction is allowed for a year you use your car 100% for personal purposes. Filing taxes for 2013 Example. Filing taxes for 2013 In April 2007, Bob bought and placed in service a car he used exclusively in his business. Filing taxes for 2013 The car cost $31,500. Filing taxes for 2013 Bob did not claim a section 179 deduction or the special depreciation allowance for the car. Filing taxes for 2013 He continued to use the car 100% in his business throughout the recovery period (2007 through 2012). Filing taxes for 2013 For those years, Bob used the MACRS Depreciation Chart (200% declining balance method) and the Maximum Depreciation Deduction for Cars table, earlier, for the applicable tax year to compute his depreciation deductions during the recovery period. Filing taxes for 2013 Bob's depreciation deductions were subject to the depreciation limits so he will have unrecovered basis at the end of the recovery period as shown in the following table. Filing taxes for 2013      MACRS     Deprec. Filing taxes for 2013 Year % Amount Limit Allowed 2007 20. Filing taxes for 2013 00 $6,300 $3,060 $ 3,060 2008 32. Filing taxes for 2013 00 10,080 4,900 4,900 2009 19. Filing taxes for 2013 20 6,048 2,850 2,850 2010 11. Filing taxes for 2013 52 3,629 1,775 1,775 2011 11. Filing taxes for 2013 52 3,629 1,775 1,775 2012 5. Filing taxes for 2013 76 1,814 1,775 1,775 Total $31,500   16,135 For the correct limit, see Maximum Depreciation Deduction for Cars under “Depreciation Limits,” earlier, for the maximum amount of depreciation allowed each year. Filing taxes for 2013   At the end of 2012, Bob had an unrecovered basis in the car of $15,365 ($31,500 – $16,135). Filing taxes for 2013 If Bob continued to use the car 100% for business in 2013 and later years, he can claim a depreciation deduction equal to the lesser of $1,775 or his remaining unrecovered basis. Filing taxes for 2013   If Bob's business use of the car was less than 100% during any year, his depreciation deduction would be less than the maximum amount allowable for that year. Filing taxes for 2013 However, in determining his unrecovered basis in the car, he would still reduce his original basis by the maximum amount allowable as if the business use had been 100%. Filing taxes for 2013 For example, if Bob had used his car 60% for business instead of 100%, his allowable depreciation deductions would have been $9,681 ($16,135 × 60%), but he still would have to reduce his basis by $16,135 to determine his unrecovered basis. Filing taxes for 2013 Table 4-1. Filing taxes for 2013 2013 MACRS Depreciation Chart (Use to Figure Depreciation for 2013. Filing taxes for 2013 ) If you claim actual expenses for your car, use the chart below to find the depreciation method and percentage to use for your 2013 return for cars placed in service in 2013. Filing taxes for 2013   First, using the left column, find the date you first placed the car in service in 2013. Filing taxes for 2013 Then select the depreciation method and percentage from column (a), (b), or (c) following the rules explained in this chapter. Filing taxes for 2013 For cars placed in service before 2013, you must use the same method you used on last year's return unless a decline in your business use requires you to change to the straight line method. Filing taxes for 2013 Refer back to the MACRS Depreciation Chart for the year you placed the car in service. Filing taxes for 2013 (See Car Used 50% or Less for Business . Filing taxes for 2013 )  Multiply the unadjusted basis of your car by your business use percentage. Filing taxes for 2013 Multiply the result by the percentage you found in the chart to find the amount of your depreciation deduction for 2013. Filing taxes for 2013 (Also see Depreciation Limits . Filing taxes for 2013 )   If you placed your car in service after September of any year and you placed other business property in service during the same year, you may have to use the Jan. Filing taxes for 2013 1—Sept. Filing taxes for 2013 30 percentage instead of the Oct. Filing taxes for 2013 1—Dec. Filing taxes for 2013 31 percentage for your car. Filing taxes for 2013               To find out if this applies to you, determine: 1) the basis of all business property you placed in service after September of that year and 2) the basis of all business property you placed in service during that entire year. Filing taxes for 2013 If the basis of the property placed in service after September is not more than 40% of the basis of all property (certain property is excluded) placed in service for the entire year, use the percentage for Jan. Filing taxes for 2013 1—Sept. Filing taxes for 2013 30 for figuring depreciation for your car. Filing taxes for 2013 See Which Convention Applies? in chapter 4 of Publication 946 for more details. Filing taxes for 2013               Example. Filing taxes for 2013 You buy machinery (basis of $32,000) in May 2013 and a new van (basis of $20,000) in October 2013, both used 100% in your business. Filing taxes for 2013 You