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Freefilefillableforms com Publication 503 - Introductory Material Table of Contents Future Developments Reminders IntroductionOrdering forms and publications. Freefilefillableforms com Tax questions. Freefilefillableforms com Useful Items - You may want to see: Future Developments For the latest information about developments related to Publication 503, such as legislation enacted after it was published, go to www. Freefilefillableforms com irs. Freefilefillableforms com gov/pub503. Freefilefillableforms com Reminders Taxpayer identification number needed for each qualifying person. Freefilefillableforms com  You must include on line 2 of Form 2441, Child and Dependent Care Expenses, the name and taxpayer identification number (generally the social security number) of each qualifying person. Freefilefillableforms com See Taxpayer identification number under Qualifying Person Test, later. Freefilefillableforms com You may have to pay employment taxes. Freefilefillableforms com  If you pay someone to come to your home and care for your dependent or spouse, you may be a household employer who has to pay employment taxes. Freefilefillableforms com Usually, you are not a household employer if the person who cares for your dependent or spouse does so at his or her home or place of business. Freefilefillableforms com See Employment Taxes for Household Employers, later. Freefilefillableforms com Photographs of missing children. Freefilefillableforms com  The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Freefilefillableforms com Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. Freefilefillableforms com You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. Freefilefillableforms com Introduction This publication explains the tests you must meet to claim the credit for child and dependent care expenses. Freefilefillableforms com It explains how to figure and claim the credit. Freefilefillableforms com You may be able to claim the credit if you pay someone to care for your dependent who is under age 13 or for your spouse or dependent who is not able to care for himself or herself. Freefilefillableforms com The credit can be up to 35% of your expenses. Freefilefillableforms com To qualify, you must pay these expenses so you can work or look for work. Freefilefillableforms com This publication also discusses some of the employment tax rules for household employers. Freefilefillableforms com Dependent care benefits. Freefilefillableforms com   If you received any dependent care benefits from your employer during the year, you may be able to exclude from your income all or part of them. Freefilefillableforms com You must complete Form 2441, Part III, before you can figure the amount of your credit. Freefilefillableforms com See Dependent Care Benefits under How To Figure the Credit, later. Freefilefillableforms com Comments and suggestions. Freefilefillableforms com   We welcome your comments about this publication and your suggestions for future editions. Freefilefillableforms com   You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. Freefilefillableforms com NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. Freefilefillableforms com Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Freefilefillableforms com   You can send your comments from www. Freefilefillableforms com irs. Freefilefillableforms com gov/formspubs/. Freefilefillableforms com Click on “More Information” and then on “Comment on Tax Forms and Publications. Freefilefillableforms com ”   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. Freefilefillableforms com Ordering forms and publications. Freefilefillableforms com   Visit www. Freefilefillableforms com irs. Freefilefillableforms com gov/formspubs/ to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received. Freefilefillableforms com Internal Revenue Service 1201 N. Freefilefillableforms com Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. Freefilefillableforms com   If you have a tax question, check the information available on IRS. Freefilefillableforms com gov or call 1-800-829-1040. Freefilefillableforms com We cannot answer tax questions sent to either of the above addresses. Freefilefillableforms com Useful Items - You may want to see: Publication 501 Exemptions, Standard Deduction, and Filing Information 926 Household Employer's Tax Guide Form (and Instructions) 2441 Child and Dependent Care Expenses Schedule H (Form 1040) Household Employment Taxes W-10 Dependent Care Provider's Identification and Certification See How To Get Tax Help , near the end of this publication, for information about getting these publications and forms. Freefilefillableforms com Prev  Up  Next   Home   More Online Publications
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Freefilefillableforms com 7. Freefilefillableforms com   Depreciation, Depletion, and Amortization Table of Contents What's New for 2013 Introduction Topics - This chapter discusses: Useful Items - You may want to see: Overview of DepreciationWhat Property Can Be Depreciated? What Property Cannot Be Depreciated? When Does Depreciation Begin and End? Can You Use MACRS To Depreciate Your Property? What Is the Basis of Your Depreciable Property? How Do You Treat Repairs and Improvements? Do You Have To File Form 4562? How Do You Correct Depreciation Deductions? Section 179 Expense DeductionWhat Property Qualifies? What Property Does Not Qualify? How Much Can You Deduct? How Do You Elect the Deduction? When Must You Recapture the Deduction? Claiming the Special Depreciation AllowanceWhat is Qualified Property? How Can You Elect Not To Claim the Allowance? When Must You Recapture an Allowance Figuring Depreciation Under MACRSWhich Depreciation System (GDS or ADS) Applies? Which Property Class Applies Under GDS? What Is the Placed-in-Service Date? What Is the Basis for Depreciation? Which Recovery Period Applies? Which Convention Applies? Which Depreciation Method Applies? How Is the Depreciation Deduction Figured? How Do You Use General Asset Accounts? When Do You Recapture MACRS Depreciation? Additional Rules for Listed PropertyWhat Is Listed Property? What Is the Business-Use Requirement? Do the Passenger Automobile Limits Apply? Depletion Who Can Claim Depletion? Figuring Depletion AmortizationBusiness Start-Up Costs Reforestation Costs Section 197 Intangibles What's New for 2013 Increased section 179 expense deduction dollar limits. Freefilefillableforms com  The maximum amount you can elect to deduct for most section 179 property you placed in service in 2013 is $500,000. Freefilefillableforms com This limit is reduced by the amount by which the cost of the property placed in service during the tax year exceeds $2 million. Freefilefillableforms com See Dollar Limits under Section 179 Expense Deduction , later. Freefilefillableforms com Extension of special depreciation allowance for certain qualified property acquired after December 31, 2007. Freefilefillableforms com . Freefilefillableforms com  You may be able to take a 50% special depreciation allowance for certain qualified property acquired after December 31, 2007, and placed in service before January 1, 2014. Freefilefillableforms com See Claiming the Special Depreciation Allowance , later. Freefilefillableforms com Expiration of the 3- year recovery period for certain race horses. Freefilefillableforms com  The 3-year recovery period for race horses two years old or younger will expire for such horses placed in service after December 31, 2013. Freefilefillableforms com Introduction If you buy or make improvements to farm property such as machinery, equipment, livestock, or a structure with a useful life of more than a year, you generally cannot deduct its entire cost in one year. Freefilefillableforms com Instead, you must spread the cost over the time you use the property and deduct part of it each year. Freefilefillableforms com For most types of property, this is called depreciation. Freefilefillableforms com This chapter gives information on depreciation methods that generally apply to property placed in service after 1986. Freefilefillableforms com For information on depreciating pre-1987 property, see Publication 534, Depreciating Property Placed in Service Before 1987. Freefilefillableforms com Topics - This chapter discusses: Overview of depreciation Section 179 expense deduction Special depreciation allowance Modified Accelerated Cost Recovery System (MACRS) Listed property Basic information on cost depletion (including timber depletion) and percentage depletion Amortization of the costs of going into business, reforestation costs, the costs of pollution control facilities, and the costs of section 197 intangibles Useful Items - You may want to see: Publication 463 Travel, Entertainment, Gift, and Car Expenses 534 Depreciating Property Placed in Service Before 1987 535 Business Expenses 544 Sales and Other Dispositions of Assets 551 Basis of Assets 946 How To Depreciate Property Form (and Instructions) T (Timber), Forest Activities Schedule 3115 Application for Change in Accounting Method 4562 Depreciation and Amortization 4797 Sales of Business Property See chapter 16 for information about getting publications and forms. Freefilefillableforms com It is important to keep good records for property you depreciate. Freefilefillableforms com Do not file these records with your return. Freefilefillableforms com Instead, you should keep them as part of the permanent records of the depreciated property. Freefilefillableforms com They will help you verify the accuracy of the depreciation of assets placed in service in the current and previous tax years. Freefilefillableforms com For general information on recordkeeping, see Publication 583, Starting a Business and Keeping Records. Freefilefillableforms com For specific information on keeping records for section 179 property and listed property, see Publication 946, How To Depreciate Property. Freefilefillableforms com Overview of Depreciation This overview discusses basic information on the following. Freefilefillableforms com What property can be depreciated. Freefilefillableforms com What property cannot be depreciated. Freefilefillableforms com When depreciation begins and ends. Freefilefillableforms com Whether MACRS can be used to figure depreciation. Freefilefillableforms com What is the basis of your depreciable property. Freefilefillableforms com How to treat repairs and improvements. Freefilefillableforms com When you must file Form 4562. Freefilefillableforms com How you can correct depreciation claimed incorrectly. Freefilefillableforms com What Property Can Be Depreciated? You can depreciate most types of tangible property (except land), such as buildings, machinery, equipment, vehicles, certain livestock, and furniture. Freefilefillableforms com You can also depreciate certain intangible property, such as copyrights, patents, and computer software. Freefilefillableforms com To be depreciable, the property must meet all the following requirements. Freefilefillableforms com It must be property you own. Freefilefillableforms com It must be used in your business or income-producing activity. Freefilefillableforms com It must have a determinable useful life. Freefilefillableforms com It must have a useful life that extends substantially beyond the year you place it in service. Freefilefillableforms com Property You Own To claim depreciation, you usually must be the owner of the property. Freefilefillableforms com You are considered as owning property even if it is subject to a debt. Freefilefillableforms com Leased property. Freefilefillableforms com   You can depreciate leased property only if you retain the incidents of ownership in the property. Freefilefillableforms com This means you bear the burden of exhaustion of the capital investment in the property. Freefilefillableforms com Therefore, if you lease property from someone to use in your trade or business or for the production of income, you generally cannot depreciate its cost because you do not retain the incidents of ownership. Freefilefillableforms com You can, however, depreciate any capital improvements you make to the leased property. Freefilefillableforms com See Additions and Improvements under Which Recovery Period Applies in chapter 4 of Publication 946. Freefilefillableforms com   If you lease property to someone, you generally can depreciate its cost even if the lessee (the person leasing from you) has agreed to preserve, replace, renew, and maintain the property. Freefilefillableforms com However, you cannot depreciate the cost of the property if the lease provides that the lessee is to maintain the property and return to you the same property or its equivalent in value at the expiration of the lease in as good condition and value as when leased. Freefilefillableforms com Life tenant. Freefilefillableforms com   Generally, if you hold business or investment property as a life tenant, you can depreciate it as if you were the absolute owner of the property. Freefilefillableforms com See Certain term interests in property , later, for an exception. Freefilefillableforms com Property Used in Your Business or Income-Producing Activity To claim depreciation on property, you must use it in your business or income-producing activity. Freefilefillableforms com If you use property to produce income (investment use), the income must be taxable. Freefilefillableforms com You cannot depreciate property that you use solely for personal activities. Freefilefillableforms com However, if you use property for business or investment purposes and for personal purposes, you can deduct depreciation based only on the percentage of business or investment use. Freefilefillableforms com Example 1. Freefilefillableforms com   If you use your car for farm business, you can deduct depreciation based on its percentage of use in farming. Freefilefillableforms com If you also use it for investment purposes, you can depreciate it based on its percentage of investment use. Freefilefillableforms com Example 2. Freefilefillableforms com   If you use part of your home for business, you may be able to deduct depreciation on that part based on its business use. Freefilefillableforms com For more information, see Business Use of Your Home in chapter 4. Freefilefillableforms com Inventory. Freefilefillableforms com   You can never depreciate inventory because it is not held for use in your business. Freefilefillableforms com Inventory is any property you hold primarily for sale to customers in the ordinary course of your business. Freefilefillableforms com Livestock. Freefilefillableforms com   Livestock purchased for draft, breeding, or dairy purposes can be depreciated only if they are not kept in an inventory account. Freefilefillableforms com Livestock you raise usually has no depreciable basis because the costs of raising them are deducted and not added to their basis. Freefilefillableforms com However, see Immature livestock under When Does Depreciation Begin and End , later, for a special rule. Freefilefillableforms com Property Having a Determinable Useful Life To be depreciable, your property must have a determinable useful life. Freefilefillableforms com This means it must be something that wears out, decays, gets used up, becomes obsolete, or loses its value from natural causes. Freefilefillableforms com Irrigation systems and water wells. Freefilefillableforms com   Irrigation systems and wells used in a trade or business can be depreciated if their useful life can be determined. Freefilefillableforms com You can depreciate irrigation systems and wells composed of masonry, concrete, tile, metal, or wood. Freefilefillableforms com In addition, you can depreciate costs for moving dirt to construct irrigation systems and water wells composed of these materials. Freefilefillableforms com However, land preparation costs for center pivot irrigation systems are not depreciable. Freefilefillableforms com Dams, ponds, and terraces. Freefilefillableforms com   In general, you cannot depreciate earthen dams, ponds, and terraces unless the structures have a determinable useful life. Freefilefillableforms com What Property Cannot Be Depreciated? Certain property cannot be depreciated, even if the requirements explained earlier are met. Freefilefillableforms com This includes the following. Freefilefillableforms com Land. Freefilefillableforms com You can never depreciate the cost of land because land does not wear out, become obsolete, or get used up. Freefilefillableforms com The cost of land generally includes the cost of clearing, grading, planting, and landscaping. Freefilefillableforms com Although you cannot depreciate land, you can depreciate certain costs incurred in preparing land for business use. Freefilefillableforms com See chapter 1 of Publication 946. Freefilefillableforms com Property placed in service and disposed of in the same year. Freefilefillableforms com Determining when property is placed in service is explained later. Freefilefillableforms com Equipment used to build capital improvements. Freefilefillableforms com You must add otherwise allowable depreciation on the equipment during the period of construction to the basis of your improvements. Freefilefillableforms com Intangible property such as section 197 intangibles. Freefilefillableforms com This property does not have a determinable useful life and generally cannot be depreciated. Freefilefillableforms com However, see Amortization , later. Freefilefillableforms com Special rules apply to computer software (discussed below). Freefilefillableforms com Certain term interests (discussed below). Freefilefillableforms com Computer software. Freefilefillableforms com   Computer software is generally not a section 197 intangible even if acquired in connection with the acquisition of a business, if it meets all of the following tests. Freefilefillableforms com It is readily available for purchase by the general public. Freefilefillableforms com It is subject to a nonexclusive license. Freefilefillableforms com It has not been substantially modified. Freefilefillableforms com   If the software meets the tests above, it can be depreciated and may qualify for the section 179 expense deduction and the special depreciation allowance (if applicable), discussed later. Freefilefillableforms com Certain term interests in property. Freefilefillableforms com   You cannot depreciate a term interest in property created or acquired after July 27, 1989, for any period during which the remainder interest is held, directly or indirectly, by a person related to you. Freefilefillableforms com This rule does not apply to the holder of a term interest in property acquired by gift, bequest, or inheritance. Freefilefillableforms com For more information, see chapter 1 of Publication 946. Freefilefillableforms com When Does Depreciation Begin and End? You begin to depreciate your property when you place it in service for use in your trade or business or for the production of income. Freefilefillableforms com You stop depreciating property either when you have fully recovered your cost or other basis or when you retire it from service, whichever happens first. Freefilefillableforms com Placed in Service Property is placed in service when it is ready and available for a specific use, whether in a business activity, an income-producing activity, a tax-exempt activity, or a personal activity. Freefilefillableforms com Even if you are not using the property, it is in service when it is ready and available for its specific use. Freefilefillableforms com Example. Freefilefillableforms com You bought a planter for use in your farm business. Freefilefillableforms com The planter was delivered in December 2012 after harvest was over. Freefilefillableforms com You begin to depreciate the planter for 2012 because it was ready and available for its specific use in 2012, even though it will not be used until the spring of 2013. Freefilefillableforms com If your planter comes unassembled in December 2012 and is put together in February 2013, it is not placed in service until 2013. Freefilefillableforms com You begin to depreciate it in 2013. Freefilefillableforms com If your planter was delivered and assembled in February 2013 but not used until April 2013, it is placed in service in February 2013, because this is when the planter was ready for its specified use. Freefilefillableforms com You begin to depreciate it in 2013. Freefilefillableforms com Fruit or nut trees and vines. Freefilefillableforms com   If you acquire an orchard, grove, or vineyard before the trees or vines have reached the income-producing stage, and they have a preproductive period of more than 2 years, you must capitalize the preproductive-period costs under the uniform capitalization rules (unless you elect not to use these rules). Freefilefillableforms com See chapter 6 for information about the uniform capitalization rules. Freefilefillableforms com Your depreciation begins when the trees and vines reach the income-producing stage (that is, when they bear fruit, nuts, or grapes in quantities sufficient to commercially warrant harvesting). Freefilefillableforms com Immature livestock. Freefilefillableforms com   Depreciation for livestock begins when the livestock reaches the age of maturity. Freefilefillableforms com If you bought immature livestock for drafting purposes, depreciation begins when they can be worked. Freefilefillableforms com If you bought immature livestock for dairy purposes, depreciation begins when they can be milked. Freefilefillableforms com If you bought immature livestock for breeding purposes, depreciation begins when they can be bred. Freefilefillableforms com Your basis for depreciation is your initial cost for the immature livestock. Freefilefillableforms com Idle Property Continue to claim a deduction for depreciation on property used in your business or for the production of income even if it is temporarily idle. Freefilefillableforms com For example, if you stop using a machine because there is a temporary lack of a market for a product made with that machine, continue to deduct depreciation on the machine. Freefilefillableforms com Cost or Other Basis Fully Recovered You stop depreciating property when you have fully recovered your cost or other basis. Freefilefillableforms com This happens when your section 179 and allowed or allowable depreciation deductions equal your cost or investment in the property. Freefilefillableforms com Retired From Service You stop depreciating property when you retire it from service, even if you have not fully recovered its cost or other basis. Freefilefillableforms com You retire property from service when you permanently withdraw it from use in a trade or business or from use in the production of income because of any of the following events. Freefilefillableforms com You sell or exchange the property. Freefilefillableforms com You convert the property to personal use. Freefilefillableforms com You abandon the property. Freefilefillableforms com You transfer the property to a supplies or scrap account. Freefilefillableforms com The property is destroyed. Freefilefillableforms com For information on abandonment of property, see chapter 8. Freefilefillableforms com For information on destroyed property, see chapter 11 and Publication 547, Casualties, Disasters, and Thefts. Freefilefillableforms com Can You Use MACRS To Depreciate Your Property? You must use the Modified Accelerated Cost Recovery System (MACRS) to depreciate most business and investment property placed in service after 1986. Freefilefillableforms com MACRS is explained later under Figuring Depreciation Under MACRS . Freefilefillableforms com You cannot use MACRS to depreciate the following property. Freefilefillableforms com Property you placed in service before 1987. Freefilefillableforms com Use the methods discussed in Publication 534. Freefilefillableforms com Certain property owned or used in 1986. Freefilefillableforms com See chapter 1 of Publication 946. Freefilefillableforms com Intangible property. Freefilefillableforms com Films, video tapes, and recordings. Freefilefillableforms com Certain corporate or partnership property acquired in a nontaxable transfer. Freefilefillableforms com Property you elected to exclude from MACRS. Freefilefillableforms com For more information, see chapter 1 of Publication 946. Freefilefillableforms com What Is the Basis of Your Depreciable Property? To figure your depreciation deduction, you must determine the basis of your property. Freefilefillableforms com To determine basis, you need to know the cost or other basis of your property. Freefilefillableforms com Cost or other basis. Freefilefillableforms com   The basis of property you buy is usually its cost plus amounts you paid for items such as sales tax, freight charges, and installation and testing fees. Freefilefillableforms com The cost includes the amount you pay in cash, debt obligations, other property, or services. Freefilefillableforms com   There are times when you cannot use cost as basis. Freefilefillableforms com In these situations, the fair market value (FMV) or the adjusted basis of the property may be used. Freefilefillableforms com Adjusted basis. Freefilefillableforms com   To find your property's basis for depreciation, you may have to make certain adjustments (increases and decreases) to the basis of the property for events occurring between the time you acquired the property and the time you placed it in service. Freefilefillableforms com Basis adjustment for depreciation allowed or allowable. Freefilefillableforms com   After you place your property in service, you must reduce the basis of the property by the depreciation allowed or allowable, whichever is greater. Freefilefillableforms com Depreciation allowed is depreciation you actually deducted (from which you received a tax benefit). Freefilefillableforms com Depreciation allowable is depreciation you are entitled to deduct. Freefilefillableforms com   If you do not claim depreciation you are entitled to deduct, you must still reduce the basis of the property by the full amount of depreciation allowable. Freefilefillableforms com   If you deduct more depreciation than you should, you must reduce your basis by any amount deducted from which you received a tax benefit (the depreciation allowed). Freefilefillableforms com   For more information, see chapter 6. Freefilefillableforms com How Do You Treat Repairs and Improvements? You generally deduct the cost of repairing business property in the same way as any other business expense. Freefilefillableforms com However, if a repair or replacement increases the value of your property, makes it more useful, or lengthens its life, you must treat it as an improvement and depreciate it. Freefilefillableforms com Treat improvements as separate depreciable property. Freefilefillableforms com See chapter 1 of Publication 946 for more information. Freefilefillableforms com Example. Freefilefillableforms com You repair a small section on a corner of the roof of a barn that you rent to others. Freefilefillableforms com You deduct the cost of the repair as a business expense. Freefilefillableforms com However, if you replace the entire roof, the new roof is considered to be an improvement because it increases the value and lengthens the life for the property. Freefilefillableforms com You depreciate the cost of the new roof. Freefilefillableforms com Improvements to rented property. Freefilefillableforms com   You can depreciate permanent improvements you make to business property you rent from someone else. Freefilefillableforms com Do You Have To File Form 4562? Use Form 4562 to claim your deduction for depreciation and amortization. Freefilefillableforms com You must complete and attach Form 4562 to your tax return if you are claiming any of the following. Freefilefillableforms com A section 179 expense deduction for the current year or a section 179 carryover from a prior year. Freefilefillableforms com Depreciation for property placed in service during the current year. Freefilefillableforms com Depreciation on any vehicle or other listed property, regardless of when it was placed in service. Freefilefillableforms com Amortization of costs that began in the current year. Freefilefillableforms com For more information, see the Instructions for Form 4562. Freefilefillableforms com How Do You Correct Depreciation Deductions? If you deducted an incorrect amount of depreciation in any year, you may be able to make a correction by filing an amended return for that year. Freefilefillableforms com You can file an amended return to correct the amount of depreciation claimed for any property in any of the following situations. Freefilefillableforms com You claimed the incorrect amount because of a mathematical error made in any year. Freefilefillableforms com You claimed the incorrect amount because of a posting error made in any year, for example, omitting an asset from the depreciation schedule. Freefilefillableforms com You have not adopted a method of accounting for the property placed in service by you in tax years ending after December 29, 2003. Freefilefillableforms com You claimed the incorrect amount on property placed in service by you in tax years ending before December 30, 2003. Freefilefillableforms com Note. Freefilefillableforms com You have adopted a method of accounting if you used the same incorrect method of depreciation for two or more consecutively filed returns. Freefilefillableforms com If you are not allowed to make the correction on an amended return, you may be able to change your accounting method to claim the correct amount of depreciation. Freefilefillableforms com See the Instructions for Form 3115. Freefilefillableforms com Section 179 Expense Deduction You can elect to recover all or part of the cost of certain qualifying property, up to a limit, by deducting it in the year you place the property in service. Freefilefillableforms com This is the section 179 expense deduction. Freefilefillableforms com You can elect the section 179 expense deduction instead of recovering the cost by taking depreciation deductions. Freefilefillableforms com This part of the chapter explains the rules for the section 179 expense deduction. Freefilefillableforms com It explains what property qualifies for the deduction, what property does not qualify for the deduction, the limits that may apply, how to elect the deduction, and when you may have to recapture the deduction. Freefilefillableforms com For more information, see chapter 2 of Publication 946. Freefilefillableforms com What Property Qualifies? To qualify for the section 179 expense deduction, your property must meet all the following requirements. Freefilefillableforms com It must be eligible property. Freefilefillableforms com It must be acquired for business use. Freefilefillableforms com It must have been acquired by purchase. Freefilefillableforms com Eligible Property To qualify for the section 179 expense deduction, your property must be one of the following types of depreciable property. Freefilefillableforms com Tangible personal property. Freefilefillableforms com Qualified real property. Freefilefillableforms com (Special rules apply to qualified real property that you elect to treat as qualified section 179 real property. Freefilefillableforms com For more information, see chapter 2 of Publication 946 and section 179(f) of the Internal Revenue Code. Freefilefillableforms com ) Other tangible property (except buildings and their structural components) used as: An integral part of manufacturing, production, or extraction or of furnishing transportation, communications, electricity, gas, water, or sewage disposal services; A research facility used in connection with any of the activities in (a) above; or A facility used in connection with any of the activities in (a) for the bulk storage of fungible commodities. Freefilefillableforms com Single purpose agricultural (livestock) or horticultural structures. Freefilefillableforms com Storage facilities (except buildings and their structural components) used in connection with distributing petroleum or any primary product of petroleum. Freefilefillableforms com Off-the-shelf computer software that is readily available for purchase by the general public, is subject to a nonexclusive lease, and has not been substantially modified. Freefilefillableforms com Tangible personal property. Freefilefillableforms com   Tangible personal property is any tangible property that is not real property. Freefilefillableforms com It includes the following property. Freefilefillableforms com Machinery and equipment. Freefilefillableforms com Property contained in or attached to a building (other than structural components), such as milk tanks, automatic feeders, barn cleaners, and office equipment. Freefilefillableforms com Gasoline storage tanks and pumps at retail service stations. Freefilefillableforms com Livestock, including horses, cattle, hogs, sheep, goats, and mink and other fur-bearing animals. Freefilefillableforms com Facility used for the bulk storage of fungible commodities. Freefilefillableforms com   A facility used for the bulk storage of fungible commodities is qualifying property for purposes of the section 179 expense deduction if it is used in connection with any of the activities listed earlier in item (3)(a). Freefilefillableforms com Bulk storage means the storage of a commodity in a large mass before it is used. Freefilefillableforms com Grain bins. Freefilefillableforms com   A grain bin is an example of a storage facility that is qualifying section 179 property. Freefilefillableforms com It is a facility used in connection with the production of grain or livestock for the bulk storage of fungible commodities. Freefilefillableforms com Single purpose agricultural or horticultural structures. Freefilefillableforms com   A single purpose agricultural (livestock) or horticultural structure is qualifying property for purposes of the section 179 expense deduction. Freefilefillableforms com Agricultural structure. Freefilefillableforms com   A single purpose agricultural (livestock) structure is any building or enclosure specifically designed, constructed, and used for both the following reasons. Freefilefillableforms com To house, raise, and feed a particular type of livestock and its produce. Freefilefillableforms com To house the equipment, including any replacements, needed to house, raise, or feed the livestock. Freefilefillableforms com For this purpose, livestock includes poultry. Freefilefillableforms com   Single purpose structures are qualifying property if used, for example, to breed chickens or hogs, produce milk from dairy cattle, or produce feeder cattle or pigs, broiler chickens, or eggs. Freefilefillableforms com The facility must include, as an integral part of the structure or enclosure, equipment necessary to house, raise, and feed the livestock. Freefilefillableforms com Horticultural structure. Freefilefillableforms com   A single purpose horticultural structure is either of the following. Freefilefillableforms com A greenhouse specifically designed, constructed, and used for the commercial production of plants. Freefilefillableforms com A structure specifically designed, constructed, and used for the commercial production of mushrooms. Freefilefillableforms com Use of structure. Freefilefillableforms com   A structure must be used only for the purpose that qualified it. Freefilefillableforms com For example, a hog barn will not be qualifying property if you use it to house poultry. Freefilefillableforms com Similarly, using part of your greenhouse to sell plants will make the greenhouse nonqualifying property. Freefilefillableforms com   If a structure includes work space, the work space can be used only for the following activities. Freefilefillableforms com Stocking, caring for, or collecting livestock or plants or their produce. Freefilefillableforms com Maintaining the enclosure or structure. Freefilefillableforms com Maintaining or replacing the equipment or stock enclosed or housed in the structure. Freefilefillableforms com Property Acquired by Purchase To qualify for the section 179 expense deduction, your property must have been acquired by purchase. Freefilefillableforms com For example, property acquired by gift or inheritance does not qualify. Freefilefillableforms com Property acquired from a related person (that is, your spouse, ancestors, or lineal descendants) is not considered acquired by purchase. Freefilefillableforms com Example. Freefilefillableforms com Ken is a farmer. Freefilefillableforms com He purchased two tractors, one from his brother and one from his father. Freefilefillableforms com He placed both tractors in service in the same year he bought them. Freefilefillableforms com The tractor purchased from his father does not qualify for the section 179 expense deduction because he is a related person (as defined above). Freefilefillableforms com The tractor purchased from his brother does qualify for the deduction because Ken is not a related person (as defined above). Freefilefillableforms com What Property Does Not Qualify? Land and improvements. Freefilefillableforms com   Land and land improvements, do not qualify as section 179 property. Freefilefillableforms com Land improvements include nonagricultural fences, swimming pools, paved parking areas, wharves, docks, bridges, and fences. Freefilefillableforms com However, agricultural fences do qualify as section 179 property. Freefilefillableforms com Similarly, field drainage tile also qualifies as section 179 property. Freefilefillableforms com Excepted property. Freefilefillableforms com   Even if the requirements explained in the preceding discussions are met, farmers cannot elect the section 179 expense deduction for the following property. Freefilefillableforms com Certain property you lease to others (if you are a noncorporate lessor). Freefilefillableforms com Certain property used predominantly to furnish lodging or in connection with the furnishing of lodging. Freefilefillableforms com Property used by a tax-exempt organization (other than a tax-exempt farmers' cooperative) unless the property is used mainly in a taxable unrelated trade or business. Freefilefillableforms com Property used by governmental units or foreign persons or entities (except property used under a lease with a term of less than 6 months). Freefilefillableforms com How Much Can You Deduct? Your section 179 expense deduction is generally the cost of the qualifying property. Freefilefillableforms com However, the total amount you can elect to deduct under section 179 is subject to a dollar limit and a business income limit. Freefilefillableforms com These limits apply to each taxpayer, not to each business. Freefilefillableforms com However, see Married individuals under Dollar Limits , later. Freefilefillableforms com See also the special rules for applying the limits for partnerships and S corporations under Partnerships and S Corporations , later. Freefilefillableforms com If you deduct only part of the cost of qualifying property as a section 179 expense deduction, you can generally depreciate the cost you do not deduct. Freefilefillableforms com Use Part I of Form 4562 to figure your section 179 expense deduction. Freefilefillableforms com Partial business use. Freefilefillableforms com   When you use property for business and nonbusiness purposes, you can elect the section 179 expense deduction only if you use it more than 50% for business in the year you place it in service. Freefilefillableforms com If you used the property more than 50% for business, multiply the cost of the property by the percentage of business use. Freefilefillableforms com Use the resulting business cost to figure your section 179 expense deduction. Freefilefillableforms com Trade-in of other property. Freefilefillableforms com   If you buy qualifying property with cash and a trade-in, its cost for purposes of the section 179 expense deduction includes only the cash you paid. Freefilefillableforms com For example, if you buy (for cash and a trade-in) a new tractor for use in your business, your cost for the section 179 expense deduction is the cash you paid. Freefilefillableforms com It does not include the adjusted basis of the old tractor you trade for the new tractor. Freefilefillableforms com Example. Freefilefillableforms com J-Bar Farms traded two cultivators having a total adjusted basis of $6,800 for a new cultivator costing $13,200. Freefilefillableforms com They received an $8,000 trade-in allowance for the old cultivators and paid $5,200 cash for the new cultivator. Freefilefillableforms com J-Bar also traded a used pickup truck with an adjusted basis of $8,000 for a new pickup truck costing $35,000. Freefilefillableforms com They received a $5,000 trade-in allowance and paid $30,000 cash for the new pickup truck. Freefilefillableforms com Only the cash paid by J-Bar qualifies for the section 179 expense deduction. Freefilefillableforms com J-Bar's business costs that qualify for a section 179 expense deduction are $35,200 ($5,200 + $30,000). Freefilefillableforms com Dollar Limits The total amount you can elect to deduct under section 179 for most property placed in service in 2013 is $500,000. Freefilefillableforms com If you acquire and place in service more than one item of qualifying property during the year, you can allocate the section 179 expense deduction among the items in any way, as long as the total deduction is not more than $500,000. Freefilefillableforms com Qualified real property that you elect to treat as section 179 property is limited to $250,000 of the maximum section 179 deduction of $500,000 for 2013. Freefilefillableforms com You do not have to claim the full $500,000. Freefilefillableforms com For specific information on the section 179 dollar limits, see chapter 2 of Publication 946. Freefilefillableforms com Reduced dollar limit for cost exceeding $2 million. Freefilefillableforms com   If the cost of your qualifying section 179 property placed in service in 2013 is over $2 million, you must reduce the dollar limit (but not below zero) by the amount of cost over $2 million. Freefilefillableforms com If the cost of your section 179 property placed in service during 2013 is $2,500,000 or more, you cannot take a section 179 expense deduction and you cannot carry over the cost that is more than $2,500,000. Freefilefillableforms com Example. Freefilefillableforms com This year, James Smith placed in service machinery costing $2,050,000. Freefilefillableforms com Because this cost is $50,000 more than $2 million, he must reduce his dollar limit to $450,000 ($500,000 − $50,000). Freefilefillableforms com Limits for sport utility vehicles. Freefilefillableforms com   The total amount you can elect to deduct for certain sport utility vehicles and certain other vehicles placed in service in 2013 is $25,000. Freefilefillableforms com This rule applies to any 4-wheeled vehicle primarily designed or used to carry passengers over public streets, roads, and highways that is rated at more than 6,000 pounds gross vehicle weight and not more than 14,000 pounds gross vehicle weight. Freefilefillableforms com   For more information, see chapter 2 of Publication 946. Freefilefillableforms com Limits for passenger automobiles. Freefilefillableforms com   For a passenger automobile that is placed in service in 2013, the total section 179 and depreciation deduction is limited. Freefilefillableforms com See Do the Passenger Automobile Limits Apply , later. Freefilefillableforms com Married individuals. Freefilefillableforms com   If you are married, how you figure your section 179 expense deduction depends on whether you file jointly or separately. Freefilefillableforms com If you file a joint return, you and your spouse are treated as one taxpayer in determining any reduction to the dollar limit, regardless of which of you purchased the property or placed it in service. Freefilefillableforms com If you and your spouse file separate returns, you are treated as one taxpayer for the dollar limit, including the reduction for costs over $2 million. Freefilefillableforms com You must allocate the dollar limit (after any reduction) equally between you, unless you both elect a different allocation. Freefilefillableforms com If the percentages elected by each of you do not total 100%, 50% will be allocated to each of you. Freefilefillableforms com Joint return after separate returns. Freefilefillableforms com   If you and your spouse elect to amend your separate returns by filing a joint return after the due date for filing your return, the dollar limit on the joint return is the lesser of the following amounts. Freefilefillableforms com The dollar limit (after reduction for any cost of section 179 property over $2 million). Freefilefillableforms com The total cost of section 179 property you and your spouse elected to expense on your separate returns. Freefilefillableforms com Business Income Limit The total cost you can deduct each year after you apply the dollar limit is limited to the taxable income from the active conduct of any trade or business during the year. Freefilefillableforms com Generally, you are considered to actively conduct a trade or business if you meaningfully participate in the management or operations of the trade or business. Freefilefillableforms com Any cost not deductible in one year under section 179 because of this limit can be carried to the next year. Freefilefillableforms com See Carryover of disallowed deduction , later. Freefilefillableforms com Taxable income. Freefilefillableforms com   In general, figure taxable income for this purpose by totaling the net income and losses from all trades and businesses you actively conducted during the year. Freefilefillableforms com In addition to net income or loss from a sole proprietorship, partnership, or S corporation, net income or loss derived from a trade or business also includes the following items. Freefilefillableforms com Section 1231 gains (or losses) as discussed in chapter 9. Freefilefillableforms com Interest from working capital of your trade or business. Freefilefillableforms com Wages, salaries, tips, or other pay earned by you (or your spouse if you file a joint return) as an employee of any employer. Freefilefillableforms com   In addition, figure taxable income without regard to any of the following. Freefilefillableforms com The section 179 expense deduction. Freefilefillableforms com The self-employment tax deduction. Freefilefillableforms com Any net operating loss carryback or carryforward. Freefilefillableforms com Any unreimbursed employee business expenses. Freefilefillableforms com Two different taxable income limits. Freefilefillableforms com   In addition to the business income limit for your section 179 expense deduction, you may have a taxable income limit for some other deduction (for example, charitable contributions). Freefilefillableforms com You may have to figure the limit for this other deduction taking into account the section 179 expense deduction. Freefilefillableforms com If so, complete the following steps. Freefilefillableforms com Step Action 1 Figure taxable income without the section 179 expense deduction or the other deduction. Freefilefillableforms com 2 Figure a hypothetical section 179 expense deduction using the taxable income figured in Step 1. Freefilefillableforms com 3 Subtract the hypothetical section 179 expense deduction figured in Step 2 from the taxable income figured in Step 1. Freefilefillableforms com 4 Figure a hypothetical amount for the other deduction using the amount figured in Step 3 as taxable income. Freefilefillableforms com 5 Subtract the hypothetical other deduction figured in Step 4 from the taxable income figured in  Step 1. Freefilefillableforms com 6 Figure your actual section 179 expense deduction using the taxable income figured in Step 5. Freefilefillableforms com 7 Subtract your actual section 179 expense deduction figured in Step 6 from the taxable income figured in Step 1. Freefilefillableforms com 8 Figure your actual other deduction using the taxable income figured in Step 7. Freefilefillableforms com Example. Freefilefillableforms com On February 1, 2013, the XYZ farm corporation purchased and placed in service qualifying section 179 property that cost $500,000. Freefilefillableforms com It elects to expense the entire $500,000 cost under section 179. Freefilefillableforms com In June, the corporation gave a charitable contribution of $10,000. Freefilefillableforms com A corporation's limit on charitable contributions is figured after subtracting any section 179 expense deduction. Freefilefillableforms com The business income limit for the section 179 expense deduction is figured after subtracting any allowable charitable contributions. Freefilefillableforms com XYZ's taxable income figured without the section 179 expense deduction or the deduction for charitable contributions is $520,000. Freefilefillableforms com XYZ figures its section 179 expense deduction and its deduction for charitable contributions as follows. Freefilefillableforms com Step 1. Freefilefillableforms com Taxable income figured without either deduction is $520,000. Freefilefillableforms com Step 2. Freefilefillableforms com Using $520,000 as taxable income, XYZ's hypothetical section 179 expense deduction is $500,000. Freefilefillableforms com Step 3. Freefilefillableforms com $20,000 ($520,000 − $500,000). Freefilefillableforms com Step 4. Freefilefillableforms com Using $20,000 (from Step 3) as taxable income, XYZ's hypothetical charitable contribution (limited to 10% of taxable income) is $2,000. Freefilefillableforms com Step 5. Freefilefillableforms com $518,000 ($520,000 − $2,000). Freefilefillableforms com Step 6. Freefilefillableforms com Using $518,000 (from Step 5) as taxable income, XYZ figures the actual section 179 expense deduction. Freefilefillableforms com Because the taxable income is at least $500,000, XYZ can take a $500,000 section 179 expense deduction. Freefilefillableforms com Step 7. Freefilefillableforms com $20,000 ($520,000 − $500,000). Freefilefillableforms com Step 8. Freefilefillableforms com Using $20,000 (from Step 7) as taxable income, XYZ's actual charitable contribution (limited to 10% of taxable income) is $2,000. Freefilefillableforms com Carryover of disallowed deduction. Freefilefillableforms com   You can carry over for an unlimited number of years the cost of any section 179 property you elected to expense but were unable to because of the business income limit. Freefilefillableforms com   The amount you carry over is used in determining your section 179 expense deduction in the next year. Freefilefillableforms com However, it is subject to the limits in that year. Freefilefillableforms com If you place more than one property in service in a year, you can select the properties for which all or a part of the cost will be carried forward. Freefilefillableforms com Your selections must be shown in your books and records. Freefilefillableforms com Example. Freefilefillableforms com Last year, Joyce Jones placed in service a machine that cost $8,000 and elected to deduct all $8,000 under section 179. Freefilefillableforms com The taxable income from her business (determined without regard to both a section 179 expense deduction for the cost of the machine and the self-employment tax deduction) was $6,000. Freefilefillableforms com Her section 179 expense deduction was limited to $6,000. Freefilefillableforms com The $2,000 cost that was not allowed as a section 179 expense deduction (because of the business income limit) is carried to this year. Freefilefillableforms com This year, Joyce placed another machine in service that cost $9,000. Freefilefillableforms com Her taxable income from business (determined without regard to both a section 179 expense deduction for the cost of the machine and the self-employment tax deduction) is $10,000. Freefilefillableforms com Joyce can deduct the full cost of the machine ($9,000) but only $1,000 of the carryover from last year because of the business income limit. Freefilefillableforms com She can carry over the balance of $1,000 to next year. Freefilefillableforms com Partnerships and S Corporations The section 179 expense deduction limits apply both to the partnership or S corporation and to each partner or shareholder. Freefilefillableforms com The partnership or S corporation determines its section 179 expense deduction subject to the limits. Freefilefillableforms com It then allocates the deduction among its partners or shareholders. Freefilefillableforms com If you are a partner in a partnership or shareholder of an S corporation, you add the amount allocated from the partnership or S corporation to any section 179 costs not related to the partnership or S corporation and then apply the dollar limit to this total. Freefilefillableforms com To determine any reduction in the dollar limit for costs over $560,000, you do not include any of the cost of section 179 property placed in service by the partnership or S corporation. Freefilefillableforms com After you apply the dollar limit, you apply the business income limit to any remaining section 179 costs. Freefilefillableforms com For more information, see chapter 2 of Publication 946. Freefilefillableforms com Example. Freefilefillableforms com In 2013, Partnership P placed in service section 179 property with a total cost of $2,160,000. Freefilefillableforms com P must reduce its dollar limit by $160,000 ($2,160,000 − $2,000,000). Freefilefillableforms com Its maximum section 179 expense deduction is $340,000 ($500,000 − $160,000), and it elects to expense that amount. Freefilefillableforms com Because P's taxable income from the active conduct of all its trades or businesses for the year was $400,000, it can deduct the full $340,000. Freefilefillableforms com P allocates $100,000 of its section 179 expense deduction and $110,000 of its taxable income to John, one of its partners. Freefilefillableforms com John also conducts a business as a sole proprietor and in 2013, placed in service in that business, section 179 property costing $28,000. Freefilefillableforms com John's taxable income from that business was $10,000. Freefilefillableforms com In addition to the $100,000 allocated from P, he elects to expense the $28,000 of his sole proprietorship's section 179 costs. Freefilefillableforms com However, John's deduction is limited to his business taxable income of $120,000 ($110,000 from P plus $10,000 from his sole proprietorship). Freefilefillableforms com He carries over $8,000 ($128,000 − $120,000) of the elected section 179 costs to 2014. Freefilefillableforms com How Do You Elect the Deduction? You elect to take the section 179 expense deduction by completing Part I of Form 4562. Freefilefillableforms com If you elect the deduction for listed property, complete Part V of  Form 4562 before completing Part I. Freefilefillableforms com   File Form 4562 with either of the following: Your original tax return (whether or not you filed it timely), or An amended return filed within the time prescribed by law. Freefilefillableforms com 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. Freefilefillableforms com The amended return must also include any resulting adjustments to taxable income. Freefilefillableforms com Revoking an election. Freefilefillableforms com   An election (or any specification made in the election) to take a section 179 expense deduction for 2013 can be revoked without IRS approval by filing an amended return. Freefilefillableforms com The amended return must be filed within the time prescribed by law. Freefilefillableforms com The amended return must also include any resulting adjustments to taxable income (for example, allowable depreciation in that tax year for the item of section 179 property for which the election pertains. Freefilefillableforms com ) Once made, the revocation is irrevocable. Freefilefillableforms com When Must You Recapture the Deduction? You may have to recapture the section 179 expense deduction if, in any year during the property's recovery period, the percentage of business use drops to 50% or less. Freefilefillableforms com In the year the business use drops to 50% or less, you include the recapture amount as ordinary income. Freefilefillableforms com You also increase the basis of the property by the recapture amount. Freefilefillableforms com Recovery periods for property are discussed later. Freefilefillableforms com If you sell, exchange, or otherwise dispose of the property, do not figure the recapture amount under the rules explained in this discussion. Freefilefillableforms com Instead, use the rules for recapturing depreciation explained in  chapter 9 under Section 1245 Property. Freefilefillableforms com   If the property is listed property, do not figure the recapture amount under the rules explained in this discussion when the percentage of business use drops to 50% or less. Freefilefillableforms com Instead, use the rules for recapturing depreciation explained in chapter 5 of Publication 946 under Recapture of Excess Depreciation. Freefilefillableforms com Figuring the recapture amount. Freefilefillableforms com   To figure the amount to recapture, take the following steps. Freefilefillableforms com Figure the allowable depreciation for the section 179 expense deduction you claimed. Freefilefillableforms com Begin with the year you placed the property in service and include the year of recapture. Freefilefillableforms com Subtract the depreciation figured in (1) from the section 179 expense deduction you actually claimed. Freefilefillableforms com The result is the amount you must recapture. Freefilefillableforms com Example. Freefilefillableforms com In January 2011, Paul Lamb, a calendar year taxpayer, bought and placed in service section 179 property costing $10,000. Freefilefillableforms com The property is not listed property. Freefilefillableforms com He elected a $5,000 section 179 expense deduction for the property and also elected not to claim a special depreciation allowance. Freefilefillableforms com He used the property only for business in 2011 and 2012. Freefilefillableforms com During 2013, he used the property 40% for business and 60% for personal use. Freefilefillableforms com He figures his recapture amount as follows. Freefilefillableforms com Section 179 expense deduction claimed (2011) $5,000 Minus: Allowable depreciation (instead of section 179 expense deduction):   2011 $1,250   2012 1,875   2013 ($1,250 × 40% (business)) 500 3,625 2013 — Recapture amount $1,375     Paul must include $1,375 in income for 2013. Freefilefillableforms com Where to report recapture. Freefilefillableforms com   Report any recapture of the section 179 expense deduction as ordinary income in Part IV of Form 4797 and include it in income on Schedule F (Form 1040). Freefilefillableforms com Recapture for qualified section 179 GO Zone property. Freefilefillableforms com   If any qualified section 179 GO Zone property ceases to be used in the GO Zone in a later year, you must recapture the benefit of the increased section 179 expense deduction as “other income. Freefilefillableforms com ” Claiming the Special Depreciation Allowance For qualified property (defined below) placed in service in 2013, you can take an additional 50% special depreciation allowance. Freefilefillableforms com The allowance is an additional deduction you can take after any section 179 expense deduction and before you figure regular depreciation under MACRS. Freefilefillableforms com Figure the special depreciation allowance by multiplying the depreciable basis of the qualified property by 50%. Freefilefillableforms com What is Qualified Property? For farmers, qualified property generally is certain qualified property acquired after December 31, 2007, and placed in service before January 1, 2014. Freefilefillableforms com Certain qualified property acquired after December 31, 2007, and placed in service before January 1, 2014. Freefilefillableforms com   Certain qualified property (defined below) acquired after December 31, 2007, and before January 1, 2014, is eligible for a 50% special depreciation allowance. Freefilefillableforms com   Qualified property includes the following: Tangible property depreciated under the Modified Accelerated Cost Recovery System (MACRS) with a recovery period of 20 years or less. Freefilefillableforms com Water utility property. Freefilefillableforms com Off-the-shelf computer software. Freefilefillableforms com Qualified leasehold improvement property. Freefilefillableforms com   Qualified property must also meet all of the following tests: You must have acquired qualified property by purchase after December 31, 2007. Freefilefillableforms com If a binding contract to acquire the property existed before January 1, 2008, the property does not qualify. Freefilefillableforms com Qualified property must be placed in service after December 31, 2007 and placed in service before January 1, 2014 (before January 1, 2015 for certain property with a long production period and for certain aircraft). Freefilefillableforms com The original use of the property must begin with you after December 31, 2007. Freefilefillableforms com For more information, see chapter 3 of Publication 946. Freefilefillableforms com How Can You Elect Not To Claim the Allowance? You can elect, for any class of property, not to deduct the special depreciation allowance for all property in such class placed in service during the tax year. Freefilefillableforms com To make the election, attach a statement to your return indicating the class of property for which you are making the election. Freefilefillableforms com Generally, you must make the election on a timely filed tax return (including extensions) for the year in which you place the property in service. Freefilefillableforms com However, if you timely filed your return for the year without making the election, you still can make the election by filing an amended return within 6 months of the due date of the original return (not including extensions). Freefilefillableforms com Attach the election statement to the amended return. Freefilefillableforms com On the amended return, write “Filed pursuant to section 301. Freefilefillableforms com 9100-2. Freefilefillableforms com ” Once made, the election may not be revoked without IRS consent. Freefilefillableforms com If you elect not to have the special depreciation allowance apply, the property may be subject to an alternative minimum tax adjustment for depreciation. Freefilefillableforms com When Must You Recapture an Allowance When you dispose of property for which you claimed a special depreciation allowance, any gain on the disposition is generally recaptured (included in income) as ordinary income up to the amount of the special depreciation allowance previously allowed or allowable. Freefilefillableforms com For more information, see chapter 3 of Publication 946. Freefilefillableforms com Figuring Depreciation Under MACRS The Modified Accelerated Cost Recovery System (MACRS) is used to recover the basis of most business and investment property placed in service after 1986. Freefilefillableforms com MACRS consists of two depreciation systems, the General Depreciation System (GDS) and the Alternative Depreciation System (ADS). Freefilefillableforms com Generally, these systems provide different methods and recovery periods to use in figuring depreciation deductions. Freefilefillableforms com To be sure you can use MACRS to figure depreciation for your property, see Can You Use MACRS To Depreciate Your Property, earlier. Freefilefillableforms com This part explains how to determine which MACRS depreciation system applies to your property. Freefilefillableforms com It also discusses the following information that you need to know before you can figure depreciation under MACRS. Freefilefillableforms com Property's recovery class. Freefilefillableforms com Placed-in-service date. Freefilefillableforms com Basis for depreciation. Freefilefillableforms com Recovery period. Freefilefillableforms com Convention. Freefilefillableforms com Depreciation method. Freefilefillableforms com Finally, this part explains how to use this information to figure your depreciation deduction. Freefilefillableforms com Which Depreciation System (GDS or ADS) Applies? Your use of either the General Depreciation System (GDS) or the Alternative Depreciation System (ADS) to depreciate property under MACRS determines what depreciation method and recovery period you use. Freefilefillableforms com You generally must use GDS unless you are specifically required by law to use ADS or you elect to use ADS. Freefilefillableforms com Required use of ADS. Freefilefillableforms com   You must use ADS for the following property. Freefilefillableforms com All property used predominantly in a farming business and placed in service in any tax year during which an election not to apply the uniform capitalization rules to certain farming costs is in effect. Freefilefillableforms com Listed property used 50% or less in a qualified business use. Freefilefillableforms com See Additional Rules for Listed Property , later. Freefilefillableforms com Any tax-exempt use property. Freefilefillableforms com Any tax-exempt bond-financed property. Freefilefillableforms com Any property imported from a foreign country for which an Executive Order is in effect because the country maintains trade restrictions or engages in other discriminatory acts. Freefilefillableforms com Any tangible property used predominantly outside the United States during the year. Freefilefillableforms com If you are required to use ADS to depreciate your property, you cannot claim the special depreciation allowance. Freefilefillableforms com Electing ADS. Freefilefillableforms com   Although your property may qualify for GDS, you can elect to use ADS. Freefilefillableforms com The election generally must cover all property in the same property class you placed in service during the year. Freefilefillableforms com However, the election for residential rental property and nonresidential real property can be made on a property-by-property basis. Freefilefillableforms com Once you make this election, you can never revoke it. Freefilefillableforms com   You make the election by completing line 20 in Part III of Form 4562. Freefilefillableforms com Which Property Class Applies Under GDS? The following is a list of the nine property classes under GDS. Freefilefillableforms com 3-year property. Freefilefillableforms com 5-year property. Freefilefillableforms com 7-year property. Freefilefillableforms com 10-year property. Freefilefillableforms com 15-year property. Freefilefillableforms com 20-year property. Freefilefillableforms com 25-year property. Freefilefillableforms com Residential rental property. Freefilefillableforms com Nonresidential real property. Freefilefillableforms com See Which Property Class Applies Under GDS in chapter 4 of Publication 946 for examples of the types of property included in each class. Freefilefillableforms com What Is the Placed-in-Service Date? You begin to claim depreciation when your property is placed in service for use either in a trade or business or for the production of income. Freefilefillableforms com The placed-in-service date for your property is the date the property is ready and available for a specific use. Freefilefillableforms com It is therefore not necessarily the date it is first used. Freefilefillableforms com If you converted property held for personal use to use in a trade or business or for the production of income, treat the property as being placed in service on the conversion date. Freefilefillableforms com See Placed in Service under When Does Depreciation Begin and End , earlier, for examples illustrating when property is placed in service. Freefilefillableforms com What Is the Basis for Depreciation? The basis for depreciation of MACRS property is the property's cost or other basis multiplied by the percentage of business/investment use. Freefilefillableforms com Reduce that amount by any credits and deductions allocable to the property. Freefilefillableforms com The following are examples of some of the credits and deductions that reduce basis. Freefilefillableforms com Any deduction for section 179 property. Freefilefillableforms com Any deduction for removal of barriers to the disabled and the elderly. Freefilefillableforms com Any disabled access credit, enhanced oil recovery credit, and credit for employer-provided childcare facilities and services. Freefilefillableforms com Any special depreciation allowance. Freefilefillableforms com Basis adjustment for investment credit property under section 50(c) of the Internal Revenue Code. Freefilefillableforms com For information about how to determine the cost or other basis of property, see What Is the Basis of Your Depreciable Property , earlier. Freefilefillableforms com Also, see chapter 6. Freefilefillableforms com For additional credits and deductions that affect basis, see section 1016 of the Internal Revenue Code. Freefilefillableforms com Which Recovery Period Applies? The recovery period of property is the number of years over which you recover its cost or other basis. Freefilefillableforms com It is determined based on the depreciation system (GDS or ADS) used. Freefilefillableforms com See Table 7-1 for recovery periods under both GDS and ADS for some commonly used assets. Freefilefillableforms com For a complete list of recovery periods, see the Table of Class Lives and Recovery Periods in Appendix B of Publication 946. Freefilefillableforms com House trailers for farm laborers. Freefilefillableforms com   To depreciate a house trailer you supply as housing for those who work on your farm, use one of the following recovery periods if the house trailer is mobile (it has wheels and a history of movement). Freefilefillableforms com A 7-year recovery period under GDS. Freefilefillableforms com A 10-year recovery period under ADS. Freefilefillableforms com   However, if the house trailer is not mobile (its wheels have been removed and permanent utilities and pipes attached to it), use one of the following recovery periods. Freefilefillableforms com A 20-year recovery period under GDS. Freefilefillableforms com A 25-year recovery period under ADS. Freefilefillableforms com Water wells. Freefilefillableforms com   Water wells used to provide water for raising poultry and livestock are land improvements. Freefilefillableforms com If they are depreciable, use one of the following recovery periods. Freefilefillableforms com A 15-year recovery period under GDS. Freefilefillableforms com A 20-year recovery period under ADS. Freefilefillableforms com   The types of water wells that can be depreciated were discussed earlier in Irrigation systems and water wells under Property Having a Determinable Useful Life . Freefilefillableforms com Table 7-1. Freefilefillableforms com Farm Property Recovery Periods   Recovery Period in Years Assets GDS ADS Agricultural structures (single purpose) 10 15 Automobiles 5 5 Calculators and copiers 5 6 Cattle (dairy or breeding) 5 7 Communication equipment1 7 10 Computer and peripheral equipment 5 5 Drainage facilities 15 20 Farm buildings2 20 25 Farm machinery and equipment 7 10 Fences (agricultural) 7 10 Goats and sheep (breeding) 5 5 Grain bin 7 10 Hogs (breeding) 3 3 Horses (age when placed in service)     Breeding and working (12 years or less) 7 10 Breeding and working (more than 12 years) 3 10 Racing horses 3 12 Horticultural structures (single purpose) 10 15 Logging machinery and equipment3 5 6 Nonresidential real property 394 40 Office furniture, fixtures, and equipment (not calculators, copiers, or typewriters) 7 10 Paved lots 15 20 Residential rental property 27. Freefilefillableforms com 5 40 Tractor units (over-the-road) 3 4 Trees or vines bearing fruit or nuts 10 20 Truck (heavy duty, unloaded weight 13,000 lbs. Freefilefillableforms com or more) 5 6 Truck (actual weight less than 13,000 lbs) 5 5 Water wells 15 20 1 Not including communication equipment listed in other classes. Freefilefillableforms com 2 Not including single purpose agricultural or horticultural structures. Freefilefillableforms com 3 Used by logging and sawmill operators for cutting of timber. Freefilefillableforms com 4 For property placed in service after May 12, 1993; for property placed in service before May 13, 1993,  the recovery period is 31. Freefilefillableforms com 5 years. Freefilefillableforms com Which Convention Applies? Under MACRS, averaging conventions establish when the recovery period begins and ends. Freefilefillableforms com The convention you use determines the number of months for which you can claim depreciation in the year you place property in service and in the year you dispose of the property. Freefilefillableforms com Use one of the following conventions. Freefilefillableforms com The half-year convention. Freefilefillableforms com The mid-month convention. Freefilefillableforms com The mid-quarter convention. Freefilefillableforms com For a detailed explanation of each convention, see Which Convention Applies in chapter 4 of Publication 946. Freefilefillableforms com Also, see the Instructions for Form 4562. Freefilefillableforms com Which Depreciation Method Applies? MACRS provides three depreciation methods under GDS and one depreciation method under ADS. Freefilefillableforms com The 200% declining balance method over a GDS recovery period. Freefilefillableforms com The 150% declining balance method over a GDS recovery period. Freefilefillableforms com The straight line method over a GDS recovery period. Freefilefillableforms com The straight line method over an ADS recovery period. Freefilefillableforms com Depreciation Table. Freefilefillableforms com   The following table lists the types of property you can depreciate under each method. Freefilefillableforms com The declining balance method is abbreviated as DB and the straight line method is abbreviated as SL. Freefilefillableforms com Depreciation Table System/Method   Type of Property GDS using  150% DB • All property used in a farming business (except real property)   • All 15- and 20-year property   • Nonfarm 3-, 5-, 7-, and 10-year property1 GDS using SL • Nonresidential real property   • Residential rental property   • Trees or vines bearing fruit or nuts   • All 3-, 5-, 7-, 10-, 15-, and 20-year property1 ADS using SL • Property used predomi- nantly outside the United States   • Farm property used when an election not to apply the uniform capitalization rules is in effect   • Tax-exempt property   • Tax-exempt bond-financed property   • Imported property2   • Any property for which you elect to use this method1 GDS using  200% DB • Nonfarm 3-, 5-, 7-, and 10-year property 1Elective method 2See section 168(g)(6) of the Internal Revenue  Code Property used in farming business. Freefilefillableforms com   For personal property placed in service after 1988 in a farming business, you must use the 150% declining balance method over a GDS recovery period or you can elect one of the following methods. Freefilefillableforms com The straight line method over a GDS recovery period. Freefilefillableforms com The straight line method over an ADS recovery period. Freefilefillableforms com For property placed in service before 1999, you could have elected to use the 150% declining balance method using the ADS recovery periods for certain property classes. Freefilefillableforms com If you made this election, continue to use the same method and recovery period for that property. Freefilefillableforms com Real property. Freefilefillableforms com   You can depreciate real property using the straight line method under either GDS or ADS. Freefilefillableforms com Switching to straight line. Freefilefillableforms com   If you use a declining balance method, you switch to the straight line method in the year it provides an equal or greater deduction. Freefilefillableforms com If you use the MACRS percentage tables, discussed later under How Is the Depreciation Deduction Figured , you do not need to determine in which year your deduction is greater using the straight line method. Freefilefillableforms com The tables have the switch to the straight line method built into their rates. Freefilefillableforms com Fruit or nut trees and vines. Freefilefillableforms com   Depreciate trees and vines bearing fruit or nuts under GDS using the straight line method over a 10-year recovery period. Freefilefillableforms com ADS required for some farmers. Freefilefillableforms com   If you elect not to apply the uniform capitalization rules to any plant shown in Table 6-1 of chapter 6 and produced in your farming business, you must use ADS for all property you place in service in any year the election is in effect. Freefilefillableforms com See chapter 6 for a discussion of the application of the uniform capitalization rules to farm property. Freefilefillableforms com Electing a different method. Freefilefillableforms com   As shown in the Depreciation Table , you can elect a different method for depreciation for certain types of property. Freefilefillableforms com You must make the election by the due date of the return (including extensions) for the year you placed the property in service. Freefilefillableforms com However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of your return (excluding extensions). Freefilefillableforms com Attach the election to the amended return and write “Filed pursuant to section 301. Freefilefillableforms com 9100-2” on the election statement. Freefilefillableforms com File the amended return at the same address you filed the original return. Freefilefillableforms com Once you make the election, you cannot change it. Freefilefillableforms com    If you elect to use a different method for one item in a property class, you must apply the same method to all property in that class placed in service during the year of the election. Freefilefillableforms com However, you can make the election on a property-by-property basis for residential rental and nonresidential real property. Freefilefillableforms com Straight line election. Freefilefillableforms com   Instead of using the declining balance method, you can elect to use the straight line method over the GDS recovery period. Freefilefillableforms com Make the election by entering “S/L” under column (f) in Part III of Form 4562. Freefilefillableforms com ADS election. Freefilefillableforms com   As explained earlier under Which Depreciation System (GDS or ADS) Applies , you can elect to use ADS even though your property may come under GDS. Freefilefillableforms com ADS uses the straight line method of depreciation over the ADS recovery periods, which are generally longer than the GDS recovery periods. Freefilefillableforms com The ADS recovery periods for many assets used in the business of farming are listed in Table 7–1. Freefilefillableforms com Additional ADS recovery periods for other classes of property may be found in the Table of Class Lives and Recovery Periods in Appendix B of Publication 946. Freefilefillableforms com How Is the Depreciation Deduction Figured? To figure your depreciation deduction under MACRS, you first determine the depreciation system, property class, placed-in-service date, basis amount, recovery period, convention, and depreciation method that applies to your property. Freefilefillableforms com Then you are ready to figure your depreciation deduction. Freefilefillableforms com You can figure it in one of two ways. Freefilefillableforms com You can use the percentage tables provided by the IRS. Freefilefillableforms com You can figure your own deduction without using the tables. Freefilefillableforms com Figuring your own MACRS deduction will generally result in a slightly different amount than using the tables. Freefilefillableforms com Using the MACRS Percentage Tables To help you figure your deduction under MACRS, the IRS has established percentage tables that incorporate the applicable convention and depreciation method. Freefilefillableforms com These percentage tables are in Appendix A of Publication 946. Freefilefillableforms com Rules for using the tables. Freefilefillableforms com   The following rules cover the use of the percentage tables. Freefilefillableforms com You must apply the rates in the percentage tables to your property's unadjusted basis. Freefilefillableforms com Unadjusted basis is the same basis amount you would use to figure gain on a sale but figured without reducing your original basis by any MACRS depreciation taken in earlier years. Freefilefillableforms com You cannot use the percentage tables for a short tax year. Freefilefillableforms com See chapter 4 of Publication 946 for information on how to figure the deduction for a short tax year. Freefilefillableforms com You generally must continue to use them for the entire recovery period of the property. Freefilefillableforms com You must stop using the tables if you adjust the basis of the property for any reason other than— Depreciation allowed or allowable, or An addition or improvement to the property, which is depreciated as a separate property. Freefilefillableforms com Basis adjustment due to casualty loss. Freefilefillableforms com   If you reduce the basis of your property because of a casualty, you cannot continue to use the percentage tables. Freefilefillableforms com For the year of the adjustment and the remaining recovery period, you must figure the depreciation yourself using the property's adjusted basis at the end of the year. Freefilefillableforms com See Figuring the Deduction Without Using the Tables in chapter 4 of Publication 946. Freefilefillableforms com Figuring depreciation using the 150% DB method and half-year convention. Freefilefillableforms com    Table 7-2 has the percentages for 3-, 5-, 7-, and 20-year property. Freefilefillableforms com The percentages are based on the 150% declining balance method with a change to the straight line method. Freefilefillableforms com This table covers only the half-year convention and the first 8 years for 20-year property. Freefilefillableforms com See Appendix A in Publication 946 for complete MACRS tables, including tables for the mid-quarter and mid-month convention. Freefilefillableforms com   The following examples show how to figure depreciation under MACRS using the percentages in Table 7-2 . Freefilefillableforms com Example 1. Freefilefillableforms com During the year, you bought an item of 7-year property for $10,000 and placed it in service. Freefilefillableforms com You do not elect a section 179 expense deduction for this property. Freefilefillableforms com In addition, the property is not qualified property for purposes of the special depreciation allowance. Freefilefillableforms com The unadjusted basis of the property is $10,000. Freefilefillableforms com You use the percentages in Table 7-2 to figure your deduction. Freefilefillableforms com Since this is 7-year property, you multiply $10,000 by 10. Freefilefillableforms com 71% to get this year's depreciation of $1,071. Freefilefillableforms com For next year, your depreciation will be $1,913 ($10,000 × 19. Freefilefillableforms com 13%). Freefilefillableforms com Example 2. Freefilefillableforms com You had a barn constructed on your farm at a cost of $20,000. Freefilefillableforms com You placed the barn in service this year. Freefilefillableforms com You elect not to claim the special depreciation allowance. Freefilefillableforms com The barn is 20-year property and you use the table percentages to figure your deduction. Freefilefillableforms com You figure this year's depreciation by multiplying $20,000 (unadjusted basis) by 3. Freefilefillableforms com 75% to get $750. Freefilefillableforms com For next year, your depreciation will be $1,443. Freefilefillableforms com 80 ($20,000 × 7. Freefilefillableforms com 219%). Freefilefillableforms com Table 7-2. Freefilefillableforms com 150% Declining Balance Method (Half-Year Convention) Year 3-Year 5-Year 7-Year 20-Year 1 25. Freefilefillableforms com 0 % 15. Freefilefillableforms com 00 % 10. Freefilefillableforms com 71 % 3. Freefilefillableforms com 750 % 2 37. Freefilefillableforms com 5   25. Freefilefillableforms com 50   19. Freefilefillableforms com 13   7. Freefilefillableforms com 219   3 25. Freefilefillableforms com 0   17. Freefilefillableforms com 85   15. Freefilefillableforms com 03   6. Freefilefillableforms com 677   4 12. Freefilefillableforms com 5   16. Freefilefillableforms com 66   12. Freefilefillableforms com 25   6. Freefilefillableforms com 177   5     16. Freefilefillableforms com 66   12. Freefilefillableforms com 25   5. Freefilefillableforms com 713   6     8. Freefilefillableforms com 33   12. Freefilefillableforms com 25   5. Freefilefillableforms com 285   7         12. Freefilefillableforms com 25   4. Freefilefillableforms com 888   8         6. Freefilefillableforms com 13   4. Freefilefillableforms com 522   Figuring depreciation using the straight line method and half-year convention. Freefilefillableforms com   The following table has the straight line percentages for 3-, 5-, 7-, and 20-year property using the half-year convention. Freefilefillableforms com The table covers only the first 8 years for 20-year property. Freefilefillableforms com See Appendix A in Publication 946 for complete MACRS tables, including tables for the mid-quarter and mid-month convention. Freefilefillableforms com Table 7-3. Freefilefillableforms com Straight Line Method (Half-Year Convention) Year 3-Year 5-Year 7-Year 20-Year 1 16. Freefilefillableforms com 67 % 10 % 7. Freefilefillableforms com 14 % 2. Freefilefillableforms com 5 % 2 33. Freefilefillableforms com 33   20   14. Freefilefillableforms com 29   5. Freefilefillableforms com 0   3 33. Freefilefillableforms com 33   20   14. Freefilefillableforms com 29   5. Freefilefillableforms com 0   4 16. Freefilefillableforms com 67   20   14. Freefilefillableforms com 28   5. Freefilefillableforms com 0   5     20   14. Freefilefillableforms com 29   5. Freefilefillableforms com 0   6     10   14. Freefilefillableforms com 28   5. Freefilefillableforms com 0   7         14. Freefilefillableforms com 29   5. Freefilefillableforms com 0   8         7. Freefilefillableforms com 14   5. Freefilefillableforms com 0