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How Do I File A Tax Extension

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How Do I File A Tax Extension

How do i file a tax extension Internal Revenue Bulletin:  2012-14  April 2, 2012  Rev. How do i file a tax extension Proc. How do i file a tax extension 2012-23 Table of Contents SECTION 1. How do i file a tax extension PURPOSE SECTION 2. How do i file a tax extension BACKGROUND SECTION 3. How do i file a tax extension SCOPE SECTION 4. How do i file a tax extension APPLICATION. How do i file a tax extension 01 Limitations on Depreciation Deductions for Certain Automobiles. How do i file a tax extension . How do i file a tax extension 02 Inclusions in Income of Lessees of Passenger Automobiles. How do i file a tax extension SECTION 5. How do i file a tax extension EFFECTIVE DATE SECTION 6. How do i file a tax extension DRAFTING INFORMATION SECTION 1. How do i file a tax extension PURPOSE This revenue procedure provides: (1) limitations on depreciation deductions for owners of passenger automobiles first placed in service by the taxpayer during calendar year 2012, including separate tables of limitations on depreciation deductions for trucks and vans; and (2) the amounts that must be included in income by lessees of passenger automobiles first leased by the taxpayer during calendar year 2012, including a separate table of inclusion amounts for lessees of trucks and vans. How do i file a tax extension The tables detailing these depreciation limitations and lessee inclusion amounts reflect the automobile price inflation adjustments required by § 280F(d)(7) of the Internal Revenue Code. How do i file a tax extension SECTION 2. How do i file a tax extension BACKGROUND . How do i file a tax extension 01 For owners of passenger automobiles, § 280F(a) imposes dollar limitations on the depreciation deduction for the year the taxpayer places the passenger automobile in service and for each succeeding year. How do i file a tax extension For passenger automobiles placed in service after 1988, § 280F(d)(7) requires the Internal Revenue Service to increase the amounts allowable as depreciation deductions by a price inflation adjustment amount. How do i file a tax extension The method of calculating this price inflation amount for trucks and vans placed in service in or after calendar year 2003 uses a different CPI “automobile component” (the “new trucks” component) than that used in the price inflation amount calculation for other passenger automobiles (the “new cars” component), resulting in somewhat higher depreciation deductions for trucks and vans. How do i file a tax extension This change reflects the higher rate of price inflation for trucks and vans since 1988. How do i file a tax extension . How do i file a tax extension 02 Section 401(a) of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, Pub. How do i file a tax extension L. How do i file a tax extension No. How do i file a tax extension 111-312, 124 Stat. How do i file a tax extension 3296 (Dec. How do i file a tax extension 17, 2010) (the “Act”) extended the 50 percent additional first year depreciation deduction under § 168(k) to qualified property acquired by the taxpayer after December 31, 2007, and before January 1, 2013, if no written binding contract for the acquisition of the property existed before January 1, 2008, and if the taxpayer places the property in service generally before January 1, 2013. How do i file a tax extension Section 168(k)(2)(F)(i) increases the first year depreciation allowed under § 280F(a)(1)(A)(i) by $8,000 for passenger automobiles to which the additional first year depreciation deduction under § 168(k) (hereinafter, referred to as “§ 168(k) additional first year depreciation deduction”) applies. How do i file a tax extension . How do i file a tax extension 03 Section 168(k)(2)(D)(i) provides that the § 168(k) additional first year depreciation deduction does not apply to any property required to be depreciated under the alternative depreciation system of § 168(g), including property described in § 280F(b)(1). How do i file a tax extension Section 168(k)(2)(D)(iii) permits a taxpayer to elect out of the § 168(k) additional first year depreciation deduction for any class of property. How do i file a tax extension Section 168(k)(4), as amended by the Act, permits a corporation to elect to increase the alternative minimum tax (“AMT”) credit limitation under § 53(c), instead of claiming the § 168(k) additional first year depreciation deduction for all eligible qualified property placed in service after December 31, 2010, that is round 2 extension property (as defined in § 168(k)(4)(I)(iv)). How do i file a tax extension Accordingly, this revenue procedure provides tables for passenger automobiles for which the § 168(k) additional first year depreciation deduction applies. How do i file a tax extension This revenue procedure also provides tables for passenger automobiles for which the § 168(k) additional first year depreciation deduction does not apply, either because taxpayer (1) purchased the passenger automobile used; (2) did not use the passenger automobile during 2012 more than 50 percent for business purposes; (3) elected out of the § 168(k) additional first year depreciation deduction pursuant to § 168(k)(2)(D)(iii); or (4) elected to increase the § 53 AMT credit limitation in lieu of claiming § 168(k) additional first year depreciation. How do i file a tax extension . How do i file a tax extension 04 Section 280F(c) requires a reduction in the deduction allowed to the lessee of a leased passenger automobile. How do i file a tax extension The reduction must be substantially equivalent to the limitations on the depreciation deductions imposed on owners of passenger automobiles. How do i file a tax extension Under § 1. How do i file a tax extension 280F-7(a) of the Income Tax Regulations, this reduction requires a lessee to include in gross income an amount determined by applying a formula to the amount obtained from a table. How do i file a tax extension One table applies to lessees of trucks and vans and another table applies to all other passenger automobiles. How do i file a tax extension Each table shows inclusion amounts for a range of fair market values for each taxable year after the passenger automobile is first leased. How do i file a tax extension SECTION 3. How do i file a tax extension SCOPE . How do i file a tax extension 01 The limitations on depreciation deductions in section 4. How do i file a tax extension 01(2) of this revenue procedure apply to passenger automobiles (other than leased passenger automobiles) that are placed in service by the taxpayer in calendar year 2012, and continue to apply for each taxable year that the passenger automobile remains in service. How do i file a tax extension . How do i file a tax extension 02 The tables in section 4. How do i file a tax extension 02 of this revenue procedure apply to leased passenger automobiles for which the lease term begins during calendar year 2012. How do i file a tax extension Lessees of these passenger automobiles must use these tables to determine the inclusion amount for each taxable year during which the passenger automobile is leased. How do i file a tax extension See Rev. How do i file a tax extension Proc. How do i file a tax extension 2007-30, 2007-1 C. How do i file a tax extension B. How do i file a tax extension 1104, for passenger automobiles first leased during calendar year 2007; Rev. How do i file a tax extension Proc. How do i file a tax extension 2008-22, 2008-1 C. How do i file a tax extension B. How do i file a tax extension 658, for passenger automobiles first leased during calendar year 2008; Rev. How do i file a tax extension Proc. How do i file a tax extension 2009-24, 2009-17 I. How do i file a tax extension R. How do i file a tax extension B. How do i file a tax extension 885, for passenger automobiles first leased during calendar year 2009; Rev. How do i file a tax extension Proc. How do i file a tax extension 2010-18, 2010-9 I. How do i file a tax extension R. How do i file a tax extension B. How do i file a tax extension 427, as amplified and modified by section 4. How do i file a tax extension 03 of Rev. How do i file a tax extension Proc. How do i file a tax extension 2011-21, 2011-12 I. How do i file a tax extension R. How do i file a tax extension B. How do i file a tax extension 560, for passenger automobiles first leased during calendar year 2010; and Rev. How do i file a tax extension Proc. How do i file a tax extension 2011-21, for passenger automobiles first leased during calendar year 2011. How do i file a tax extension SECTION 4. How do i file a tax extension APPLICATION . How do i file a tax extension 01 Limitations on Depreciation Deductions for Certain Automobiles. How do i file a tax extension (1) Amount of the inflation adjustment. How do i file a tax extension (a) Passenger automobiles (other than trucks or vans). How do i file a tax extension Under § 280F(d)(7)(B)(i), the automobile price inflation adjustment for any calendar year is the percentage (if any) by which the CPI automobile component for October of the preceding calendar year exceeds the CPI automobile component for October 1987. How do i file a tax extension Section 280F(d)(7)(B)(ii) defines the term “CPI automobile component” as the automobile component of the Consumer Price Index for all Urban Consumers published by the Department of Labor. How do i file a tax extension The new car component of the CPI was 115. How do i file a tax extension 2 for October 1987 and 143. How do i file a tax extension 419 for October 2011. How do i file a tax extension The October 2011 index exceeded the October 1987 index by 28. How do i file a tax extension 219. How do i file a tax extension Therefore, the automobile price inflation adjustment for 2012 for passenger automobiles (other than trucks and vans) is 24. How do i file a tax extension 5 percent (28. How do i file a tax extension 219/115. How do i file a tax extension 2 x 100%). How do i file a tax extension The dollar limitations in § 280F(a) are multiplied by a factor of 0. How do i file a tax extension 245, and the resulting increases, after rounding to the nearest $100, are added to the 1988 limitations to give the depreciation limitations applicable to passenger automobiles (other than trucks and vans) for calendar year 2012. How do i file a tax extension This adjustment applies to all passenger automobiles (other than trucks and vans) that are first placed in service in calendar year 2012. How do i file a tax extension (b) Trucks and vans. How do i file a tax extension To determine the dollar limitations for trucks and vans first placed in service during calendar year 2012, the Service uses the new truck component of the CPI instead of the new car component. How do i file a tax extension The new truck component of the CPI was 112. How do i file a tax extension 4 for October 1987 and 146. How do i file a tax extension 607 for October 2011. How do i file a tax extension The October 2011 index exceeded the October 1987 index by 34. How do i file a tax extension 207. How do i file a tax extension Therefore, the automobile price inflation adjustment for 2012 for trucks and vans is 30. How do i file a tax extension 43 percent (34. How do i file a tax extension 207/112. How do i file a tax extension 4 x 100%). How do i file a tax extension The dollar limitations in § 280F(a) are multiplied by a factor of 0. How do i file a tax extension 3043, and the resulting increases, after rounding to the nearest $100, are added to the 1988 limitations to give the depreciation limitations for trucks and vans. How do i file a tax extension This adjustment applies to all trucks and vans that are first placed in service in calendar year 2012. How do i file a tax extension (2) Amount of the limitation. How do i file a tax extension Tables 1 through 4 contain the dollar amount of the depreciation limitation for each taxable year for passenger automobiles a taxpayer places in service in calendar year 2012. How do i file a tax extension Use Table 1 for a passenger automobile (other than a truck or van), and Table 2 for a truck or van, placed in service in calendar year 2012 for which the § 168(k) additional first year depreciation deduction applies. How do i file a tax extension Use Table 3 for a passenger automobile (other than a truck or van), and Table 4 for a truck or van, placed in service in calendar year 2012 for which the § 168(k) additional first year depreciation deduction does not apply. How do i file a tax extension REV. How do i file a tax extension PROC. How do i file a tax extension 2012-23 TABLE 1 DEPRECIATION LIMITATIONS FOR PASSENGER AUTOMOBILES (THAT ARE NOT TRUCKS OR VANS) PLACED IN SERVICE IN CALENDAR YEAR 2012 FOR WHICH THE § 168(k) ADDITIONAL FIRST YEAR DEPRECIATION DEDUCTION APPLIES Tax Year Amount 1st Tax Year $11,160 2nd Tax Year $5,100 3rd Tax Year $3,050 Each Succeeding Year $1,875 REV. How do i file a tax extension PROC. How do i file a tax extension 2012-23 TABLE 2 DEPRECIATION LIMITATIONS FOR TRUCKS AND VANS PLACED IN SERVICE IN CALENDAR YEAR 2012 FOR WHICH THE § 168(k) ADDITIONAL FIRST YEAR DEPRECIATION DEDUCTION APPLIES Tax Year Amount 1st Tax Year $11,360 2nd Tax Year $5,300 3rd Tax Year $3,150 Each Succeeding Year $1,875 REV. How do i file a tax extension PROC. How do i file a tax extension 2012-23 TABLE 3 DEPRECIATION LIMITATIONS FOR PASSENGER AUTOMOBILES (THAT ARE NOT TRUCKS OR VANS) PLACED IN SERVICE IN CALENDAR YEAR 2012 FOR WHICH THE § 168(k) ADDITIONAL FIRST YEAR DEPRECIATION DEDUCTION DOES NOT APPLY Tax Year Amount 1st Tax Year $3,160 2nd Tax Year $5,100 3rd Tax Year $3,050 Each Succeeding Year $1,875 REV. How do i file a tax extension PROC. How do i file a tax extension 2012-23 TABLE 4 DEPRECIATION LIMITATIONS FOR TRUCKS AND VANS PLACED IN SERVICE IN CALENDAR YEAR 2012 FOR WHICH THE § 168(k) ADDITIONAL FIRST YEAR DEPRECIATION DEDUCTION DOES NOT APPLY Tax Year Amount 1st Tax Year $3,360 2nd Tax Year $5,300 3rd Tax Year $3,150 Each Succeeding Year $1,875 . How do i file a tax extension 02 Inclusions in Income of Lessees of Passenger Automobiles. How do i file a tax extension A taxpayer must follow the procedures in § 1. How do i file a tax extension 280F-7(a) for determining the inclusion amounts for passenger automobiles first leased in calendar year 2012. How do i file a tax extension In applying these procedures, lessees of passenger automobiles other than trucks and vans should use Table 5 of this revenue procedure, while lessees of trucks and vans should use Table 6 of this revenue procedure. How do i file a tax extension REV. How do i file a tax extension PROC. How do i file a tax extension 2012-23 TABLE 5 DOLLAR AMOUNTS FOR PASSENGER AUTOMOBILES (THAT ARE NOT TRUCKS OR VANS) WITH A LEASE TERM BEGINNING IN CALENDAR YEAR 2012 Fair Market Value of Passenger Automobile Tax Year During Lease Over Not Over 1st 2nd 3rd 4th 5th & Later $18,500 $19,000 2 4 5 6 8 19,000 19,500 2 4 7 7 9 19,500 20,000 2 5 8 8 10 20,000 20,500 3 5 9 10 11 20,500 21,000 3 6 9 12 12 21,000 21,500 3 7 10 12 14 21,500 22,000 3 8 11 13 16 22,000 23,000 4 8 13 15 17 23,000 24,000 4 10 15 17 20 24,000 25,000 5 11 17 19 23 25,000 26,000 6 12 19 21 26 26,000 27,000 6 14 20 24 28 27,000 28,000 7 15 22 26 31 28,000 29,000 7 16 25 28 33 29,000 30,000 8 18 25 32 35 30,000 31,000 9 19 27 34 38 31,000 32,000 9 20 30 36 41 32,000 33,000 10 21 32 38 43 33,000 34,000 10 23 33 41 46 34,000 35,000 11 24 35 43 49 35,000 36,000 12 25 37 45 52 36,000 37,000 12 27 39 47 54 37,000 38,000 13 28 41 49 57 38,000 39,000 13 29 43 52 59 39,000 40,000 14 30 45 54 62 40,000 41,000 14 32 47 56 65 41,000 42,000 15 33 49 58 68 42,000 43,000 16 34 51 61 70 43,000 44,000 16 36 52 63 73 44,000 45,000 17 37 54 66 75 45,000 46,000 17 38 57 67 78 46,000 47,000 18 39 59 70 80 47,000 48,000 19 40 61 72 83 48,000 49,000 19 42 62 75 86 49,000 50,000 20 43 64 77 89 50,000 51,000 20 45 66 79 91 51,000 52,000 21 46 68 81 94 52,000 53,000 21 47 70 84 96 53,000 54,000 22 48 72 86 99 54,000 55,000 23 49 74 88 102 55,000 56,000 23 51 76 90 104 56,000 57,000 24 52 78 92 107 57,000 58,000 24 54 79 95 110 58,000 59,000 25 55 81 97 113 59,000 60,000 26 56 83 100 115 60,000 62,000 26 58 86 103 119 62,000 64,000 28 60 90 108 124 64,000 66,000 29 63 94 112 129 66,000 68,000 30 66 97 117 135 68,000 70,000 31 68 102 121 140 70,000 72,000 32 71 105 126 145 72,000 74,000 33 74 109 130 151 74,000 76,000 35 76 113 135 156 76,000 78,000 36 78 117 140 161 78,000 80,000 37 81 120 145 166 80,000 85,000 39 86 127 152 176 85,000 90,000 42 92 137 163 189 90,000 95,000 45 98 147 175 202 95,000 100,000 48 105 155 187 215 100,000 110,000 52 115 170 203 235 110,000 120,000 58 127 189 227 262 120,000 130,000 64 140 208 250 288 130,000 140,000 70 153 227 272 315 140,000 150,000 75 166 246 296 340 150,000 160,000 81 179 265 318 368 160,000 170,000 87 192 284 341 394 170,000 180,000 93 204 304 364 420 180,000 190,000 99 217 323 387 446 190,000 200,000 105 230 342 409 473 200,000 210,000 111 243 361 432 499 210,000 220,000 116 256 380 455 526 220,000 230,000 122 269 399 478 552 230,000 240,000 128 282 418 501 578 240,000 and up 134 294 437 524 605 REV. How do i file a tax extension PROC. How do i file a tax extension 2012-23 TABLE 6 DOLLAR AMOUNTS FOR TRUCKS AND VANS WITH A LEASE TERM BEGINNING IN CALENDAR YEAR 2012 Fair Market Value of Truck or Van Tax Year During Lease Over Not Over 1st 2nd 3rd 4th 5th & Later $19,000 $19,500 1 4 5 6 7 19,500 20,000 2 4 6 7 9 20,000 20,500 2 5 7 8 10 20,500 21,000 2 5 8 10 11 21,000 21,500 3 6 9 10 13 21,500 22,000 3 6 10 12 14 22,000 23,000 3 8 11 14 15 23,000 24,000 4 9 13 16 18 24,000 25,000 4 10 15 19 21 25,000 26,000 5 11 17 21 24 26,000 27,000 6 12 19 23 26 27,000 28,000 6 14 21 25 29 28,000 29,000 7 15 23 27 32 29,000 30,000 7 17 24 30 34 30,000 31,000 8 18 26 32 37 31,000 32,000 9 19 28 34 40 32,000 33,000 9 20 31 36 42 33,000 34,000 10 21 33 39 44 34,000 35,000 10 23 34 41 48 35,000 36,000 11 24 36 44 50 36,000 37,000 12 25 38 46 53 37,000 38,000 12 27 40 48 55 38,000 39,000 13 28 42 50 58 39,000 40,000 13 29 44 53 60 40,000 41,000 14 31 45 55 63 41,000 42,000 14 32 48 57 66 42,000 43,000 15 33 50 59 69 43,000 44,000 16 34 52 61 72 44,000 45,000 16 36 53 64 74 45,000 46,000 17 37 55 66 77 46,000 47,000 17 38 58 68 79 47,000 48,000 18 40 59 70 82 48,000 49,000 19 41 61 73 84 49,000 50,000 19 42 63 75 87 50,000 51,000 20 43 65 78 89 51,000 52,000 20 45 66 80 93 52,000 53,000 21 46 68 83 95 53,000 54,000 21 48 70 84 98 54,000 55,000 22 49 72 87 100 55,000 56,000 23 50 74 89 103 56,000 57,000 23 51 76 92 105 57,000 58,000 24 52 78 94 108 58,000 59,000 24 54 80 96 111 59,000 60,000 25 55 82 98 114 60,000 62,000 26 57 85 101 118 62,000 64,000 27 60 88 106 123 64,000 66,000 28 62 93 110 128 66,000 68,000 29 65 96 115 134 68,000 70,000 30 67 100 120 139 70,000 72,000 32 70 103 125 144 72,000 74,000 33 72 108 129 149 74,000 76,000 34 75 111 134 155 76,000 78,000 35 78 115 138 160 78,000 80,000 36 80 119 143 165 80,000 85,000 38 85 125 151 175 85,000 90,000 41 91 135 163 187 90,000 95,000 44 98 144 174 201 95,000 100,000 47 104 154 185 214 100,000 110,000 52 113 169 202 234 110,000 120,000 57 127 187 225 261 120,000 130,000 63 139 207 248 287 130,000 140,000 69 152 226 271 313 140,000 150,000 75 165 245 294 339 150,000 160,000 81 178 264 316 366 160,000 170,000 87 190 283 340 392 170,000 180,000 92 204 302 362 419 180,000 190,000 98 216 322 385 445 190,000 200,000 104 229 340 409 471 200,000 210,000 110 242 359 431 498 210,000 220,000 116 255 378 454 524 220,000 230,000 122 267 398 477 551 230,000 240,000 127 281 416 500 577 240,000 and up 133 294 435 523 603 SECTION 5. How do i file a tax extension EFFECTIVE DATE This revenue procedure applies to passenger automobiles that a taxpayer first places in service or first leases during calendar year 2012. How do i file a tax extension SECTION 6. How do i file a tax extension DRAFTING INFORMATION The principal author of this revenue procedure is Bernard P. How do i file a tax extension Harvey of the Office of Associate Chief Counsel (Income Tax & Accounting). How do i file a tax extension For further information regarding this revenue procedure, contact Mr. How do i file a tax extension Harvey at (202) 622-4930 (not a toll-free call). How do i file a tax extension Prev  Up  Next   Home   More Internal Revenue Bulletins
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The How Do I File A Tax Extension

How do i file a tax extension 1. How do i file a tax extension   Overview of Depreciation Table of Contents Introduction Useful Items - You may want to see: What Property Can Be Depreciated?Property You Own Property Used in Your Business or Income-Producing Activity Property Having a Determinable Useful Life Property Lasting More Than One Year What Property Cannot Be Depreciated?Land Excepted Property When Does Depreciation Begin and End?Placed in Service Idle Property Cost or Other Basis Fully Recovered Retired From Service What Method Can You Use To Depreciate Your Property?Property You Placed in Service Before 1987 Property Owned or Used in 1986 Intangible Property Corporate or Partnership Property Acquired in a Nontaxable Transfer Election To Exclude Property From MACRS What Is the Basis of Your Depreciable Property?Cost as Basis Other Basis Adjusted Basis How Do You Treat Repairs and Improvements? Do You Have To File Form 4562? How Do You Correct Depreciation Deductions?Filing an Amended Return Changing Your Accounting Method Introduction Depreciation is an annual income tax deduction that allows you to recover the cost or other basis of certain property over the time you use the property. How do i file a tax extension It is an allowance for the wear and tear, deterioration, or obsolescence of the property. How do i file a tax extension This chapter discusses the general rules for depreciating property and answers the following questions. How do i file a tax extension What property can be depreciated? What property cannot be depreciated? When does depreciation begin and end? What method can you use 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? Useful Items - You may want to see: Publication 534 Depreciating Property Placed in Service Before 1987 535 Business Expenses 538 Accounting Periods and Methods 551 Basis of Assets Form (and Instructions) Sch C (Form 1040) Profit or Loss From Business Sch C-EZ (Form 1040) Net Profit From Business 2106 Employee Business Expenses 2106-EZ Unreimbursed Employee Business Expenses 3115 Application for Change in Accounting Method 4562 Depreciation and Amortization See chapter 6 for information about getting publications and forms. How do i file a tax extension What Property Can Be Depreciated? You can depreciate most types of tangible property (except land), such as buildings, machinery, vehicles, furniture, and equipment. How do i file a tax extension You also can depreciate certain intangible property, such as patents, copyrights, and computer software. How do i file a tax extension To be depreciable, the property must meet all the following requirements. How do i file a tax extension It must be property you own. How do i file a tax extension It must be used in your business or income-producing activity. How do i file a tax extension It must have a determinable useful life. How do i file a tax extension It must be expected to last more than one year. How do i file a tax extension The following discussions provide information about these requirements. How do i file a tax extension Property You Own To claim depreciation, you usually must be the owner of the property. How do i file a tax extension You are considered as owning property even if it is subject to a debt. How do i file a tax extension Example 1. How do i file a tax extension You made a down payment to purchase rental property and assumed the previous owner's mortgage. How do i file a tax extension You own the property and you can depreciate it. How do i file a tax extension Example 2. How do i file a tax extension You bought a new van that you will use only for your courier business. How do i file a tax extension You will be making payments on the van over the next 5 years. How do i file a tax extension You own the van and you can depreciate it. How do i file a tax extension Leased property. How do i file a tax extension   You can depreciate leased property only if you retain the incidents of ownership in the property (explained below). How do i file a tax extension This means you bear the burden of exhaustion of the capital investment in the property. How do i file a tax extension 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. How do i file a tax extension You can, however, depreciate any capital improvements you make to the property. How do i file a tax extension See How Do You Treat Repairs and Improvements later in this chapter and Additions and Improvements under Which Recovery Period Applies in chapter 4. How do i file a tax extension   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. How do i file a tax extension However, 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, you cannot depreciate the cost of the property. How do i file a tax extension Incidents of ownership. How do i file a tax extension   Incidents of ownership in property include the following. How do i file a tax extension The legal title to the property. How do i file a tax extension The legal obligation to pay for the property. How do i file a tax extension The responsibility to pay maintenance and operating expenses. How do i file a tax extension The duty to pay any taxes on the property. How do i file a tax extension The risk of loss if the property is destroyed, condemned, or diminished in value through obsolescence or exhaustion. How do i file a tax extension Life tenant. How do i file a tax extension   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. How do i file a tax extension However, see Certain term interests in property under Excepted Property, later. How do i file a tax extension Cooperative apartments. How do i file a tax extension   If you are a tenant-stockholder in a cooperative housing corporation and use your cooperative apartment in your business or for the production of income, you can depreciate your stock in the corporation, even though the corporation owns the apartment. How do i file a tax extension   Figure your depreciation deduction as follows. How do i file a tax extension Figure the depreciation for all the depreciable real property owned by the corporation in which you have a proprietary lease or right of tenancy. How do i file a tax extension If you bought your cooperative stock after its first offering, figure the depreciable basis of this property as follows. How do i file a tax extension Multiply your cost per share by the total number of outstanding shares, including any shares held by the corporation. How do i file a tax extension Add to the amount figured in (a) any mortgage debt on the property on the date you bought the stock. How do i file a tax extension Subtract from the amount figured in (b) any mortgage debt that is not for the depreciable real property, such as the part for the land. How do i file a tax extension Subtract from the amount figured in (1) any depreciation for space owned by the corporation that can be rented but cannot be lived in by tenant-stockholders. How do i file a tax extension Divide the number of your shares of stock by the total number of outstanding shares, including any shares held by the corporation. How do i file a tax extension Multiply the result of (2) by the percentage you figured in (3). How do i file a tax extension This is your depreciation on the stock. How do i file a tax extension   Your depreciation deduction for the year cannot be more than the part of your adjusted basis in the stock of the corporation that is allocable to your business or income-producing property. How do i file a tax extension You must also reduce your depreciation deduction if only a portion of the property is used in a business or for the production of income. How do i file a tax extension Example. How do i file a tax extension You figure your share of the cooperative housing corporation's depreciation to be $30,000. How do i file a tax extension Your adjusted basis in the stock of the corporation is $50,000. How do i file a tax extension You use one half of your apartment solely for business purposes. How do i file a tax extension Your depreciation deduction for the stock for the year cannot be more than $25,000 (½ of $50,000). How do i file a tax extension Change to business use. How do i file a tax extension   If you change your cooperative apartment to business use, figure your allowable depreciation as explained earlier. How do i file a tax extension The basis of all the depreciable real property owned by the cooperative housing corporation is the smaller of the following amounts. How do i file a tax extension The fair market value of the property on the date you change your apartment to business use. How do i file a tax extension This is considered to be the same as the corporation's adjusted basis minus straight line depreciation, unless this value is unrealistic. How do i file a tax extension The corporation's adjusted basis in the property on that date. How do i file a tax extension Do not subtract depreciation when figuring the corporation's adjusted basis. How do i file a tax extension   If you bought the stock after its first offering, the corporation's adjusted basis in the property is the amount figured in (1), above. How do i file a tax extension The fair market value of the property is considered to be the same as the corporation's adjusted basis figured in this way minus straight line depreciation, unless the value is unrealistic. How do i file a tax extension   For a discussion of fair market value and adjusted basis, see Publication 551. How do i file a tax extension 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. How do i file a tax extension If you use property to produce income (investment use), the income must be taxable. How do i file a tax extension You cannot depreciate property that you use solely for personal activities. How do i file a tax extension Partial business or investment use. How do i file a tax extension   If you use property for business or investment purposes and for personal purposes, you can deduct depreciation based only on the business or investment use. How do i file a tax extension For example, you cannot deduct depreciation on a car used only for commuting, personal shopping trips, family vacations, driving children to and from school, or similar activities. How do i file a tax extension    You must keep records showing the business, investment, and personal use of your property. How do i file a tax extension For more information on the records you must keep for listed property, such as a car, see What Records Must Be Kept in chapter 5. How do i file a tax extension    Although you can combine business and investment use of property when figuring depreciation deductions, do not treat investment use as qualified business use when determining whether the business-use requirement for listed property is met. How do i file a tax extension For information about qualified business use of listed property, see What Is the Business-Use Requirement in chapter 5. How do i file a tax extension Office in the home. How do i file a tax extension   If you use part of your home as an office, you may be able to deduct depreciation on that part based on its business use. How do i file a tax extension For information about depreciating your home office, see Publication 587. How do i file a tax extension Inventory. How do i file a tax extension   You cannot depreciate inventory because it is not held for use in your business. How do i file a tax extension Inventory is any property you hold primarily for sale to customers in the ordinary course of your business. How do i file a tax extension   If you are a rent-to-own dealer, you may be able to treat certain property held in your business as depreciable property rather than as inventory. How do i file a tax extension See Rent-to-own dealer under Which Property Class Applies Under GDS in chapter 4. How do i file a tax extension   In some cases, it is not clear whether property is held for sale (inventory) or for use in your business. How do i file a tax extension If it is unclear, examine carefully all the facts in the operation of the particular business. How do i file a tax extension The following example shows how a careful examination of the facts in two similar situations results in different conclusions. How do i file a tax extension Example. How do i file a tax extension Maple Corporation is in the business of leasing cars. How do i file a tax extension At the end of their useful lives, when the cars are no longer profitable to lease, Maple sells them. How do i file a tax extension Maple does not have a showroom, used car lot, or individuals to sell the cars. How do i file a tax extension Instead, it sells them through wholesalers or by similar arrangements in which a dealer's profit is not intended or considered. How do i file a tax extension Maple can depreciate the leased cars because the cars are not held primarily for sale to customers in the ordinary course of business, but are leased. How do i file a tax extension If Maple buys cars at wholesale prices, leases them for a short time, and then sells them at retail prices or in sales in which a dealer's profit is intended, the cars are treated as inventory and are not depreciable property. How do i file a tax extension In this situation, the cars are held primarily for sale to customers in the ordinary course of business. How do i file a tax extension Containers. How do i file a tax extension   Generally, containers for the products you sell are part of inventory and you cannot depreciate them. How do i file a tax extension However, you can depreciate containers used to ship your products if they have a life longer than one year and meet the following requirements. How do i file a tax extension They qualify as property used in your business. How do i file a tax extension Title to the containers does not pass to the buyer. How do i file a tax extension   To determine if these requirements are met, consider the following questions. How do i file a tax extension Does your sales contract, sales invoice, or other type of order acknowledgment indicate whether you have retained title? Does your invoice treat the containers as separate items? Do any of your records state your basis in the containers? Property Having a Determinable Useful Life To be depreciable, your property must have a determinable useful life. How do i file a tax extension This means that it must be something that wears out, decays, gets used up, becomes obsolete, or loses its value from natural causes. How do i file a tax extension Property Lasting More Than One Year To be depreciable, property must have a useful life that extends substantially beyond the year you place it in service. How do i file a tax extension Example. How do i file a tax extension You maintain a library for use in your profession. How do i file a tax extension You can depreciate it. How do i file a tax extension However, if you buy technical books, journals, or information services for use in your business that have a useful life of one year or less, you cannot depreciate them. How do i file a tax extension Instead, you deduct their cost as a business expense. How do i file a tax extension What Property Cannot Be Depreciated? Certain property cannot be depreciated. How do i file a tax extension This includes land and certain excepted property. How do i file a tax extension Land You cannot depreciate the cost of land because land does not wear out, become obsolete, or get used up. How do i file a tax extension The cost of land generally includes the cost of clearing, grading, planting, and landscaping. How do i file a tax extension Although you cannot depreciate land, you can depreciate certain land preparation costs, such as landscaping costs, incurred in preparing land for business use. How do i file a tax extension These costs must be so closely associated with other depreciable property that you can determine a life for them along with the life of the associated property. How do i file a tax extension Example. How do i file a tax extension You constructed a new building for use in your business and paid for grading, clearing, seeding, and planting bushes and trees. How do i file a tax extension Some of the bushes and trees were planted right next to the building, while others were planted around the outer border of the lot. How do i file a tax extension If you replace the building, you would have to destroy the bushes and trees right next to it. How do i file a tax extension These bushes and trees are closely associated with the building, so they have a determinable useful life. How do i file a tax extension Therefore, you can depreciate them. How do i file a tax extension Add your other land preparation costs to the basis of your land because they have no determinable life and you cannot depreciate them. How do i file a tax extension Excepted Property Even if the requirements explained in the preceding discussions are met, you cannot depreciate the following property. How do i file a tax extension Property placed in service and disposed of in the same year. How do i file a tax extension Determining when property is placed in service is explained later. How do i file a tax extension Equipment used to build capital improvements. How do i file a tax extension You must add otherwise allowable depreciation on the equipment during the period of construction to the basis of your improvements. How do i file a tax extension See Uniform Capitalization Rules in Publication 551. How do i file a tax extension Section 197 intangibles. How do i file a tax extension You must amortize these costs. How do i file a tax extension Section 197 intangibles are discussed in detail in Chapter 8 of Publication 535. How do i file a tax extension Intangible property, such as certain computer software, that is not section 197 intangible property, can be depreciated if it meets certain requirements. How do i file a tax extension See Intangible Property , later. How do i file a tax extension Certain term interests. How do i file a tax extension Certain term interests in property. How do i file a tax extension   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. How do i file a tax extension A term interest in property means a life interest in property, an interest in property for a term of years, or an income interest in a trust. How do i file a tax extension Related persons. How do i file a tax extension   For a description of related persons, see Related Persons, later. How do i file a tax extension For this purpose, however, treat as related persons only the relationships listed in items (1) through (10) of that discussion and substitute “50%” for “10%” each place it appears. How do i file a tax extension Basis adjustments. How do i file a tax extension   If you would be allowed a depreciation deduction for a term interest in property except that the holder of the remainder interest is related to you, you generally must reduce your basis in the term interest by any depreciation or amortization not allowed. How do i file a tax extension   If you hold the remainder interest, you generally must increase your basis in that interest by the depreciation not allowed to the term interest holder. How do i file a tax extension However, do not increase your basis for depreciation not allowed for periods during which either of the following situations applies. How do i file a tax extension The term interest is held by an organization exempt from tax. How do i file a tax extension The term interest is held by a nonresident alien individual or foreign corporation, and the income from the term interest is not effectively connected with the conduct of a trade or business in the United States. How do i file a tax extension Exceptions. How do i file a tax extension   The above rules do not apply to the holder of a term interest in property acquired by gift, bequest, or inheritance. How do i file a tax extension They also do not apply to the holder of dividend rights that were separated from any stripped preferred stock if the rights were purchased after April 30, 1993, or to a person whose basis in the stock is determined by reference to the basis in the hands of the purchaser. How do i file a tax extension 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. How do i file a tax extension 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. How do i file a tax extension Placed in Service You place property 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. How do i file a tax extension Even if you are not using the property, it is in service when it is ready and available for its specific use. How do i file a tax extension Example 1. How do i file a tax extension Donald Steep bought a machine for his business. How do i file a tax extension The machine was delivered last year. How do i file a tax extension However, it was not installed and operational until this year. How do i file a tax extension It is considered placed in service this year. How do i file a tax extension If the machine had been ready and available for use when it was delivered, it would be considered placed in service last year even if it was not actually used until this year. How do i file a tax extension Example 2. How do i file a tax extension On April 6, Sue Thorn bought a house to use as residential rental property. How do i file a tax extension She made several repairs and had it ready for rent on July 5. How do i file a tax extension At that time, she began to advertise it for rent in the local newspaper. How do i file a tax extension The house is considered placed in service in July when it was ready and available for rent. How do i file a tax extension She can begin to depreciate it in July. How do i file a tax extension Example 3. How do i file a tax extension James Elm is a building contractor who specializes in constructing office buildings. How do i file a tax extension He bought a truck last year that had to be modified to lift materials to second-story levels. How do i file a tax extension The installation of the lifting equipment was completed and James accepted delivery of the modified truck on January 10 of this year. How do i file a tax extension The truck was placed in service on January 10, the date it was ready and available to perform the function for which it was bought. How do i file a tax extension Conversion to business use. How do i file a tax extension   If you place property in service in a personal activity, you cannot claim depreciation. How do i file a tax extension However, if you change the property's use to use in a business or income-producing activity, then you can begin to depreciate it at the time of the change. How do i file a tax extension You place the property in service in the business or income-producing activity on the date of the change. How do i file a tax extension Example. How do i file a tax extension You bought a home and used it as your personal home several years before you converted it to rental property. How do i file a tax extension Although its specific use was personal and no depreciation was allowable, you placed the home in service when you began using it as your home. How do i file a tax extension You can begin to claim depreciation in the year you converted it to rental property because its use changed to an income-producing use at that time. How do i file a tax extension 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 (not in use). How do i file a tax extension 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. How do i file a tax extension Cost or Other Basis Fully Recovered You stop depreciating property when you have fully recovered your cost or other basis. How do i file a tax extension You recover your basis when your section 179 and allowed or allowable depreciation deductions equal your cost or investment in the property. How do i file a tax extension See What Is the Basis of Your Depreciable Property , later. How do i file a tax extension 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. How do i file a tax extension 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. How do i file a tax extension You sell or exchange the property. How do i file a tax extension You convert the property to personal use. How do i file a tax extension You abandon the property. How do i file a tax extension You transfer the property to a supplies or scrap account. How do i file a tax extension The property is destroyed. How do i file a tax extension If you included the property in a general asset account, see How Do You Use General Asset Accounts in chapter 4 for the rules that apply when you dispose of that property. How do i file a tax extension What Method Can You Use To Depreciate Your Property? You must use the Modified Accelerated Cost Recovery System (MACRS) to depreciate most property. How do i file a tax extension MACRS is discussed in chapter 4. How do i file a tax extension You cannot use MACRS to depreciate the following property. How do i file a tax extension Property you placed in service before 1987. How do i file a tax extension Certain property owned or used in 1986. How do i file a tax extension Intangible property. How do i file a tax extension Films, video tapes, and recordings. How do i file a tax extension Certain corporate or partnership property acquired in a nontaxable transfer. How do i file a tax extension Property you elected to exclude from MACRS. How do i file a tax extension The following discussions describe the property listed above and explain what depreciation method should be used. How do i file a tax extension Property You Placed in Service Before 1987 You cannot use MACRS for property you placed in service before 1987 (except property you placed in service after July 31, 1986, if MACRS was elected). How do i file a tax extension Property placed in service before 1987 must be depreciated under the methods discussed in Publication 534. How do i file a tax extension For a discussion of when property is placed in service, see When Does Depreciation Begin and End , earlier. How do i file a tax extension Use of real property changed. How do i file a tax extension   You generally must use MACRS to depreciate real property that you acquired for personal use before 1987 and changed to business or income-producing use after 1986. How do i file a tax extension Improvements made after 1986. How do i file a tax extension   You must treat an improvement made after 1986 to property you placed in service before 1987 as separate depreciable property. How do i file a tax extension Therefore, you can depreciate that improvement as separate property under MACRS if it is the type of property that otherwise qualifies for MACRS depreciation. How do i file a tax extension For more information about improvements, see How Do You Treat Repairs and Improvements , later and Additions and Improvements under Which Recovery Period Applies in chapter 4. How do i file a tax extension Property Owned or Used in 1986 You may not be able to use MACRS for property you acquired and placed in service after 1986 if any of the situations described below apply. How do i file a tax extension If you cannot use MACRS, the property must be depreciated under the methods discussed in Publication 534. How do i file a tax extension For the following discussions, do not treat property as owned before you placed it in service. How do i file a tax extension If you owned property in 1986 but did not place it in service until 1987, you do not treat it as owned in 1986. How do i file a tax extension Personal property. How do i file a tax extension   You cannot use MACRS for personal property (section 1245 property) in any of the following situations. How do i file a tax extension You or someone related to you owned or used the property in 1986. How do i file a tax extension You acquired the property from a person who owned it in 1986 and as part of the transaction the user of the property did not change. How do i file a tax extension You lease the property to a person (or someone related to this person) who owned or used the property in 1986. How do i file a tax extension You acquired the property in a transaction in which: The user of the property did not change, and The property was not MACRS property in the hands of the person from whom you acquired it because of (2) or (3) above. How do i file a tax extension Real property. How do i file a tax extension   You generally cannot use MACRS for real property (section 1250 property) in any of the following situations. How do i file a tax extension You or someone related to you owned the property in 1986. How do i file a tax extension You lease the property to a person who owned the property in 1986 (or someone related to that person). How do i file a tax extension You acquired the property in a like-kind exchange, involuntary conversion, or repossession of property you or someone related to you owned in 1986. How do i file a tax extension MACRS applies only to that part of your basis in the acquired property that represents cash paid or unlike property given up. How do i file a tax extension It does not apply to the carried-over part of the basis. How do i file a tax extension Exceptions. How do i file a tax extension   The rules above do not apply to the following. How do i file a tax extension Residential rental property or nonresidential real property. How do i file a tax extension Any property if, in the first tax year it is placed in service, the deduction under the Accelerated Cost Recovery System (ACRS) is more than the deduction under MACRS using the half-year convention. How do i file a tax extension For information on how to figure depreciation under ACRS, see Publication 534. How do i file a tax extension Property that was MACRS property in the hands of the person from whom you acquired it because of (2) above. How do i file a tax extension Related persons. How do i file a tax extension   For this purpose, the following are related persons. How do i file a tax extension An individual and a member of his or her family, including only a spouse, child, parent, brother, sister, half-brother, half-sister, ancestor, and lineal descendant. How do i file a tax extension A corporation and an individual who directly or indirectly owns more than 10% of the value of the outstanding stock of that corporation. How do i file a tax extension Two corporations that are members of the same controlled group. How do i file a tax extension A trust fiduciary and a corporation if more than 10% of the value of the outstanding stock is directly or indirectly owned by or for the trust or grantor of the trust. How do i file a tax extension The grantor and fiduciary, and the fiduciary and beneficiary, of any trust. How do i file a tax extension The fiduciaries of two different trusts, and the fiduciaries and beneficiaries of two different trusts, if the same person is the grantor of both trusts. How do i file a tax extension A tax-exempt educational or charitable organization and any person (or, if that person is an individual, a member of that person's family) who directly or indirectly controls the organization. How do i file a tax extension Two S corporations, and an S corporation and a regular corporation, if the same persons own more than 10% of the value of the outstanding stock of each corporation. How do i file a tax extension A corporation and a partnership if the same persons own both of the following. How do i file a tax extension More than 10% of the value of the outstanding stock of the corporation. How do i file a tax extension More than 10% of the capital or profits interest in the partnership. How do i file a tax extension The executor and beneficiary of any estate. How do i file a tax extension A partnership and a person who directly or indirectly owns more than 10% of the capital or profits interest in the partnership. How do i file a tax extension Two partnerships, if the same persons directly or indirectly own more than 10% of the capital or profits interest in each. How do i file a tax extension The related person and a person who is engaged in trades or businesses under common control. How do i file a tax extension See section 52(a) and 52(b) of the Internal Revenue Code. How do i file a tax extension When to determine relationship. How do i file a tax extension   You must determine whether you are related to another person at the time you acquire the property. How do i file a tax extension   A partnership acquiring property from a terminating partnership must determine whether it is related to the terminating partnership immediately before the event causing the termination. How do i file a tax extension For this rule, a terminating partnership is one that sells or exchanges, within 12 months, 50% or more of its total interest in partnership capital or profits. How do i file a tax extension Constructive ownership of stock or partnership interest. How do i file a tax extension   To determine whether a person directly or indirectly owns any of the outstanding stock of a corporation or an interest in a partnership, apply the following rules. How do i file a tax extension Stock or a partnership interest directly or indirectly owned by or for a corporation, partnership, estate, or trust is considered owned proportionately by or for its shareholders, partners, or beneficiaries. How do i file a tax extension However, for a partnership interest owned by or for a C corporation, this applies only to shareholders who directly or indirectly own 5% or more of the value of the stock of the corporation. How do i file a tax extension An individual is considered to own the stock or partnership interest directly or indirectly owned by or for the individual's family. How do i file a tax extension An individual who owns, except by applying rule (2), any stock in a corporation is considered to own the stock directly or indirectly owned by or for the individual's partner. How do i file a tax extension For purposes of rules (1), (2), or (3), stock or a partnership interest considered to be owned by a person under rule (1) is treated as actually owned by that person. How do i file a tax extension However, stock or a partnership interest considered to be owned by an individual under rule (2) or (3) is not treated as owned by that individual for reapplying either rule (2) or (3) to make another person considered to be the owner of the same stock or partnership interest. How do i file a tax extension Intangible Property Generally, if you can depreciate intangible property, you usually use the straight line method of depreciation. How do i file a tax extension However, you can choose to depreciate certain intangible property under the income forecast method (discussed later). How do i file a tax extension You cannot depreciate intangible property that is a section 197 intangible or that otherwise does not meet all the requirements discussed earlier under What Property Can Be Depreciated. How do i file a tax extension Straight Line Method This method lets you deduct the same amount of depreciation each year over the useful life of the property. How do i file a tax extension To figure your deduction, first determine the adjusted basis, salvage value, and estimated useful life of your property. How do i file a tax extension Subtract the salvage value, if any, from the adjusted basis. How do i file a tax extension The balance is the total depreciation you can take over the useful life of the property. How do i file a tax extension Divide the balance by the number of years in the useful life. How do i file a tax extension This gives you your yearly depreciation deduction. How do i file a tax extension Unless there is a big change in adjusted basis or useful life, this amount will stay the same throughout the time you depreciate the property. How do i file a tax extension If, in the first year, you use the property for less than a full year, you must prorate your depreciation deduction for the number of months in use. How do i file a tax extension Example. How do i file a tax extension In April, Frank bought a patent for $5,100 that is not a section 197 intangible. How do i file a tax extension He depreciates the patent under the straight line method, using a 17-year useful life and no salvage value. How do i file a tax extension He divides the $5,100 basis by 17 years to get his $300 yearly depreciation deduction. How do i file a tax extension He only used the patent for 9 months during the first year, so he multiplies $300 by 9/12 to get his deduction of $225 for the first year. How do i file a tax extension Next year, Frank can deduct $300 for the full year. How do i file a tax extension Patents and copyrights. How do i file a tax extension   If you can depreciate the cost of a patent or copyright, use the straight line method over the useful life. How do i file a tax extension The useful life of a patent or copyright is the lesser of the life granted to it by the government or the remaining life when you acquire it. How do i file a tax extension However, if the patent or copyright becomes valueless before the end of its useful life, you can deduct in that year any of its remaining cost or other basis. How do i file a tax extension Computer software. How do i file a tax extension   Computer software is generally a section 197 intangible and cannot be depreciated if you acquired it in connection with the acquisition of assets constituting a business or a substantial part of a business. How do i file a tax extension   However, computer software is not a section 197 intangible and can be depreciated, even if acquired in connection with the acquisition of a business, if it meets all of the following tests. How do i file a tax extension It is readily available for purchase by the general public. How do i file a tax extension It is subject to a nonexclusive license. How do i file a tax extension It has not been substantially modified. How do i file a tax extension   If the software meets the tests above, it may also qualify for the section 179 deduction and the special depreciation allowance, discussed later. How do i file a tax extension If you can depreciate the cost of computer software, use the straight line method over a useful life of 36 months. How do i file a tax extension    Tax-exempt use property subject to a lease. How do i file a tax extension   The useful life of computer software leased under a lease agreement entered into after March 12, 2004, to a tax-exempt organization, governmental unit, or foreign person or entity (other than a partnership), cannot be less than 125% of the lease term. How do i file a tax extension Certain created intangibles. How do i file a tax extension   You can amortize certain intangibles created on or after December 31, 2003, over a 15-year period using the straight line method and no salvage value, even though they have a useful life that cannot be estimated with reasonable accuracy. How do i file a tax extension For example, amounts paid to acquire memberships or privileges of indefinite duration, such as a trade association membership, are eligible costs. How do i file a tax extension   The following are not eligible. How do i file a tax extension Any intangible asset acquired from another person. How do i file a tax extension Created financial interests. How do i file a tax extension Any intangible asset that has a useful life that can be estimated with reasonable accuracy. How do i file a tax extension Any intangible asset that has an amortization period or limited useful life that is specifically prescribed or prohibited by the Code, regulations, or other published IRS guidance. How do i file a tax extension Any amount paid to facilitate an acquisition of a trade or business, a change in the capital structure of a business entity, and certain other transactions. How do i file a tax extension   You must also increase the 15-year safe harbor amortization period to a 25-year period for certain intangibles related to benefits arising from the provision, production, or improvement of real property. How do i file a tax extension For this purpose, real property includes property that will remain attached to the real property for an indefinite period of time, such as roads, bridges, tunnels, pavements, and pollution control facilities. How do i file a tax extension Income Forecast Method You can choose to use the income forecast method instead of the straight line method to depreciate the following depreciable intangibles. How do i file a tax extension Motion picture films or video tapes. How do i file a tax extension Sound recordings. How do i file a tax extension Copyrights. How do i file a tax extension Books. How do i file a tax extension Patents. How do i file a tax extension Under the income forecast method, each year's depreciation deduction is equal to the cost of the property, multiplied by a fraction. How do i file a tax extension The numerator of the fraction is the current year's net income from the property, and the denominator is the total income anticipated from the property through the end of the 10th taxable year following the taxable year the property is placed in service. How do i file a tax extension For more information, see section 167(g) of the Internal Revenue Code. How do i file a tax extension Films, video tapes, and recordings. How do i file a tax extension   You cannot use MACRS for motion picture films, video tapes, and sound recordings. How do i file a tax extension For this purpose, sound recordings are discs, tapes, or other phonorecordings resulting from the fixation of a series of sounds. How do i file a tax extension You can depreciate this property using either the straight line method or the income forecast method. How do i file a tax extension Participations and residuals. How do i file a tax extension   You can include participations and residuals in the adjusted basis of the property for purposes of computing your depreciation deduction under the income forecast method. How do i file a tax extension The participations and residuals must relate to income to be derived from the property before the end of the 10th taxable year after the property is placed in service. How do i file a tax extension For this purpose, participations and residuals are defined as costs which by contract vary with the amount of income earned in connection with the property. How do i file a tax extension   Instead of including these amounts in the adjusted basis of the property, you can deduct the costs in the taxable year that they are paid. How do i file a tax extension Videocassettes. How do i file a tax extension   If you are in the business of renting videocassettes, you can depreciate only those videocassettes bought for rental. How do i file a tax extension If the videocassette has a useful life of one year or less, you can currently deduct the cost as a business expense. How do i file a tax extension Corporate or Partnership Property Acquired in a Nontaxable Transfer MACRS does not apply to property used before 1987 and transferred after 1986 to a corporation or partnership (except property the transferor placed in service after July 31, 1986, if MACRS was elected) to the extent its basis is carried over from the property's adjusted basis in the transferor's hands. How do i file a tax extension You must continue to use the same depreciation method as the transferor and figure depreciation as if the transfer had not occurred. How do i file a tax extension However, if MACRS would otherwise apply, you can use it to depreciate the part of the property's basis that exceeds the carried-over basis. How do i file a tax extension The nontaxable transfers covered by this rule include the following. How do i file a tax extension A distribution in complete liquidation of a subsidiary. How do i file a tax extension A transfer to a corporation controlled by the transferor. How do i file a tax extension An exchange of property solely for corporate stock or securities in a reorganization. How do i file a tax extension A contribution of property to a partnership in exchange for a partnership interest. How do i file a tax extension A partnership distribution of property to a partner. How do i file a tax extension Election To Exclude Property From MACRS If you can properly depreciate any property under a method not based on a term of years, such as the unit-of-production method, you can elect to exclude that property from MACRS. How do i file a tax extension You make the election by reporting your depreciation for the property on line 15 in Part II of Form 4562 and attaching a statement as described in the instructions for Form 4562. How do i file a tax extension You must make this election by the return due date (including extensions) for the tax year you place your property in service. How do i file a tax extension 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 six months of the due date of the return (excluding extensions). How do i file a tax extension Attach the election to the amended return and write “Filed pursuant to section 301. How do i file a tax extension 9100-2” on the election statement. How do i file a tax extension File the amended return at the same address you filed the original return. How do i file a tax extension Use of standard mileage rate. How do i file a tax extension   If you use the standard mileage rate to figure your tax deduction for your business automobile, you are treated as having made an election to exclude the automobile from MACRS. How do i file a tax extension See Publication 463 for a discussion of the standard mileage rate. How do i file a tax extension What Is the Basis of Your Depreciable Property? To figure your depreciation deduction, you must determine the basis of your property. How do i file a tax extension To determine basis, you need to know the cost or other basis of your property. How do i file a tax extension Cost as Basis The basis of property you buy is its cost plus amounts you paid for items such as sales tax (see Exception , below), freight charges, and installation and testing fees. How do i file a tax extension The cost includes the amount you pay in cash, debt obligations, other property, or services. How do i file a tax extension Exception. How do i file a tax extension   You can elect to deduct state and local general sales taxes instead of state and local income taxes as an itemized deduction on Schedule A (Form 1040). How do i file a tax extension If you make that choice, you cannot include those sales taxes as part of your cost basis. How do i file a tax extension Assumed debt. How do i file a tax extension   If you buy property and assume (or buy subject to) an existing mortgage or other debt on the property, your basis includes the amount you pay for the property plus the amount of the assumed debt. How do i file a tax extension Example. How do i file a tax extension You make a $20,000 down payment on property and assume the seller's mortgage of $120,000. How do i file a tax extension Your total cost is $140,000, the cash you paid plus the mortgage you assumed. How do i file a tax extension Settlement costs. How do i file a tax extension   The basis of real property also includes certain fees and charges you pay in addition to the purchase price. How do i file a tax extension These generally are shown on your settlement statement and include the following. How do i file a tax extension Legal and recording fees. How do i file a tax extension Abstract fees. How do i file a tax extension Survey charges. How do i file a tax extension Owner's title insurance. How do i file a tax extension Amounts the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, charges for improvements or repairs, and sales commissions. How do i file a tax extension   For fees and charges you cannot include in the basis of property, see Real Property in Publication 551. How do i file a tax extension Property you construct or build. How do i file a tax extension   If you construct, build, or otherwise produce property for use in your business, you may have to use the uniform capitalization rules to determine the basis of your property. How do i file a tax extension For information about the uniform capitalization rules, see Publication 551 and the regulations under section 263A of the Internal Revenue Code. How do i file a tax extension Other Basis Other basis usually refers to basis that is determined by the way you received the property. How do i file a tax extension For example, your basis is other than cost if you acquired the property in exchange for other property, as payment for services you performed, as a gift, or as an inheritance. How do i file a tax extension If you acquired property in this or some other way, see Publication 551 to determine your basis. How do i file a tax extension Property changed from personal use. How do i file a tax extension   If you held property for personal use and later use it in your business or income-producing activity, your depreciable basis is the lesser of the following. How do i file a tax extension The fair market value (FMV) of the property on the date of the change in use. How do i file a tax extension Your original cost or other basis adjusted as follows. How do i file a tax extension Increased by the cost of any permanent improvements or additions and other costs that must be added to basis. How do i file a tax extension Decreased by any deductions you claimed for casualty and theft losses and other items that reduced your basis. How do i file a tax extension Example. How do i file a tax extension Several years ago, Nia paid $160,000 to have her home built on a lot that cost her $25,000. How do i file a tax extension Before changing the property to rental use last year, she paid $20,000 for permanent improvements to the house and claimed a $2,000 casualty loss deduction for damage to the house. How do i file a tax extension Land is not depreciable, so she includes only the cost of the house when figuring the basis for depreciation. How do i file a tax extension Nia's adjusted basis in the house when she changed its use was $178,000 ($160,000 + $20,000 − $2,000). How do i file a tax extension On the same date, her property had an FMV of $180,000, of which $15,000 was for the land and $165,000 was for the house. How do i file a tax extension The basis for depreciation on the house is the FMV on the date of change ($165,000), because it is less than her adjusted basis ($178,000). How do i file a tax extension Property acquired in a nontaxable transaction. How do i file a tax extension   Generally, if you receive property in a nontaxable exchange, the basis of the property you receive is the same as the adjusted basis of the property you gave up. How do i file a tax extension Special rules apply in determining the basis and figuring the MACRS depreciation deduction and special depreciation allowance for property acquired in a like-kind exchange or involuntary conversion. How do i file a tax extension See Like-kind exchanges and involuntary conversions. How do i file a tax extension under How Much Can You Deduct? in chapter 3 and Figuring the Deduction for Property Acquired in a Nontaxable Exchange in chapter 4. How do i file a tax extension   There are also special rules for determining the basis of MACRS property involved in a like-kind exchange or involuntary conversion when the property is contained in a general asset account. How do i file a tax extension See How Do You Use General Asset Accounts in chapter 4. How do i file a tax extension Adjusted Basis 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. How do i file a tax extension These events could include the following. How do i file a tax extension Installing utility lines. How do i file a tax extension Paying legal fees for perfecting the title. How do i file a tax extension Settling zoning issues. How do i file a tax extension Receiving rebates. How do i file a tax extension Incurring a casualty or theft loss. How do i file a tax extension For a discussion of adjustments to the basis of your property, see Adjusted Basis in Publication 551. How do i file a tax extension If you depreciate your property under MACRS, you also may have to reduce your basis by certain deductions and credits with respect to the property. How do i file a tax extension For more information, see What Is the Basis for Depreciation in chapter 4. How do i file a tax extension . How do i file a tax extension Basis adjustment for depreciation allowed or allowable. How do i file a tax extension   You must reduce the basis of property by the depreciation allowed or allowable, whichever is greater. How do i file a tax extension Depreciation allowed is depreciation you actually deducted (from which you received a tax benefit). How do i file a tax extension Depreciation allowable is depreciation you are entitled to deduct. How do i file a tax extension   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. How do i file a tax extension   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). How do i file a tax extension How Do You Treat Repairs and Improvements? If you improve depreciable property, you must treat the improvement as separate depreciable property. How do i file a tax extension Improvement means an addition to or partial replacement of property that adds to its value, appreciably lengthens the time you can use it, or adapts it to a different use. How do i file a tax extension You generally deduct the cost of repairing business property in the same way as any other business expense. How do i file a tax extension 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. How do i file a tax extension Example. How do i file a tax extension You repair a small section on one corner of the roof of a rental house. How do i file a tax extension You deduct the cost of the repair as a rental expense. How do i file a tax extension However, if you completely replace the roof, the new roof is an improvement because it increases the value and lengthens the life of the property. How do i file a tax extension You depreciate the cost of the new roof. How do i file a tax extension Improvements to rented property. How do i file a tax extension   You can depreciate permanent improvements you make to business property you rent from someone else. How do i file a tax extension Do You Have To File Form 4562? Use Form 4562 to figure your deduction for depreciation and amortization. How do i file a tax extension Attach Form 4562 to your tax return for the current tax year if you are claiming any of the following items. How do i file a tax extension A section 179 deduction for the current year or a section 179 carryover from a prior year. How do i file a tax extension See chapter 2 for information on the section 179 deduction. How do i file a tax extension Depreciation for property placed in service during the current year. How do i file a tax extension Depreciation on any vehicle or other listed property, regardless of when it was placed in service. How do i file a tax extension See chapter 5 for information on listed property. How do i file a tax extension A deduction for any vehicle if the deduction is reported on a form other than Schedule C (Form 1040) or Schedule C-EZ (Form 1040). How do i file a tax extension Amortization of costs if the current year is the first year of the amortization period. How do i file a tax extension Depreciation or amortization on any asset on a corporate income tax return (other than Form 1120S, U. How do i file a tax extension S. How do i file a tax extension Income Tax Return for an S Corporation) regardless of when it was placed in service. How do i file a tax extension You must submit a separate Form 4562 for each business or activity on your return for which a Form 4562 is required. How do i file a tax extension Table 1-1 presents an overview of the purpose of the various parts of Form 4562. How do i file a tax extension Employee. How do i file a tax extension   Do not use Form 4562 if you are an employee and you deduct job-related vehicle expenses using either actual expenses (including depreciation) or the standard mileage rate. How do i file a tax extension Instead, use either Form 2106 or Form 2106-EZ. How do i file a tax extension Use Form 2106-EZ if you are claiming the standard mileage rate and you are not reimbursed by your employer for any expenses. How do i file a tax extension 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. How do i file a tax extension See Filing an Amended Return , next. How do i file a tax extension 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. How do i file a tax extension See Changing Your Accounting Method , later. How do i file a tax extension Filing an Amended Return You can file an amended return to correct the amount of depreciation claimed for any property in any of the following situations. How do i file a tax extension You claimed the incorrect amount because of a mathematical error made in any year. How do i file a tax extension You claimed the incorrect amount because of a posting error made in any year. How do i file a tax extension You have not adopted a method of accounting for property placed in service by you in tax years ending after December 29, 2003. How do i file a tax extension You claimed the incorrect amount on property placed in service by you in tax years ending before December 30, 2003. How do i file a tax extension Adoption of accounting method defined. How do i file a tax extension   Generally, you adopt a method of accounting for depreciation by using a permissible method of determining depreciation when you file your first tax return, or by using the same impermissible method of determining depreciation in two or more consecutively filed tax returns. How do i file a tax extension   For an exception to this 2-year rule, see Revenue Procedure 2011-14 on page 330 of the Internal Revenue Bulletin 2011-4, available at www. How do i file a tax extension irs. How do i file a tax extension gov/pub/irs-irbs/irb11-04. How do i file a tax extension pdf. How do i file a tax extension (Note. How do i file a tax extension Revenue Procedure 2011-14 is clarified and modified by Revenue Procedure 2012-20. How do i file a tax extension For more information, see Revenue Procedure 2012-20 on page 700 of the Internal Revenue Bulletin 2012-14, available at www. How do i file a tax extension irs. How do i file a tax extension gov/pub/irs-irbs/irb12-14. How do i file a tax extension pdf. How do i file a tax extension )   For a safe harbor method of accounting to treat rotable spare parts as depreciable assets and procedures to obtain automatic consent to change to the safe harbor method of accounting, see Revenue Procedure 2007-48 on page 110 of Internal Revenue Bulletin 2007-29, available at www. How do i file a tax extension irs. How do i file a tax extension gov/pub/irs-irbs/irb07-29. How do i file a tax extension pdf. How do i file a tax extension When to file. How do i file a tax extension   If an amended return is allowed, you must file it by the later of the following. How do i file a tax extension 3 years from the date you filed your original return for the year in which you did not deduct the correct amount. How do i file a tax extension A return filed before an unextended due date is considered filed on that due date. How do i file a tax extension 2 years from the time you paid your tax for that year. How do i file a tax extension Changing Your Accounting Method Generally, you must get IRS approval to change your method of accounting. How do i file a tax extension You generally must file Form 3115, Application for Change in Accounting Method, to request a change in your method of accounting for depreciation. How do i file a tax extension The following are examples of a change in method of accounting for depreciation. How do i file a tax extension A change from an impermissible method of determining depreciation for depreciable property, if the impermissible method was used in two or more consecutively filed tax returns. How do i file a tax extension A change in the treatment of an asset from nondepreciable to depreciable or vice versa. How do i file a tax extension A change in the depreciation method, period of recovery, or convention of a depreciable asset. How do i file a tax extension A change from not claiming to claiming the special depreciation allowance if you did not make the election to not claim any special allowance. How do i file a tax extension A change from claiming a 50% special depreciation allowance to claiming a 30% special depreciation allowance for qualified property (including property that is included in a class of property for which you elected a 30% special allowance instead of a 50% special allowance). How do i file a tax extension Changes in depreciation that are not a change in method of accounting (and may only be made on an amended return) include the following. How do i file a tax extension An adjustment in the useful life of a depreciable asset for which depreciation is determined under section 167. How do i file a tax extension A change in use of an asset in the hands of the same taxpayer. How do i file a tax extension Making a late depreciation election or revoking a timely valid depreciation election (including the election not to deduct the special depreciation allowance). How do i file a tax extension If you elected not to claim any special allowance, a change from not claiming to claiming the special allowance is a revocation of the election and is not an accounting method change. How do i file a tax extension Generally, you must get IRS approval to make a late depreciation election or revoke a depreciation election. How do i file a tax extension You must submit a request for a letter ruling to make a late election or revoke an election. How do i file a tax extension Any change in the placed in service date of a depreciable asset. How do i file a tax extension See section 1. How do i file a tax extension 446-1(e)(2)(ii)(d) of the regulations for more information and examples. How do i file a tax extension IRS approval. How do i file a tax extension   In some instances, you may be able to get approval from the IRS to change your method of accounting for depreciation under the automatic change request procedures generally covered in Revenue Procedure 2011-14. How do i file a tax extension If you do not qualify to use the automatic procedures to get approval, you must use the advance consent request procedures generally covered in Revenue Procedure 97-27, 1997-1 C. How do i file a tax extension B. How do i file a tax extension 680. How do i file a tax extension Also see the Instructions for Form 3115 for more information on getting approval, including lists of scope limitations and automatic accounting method changes. How do i file a tax extension Additional guidance. How do i file a tax extension    For additional guidance and special procedures for changing your accounting method, automatic change procedures, amending your return, and filing Form 3115, see Revenue Procedure 2011-14 on page 330 of the Internal Revenue Bulletin 2011-4, available at www. How do i file a tax extension irs. How do i file a tax extension gov/pub/irs-irbs/irb11-04. How do i file a tax extension pdf. How do i file a tax extension (Note. How do i file a tax extension Revenue Procedure 2011-14 is clarified and modified by Revenue Procedure 2012-20. How do i file a tax extension For more information, see Revenue Procedure 2012-20 on page 700 of the Internal Revenue Bulletin 2012-14, available at www. How do i file a tax extension irs. How do i file a tax extension gov/pub/irs-irbs/irb12-14. How do i file a tax extension pdf. How do i file a tax extension )   For a safe harbor method of accounting to treat rotable spare parts as depreciable assets, see Revenue Procedure 2007-48 on page 110 of Internal Revenue Bulletin 2007-29, available at www. How do i file a tax extension irs. How do i file a tax extension gov/pub/irs-irbs/irb07-29. How do i file a tax extension pdf. How do i file a tax extension Table 1-1. How do i file a tax extension Purpose of Form 4562 This table describes the purpose of the various parts of Form 4562. How do i file a tax extension For more information, see Form 4562 and its instructions. How do i file a tax extension Part Purpose I • Electing the section 179 deduction • Figuring the maximum section 179 deduction for the current year • Figuring any section 179 deduction carryover to the next year II • Reporting the special depreciation allowance for property (other than listed property) placed in service during the tax year • Reporting depreciation deductions on property being depreciated under any method other than Modified Accelerated Cost Recovery System (MACRS) III • Reporting MACRS depreciation deductions for property placed in service before this year • Reporting MACRS depreciation deductions for property (other than listed property) placed in service during the current year IV • Summarizing other parts V • Reporting the special depreciation allowance for automobiles and other listed property • Reporting MACRS depreciation on automobiles and other listed property • Reporting the section 179 cost elected for automobiles and other listed property • Reporting information on the use of automobiles and other transportation vehicles VI • Reporting amortization deductions Section 481(a) adjustment. How do i file a tax extension   If you file Form 3115 and change from an impermissible method to a permissible method of accounting for depreciation, you can make a section 481(a) adjustment for any unclaimed or excess amount of allowable depreciation. How do i file a tax extension The adjustment is the difference between the total depreciation actually deducted for the property and the total amount allowable prior to the year of change. How do i file a tax extension If no depreciation was deducted, the adjustment is the total depreciation allowable prior to the year of change. How do i file a tax extension A negative section 481(a) adjustment results in a decrease in taxable income. How do i file a tax extension It is taken into account in the year of change and is reported on your business tax returns as “other expenses. How do i file a tax extension ” A positive section 481(a) adjustment results in an increase in taxable income. How do i file a tax extension It is generally taken into account over 4 tax years and is reported on your business tax returns as “other income. How do i file a tax extension ” However, you can elect to use a one-year adjustment period and report the adjustment in the year of change if the total adjustment is less than $25,000. How do i file a tax extension Make the election by completing the appropriate line on Form 3115. How do i file a tax extension   If you file a Form 3115 and change from one permissible method to another permissible method, the section 481(a) adjustment is zero. How do i file a tax extension Prev  Up  Next   Home   More Online Publications