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Filing taxes for free 5. Filing taxes for free   Additional Rules for Listed Property Table of Contents Introduction Useful Items - You may want to see: What Is Listed Property?Passenger Automobiles Other Property Used for Transportation Computers and Related Peripheral Equipment Can Employees Claim a Deduction? What Is the Business-Use Requirement?How To Allocate Use Qualified Business Use Recapture of Excess Depreciation Lessee's Inclusion Amount Do the Passenger Automobile Limits Apply?Maximum Depreciation Deduction Deductions After the Recovery Period Deductions For Passenger Automobiles Acquired in a Trade-in What Records Must Be Kept?Adequate Records How Is Listed Property Information Reported? Introduction This chapter discusses the deduction limits and other special rules that apply to certain listed property. Filing taxes for free Listed property includes cars and other property used for transportation, property used for entertainment, and certain computers. Filing taxes for free Deductions for listed property (other than certain leased property) are subject to the following special rules and limits. Filing taxes for free Deduction for employees. Filing taxes for free If your use of the property is not for your employer's convenience or is not required as a condition of your employment, you cannot deduct depreciation or rent expenses for your use of the property as an employee. Filing taxes for free Business-use requirement. Filing taxes for free If the property is not used predominantly (more than 50%) for qualified business use, you cannot claim the section 179 deduction or a special depreciation allowance. Filing taxes for free In addition, you must figure any depreciation deduction under the Modified Accelerated Cost Recovery System (MACRS) using the straight line method over the ADS recovery period. Filing taxes for free You may also have to recapture (include in income) any excess depreciation claimed in previous years. Filing taxes for free A similar inclusion amount applies to certain leased property. Filing taxes for free Passenger automobile limits and rules. Filing taxes for free Annual limits apply to depreciation deductions (including section 179 deductions and any special depreciation allowance) for certain passenger automobiles. Filing taxes for free You can continue to deduct depreciation for the unrecovered basis resulting from these limits after the end of the recovery period. Filing taxes for free This chapter defines listed property and explains the special rules and depreciation deduction limits that apply, including the special inclusion amount rule for leased property. Filing taxes for free It also discusses the recordkeeping rules for listed property and explains how to report information about the property on your tax return. Filing taxes for free Useful Items - You may want to see: Publication 463 Travel, Entertainment, Gift, and Car Expenses 535 Business Expenses 587 Business Use of Your Home (Including Use by Daycare Providers) Form (and Instructions) 2106 Employee Business Expenses 2106-EZ Unreimbursed Employee Business Expenses 4562 Depreciation and Amortization 4797 Sales of Business Property See chapter 6 for information about getting publications and forms. Filing taxes for free What Is Listed Property? Listed property is any of the following. Filing taxes for free Passenger automobiles (as defined later). Filing taxes for free Any other property used for transportation, unless it is an excepted vehicle. Filing taxes for free Property generally used for entertainment, recreation, or amusement (including photographic, phonographic, communication, and video-recording equipment). Filing taxes for free Computers and related peripheral equipment, unless used only at a regular business establishment and owned or leased by the person operating the establishment. Filing taxes for free A regular business establishment includes a portion of a dwelling unit that is used both regularly and exclusively for business as discussed in Publication 587. Filing taxes for free Improvements to listed property. Filing taxes for free   An improvement made to listed property that must be capitalized is treated as a new item of depreciable property. Filing taxes for free The recovery period and method of depreciation that apply to the listed property as a whole also apply to the improvement. Filing taxes for free For example, if you must depreciate the listed property using the straight line method, you also must depreciate the improvement using the straight line method. Filing taxes for free Passenger Automobiles A passenger automobile is any four-wheeled vehicle made primarily for use on public streets, roads, and highways and rated at 6,000 pounds or less of unloaded gross vehicle weight (6,000 pounds or less of gross vehicle weight for trucks and vans). Filing taxes for free It includes any part, component, or other item physically attached to the automobile at the time of purchase or usually included in the purchase price of an automobile. Filing taxes for free The following vehicles are not considered passenger automobiles for these purposes. Filing taxes for free An ambulance, hearse, or combination ambulance-hearse used directly in a trade or business. Filing taxes for free A vehicle used directly in the trade or business of transporting persons or property for pay or hire. Filing taxes for free A truck or van that is a qualified nonpersonal use vehicle. Filing taxes for free Qualified nonpersonal use vehicles. Filing taxes for free   Qualified nonpersonal use vehicles are vehicles that by their nature are not likely to be used more than a minimal amount for personal purposes. Filing taxes for free They include the trucks and vans listed as excepted vehicles under Other Property Used for Transportation , next. Filing taxes for free They also 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 free For a detailed discussion of passenger automobiles, including leased passenger automobiles, see  Publication 463. Filing taxes for free Other Property Used for Transportation Although vehicles used to transport persons or property for pay or hire and vehicles rated at more than the 6,000-pound threshold are not passenger automobiles, they are still “other property used for transportation” and are subject to the special rules for listed property. Filing taxes for free Other property used for transportation includes trucks, buses, boats, airplanes, motorcycles, and any other vehicles used to transport persons or goods. Filing taxes for free Excepted vehicles. Filing taxes for free   Other property used for transportation does not include the following qualified nonpersonal use vehicles (defined earlier under Passenger Automobiles ). Filing taxes for free Clearly marked police and fire vehicles. Filing taxes for free Unmarked vehicles used by law enforcement officers if the use is officially authorized. Filing taxes for free Ambulances used as such and hearses used as such. Filing taxes for free Any vehicle with a loaded gross vehicle weight of over 14,000 pounds that is designed to carry cargo. Filing taxes for free Bucket trucks (cherry pickers), cement mixers, dump trucks (including garbage trucks), flatbed trucks, and refrigerated trucks. Filing taxes for free Combines, cranes and derricks, and forklifts. Filing taxes for free Delivery trucks with seating only for the driver, or only for the driver plus a folding jump seat. Filing taxes for free Qualified moving vans. Filing taxes for free Qualified specialized utility repair trucks. Filing taxes for free School buses used in transporting students and employees of schools. Filing taxes for free Other buses with a capacity of at least 20 passengers that are used as passenger buses. Filing taxes for free Tractors and other special purpose farm vehicles. Filing taxes for free Clearly marked police and fire vehicle. Filing taxes for free   A clearly marked police or fire vehicle is a vehicle that meets all the following requirements. Filing taxes for free It is owned or leased by a governmental unit or an agency or instrumentality of a governmental unit. Filing taxes for free It is required to be used for commuting by a police officer or fire fighter who, when not on a regular shift, is on call at all times. Filing taxes for free It is prohibited from being used for personal use (other than commuting) outside the limit of the police officer's arrest powers or the fire fighter's obligation to respond to an emergency. Filing taxes for free It is clearly marked with painted insignia or words that make it readily apparent that it is a police or fire vehicle. Filing taxes for free A marking on a license plate is not a clear marking for these purposes. Filing taxes for free Qualified moving van. Filing taxes for free   A qualified moving van is any truck or van used by a professional moving company for moving household or business goods if the following requirements are met. Filing taxes for free No personal use of the van is allowed other than for travel to and from a move site or for minor personal use, such as a stop for lunch on the way from one move site to another. Filing taxes for free Personal use for travel to and from a move site happens no more than five times a month on average. Filing taxes for free Personal use is limited to situations in which it is more convenient to the employer, because of the location of the employee's residence in relation to the location of the move site, for the van not to be returned to the employer's business location. Filing taxes for free Qualified specialized utility repair truck. Filing taxes for free   A truck is a qualified specialized utility repair truck if it is not a van or pickup truck and all the following apply. Filing taxes for free The truck was specifically designed for and is used to carry heavy tools, testing equipment, or parts. Filing taxes for free Shelves, racks, or other permanent interior construction has been installed to carry and store the tools, equipment, or parts and would make it unlikely that the truck would be used, other than minimally, for personal purposes. Filing taxes for free The employer requires the employee to drive the truck home in order to be able to respond in emergency situations for purposes of restoring or maintaining electricity, gas, telephone, water, sewer, or steam utility services. Filing taxes for free Computers and Related Peripheral Equipment A computer is a programmable, electronically activated device capable of accepting information, applying prescribed processes to the information, and supplying the results of those processes with or without human intervention. Filing taxes for free It consists of a central processing unit with extensive storage, logic, arithmetic, and control capabilities. Filing taxes for free Related peripheral equipment is any auxiliary machine which is designed to be controlled by the central processing unit of a computer. Filing taxes for free The following are neither computers nor related peripheral equipment. Filing taxes for free Any equipment that is an integral part of other property that is not a computer. Filing taxes for free Typewriters, calculators, adding and accounting machines, copiers, duplicating equipment, and similar equipment. Filing taxes for free Equipment of a kind used primarily for the user's amusement or entertainment, such as video games. Filing taxes for free Can Employees Claim a Deduction? If you are an employee, you can claim a depreciation deduction for the use of your listed property (whether owned or rented) in performing services as an employee only if your use is a business use. Filing taxes for free The use of your property in performing services as an employee is a business use only if both the following requirements are met. Filing taxes for free The use is for your employer's convenience. Filing taxes for free The use is required as a condition of your employment. Filing taxes for free If these requirements are not met, you cannot deduct depreciation (including the section 179 deduction) or rent expenses for your use of the property as an employee. Filing taxes for free Employer's convenience. Filing taxes for free   Whether the use of listed property is for your employer's convenience must be determined from all the facts. Filing taxes for free The use is for your employer's convenience if it is for a substantial business reason of the employer. Filing taxes for free The use of listed property during your regular working hours to carry on your employer's business generally is for the employer's convenience. Filing taxes for free Condition of employment. Filing taxes for free   Whether the use of listed property is a condition of your employment depends on all the facts and circumstances. Filing taxes for free The use of property must be required for you to perform your duties properly. Filing taxes for free Your employer does not have to require explicitly that you use the property. Filing taxes for free However, a mere statement by the employer that the use of the property is a condition of your employment is not sufficient. Filing taxes for free Example 1. Filing taxes for free Virginia Sycamore is employed as a courier with We Deliver, which provides local courier services. Filing taxes for free She owns and uses a motorcycle to deliver packages to downtown offices. Filing taxes for free We Deliver explicitly requires all delivery persons to own a car or motorcycle for use in their employment. Filing taxes for free Virginia's use of the motorcycle is for the convenience of We Deliver and is required as a condition of employment. Filing taxes for free Example 2. Filing taxes for free Bill Nelson is an inspector for Uplift, a construction company with many sites in the local area. Filing taxes for free He must travel to these sites on a regular basis. Filing taxes for free Uplift does not furnish an automobile or explicitly require him to use his own automobile. Filing taxes for free However, it pays him for any costs he incurs in traveling to the various sites. Filing taxes for free The use of his own automobile or a rental automobile is for the convenience of Uplift and is required as a condition of employment. Filing taxes for free Example 3. Filing taxes for free Assume the same facts as in Example 2 except that Uplift furnishes a car to Bill, who chooses to use his own car and receive payment for using it. Filing taxes for free The use of his own car is neither for the convenience of Uplift nor required as a condition of employment. Filing taxes for free Example 4. Filing taxes for free Marilyn Lee is a pilot for Y Company, a small charter airline. Filing taxes for free Y requires pilots to obtain 80 hours of flight time annually in addition to flight time spent with the airline. Filing taxes for free Pilots usually can obtain these hours by flying with the Air Force Reserve or by flying part-time with another airline. Filing taxes for free Marilyn owns her own airplane. Filing taxes for free The use of her airplane to obtain the required flight hours is neither for the convenience of the employer nor required as a condition of employment. Filing taxes for free Example 5. Filing taxes for free David Rule is employed as an engineer with Zip, an engineering contracting firm. Filing taxes for free He occasionally takes work home at night rather than work late in the office. Filing taxes for free He owns and uses a home computer which is virtually identical to the office model. Filing taxes for free His use of the computer is neither for the convenience of his employer nor required as a condition of employment. Filing taxes for free What Is the Business-Use Requirement? You can claim the section 179 deduction and a special depreciation allowance for listed property and depreciate listed property using GDS and a declining balance method if the property meets the business-use requirement. Filing taxes for free To meet this requirement, listed property must be used predominantly (more than 50% of its total use) for qualified business use. Filing taxes for free If this requirement is not met, the following rules apply. Filing taxes for free Property not used predominantly for qualified business use during the year it is placed in service does not qualify for the section 179 deduction. Filing taxes for free Property not used predominantly for qualified business use during the year it is placed in service does not qualify for a special depreciation allowance. Filing taxes for free Any depreciation deduction under MACRS for property not used predominantly for qualified business use during any year must be figured using the straight line method over the ADS recovery period. Filing taxes for free This rule applies each year of the recovery period. Filing taxes for free Excess depreciation on property previously used predominantly for qualified business use must be recaptured (included in income) in the first year in which it is no longer used predominantly for qualified business use. Filing taxes for free A lessee must add an inclusion amount to income in the first year in which the leased property is not used predominantly for qualified business use. Filing taxes for free Being required to use the straight line method for an item of listed property not used predominantly for qualified business use is not the same as electing the straight line method. Filing taxes for free It does not mean that you have to use the straight line method for other property in the same class as the item of listed property. Filing taxes for free Exception for leased property. Filing taxes for free   The business-use requirement generally does not apply to any listed property leased or held for leasing by anyone regularly engaged in the business of leasing listed property. Filing taxes for free   You are considered regularly engaged in the business of leasing listed property only if you enter into contracts for the leasing of listed property with some frequency over a continuous period of time. Filing taxes for free This determination is made on the basis of the facts and circumstances in each case and takes into account the nature of your business in its entirety. Filing taxes for free Occasional or incidental leasing activity is insufficient. Filing taxes for free For example, if you lease only one passenger automobile during a tax year, you are not regularly engaged in the business of leasing automobiles. Filing taxes for free An employer who allows an employee to use the employer's property for personal purposes and charges the employee for the use is not regularly engaged in the business of leasing the property used by the employee. Filing taxes for free How To Allocate Use To determine whether the business-use requirement is met, you must allocate the use of any item of listed property used for more than one purpose during the year among its various uses. Filing taxes for free For passenger automobiles and other means of transportation, allocate the property's use on the basis of mileage. Filing taxes for free You determine the percentage of qualified business use by dividing the number of miles you drove the vehicle for business purposes during the year by the total number of miles you drove the vehicle for all purposes (including business miles) during the year. Filing taxes for free For other listed property, allocate the property's use on the basis of the most appropriate unit of time the property is actually used (rather than merely being available for use). Filing taxes for free For example, you can determine the percentage of business use of a computer by dividing the number of hours you used the computer for business purposes during the year by the total number of hours you used the computer for all purposes (including business use) during the year. Filing taxes for free Entertainment use. Filing taxes for free   Treat the use of listed property for entertainment, recreation, or amusement purposes as a business use only to the extent you can deduct expenses (other than interest and property tax expenses) due to its use as an ordinary and necessary business expense. Filing taxes for free Commuting use. Filing taxes for free   The use of an automobile for commuting is not business use, regardless of whether work is performed during the trip. Filing taxes for free For example, a business telephone call made on a car telephone while commuting to work does not change the character of the trip from commuting to business. Filing taxes for free This is also true for a business meeting held in a car while commuting to work. Filing taxes for free Similarly, a business call made on an otherwise personal trip does not change the character of a trip from personal to business. Filing taxes for free The fact that an automobile is used to display material that advertises the owner's or user's trade or business does not convert an otherwise personal use into business use. Filing taxes for free Use of your automobile by another person. Filing taxes for free   If someone else uses your automobile, do not treat that use as business use unless one of the following conditions applies. Filing taxes for free That use is directly connected with your business. Filing taxes for free You properly report the value of the use as income to the other person and withhold tax on the income where required. Filing taxes for free You are paid a fair market rent. Filing taxes for free Treat any payment to you for the use of the automobile as a rent payment for purposes of item (3). Filing taxes for free Employee deductions. Filing taxes for free   If you are an employee, do not treat your use of listed property as business use unless it is for your employer's convenience and is required as a condition of your employment. Filing taxes for free See Can Employees Claim a Deduction , earlier. Filing taxes for free Qualified Business Use Qualified business use of listed property is any use of the property in your trade or business. Filing taxes for free However, it does not include the following uses. Filing taxes for free The leasing of property to any 5% owner or related person (to the extent the property is used by a 5% owner or person related to the owner or lessee of the property). Filing taxes for free The use of property as pay for the services of a 5% owner or related person. Filing taxes for free The use of property as pay for services of any person (other than a 5% owner or related person), unless the value of the use is included in that person's gross income and income tax is withheld on that amount where required. Filing taxes for free Property does not stop being used predominantly for qualified business use because of a transfer at death. Filing taxes for free Exception for leasing or compensatory use of aircraft. Filing taxes for free   Treat the leasing of any aircraft by a 5% owner or related person, or the compensatory use of any aircraft, as a qualified business use if at least 25% of the total use of the aircraft during the year is for a qualified business use. Filing taxes for free 5% owner. Filing taxes for free   For a business entity that is not a corporation, a 5% owner is any person who owns more than 5% of the capital or profits interest in the business. Filing taxes for free   For a corporation, a 5% owner is any person who owns, or is considered to own, either of the following. Filing taxes for free More than 5% of the outstanding stock of the corporation. Filing taxes for free Stock possessing more than 5% of the total combined voting power of all stock in the corporation. Filing taxes for free Related persons. Filing taxes for free   For a description of related persons, see Related persons in the discussion on property owned or used in 1986 under What Method Can You Use To Depreciate Your Property in chapter 1 . Filing taxes for free For this purpose, however, treat as related persons only the relationships listed in items (1) through (10) of that discussion and substitute “50%” for “10%” each place it appears. Filing taxes for free Examples. Filing taxes for free   The following examples illustrate whether the use of business property is qualified business use. Filing taxes for free Example 1. Filing taxes for free John Maple is the sole proprietor of a plumbing contracting business. Filing taxes for free John employs his brother, Richard, in the business. Filing taxes for free As part of Richard's pay, he is allowed to use one of the company automobiles for personal use. Filing taxes for free The company includes the value of the personal use of the automobile in Richard's gross income and properly withholds tax on it. Filing taxes for free The use of the automobile is pay for the performance of services by a related person, so it is not a qualified business use. Filing taxes for free Example 2. Filing taxes for free John, in Example 1, allows unrelated employees to use company automobiles for personal purposes. Filing taxes for free He does not include the value of the personal use of the company automobiles as part of their compensation and he does not withhold tax on the value of the use of the automobiles. Filing taxes for free This use of company automobiles by employees is not a qualified business use. Filing taxes for free Example 3. Filing taxes for free James Company Inc. Filing taxes for free owns several automobiles that its employees use for business purposes. Filing taxes for free The employees also are allowed to take the automobiles home at night. Filing taxes for free The fair market value of each employee's use of an automobile for any personal purpose, such as commuting to and from work, is reported as income to the employee and James Company withholds tax on it. Filing taxes for free This use of company automobiles by employees, even for personal purposes, is a qualified business use for the company. Filing taxes for free Investment Use The use of property to produce income in a nonbusiness activity (investment use) is not a qualified business use. Filing taxes for free However, you can treat the investment use as business use to figure the depreciation deduction for the property in a given year. Filing taxes for free Example 1. Filing taxes for free Sarah Bradley uses a home computer 50% of the time to manage her investments. Filing taxes for free She also uses the computer 40% of the time in her part-time consumer research business. Filing taxes for free Sarah's home computer is listed property because it is not used at a regular business establishment. Filing taxes for free She does not use the computer predominantly for qualified business use. Filing taxes for free Therefore, she cannot elect a section 179 deduction or claim a special depreciation allowance for the computer. Filing taxes for free She must depreciate it using the straight line method over the ADS recovery period. Filing taxes for free Her combined business/investment use for determining her depreciation deduction is 90%. Filing taxes for free Example 2. Filing taxes for free If Sarah uses her computer 30% of the time to manage her investments and 60% of the time in her consumer research business, it is used predominantly for qualified business use. Filing taxes for free She can elect a section 179 deduction and, if she does not deduct all the computer's cost, she can claim a special depreciation allowance and depreciate the computer using the 200% declining balance method over the GDS recovery period. Filing taxes for free Her combined business/investment use for determining her depreciation deduction is 90%. Filing taxes for free Recapture of Excess Depreciation If you used listed property more than 50% in a qualified business use in the year you placed it in service, you must recapture (include in income) excess depreciation in the first year you use it 50% or less. Filing taxes for free You also increase the adjusted basis of your property by the same amount. Filing taxes for free Excess depreciation is: The depreciation allowable for the property (including any section 179 deduction and special depreciation allowance claimed) for years before the first year you do not use the property predominantly for qualified business use, minus The depreciation that would have been allowable for those years if you had not used the property predominantly for qualified business use in the year you placed it in service. Filing taxes for free To determine the amount in (2) above, you must refigure the depreciation using the straight line method and the ADS recovery period. Filing taxes for free Example. Filing taxes for free In June 2009, Ellen Rye purchased and placed in service a pickup truck that cost $18,000. Filing taxes for free She used it only for qualified business use for 2009 through 2012. Filing taxes for free Ellen claimed a section 179 deduction of $10,000 based on the purchase of the truck. Filing taxes for free She began depreciating it using the 200% DB method over a 5-year GDS recovery period. Filing taxes for free The pickup truck's gross vehicle weight was over 6,000 pounds, so it was not subject to the passenger automobile limits discussed later under Do the Passenger Automobile Limits Apply. Filing taxes for free During 2013, she used the truck 50% for business and 50% for personal purposes. Filing taxes for free She includes $4,018 excess depreciation in her gross income for 2013. Filing taxes for free The excess depreciation is determined as follows. Filing taxes for free Total section 179 deduction ($10,000) and depreciation claimed ($6,618) for 2009 through 2012. Filing taxes for free (Depreciation is from Table A-1. Filing taxes for free ) $16,618 Minus: Depreciation allowable (Table A-8):     2009 – 10% of $18,000 $1,800   2010 – 20% of $18,000 3,600   2011 – 20% of $18,000 3,600   2012 – 20% of $18,000 3,600 12,600 Excess depreciation $4,018 If Ellen's use of the truck does not change to 50% for business and 50% for personal purposes until 2015, there will be no excess depreciation. Filing taxes for free The total depreciation allowable using Table A-8 through 2015 will be $18,000, which equals the total of the section 179 deduction and depreciation she will have claimed. Filing taxes for free Where to figure and report recapture. Filing taxes for free   Use Form 4797, Part IV, to figure the recapture amount. Filing taxes for free Report the recapture amount as other income on the same form or schedule on which you took the depreciation deduction. Filing taxes for free For example, report the recapture amount as other income on Schedule C (Form 1040) if you took the depreciation deduction on Schedule C. Filing taxes for free If you took the depreciation deduction on Form 2106, report the recapture amount as other income on Form 1040, line 21. Filing taxes for free Lessee's Inclusion Amount If you use leased listed property other than a passenger automobile for business/investment use, you must include an amount in your income in the first year your qualified business-use percentage is 50% or less. Filing taxes for free Your qualified business-use percentage is the part of the property's total use that is qualified business use (defined earlier). Filing taxes for free For the inclusion amount rules for a leased passenger automobile, see Leasing a Car in chapter 4 of Publication 463. Filing taxes for free The inclusion amount is the sum of Amount A and Amount B, described next. Filing taxes for free However, see the special rules for the inclusion amount, later, if your lease begins in the last 9 months of your tax year or is for less than one year. Filing taxes for free Amount A. Filing taxes for free   Amount A is: The fair market value of the property, multiplied by The business/investment use for the first tax year the qualified business-use percentage is 50% or less, multiplied by The applicable percentage from Table A-19 in Appendix A . Filing taxes for free   The fair market value of the property is the value on the first day of the lease term. Filing taxes for free If the capitalized cost of an item of listed property is specified in the lease agreement, you must treat that amount as the fair market value. Filing taxes for free Amount B. Filing taxes for free   Amount B is: The fair market value of the property, multiplied by The average of the business/investment use for all tax years the property was leased that precede the first tax year the qualified business-use percentage is 50% or less, multiplied by The applicable percentage from Table A–20 in Appendix A . Filing taxes for free Maximum inclusion amount. Filing taxes for free   The inclusion amount cannot be more than the sum of the deductible amounts of rent for the tax year in which the lessee must include the amount in gross income. Filing taxes for free Inclusion amount worksheet. Filing taxes for free   The following worksheet is provided to help you figure the inclusion amount for leased listed property. Filing taxes for free Inclusion Amount Worksheet for Leased Listed Property 1. Filing taxes for free Fair market value   2. Filing taxes for free Business/investment use for first year business use is 50% or less   3. Filing taxes for free Multiply line 1 by line 2. Filing taxes for free   4. Filing taxes for free Rate (%) from Table A-19   5. Filing taxes for free Multiply line 3 by line 4. Filing taxes for free This is Amount A. Filing taxes for free   6. Filing taxes for free Fair market value   7. Filing taxes for free Average business/investment use for years property leased before the first year business use is 50% or less . Filing taxes for free . Filing taxes for free . Filing taxes for free . Filing taxes for free . Filing taxes for free . Filing taxes for free . Filing taxes for free . Filing taxes for free . Filing taxes for free . Filing taxes for free . Filing taxes for free . Filing taxes for free . Filing taxes for free   8. Filing taxes for free Multiply line 6 by line 7   9. Filing taxes for free Rate (%) from Table A-20   10. Filing taxes for free Multiply line 8 by line 9. Filing taxes for free This is Amount B. Filing taxes for free   11. Filing taxes for free Add line 5 and line 10. Filing taxes for free This is your inclusion amount. Filing taxes for free Enter here and as other income on the form or schedule on which you originally took the deduction (for example, Schedule C or F (Form 1040), Form 1040, Form 1120, etc. Filing taxes for free )         Example. Filing taxes for free On February 1, 2011, Larry House, a calendar year taxpayer, leased and placed in service a computer with a fair market value of $3,000. Filing taxes for free The lease is for a period of 5 years. Filing taxes for free Larry does not use the computer at a regular business establishment, so it is listed property. Filing taxes for free His business use of the property (all of which is qualified business use) is 80% in 2011, 60% in 2012, and 40% in 2013. Filing taxes for free He must add an inclusion amount to gross income for 2013, the first tax year his qualified business-use percentage is 50% or less. Filing taxes for free The computer has a 5-year recovery period under both GDS and ADS. Filing taxes for free 2013 is the third tax year of the lease, so the applicable percentage from Table A-19 is −19. Filing taxes for free 8%. Filing taxes for free The applicable percentage from Table A-20 is 22. Filing taxes for free 0%. Filing taxes for free Larry's deductible rent for the computer for 2013 is $800. Filing taxes for free Larry uses the Inclusion amount worksheet. Filing taxes for free to figure the amount he must include in income for 2013. Filing taxes for free His inclusion amount is $224, which is the sum of −$238 (Amount A) and $462 (Amount B). Filing taxes for free Inclusion Amount Worksheet for Leased Listed Property 1. Filing taxes for free Fair market value $3,000   2. Filing taxes for free Business/investment use for first year business use is 50% or less 40 % 3. Filing taxes for free Multiply line 1 by line 2. Filing taxes for free 1,200   4. Filing taxes for free Rate (%) from Table A-19 −19. Filing taxes for free 8 % 5. Filing taxes for free Multiply line 3 by line 4. Filing taxes for free This is Amount A. Filing taxes for free −238   6. Filing taxes for free Fair market value 3,000   7. Filing taxes for free Average business/investment use for years property leased before the first year business use is 50% or less 70 % 8. Filing taxes for free Multiply line 6 by line 7 2,100   9. Filing taxes for free Rate (%) from Table A-20 22. Filing taxes for free 0 % 10. Filing taxes for free Multiply line 8 by line 9. Filing taxes for free This is Amount B. Filing taxes for free 462   11. Filing taxes for free Add line 5 and line 10. Filing taxes for free This is your inclusion amount. Filing taxes for free Enter here and as other income on the form or schedule on which you originally took the deduction (for example, Schedule C or F (Form 1040), Form 1040, Form 1120, etc. Filing taxes for free ) $224           Lease beginning in the last 9 months of your tax year. Filing taxes for free    The inclusion amount is subject to a special rule if all the following apply. Filing taxes for free The lease term begins within 9 months before the close of your tax year. Filing taxes for free You do not use the property predominantly (more than 50%) for qualified business use during that part of the tax year. Filing taxes for free The lease term continues into your next tax year. Filing taxes for free Under this special rule, add the inclusion amount to income in the next tax year. Filing taxes for free Figure the inclusion amount by taking into account the average of the business/investment use for both tax years (line 2 of the Inclusion Amount Worksheet for Leased Listed Property) and the applicable percentage for the tax year the lease term begins. Filing taxes for free Skip lines 6 through 9 of the worksheet and enter zero on line 10. Filing taxes for free Example 1. Filing taxes for free On August 1, 2012, Julie Rule, a calendar year taxpayer, leased and placed in service an item of listed property. Filing taxes for free The property is 5-year property with a fair market value of $10,000. Filing taxes for free Her property has a recovery period of 5 years under ADS. Filing taxes for free The lease is for 5 years. Filing taxes for free Her business use of the property was 50% in 2012 and 90% in 2013. Filing taxes for free She paid rent of $3,600 for 2012, of which $3,240 is deductible. Filing taxes for free She must include $147 in income in 2013. Filing taxes for free The $147 is the sum of Amount A and Amount B. Filing taxes for free Amount A is $147 ($10,000 × 70% × 2. Filing taxes for free 1%), the product of the fair market value, the average business use for 2012 and 2013, and the applicable percentage for year one from Table A-19 . Filing taxes for free Amount B is zero. Filing taxes for free Lease for less than one year. Filing taxes for free   A special rule for the inclusion amount applies if the lease term is less than one year and you do not use the property predominantly (more than 50%) for qualified business use. Filing taxes for free The amount included in income is the inclusion amount (figured as described in the preceding discussions) multiplied by a fraction. Filing taxes for free The numerator of the fraction is the number of days in the lease term and the denominator is 365 (or 366 for leap years). Filing taxes for free   The lease term for listed property other than residential rental or nonresidential real property includes options to renew. Filing taxes for free If you have two or more successive leases that are part of the same transaction (or a series of related transactions) for the same or substantially similar property, treat them as one lease. Filing taxes for free Example 2. Filing taxes for free On October 1, 2012, John Joyce, a calendar year taxpayer, leased and placed in service an item of listed property that is 3-year property. Filing taxes for free This property had a fair market value of $15,000 and a recovery period of 5 years under ADS. Filing taxes for free The lease term was 6 months (ending on March 31, 2013), during which he used the property 45% in business. Filing taxes for free He must include $71 in income in 2013. Filing taxes for free The $71 is the sum of Amount A and Amount B. Filing taxes for free Amount A is $71 ($15,000 × 45% × 2. Filing taxes for free 1% × 183/365), the product of the fair market value, the average business use for both years, and the applicable percentage for year one from Table A-19 , prorated for the length of the lease. Filing taxes for free Amount B is zero. Filing taxes for free Where to report inclusion amount. Filing taxes for free   Report the inclusion amount figured as described in the preceding discussions as other income on the same form or schedule on which you took the deduction for your rental costs. Filing taxes for free For example, report the inclusion amount as other income on Schedule C (Form 1040) if you took the deduction on Schedule C. Filing taxes for free If you took the deduction for rental costs on Form 2106, report the inclusion amount as other income on Form 1040, line 21. Filing taxes for free Do the Passenger Automobile Limits Apply? The depreciation deduction, including the section 179 deduction and special depreciation allowance, you can claim for a passenger automobile (defined earlier) each year is limited. Filing taxes for free This section describes the maximum depreciation deduction amounts for 2013 and explains how to deduct, after the recovery period, the unrecovered basis of your property that results from applying the passenger automobile limit. Filing taxes for free Exception for leased cars. Filing taxes for free   The passenger automobile limits generally do not apply to passenger automobiles leased or held for leasing by anyone regularly engaged in the business of leasing passenger automobiles. Filing taxes for free For information on when you are considered regularly engaged in the business of leasing listed property, including passenger automobiles, see Exception for leased property , earlier, under What Is the Business-Use Requirement . Filing taxes for free Maximum Depreciation Deduction The passenger automobile limits are the maximum depreciation amounts you can deduct for a passenger automobile. Filing taxes for free They are based on the date you placed the automobile in service. Filing taxes for free Passenger Automobiles The maximum deduction amounts for most passenger automobiles are shown in the following table. Filing taxes for free Maximum Depreciation Deduction for Passenger Automobiles Date       4th & Placed 1st 2nd 3rd Later In Service Year Year Year Years 2013 $11,1601 $5,100 $3,050 $1,875 2012 11,1601 5,100 3,050 1,875 2011 11,0602 4,900 2,950 1,775 2010 11,0602  4,900 2,950 1,775 2009 10,9603 4,800 2,850 1,775 2008 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 10,6104 4,800 2,850 1,675 5/06/2003– 12/31/2003 10,7105 4,900 2,950 1,775 1/01/2003– 5/05/2003 7,6606 4,900 2,950 1,775 1If you elected not to claim any special depreciation allowance or the vehicle is not qualified property, the maximum deduction is $3,160. Filing taxes for free 2If you elected not to claim any special depreciation allowance or the vehicle is not qualified property, the maximum deduction is $3,060. Filing taxes for free 3If you elected not to claim any special depreciation allowance for the vehicle or the vehicle is not qualified property, the maximum deduction is $2,960. Filing taxes for free 4If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $2,960. Filing taxes for free 5If you acquired the vehicle before 5/06/03, the maximum deduction is $7,660. Filing taxes for free If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $3,060. Filing taxes for free 6If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $3,060. Filing taxes for free If your business/investment use of the automobile is less than 100%, you must reduce the maximum deduction amount by multiplying the maximum amount by the percentage of business/investment use determined on an annual basis during the tax year. Filing taxes for free If you have a short tax year, you must reduce the maximum deduction amount by multiplying the maximum amount by a fraction. Filing taxes for free The numerator of the fraction is the number of months and partial months in the short tax year and the denominator is 12. Filing taxes for free Example. Filing taxes for free On April 15, 2013, Virginia Hart bought and placed in service a new car for $14,500. Filing taxes for free She used the car only in her business. Filing taxes for free She files her tax return based on the calendar year. Filing taxes for free She does not elect a section 179 deduction and elected not to claim any special depreciation allowance for the car. Filing taxes for free Under MACRS, a car is 5-year property. Filing taxes for free Since she placed her car in service on April 15 and used it only for business, she uses the percentages in Table A-1 to figure her MACRS depreciation on the car. Filing taxes for free Virginia multiplies the $14,500 unadjusted basis of her car by 0. Filing taxes for free 20 to get her MACRS depreciation of $2,900 for 2013. Filing taxes for free This $2,900 is below the maximum depreciation deduction of $3,160 for passenger automobiles placed in service in 2013. Filing taxes for free She can deduct the full $2,900. Filing taxes for free Electric Vehicles The maximum depreciation deductions for passenger automobiles that are produced to run primarily on electricity are higher than those for other automobiles. Filing taxes for free The maximum deduction amounts for electric vehicles placed in service after August 5, 1997, and before January 1, 2007, are shown in the following table. Filing taxes for free Owners of electric vehicles placed in service after December 31, 2006, should use the table of maximum deduction amounts later for electric vehicles classified as passenger automobiles or use the table of maximum deduction amounts for trucks and vans later, for electric vehicles classified as trucks and vans. Filing taxes for free Maximum Depreciation Deduction For Electric Vehicles Date       4th & Placed 1st 2nd 3rd Later In Service Year Year Year Years 2006 $8,980 $14,400 $8,650 $5,225 2005 8,880 14,200 8,450 5,125 2004 31,8301 14,300 8,550 5,125 5/06/2003– 12/31/2003 32,0302 14,600 8,750 5,225 1/01/2003– 5/05/2003 22,8803 14,600 8,750 5,225 1If you elected not to claim any special depreciation allowance for the vehicle or the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $8,880. Filing taxes for free 2If you acquired the vehicle before 5/06/03, the maximum deduction is $22,880. Filing taxes for free If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $9,080. Filing taxes for free 3 If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $9,080. Filing taxes for free Trucks and Vans The maximum depreciation deductions for trucks and vans placed in service after 2002 are higher than those for other passenger automobiles. Filing taxes for free The maximum deduction amounts for trucks and vans are shown in the following table. Filing taxes for free 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 11,2602 5,200 3,150 1,875 2010 11,1603 5,100 3,050 1,875 2009 11,0604 4,900 2,950 1,775 2008 11,1605 5,100 3,050 1,875 2007 3,260 5,200 3,050 1,875 2006 3,260 5,200 3,150 1,875 2005 3,260 5,200 3,150 1,875 2004 10,9106 5,300 3,150 1,875 5/06/2003– 12/31/2003 11,0107 5,400 3,250 1,975 1/01/2003– 5/05/2003 7,9608 5,400 3,250 1,975 1 If you elected not to claim any special depreciation allowance or the vehicle is not qualified property, the maximum deduction is $3,360. Filing taxes for free 2 If you elected not to claim any special depreciation allowance or the vehicle is not qualified property, the maximum deduction is $3,260. Filing taxes for free 3 If you elected not to claim any special depreciation allowance or the vehicle is not qualified property, the maximum deduction is $3,160. Filing taxes for free 4 If you elect not to claim any special depreciation allowance for the vehicle or the vehicle is not qualified property, the maximum deduction is $3,060. Filing taxes for free 5If you elected not to claim any special depreciation allowance for the vehicle or the vehicle is not qualified property, the maximum deduction is $3,160. Filing taxes for free 6If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, or the maximum deduction is $3,260. Filing taxes for free 7 If you acquired the vehicle before 5/06/03, the maximum deduction is $7,960. Filing taxes for free If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $3,360. Filing taxes for free 8 If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $3,360. Filing taxes for free Depreciation Worksheet for Passenger Automobiles You can use the following worksheet to figure your depreciation deduction using the percentage tables. Filing taxes for free Then use the information from this worksheet to prepare Form 4562. Filing taxes for free Depreciation Worksheet for Passenger Automobiles   Part I   1. Filing taxes for free MACRS system (GDS or ADS)     2. Filing taxes for free Property class     3. Filing taxes for free Date placed in service     4. Filing taxes for free Recovery period     5. Filing taxes for free Method and convention     6. Filing taxes for free Depreciation rate (from tables)     7. Filing taxes for free Maximum depreciation deduction for this year from the appropriate table       8. Filing taxes for free Business/investment-use percentage       9. Filing taxes for free Multiply line 7 by line 8. Filing taxes for free This is your adjusted maximum depreciation deduction       10. Filing taxes for free Section 179 deduction claimed this year (not more than line 9). Filing taxes for free Enter -0- if this is not the year you placed the car in service. Filing taxes for free         Note. Filing taxes for free  1) If line 10 is equal to line 9, stop here. Filing taxes for free Your combined section 179 and depreciation deduction (including your special depreciation allowance) is limited to the amount on line 9. Filing taxes for free  2) If line 10 is less than line 9, complete Part II. Filing taxes for free   Part II   11. Filing taxes for free Subtract line 10 from line 9. Filing taxes for free This is the limit on the amount you can deduct for depreciation (including any special depreciation allowance )       12. Filing taxes for free Cost or other basis (reduced by any alternative motor vehicle credit 1or credit for electric vehicles 2)       13. Filing taxes for free Multiply line 12 by line 8. Filing taxes for free This is your business/investment cost       14. Filing taxes for free Section 179 deduction claimed in the year you placed the car in service       15. Filing taxes for free Subtract line 14 from line 13. Filing taxes for free This is your tentative basis for depreciation       16. Filing taxes for free Multiply line 15 by . Filing taxes for free 50 if the 50% special depreciation allowance applies. Filing taxes for free This is your special depreciation allowance. Filing taxes for free Enter -0- if this is not the year you placed the car in service, the car is not qualified property, or you elected not to claim a special depreciation allowance       Note 1) If line 16 is equal to line 11, stop here. Filing taxes for free Your depreciation deduction (including your special depreciation allowance) is limited to the amount on line 11. Filing taxes for free  2) If line 16 is less than line 11, complete Part III. Filing taxes for free   Part III   17. Filing taxes for free Subtract line 16 from 11. Filing taxes for free This is the limit on the amount you can deduct for MACRS depreciation       18. Filing taxes for free Subtract line 16 from line 15. Filing taxes for free This is your basis for depreciation. Filing taxes for free       19. Filing taxes for free Multiply line 18 by line 6. Filing taxes for free This is your tentative MACRS depreciation deduction. Filing taxes for free       20. Filing taxes for free Enter the lesser of line 17 or line 19. Filing taxes for free This is your MACRS depreciation deduction. Filing taxes for free     1 When figuring the amount to enter on line 12, do not reduce your cost or other basis by any section 179 deduction you claimed for your car. Filing taxes for free 2 Reduce the basis by the lesser of $4,000 or 10% of the cost of the vehicle even if the credit is less than that amount. Filing taxes for free             Deductions After the Recovery Period If the depreciation deductions for your automobile are reduced under the passenger automobile limits, you will have unrecovered basis in your automobile at the end of the recovery period. Filing taxes for free If you continue to use the automobile for business, you can deduct that unrecovered basis after the recovery period ends. Filing taxes for free You can claim a depreciation deduction in each succeeding tax year until you recover your full basis in the car. Filing taxes for free The maximum amount you can deduct each year is determined by the date you placed the car in service and your business/investment-use percentage. Filing taxes for free See Maximum Depreciation Deduction , earlier. Filing taxes for free Unrecovered basis is the cost or other basis of the passenger automobile reduced by any clean-fuel vehicle deduction, electric vehicle credit, depreciation, and section 179 deductions that would have been allowable if you had used the car 100% for business and investment use and the passenger automobile limits had not applied. Filing taxes for free You cannot claim a depreciation deduction for listed property other than passenger automobiles after the recovery period ends. Filing taxes for free There is no unrecovered basis at the end of the recovery period because you are considered to have used this property 100% for business and investment purposes during all of the recovery period. Filing taxes for free Example. Filing taxes for free In May 2007, you bought and placed in service a car costing $31,500. Filing taxes for free The car was 5-year property under GDS (MACRS). Filing taxes for free You did not elect a section 179 deduction and elected not to claim any special depreciation allowance for the car. Filing taxes for free You used the car exclusively for business during the recovery period (2007 through 2012). Filing taxes for free You figured your depreciation as shown below. Filing taxes for free Year Percentage Amount Limit   Allowed 2007 20. Filing taxes for free 0% $6,300 $2,960   $2,960 2008 32. Filing taxes for free 0 10,080 4,800   4,800 2009 19. Filing taxes for free 2 6,048 2,850   2,850 2010 11. Filing taxes for free 52 3,629 1,675   1,675 2011 11. Filing taxes for free 52 3,629 1,675   1,675 2012 5. Filing taxes for free 76 1,814 1,675   1,675 Total   $15,635 At the end of 2012, you had an unrecovered basis of $15,865 ($31,500 − $15,635). Filing taxes for free If in 2013 and later years you continue to use the car 100% for business, you can deduct each year the lesser of $1,675 or your remaining unrecovered basis. Filing taxes for free If your business use of the car had been less than 100% during any year, your depreciation deduction would have been less than the maximum amount allowable for that year. Filing taxes for free However, in figuring your unrecovered basis in the car, you would still reduce your basis by the maximum amount allowable as if the business use had been 100%. Filing taxes for free For example, if you had used your car 60% for business instead of 100%, your allowable depreciation deductions would have been $9,519 ($15,865 × 60%), but you still would have to reduce your basis by $15,865 to determine your unrecovered basis. Filing taxes for free Deductions For Passenger Automobiles Acquired in a Trade-in If you acquire a passenger automobile in a trade-in, depreciate the carryover basis separately as if the trade-in did not occur. Filing taxes for free Depreciate the part of the new automobile's basis that exceeds its carryover basis (excess basis) as if it were newly placed in service property. Filing taxes for free This excess basis is the additional cash paid for the new automobile in the trade-in. Filing taxes for free The depreciation figured for the two components of the basis (carryover basis and excess basis) is subject to a single passenger automobile limit. Filing taxes for free Special rules apply in determining the passenger automobile limits. Filing taxes for free These rules and examples are discussed in section 1. Filing taxes for free 168(i)-6(d)(3) of the regulations. Filing taxes for free Instead of figuring depreciation for the carryover basis and the excess basis separately, you can elect to treat the old automobile as disposed of and both of the basis components for the new automobile as if placed in service at the time of the trade-in. Filing taxes for free For more information, including how to make this election, see Election out under Property Acquired in a Like-kind Exchange or Involuntary Conversion in chapter 4 and sections 1. Filing taxes for free 168(i)-6(i) and 1. Filing taxes for free 168(i)-6(j) of the regulations. Filing taxes for free What Records Must Be Kept? You cannot take any depreciation or section 179 deduction for the use of listed property unless you can prove your business/investment use with adequate records or with sufficient evidence to support your own statements. Filing taxes for free For listed property, you must keep records for as long as any recapture can still occur. Filing taxes for free Recapture can occur in any tax year of the recovery period. Filing taxes for free Adequate Records To meet the adequate records requirement, you must maintain an account book, diary, log, statement of expense, trip sheet, or similar record or other documentary evidence that, together with the receipt, is sufficient to establish each element of an expenditure or use. Filing taxes for free You do not have to record information in an account book, diary, or similar record if the information is already shown on the receipt. Filing taxes for free However, your records should back up your receipts in an orderly manner. Filing taxes for free Elements of expenditure or use. Filing taxes for free   Your records or other documentary evidence must support all the following. Filing taxes for free The amount of each separate expenditure, such as the cost of acquiring the item, maintenance and repair costs, capital improvement costs, lease payments, and any other expenses. Filing taxes for free The amount of each business and investment use (based on an appropriate measure, such as mileage for vehicles and time for other listed property), and the total use of the property for the tax year. Filing taxes for free The date of the expenditure or use. Filing taxes for free The business or investment purpose for the expenditure or use. Filing taxes for free   Written documents of your expenditure or use are generally better evidence than oral statements alone. Filing taxes for free You do not have to keep a daily log. Filing taxes for free However, some type of record containing the elements of an expenditure or the business or investment use of listed property made at or near the time of the expenditure or use and backed up by other documents is preferable to a statement you prepare later. Filing taxes for free Timeliness. Filing taxes for free   You must record the elements of an expenditure or use at the time you have full knowledge of the elements. Filing taxes for free An expense account statement made from an account book, diary, or similar record prepared or maintained at or near the time of the expenditure or use generally is considered a timely record if, in the regular course of business: The statement is given by an employee to the employer, or The statement is given by an independent contractor to the client or customer. Filing taxes for free   For example, a log maintained on a weekly basis, that accounts for use during the week, will be considered a record made at or near the time of use. Filing taxes for free Business purpose supported. Filing taxes for free   Generally, an adequate record of business purpose must be in the form of a written statement. Filing taxes for free However, the amount of detail necessary to establish a business purpose depends on the facts and circumstances of each case. Filing taxes for free A written explanation of the business purpose will not be required if the purpose can be determined from the surrounding facts and circumstances. Filing taxes for free For example, a salesperson visiting customers on an established sales route will not normally need a written explanation of the business purpose of his or her travel. Filing taxes for free Business use supported. Filing taxes for free   An adequate record contains enough information on each element of every business or investment use. Filing taxes for free The amount of detail required to support the use depends on the facts and circumstances. Filing taxes for free For example, a taxpayer who uses a truck for both business and personal purposes and whose only business use of the truck is to make customer deliveries on an established route can satisfy the requirement by recording the length of the route, including the total number of miles driven during the tax year and the date of each trip at or near the time of the trips. Filing taxes for free   Although you generally must prepare an adequate written record, you can prepare a record of the business use of listed property in a computer memory device that uses a logging program. Filing taxes for free Separate or combined expenditures or uses. Filing taxes for free   Each use by you normally is considered a separate use. Filing taxes for free However, you can combine repeated uses as a single item. Filing taxes for free   Record each expenditure as a separate item. Filing taxes for free Do not combine it with other expenditures. Filing taxes for free If you choose, however, you can combine amounts you spent for the use of listed property during a tax year, such as for gasoline or automobile repairs. Filing taxes for free If you combine these expenses, you do not need to support the business purpose of each expense. Filing taxes for free Instead, you can divide the expenses based on the total business use of the listed property. Filing taxes for free   You can account for uses that can be considered part of a single use, such as a round trip or uninterrupted business use, by a single record. Filing taxes for free For example, you can account for the use of a truck to make deliveries at several locations that begin and end at the business premises and can include a stop at the business in between deliveries by a single record of miles driven. Filing taxes for free You can account for the use of a passenger automobile by a salesperson for a business trip away from home over a period of time by a single record of miles traveled. Filing taxes for free Minimal personal use (such as a stop for lunch between two business stops) is not an interruption of business use. Filing taxes for free Confidential information. Filing taxes for free   If any of the information on the elements of an expenditure or use is confidential, you do not need to include it in the account book or similar record if you record it at or near the time of the expenditure or use. Filing taxes for free You must keep it elsewhere and make it available as support to the IRS director for your area on request. Filing taxes for free Substantial compliance. Filing taxes for free   If you have not fully supported a particular element of an expenditure or use, but have complied with the adequate records requirement for the expenditure or use to the satisfaction of the IRS director for your area, you can establish this element by any evidence the IRS director for your area deems adequate. Filing taxes for free   If you fail to establish to the satisfaction of the IRS director for your area that you have substantially complied with the adequate records requirement for an element of an expenditure or use, you must establish the element as follows. Filing taxes for free By your own oral or written statement containing detailed information as to the element. Filing taxes for free By other evidence sufficient to establish the element. Filing taxes for free   If the element is the cost or amount, time, place, or date of an expenditure or use, its supporting evidence must be direct evidence, such as oral testimony by witnesses or a written statement setting forth detailed information about the element or the documentary evidence. Filing taxes for free If the element is the business purpose of an expenditure, its supporting evidence can be circumstantial evidence. Filing taxes for free Sampling. Filing taxes for free   You can maintain an adequate record for part of a tax year and use that record to support your business and investment use of listed property for the entire tax year if it can be shown by other evidence that the periods for which you maintain an adequate record are representative of the use throughout the year. Filing taxes for free Example 1. Filing taxes for free Denise Williams, a sole proprietor and calendar year taxpayer, operates an interior decorating business out of her home. Filing taxes for free She uses her automobile for local business visits to the homes or offices of clients, for meetings with suppliers and subcontractors, and to pick up and deliver items to clients. Filing taxes for free There is no other business use of the automobile, but she and family members also use it for personal purposes. Filing taxes for free She maintains adequate records for the first 3 months of the year showing that 75% of the automobile use was for business. Filing taxes for free Subcontractor invoices and paid bills show that her business continued at approximately the same rate for the rest of the year. Filing taxes for free If there is no change in circumstances, such as the purchase of a second car for exclusive use in her business, the determination that her combined business/investment use of the automobile for the tax year is 75% rests on sufficient supporting evidence. Filing taxes for free Example 2. Filing taxes for free Assume the same facts as in Example 1, except that Denise maintains adequate records during the first week of every month showing that 75% of her use of the automobile is for business. Filing taxes for free Her business invoices show that her business continued at the same rate during the later weeks of each month so that her weekly records are representative of the automobile's business use throughout the month. Filing taxes for free The determination that her business/investment use of the automobile for the tax year is 75% rests on sufficient supporting evidence. Filing taxes for free Example 3. Filing taxes for free Bill Baker, a sole proprietor and calendar year taxpayer, is a salesman in a large metropolitan area for a company that manufactures household products. Filing taxes for free For the first 3 weeks of each month, he occasionally uses his own automobile for business travel within the metropolitan area. Filing taxes for free During these weeks, his business use of the automobile does not follow a consistent pattern. Filing taxes for free During the fourth week of each month, he delivers all business orders taken during the previous month. Filing taxes for free The business use of his automobile, as supported by adequate records, is 70% of its total use during that fourth week. Filing taxes for free The determination based on the record maintained during the fourth week of the month that his business/investment use of the automobile for the tax year is 70% does not rest on sufficient supporting evidence because his use during that week is not representative of use during other periods. Filing taxes for free Loss of records. Filing taxes for free   When you establish that failure to produce adequate records is due to loss of the records through circumstances beyond your control, such as through fire, flood, earthquake, or other casualty, you have the right to support a deduction by reasonable reconstruction of your expenditures and use. Filing taxes for free How Is Listed Property Information Reported? You must provide the information about your listed property requested in Part V of Form 4562, Section A, if you claim either of the following deductions. Filing taxes for free Any deduction for a vehicle. Filing taxes for free A depreciation deduction for any other listed property. Filing taxes for free If you claim any deduction for a vehicle, you also must provide the information requested in Section B. Filing taxes for free If you provide the vehicle for your employee's use, the employee must give you this information. Filing taxes for free If you provide any vehicle for use by an employee, you must first answer the questions in Section C to see if you meet an exception to completing Section B for that vehicle. Filing taxes for free Vehicles used by your employees. Filing taxes for free   You do not have to complete Section B, Part V, for vehicles used by your employees who are not more-than-5% owners or related persons if you meet at least one of the following requirements. Filing taxes for free You maintain a written policy statement that prohibits one of the following uses of the vehicles. Filing taxes for free All personal use including commuting. Filing taxes for free Personal use, other than commuting, by employees who are not officers, directors, or 1%-or-more owners. Filing taxes for free You treat all use of the vehicles by your employees as personal use. Filing taxes for free You provide more than five vehicles for use by your employees, and you keep in your records the information on their use given to you by the employees. Filing taxes for free For demonstrator automobiles provided to full-time salespersons, you maintain a written policy statement that limits the total mileage outside the salesperson's normal working hours and prohibits use of the automobile by anyone else, for vacation trips, or to store personal possessions. Filing taxes for free Exceptions. Filing taxes for free   If you file Form 2106, 2106-EZ, or Schedule C-EZ (Form 1040), and you are not required to file Form 4562, report information about listed property on that form and not on Form 4562. Filing taxes for free Also, if you file Schedule C (Form 1040) and are claiming the standard mileage rate or actual vehicle expenses (except depreciation) and you are not required to file Form 4562 for any other reason, report vehicle information in Part IV of Schedule C and not on Form 4562. Filing taxes for free Prev  Up  Next   Home   More Online Publications
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IRA One-Rollover-Per-Year Rule

Beginning as early as January 1, 2015, you can make only one rollover from a traditional IRA to another (or the same) traditional IRA in any 12-month period, regardless of the number of IRAs you own (Announcement  2014-15). A similar limitation will apply to rollovers between Roth IRAs. You can, however, continue to make as many trustee-to-trustee transfers between IRAs as you want. Amounts transferred between traditional IRAs, either by rollover or trustee-to-trustee transfer, are excluded from your gross income.

Current law

You don’t have to include in your gross income any amount distributed to you from a traditional IRA if you deposit the amount into another (or the same) traditional IRA within 60 days (Internal Revenue Code Section 408(d)(3)). Under Internal Revenue Code Section 408(d)(3)(B), only one IRA-to-IRA rollover can be made in any 12-month period. Proposed Treasury Regulation Section 1.408-4(b)(4)(ii), published in 1981, and IRS Publication 590, Individual Retirement Arrangements (IRAs) interpret this limitation as applying on an IRA-by-IRA basis, meaning a rollover from one IRA to another would not affect a rollover involving other IRAs of the same individual.

U.S. Tax Court decision

The Tax Court recently held that you can’t make a non-taxable rollover from one IRA to another if you have already made a rollover from any of your IRAs in the preceding 1-year period (Bobrow v. Commissioner, T.C. Memo. 2014-21). Following the holding in this decision means:

  • you must include in gross income any previously untaxed amounts distributed from an IRA if you made an IRA-to-IRA rollover in the preceding 12 months, and
  • you may be subject to the 10% early withdrawal tax on the amount you include in gross income.

Additionally, if you pay these amounts into another (or the same) IRA, they may be:

Prospective application

The IRS intends to follow the Tax Court’s interpretation of Internal Revenue Code Section 408(d)(3)(B). However, to give IRA owners and trustees time to adjust, the IRS will delay implementation until January 1, 2015, at the earliest. Proposed Treasury Regulation Section 1.408-4(b)(4)(ii) will be withdrawn and Publication 590 will be revised to reflect the new interpretation.

Only rollovers will be affected

This change won’t affect your ability to transfer funds from one IRA trustee directly to another, because this type of transfer isn’t a rollover (Revenue Ruling 78-406, 1978-2 C.B. 157). The one-rollover-per-year rule of Internal Revenue Code Section 408(d)(3)(B) applies only to rollovers.

Additional resources

Page Last Reviewed or Updated: 26-Mar-2014

The Filing Taxes For Free

Filing taxes for free Publication 560 - Introductory Material Table of Contents Future Developments What's New Reminders IntroductionSEP plans. Filing taxes for free SIMPLE plans. Filing taxes for free Qualified plans. Filing taxes for free Ordering forms and publications. Filing taxes for free Tax questions. Filing taxes for free Future Developments For the latest information about developments related to Publication 560, such as legislation enacted after we release it, go to www. Filing taxes for free irs. Filing taxes for free gov/pub560. Filing taxes for free What's New Compensation limit increased for 2013 and 2014. Filing taxes for free  For 2013 the maximum compensation used for figuring contributions and benefits increases to $255,000. Filing taxes for free This limit increases to $260,000 for 2014. Filing taxes for free Elective deferral limit for 2013 and 2014. Filing taxes for free  The limit on elective deferrals, other than catch-up contributions, increases to $17,500 for 2013 and remains at $17,500 for 2014. Filing taxes for free These limits apply for participants in SARSEPs, 401(k) plans (excluding SIMPLE plans), section 403(b) plans and section 457(b) plans. Filing taxes for free Defined contribution limit increased for 2013 and 2014. Filing taxes for free  The limit on contributions, other than catch-up contributions, for a participant in a defined contribution plan increases to $51,000 for 2013. Filing taxes for free This limit increases to $52,000 for 2014. Filing taxes for free SIMPLE plan salary reduction contribution limit for 2013 and 2014. Filing taxes for free  The limit on salary reduction contributions, other than catch-up contributions, increases to $12,000 for 2013 and remains at $12,000 for 2014. Filing taxes for free Catch-up contribution limit remains unchanged for 2013 and 2014. Filing taxes for free  A plan can permit participants who are age 50 or over at the end of the calendar year to make catch-up contributions in addition to elective deferrals and SIMPLE plan salary reduction contributions. Filing taxes for free The catch-up contribution limitation for defined contribution plans other than SIMPLE plans remains unchanged at $5,500 for 2013 and 2014. Filing taxes for free The catch-up contribution limitation for SIMPLE plans remains unchanged at $2,500 for 2013 and 2014. Filing taxes for free The catch-up contributions a participant can make for a year cannot exceed the lesser of the following amounts. Filing taxes for free The catch-up contribution limit. Filing taxes for free The excess of the participant's compensation over the elective deferrals that are not catch-up contributions. Filing taxes for free See “Catch-up contributions” under Contribution Limits and Limit on Elective Deferrals in chapters 3 and 4, respectively, for more information. Filing taxes for free All section references are to the Internal Revenue Code, unless otherwise stated. Filing taxes for free Reminders In-plan Roth rollovers. Filing taxes for free  Section 402A(c)(4) provides for a distribution from an individual's account in a 401(k) plan, other than from a designated Roth account, that is rolled over to the individual's designated Roth account in the same plan. Filing taxes for free An in-plan Roth rollover is not treated as a distribution for most purposes. Filing taxes for free Section 402A(c)(4) was added by the Small Business Jobs Act of 2010 and applies to distributions made after September 27, 2010. Filing taxes for free For additional guidance on in-plan Roth rollovers, see Notice 2010-84, 2010-51 I. Filing taxes for free R. Filing taxes for free B. Filing taxes for free 872, available at  www. Filing taxes for free irs. Filing taxes for free gov/irb/2010-51_IRB/ar11. Filing taxes for free html. Filing taxes for free In-plan Roth rollovers expanded. Filing taxes for free  Beginning in 2013, a plan with designated Roth accounts can permit a participant to roll over amounts into a designated Roth account from his or her other accounts in the same plan, regardless of whether the participant is eligible for a distribution from the other accounts. Filing taxes for free Section 402A(c)(4) was amended by the American Taxpayer Relief Act of 2012. Filing taxes for free For more information, see Notice 2013-74, 2013-52 I. Filing taxes for free R. Filing taxes for free B. Filing taxes for free 819, available at www. Filing taxes for free irs. Filing taxes for free gov/irb/2013-52_IRB/ar11. Filing taxes for free html. Filing taxes for free Credit for startup costs. Filing taxes for free  You may be able to claim a tax credit for part of the ordinary and necessary costs of starting a SEP, SIMPLE, or qualified plan. Filing taxes for free The credit equals 50% of the cost to set up and administer the plan and educate employees about the plan, up to a maximum of $500 per year for each of the first 3 years of the plan. Filing taxes for free You can choose to start claiming the credit in the tax year before the tax year in which the plan becomes effective. Filing taxes for free You must have had 100 or fewer employees who received at least $5,000 in compensation from you for the preceding year. Filing taxes for free At least one participant must be a non-highly compensated employee. Filing taxes for free The employees generally cannot be substantially the same employees for whom contributions were made or benefits accrued under a plan of any of the following employers in the 3-tax-year period immediately before the first year to which the credit applies. Filing taxes for free You. Filing taxes for free A member of a controlled group that includes you. Filing taxes for free A predecessor of (1) or (2). Filing taxes for free The credit is part of the general business credit, which can be carried back or forward to other tax years if it cannot be used in the current year. Filing taxes for free However, the part of the general business credit attributable to the small employer pension plan startup cost credit cannot be carried back to a tax year beginning before January 1, 2002. Filing taxes for free You cannot deduct the part of the startup costs equal to the credit claimed for a tax year, but you can choose not to claim the allowable credit for a tax year. Filing taxes for free To take the credit, use Form 8881, Credit for Small Employer Pension Plan Startup Costs. Filing taxes for free Retirement savings contributions credit. Filing taxes for free  Retirement plan participants (including self-employed individuals) who make contributions to their plan may qualify for the retirement savings contribution credit. Filing taxes for free The maximum contribution eligible for the credit is $2,000. Filing taxes for free To take the credit, use Form 8880, Credit for Qualified Retirement Savings Contributions. Filing taxes for free For more information on who is eligible for the credit, retirement plan contributions eligible for the credit and how to figure the credit, see Form 8880 and its instructions or go to the IRS website and search Retirement Topics-Retirement Savings Contributions Credit (Saver's Credit). Filing taxes for free Photographs of missing children. Filing taxes for free  The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Filing taxes for free Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. Filing taxes for free You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. Filing taxes for free Introduction This publication discusses retirement plans you can set up and maintain for yourself and your employees. Filing taxes for free In this publication, “you” refers to the employer. Filing taxes for free See chapter 1 for the definition of the term employer and the definitions of other terms used in this publication. Filing taxes for free This publication covers the following types of retirement plans. Filing taxes for free SEP (simplified employee pension) plans. Filing taxes for free SIMPLE (savings incentive match plan for employees) plans. Filing taxes for free Qualified plans (also called H. Filing taxes for free R. Filing taxes for free 10 plans or Keogh plans when covering self-employed individuals), including 401(k) plans. Filing taxes for free SEP, SIMPLE, and qualified plans offer you and your employees a tax-favored way to save for retirement. Filing taxes for free You can deduct contributions you make to the plan for your employees. Filing taxes for free If you are a sole proprietor, you can deduct contributions you make to the plan for yourself. Filing taxes for free You can also deduct trustees' fees if contributions to the plan do not cover them. Filing taxes for free Earnings on the contributions are generally tax free until you or your employees receive distributions from the plan. Filing taxes for free Under a 401(k) plan, employees can have you contribute limited amounts of their before-tax (after-tax, in the case of a qualified Roth contribution program) pay to the plan. Filing taxes for free These amounts (and the earnings on them) are generally tax free until your employees receive distributions from the plan or, in the case of a qualified distribution from a designated Roth account, completely tax free. Filing taxes for free What this publication covers. Filing taxes for free   This publication contains the information you need to understand the following topics. Filing taxes for free What type of plan to set up. Filing taxes for free How to set up a plan. Filing taxes for free How much you can contribute to a plan. Filing taxes for free How much of your contribution is deductible. Filing taxes for free How to treat certain distributions. Filing taxes for free How to report information about the plan to the IRS and your employees. Filing taxes for free Basic features of SEP, SIMPLE, and qualified plans. Filing taxes for free The key rules for SEP, SIMPLE, and qualified plans are outlined in Table 1. Filing taxes for free SEP plans. Filing taxes for free   SEPs provide a simplified method for you to make contributions to a retirement plan for yourself and your employees. Filing taxes for free Instead of setting up a profit-sharing or money purchase plan with a trust, you can adopt a SEP agreement and make contributions directly to a traditional individual retirement account or a traditional individual retirement annuity (SEP-IRA) set up for yourself and each eligible employee. Filing taxes for free SIMPLE plans. Filing taxes for free   Generally, if you had 100 or fewer employees who received at least $5,000 in compensation last year, you can set up a SIMPLE plan. Filing taxes for free Under a SIMPLE plan, employees can choose to make salary reduction contributions rather than receiving these amounts as part of their regular pay. Filing taxes for free In addition, you will contribute matching or nonelective contributions. Filing taxes for free The two types of SIMPLE plans are the SIMPLE IRA plan and the SIMPLE 401(k) plan. Filing taxes for free Qualified plans. Filing taxes for free   The qualified plan rules are more complex than the SEP plan and SIMPLE plan rules. Filing taxes for free However, there are advantages to qualified plans, such as increased flexibility in designing plans and increased contribution and deduction limits in some cases. Filing taxes for free Table 1. Filing taxes for free Key Retirement Plan Rules for 2013 Type  of  Plan Last Date for Contribution Maximum Contribution Maximum Deduction When To Set Up Plan SEP Due date of employer's return (including extensions). Filing taxes for free Smaller of $51,000 or 25%1 of participant's compensation. Filing taxes for free 2 25%1 of all participants' compensation. Filing taxes for free 2 Any time up to the due date of employer's return (including extensions). Filing taxes for free SIMPLE IRA and SIMPLE 401(k) Salary reduction contributions: 30 days after the end of the month for which the contributions are to be made. Filing taxes for free 4  Matching or nonelective contributions: Due date of employer's return (including extensions). Filing taxes for free Employee contribution: Salary reduction contribution up to $12,000, $14,500 if age 50 or over. Filing taxes for free   Employer contribution:  Either dollar-for-dollar matching contributions, up to 3% of employee's compensation,3 or fixed nonelective contributions of 2% of compensation. Filing taxes for free 2 Same as maximum contribution. Filing taxes for free Any time between 1/1 and 10/1 of the calendar year. Filing taxes for free   For a new employer coming into existence after 10/1, as soon as administratively feasible. Filing taxes for free Qualified Plan: Defined Contribution Plan  Elective deferral: Due date of employer's return (including extensions). Filing taxes for free 4   Employer contribution: Money Purchase or Profit-Sharing: Due date of employer's return (including extensions). Filing taxes for free  Employee contribution: Elective deferral up to $17,500, $23,000 if age 50 or over. Filing taxes for free   Employer contribution: Money Purchase: Smaller of $51,000 or 100%1 of participant's compensation. Filing taxes for free 2  Profit-Sharing: Smaller of $51,000 or 100%1 of participant's compensation. Filing taxes for free 2  25%1 of all participants' compensation2, plus amount of elective deferrals made. Filing taxes for free   By the end of the tax year. Filing taxes for free Qualified Plan: Defined Benefit Plan Contributions generally must be paid in quarterly installments, due 15 days after the end of each quarter. Filing taxes for free See Minimum Funding Requirement in chapter 4. Filing taxes for free Amount needed to provide an annual benefit no larger than the smaller of $205,000 or 100% of the participant's average compensation for his or her highest 3 consecutive calendar years. Filing taxes for free Based on actuarial assumptions and computations. Filing taxes for free By the end of the tax year. Filing taxes for free 1Net earnings from self-employment must take the contribution into account. Filing taxes for free See Deduction Limit for Self-Employed Individuals in chapters 2 and 4 . Filing taxes for free  2Compensation is generally limited to $255,000 in 2013. Filing taxes for free  3Under a SIMPLE 401(k) plan, compensation is generally limited to $255,000 in 2013. Filing taxes for free  4Certain plans subject to Department of Labor rules may have an earlier due date for salary reduction contributions and elective deferrals. Filing taxes for free What this publication does not cover. Filing taxes for free   Although the purpose of this publication is to provide general information about retirement plans you can set up for your employees, it does not contain all the rules and exceptions that apply to these plans. Filing taxes for free You may also need professional help and guidance. Filing taxes for free   Also, this publication does not cover all the rules that may be of interest to employees. Filing taxes for free For example, it does not cover the following topics. Filing taxes for free The comprehensive IRA rules an employee needs to know. Filing taxes for free These rules are covered in Publication 590, Individual Retirement Arrangements (IRAs). Filing taxes for free The comprehensive rules that apply to distributions from retirement plans. Filing taxes for free These rules are covered in Publication 575, Pension and Annuity Income. Filing taxes for free The comprehensive rules that apply to section 403(b) plans. Filing taxes for free These rules are covered in Publication 571, Tax-Sheltered Annuity Plans (403(b) Plans). Filing taxes for free Comments and suggestions. Filing taxes for free   We welcome your comments about this publication and your suggestions for future editions. Filing taxes for free   You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. Filing taxes for free NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. Filing taxes for free Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Filing taxes for free   You can send your comments from www. Filing taxes for free irs. Filing taxes for free gov/formspubs. Filing taxes for free Click on “More Information” and then on “Give us feedback. Filing taxes for free ”   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. Filing taxes for free Ordering forms and publications. Filing taxes for free   Visit www. Filing taxes for free irs. Filing taxes for free gov/formspubs to download forms  and publications, call 1-800-TAX-FORM  (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received. Filing taxes for free Internal Revenue Service 1201 N. Filing taxes for free Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. Filing taxes for free   If you have a tax question, check the information available on IRS. Filing taxes for free gov or call 1-800-829-1040. Filing taxes for free We cannot answer tax questions sent to either of the above addresses. Filing taxes for free Note. Filing taxes for free Forms filed electronically with the Department of Labor are not available on the IRS website. Filing taxes for free Instead, see www. Filing taxes for free efast. Filing taxes for free dol. Filing taxes for free gov. Filing taxes for free Prev  Up  Next   Home   More Online Publications