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Free Federal And State Tax Filing For Students

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

The following questions and answers provide information to individuals of the same sex and opposite sex who are in registered domestic partnerships, civil unions or other similar formal relationships that are not marriages under state law. These individuals are not considered as married or spouses for federal tax purposes. For convenience, these individuals are referred to as “registered domestic partners” in these questions and answers. Questions and answers 9 through 27 concern registered domestic partners who reside in community property states and who are subject to their state’s community property laws. These questions and answers have been updated since the Supreme Court issued its decision in United States v. Windsor. As a result of the Court’s decision, the Service has ruled that same-sex couples who are married under state law are married for federal tax purposes. See Revenue Ruling 2013-17 in 2013‑38 IRB 201.

Q1. Can registered domestic partners file federal tax returns using a married filing jointly or married filing separately status?

A1. No. Registered domestic partners may not file a federal return using a married filing separately or jointly filing status. Registered domestic partners are not married under state law. Therefore, these taxpayers are not married for federal tax purposes.

Q2. Can a taxpayer use the head-of-household filing status if the taxpayer’s only dependent is his or her registered domestic partner?

A2. No. A taxpayer cannot file as head of household if the taxpayer’s only dependent is his or her registered domestic partner. A taxpayer’s registered domestic partner is not one of the specified related individuals in section 152(c) or (d) that qualifies the taxpayer to file as head of household, even if the registered domestic partner is the taxpayer’s dependent.

Q3. If registered domestic partners have a child, which parent may claim the child as a dependent?

A3. If a child is a qualifying child under section 152(c) of both parents who are registered domestic partners, either parent, but not both, may claim a dependency deduction for the qualifying child. If both parents claim a dependency deduction for the child on their income tax returns, the IRS will treat the child as the qualifying child of the parent with whom the child resides for the longer period of time during the taxable year. If the child resides with each parent for the same amount of time during the taxable year, the IRS will treat the child as the qualifying child of the parent with the higher adjusted gross income.

Q4. Can a registered domestic partner itemize deductions if his or her partner claims a standard deduction? 

A4. Yes. A registered domestic partner may itemize or claim the standard deduction regardless of whether his or her partner itemizes or claims the standard deduction. Although the law prohibits a taxpayer from itemizing deductions if the taxpayer’s spouse claims the standard deduction (section 63(c)(6)(A)), this provision does not apply to registered domestic partners, because registered domestic partners are not spouses for federal tax purposes.

Q5. If registered domestic partners adopt a child together, can one or both of the registered domestic partners qualify for the adoption credit?

A5. Yes. Each registered domestic partner may qualify to claim the adoption credit for the amount of the qualified adoption expenses paid for the adoption. The partners may not both claim a credit for the same qualified adoption expenses, and the sum of the credit taken by each registered domestic partner may not exceed the total amount paid. The adoption credit is limited to $12,970 per child in 2013. Thus, if both registered domestic partners paid qualified adoption expenses to adopt the same child, and the total of those expenses exceeds $12,970, the maximum credit available for the adoption is $12,970. The registered domestic partners may allocate this maximum between them in any way they agree, and the amount of credit claimed by one registered domestic partner can exceed the adoption expenses paid by that person, as long as the total credit claimed by both registered domestic partners does not exceed the total amount paid by them. The same rules generally apply in the case of a special needs adoption. 

Q6. If a taxpayer adopts the child of his or her registered domestic partner as a second parent or co-parent, may the taxpayer (“adopting parent”) claim the adoption credit for the qualifying adoption expenses he or she pays to adopt the child?

A6. Yes. The adopting parent may be eligible to claim an adoption credit. A taxpayer may not claim an adoption credit for the expenses of adopting the child of the taxpayer’s spouse (section 23) .  However, this limitation does not apply to adoptions by registered domestic partners because registered domestic partners are not spouses for federal tax purposes.

Q7. Do provisions of the federal tax law such as section 66 (treatment of community income) and section 469(i)(5) ($25,000 offset for passive activity losses for rental real estate activities) that apply to married taxpayers apply to registered domestic partners?

A7. No. Like other provisions of the federal tax law that apply only to married taxpayers, section 66 and section 469(i)(5) do not apply to registered domestic partners because registered domestic partners are not married for federal tax purposes.

Q8. Is a registered domestic partner the stepparent of his or her partner’s child?

A8. If a registered domestic partner is the stepparent of his or her partner’s child under state law, the registered domestic partner is the stepparent of the child for federal income tax purposes.


Publication 555, Community Property, provides general information for taxpayers, including registered domestic partners, who reside in community property states. The following questions and answers provide additional information to registered domestic partners (including same-sex and opposite-sex registered domestic partners) who reside in community property states and are subject to community property laws.

Q9. How do registered domestic partners determine their gross income?

A9. Registered domestic partners must each report half the combined community income earned by the partners.  In addition to half of the community income, a partner who has income that is not community income must report that separate income. 

Q10.  Can a registered domestic partner qualify to file his or her tax return using head-of-household filing status?

A10. Generally, to qualify as a head-of-household, a taxpayer must provide more than half the cost of maintaining his or her household during the taxable year, and that household must be the principal place of abode of the taxpayer’s dependent for more than half of the taxable year (section 2(b)). If registered domestic partners pay all of the costs of maintaining the household from community funds, each partner is considered to have incurred half the cost and neither can qualify as head of household. Even if one of the partners pays more than half by contributing separate funds, that partner cannot file as head of household if the only dependent is his or her registered domestic partner. A taxpayer’s registered domestic partner is not one of the specified related individuals in section 152(c) or (d) that qualifies the taxpayer to file as head of household, even if the partner is the taxpayer’s dependent.    

Q11. Can a registered domestic partner be a dependent of his or her partner for purposes of the dependency deduction under section 151?

A11. A registered domestic partner can be a dependent of his or her partner if the requirements of sections 151 and 152 are met. However, it is unlikely that registered domestic partners will satisfy the gross income requirement of section 152(d)(1)(B) and the support requirement of section 152(d)(1)(C). To satisfy the gross income requirement, the gross income of the individual claimed as a dependent must be less than the exemption amount ($3,900 for 2013). Because registered domestic partners each report half the combined community income earned by both partners, it is unlikely that a registered domestic partner will have gross income that is less than the exemption amount.   

To satisfy the support requirement, more than half of an individual’s support for the year must be provided by the person seeking the dependency deduction. If a registered domestic partner’s (Partner A’s) support comes entirely from community funds, that partner is considered to have provided half of his or her own support and cannot be claimed as a dependent by another. However, if the other registered domestic partner (Partner B) pays more than half of the support of Partner A by contributing separate funds, Partner A may be a dependent of Partner B for purposes of section 151, provided the other requirements of sections 151 and 152 are satisfied. 

Q12. Can a registered domestic partner be a dependent of his or her partner for purposes of the exclusion in section 105(b) for reimbursements of expenses for medical care?

A12. A registered domestic partner (Partner A) may be a dependent of his or her partner (Partner B) for purposes of the exclusion in section 105(b) only if the support requirement (discussed in Question 11, above) is satisfied. Unlike the requirements for section 152(d) (dependency deduction for a qualifying relative), section 105(b) does not require that Partner A's gross income be less than the exemption amount in order for Partner A to qualify as a dependent.                   

Q13. How should registered domestic partners report wages, other income items, and deductions on their federal income tax returns?

A13. Registered domestic partners should report wages, other income items, and deductions according to the instructions to Form 1040, U.S. Individual Income Tax Return, and related schedules, and Form 8958, Allocation of Tax Amounts Between Certain Individuals in Community Property States. Form 8958 is used to determine the allocation of tax amounts between registered domestic partners. Each partner must complete and attach Form 8958 to his or her Form 1040.

Q14. Should registered domestic partners report social security benefits as community income for federal tax purposes? 

A14. Generally, state law determines whether an item of income constitutes community income. Accordingly, if Social Security benefits are community income under state law, then they are also community income for federal income tax purposes. If Social Security benefits are not community income under state law, then they are not community income for federal income tax purposes. 

Q15. How should registered domestic partners report community income from a business on Schedule C, Profit or Loss From Business?

A15. Half of the income, deductions, and net earnings of a business operated by a registered domestic partner must be reported by each registered domestic partner on a Schedule C (or Schedule C-EZ). In addition, each registered domestic partner owes self-employment tax on half of the net earnings of the business. The self-employment tax rule under section 1402(a)(5) that overrides community income treatment and attributes the income, deductions, and net earnings to the spouse who carries on the trade or business does not apply to registered domestic partners.

Q16.  Are registered domestic partners each entitled to half of the credits for income tax withholding from the combined wages of the registered domestic partners?

A16. Yes. Because each registered domestic partner is taxed on half the combined community income earned by the partners, each is entitled to a credit for half of the income tax withheld on the combined wages.

Q17.  Are registered domestic partners each entitled to take credit for half of the total estimated tax payments paid by the partners?

A17. No. Unlike withholding credits, which are allowed to the person who is taxed on the income from which the tax is withheld, a registered domestic partner can take credit only for the estimated tax payments that he or she made.       

Q18. Are community property laws taken into account in determining earned income for purposes of the dependent care credit, the refundable portion of the child tax credit, the earned income credit, and the making work pay credit?   

A18. No. The federal tax laws governing these credits specifically provide that earned income is computed without regard to community property laws in determining the earned income amounts described in section 21(d) (dependent care credit), section 24(d) (the refundable portion of the child tax credit), section 32(a) (earned income credit), and section 36A(d) (making work pay credit).

Q19. Are community property laws taken into account in determining adjusted gross income (or modified adjusted gross income) for purposes of the dependent care credit, the child tax credit, the earned income credit, and the making work pay credit?

A19. Yes. Community property laws must be taken into account in determining the adjusted gross income (or modified adjusted gross income) amounts in section 21(a) (dependent care credit), section 24(b) (child tax credit), section 32(a) (earned income credit), and section 36A(b) (making work pay credit).

Q20. Are amounts a registered domestic partner receives for education expenses that cannot be excluded from the partner’s gross income (includible education benefits) considered to be community income? 

A20. Generally, state law determines whether an item of income constitutes community income. Accordingly, whether includible education benefits are community income for federal income tax purposes depends on whether they are community income under state law. If the includible education benefits are community income under state law, then they are community income for federal income tax purposes. If not community income under state law, they are not community income for federal income tax purposes. 

Q21. If only one registered domestic partner is a teacher and pays qualified out-of-pocket educator expenses from community funds, do the registered domestic partners split the educator expense deduction?

A21. No. Section 62(a)(2)(D) allows only eligible educators to take a deduction for qualified out-of-pocket educator expenses. If only one registered domestic partner is an eligible educator (the eligible partner), then only the eligible partner may claim a section 62(a)(2)(D) deduction. If the eligible partner uses community funds to pay educator expenses, the eligible partner may determine the deduction as if he or she made the entire expenditure. In that case, the eligible partner has received a gift from his or her partner equal to one-half of the expenditure.  

Q22. If a registered domestic partner incurs indebtedness for his or her qualified education expenses or the expenses of a dependent and pays interest on the indebtedness out of community funds, do the registered domestic partners split the interest deduction?

A22. No. To be a qualified education loan, the indebtedness must be incurred by a taxpayer to pay the qualified education expenses of the taxpayer, the taxpayer’s spouse, or a dependent of the taxpayer (section 221(d)(1)). Thus, only the partner who incurs debt to pay his or her own education expenses or the expenses of a dependent may deduct interest on a qualified education loan (the student partner). If the student partner uses community funds to pay the interest on the qualified education loan, the student partner may determine the deduction as if he or she made the entire expenditure. In that case, the student partner has received a gift from his or her partner equal to one-half of the expenditure. 

Q23.  If registered domestic partners pay the qualified educational expenses of one of the partners or a dependent of one of the partners with community funds, do the registered domestic partners split the section 25A credits (education credits)?

A23. No. Only the partner who pays his or her own education expenses or the expenses of his or her dependent is eligible for an education credit (the student partner). If the student partner uses community funds to pay the education expenses, the student partner may determine the credit as if he or she made the entire expenditure. In that case, the student partner has received a gift from his or her partner equal to one-half of the expenditure. Similarly, if the student partner is allowed a deduction under section 222 (deduction for qualified tuition and related expenses), and uses community funds to pay the education expenses, the student partner may determine the qualified tuition expense deduction as if he or she made the entire expenditure. In that case, the student partner has received a gift from his or her partner equal to one-half of the expenditure.     

Q24. Are community property laws taken into account in determining compensation for purposes of the IRA deduction?

A24. No. The federal tax laws governing the IRA deduction (section 219(f)(2)) specifically provide that the maximum IRA deduction (under section 219(b)) is computed separately for each individual, and that these IRA deduction rules are applied without regard to any community property laws. Thus, each individual determines whether he or she is eligible for an IRA deduction by computing his or her individual compensation (determined without application of community property laws). 

Q25. If a registered domestic partner is self-employed and pays health insurance premiums for both partners out of community property funds, are both partners allowed a deduction under section 162(l) (deduction for self-employed health insurance)?

A25. If one of the registered domestic partners is a self-employed individual treated as an employee within the meaning of section 401(c)(1)(the employee partner) and the other partner is not (the non-employee partner), the employee partner may be allowed a deduction under section 162(l) for the cost of the employee partner’s health insurance paid out of community funds. If the non-employee partner is also covered by the health insurance, the portion of the cost attributable to the non-employee partner’s coverage is not deductible by either the employee partner or the non-employee partner under section 162(l).  

Q26. If a registered domestic partner has a dependent and incurs employment-related expenses that are paid out of community funds, how does the registered domestic partner calculate the dependent care credit?  How about the child tax credit?

A26. If a registered domestic partner has a qualifying individual as defined in section 21(b)(1) and incurs employment-related expenses as defined in section 21(b)(2) for the care of the qualifying individual that are paid with community funds, the partner (employee partner) may determine the dependent care credit as if he or she made the entire expenditure. In that case, the employee partner has received a gift from his or her partner equal to one-half of the expenditure. In computing the dependent care credit, the following rules apply:

  • The employee partner must reduce the employment-related expenses by any amounts he or she excludes from income under section 129 (exclusion for employees for dependent care assistance furnished pursuant to a program described in section 129(d));
  • The earned income limitation described in section 21(d) is determined without regard to community property laws; and
  • The adjusted gross income of the employee partner is determined by taking into account community property laws.

A child tax credit is allowed for each qualifying child of a taxpayer for whom the taxpayer is allowed a personal exemption deduction. Thus, if a registered domestic partner has one or more dependents who is a qualifying child, the registered domestic partner may be allowed a child tax credit for each qualifying child. In determining the amount of the allowable credit, the modified adjusted gross income of the registered domestic partner with the qualifying child is determined by taking into account community property laws. Community property laws are ignored, however, in determining the refundable portion of the child tax credit.

Q27. Does Rev. Proc. 2002-69, 2002-2 C.B. 831, apply to registered domestic partners?

A27. No. Rev. Proc. 2002-69 allows spouses to classify certain entities solely owned by the spouses as community property, as either a disregarded entity or a partnership for federal tax purposes. Rev. Proc. 2002-69 applies only to spouses. Because registered domestic partners are not spouses for federal tax purposes, Rev. Proc. 2002-69 does not apply to registered domestic partners.

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