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Form 1040x For 2012

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Form 1040x For 2012

Form 1040x for 2012 Publication 4492-A - Main Contents Table of Contents DefinitionsKansas Disaster Area Storms and Tornadoes Casualty and Theft Losses Replacement Period for Nonrecognition of Gain Net Operating Losses IRAs and Other Retirement PlansDefinitions Taxation of Qualified Recovery Assistance Distributions Repayment of Qualified Recovery Assistance Distributions How To Report Qualified Recovery Assistance Distributions Repayment of Qualified Distributions for the Purchase or Construction of a Main Home Loans From Qualified Plans Additional Tax Relief for BusinessesSpecial Depreciation Allowance Increased Section 179 Deduction Employee Retention Credit Demolition and Clean-up Costs Request for Copy or Transcript of Tax Return How To Get Tax HelpLow Income Taxpayer Clinics (LITCs). Form 1040x for 2012 Definitions The following definitions are used throughout this publication. Form 1040x for 2012 Kansas Disaster Area The Kansas disaster area covers the Kansas counties of Barton, Clay, Cloud, Comanche, Dickinson, Edwards, Ellsworth, Kiowa, Leavenworth, Lyon, McPherson, Osage, Osborne, Ottawa, Phillips, Pottawatomie, Pratt, Reno, Rice, Riley, Saline, Shawnee, Smith, and Stafford. Form 1040x for 2012 Storms and Tornadoes The term “storms and tornadoes” as used in this publication, refers to the storms and tornadoes that began on May 4, 2007, and affected the Kansas disaster area (defined above). Form 1040x for 2012 Casualty and Theft Losses The following paragraphs explain changes to casualty and theft losses that occurred in the Kansas disaster area. Form 1040x for 2012 Limits on personal casualty or theft losses in the Kansas disaster area. Form 1040x for 2012   Losses of personal use property that arose in the Kansas disaster area after May 3, 2007, are not subject to the $100 or 10% of adjusted gross income limits. Form 1040x for 2012 Qualifying losses include losses from casualties and thefts that arose in the disaster area and that were attributable to the storms and tornadoes. Form 1040x for 2012 When to deduct the loss. Form 1040x for 2012   Casualty and theft losses are generally deductible only in the year the casualty occurred or the theft was discovered. Form 1040x for 2012 However, the Kansas disaster area is a Presidentially declared disaster. Form 1040x for 2012 Therefore, you could have elected to deduct losses from these storms and tornadoes on your tax return for the previous year. Form 1040x for 2012 The deadline for making this election has expired. Form 1040x for 2012   The following special instructions explain how to complete your forms if you deduct the loss in 2007 or elected to deduct the loss in 2006. Form 1040x for 2012 Special instructions for individuals who file Form 4684 to claim a Kansas disaster area casualty or theft loss for 2007 or are amending their 2006 return. Form 1040x for 2012   Individuals filing or amending their 2007 tax return or amending their 2006 tax return for casualty or theft losses that were attributable to the storms and tornadoes should enter “Kansas Disaster Area” at the top of Form 1040 or 1040X. Form 1040x for 2012 They must also complete and attach the 2006 version of Form 4684 for either year and enter “Kansas Disaster Area” on the top and on the dotted line next to line 11 and enter -0- on line 11. Form 1040x for 2012 Individuals filing or amending their 2007 tax return should cross out “2006” and enter “2007” at the top of Form 4684. Form 1040x for 2012 They must also enter the amount from line 21 of that form on line 20 of Schedule A (Form 1040). Form 1040x for 2012 Replacement Period for Nonrecognition of Gain Generally, an involuntary conversion occurs when property is damaged, destroyed, stolen, seized, requisitioned, or condemned, and you receive other property or money in payment, such as insurance or a condemnation award. Form 1040x for 2012 Generally, you do not have to report a gain (if any) if you replace the property within 2 years (4 years for a main home in a Presidentially declared disaster area). Form 1040x for 2012 However, for property that was involuntarily converted after May 3, 2007, as a result of the storms and tornadoes, a 5-year replacement period applies if substantially all of the use of the replacement property is in the Kansas disaster area. Form 1040x for 2012 For more information, see the Instructions for Form 4684. Form 1040x for 2012 Net Operating Losses Qualified recovery assistance loss. Form 1040x for 2012   Generally, you can carry a net operating loss (NOL) back to the 2 tax years before the NOL year. Form 1040x for 2012 However, the portion of an NOL that is a qualified recovery assistance loss can be carried back to the 5 tax years before the NOL year. Form 1040x for 2012 In addition, the 90% limit on the alternative tax NOL deduction (ATNOLD) does not apply to such portion of the ATNOLD. Form 1040x for 2012   A qualified recovery assistance loss is the smaller of: The excess of the NOL for the year over the specified liability loss for the year to which a 10-year carryback applies, or The total of the following deductions (to the extent they are taken into account in computing the NOL for the tax year): Qualified recovery assistance casualty loss (as defined below), Moving expenses paid or incurred after May 3, 2007, and before January 1, 2010, for the employment of an individual whose main home was in the Kansas disaster area before May 4, 2007, who was unable to remain in that home because of the storms and tornadoes, and whose main job location (after the move) is in the Kansas disaster area, Temporary housing expenses paid or incurred after May 3, 2007, and before January 1, 2010, to house employees of the taxpayer whose main job location is in the Kansas disaster area, Depreciation or amortization allowable for any qualified recovery assistance property (even if you elected not to claim the special recovery assistance depreciation allowance for such property) for the year placed in service, and Repair expenses (including expenses for the removal of debris) paid or incurred after May 3, 2007, and before January 1, 2010, for any damage from the storms and tornadoes to property located in the Kansas disaster area. Form 1040x for 2012 Qualified recovery assistance casualty loss. Form 1040x for 2012   A qualified recovery assistance casualty loss is any deductible section 1231 loss of property located in the Kansas disaster area if the loss was caused by the storms and tornadoes. Form 1040x for 2012 For this purpose, the amount of the loss is reduced by any recognized gain from an involuntary conversion caused by the storms and tornadoes of property located in the Kansas disaster area. Form 1040x for 2012 Any such loss taken into account in figuring your qualified recovery assistance loss is not eligible for the election to be treated as having occurred in the previous tax year. Form 1040x for 2012 Amended return. Form 1040x for 2012   If you have already filed your 2007 tax return and then carried your NOL back 2 years, you may file an amended return to carry back for 5 years your NOL attributable to a qualified recovery assistance loss. Form 1040x for 2012 More information. Form 1040x for 2012    For more information on NOLs, see Publication 536. Form 1040x for 2012 IRAs and Other Retirement Plans New rules provide for tax-favored withdrawals, repayments, and loans from certain retirement plans for individuals who suffered economic losses as a result of the storms and tornadoes. Form 1040x for 2012 Definitions Qualified recovery assistance distribution. Form 1040x for 2012   Except as provided below, a qualified recovery assistance distribution is any distribution you received and designated as such from an eligible retirement plan if all of the following apply. Form 1040x for 2012 The distribution was made after May 3, 2007, and before January 1, 2009. Form 1040x for 2012 Your main home was located in the Kansas disaster area on May 4, 2007. Form 1040x for 2012 You sustained an economic loss because of the storms and tornadoes. Form 1040x for 2012 Examples of an economic loss include, but are not limited to: Loss, damage to, or destruction of real or personal property from fire, flooding, looting, vandalism, theft, wind, or other cause; Loss related to displacement from your home; or Loss of livelihood due to temporary or permanent layoffs. Form 1040x for 2012   If (1) through (3) above apply, you can generally designate any distribution (including periodic payments and required minimum distributions) from an eligible retirement plan as a qualified recovery assistance distribution, regardless of whether the distribution was made on account of the storms and tornadoes. Form 1040x for 2012 Qualified recovery assistance distributions are permitted without regard to your need or the actual amount of your economic loss. Form 1040x for 2012   The total of your qualified recovery assistance distributions from all plans is limited to $100,000. Form 1040x for 2012 If you have distributions in excess of $100,000 from more than one type of plan, such as a 401(k) plan and an IRA, you may allocate the $100,000 limit among the plans any way you choose. Form 1040x for 2012   A reduction or offset after May 3, 2007, of your account balance in an eligible retirement plan in order to repay a loan can also be designated as a qualified recovery assistance distribution. Form 1040x for 2012 Eligible retirement plan. Form 1040x for 2012   An eligible retirement plan can be any of the following. Form 1040x for 2012 A qualified pension, profit-sharing, or stock bonus plan (including a 401(k) plan). Form 1040x for 2012 A qualified annuity plan. Form 1040x for 2012 A tax-sheltered annuity contract. Form 1040x for 2012 A governmental section 457 deferred compensation plan. Form 1040x for 2012 A traditional, SEP, SIMPLE, or Roth IRA. Form 1040x for 2012 Main home. Form 1040x for 2012   Generally, your main home is the home where you live most of the time. Form 1040x for 2012 A temporary absence due to special circumstances, such as illness, education, business, military service, evacuation, or vacation, will not change your main home. Form 1040x for 2012 Taxation of Qualified Recovery Assistance Distributions Qualified recovery assistance distributions are included in income in equal amounts over three years. Form 1040x for 2012 However, if you elect, you can include the entire distribution in your income in the year it was received. Form 1040x for 2012 Qualified recovery assistance distributions are not subject to the additional 10% tax (or the additional 25% tax for certain distributions from SIMPLE IRAs) on early distributions from qualified retirement plans (including IRAs). Form 1040x for 2012 However, any distributions you receive in excess of the $100,000 qualified recovery assistance distribution limit may be subject to the additional tax on early distributions. Form 1040x for 2012 For more information, see How To Report Qualified Recovery Assistance Distributions on page 4. Form 1040x for 2012 Repayment of Qualified Recovery Assistance Distributions If you choose, you generally can repay any portion of a qualified recovery assistance distribution that is eligible for tax-free rollover treatment to an eligible retirement plan. Form 1040x for 2012 Also, you can repay a qualified recovery assistance distribution made on account of a hardship from a retirement plan. Form 1040x for 2012 However, see Exceptions below for qualified recovery assistance distributions you cannot repay. Form 1040x for 2012 You have three years from the day after the date you received the distribution to make a repayment. Form 1040x for 2012 Amounts that are repaid are treated as a qualified rollover and are not included in income. Form 1040x for 2012 Also, for purposes of the one-rollover-per-year limitation for IRAs, a repayment to an IRA is not considered a qualified rollover. Form 1040x for 2012 See Form 8915 for more information on how to report repayments. Form 1040x for 2012 Exceptions. Form 1040x for 2012   You cannot repay the following types of distributions. Form 1040x for 2012 Qualified recovery assistance distributions received as a beneficiary (other than a surviving spouse). Form 1040x for 2012 Required minimum distributions. Form 1040x for 2012 Periodic payments (other than from an IRA) that are for: A period of 10 years or more, Your life or life expectancy, or The joint lives or joint life expectancies of you and your beneficiary. Form 1040x for 2012 How To Report Qualified Recovery Assistance Distributions You will need the following information to correctly report any 2007 or 2008 qualified recovery assistance distributions. Form 1040x for 2012 2007 Qualified Recovery Assistance Distributions If you received a distribution after May 3, 2007, from an eligible retirement plan, you may be able to designate it as a qualified recovery assistance distribution. Form 1040x for 2012 See Qualified recovery assistance distribution on page 3. Form 1040x for 2012 If you have not filed your 2007 income tax return, see Form 8915 and Form 8606 on this page to see how to complete these forms for any qualified recovery assistance distributions. Form 1040x for 2012 Be sure to attach Form 8915 and Form 8606 (if required) to your 2007 income tax return. Form 1040x for 2012 If you have filed your 2007 income tax return, you will need to amend your return to designate any distributions as qualified recovery assistance distributions. Form 1040x for 2012 You can amend your 2007 income tax return by using Form 1040X. Form 1040x for 2012 You will need to complete and attach Form 8915 and Form 8606 (if required) to your amended income tax return for any qualified recovery assistance distributions. Form 1040x for 2012 See Form 8915 and Form 8606 on this page. Form 1040x for 2012 Form 8915. Form 1040x for 2012   For a 2007 qualified recovery assistance distribution, complete the 2005 Form 8915, Qualified Hurricane Retirement Plan Distributions and Repayments. Form 1040x for 2012 Before you complete the form, modify the form as follows. Form 1040x for 2012 Cross out “Hurricane” in the title at the top of the form and enter “Recovery Assistance. Form 1040x for 2012 ” To the right of the title, cross out “2005” and enter “2007. Form 1040x for 2012 ” In Part I, at the top of column (a), cross out “2005” and enter “2007. Form 1040x for 2012 ” In Part II, cross out “Hurricane” in the title and enter “Recovery Assistance. Form 1040x for 2012 ” On lines 10 and 11, cross out “2005” and enter “2007. Form 1040x for 2012 ” In Part III, cross out “Hurricane” in the title and enter “Recovery Assistance. Form 1040x for 2012 ” On line 12, cross out “hurricane” and enter “recovery assistance. Form 1040x for 2012 ” On lines 13 and 14, cross out “line 15b” and “line 25b. Form 1040x for 2012 ” On lines 18 and 19, cross out “2005” and enter “2007. Form 1040x for 2012 ”   You can now complete Form 8915. Form 1040x for 2012 For the instructions, use the applicable dates and terms in this publication instead of those used in the 2005 Form 8915 instructions. Form 1040x for 2012 See Example 1 on page 5 to see how to complete Form 8915. Form 1040x for 2012 Form 8606. Form 1040x for 2012   For a 2007 qualified recovery assistance distribution, complete or amend the 2007 Form 8606, Nondeductible IRAs. Form 1040x for 2012 Before you complete or amend the form, use the following additional instructions. Form 1040x for 2012 Form 8606, Part I. Form 1040x for 2012    On line 6, subtract any repayments of qualified recovery assistance distributions from the amount you would otherwise enter on line 6. Form 1040x for 2012 Do not enter an amount less than -0-. Form 1040x for 2012 Include on line 7 the amount of any qualified recovery assistance distributions that you received even if they were later repaid. Form 1040x for 2012 Complete line 15 as follows. Form 1040x for 2012 If all of your distributions are qualified recovery assistance distributions, enter the amount from line 15 on Form 8915, line 13. Form 1040x for 2012 Do not enter this amount on Form 1040, line 15b; Form 1040A, line 11b; or Form 1040NR, line 16b. Form 1040x for 2012 If you have qualified recovery assistance distributions as well as other distributions, you will need to multiply the amount on line 15 by a fraction. Form 1040x for 2012 The numerator of the fraction is your total qualified recovery assistance distributions and the denominator is the amount from Form 8606, line 7. Form 1040x for 2012 Enter the result in the white space in the bottom margin of the form under line 15. Form 1040x for 2012 To the left of this amount, enter “Qualified recovery assistance distributions” and also enter this amount on Form 8915, line 13. Form 1040x for 2012 Then, subtract this amount from the amount on line 15 and include the result on Form 1040, line 15b; Form 1040A, line 11b; or Form 1040NR, line 16b. Form 1040x for 2012 Also, enter this amount on Form 8606 under your qualified recovery assistance distributions. Form 1040x for 2012 To the left of this amount, enter “Other distributions. Form 1040x for 2012 ” Form 8606, Part III. Form 1040x for 2012    Include on line 19 the amount of any qualified recovery assistance distributions that you received even if they were later repaid. Form 1040x for 2012 Complete line 25 as follows. Form 1040x for 2012 If all of your distributions are qualified recovery assistance distributions, enter the amount from line 25 on Form 8915, line 14. Form 1040x for 2012 Do not enter this amount on Form 1040, line 15b; Form 1040A, line 11b; or Form 1040NR, line 16b. Form 1040x for 2012 If you have qualified recovery assistance distributions as well as other distributions, you will need to multiply the amount on line 25 by a fraction. Form 1040x for 2012 The numerator of the fraction is your total qualified recovery assistance distributions and the denominator is the amount from Form 8606, line 21. Form 1040x for 2012 Enter the result in the white space in the bottom margin of the form under line 25. Form 1040x for 2012 To the left of this amount, enter “Qualified recovery assistance distributions” and also enter this amount on Form 8915, line 14. Form 1040x for 2012 Then, subtract this amount from the amount on line 25 and include the result on Form 1040, line 15b; Form 1040A, line 11b; or Form 1040NR, line 16b. Form 1040x for 2012 Also, enter this amount on Form 8606 under your qualified recovery assistance distributions. Form 1040x for 2012 To the left of this amount, enter “Other distributions. Form 1040x for 2012 ” Example 1. Form 1040x for 2012   On May 4, 2007, Margaret Maple lost her home due to the tornadoes on that day. Form 1040x for 2012 Her home was located in the Kansas disaster area. Form 1040x for 2012 On July 31, 2007, Margaret took out $30,000 from her 401(k) plan and an additional $15,000 from her traditional IRA in order to rebuild her home. Form 1040x for 2012 Margaret has not filed her 2007 return yet but would like to designate the $45,000 in distributions from her retirement plans as qualified recovery assistance distributions. Form 1040x for 2012 Since the distributions occurred in 2007, Margaret would modify and complete the 2005 Form 8915 as discussed on page 4. Form 1040x for 2012 Margaret would also need to complete Form 8606 since her distribution from her traditional IRA has nondeductible contributions from previous years. Form 1040x for 2012   In addition to the $15,000 qualified recovery assistance distribution on July 31, 2007, Margaret received an additional distribution of $15,000 from her traditional IRA on October 31, 2007, that she did not designate as a qualified recovery assistance distribution. Form 1040x for 2012 Because Margaret has a qualified recovery assistance distribution as well as a distribution not so designated, Margaret must allocate the amount on Form 8606, line 15 to both distributions, as discussed earlier. Form 1040x for 2012 Margaret's qualified recovery assistance distributions are $13,125 ($26,250 × $15,000 ÷ $30,000). Form 1040x for 2012 Margaret enters in the white space in the bottom margin of Form 8606, the following, “Qualified recovery assistance distributions $13,125. Form 1040x for 2012 ” This amount is then reported on Form 8915, line 13. Form 1040x for 2012 Below this entry, Margaret enters “Other distributions $13,125,” and includes this amount on Form 1040, line 15b. Form 1040x for 2012 See Margaret's modified 2005 Form 8915 and 2007 Form 8606 shown on pages 6 through 8. Form 1040x for 2012 This image is too large to be displayed in the current screen. Form 1040x for 2012 Please click the link to view the image. Form 1040x for 2012 2005 Form 8915, page 1, Illustrated Example 1. Form 1040x for 2012 This image is too large to be displayed in the current screen. Form 1040x for 2012 Please click the link to view the image. Form 1040x for 2012 2005 Form 8915, page 2, Illustrated Example 1 This image is too large to be displayed in the current screen. Form 1040x for 2012 Please click the link to view the image. Form 1040x for 2012 Form 8606, page 1, Illustrated Example 1 2008 Qualified Recovery Assistance Distributions If you received a distribution in 2008 from an eligible retirement plan, you may be able to designate it as a qualified recovery assistance distribution. Form 1040x for 2012 See Qualified recovery assistance distribution on page 3. Form 1040x for 2012 You will need to complete and attach Form 8915 and Form 8606 (if required) to your 2008 income tax return for any qualified recovery assistance distributions. Form 1040x for 2012 See Form 8915 and Form 8606 below. Form 1040x for 2012 Form 8915. Form 1040x for 2012   For a 2008 qualified recovery assistance distribution, you will need to complete the 2006 Form 8915. Form 1040x for 2012 Before you complete the form, modify the form as follows. Form 1040x for 2012 Cross out “Hurricane” in the title at the top of the form and enter “Recovery Assistance. Form 1040x for 2012 ” To the right of the title, cross out “2006” and enter “2008. Form 1040x for 2012 ” In the first sentence of Part I and on line 1, cross out “hurricane” and enter “recovery assistance,” cross out “2006” and enter “2008,” and cross out “2005” and enter “2007. Form 1040x for 2012 ” At the top of column (a) cross out “2006” and enter “2008. Form 1040x for 2012 ” In Part II, cross out “Hurricane” in the title and enter “Recovery Assistance. Form 1040x for 2012 ” On lines 12, 14, and 15, cross out “2005” and enter “2007. Form 1040x for 2012 ” On lines 17 and 19, cross out “2006” and enter “2008. Form 1040x for 2012 ” In Part III, cross out “Hurricane” in the title and enter “Recovery Assistance. Form 1040x for 2012 ” On line 21, cross out “hurricane” and enter “recovery assistance. Form 1040x for 2012 ” On lines 22 and 23, cross out “line 15b” and “line 25b. Form 1040x for 2012 ” On lines 27, 29, and 30, cross out “2005” and enter “2007. Form 1040x for 2012 ” On lines 32 and 34, cross out “2006” and enter “2008. Form 1040x for 2012 ”   You can now complete Form 8915. Form 1040x for 2012 For the instructions, use the applicable dates and terms in this publication instead of those used in the 2006 Form 8915 instructions. Form 1040x for 2012 Example 2. Form 1040x for 2012   On June 15, 2008, Margaret Maple, from the previous example, took out $15,000 from her 401(k) plan that she is designating as a qualified recovery assistance distribution. Form 1040x for 2012 Since the distribution occurred in 2008, Margaret would modify and complete the 2006 Form 8915 as discussed above. Form 1040x for 2012 Also, since Margaret is including her 2007 recovery assistance distributions in income over 3 years, she reports the applicable amount of those distributions on the modified 2006 Form 8915. Form 1040x for 2012 See Margaret's modified 2006 Form 8915 shown on pages 9 and 10. Form 1040x for 2012 This image is too large to be displayed in the current screen. Form 1040x for 2012 Please click the link to view the image. Form 1040x for 2012 2006 Form 8915, page 1, Illustrated Example 2 This image is too large to be displayed in the current screen. Form 1040x for 2012 Please click the link to view the image. Form 1040x for 2012 2006 Form 8915, page 2, Illustrated Example 2 Form 8606. Form 1040x for 2012   For a 2008 qualified recovery assistance distribution, you may need to complete the 2008 Form 8606. Form 1040x for 2012 Before you complete Form 8606, use the additional instructions outlined in Form 8606, Part I, on page 4 and Form 8606, Part III, on this page. Form 1040x for 2012 Repayment of Qualified Distributions for the Purchase or Construction of a Main Home If you received a qualified distribution to purchase or construct a main home in the Kansas disaster area, you can repay part or all of that distribution after May 3, 2007, but no later than October 22, 2008, to an eligible retirement plan. Form 1040x for 2012 For this purpose, an eligible retirement plan is any plan, annuity, or IRA to which a qualified rollover can be made. Form 1040x for 2012 To be a qualified distribution, the distribution must meet all of the following requirements. Form 1040x for 2012 The distribution is a hardship distribution from a 401(k) plan, a hardship distribution from a tax-sheltered annuity contract, or a qualified first-time homebuyer distribution from an IRA. Form 1040x for 2012 The distribution was received after November 4, 2006, and before May 5, 2007. Form 1040x for 2012 The distribution was to be used to purchase or construct a main home in the Kansas disaster area that was not purchased or constructed because of the storms and tornadoes. Form 1040x for 2012 Amounts that are repaid before October 23, 2008, are treated as a qualified rollover and are not included in income. Form 1040x for 2012 Also, for purposes of the one-rollover-per-year limitation for IRAs, a repayment to an IRA is not considered a qualified rollover. Form 1040x for 2012 A qualified distribution not repaid before October 23, 2008, may be taxable for 2006 or 2007 and subject to the additional 10% tax (or the additional 25% tax for certain SIMPLE IRAs) on early distributions. Form 1040x for 2012 You must file Form 8915 if you received a qualified distribution that you repaid, in whole or in part, before October 23, 2008. Form 1040x for 2012 See How to report, next, for information on completing Form 8915. Form 1040x for 2012 How to report. Form 1040x for 2012   To report the repayment of a qualified distribution for the purchase or construction of a main home that was not purchased or constructed due to the storms and tornadoes, use the 2005 Form 8915, Part IV. Form 1040x for 2012 Before you complete the form, modify the form as follows. Form 1040x for 2012 Cross out “Hurricane” in the title at the top of the form and enter “Recovery Assistance. Form 1040x for 2012 ” To the right of the title, cross out “2005” and enter “2006” or “2007. Form 1040x for 2012 ” Enter only the year the distribution was received. Form 1040x for 2012 Cross out “Hurricane” in the title of Part IV and enter “Kansas. Form 1040x for 2012 ” In the sentence below the title of Part IV, cross out “March 1, 2006” and enter “October 23, 2008. Form 1040x for 2012 ” On line 24, cross out “March 1, 2006” and enter “October 23, 2008. Form 1040x for 2012 ” You can now complete Part IV of Form 8915. Form 1040x for 2012 Use the applicable dates and terms in this publication instead of those used in the 2005 Form 8915 instructions to complete the form. Form 1040x for 2012 Attach Form 8915 to your original or amended return for the year of the distribution. Form 1040x for 2012 Amended return. Form 1040x for 2012   If you repay part or all of a qualified distribution by October 22, 2008, you will need to file an amended return for that part of a distribution that was previously included in income. Form 1040x for 2012 Loans From Qualified Plans The following benefits are available to qualified individuals. Form 1040x for 2012 Increases to the limits for distributions treated as loans from employer plans. Form 1040x for 2012 A 1-year suspension for payments due on plan loans. Form 1040x for 2012 Qualified individual. Form 1040x for 2012   You are a qualified individual if your main home on May 4, 2007, was located in the Kansas disaster area and you had an economic loss because of the storms and tornadoes. Form 1040x for 2012 Examples of an economic loss include, but are not limited to: Loss, damage to, or destruction of real or personal property from fire, flooding, looting, vandalism, theft, wind, or other cause; Loss related to displacement from your home; or Loss of livelihood due to temporary or permanent layoffs. Form 1040x for 2012 Limits on plan loans. Form 1040x for 2012   The $50,000 limit for distributions treated as plan loans is increased to $100,000. Form 1040x for 2012 In addition, the limit based on 50% of your vested accrued benefit is increased to 100% of that benefit. Form 1040x for 2012 If your home was located in the Kansas disaster area, the higher limits apply only to loans received during the period beginning on May 22, 2008, and ending on December 31, 2008. Form 1040x for 2012 One-year suspension of loan payments. Form 1040x for 2012   Payments on plan loans outstanding after May 3, 2007, may be suspended for 1 year by the plan administrator. Form 1040x for 2012 To qualify for the suspension, the due date for any loan payment must occur during the period beginning on May 4, 2007, and ending on December 31, 2008. Form 1040x for 2012 Additional Tax Relief for Businesses Special Depreciation Allowance You can take a special depreciation allowance for qualified recovery assistance property (as defined below) you acquire after May 4, 2007. Form 1040x for 2012 The special allowance is an additional deduction of 50% of the property's depreciable basis (after any section 179 deduction and before figuring your regular depreciation deduction). Form 1040x for 2012 The special allowance applies only for the first year the property is placed in service. Form 1040x for 2012 The special allowance is deductible for both the regular tax and the alternative minimum tax (AMT). Form 1040x for 2012 There is no AMT adjustment required for any depreciation figured on the remaining basis of the property. Form 1040x for 2012 You can elect not to deduct the special allowance for qualified recovery assistance property. Form 1040x for 2012 If you make this election for any property, it applies to all property in the same class placed in service during the year. Form 1040x for 2012 Qualified recovery assistance property. Form 1040x for 2012   Property that qualifies for the special allowance for qualified recovery assistance property includes the following. Form 1040x for 2012 Tangible property depreciated under the modified accelerated cost recovery system (MACRS) with a recovery period of 20 years or less. Form 1040x for 2012 Water utility property. Form 1040x for 2012 Computer software that is readily available for purchase by the general public, is subject to a nonexclusive license, and has not been substantially modified. Form 1040x for 2012 (The cost of some computer software is treated as part of the cost of hardware and is depreciated under MACRS. Form 1040x for 2012 ) Qualified leasehold improvement property. Form 1040x for 2012 Nonresidential real property and residential rental property. Form 1040x for 2012   For more information on this property, see Publication 946. Form 1040x for 2012 Other tests to be met. Form 1040x for 2012   To be qualified recovery assistance property, the property must also meet all of the following tests. Form 1040x for 2012 You must have acquired the property, by purchase, after May 4, 2007, but only if no binding written contract for the acquisition was in effect before May 5, 2007. Form 1040x for 2012 The property must be placed in service before 2009 (2010 in the case of nonresidential real property and residential rental property). Form 1040x for 2012 Substantially all of the use of the property must be in the Kansas disaster area and in the active conduct of your trade or business in the Kansas disaster area. Form 1040x for 2012 The original use of the property in the Kansas disaster area must begin with you after May 4, 2007. Form 1040x for 2012 Used property can be qualified recovery assistance property if it has not previously been used within the Kansas disaster area. Form 1040x for 2012 Also, additional capital expenditures you incurred after May 4, 2007, to recondition or rebuild your property meet the original use test if the original use of the property in the Kansas disaster area began with you. Form 1040x for 2012 Excepted property. Form 1040x for 2012   Qualified recovery assistance property does not include any of the following. Form 1040x for 2012 Property required to be depreciated using the Alternative Depreciation System (ADS). Form 1040x for 2012 Property any portion of which is financed with the proceeds of a tax-exempt obligation under section 103. Form 1040x for 2012 Property for which you are claiming a commercial revitalization deduction. Form 1040x for 2012 Property in the same class as that for which you elected not to claim the special allowance for qualified recovery assistance property. Form 1040x for 2012 Property placed in service and disposed of in the same tax year. Form 1040x for 2012 Property converted from business use to personal use in the same tax year it is placed in service. Form 1040x for 2012 Property converted from personal use to business use in the same or later tax year may be qualified recovery assistance property. Form 1040x for 2012 Recapture of special allowance. Form 1040x for 2012   If, in any year after the year you claim the special allowance, the property ceases to be qualified recovery assistance property, you may have to recapture as ordinary income any excess benefit you received from claiming the special allowance. Form 1040x for 2012 Amended return. Form 1040x for 2012   If you have already filed your tax return, you may have to amend that return to claim any special allowance. Form 1040x for 2012 Additional guidance will be published on how you may claim, or elect not to claim, the special allowance if you have already filed your tax return. Form 1040x for 2012 Increased Section 179 Deduction An increased section 179 deduction is allowable for qualified section 179 recovery assistance property (as defined later) placed in service in the Kansas disaster area. Form 1040x for 2012 Increased dollar limit. Form 1040x for 2012   The limit on the section 179 deduction ($125,000 for 2007, $250,000 for 2008) is increased by the smaller of: $100,000, or The cost of qualified section 179 recovery assistance property placed in service during the year (including such property placed in service by your spouse, even if you are filing a separate return). Form 1040x for 2012   The amount for which you can make the election is reduced if the cost of all section 179 property you placed in service during the year exceeds $500,000 for 2007 and $800,000 for 2008 increased by the smaller of: $600,000, or The cost of qualified section 179 recovery assistance property placed in service during the year. Form 1040x for 2012 Qualified section 179 recovery assistance property. Form 1040x for 2012   Qualified section 179 recovery assistance property is section 179 property that is qualified recovery assistance property (explained earlier under Special Depreciation Allowance). Form 1040x for 2012 Section 179 property does not include nonresidential real property or residential rental property. Form 1040x for 2012 For more information, including the requirements that must be met for property to qualify for the section 179 deduction, see chapter 2 of Publication 946. Form 1040x for 2012 Amended return. Form 1040x for 2012   If you have already filed your tax return, you may have to amend that return for any increased section 179 deduction. Form 1040x for 2012 Employee Retention Credit An eligible employer who conducted an active trade or business in the Kansas disaster area can claim the employee retention credit. Form 1040x for 2012 The credit is 40% of qualified wages for each eligible employee (up to a maximum of $6,000 in qualified wages per employee). Form 1040x for 2012 Generally, you must reduce your deduction for salaries and wages by the amount of this credit (before the tax liability limit). Form 1040x for 2012 Use Form 5884-A to claim the credit. Form 1040x for 2012 See Form 5884-A later. Form 1040x for 2012 The following rules and definitions apply. Form 1040x for 2012 Employers affected by the storms and tornadoes. Form 1040x for 2012   The following definitions apply to employers affected by the storms and tornadoes. Form 1040x for 2012 Eligible employer. Form 1040x for 2012   For this purpose, an eligible employer is any employer who meets all of the following. Form 1040x for 2012 Employed an average of not more than 200 employees on business days during the tax year before May 4, 2007. Form 1040x for 2012 Conducted an active trade or business on May 4, 2007, in the Kansas disaster area. Form 1040x for 2012 Whose trade or business was inoperable on any day after May 4, 2007, and before January 1, 2008, because of damage caused by the storms and tornadoes. Form 1040x for 2012 Eligible employee. Form 1040x for 2012   For this purpose, an eligible employee is an employee whose principal place of employment on May 4, 2007, with the eligible employer was in the Kansas disaster area. Form 1040x for 2012 An employee is not an eligible employee for purposes of the storms and tornadoes if the employee is treated as an eligible employee for the work opportunity credit. Form 1040x for 2012 Qualified wages. Form 1040x for 2012   Qualified wages are wages you paid or incurred before January 1, 2008, (up to $6,000 per employee) for an eligible employee beginning on the date your trade or business first became inoperable at the employee's principal place of employment immediately before May 4, 2007, and ending on the date your trade or business resumed significant operations at that place. Form 1040x for 2012 In addition, the wages must have been paid or incurred after May 4, 2007. Form 1040x for 2012    This includes wages paid even if the employee performed no services, performed services at a place of employment other than the principal place of employment, or performed services at the principal place of employment before significant operations resumed. Form 1040x for 2012    Wages qualifying for the credit generally have the same meaning as wages subject to the Federal Unemployment Tax Act (FUTA). Form 1040x for 2012 Qualified wages also include amounts you paid for medical or hospitalization expenses in connection with sickness or accident disability. Form 1040x for 2012 Qualified wages for any employee must be reduced by the amount of any work supplementation payment you received under the Social Security Act. Form 1040x for 2012   For agricultural employees, if the work performed by any employee during more than half of any pay period qualified under FUTA as agricultural labor, that employee's wages subject to social security and Medicare taxes are qualified wages. Form 1040x for 2012 For a special rule that applies to railroad employees, see section 51(h)(1)(B). Form 1040x for 2012   Qualified wages do not include the following. Form 1040x for 2012 Wages paid to your dependent or a related individual. Form 1040x for 2012 See section 51(i)(1). Form 1040x for 2012 Wages paid to any employee during the period for which you received payment for the employee from a federally funded on-the-job training program. Form 1040x for 2012 Wages for services of replacement workers during a strike or lockout. Form 1040x for 2012 Form 5884-A. Form 1040x for 2012   Use Section A of Form 5884-A (Rev. Form 1040x for 2012 October 2006) to claim the employer retention credit. Form 1040x for 2012 Section B does not apply to the Kansas disaster area. Form 1040x for 2012 Before you complete the form, modify the form as follows. Form 1040x for 2012 Cross out “Hurricane Katrina, Rita, or Wilma” in the title at the top of the form and enter “Kansas Storms and Tornadoes. Form 1040x for 2012 ” On line 1a cross out “Hurricane Katrina” and enter “Kansas Storms and Tornadoes,” cross out “August 28, 2005,” and enter “May 4, 2007,” and cross out “January 1, 2006,” and enter “January 1, 2008. Form 1040x for 2012 ”   Complete the form as instructed. Form 1040x for 2012 Lines 1b and 1c do not apply. Form 1040x for 2012 Include the amount from Form 5884-A, line 4 in the amount entered on Form 3800, line 1x. Form 1040x for 2012 On the dotted line to the left of line 1x, enter “5884-A. Form 1040x for 2012 ” Use the applicable dates and terms in this publication instead of those used in the Form 5884-A instructions. Form 1040x for 2012 Amended return. Form 1040x for 2012   You may have to amend a previously filed return to claim the employee retention credit. Form 1040x for 2012 Demolition and Clean-up Costs You can elect to deduct 50% of any qualified recovery assistance clean-up costs for the tax year in which the costs are paid or incurred, instead of capitalizing them. Form 1040x for 2012 Qualified recovery assistance clean-up costs are any amounts paid or incurred after May 3, 2007, and before January 1, 2010, for the removal of debris from, or the demolition of structures on, real property located in the Kansas disaster area that is: Held by you for use in a trade or business or for the production of income, or Inventory or other property held primarily for sale to customers in the ordinary course of your trade or business. Form 1040x for 2012 Amended return. Form 1040x for 2012   If you have already filed your tax return, you may have to amend that return to claim the 50% of any qualified recovery assistance clean-up costs. Form 1040x for 2012 Request for Copy or Transcript of Tax Return Request for copy of tax return. Form 1040x for 2012   You can use Form 4506 to order a copy of your tax return. Form 1040x for 2012 Generally, there is a $39. Form 1040x for 2012 00 fee (subject to change) for requesting each copy of a tax return. Form 1040x for 2012 If your main home, principal place of business, or tax records are located in a Presidentially declared disaster area, the fee will be waived if the assigned disaster designation (for example, “Kansas Storms”) is written in red across the top of the form when filed. Form 1040x for 2012 Request for transcript of tax return. Form 1040x for 2012   You can use Form 4506-T to order a free transcript of your tax return. Form 1040x for 2012 A transcript provides most of the line entries from a tax return and usually contains the information that a third party requires. Form 1040x for 2012 You can also call 1-800-829-1040 to order a transcript. Form 1040x for 2012 How To Get Tax Help You can get help with unresolved tax issues, order free publications and forms, ask tax questions, and get information from the IRS in several ways. Form 1040x for 2012 By selecting the method that is best for you, you will have quick and easy access to tax help. Form 1040x for 2012 Contacting your Taxpayer Advocate. Form 1040x for 2012   The Taxpayer Advocate Service (TAS) is an independent organization within the IRS whose employees assist taxpayers who are experiencing economic harm, who are seeking help in resolving tax problems that have not been resolved through normal channels, or who believe that an IRS system or procedure is not working as it should. Form 1040x for 2012   You can contact the TAS by calling the TAS toll-free case intake line at 1-877-777-4778 or TTY/TDD 1-800-829-4059 to see if you are eligible for assistance. Form 1040x for 2012 You can also call or write to your local taxpayer advocate, whose phone number and address are listed in your local telephone directory and in Publication 1546, Taxpayer Advocate Service — Your Voice at the IRS. Form 1040x for 2012 You can file Form 911, Request for Taxpayer Advocate Service Assistance (And Application for Taxpayer Assistance Order), or ask an IRS employee to complete it on your behalf. Form 1040x for 2012 For more information, go to www. Form 1040x for 2012 irs. Form 1040x for 2012 gov/advocate. Form 1040x for 2012 Low Income Taxpayer Clinics (LITCs). Form 1040x for 2012   LITCs are independent organizations that provide low income taxpayers with representation in federal tax controversies with the IRS for free or for a nominal charge. Form 1040x for 2012 The clinics also provide tax education and outreach for taxpayers who speak English as a second language. Form 1040x for 2012 Publication 4134, Low Income Taxpayer Clinic List, provides information on clinics in your area. Form 1040x for 2012 It is available at www. Form 1040x for 2012 irs. Form 1040x for 2012 gov or your local IRS office. Form 1040x for 2012 Free tax services. Form 1040x for 2012   To find out what services are available, get Publication 910, IRS Guide to Free Tax Services. Form 1040x for 2012 It contains lists of free tax information sources, including publications, services, and free tax education and assistance programs. Form 1040x for 2012 It also has an index of over 100 TeleTax topics, (recorded tax information) you can listen to on your telephone. Form 1040x for 2012   Accessible versions of IRS published products are available on request in a variety of alternative formats for people with disabilities. Form 1040x for 2012 Free help with your return. Form 1040x for 2012   Free help in preparing your return is available nationwide from IRS-trained volunteers. Form 1040x for 2012 The Volunteer Income Tax Assistance (VITA) program is designed to help low-income taxpayers and Tax Counseling for the Elderly (TCE) program is designed to assist taxpayers age 60 and older with their tax returns. Form 1040x for 2012 Many VITA sites offer free electronic filing and all volunteers will let you know about credits and deductions you may be entitled to claim. Form 1040x for 2012 To find a site near you, call 1-800-829-1040. Form 1040x for 2012 Or to find the nearest AARP TaxAide site, visit AARP's website at www. Form 1040x for 2012 aarp. Form 1040x for 2012 org/taxaide or call 1-888-227-7669. Form 1040x for 2012 For more information on these programs, go to www. Form 1040x for 2012 irs. Form 1040x for 2012 gov and enter keyword “VITA” in the upper right-hand corner. Form 1040x for 2012 Internet. Form 1040x for 2012 You can access the IRS website at www. Form 1040x for 2012 irs. Form 1040x for 2012 gov 24 hours a day, 7 days a week to: E-file your return. Form 1040x for 2012 Find out about commercial tax preparation and e-file services available free to eligible taxpayers. Form 1040x for 2012 Check the status of your refund. Form 1040x for 2012 Click on Where's My Refund. Form 1040x for 2012 Wait at least 6 weeks from the date you filed your return (3 weeks if you filed electronically). Form 1040x for 2012 Have your tax return available because you will need to know your social security number, your filing status, and the exact whole dollar amount of your refund. Form 1040x for 2012 Download forms, instructions, and publications. Form 1040x for 2012 Order IRS products online. Form 1040x for 2012 Research your tax questions online. Form 1040x for 2012 Search publications online by topic or keyword. Form 1040x for 2012 View Internal Revenue Bulletins (IRBs) published in the last few years. Form 1040x for 2012 Figure your withholding allowances using the withholding calculator online at www. Form 1040x for 2012 irs. Form 1040x for 2012 gov/individuals. Form 1040x for 2012 Determine if Form 6251 must be filed using our Alternative Minimum Tax (AMT) Assistant. Form 1040x for 2012 Sign up to receive local and national tax news by email. Form 1040x for 2012 Get information on starting and operating a small business. Form 1040x for 2012 Phone. Form 1040x for 2012 Many services are available by phone. Form 1040x for 2012 Ordering forms, instructions, and publications. Form 1040x for 2012 Call 1-800-829-3676 to order current-year forms, instructions, and publications, and prior-year forms and instructions. Form 1040x for 2012 You should receive your order within 10 days. Form 1040x for 2012 Asking tax questions. Form 1040x for 2012 Call the IRS with your tax questions at 1-800-829-1040. Form 1040x for 2012 Solving problems. Form 1040x for 2012 You can get face-to-face help solving tax problems every business day in IRS Taxpayer Assistance Centers. Form 1040x for 2012 An employee can explain IRS letters, request adjustments to your account, or help you set up a payment plan. Form 1040x for 2012 Call your local Taxpayer Assistance Center for an appointment. Form 1040x for 2012 To find the number, go to www. Form 1040x for 2012 irs. Form 1040x for 2012 gov/localcontacts or look in the phone book under United States Government, Internal Revenue Service. Form 1040x for 2012 TTY/TDD equipment. Form 1040x for 2012 If you have access to TTY/TDD equipment, call 1-800-829-4059 to ask tax questions or to order forms and publications. Form 1040x for 2012 TeleTax topics. Form 1040x for 2012 Call 1-800-829-4477 to listen to pre-recorded messages covering various tax topics. Form 1040x for 2012 Refund information. Form 1040x for 2012 To check the status of your refund, call 1-800-829-4477 and press 1 for automated refund information or call 1-800-829-1954. Form 1040x for 2012 Be sure to wait at least 6 weeks from the date you filed your return (3 weeks if you filed electronically). Form 1040x for 2012 Have your tax return available because you will need to know your social security number, your filing status, and the exact whole dollar amount of your refund. Form 1040x for 2012 Evaluating the quality of our telephone services. Form 1040x for 2012 To ensure IRS representatives give accurate, courteous, and professional answers, we use several methods to evaluate the quality of our telephone services. Form 1040x for 2012 One method is for a second IRS representative to listen in on or record random telephone calls. Form 1040x for 2012 Another is to ask some callers to complete a short survey at the end of the call. Form 1040x for 2012 Walk-in. Form 1040x for 2012 Many products and services are available on a walk-in basis. Form 1040x for 2012 Products. Form 1040x for 2012 You can walk in to many post offices, libraries, and IRS offices to pick up certain forms, instructions, and publications. Form 1040x for 2012 Some IRS offices, libraries, grocery stores, copy centers, city and county government offices, credit unions, and office supply stores have a collection of products available to print from a CD or photocopy from reproducible proofs. Form 1040x for 2012 Also, some IRS offices and libraries have the Internal Revenue Code, regulations, Internal Revenue Bulletins, and Cumulative Bulletins available for research purposes. Form 1040x for 2012 Services. Form 1040x for 2012 You can walk in to your local Taxpayer Assistance Center every business day for personal, face-to-face tax help. Form 1040x for 2012 An employee can explain IRS letters, request adjustments to your tax account, or help you set up a payment plan. Form 1040x for 2012 If you need to resolve a tax problem, have questions about how the tax law applies to your individual tax return, or you're more comfortable talking with someone in person, visit your local Taxpayer Assistance Center where you can spread out your records and talk with an IRS representative face-to-face. Form 1040x for 2012 No appointment is necessary — just walk in. Form 1040x for 2012 If you prefer, you can call your local Center and leave a message requesting an appointment to resolve a tax account issue. Form 1040x for 2012 A representative will call you back within 2 business days to schedule an in-person appointment at your convenience. Form 1040x for 2012 If you have an ongoing, complex tax account problem or a special need, such as a disability, an appointment may be requested. Form 1040x for 2012 All other issues will be handled without an appointment. Form 1040x for 2012 To find the number of your local office, go to www. Form 1040x for 2012 irs. Form 1040x for 2012 gov/localcontacts or look in the phone book under United States Government, Internal Revenue Service. Form 1040x for 2012 Mail. Form 1040x for 2012 You can send your order for forms, instructions, and publications to the address below. Form 1040x for 2012 You should receive a response within 10 days after your request is received. Form 1040x for 2012 Internal Revenue Service 1201 N. Form 1040x for 2012 Mitsubishi Motorway Bloomington, IL 61705-6613 CD/DVD for tax products. Form 1040x for 2012 You can order Publication 1796, IRS Tax Products CD/DVD, and obtain: Current-year forms, instructions, and publications. Form 1040x for 2012 Prior-year forms, instructions, and publications. Form 1040x for 2012 Bonus: Historical Tax Products DVD - Ships with the final release. Form 1040x for 2012 IRS Tax Map: an electronic research tool and finding aid. Form 1040x for 2012 Tax law frequently asked questions (FAQ). Form 1040x for 2012 Tax Topics from the IRS telephone response system. Form 1040x for 2012 Fill-in, print, and save features for most tax forms. Form 1040x for 2012 Internal Revenue Bulletins. Form 1040x for 2012 Toll-free and email technical support. Form 1040x for 2012 The CD/DVD is released twice during the year in January and March. Form 1040x for 2012 Purchase the CD/DVD from National Technical Information Service (NTIS) at www. Form 1040x for 2012 irs. Form 1040x for 2012 gov/cdorders for $35 (no handling fee) or call 1-877-CDFORMS (1-877-233-6767) toll free to buy the CD/DVD for $35 (plus a $5 handling fee). Form 1040x for 2012 Price is subject to change. Form 1040x for 2012 CD for small businesses. Form 1040x for 2012 Publication 3207, The Small Business Resource Guide CD, is a must for every small business owner or any taxpayer about to start a business. Form 1040x for 2012 This year's CD includes: Helpful information, such as how to prepare a business plan, find financing for your business, and much more. Form 1040x for 2012 All the business tax forms, instructions, and publications needed to successfully manage a business. Form 1040x for 2012 Tax law changes. Form 1040x for 2012 Tax Map: an electronic research tool and finding aid. Form 1040x for 2012 Web links to various government agencies, business associations, and IRS organizations. Form 1040x for 2012 “Rate the Product” survey—your opportunity to suggest changes for future editions. Form 1040x for 2012 A site map of the CD to help you navigate the pages of the CD with ease. Form 1040x for 2012 An interactive “Teens in Biz” module that gives practical tips for teens about starting their own business, creating a business plan, and filing taxes. Form 1040x for 2012 An updated version of this CD is available each year in early April. Form 1040x for 2012 You can get a free copy by calling 1-800-829-3676 or by visiting www. Form 1040x for 2012 irs. Form 1040x for 2012 gov/smallbiz. Form 1040x for 2012 Prev  Up  Next   Home   More Online Publications
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The Form 1040x For 2012

Form 1040x for 2012 7. Form 1040x for 2012   Depreciation, Depletion, and Amortization Table of Contents What's New for 2013 Introduction Topics - This chapter discusses: Useful Items - You may want to see: Overview of DepreciationWhat Property Can Be Depreciated? What Property Cannot Be Depreciated? When Does Depreciation Begin and End? Can You Use MACRS To Depreciate Your Property? What Is the Basis of Your Depreciable Property? How Do You Treat Repairs and Improvements? Do You Have To File Form 4562? How Do You Correct Depreciation Deductions? Section 179 Expense DeductionWhat Property Qualifies? What Property Does Not Qualify? How Much Can You Deduct? How Do You Elect the Deduction? When Must You Recapture the Deduction? Claiming the Special Depreciation AllowanceWhat is Qualified Property? How Can You Elect Not To Claim the Allowance? When Must You Recapture an Allowance Figuring Depreciation Under MACRSWhich Depreciation System (GDS or ADS) Applies? Which Property Class Applies Under GDS? What Is the Placed-in-Service Date? What Is the Basis for Depreciation? Which Recovery Period Applies? Which Convention Applies? Which Depreciation Method Applies? How Is the Depreciation Deduction Figured? How Do You Use General Asset Accounts? When Do You Recapture MACRS Depreciation? Additional Rules for Listed PropertyWhat Is Listed Property? What Is the Business-Use Requirement? Do the Passenger Automobile Limits Apply? Depletion Who Can Claim Depletion? Figuring Depletion AmortizationBusiness Start-Up Costs Reforestation Costs Section 197 Intangibles What's New for 2013 Increased section 179 expense deduction dollar limits. Form 1040x for 2012  The maximum amount you can elect to deduct for most section 179 property you placed in service in 2013 is $500,000. Form 1040x for 2012 This limit is reduced by the amount by which the cost of the property placed in service during the tax year exceeds $2 million. Form 1040x for 2012 See Dollar Limits under Section 179 Expense Deduction , later. Form 1040x for 2012 Extension of special depreciation allowance for certain qualified property acquired after December 31, 2007. Form 1040x for 2012 . Form 1040x for 2012  You may be able to take a 50% special depreciation allowance for certain qualified property acquired after December 31, 2007, and placed in service before January 1, 2014. Form 1040x for 2012 See Claiming the Special Depreciation Allowance , later. Form 1040x for 2012 Expiration of the 3- year recovery period for certain race horses. Form 1040x for 2012  The 3-year recovery period for race horses two years old or younger will expire for such horses placed in service after December 31, 2013. Form 1040x for 2012 Introduction If you buy or make improvements to farm property such as machinery, equipment, livestock, or a structure with a useful life of more than a year, you generally cannot deduct its entire cost in one year. Form 1040x for 2012 Instead, you must spread the cost over the time you use the property and deduct part of it each year. Form 1040x for 2012 For most types of property, this is called depreciation. Form 1040x for 2012 This chapter gives information on depreciation methods that generally apply to property placed in service after 1986. Form 1040x for 2012 For information on depreciating pre-1987 property, see Publication 534, Depreciating Property Placed in Service Before 1987. Form 1040x for 2012 Topics - This chapter discusses: Overview of depreciation Section 179 expense deduction Special depreciation allowance Modified Accelerated Cost Recovery System (MACRS) Listed property Basic information on cost depletion (including timber depletion) and percentage depletion Amortization of the costs of going into business, reforestation costs, the costs of pollution control facilities, and the costs of section 197 intangibles Useful Items - You may want to see: Publication 463 Travel, Entertainment, Gift, and Car Expenses 534 Depreciating Property Placed in Service Before 1987 535 Business Expenses 544 Sales and Other Dispositions of Assets 551 Basis of Assets 946 How To Depreciate Property Form (and Instructions) T (Timber), Forest Activities Schedule 3115 Application for Change in Accounting Method 4562 Depreciation and Amortization 4797 Sales of Business Property See chapter 16 for information about getting publications and forms. Form 1040x for 2012 It is important to keep good records for property you depreciate. Form 1040x for 2012 Do not file these records with your return. Form 1040x for 2012 Instead, you should keep them as part of the permanent records of the depreciated property. Form 1040x for 2012 They will help you verify the accuracy of the depreciation of assets placed in service in the current and previous tax years. Form 1040x for 2012 For general information on recordkeeping, see Publication 583, Starting a Business and Keeping Records. Form 1040x for 2012 For specific information on keeping records for section 179 property and listed property, see Publication 946, How To Depreciate Property. Form 1040x for 2012 Overview of Depreciation This overview discusses basic information on the following. Form 1040x for 2012 What property can be depreciated. Form 1040x for 2012 What property cannot be depreciated. Form 1040x for 2012 When depreciation begins and ends. Form 1040x for 2012 Whether MACRS can be used to figure depreciation. Form 1040x for 2012 What is the basis of your depreciable property. Form 1040x for 2012 How to treat repairs and improvements. Form 1040x for 2012 When you must file Form 4562. Form 1040x for 2012 How you can correct depreciation claimed incorrectly. Form 1040x for 2012 What Property Can Be Depreciated? You can depreciate most types of tangible property (except land), such as buildings, machinery, equipment, vehicles, certain livestock, and furniture. Form 1040x for 2012 You can also depreciate certain intangible property, such as copyrights, patents, and computer software. Form 1040x for 2012 To be depreciable, the property must meet all the following requirements. Form 1040x for 2012 It must be property you own. Form 1040x for 2012 It must be used in your business or income-producing activity. Form 1040x for 2012 It must have a determinable useful life. Form 1040x for 2012 It must have a useful life that extends substantially beyond the year you place it in service. Form 1040x for 2012 Property You Own To claim depreciation, you usually must be the owner of the property. Form 1040x for 2012 You are considered as owning property even if it is subject to a debt. Form 1040x for 2012 Leased property. Form 1040x for 2012   You can depreciate leased property only if you retain the incidents of ownership in the property. Form 1040x for 2012 This means you bear the burden of exhaustion of the capital investment in the property. Form 1040x for 2012 Therefore, if you lease property from someone to use in your trade or business or for the production of income, you generally cannot depreciate its cost because you do not retain the incidents of ownership. Form 1040x for 2012 You can, however, depreciate any capital improvements you make to the leased property. Form 1040x for 2012 See Additions and Improvements under Which Recovery Period Applies in chapter 4 of Publication 946. Form 1040x for 2012   If you lease property to someone, you generally can depreciate its cost even if the lessee (the person leasing from you) has agreed to preserve, replace, renew, and maintain the property. Form 1040x for 2012 However, you cannot depreciate the cost of the property if the lease provides that the lessee is to maintain the property and return to you the same property or its equivalent in value at the expiration of the lease in as good condition and value as when leased. Form 1040x for 2012 Life tenant. Form 1040x for 2012   Generally, if you hold business or investment property as a life tenant, you can depreciate it as if you were the absolute owner of the property. Form 1040x for 2012 See Certain term interests in property , later, for an exception. Form 1040x for 2012 Property Used in Your Business or Income-Producing Activity To claim depreciation on property, you must use it in your business or income-producing activity. Form 1040x for 2012 If you use property to produce income (investment use), the income must be taxable. Form 1040x for 2012 You cannot depreciate property that you use solely for personal activities. Form 1040x for 2012 However, if you use property for business or investment purposes and for personal purposes, you can deduct depreciation based only on the percentage of business or investment use. Form 1040x for 2012 Example 1. Form 1040x for 2012   If you use your car for farm business, you can deduct depreciation based on its percentage of use in farming. Form 1040x for 2012 If you also use it for investment purposes, you can depreciate it based on its percentage of investment use. Form 1040x for 2012 Example 2. Form 1040x for 2012   If you use part of your home for business, you may be able to deduct depreciation on that part based on its business use. Form 1040x for 2012 For more information, see Business Use of Your Home in chapter 4. Form 1040x for 2012 Inventory. Form 1040x for 2012   You can never depreciate inventory because it is not held for use in your business. Form 1040x for 2012 Inventory is any property you hold primarily for sale to customers in the ordinary course of your business. Form 1040x for 2012 Livestock. Form 1040x for 2012   Livestock purchased for draft, breeding, or dairy purposes can be depreciated only if they are not kept in an inventory account. Form 1040x for 2012 Livestock you raise usually has no depreciable basis because the costs of raising them are deducted and not added to their basis. Form 1040x for 2012 However, see Immature livestock under When Does Depreciation Begin and End , later, for a special rule. Form 1040x for 2012 Property Having a Determinable Useful Life To be depreciable, your property must have a determinable useful life. Form 1040x for 2012 This means it must be something that wears out, decays, gets used up, becomes obsolete, or loses its value from natural causes. Form 1040x for 2012 Irrigation systems and water wells. Form 1040x for 2012   Irrigation systems and wells used in a trade or business can be depreciated if their useful life can be determined. Form 1040x for 2012 You can depreciate irrigation systems and wells composed of masonry, concrete, tile, metal, or wood. Form 1040x for 2012 In addition, you can depreciate costs for moving dirt to construct irrigation systems and water wells composed of these materials. Form 1040x for 2012 However, land preparation costs for center pivot irrigation systems are not depreciable. Form 1040x for 2012 Dams, ponds, and terraces. Form 1040x for 2012   In general, you cannot depreciate earthen dams, ponds, and terraces unless the structures have a determinable useful life. Form 1040x for 2012 What Property Cannot Be Depreciated? Certain property cannot be depreciated, even if the requirements explained earlier are met. Form 1040x for 2012 This includes the following. Form 1040x for 2012 Land. Form 1040x for 2012 You can never depreciate the cost of land because land does not wear out, become obsolete, or get used up. Form 1040x for 2012 The cost of land generally includes the cost of clearing, grading, planting, and landscaping. Form 1040x for 2012 Although you cannot depreciate land, you can depreciate certain costs incurred in preparing land for business use. Form 1040x for 2012 See chapter 1 of Publication 946. Form 1040x for 2012 Property placed in service and disposed of in the same year. Form 1040x for 2012 Determining when property is placed in service is explained later. Form 1040x for 2012 Equipment used to build capital improvements. Form 1040x for 2012 You must add otherwise allowable depreciation on the equipment during the period of construction to the basis of your improvements. Form 1040x for 2012 Intangible property such as section 197 intangibles. Form 1040x for 2012 This property does not have a determinable useful life and generally cannot be depreciated. Form 1040x for 2012 However, see Amortization , later. Form 1040x for 2012 Special rules apply to computer software (discussed below). Form 1040x for 2012 Certain term interests (discussed below). Form 1040x for 2012 Computer software. Form 1040x for 2012   Computer software is generally not a section 197 intangible even if acquired in connection with the acquisition of a business, if it meets all of the following tests. Form 1040x for 2012 It is readily available for purchase by the general public. Form 1040x for 2012 It is subject to a nonexclusive license. Form 1040x for 2012 It has not been substantially modified. Form 1040x for 2012   If the software meets the tests above, it can be depreciated and may qualify for the section 179 expense deduction and the special depreciation allowance (if applicable), discussed later. Form 1040x for 2012 Certain term interests in property. Form 1040x for 2012   You cannot depreciate a term interest in property created or acquired after July 27, 1989, for any period during which the remainder interest is held, directly or indirectly, by a person related to you. Form 1040x for 2012 This rule does not apply to the holder of a term interest in property acquired by gift, bequest, or inheritance. Form 1040x for 2012 For more information, see chapter 1 of Publication 946. Form 1040x for 2012 When Does Depreciation Begin and End? You begin to depreciate your property when you place it in service for use in your trade or business or for the production of income. Form 1040x for 2012 You stop depreciating property either when you have fully recovered your cost or other basis or when you retire it from service, whichever happens first. Form 1040x for 2012 Placed in Service Property is placed in service when it is ready and available for a specific use, whether in a business activity, an income-producing activity, a tax-exempt activity, or a personal activity. Form 1040x for 2012 Even if you are not using the property, it is in service when it is ready and available for its specific use. Form 1040x for 2012 Example. Form 1040x for 2012 You bought a planter for use in your farm business. Form 1040x for 2012 The planter was delivered in December 2012 after harvest was over. Form 1040x for 2012 You begin to depreciate the planter for 2012 because it was ready and available for its specific use in 2012, even though it will not be used until the spring of 2013. Form 1040x for 2012 If your planter comes unassembled in December 2012 and is put together in February 2013, it is not placed in service until 2013. Form 1040x for 2012 You begin to depreciate it in 2013. Form 1040x for 2012 If your planter was delivered and assembled in February 2013 but not used until April 2013, it is placed in service in February 2013, because this is when the planter was ready for its specified use. Form 1040x for 2012 You begin to depreciate it in 2013. Form 1040x for 2012 Fruit or nut trees and vines. Form 1040x for 2012   If you acquire an orchard, grove, or vineyard before the trees or vines have reached the income-producing stage, and they have a preproductive period of more than 2 years, you must capitalize the preproductive-period costs under the uniform capitalization rules (unless you elect not to use these rules). Form 1040x for 2012 See chapter 6 for information about the uniform capitalization rules. Form 1040x for 2012 Your depreciation begins when the trees and vines reach the income-producing stage (that is, when they bear fruit, nuts, or grapes in quantities sufficient to commercially warrant harvesting). Form 1040x for 2012 Immature livestock. Form 1040x for 2012   Depreciation for livestock begins when the livestock reaches the age of maturity. Form 1040x for 2012 If you bought immature livestock for drafting purposes, depreciation begins when they can be worked. Form 1040x for 2012 If you bought immature livestock for dairy purposes, depreciation begins when they can be milked. Form 1040x for 2012 If you bought immature livestock for breeding purposes, depreciation begins when they can be bred. Form 1040x for 2012 Your basis for depreciation is your initial cost for the immature livestock. Form 1040x for 2012 Idle Property Continue to claim a deduction for depreciation on property used in your business or for the production of income even if it is temporarily idle. Form 1040x for 2012 For example, if you stop using a machine because there is a temporary lack of a market for a product made with that machine, continue to deduct depreciation on the machine. Form 1040x for 2012 Cost or Other Basis Fully Recovered You stop depreciating property when you have fully recovered your cost or other basis. Form 1040x for 2012 This happens when your section 179 and allowed or allowable depreciation deductions equal your cost or investment in the property. Form 1040x for 2012 Retired From Service You stop depreciating property when you retire it from service, even if you have not fully recovered its cost or other basis. Form 1040x for 2012 You retire property from service when you permanently withdraw it from use in a trade or business or from use in the production of income because of any of the following events. Form 1040x for 2012 You sell or exchange the property. Form 1040x for 2012 You convert the property to personal use. Form 1040x for 2012 You abandon the property. Form 1040x for 2012 You transfer the property to a supplies or scrap account. Form 1040x for 2012 The property is destroyed. Form 1040x for 2012 For information on abandonment of property, see chapter 8. Form 1040x for 2012 For information on destroyed property, see chapter 11 and Publication 547, Casualties, Disasters, and Thefts. Form 1040x for 2012 Can You Use MACRS To Depreciate Your Property? You must use the Modified Accelerated Cost Recovery System (MACRS) to depreciate most business and investment property placed in service after 1986. Form 1040x for 2012 MACRS is explained later under Figuring Depreciation Under MACRS . Form 1040x for 2012 You cannot use MACRS to depreciate the following property. Form 1040x for 2012 Property you placed in service before 1987. Form 1040x for 2012 Use the methods discussed in Publication 534. Form 1040x for 2012 Certain property owned or used in 1986. Form 1040x for 2012 See chapter 1 of Publication 946. Form 1040x for 2012 Intangible property. Form 1040x for 2012 Films, video tapes, and recordings. Form 1040x for 2012 Certain corporate or partnership property acquired in a nontaxable transfer. Form 1040x for 2012 Property you elected to exclude from MACRS. Form 1040x for 2012 For more information, see chapter 1 of Publication 946. Form 1040x for 2012 What Is the Basis of Your Depreciable Property? To figure your depreciation deduction, you must determine the basis of your property. Form 1040x for 2012 To determine basis, you need to know the cost or other basis of your property. Form 1040x for 2012 Cost or other basis. Form 1040x for 2012   The basis of property you buy is usually its cost plus amounts you paid for items such as sales tax, freight charges, and installation and testing fees. Form 1040x for 2012 The cost includes the amount you pay in cash, debt obligations, other property, or services. Form 1040x for 2012   There are times when you cannot use cost as basis. Form 1040x for 2012 In these situations, the fair market value (FMV) or the adjusted basis of the property may be used. Form 1040x for 2012 Adjusted basis. Form 1040x for 2012   To find your property's basis for depreciation, you may have to make certain adjustments (increases and decreases) to the basis of the property for events occurring between the time you acquired the property and the time you placed it in service. Form 1040x for 2012 Basis adjustment for depreciation allowed or allowable. Form 1040x for 2012   After you place your property in service, you must reduce the basis of the property by the depreciation allowed or allowable, whichever is greater. Form 1040x for 2012 Depreciation allowed is depreciation you actually deducted (from which you received a tax benefit). Form 1040x for 2012 Depreciation allowable is depreciation you are entitled to deduct. Form 1040x for 2012   If you do not claim depreciation you are entitled to deduct, you must still reduce the basis of the property by the full amount of depreciation allowable. Form 1040x for 2012   If you deduct more depreciation than you should, you must reduce your basis by any amount deducted from which you received a tax benefit (the depreciation allowed). Form 1040x for 2012   For more information, see chapter 6. Form 1040x for 2012 How Do You Treat Repairs and Improvements? You generally deduct the cost of repairing business property in the same way as any other business expense. Form 1040x for 2012 However, if a repair or replacement increases the value of your property, makes it more useful, or lengthens its life, you must treat it as an improvement and depreciate it. Form 1040x for 2012 Treat improvements as separate depreciable property. Form 1040x for 2012 See chapter 1 of Publication 946 for more information. Form 1040x for 2012 Example. Form 1040x for 2012 You repair a small section on a corner of the roof of a barn that you rent to others. Form 1040x for 2012 You deduct the cost of the repair as a business expense. Form 1040x for 2012 However, if you replace the entire roof, the new roof is considered to be an improvement because it increases the value and lengthens the life for the property. Form 1040x for 2012 You depreciate the cost of the new roof. Form 1040x for 2012 Improvements to rented property. Form 1040x for 2012   You can depreciate permanent improvements you make to business property you rent from someone else. Form 1040x for 2012 Do You Have To File Form 4562? Use Form 4562 to claim your deduction for depreciation and amortization. Form 1040x for 2012 You must complete and attach Form 4562 to your tax return if you are claiming any of the following. Form 1040x for 2012 A section 179 expense deduction for the current year or a section 179 carryover from a prior year. Form 1040x for 2012 Depreciation for property placed in service during the current year. Form 1040x for 2012 Depreciation on any vehicle or other listed property, regardless of when it was placed in service. Form 1040x for 2012 Amortization of costs that began in the current year. Form 1040x for 2012 For more information, see the Instructions for Form 4562. Form 1040x for 2012 How Do You Correct Depreciation Deductions? If you deducted an incorrect amount of depreciation in any year, you may be able to make a correction by filing an amended return for that year. Form 1040x for 2012 You can file an amended return to correct the amount of depreciation claimed for any property in any of the following situations. Form 1040x for 2012 You claimed the incorrect amount because of a mathematical error made in any year. Form 1040x for 2012 You claimed the incorrect amount because of a posting error made in any year, for example, omitting an asset from the depreciation schedule. Form 1040x for 2012 You have not adopted a method of accounting for the property placed in service by you in tax years ending after December 29, 2003. Form 1040x for 2012 You claimed the incorrect amount on property placed in service by you in tax years ending before December 30, 2003. Form 1040x for 2012 Note. Form 1040x for 2012 You have adopted a method of accounting if you used the same incorrect method of depreciation for two or more consecutively filed returns. Form 1040x for 2012 If you are not allowed to make the correction on an amended return, you may be able to change your accounting method to claim the correct amount of depreciation. Form 1040x for 2012 See the Instructions for Form 3115. Form 1040x for 2012 Section 179 Expense Deduction You can elect to recover all or part of the cost of certain qualifying property, up to a limit, by deducting it in the year you place the property in service. Form 1040x for 2012 This is the section 179 expense deduction. Form 1040x for 2012 You can elect the section 179 expense deduction instead of recovering the cost by taking depreciation deductions. Form 1040x for 2012 This part of the chapter explains the rules for the section 179 expense deduction. Form 1040x for 2012 It explains what property qualifies for the deduction, what property does not qualify for the deduction, the limits that may apply, how to elect the deduction, and when you may have to recapture the deduction. Form 1040x for 2012 For more information, see chapter 2 of Publication 946. Form 1040x for 2012 What Property Qualifies? To qualify for the section 179 expense deduction, your property must meet all the following requirements. Form 1040x for 2012 It must be eligible property. Form 1040x for 2012 It must be acquired for business use. Form 1040x for 2012 It must have been acquired by purchase. Form 1040x for 2012 Eligible Property To qualify for the section 179 expense deduction, your property must be one of the following types of depreciable property. Form 1040x for 2012 Tangible personal property. Form 1040x for 2012 Qualified real property. Form 1040x for 2012 (Special rules apply to qualified real property that you elect to treat as qualified section 179 real property. Form 1040x for 2012 For more information, see chapter 2 of Publication 946 and section 179(f) of the Internal Revenue Code. Form 1040x for 2012 ) Other tangible property (except buildings and their structural components) used as: An integral part of manufacturing, production, or extraction or of furnishing transportation, communications, electricity, gas, water, or sewage disposal services; A research facility used in connection with any of the activities in (a) above; or A facility used in connection with any of the activities in (a) for the bulk storage of fungible commodities. Form 1040x for 2012 Single purpose agricultural (livestock) or horticultural structures. Form 1040x for 2012 Storage facilities (except buildings and their structural components) used in connection with distributing petroleum or any primary product of petroleum. Form 1040x for 2012 Off-the-shelf computer software that is readily available for purchase by the general public, is subject to a nonexclusive lease, and has not been substantially modified. Form 1040x for 2012 Tangible personal property. Form 1040x for 2012   Tangible personal property is any tangible property that is not real property. Form 1040x for 2012 It includes the following property. Form 1040x for 2012 Machinery and equipment. Form 1040x for 2012 Property contained in or attached to a building (other than structural components), such as milk tanks, automatic feeders, barn cleaners, and office equipment. Form 1040x for 2012 Gasoline storage tanks and pumps at retail service stations. Form 1040x for 2012 Livestock, including horses, cattle, hogs, sheep, goats, and mink and other fur-bearing animals. Form 1040x for 2012 Facility used for the bulk storage of fungible commodities. Form 1040x for 2012   A facility used for the bulk storage of fungible commodities is qualifying property for purposes of the section 179 expense deduction if it is used in connection with any of the activities listed earlier in item (3)(a). Form 1040x for 2012 Bulk storage means the storage of a commodity in a large mass before it is used. Form 1040x for 2012 Grain bins. Form 1040x for 2012   A grain bin is an example of a storage facility that is qualifying section 179 property. Form 1040x for 2012 It is a facility used in connection with the production of grain or livestock for the bulk storage of fungible commodities. Form 1040x for 2012 Single purpose agricultural or horticultural structures. Form 1040x for 2012   A single purpose agricultural (livestock) or horticultural structure is qualifying property for purposes of the section 179 expense deduction. Form 1040x for 2012 Agricultural structure. Form 1040x for 2012   A single purpose agricultural (livestock) structure is any building or enclosure specifically designed, constructed, and used for both the following reasons. Form 1040x for 2012 To house, raise, and feed a particular type of livestock and its produce. Form 1040x for 2012 To house the equipment, including any replacements, needed to house, raise, or feed the livestock. Form 1040x for 2012 For this purpose, livestock includes poultry. Form 1040x for 2012   Single purpose structures are qualifying property if used, for example, to breed chickens or hogs, produce milk from dairy cattle, or produce feeder cattle or pigs, broiler chickens, or eggs. Form 1040x for 2012 The facility must include, as an integral part of the structure or enclosure, equipment necessary to house, raise, and feed the livestock. Form 1040x for 2012 Horticultural structure. Form 1040x for 2012   A single purpose horticultural structure is either of the following. Form 1040x for 2012 A greenhouse specifically designed, constructed, and used for the commercial production of plants. Form 1040x for 2012 A structure specifically designed, constructed, and used for the commercial production of mushrooms. Form 1040x for 2012 Use of structure. Form 1040x for 2012   A structure must be used only for the purpose that qualified it. Form 1040x for 2012 For example, a hog barn will not be qualifying property if you use it to house poultry. Form 1040x for 2012 Similarly, using part of your greenhouse to sell plants will make the greenhouse nonqualifying property. Form 1040x for 2012   If a structure includes work space, the work space can be used only for the following activities. Form 1040x for 2012 Stocking, caring for, or collecting livestock or plants or their produce. Form 1040x for 2012 Maintaining the enclosure or structure. Form 1040x for 2012 Maintaining or replacing the equipment or stock enclosed or housed in the structure. Form 1040x for 2012 Property Acquired by Purchase To qualify for the section 179 expense deduction, your property must have been acquired by purchase. Form 1040x for 2012 For example, property acquired by gift or inheritance does not qualify. Form 1040x for 2012 Property acquired from a related person (that is, your spouse, ancestors, or lineal descendants) is not considered acquired by purchase. Form 1040x for 2012 Example. Form 1040x for 2012 Ken is a farmer. Form 1040x for 2012 He purchased two tractors, one from his brother and one from his father. Form 1040x for 2012 He placed both tractors in service in the same year he bought them. Form 1040x for 2012 The tractor purchased from his father does not qualify for the section 179 expense deduction because he is a related person (as defined above). Form 1040x for 2012 The tractor purchased from his brother does qualify for the deduction because Ken is not a related person (as defined above). Form 1040x for 2012 What Property Does Not Qualify? Land and improvements. Form 1040x for 2012   Land and land improvements, do not qualify as section 179 property. Form 1040x for 2012 Land improvements include nonagricultural fences, swimming pools, paved parking areas, wharves, docks, bridges, and fences. Form 1040x for 2012 However, agricultural fences do qualify as section 179 property. Form 1040x for 2012 Similarly, field drainage tile also qualifies as section 179 property. Form 1040x for 2012 Excepted property. Form 1040x for 2012   Even if the requirements explained in the preceding discussions are met, farmers cannot elect the section 179 expense deduction for the following property. Form 1040x for 2012 Certain property you lease to others (if you are a noncorporate lessor). Form 1040x for 2012 Certain property used predominantly to furnish lodging or in connection with the furnishing of lodging. Form 1040x for 2012 Property used by a tax-exempt organization (other than a tax-exempt farmers' cooperative) unless the property is used mainly in a taxable unrelated trade or business. Form 1040x for 2012 Property used by governmental units or foreign persons or entities (except property used under a lease with a term of less than 6 months). Form 1040x for 2012 How Much Can You Deduct? Your section 179 expense deduction is generally the cost of the qualifying property. Form 1040x for 2012 However, the total amount you can elect to deduct under section 179 is subject to a dollar limit and a business income limit. Form 1040x for 2012 These limits apply to each taxpayer, not to each business. Form 1040x for 2012 However, see Married individuals under Dollar Limits , later. Form 1040x for 2012 See also the special rules for applying the limits for partnerships and S corporations under Partnerships and S Corporations , later. Form 1040x for 2012 If you deduct only part of the cost of qualifying property as a section 179 expense deduction, you can generally depreciate the cost you do not deduct. Form 1040x for 2012 Use Part I of Form 4562 to figure your section 179 expense deduction. Form 1040x for 2012 Partial business use. Form 1040x for 2012   When you use property for business and nonbusiness purposes, you can elect the section 179 expense deduction only if you use it more than 50% for business in the year you place it in service. Form 1040x for 2012 If you used the property more than 50% for business, multiply the cost of the property by the percentage of business use. Form 1040x for 2012 Use the resulting business cost to figure your section 179 expense deduction. Form 1040x for 2012 Trade-in of other property. Form 1040x for 2012   If you buy qualifying property with cash and a trade-in, its cost for purposes of the section 179 expense deduction includes only the cash you paid. Form 1040x for 2012 For example, if you buy (for cash and a trade-in) a new tractor for use in your business, your cost for the section 179 expense deduction is the cash you paid. Form 1040x for 2012 It does not include the adjusted basis of the old tractor you trade for the new tractor. Form 1040x for 2012 Example. Form 1040x for 2012 J-Bar Farms traded two cultivators having a total adjusted basis of $6,800 for a new cultivator costing $13,200. Form 1040x for 2012 They received an $8,000 trade-in allowance for the old cultivators and paid $5,200 cash for the new cultivator. Form 1040x for 2012 J-Bar also traded a used pickup truck with an adjusted basis of $8,000 for a new pickup truck costing $35,000. Form 1040x for 2012 They received a $5,000 trade-in allowance and paid $30,000 cash for the new pickup truck. Form 1040x for 2012 Only the cash paid by J-Bar qualifies for the section 179 expense deduction. Form 1040x for 2012 J-Bar's business costs that qualify for a section 179 expense deduction are $35,200 ($5,200 + $30,000). Form 1040x for 2012 Dollar Limits The total amount you can elect to deduct under section 179 for most property placed in service in 2013 is $500,000. Form 1040x for 2012 If you acquire and place in service more than one item of qualifying property during the year, you can allocate the section 179 expense deduction among the items in any way, as long as the total deduction is not more than $500,000. Form 1040x for 2012 Qualified real property that you elect to treat as section 179 property is limited to $250,000 of the maximum section 179 deduction of $500,000 for 2013. Form 1040x for 2012 You do not have to claim the full $500,000. Form 1040x for 2012 For specific information on the section 179 dollar limits, see chapter 2 of Publication 946. Form 1040x for 2012 Reduced dollar limit for cost exceeding $2 million. Form 1040x for 2012   If the cost of your qualifying section 179 property placed in service in 2013 is over $2 million, you must reduce the dollar limit (but not below zero) by the amount of cost over $2 million. Form 1040x for 2012 If the cost of your section 179 property placed in service during 2013 is $2,500,000 or more, you cannot take a section 179 expense deduction and you cannot carry over the cost that is more than $2,500,000. Form 1040x for 2012 Example. Form 1040x for 2012 This year, James Smith placed in service machinery costing $2,050,000. Form 1040x for 2012 Because this cost is $50,000 more than $2 million, he must reduce his dollar limit to $450,000 ($500,000 − $50,000). Form 1040x for 2012 Limits for sport utility vehicles. Form 1040x for 2012   The total amount you can elect to deduct for certain sport utility vehicles and certain other vehicles placed in service in 2013 is $25,000. Form 1040x for 2012 This rule applies to any 4-wheeled vehicle primarily designed or used to carry passengers over public streets, roads, and highways that is rated at more than 6,000 pounds gross vehicle weight and not more than 14,000 pounds gross vehicle weight. Form 1040x for 2012   For more information, see chapter 2 of Publication 946. Form 1040x for 2012 Limits for passenger automobiles. Form 1040x for 2012   For a passenger automobile that is placed in service in 2013, the total section 179 and depreciation deduction is limited. Form 1040x for 2012 See Do the Passenger Automobile Limits Apply , later. Form 1040x for 2012 Married individuals. Form 1040x for 2012   If you are married, how you figure your section 179 expense deduction depends on whether you file jointly or separately. Form 1040x for 2012 If you file a joint return, you and your spouse are treated as one taxpayer in determining any reduction to the dollar limit, regardless of which of you purchased the property or placed it in service. Form 1040x for 2012 If you and your spouse file separate returns, you are treated as one taxpayer for the dollar limit, including the reduction for costs over $2 million. Form 1040x for 2012 You must allocate the dollar limit (after any reduction) equally between you, unless you both elect a different allocation. Form 1040x for 2012 If the percentages elected by each of you do not total 100%, 50% will be allocated to each of you. Form 1040x for 2012 Joint return after separate returns. Form 1040x for 2012   If you and your spouse elect to amend your separate returns by filing a joint return after the due date for filing your return, the dollar limit on the joint return is the lesser of the following amounts. Form 1040x for 2012 The dollar limit (after reduction for any cost of section 179 property over $2 million). Form 1040x for 2012 The total cost of section 179 property you and your spouse elected to expense on your separate returns. Form 1040x for 2012 Business Income Limit The total cost you can deduct each year after you apply the dollar limit is limited to the taxable income from the active conduct of any trade or business during the year. Form 1040x for 2012 Generally, you are considered to actively conduct a trade or business if you meaningfully participate in the management or operations of the trade or business. Form 1040x for 2012 Any cost not deductible in one year under section 179 because of this limit can be carried to the next year. Form 1040x for 2012 See Carryover of disallowed deduction , later. Form 1040x for 2012 Taxable income. Form 1040x for 2012   In general, figure taxable income for this purpose by totaling the net income and losses from all trades and businesses you actively conducted during the year. Form 1040x for 2012 In addition to net income or loss from a sole proprietorship, partnership, or S corporation, net income or loss derived from a trade or business also includes the following items. Form 1040x for 2012 Section 1231 gains (or losses) as discussed in chapter 9. Form 1040x for 2012 Interest from working capital of your trade or business. Form 1040x for 2012 Wages, salaries, tips, or other pay earned by you (or your spouse if you file a joint return) as an employee of any employer. Form 1040x for 2012   In addition, figure taxable income without regard to any of the following. Form 1040x for 2012 The section 179 expense deduction. Form 1040x for 2012 The self-employment tax deduction. Form 1040x for 2012 Any net operating loss carryback or carryforward. Form 1040x for 2012 Any unreimbursed employee business expenses. Form 1040x for 2012 Two different taxable income limits. Form 1040x for 2012   In addition to the business income limit for your section 179 expense deduction, you may have a taxable income limit for some other deduction (for example, charitable contributions). Form 1040x for 2012 You may have to figure the limit for this other deduction taking into account the section 179 expense deduction. Form 1040x for 2012 If so, complete the following steps. Form 1040x for 2012 Step Action 1 Figure taxable income without the section 179 expense deduction or the other deduction. Form 1040x for 2012 2 Figure a hypothetical section 179 expense deduction using the taxable income figured in Step 1. Form 1040x for 2012 3 Subtract the hypothetical section 179 expense deduction figured in Step 2 from the taxable income figured in Step 1. Form 1040x for 2012 4 Figure a hypothetical amount for the other deduction using the amount figured in Step 3 as taxable income. Form 1040x for 2012 5 Subtract the hypothetical other deduction figured in Step 4 from the taxable income figured in  Step 1. Form 1040x for 2012 6 Figure your actual section 179 expense deduction using the taxable income figured in Step 5. Form 1040x for 2012 7 Subtract your actual section 179 expense deduction figured in Step 6 from the taxable income figured in Step 1. Form 1040x for 2012 8 Figure your actual other deduction using the taxable income figured in Step 7. Form 1040x for 2012 Example. Form 1040x for 2012 On February 1, 2013, the XYZ farm corporation purchased and placed in service qualifying section 179 property that cost $500,000. Form 1040x for 2012 It elects to expense the entire $500,000 cost under section 179. Form 1040x for 2012 In June, the corporation gave a charitable contribution of $10,000. Form 1040x for 2012 A corporation's limit on charitable contributions is figured after subtracting any section 179 expense deduction. Form 1040x for 2012 The business income limit for the section 179 expense deduction is figured after subtracting any allowable charitable contributions. Form 1040x for 2012 XYZ's taxable income figured without the section 179 expense deduction or the deduction for charitable contributions is $520,000. Form 1040x for 2012 XYZ figures its section 179 expense deduction and its deduction for charitable contributions as follows. Form 1040x for 2012 Step 1. Form 1040x for 2012 Taxable income figured without either deduction is $520,000. Form 1040x for 2012 Step 2. Form 1040x for 2012 Using $520,000 as taxable income, XYZ's hypothetical section 179 expense deduction is $500,000. Form 1040x for 2012 Step 3. Form 1040x for 2012 $20,000 ($520,000 − $500,000). Form 1040x for 2012 Step 4. Form 1040x for 2012 Using $20,000 (from Step 3) as taxable income, XYZ's hypothetical charitable contribution (limited to 10% of taxable income) is $2,000. Form 1040x for 2012 Step 5. Form 1040x for 2012 $518,000 ($520,000 − $2,000). Form 1040x for 2012 Step 6. Form 1040x for 2012 Using $518,000 (from Step 5) as taxable income, XYZ figures the actual section 179 expense deduction. Form 1040x for 2012 Because the taxable income is at least $500,000, XYZ can take a $500,000 section 179 expense deduction. Form 1040x for 2012 Step 7. Form 1040x for 2012 $20,000 ($520,000 − $500,000). Form 1040x for 2012 Step 8. Form 1040x for 2012 Using $20,000 (from Step 7) as taxable income, XYZ's actual charitable contribution (limited to 10% of taxable income) is $2,000. Form 1040x for 2012 Carryover of disallowed deduction. Form 1040x for 2012   You can carry over for an unlimited number of years the cost of any section 179 property you elected to expense but were unable to because of the business income limit. Form 1040x for 2012   The amount you carry over is used in determining your section 179 expense deduction in the next year. Form 1040x for 2012 However, it is subject to the limits in that year. Form 1040x for 2012 If you place more than one property in service in a year, you can select the properties for which all or a part of the cost will be carried forward. Form 1040x for 2012 Your selections must be shown in your books and records. Form 1040x for 2012 Example. Form 1040x for 2012 Last year, Joyce Jones placed in service a machine that cost $8,000 and elected to deduct all $8,000 under section 179. Form 1040x for 2012 The taxable income from her business (determined without regard to both a section 179 expense deduction for the cost of the machine and the self-employment tax deduction) was $6,000. Form 1040x for 2012 Her section 179 expense deduction was limited to $6,000. Form 1040x for 2012 The $2,000 cost that was not allowed as a section 179 expense deduction (because of the business income limit) is carried to this year. Form 1040x for 2012 This year, Joyce placed another machine in service that cost $9,000. Form 1040x for 2012 Her taxable income from business (determined without regard to both a section 179 expense deduction for the cost of the machine and the self-employment tax deduction) is $10,000. Form 1040x for 2012 Joyce can deduct the full cost of the machine ($9,000) but only $1,000 of the carryover from last year because of the business income limit. Form 1040x for 2012 She can carry over the balance of $1,000 to next year. Form 1040x for 2012 Partnerships and S Corporations The section 179 expense deduction limits apply both to the partnership or S corporation and to each partner or shareholder. Form 1040x for 2012 The partnership or S corporation determines its section 179 expense deduction subject to the limits. Form 1040x for 2012 It then allocates the deduction among its partners or shareholders. Form 1040x for 2012 If you are a partner in a partnership or shareholder of an S corporation, you add the amount allocated from the partnership or S corporation to any section 179 costs not related to the partnership or S corporation and then apply the dollar limit to this total. Form 1040x for 2012 To determine any reduction in the dollar limit for costs over $560,000, you do not include any of the cost of section 179 property placed in service by the partnership or S corporation. Form 1040x for 2012 After you apply the dollar limit, you apply the business income limit to any remaining section 179 costs. Form 1040x for 2012 For more information, see chapter 2 of Publication 946. Form 1040x for 2012 Example. Form 1040x for 2012 In 2013, Partnership P placed in service section 179 property with a total cost of $2,160,000. Form 1040x for 2012 P must reduce its dollar limit by $160,000 ($2,160,000 − $2,000,000). Form 1040x for 2012 Its maximum section 179 expense deduction is $340,000 ($500,000 − $160,000), and it elects to expense that amount. Form 1040x for 2012 Because P's taxable income from the active conduct of all its trades or businesses for the year was $400,000, it can deduct the full $340,000. Form 1040x for 2012 P allocates $100,000 of its section 179 expense deduction and $110,000 of its taxable income to John, one of its partners. Form 1040x for 2012 John also conducts a business as a sole proprietor and in 2013, placed in service in that business, section 179 property costing $28,000. Form 1040x for 2012 John's taxable income from that business was $10,000. Form 1040x for 2012 In addition to the $100,000 allocated from P, he elects to expense the $28,000 of his sole proprietorship's section 179 costs. Form 1040x for 2012 However, John's deduction is limited to his business taxable income of $120,000 ($110,000 from P plus $10,000 from his sole proprietorship). Form 1040x for 2012 He carries over $8,000 ($128,000 − $120,000) of the elected section 179 costs to 2014. Form 1040x for 2012 How Do You Elect the Deduction? You elect to take the section 179 expense deduction by completing Part I of Form 4562. Form 1040x for 2012 If you elect the deduction for listed property, complete Part V of  Form 4562 before completing Part I. Form 1040x for 2012   File Form 4562 with either of the following: Your original tax return (whether or not you filed it timely), or An amended return filed within the time prescribed by law. Form 1040x for 2012 An election made on an amended return must specify the item of section 179 property to which the election applies and the part of the cost of each such item to be taken into account. Form 1040x for 2012 The amended return must also include any resulting adjustments to taxable income. Form 1040x for 2012 Revoking an election. Form 1040x for 2012   An election (or any specification made in the election) to take a section 179 expense deduction for 2013 can be revoked without IRS approval by filing an amended return. Form 1040x for 2012 The amended return must be filed within the time prescribed by law. Form 1040x for 2012 The amended return must also include any resulting adjustments to taxable income (for example, allowable depreciation in that tax year for the item of section 179 property for which the election pertains. Form 1040x for 2012 ) Once made, the revocation is irrevocable. Form 1040x for 2012 When Must You Recapture the Deduction? You may have to recapture the section 179 expense deduction if, in any year during the property's recovery period, the percentage of business use drops to 50% or less. Form 1040x for 2012 In the year the business use drops to 50% or less, you include the recapture amount as ordinary income. Form 1040x for 2012 You also increase the basis of the property by the recapture amount. Form 1040x for 2012 Recovery periods for property are discussed later. Form 1040x for 2012 If you sell, exchange, or otherwise dispose of the property, do not figure the recapture amount under the rules explained in this discussion. Form 1040x for 2012 Instead, use the rules for recapturing depreciation explained in  chapter 9 under Section 1245 Property. Form 1040x for 2012   If the property is listed property, do not figure the recapture amount under the rules explained in this discussion when the percentage of business use drops to 50% or less. Form 1040x for 2012 Instead, use the rules for recapturing depreciation explained in chapter 5 of Publication 946 under Recapture of Excess Depreciation. Form 1040x for 2012 Figuring the recapture amount. Form 1040x for 2012   To figure the amount to recapture, take the following steps. Form 1040x for 2012 Figure the allowable depreciation for the section 179 expense deduction you claimed. Form 1040x for 2012 Begin with the year you placed the property in service and include the year of recapture. Form 1040x for 2012 Subtract the depreciation figured in (1) from the section 179 expense deduction you actually claimed. Form 1040x for 2012 The result is the amount you must recapture. Form 1040x for 2012 Example. Form 1040x for 2012 In January 2011, Paul Lamb, a calendar year taxpayer, bought and placed in service section 179 property costing $10,000. Form 1040x for 2012 The property is not listed property. Form 1040x for 2012 He elected a $5,000 section 179 expense deduction for the property and also elected not to claim a special depreciation allowance. Form 1040x for 2012 He used the property only for business in 2011 and 2012. Form 1040x for 2012 During 2013, he used the property 40% for business and 60% for personal use. Form 1040x for 2012 He figures his recapture amount as follows. Form 1040x for 2012 Section 179 expense deduction claimed (2011) $5,000 Minus: Allowable depreciation (instead of section 179 expense deduction):   2011 $1,250   2012 1,875   2013 ($1,250 × 40% (business)) 500 3,625 2013 — Recapture amount $1,375     Paul must include $1,375 in income for 2013. Form 1040x for 2012 Where to report recapture. Form 1040x for 2012   Report any recapture of the section 179 expense deduction as ordinary income in Part IV of Form 4797 and include it in income on Schedule F (Form 1040). Form 1040x for 2012 Recapture for qualified section 179 GO Zone property. Form 1040x for 2012   If any qualified section 179 GO Zone property ceases to be used in the GO Zone in a later year, you must recapture the benefit of the increased section 179 expense deduction as “other income. Form 1040x for 2012 ” Claiming the Special Depreciation Allowance For qualified property (defined below) placed in service in 2013, you can take an additional 50% special depreciation allowance. Form 1040x for 2012 The allowance is an additional deduction you can take after any section 179 expense deduction and before you figure regular depreciation under MACRS. Form 1040x for 2012 Figure the special depreciation allowance by multiplying the depreciable basis of the qualified property by 50%. Form 1040x for 2012 What is Qualified Property? For farmers, qualified property generally is certain qualified property acquired after December 31, 2007, and placed in service before January 1, 2014. Form 1040x for 2012 Certain qualified property acquired after December 31, 2007, and placed in service before January 1, 2014. Form 1040x for 2012   Certain qualified property (defined below) acquired after December 31, 2007, and before January 1, 2014, is eligible for a 50% special depreciation allowance. Form 1040x for 2012   Qualified property includes the following: Tangible property depreciated under the Modified Accelerated Cost Recovery System (MACRS) with a recovery period of 20 years or less. Form 1040x for 2012 Water utility property. Form 1040x for 2012 Off-the-shelf computer software. Form 1040x for 2012 Qualified leasehold improvement property. Form 1040x for 2012   Qualified property must also meet all of the following tests: You must have acquired qualified property by purchase after December 31, 2007. Form 1040x for 2012 If a binding contract to acquire the property existed before January 1, 2008, the property does not qualify. Form 1040x for 2012 Qualified property must be placed in service after December 31, 2007 and placed in service before January 1, 2014 (before January 1, 2015 for certain property with a long production period and for certain aircraft). Form 1040x for 2012 The original use of the property must begin with you after December 31, 2007. Form 1040x for 2012 For more information, see chapter 3 of Publication 946. Form 1040x for 2012 How Can You Elect Not To Claim the Allowance? You can elect, for any class of property, not to deduct the special depreciation allowance for all property in such class placed in service during the tax year. Form 1040x for 2012 To make the election, attach a statement to your return indicating the class of property for which you are making the election. Form 1040x for 2012 Generally, you must make the election on a timely filed tax return (including extensions) for the year in which you place the property in service. Form 1040x for 2012 However, if you timely filed your return for the year without making the election, you still can make the election by filing an amended return within 6 months of the due date of the original return (not including extensions). Form 1040x for 2012 Attach the election statement to the amended return. Form 1040x for 2012 On the amended return, write “Filed pursuant to section 301. Form 1040x for 2012 9100-2. Form 1040x for 2012 ” Once made, the election may not be revoked without IRS consent. Form 1040x for 2012 If you elect not to have the special depreciation allowance apply, the property may be subject to an alternative minimum tax adjustment for depreciation. Form 1040x for 2012 When Must You Recapture an Allowance When you dispose of property for which you claimed a special depreciation allowance, any gain on the disposition is generally recaptured (included in income) as ordinary income up to the amount of the special depreciation allowance previously allowed or allowable. Form 1040x for 2012 For more information, see chapter 3 of Publication 946. Form 1040x for 2012 Figuring Depreciation Under MACRS The Modified Accelerated Cost Recovery System (MACRS) is used to recover the basis of most business and investment property placed in service after 1986. Form 1040x for 2012 MACRS consists of two depreciation systems, the General Depreciation System (GDS) and the Alternative Depreciation System (ADS). Form 1040x for 2012 Generally, these systems provide different methods and recovery periods to use in figuring depreciation deductions. Form 1040x for 2012 To be sure you can use MACRS to figure depreciation for your property, see Can You Use MACRS To Depreciate Your Property, earlier. Form 1040x for 2012 This part explains how to determine which MACRS depreciation system applies to your property. Form 1040x for 2012 It also discusses the following information that you need to know before you can figure depreciation under MACRS. Form 1040x for 2012 Property's recovery class. Form 1040x for 2012 Placed-in-service date. Form 1040x for 2012 Basis for depreciation. Form 1040x for 2012 Recovery period. Form 1040x for 2012 Convention. Form 1040x for 2012 Depreciation method. Form 1040x for 2012 Finally, this part explains how to use this information to figure your depreciation deduction. Form 1040x for 2012 Which Depreciation System (GDS or ADS) Applies? Your use of either the General Depreciation System (GDS) or the Alternative Depreciation System (ADS) to depreciate property under MACRS determines what depreciation method and recovery period you use. Form 1040x for 2012 You generally must use GDS unless you are specifically required by law to use ADS or you elect to use ADS. Form 1040x for 2012 Required use of ADS. Form 1040x for 2012   You must use ADS for the following property. Form 1040x for 2012 All property used predominantly in a farming business and placed in service in any tax year during which an election not to apply the uniform capitalization rules to certain farming costs is in effect. Form 1040x for 2012 Listed property used 50% or less in a qualified business use. Form 1040x for 2012 See Additional Rules for Listed Property , later. Form 1040x for 2012 Any tax-exempt use property. Form 1040x for 2012 Any tax-exempt bond-financed property. Form 1040x for 2012 Any property imported from a foreign country for which an Executive Order is in effect because the country maintains trade restrictions or engages in other discriminatory acts. Form 1040x for 2012 Any tangible property used predominantly outside the United States during the year. Form 1040x for 2012 If you are required to use ADS to depreciate your property, you cannot claim the special depreciation allowance. Form 1040x for 2012 Electing ADS. Form 1040x for 2012   Although your property may qualify for GDS, you can elect to use ADS. Form 1040x for 2012 The election generally must cover all property in the same property class you placed in service during the year. Form 1040x for 2012 However, the election for residential rental property and nonresidential real property can be made on a property-by-property basis. Form 1040x for 2012 Once you make this election, you can never revoke it. Form 1040x for 2012   You make the election by completing line 20 in Part III of Form 4562. Form 1040x for 2012 Which Property Class Applies Under GDS? The following is a list of the nine property classes under GDS. Form 1040x for 2012 3-year property. Form 1040x for 2012 5-year property. Form 1040x for 2012 7-year property. Form 1040x for 2012 10-year property. Form 1040x for 2012 15-year property. Form 1040x for 2012 20-year property. Form 1040x for 2012 25-year property. Form 1040x for 2012 Residential rental property. Form 1040x for 2012 Nonresidential real property. Form 1040x for 2012 See Which Property Class Applies Under GDS in chapter 4 of Publication 946 for examples of the types of property included in each class. Form 1040x for 2012 What Is the Placed-in-Service Date? You begin to claim depreciation when your property is placed in service for use either in a trade or business or for the production of income. Form 1040x for 2012 The placed-in-service date for your property is the date the property is ready and available for a specific use. Form 1040x for 2012 It is therefore not necessarily the date it is first used. Form 1040x for 2012 If you converted property held for personal use to use in a trade or business or for the production of income, treat the property as being placed in service on the conversion date. Form 1040x for 2012 See Placed in Service under When Does Depreciation Begin and End , earlier, for examples illustrating when property is placed in service. Form 1040x for 2012 What Is the Basis for Depreciation? The basis for depreciation of MACRS property is the property's cost or other basis multiplied by the percentage of business/investment use. Form 1040x for 2012 Reduce that amount by any credits and deductions allocable to the property. Form 1040x for 2012 The following are examples of some of the credits and deductions that reduce basis. Form 1040x for 2012 Any deduction for section 179 property. Form 1040x for 2012 Any deduction for removal of barriers to the disabled and the elderly. Form 1040x for 2012 Any disabled access credit, enhanced oil recovery credit, and credit for employer-provided childcare facilities and services. Form 1040x for 2012 Any special depreciation allowance. Form 1040x for 2012 Basis adjustment for investment credit property under section 50(c) of the Internal Revenue Code. Form 1040x for 2012 For information about how to determine the cost or other basis of property, see What Is the Basis of Your Depreciable Property , earlier. Form 1040x for 2012 Also, see chapter 6. Form 1040x for 2012 For additional credits and deductions that affect basis, see section 1016 of the Internal Revenue Code. Form 1040x for 2012 Which Recovery Period Applies? The recovery period of property is the number of years over which you recover its cost or other basis. Form 1040x for 2012 It is determined based on the depreciation system (GDS or ADS) used. Form 1040x for 2012 See Table 7-1 for recovery periods under both GDS and ADS for some commonly used assets. Form 1040x for 2012 For a complete list of recovery periods, see the Table of Class Lives and Recovery Periods in Appendix B of Publication 946. Form 1040x for 2012 House trailers for farm laborers. Form 1040x for 2012   To depreciate a house trailer you supply as housing for those who work on your farm, use one of the following recovery periods if the house trailer is mobile (it has wheels and a history of movement). Form 1040x for 2012 A 7-year recovery period under GDS. Form 1040x for 2012 A 10-year recovery period under ADS. Form 1040x for 2012   However, if the house trailer is not mobile (its wheels have been removed and permanent utilities and pipes attached to it), use one of the following recovery periods. Form 1040x for 2012 A 20-year recovery period under GDS. Form 1040x for 2012 A 25-year recovery period under ADS. Form 1040x for 2012 Water wells. Form 1040x for 2012   Water wells used to provide water for raising poultry and livestock are land improvements. Form 1040x for 2012 If they are depreciable, use one of the following recovery periods. Form 1040x for 2012 A 15-year recovery period under GDS. Form 1040x for 2012 A 20-year recovery period under ADS. Form 1040x for 2012   The types of water wells that can be depreciated were discussed earlier in Irrigation systems and water wells under Property Having a Determinable Useful Life . Form 1040x for 2012 Table 7-1. Form 1040x for 2012 Farm Property Recovery Periods   Recovery Period in Years Assets GDS ADS Agricultural structures (single purpose) 10 15 Automobiles 5 5 Calculators and copiers 5 6 Cattle (dairy or breeding) 5 7 Communication equipment1 7 10 Computer and peripheral equipment 5 5 Drainage facilities 15 20 Farm buildings2 20 25 Farm machinery and equipment 7 10 Fences (agricultural) 7 10 Goats and sheep (breeding) 5 5 Grain bin 7 10 Hogs (breeding) 3 3 Horses (age when placed in service)     Breeding and working (12 years or less) 7 10 Breeding and working (more than 12 years) 3 10 Racing horses 3 12 Horticultural structures (single purpose) 10 15 Logging machinery and equipment3 5 6 Nonresidential real property 394 40 Office furniture, fixtures, and equipment (not calculators, copiers, or typewriters) 7 10 Paved lots 15 20 Residential rental property 27. Form 1040x for 2012 5 40 Tractor units (over-the-road) 3 4 Trees or vines bearing fruit or nuts 10 20 Truck (heavy duty, unloaded weight 13,000 lbs. Form 1040x for 2012 or more) 5 6 Truck (actual weight less than 13,000 lbs) 5 5 Water wells 15 20 1 Not including communication equipment listed in other classes. Form 1040x for 2012 2 Not including single purpose agricultural or horticultural structures. Form 1040x for 2012 3 Used by logging and sawmill operators for cutting of timber. Form 1040x for 2012 4 For property placed in service after May 12, 1993; for property placed in service before May 13, 1993,  the recovery period is 31. Form 1040x for 2012 5 years. Form 1040x for 2012 Which Convention Applies? Under MACRS, averaging conventions establish when the recovery period begins and ends. Form 1040x for 2012 The convention you use determines the number of months for which you can claim depreciation in the year you place property in service and in the year you dispose of the property. Form 1040x for 2012 Use one of the following conventions. Form 1040x for 2012 The half-year convention. Form 1040x for 2012 The mid-month convention. Form 1040x for 2012 The mid-quarter convention. Form 1040x for 2012 For a detailed explanation of each convention, see Which Convention Applies in chapter 4 of Publication 946. Form 1040x for 2012 Also, see the Instructions for Form 4562. Form 1040x for 2012 Which Depreciation Method Applies? MACRS provides three depreciation methods under GDS and one depreciation method under ADS. Form 1040x for 2012 The 200% declining balance method over a GDS recovery period. Form 1040x for 2012 The 150% declining balance method over a GDS recovery period. Form 1040x for 2012 The straight line method over a GDS recovery period. Form 1040x for 2012 The straight line method over an ADS recovery period. Form 1040x for 2012 Depreciation Table. Form 1040x for 2012   The following table lists the types of property you can depreciate under each method. Form 1040x for 2012 The declining balance method is abbreviated as DB and the straight line method is abbreviated as SL. Form 1040x for 2012 Depreciation Table System/Method   Type of Property GDS using  150% DB • All property used in a farming business (except real property)   • All 15- and 20-year property   • Nonfarm 3-, 5-, 7-, and 10-year property1 GDS using SL • Nonresidential real property   • Residential rental property   • Trees or vines bearing fruit or nuts   • All 3-, 5-, 7-, 10-, 15-, and 20-year property1 ADS using SL • Property used predomi- nantly outside the United States   • Farm property used when an election not to apply the uniform capitalization rules is in effect   • Tax-exempt property   • Tax-exempt bond-financed property   • Imported property2   • Any property for which you elect to use this method1 GDS using  200% DB • Nonfarm 3-, 5-, 7-, and 10-year property 1Elective method 2See section 168(g)(6) of the Internal Revenue  Code Property used in farming business. Form 1040x for 2012   For personal property placed in service after 1988 in a farming business, you must use the 150% declining balance method over a GDS recovery period or you can elect one of the following methods. Form 1040x for 2012 The straight line method over a GDS recovery period. Form 1040x for 2012 The straight line method over an ADS recovery period. Form 1040x for 2012 For property placed in service before 1999, you could have elected to use the 150% declining balance method using the ADS recovery periods for certain property classes. Form 1040x for 2012 If you made this election, continue to use the same method and recovery period for that property. Form 1040x for 2012 Real property. Form 1040x for 2012   You can depreciate real property using the straight line method under either GDS or ADS. Form 1040x for 2012 Switching to straight line. Form 1040x for 2012   If you use a declining balance method, you switch to the straight line method in the year it provides an equal or greater deduction. Form 1040x for 2012 If you use the MACRS percentage tables, discussed later under How Is the Depreciation Deduction Figured , you do not need to determine in which year your deduction is greater using the straight line method. Form 1040x for 2012 The tables have the switch to the straight line method built into their rates. Form 1040x for 2012 Fruit or nut trees and vines. Form 1040x for 2012   Depreciate trees and vines bearing fruit or nuts under GDS using the straight line method over a 10-year recovery period. Form 1040x for 2012 ADS required for some farmers. Form 1040x for 2012   If you elect not to apply the uniform capitalization rules to any plant shown in Table 6-1 of chapter 6 and produced in your farming business, you must use ADS for all property you place in service in any year the election is in effect. Form 1040x for 2012 See chapter 6 for a discussion of the application of the uniform capitalization rules to farm property. Form 1040x for 2012 Electing a different method. Form 1040x for 2012   As shown in the Depreciation Table , you can elect a different method for depreciation for certain types of property. Form 1040x for 2012 You must make the election by the due date of the return (including extensions) for the year you placed the property in service. Form 1040x for 2012 However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of your return (excluding extensions). Form 1040x for 2012 Attach the election to the amended return and write “Filed pursuant to section 301. Form 1040x for 2012 9100-2” on the election statement. Form 1040x for 2012 File the amended return at the same address you filed the original return. Form 1040x for 2012 Once you make the election, you cannot change it. Form 1040x for 2012    If you elect to use a different method for one item in a property class, you must apply the same method to all property in that class placed in service during the year of the election. Form 1040x for 2012 However, you can make the election on a property-by-property basis for residential rental and nonresidential real property. Form 1040x for 2012 Straight line election. Form 1040x for 2012   Instead of using the declining balance method, you can elect to use the straight line method over the GDS recovery period. Form 1040x for 2012 Make the election by entering “S/L” under column (f) in Part III of Form 4562. Form 1040x for 2012 ADS election. Form 1040x for 2012   As explained earlier under Which Depreciation System (GDS or ADS) Applies , you can elect to use ADS even though your property may come under GDS. Form 1040x for 2012 ADS uses the straight line method of depreciation over the ADS recovery periods, which are generally longer than the GDS recovery periods. Form 1040x for 2012 The ADS recovery periods for many assets used in the business of farming are listed in Table 7–1. Form 1040x for 2012 Additional ADS recovery periods for other classes of property may be found in the Table of Class Lives and Recovery Periods in Appendix B of Publication 946. Form 1040x for 2012 How Is the Depreciation Deduction Figured? To figure your depreciation deduction under MACRS, you first determine the depreciation system, property class, placed-in-service date, basis amount, recovery period, convention, and depreciation method that applies to your property. Form 1040x for 2012 Then you are ready to figure your depreciation deduction. Form 1040x for 2012 You can figure it in one of two ways. Form 1040x for 2012 You can use the percentage tables provided by the IRS. Form 1040x for 2012 You can figure your own deduction without using the tables. Form 1040x for 2012 Figuring your own MACRS deduction will generally result in a slightly different amount than using the tables. Form 1040x for 2012 Using the MACRS Percentage Tables To help you figure your deduction under MACRS, the IRS has established percentage tables that incorporate the applicable convention and depreciation method. Form 1040x for 2012 These percentage tables are in Appendix A of Publication 946. Form 1040x for 2012 Rules for using the tables. Form 1040x for 2012   The following rules cover the use of the percentage tables. Form 1040x for 2012 You must apply the rates in the percentage tables to your property's unadjusted basis. Form 1040x for 2012 Unadjusted basis is the same basis amount you would use to figure gain on a sale but figured without reducing your original basis by any MACRS depreciation taken in earlier years. Form 1040x for 2012 You cannot use the percentage tables for a short tax year. Form 1040x for 2012 See chapter 4 of Publication 946 for information on how to figure the deduction for a short tax year. Form 1040x for 2012 You generally must continue to use them for the entire recovery period of the property. Form 1040x for 2012 You must stop using the tables if you adjust the basis of the property for any reason other than— Depreciation allowed or allowable, or An addition or improvement to the property, which is depreciated as a separate property. Form 1040x for 2012 Basis adjustment due to casualty loss. Form 1040x for 2012   If you reduce the basis of your property because of a casualty, you cannot continue to use the percentage tables. Form 1040x for 2012 For the year of the adjustment and the remaining recovery period, you must figure the depreciation yourself using the property's adjusted basis at the end of the year. Form 1040x for 2012 See Figuring the Deduction Without Using the Tables in chapter 4 of Publication 946. Form 1040x for 2012 Figuring depreciation using the 150% DB method and half-year convention. Form 1040x for 2012    Table 7-2 has the percentages for 3-, 5-, 7-, and 20-year property. Form 1040x for 2012 The percentages are based on the 150% declining balance method with a change to the straight line method. Form 1040x for 2012 This table covers only the half-year convention and the first 8 years for 20-year property. Form 1040x for 2012 See Appendix A in Publication 946 for complete MACRS tables, including tables for the mid-quarter and mid-month convention. Form 1040x for 2012   The following examples show how to figure depreciation under MACRS using the percentages in Table 7-2 . Form 1040x for 2012 Example 1. Form 1040x for 2012 During the year, you bought an item of 7-year property for $10,000 and placed it in service. Form 1040x for 2012 You do not elect a section 179 expense deduction for this property. Form 1040x for 2012 In addition, the property is not qualified property for purposes of the special depreciation allowance. Form 1040x for 2012 The unadjusted basis of the property is $10,000. Form 1040x for 2012 You use the percentages in Table 7-2 to figure your deduction. Form 1040x for 2012 Since this is 7-year property, you multiply $10,000 by 10. Form 1040x for 2012 71% to get this year's depreciation of $1,071. Form 1040x for 2012 For next year, your depreciation will be $1,913 ($10,000 × 19. Form 1040x for 2012 13%). Form 1040x for 2012 Example 2. Form 1040x for 2012 You had a barn constructed on your farm at a cost of $20,000. Form 1040x for 2012 You placed the barn in service this year. Form 1040x for 2012 You elect not to claim the special depreciation allowance. Form 1040x for 2012 The barn is 20-year property and you use the table percentages to figure your deduction. Form 1040x for 2012 You figure this year's depreciation by multiplying $20,000 (unadjusted basis) by 3. Form 1040x for 2012 75% to get $750. Form 1040x for 2012 For next year, your depreciation will be $1,443. Form 1040x for 2012 80 ($20,000 × 7. Form 1040x for 2012 219%). Form 1040x for 2012 Table 7-2. Form 1040x for 2012 150% Declining Balance Method (Half-Year Convention) Year 3-Year 5-Year 7-Year 20-Year 1 25. Form 1040x for 2012 0 % 15. Form 1040x for 2012 00 % 10. Form 1040x for 2012 71 % 3. Form 1040x for 2012 750 % 2 37. Form 1040x for 2012 5   25. Form 1040x for 2012 50   19. Form 1040x for 2012 13   7. Form 1040x for 2012 219   3 25. Form 1040x for 2012 0   17. Form 1040x for 2012 85   15. Form 1040x for 2012 03   6. Form 1040x for 2012 677   4 12. Form 1040x for 2012 5   16. Form 1040x for 2012 66   12. Form 1040x for 2012 25   6. Form 1040x for 2012 177   5     16. Form 1040x for 2012 66   12. Form 1040x for 2012 25   5. Form 1040x for 2012 713   6     8. Form 1040x for 2012 33   12. Form 1040x for 2012 25   5. Form 1040x for 2012 285   7         12. Form 1040x for 2012 25   4. Form 1040x for 2012 888   8         6. Form 1040x for 2012 13   4. Form 1040x for 2012 522   Figuring depreciation using the straight line method and half-year convention. Form 1040x for 2012   The following table has the straight line percentages for 3-, 5-, 7-, and 20-year property using the half-year convention. Form 1040x for 2012 The table covers only the first 8 years for 20-year property. Form 1040x for 2012 See Appendix A in Publication 946 for complete MACRS tables, including tables for the mid-quarter and mid-month convention. Form 1040x for 2012 Table 7-3. Form 1040x for 2012 Straight Line Method (Half-Year Convention) Year 3-Year 5-Year 7-Year 20-Year 1 16. Form 1040x for 2012 67 % 10 % 7. Form 1040x for 2012 14 % 2. Form 1040x for 2012 5 % 2 33. Form 1040x for 2012 33   20   14. Form 1040x for 2012 29   5. Form 1040x for 2012 0   3 33. Form 1040x for 2012 33   20   14. Form 1040x for 2012 29   5. Form 1040x for 2012 0   4 16. Form 1040x for 2012 67   20   14. Form 1040x for 2012 28   5. Form 1040x for 2012 0   5     20   14. Form 1040x for 2012 29   5. Form 1040x for 2012 0   6     10   14. Form 1040x for 2012 28   5. Form 1040x for 2012 0   7         14. Form 1040x for 2012 29   5. Form 1040x for 2012 0   8         7. Form 1040x for 2012 14   5. Form 1040x for 2012 0