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How To Amend 2010 Tax Return

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How To Amend 2010 Tax Return

How to amend 2010 tax return 3. How to amend 2010 tax return   Lifetime Learning Credit Table of Contents Introduction Can You Claim the CreditWho Can Claim the Credit Who Cannot Claim the Credit What Expenses QualifyQualified Education Expenses No Double Benefit Allowed Expenses That Do Not Qualify Who Is an Eligible Student Who Can Claim a Dependent's Expenses Figuring the CreditEffect of the Amount of Your Income on the Amount of Your Credit Claiming the Credit Introduction For 2013, there are two tax credits available to help you offset the costs of higher education by reducing the amount of your income tax. How to amend 2010 tax return They are the American opportunity credit and the lifetime learning credit. How to amend 2010 tax return This chapter discusses the lifetime learning credit. How to amend 2010 tax return The American opportunity credit is discussed in chapter 2, The American Opportunity Credit . How to amend 2010 tax return This chapter explains: Who can claim the lifetime learning credit, What expenses qualify for the credit, Who is an eligible student, Who can claim a dependent's expenses, How to figure the credit, How to claim the credit, and When the credit must be repaid. How to amend 2010 tax return What is the tax benefit of the lifetime learning credit. How to amend 2010 tax return   For the tax year, you may be able to claim a lifetime learning credit of up to $2,000 for qualified education expenses paid for all eligible students. How to amend 2010 tax return There is no limit on the number of years the lifetime learning credit can be claimed for each student. How to amend 2010 tax return   A tax credit reduces the amount of income tax you may have to pay. How to amend 2010 tax return Unlike a deduction, which reduces the amount of income subject to tax, a credit directly reduces the tax itself. How to amend 2010 tax return The lifetime learning credit is a nonrefundable credit. How to amend 2010 tax return This means that it can reduce your tax to zero, but if the credit is more than your tax the excess will not be refunded to you. How to amend 2010 tax return   Your allowable lifetime learning credit may be limited by the amount of your income and the amount of your tax. How to amend 2010 tax return Can you claim more than one education credit this year. How to amend 2010 tax return   For each student, you can elect for any year only one of the credits. How to amend 2010 tax return For example, if you elect to take the lifetime learning credit for a child on your 2013 tax return, you cannot, for that same child, also claim the American opportunity credit for 2013. How to amend 2010 tax return   If you are eligible to claim the lifetime learning credit and you are also eligible to claim the American opportunity credit for the same student in the same year, you can choose to claim either credit, but not both. How to amend 2010 tax return   If you pay qualified education expenses for more than one student in the same year, you can choose to take certain credits on a per-student, per-year basis. How to amend 2010 tax return This means that, for example, you can claim the American opportunity credit for one student and the lifetime learning credit for another student in the same year. How to amend 2010 tax return Differences between the American opportunity and lifetime learning credits. How to amend 2010 tax return   There are several differences between these two credits. How to amend 2010 tax return For example, you can claim the American opportunity credit for the same student for no more than 4 tax years, but any year in which the Hope Scholarship Credit was claimed counts toward the 4 years. How to amend 2010 tax return However, there is no limit on the number of years for which you can claim a lifetime learning credit based on the same student's expenses. How to amend 2010 tax return The differences between these credits are shown in Appendix B, Highlights of Education Tax Benefits for Tax Year 2013 near the end of this publication. How to amend 2010 tax return Overview of the lifetime learning credit. How to amend 2010 tax return   See Table 3-1, Overview of the Lifetime Learning Credit for the basics of the lifetime learning credit. How to amend 2010 tax return The details are discussed in this chapter. How to amend 2010 tax return Can You Claim the Credit The following rules will help you determine if you are eligible to claim the lifetime learning credit on your tax return. How to amend 2010 tax return Who Can Claim the Credit Generally, you can claim the lifetime learning credit if all three of the following requirements are met. How to amend 2010 tax return You pay qualified education expenses of higher education. How to amend 2010 tax return You pay the education expenses for an eligible student. How to amend 2010 tax return The eligible student is either yourself, your spouse, or a dependent for whom you claim an exemption on your tax return. How to amend 2010 tax return Table 3-1. How to amend 2010 tax return Overview of the Lifetime Learning Credit Maximum credit Up to $2,000 credit per return Limit on modified adjusted gross income (MAGI) $127,000 if married filling jointly;  $63,000 if single, head of household, or qualifying widow(er) Refundable or nonrefundable Nonrefundable—credit limited to the amount of tax you must pay on your taxable income Number of years of postsecondary education Available for all years of postsecondary education and for courses to acquire or improve job skills Number of tax years credit available Available for an unlimited number of years Type of program required Student does not need to be pursuing a program leading to a degree or other recognized education credential Number of courses Available for one or more courses Felony drug conviction Felony drug convictions do not make the student ineligible Qualified expenses Tuition and fees required for enrollment or attendance (including amounts required to be paid to the institution for course-related books, supplies, and equipment) Payments for academic periods Payments made in 2013 for academic periods beginning in 2013 or beginning in the first 3 months of 2014 Note. How to amend 2010 tax return Qualified education expenses paid by a dependent for whom you claim an exemption, or by a third party for that dependent, are considered paid by you. How to amend 2010 tax return “Qualified education expenses” are defined later under Qualified Education Expenses . How to amend 2010 tax return “Eligible students” are defined later under Who Is an Eligible Student . How to amend 2010 tax return A dependent for whom you claim an exemption is defined later under Who Can Claim a Dependent's Expenses . How to amend 2010 tax return You may find Figure 3-1, Can You Claim the Lifetime Learning Credit for 2013 , later, helpful in determining if you can claim a lifetime learning credit on your tax return. How to amend 2010 tax return Who Cannot Claim the Credit You cannot claim the lifetime learning credit for 2013 if any of the following apply. How to amend 2010 tax return Your filing status is married filing separately. How to amend 2010 tax return You are listed as a dependent on another person's tax return (such as your parents'). How to amend 2010 tax return See Who Can Claim a Dependent's Expenses , later. How to amend 2010 tax return Your modified adjusted gross income (MAGI) is $63,000 or more ($127,000 or more in the case of a joint return). How to amend 2010 tax return MAGI is explained later under Effect of the Amount of Your Income on the Amount of Your Credit . How to amend 2010 tax return You (or your spouse) were a nonresident alien for any part of 2013 and the nonresident alien did not elect to be treated as a resident alien for tax purposes. How to amend 2010 tax return More information on nonresident aliens can be found in Publication 519. How to amend 2010 tax return You claim the American Opportunity Credit (see chapter 2) or a Tuition and Fees Deduction (see chapter 6) for the same student in 2013. How to amend 2010 tax return What Expenses Qualify The lifetime learning credit is based on qualified education expenses you pay for yourself, your spouse, or a dependent for whom you claim an exemption on your tax return. How to amend 2010 tax return Generally, the credit is allowed for qualified education expenses paid in 2013 for an academic period beginning in 2013 or in the first 3 months of 2014. How to amend 2010 tax return For example, if you paid $1,500 in December 2013 for qualified tuition for the spring 2014 semester beginning in January 2014, you may be able to use that $1,500 in figuring your 2013 credit. How to amend 2010 tax return Academic period. How to amend 2010 tax return   An academic period includes a semester, trimester, quarter, or other period of study (such as a summer school session) as reasonably determined by an educational institution. How to amend 2010 tax return In the case of an educational institution that uses credit hours or clock hours and does not have academic terms, each payment period can be treated as an academic period. How to amend 2010 tax return Paid with borrowed funds. How to amend 2010 tax return   You can claim a lifetime learning credit for qualified education expenses paid with the proceeds of a loan. How to amend 2010 tax return You use the expenses to figure the lifetime learning credit for the year in which the expenses are paid, not the year in which the loan is repaid. How to amend 2010 tax return Treat loan disbursements sent directly to the educational institution as paid on the date the institution credits the student's account. How to amend 2010 tax return Student withdraws from class(es). How to amend 2010 tax return   You can claim a lifetime learning credit for qualified education expenses not refunded when a student withdraws. How to amend 2010 tax return Qualified Education Expenses For purposes of the lifetime learning credit, qualified education expenses are tuition and certain related expenses required for enrollment in a course at an eligible educational institution. How to amend 2010 tax return The course must be either part of a postsecondary degree program or taken by the student to acquire or improve job skills. How to amend 2010 tax return Eligible educational institution. How to amend 2010 tax return   An eligible educational institution is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U. How to amend 2010 tax return S. How to amend 2010 tax return Department of Education. How to amend 2010 tax return It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. How to amend 2010 tax return The educational institution should be able to tell you if it is an eligible educational institution. How to amend 2010 tax return   Certain educational institutions located outside the United States also participate in the U. How to amend 2010 tax return S. How to amend 2010 tax return Department of Education's Federal Student Aid (FSA) programs. How to amend 2010 tax return Related expenses. How to amend 2010 tax return   Student-activity fees and expenses for course-related books, supplies, and equipment are included in qualified education expenses only if the fees and expenses must be paid to the institution for enrollment or attendance. How to amend 2010 tax return Prepaid expenses. How to amend 2010 tax return   Qualified education expenses paid in 2013 for an academic period that begins in the first three months of 2014 can be used in figuring an education credit for 2013 only. How to amend 2010 tax return See Academic period , earlier. How to amend 2010 tax return For example, you pay $2,000 in December 2013 for qualified tuition for the 2014 winter quarter that begins in January 2014, you can use that $2,000 in figuring an education credit for 2013 only (if you meet all the other requirements). How to amend 2010 tax return You cannot use any amount you paid in 2012 or 2014 to figure the qualified education expenses you use to figure your 2013 education credit(s). How to amend 2010 tax return In the following examples, assume that each student is an eligible student at an eligible educational institution. How to amend 2010 tax return Example 1. How to amend 2010 tax return   Jackson is a sophomore in University V's degree program in dentistry. How to amend 2010 tax return This year, in addition to tuition, he is required to pay a fee to the university for the rental of the dental equipment he will use in this program. How to amend 2010 tax return Because the equipment rental fee must be paid to University V for enrollment and attendance, Jackson's equipment rental fee is a qualified expense. How to amend 2010 tax return Example 2. How to amend 2010 tax return   Donna and Charles, both first-year students at College W, are required to have certain books and other reading materials to use in their mandatory first-year classes. How to amend 2010 tax return The college has no policy about how students should obtain these materials, but any student who purchases them from College W's bookstore will receive a bill directly from the college. How to amend 2010 tax return Charles bought his books from a friend, so what he paid for them is not a qualified education expense. How to amend 2010 tax return Donna bought hers at College W's bookstore. How to amend 2010 tax return Although Donna paid College W directly for her first-year books and materials, her payment is not a qualified expense because the books and materials are not required to be purchased from College W for enrollment or attendance at the institution. How to amend 2010 tax return Example 3. How to amend 2010 tax return   When Marci enrolled at College X for her freshman year, she had to pay a separate student activity fee in addition to her tuition. How to amend 2010 tax return This activity fee is required of all students, and is used solely to fund on-campus organizations and activities run by students, such as the student newspaper and student government. How to amend 2010 tax return No portion of the fee covers personal expenses. How to amend 2010 tax return Although labeled as a student activity fee, the fee is required for Marci's enrollment and attendance at College X. How to amend 2010 tax return Therefore, it is a qualified expense. How to amend 2010 tax return No Double Benefit Allowed You cannot do any of the following: Deduct higher education expenses on your income tax return (as, for example, a business expense) and also claim a lifetime learning credit based on those same expenses. How to amend 2010 tax return Claim a lifetime learning credit in the same year that you are claiming a tuition and fees deduction for the same student. How to amend 2010 tax return Claim a lifetime learning credit and an American opportunity credit based on the same qualified education expenses. How to amend 2010 tax return Claim a lifetime learning credit based on the same expenses used to figure the tax-free portion of a distribution from a Coverdell education savings account (ESA) or qualified tuition program (QTP). How to amend 2010 tax return See Coordination With American Opportunity and Lifetime Learning Credits in chapter 7, Coverdell Education Savings Account, and Coordination With American Opportunity and Lifetime Learning Credits in chapter 8, Qualified Tuition Program. How to amend 2010 tax return Claim a credit based on qualified education expenses paid with tax-free educational assistance, such as a scholarship, grant, or assistance provided by an employer. How to amend 2010 tax return See Adjustments to Qualified Education Expenses, next. How to amend 2010 tax return This image is too large to be displayed in the current screen. How to amend 2010 tax return Please click the link to view the image. How to amend 2010 tax return Figure 3-1 Adjustments to Qualified Education Expenses For each student, reduce the qualified education expenses paid by or on behalf of that student under the following rules. How to amend 2010 tax return The result is the amount of adjusted qualified education expenses for each student. How to amend 2010 tax return Tax-free educational assistance. How to amend 2010 tax return   For tax-free educational assistance received in 2013, reduce the qualified educational expenses for each academic period by the amount of tax-free educational assistance allocable to that academic period. How to amend 2010 tax return See Academic period , earlier. How to amend 2010 tax return   Some tax-free educational assistance received after 2013 may be treated as a refund of qualified education expenses paid in 2013. How to amend 2010 tax return This tax-free educational assistance is any tax-free educational assistance received by you or anyone else after 2013 for qualified education expenses paid on behalf of a student in 2013 (or attributable to enrollment at an eligible educational institution during 2013). How to amend 2010 tax return   If this tax-free educational assistance is received after 2013 but before you file your 2013 income tax return, see Refunds received after 2013 but before your income tax return is filed , later. How to amend 2010 tax return If this tax-free educational assistance is received after 2013 and after you file your 2013 income tax return, see Refunds received after 2013 and after your income tax return is filed , later. How to amend 2010 tax return   Tax-free educational assistance includes: The tax-free part of scholarships and fellowships (see Tax-Free Scholarships and Fellowships in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Pell grants (see Pell Grants and Other Title IV Need-Based Education Grants in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Employer-provided educational assistance (see chapter 11, Employer-Provided Educational Assistance ), Veterans' educational assistance (see Veterans' Benefits in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), and Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. How to amend 2010 tax return Generally, any scholarship or fellowship is treated as tax free. How to amend 2010 tax return However, a scholarship or fellowship is not treated as tax free to the extent the student includes it in gross income (if the student is required to file a tax return for the year the scholarship or fellowship is received) and either of the following is true. How to amend 2010 tax return The scholarship or fellowship (or any part of it) must be applied (by its terms) to expenses (such as room and board) other than qualified education expenses as defined in Qualified education expenses in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. How to amend 2010 tax return The scholarship or fellowship (or any part of it) may be applied (by its terms) to expenses (such as room and board) other than qualified education expenses as defined in Qualified education expenses in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. How to amend 2010 tax return You may be able to increase the combined value of an education credit and certain educational assistance if the student includes some or all of the educational assistance in income in the year it is received. How to amend 2010 tax return For examples, see Coordination with Pell grants and other scholarships, later. How to amend 2010 tax return Refunds. How to amend 2010 tax return   A refund of qualified education expenses may reduce adjusted qualified education expenses for the tax year or require repayment (recapture) of a credit claimed in an earlier year. How to amend 2010 tax return Some tax-free educational assistance received after 2013 may be treated as a refund. How to amend 2010 tax return See Tax-free educational assistance , earlier. How to amend 2010 tax return Refunds received in 2013. How to amend 2010 tax return   For each student, figure the adjusted qualified education expenses for 2013 by adding all the qualified education expenses for 2013 and subtracting any refunds of those expenses received from the eligible educational institution during 2013. How to amend 2010 tax return Refunds received after 2013 but before your income tax return is filed. How to amend 2010 tax return   If anyone receives a refund after 2013 of qualified education expenses paid on behalf of a student in 2013 and the refund is paid before you file an income tax return for 2013, the amount of qualified education expenses for 2013 is reduced by the amount of the refund. How to amend 2010 tax return Refunds received after 2013 and after your income tax return is filed. How to amend 2010 tax return   If anyone receives a refund after 2013 of qualified education expenses paid on behalf of a student in 2013 and the refund is paid after you file an income tax return for 2013, you may need to repay some or all of the credit. How to amend 2010 tax return See Credit recapture, next. How to amend 2010 tax return Credit recapture. How to amend 2010 tax return    If any tax-free educational assistance for the qualified education expenses paid in 2013 or any refund of your qualified education expenses paid in 2013 is received after you file your 2013 income tax return, you must recapture (repay) any excess credit. How to amend 2010 tax return You do this by refiguring the amount of your adjusted qualified education expenses for 2013 by reducing the expenses by the amount of the refund or tax-free educational assistance. How to amend 2010 tax return You then refigure your education credit(s) for 2013 and figure the amount by which your 2013 tax liability would have increased if you had claimed the refigured credit(s). How to amend 2010 tax return Include that amount as an additional tax for the year the refund or tax-free assistance was received. How to amend 2010 tax return Example. How to amend 2010 tax return   You pay $9,300 in tuition and fees in December 2013, and your child began college in January 2014. How to amend 2010 tax return You filed your 2013 tax return on February 14, 2014, and claimed a lifetime learning credit of $1,860. How to amend 2010 tax return You claimed no other tax credits. How to amend 2010 tax return After you filed your return, your child withdrew from two courses and you received a refund of $2,900. How to amend 2010 tax return You must refigure your 2013 lifetime learning credit using $6,400 of qualified education expenses instead of $9,300. How to amend 2010 tax return The refigured credit is $1,280 and your tax liability increased by $580. How to amend 2010 tax return See instructions for your 2014 income tax return to determine where to include this tax. How to amend 2010 tax return If you pay qualified education expenses in 2014 for an academic period that begins in the first 3 months of 2014 and you receive tax-free educational assistance, or a refund, as described above, you may choose to reduce your qualified education expenses for 2014 instead of reducing your expenses for 2013. How to amend 2010 tax return Amounts that do not reduce qualified education expenses. How to amend 2010 tax return   Do not reduce qualified education expenses by amounts paid with funds the student receives as: Payment for services, such as wages, A loan, A gift, An inheritance, or A withdrawal from the student's personal savings. How to amend 2010 tax return   Do not reduce the qualified education expenses by any scholarship or fellowship reported as income on the student's tax return in the following situations. How to amend 2010 tax return The use of the money is restricted, by the terms of the scholarship or fellowship, to costs of attendance (such as room and board) other than qualified education expenses, as defined in Qualified education expenses in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. How to amend 2010 tax return The use of the money is not restricted. How to amend 2010 tax return For examples, see Adjustments to Qualified Education Expenses in chapter 2, American Opportunity Credit. How to amend 2010 tax return Coordination with Pell grants and other scholarships. How to amend 2010 tax return   In some cases, you may be able to reduce your tax liability by including scholarships in income. How to amend 2010 tax return If you are claiming an education credit for a claimed dependent who received a scholarship, you may be able to reduce your tax liability if the student includes the scholarship in income. How to amend 2010 tax return The scholarship must be one that may (by its terms) be applied to expenses (such as room and board) other than qualified education expenses. How to amend 2010 tax return Example 1—No scholarship. How to amend 2010 tax return Judy Green, who is unmarried, is taking courses at a public community college to be recertified to teach in public schools. How to amend 2010 tax return Her AGI and her MAGI, for purposes of the credit, are $27,000. How to amend 2010 tax return Judy takes the standard deduction of $5,950 and personal exemption of $3,800, reducing her AGI to taxable income of $17,250 and her tax before credits is $2,156. How to amend 2010 tax return She claims no credits other than the lifetime learning credit. How to amend 2010 tax return In July 2013 she paid $700 for the summer 2013 semester; in August 2013 she paid $1,900 for the fall 2013 semester; and in December 2013 she paid another $1,900 for the spring semester beginning in January 2014. How to amend 2010 tax return Judy and the college meet all requirements for the lifetime learning tax credit. How to amend 2010 tax return She can use all of the $4,500 tuition she paid in 2013 when figuring her 2013 lifetime learning credit. How to amend 2010 tax return She claims a $900 lifetime learning credit and her tax after credits is $1,256. How to amend 2010 tax return Example 2—Scholarship excluded from income. How to amend 2010 tax return The facts are the same as in Example 1—No scholarship, except that Judy was awarded a $1,500 scholarship. How to amend 2010 tax return Under the terms of her scholarship, it may be used to pay any educational expenses, including room and board. How to amend 2010 tax return If Judy excludes the scholarship from income, she will be deemed (for purposes of computing her education credit) as having used the scholarship to pay for tuition, required fees, and course materials. How to amend 2010 tax return Only $3,000 of the $4,500 tuition she paid in 2013 could be used when figuring her 2013 lifetime learning credit. How to amend 2010 tax return Her lifetime learning credit would be reduced to $600 and her tax after credits would be $1,556. How to amend 2010 tax return Example 3—Scholarship included in income. How to amend 2010 tax return The facts are the same as in Example 2—Scholarship excluded from income. How to amend 2010 tax return If, unlike Example 2, Judy includes the $1,500 scholarship in income, she will be deemed to have used the entire scholarship to pay for room and board. How to amend 2010 tax return Judy's AGI will increase to $28,500, her taxable income would be $18,750, and her tax before credits would be $2,381. How to amend 2010 tax return She would be able to use the $4,500 of adjusted qualified education expenses to figure her credit. How to amend 2010 tax return Judy could claim a $900 lifetime learning credit and her tax after credits would be $1,481. How to amend 2010 tax return Expenses That Do Not Qualify Qualified education expenses do not include amounts paid for: Insurance, Medical expenses (including student health fees), Room and board, Transportation, or Similar personal, living, or family expenses. How to amend 2010 tax return This is true even if the amount must be paid to the institution as a condition of enrollment or attendance. How to amend 2010 tax return Sports, games, hobbies, and noncredit courses. How to amend 2010 tax return   Qualified education expenses generally do not include expenses that relate to any course of instruction or other education that involves sports, games or hobbies, or any noncredit course. How to amend 2010 tax return However, if the course of instruction or other education is part of the student's degree program or is taken by the student to acquire or improve job skills, these expenses can qualify. How to amend 2010 tax return Comprehensive or bundled fees. How to amend 2010 tax return   Some eligible educational institutions combine all of their fees for an academic period into one amount. How to amend 2010 tax return If you do not receive or do not have access to an allocation showing how much you paid for qualified education expenses and how much you paid for personal expenses, such as those listed above, contact the institution. How to amend 2010 tax return The institution is required to make this allocation and provide you with the amount you paid (or were billed) for qualified education expenses on Form 1098-T. How to amend 2010 tax return See Figuring the Credit , later, for more information about Form 1098-T. How to amend 2010 tax return Who Is an Eligible Student For purposes of the lifetime learning credit, an eligible student is a student who is enrolled in one or more courses at an eligible educational institution (as defined under Qualified Education Expenses , earlier). How to amend 2010 tax return Who Can Claim a Dependent's Expenses If there are qualified education expenses for your dependent during a tax year, either you or your dependent, but not both of you, can claim a lifetime learning credit for your dependent's expenses for that year. How to amend 2010 tax return For you to claim a lifetime learning credit for your dependent's expenses, you must also claim an exemption for your dependent. How to amend 2010 tax return You do this by listing your dependent's name and other required information on Form 1040 (or Form 1040A), line 6c. How to amend 2010 tax return IF you. How to amend 2010 tax return . How to amend 2010 tax return . How to amend 2010 tax return THEN only. How to amend 2010 tax return . How to amend 2010 tax return . How to amend 2010 tax return claim an exemption on your tax return for a dependent who is an eligible student you can claim the lifetime learning credit based on that dependent's expenses. How to amend 2010 tax return The dependent cannot claim the credit. How to amend 2010 tax return do not claim an exemption on your tax return for a dependent who is an eligible student (even if entitled to the exemption) the dependent can claim the lifetime learning credit. How to amend 2010 tax return You cannot claim the credit based on this dependent's expenses. How to amend 2010 tax return Expenses paid by dependent. How to amend 2010 tax return   If you claim an exemption on your tax return for an eligible student who is your dependent, treat any expenses paid (or deemed paid) by your dependent as if you had paid them. How to amend 2010 tax return Include these expenses when figuring the amount of your lifetime learning credit. How to amend 2010 tax return    Qualified education expenses paid directly to an eligible educational institution for your dependent under a court-approved divorce decree are treated as paid by your dependent. How to amend 2010 tax return Expenses paid by you. How to amend 2010 tax return   If you claim an exemption for a dependent who is an eligible student, only you can include any expenses you paid when figuring the amount of the lifetime learning credit. How to amend 2010 tax return If neither you nor anyone else claims an exemption for the dependent, only the dependent can include any expenses you paid when figuring the lifetime learning credit. How to amend 2010 tax return Expenses paid by others. How to amend 2010 tax return   Someone other than you, your spouse, or your dependent (such as a relative or former spouse) may make a payment directly to an eligible educational institution to pay for an eligible student's qualified education expenses. How to amend 2010 tax return In this case, the student is treated as receiving the payment from the other person and, in turn, paying the institution. How to amend 2010 tax return If you claim an exemption on your tax return for the student, you are considered to have paid the expenses. How to amend 2010 tax return Example. How to amend 2010 tax return In 2013, Ms. How to amend 2010 tax return Allen makes a payment directly to an eligible educational institution for her grandson Todd's qualified education expenses. How to amend 2010 tax return For purposes of claiming a lifetime learning credit, Todd is treated as receiving the money from his grandmother and, in turn, paying his qualified education expenses himself. How to amend 2010 tax return Unless an exemption for Todd is claimed on someone else's 2013 tax return, only Todd can use the payment to claim a lifetime learning credit. How to amend 2010 tax return If anyone, such as Todd's parents, claims an exemption for Todd on his or her 2013 tax return, whoever claims the exemption may be able to use the expenses to claim a lifetime learning credit. How to amend 2010 tax return If anyone else claims an exemption for Todd, Todd cannot claim a lifetime learning credit. How to amend 2010 tax return Tuition reduction. How to amend 2010 tax return   When an eligible educational institution provides a reduction in tuition to an employee of the institution (or spouse or dependent child of an employee), the amount of the reduction may or may not be taxable. How to amend 2010 tax return If it is taxable, the employee is treated as receiving a payment of that amount and, in turn, paying it to the educational institution on behalf of the student. How to amend 2010 tax return For more information on tuition reductions, see Qualified Tuition Reduction in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. How to amend 2010 tax return Figuring the Credit The amount of the lifetime learning credit is 20% of the first $10,000 of qualified education expenses you paid for all eligible students. How to amend 2010 tax return The maximum amount of lifetime learning credit you can claim for 2013 is $2,000 (20% × $10,000). How to amend 2010 tax return However, that amount may be reduced based on your MAGI. How to amend 2010 tax return See Effect of the Amount of Your Income on the Amount of Your Credit , later. How to amend 2010 tax return Example. How to amend 2010 tax return Bruce and Toni Harper are married and file a joint tax return. How to amend 2010 tax return For 2013, their MAGI is $75,000. How to amend 2010 tax return Toni is attending a local college (an eligible educational institution) to earn credits toward a degree in nursing. How to amend 2010 tax return She already has a bachelor's degree in history and wants to become a nurse. How to amend 2010 tax return In August 2013, Toni paid $5,000 of qualified education expenses for her fall 2013 semester. How to amend 2010 tax return Bruce and Toni can claim a $1,000 (20% × $5,000) lifetime learning credit on their 2013 joint tax return. How to amend 2010 tax return Form 1098-T. How to amend 2010 tax return   To help you figure your lifetime learning credit, the student should receive Form 1098-T. How to amend 2010 tax return Generally, an eligible educational institution (such as a college or university) must send Form 1098-T (or acceptable substitute) to each enrolled student by January 31, 2014. How to amend 2010 tax return An institution may choose to report either payments received (box 1), or amounts billed (box 2), for qualified education expenses. How to amend 2010 tax return However, the amounts in boxes 1 and 2 of Form 1098-T might be different from what you paid. How to amend 2010 tax return When figuring the credit, use only the amounts you paid or are deemed to have paid in 2013 for qualified education expenses. How to amend 2010 tax return   In addition, Form 1098-T should give other information for that institution, such as adjustments made for prior years, the amount of scholarships or grants, reimbursements or refunds, and whether the student was enrolled at least half-time or was a graduate student. How to amend 2010 tax return    The eligible educational institution may ask for a completed Form W-9S, or similar statement to obtain the student's name, address, and taxpayer identification number. How to amend 2010 tax return Effect of the Amount of Your Income on the Amount of Your Credit The amount of your lifetime learning credit is phased out (gradually reduced) if your MAGI is between $53,000 and $63,000 ($107,000 and $127,000 if you file a joint return). How to amend 2010 tax return You cannot claim a lifetime learning credit if your MAGI is $63,000 or more ($127,000 or more if you file a joint return). How to amend 2010 tax return Modified adjusted gross income (MAGI). How to amend 2010 tax return   For most taxpayers, MAGI is adjusted gross income (AGI) as figured on their federal income tax return. How to amend 2010 tax return MAGI when using Form 1040A. How to amend 2010 tax return   If you file Form 1040A, your MAGI is the AGI on line 22 of that form. How to amend 2010 tax return MAGI when using Form 1040. How to amend 2010 tax return   If you file Form 1040, your MAGI is the AGI on line 38 of that form, modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, and Exclusion of income by bona fide residents of Puerto Rico. How to amend 2010 tax return You can use Worksheet 3-1 to figure your MAGI. How to amend 2010 tax return Worksheet 3-1. How to amend 2010 tax return MAGI for the Lifetime Learning Credit 1. How to amend 2010 tax return Enter your adjusted gross income  (Form 1040, line 38)   1. How to amend 2010 tax return   2. How to amend 2010 tax return Enter your foreign earned income exclusion and/or housing exclusion (Form 2555, line 45, or Form 2555-EZ, line 18)   2. How to amend 2010 tax return       3. How to amend 2010 tax return Enter your foreign housing deduction (Form 2555, line 50)   3. How to amend 2010 tax return       4. How to amend 2010 tax return Enter the amount of income from Puerto Rico you are excluding   4. How to amend 2010 tax return       5. How to amend 2010 tax return Enter the amount of income from American Samoa you are excluding (Form 4563, line 15)   5. How to amend 2010 tax return       6. How to amend 2010 tax return Add the amounts on lines 2, 3, 4, and 5   6. How to amend 2010 tax return   7. How to amend 2010 tax return Add the amounts on lines 1 and 6. How to amend 2010 tax return  This is your modified adjusted  gross income. How to amend 2010 tax return Enter this amount  on Form 8863, line 14   7. How to amend 2010 tax return   Phaseout. How to amend 2010 tax return   If your MAGI is within the range of incomes where the credit must be reduced, you will figure your reduced credit using lines 10-18 of Form 8863. How to amend 2010 tax return The same method is shown in the following example. How to amend 2010 tax return Example. How to amend 2010 tax return You are filing a joint return with a MAGI of $112,000. How to amend 2010 tax return In 2013, you paid $6,600 of qualified education expenses. How to amend 2010 tax return You figure the tentative lifetime learning credit (20% of the first $10,000 of qualified education expenses you paid for all eligible students). How to amend 2010 tax return The result is a $1,320 (20% x $6,600) tentative credit. How to amend 2010 tax return Because your MAGI is within the range of incomes where the credit must be reduced, you must multiply your tentative credit ($1,320) by a fraction. How to amend 2010 tax return The numerator of the fraction is $127,000 (the upper limit for those filing a joint return) minus your MAGI. How to amend 2010 tax return The denominator is $20,000, the range of incomes for the phaseout ($107,000 to $127,000). How to amend 2010 tax return The result is the amount of your phased out (reduced) lifetime learning credit ($990). How to amend 2010 tax return   $1,320 × $127,000 − $112,000  $20,000 = $990   Claiming the Credit You claim the lifetime learning credit by completing Form 8863 and submitting it with your Form 1040 or 1040A. How to amend 2010 tax return Enter the credit on Form 1040, line 49, or Form 1040A, line 31. How to amend 2010 tax return Note. How to amend 2010 tax return In Appendix A, Illustrated Example of Education Credits at the end of this publication, there is an example illustrating the use of Form 8863 when both the American opportunity credit and the lifetime learning credit are claimed on the same tax return. 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The How To Amend 2010 Tax Return

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