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Irs 1040nr

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Irs 1040nr

Irs 1040nr Part Six -   Figuring Your Taxes and Credits The eight chapters in this part explain how to figure your tax and how to figure the tax of certain children who have more than $2,000 of unearned income. Irs 1040nr They also discuss tax credits that, unlike deductions, are subtracted directly from your tax and reduce your tax dollar for dollar. Irs 1040nr Chapter 36 discusses the earned income credit. Irs 1040nr Chapter 37 discusses a wide variety of other credits, such as the adoption credit. Irs 1040nr Table of Contents 30. Irs 1040nr   How To Figure Your TaxIntroduction Figuring Your Tax Alternative Minimum Tax (AMT) Tax Figured by IRSFiling the Return 31. Irs 1040nr   Tax on Unearned Income of Certain ChildrenWhat's New Introduction Useful Items - You may want to see: Which Parent's Return To UseParents Who Do Not File a Joint Return Parent's Election To Report Child's Interest and DividendsEffect of Making the Election Figuring Child's Income Figuring Additional Tax Tax for Certain Children Who Have Unearned IncomeProviding Parental Information (Form 8615, lines A–C) Step 1. Irs 1040nr Figuring the Child's Net Unearned Income (Form 8615, Part I) Step 2. Irs 1040nr Figuring Tentative Tax at the Parent's Tax Rate (Form 8615, Part II) Step 3. Irs 1040nr Figuring the Child's Tax (Form 8615, Part III) 32. Irs 1040nr   Child and Dependent Care CreditReminders Introduction Useful Items - You may want to see: Tests To Claim the CreditQualifying Person Test Earned Income Test Work-Related Expense Test Joint Return Test Provider Identification Test How To Figure the CreditFiguring Total Work-Related Expenses Earned Income Limit Dollar Limit Amount of Credit How To Claim the CreditTax credit not refundable. Irs 1040nr Employment Taxes for Household Employers 33. Irs 1040nr   Credit for the Elderly or the DisabledIntroduction Useful Items - You may want to see: Are You Eligible for the Credit?Qualified Individual Income Limits How to Claim the CreditCredit Figured for You Credit Figured by You 34. Irs 1040nr   Child Tax CreditIntroduction Useful Items - You may want to see: Qualifying Child Amount of CreditLimits on the Credit Claiming the Credit Additional Child Tax Credit Completing Schedule 8812 (Form 1040A or 1040)Part I Parts II–IV 35. Irs 1040nr   Education CreditsIntroduction Useful Items - You may want to see: Who Can Claim an Education Credit Qualified Education ExpensesNo Double Benefit Allowed Adjustments to Qualified Education Expenses 36. Irs 1040nr   Earned Income Credit (EIC)What's New Reminders Introduction Useful Items - You may want to see: Do You Qualify for the Credit?If Improper Claim Made in Prior Year Part A. Irs 1040nr Rules for EveryoneRule 1. Irs 1040nr Your AGI Must Be Less Than: Rule 2. Irs 1040nr You Must Have a Valid Social Security Number (SSN) Rule 3. Irs 1040nr Your Filing Status Cannot Be Married Filing Separately Rule 4. Irs 1040nr You Must Be a U. Irs 1040nr S. Irs 1040nr Citizen or Resident Alien All Year Rule 5. Irs 1040nr You Cannot File Form 2555 or Form 2555-EZ Rule 6. Irs 1040nr Your Investment Income Must Be $3,300 or Less Rule 7. Irs 1040nr You Must Have Earned Income Part B. Irs 1040nr Rules If You Have a Qualifying ChildRule 8. Irs 1040nr Your Child Must Meet the Relationship, Age, Residency, and Joint Return Tests Rule 9. Irs 1040nr Your Qualifying Child Cannot Be Used By More Than One Person To Claim the EIC Rule 10. Irs 1040nr You Cannot Be a Qualifying Child of Another Taxpayer Part C. Irs 1040nr Rules If You Do Not Have a Qualifying ChildRule 11. Irs 1040nr You Must Be at Least Age 25 but Under Age 65 Rule 12. Irs 1040nr You Cannot Be the Dependent of Another Person Rule 13. Irs 1040nr You Cannot Be a Qualifying Child of Another Taxpayer Rule 14. Irs 1040nr You Must Have Lived in the United States More Than Half of the Year Part D. Irs 1040nr Figuring and Claiming the EICRule 15. Irs 1040nr Your Earned Income Must Be Less Than: IRS Will Figure the EIC for You How To Figure the EIC Yourself ExamplesExample 1. Irs 1040nr John and Janet Smith (Form 1040A) Example 2. Irs 1040nr Kelly Green (Form 1040EZ) 37. Irs 1040nr   Other CreditsWhat's New Introduction Useful Items - You may want to see: Nonrefundable CreditsAdoption Credit Alternative Motor Vehicle Credit Alternative Fuel Vehicle Refueling Property Credit Credit to Holders of Tax Credit Bonds Foreign Tax Credit Mortgage Interest Credit Nonrefundable Credit for Prior Year Minimum Tax Plug-in Electric Drive Motor Vehicle Credit Residential Energy Credits Retirement Savings Contributions Credit (Saver's Credit) Refundable CreditsCredit for Tax on Undistributed Capital Gain Health Coverage Tax Credit Credit for Excess Social Security Tax or Railroad Retirement Tax Withheld Prev  Up  Next   Home   More Online Publications
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The Irs 1040nr

Irs 1040nr 8. Irs 1040nr   Amortization Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: How To Deduct Amortization Starting a BusinessBusiness Start-Up Costs Costs of Organizing a Corporation Costs of Organizing a Partnership How To Amortize Getting a Lease Section 197 IntangiblesSection 197 Intangibles Defined Assets That Are Not Section 197 Intangibles Safe Harbor for Creative Property Costs Anti-Churning Rules Incorrect Amount of Amortization Deducted Disposition of Section 197 Intangibles Reforestation Costs Geological and Geophysical Costs Pollution Control FacilitiesNew identifiable treatment facility. Irs 1040nr Research and Experimental Costs Optional Write-off of Certain Tax Preferences Introduction Amortization is a method of recovering (deducting) certain capital costs over a fixed period of time. Irs 1040nr It is similar to the straight line method of depreciation. Irs 1040nr The various amortizable costs covered in this chapter are included in the list below. Irs 1040nr However, this chapter does not discuss amortization of bond premium. Irs 1040nr For information on that topic, see chapter 3 of Publication 550, Investment Income and Expenses. Irs 1040nr Topics - This chapter discusses: Deducting amortization Amortizing costs of starting a business Amortizing costs of getting a lease Amortizing costs of section 197 intangibles Amortizing reforestation costs Amortizing costs of geological and geophysical costs Amortizing costs of pollution control facilities Amortizing costs of research and experimentation Amortizing costs of certain tax preferences Useful Items - You may want to see: Publication 544 Sales and Other Dispositions of Assets 550 Investment Income and Expenses 946 How To Depreciate Property Form (and Instructions) 4562 Depreciation and Amortization 4626 Alternative Minimum Tax—Corporations 6251 Alternative Minimum Tax—Individuals See chapter 12 for information about getting publications and forms. Irs 1040nr How To Deduct Amortization To deduct amortization that begins during the current tax year, complete Part VI of Form 4562 and attach it to your income tax return. Irs 1040nr To report amortization from previous years, in addition to amortization that begins in the current year, list on Form 4562 each item separately. Irs 1040nr For example, in 2012, you began to amortize a lease. Irs 1040nr In 2013, you began to amortize a second lease. Irs 1040nr Report amortization from the new lease on line 42 of your 2013 Form 4562. Irs 1040nr Report amortization from the 2012 lease on line 43 of your 2013 Form 4562. Irs 1040nr If you do not have any new amortizable expenses for the current year, you are not required to complete Form 4562 (unless you are claiming depreciation). Irs 1040nr Report the current year's deduction for amortization that began in a prior year directly on the “Other deduction” or “Other expense line” of your return. Irs 1040nr Starting a Business When you start a business, treat all eligible costs you incur before you begin operating the business as capital expenditures which are part of your basis in the business. Irs 1040nr Generally, you recover costs for particular assets through depreciation deductions. Irs 1040nr However, you generally cannot recover other costs until you sell the business or otherwise go out of business. Irs 1040nr For a discussion on how to treat these costs, see If your attempt to go into business is unsuccessful under Capital Expenses in chapter 1. Irs 1040nr For costs paid or incurred after September 8, 2008, you can deduct a limited amount of start-up and organizational costs. Irs 1040nr The costs that are not deducted currently can be amortized ratably over a 180-month period. Irs 1040nr The amortization period starts with the month you begin operating your active trade or business. Irs 1040nr You are not required to attach a statement to make this election. Irs 1040nr You can choose to forgo this election by affirmatively electing to capitalize your start-up costs on your income tax return filed by the due date (including extensions) for the tax year in which the active trade or business begins. Irs 1040nr Once made, the election to either amortize or capitalize start-up costs is irrevocable and applies to all start-up costs that are related to your trade or business. Irs 1040nr See Regulations sections 1. Irs 1040nr 195-1, 1. Irs 1040nr 248-1, and 1. Irs 1040nr 709-1. Irs 1040nr For costs paid or incurred after October 22, 2004, and before September 9, 2008, you can elect to deduct a limited amount of business start-up and organizational costs in the year your active trade or business begins. Irs 1040nr Any costs not deducted can be amortized ratably over a 180-month period, beginning with the month you begin business. Irs 1040nr If the election is made, you must attach any statement required by Regulations sections 1. Irs 1040nr 195-1(b), 1. Irs 1040nr 248-1(c), and 1. Irs 1040nr 709-1(c), as in effect before September 9, 2008. Irs 1040nr Note. Irs 1040nr You can apply the provisions of Regulations sections 1. Irs 1040nr 195-1, 1. Irs 1040nr 248-1, and 1. Irs 1040nr 709-1 to all business start-up and organizational costs paid or incurred after October 22, 2004, provided the period of limitations on assessment has not expired for the year of the election. Irs 1040nr Otherwise, the provisions under Regulations sections 1. Irs 1040nr 195-1(b), 1. Irs 1040nr 248-1(c), and 1. Irs 1040nr 709-1(c), as in effect before September 9, 2008, will apply. Irs 1040nr For costs paid or incurred before October 23, 2004, you can elect to amortize business start-up and organization costs over an amortization period of 60 months or more. Irs 1040nr See How To Make the Election , later. Irs 1040nr The cost must qualify as one of the following. Irs 1040nr A business start-up cost. Irs 1040nr An organizational cost for a corporation. Irs 1040nr An organizational cost for a partnership. Irs 1040nr Business Start-Up Costs Start-up costs are amounts paid or incurred for: (a) creating an active trade or business; or (b) investigating the creation or acquisition of an active trade or business. Irs 1040nr Start-up costs include amounts paid or incurred in connection with an existing activity engaged in for profit; and for the production of income in anticipation of the activity becoming an active trade or business. Irs 1040nr Qualifying costs. Irs 1040nr   A start-up cost is amortizable if it meets both of the following tests. Irs 1040nr It is a cost you could deduct if you paid or incurred it to operate an existing active trade or business (in the same field as the one you entered into). Irs 1040nr It is a cost you pay or incur before the day your active trade or business begins. Irs 1040nr   Start-up costs include amounts paid for the following: An analysis or survey of potential markets, products, labor supply, transportation facilities, etc. Irs 1040nr Advertisements for the opening of the business. Irs 1040nr Salaries and wages for employees who are being trained and their instructors. Irs 1040nr Travel and other necessary costs for securing prospective distributors, suppliers, or customers. Irs 1040nr Salaries and fees for executives and consultants, or for similar professional services. Irs 1040nr Nonqualifying costs. Irs 1040nr   Start-up costs do not include deductible interest, taxes, or research and experimental costs. Irs 1040nr See Research and Experimental Costs , later. Irs 1040nr Purchasing an active trade or business. Irs 1040nr   Amortizable start-up costs for purchasing an active trade or business include only investigative costs incurred in the course of a general search for or preliminary investigation of the business. Irs 1040nr These are costs that help you decide whether to purchase a business. Irs 1040nr Costs you incur in an attempt to purchase a specific business are capital expenses that you cannot amortize. Irs 1040nr Example. Irs 1040nr On June 1st, you hired an accounting firm and a law firm to assist you in the potential purchase of XYZ, Inc. Irs 1040nr They researched XYZ's industry and analyzed the financial projections of XYZ, Inc. Irs 1040nr In September, the law firm prepared and submitted a letter of intent to XYZ, Inc. Irs 1040nr The letter stated that a binding commitment would result only after a purchase agreement was signed. Irs 1040nr The law firm and accounting firm continued to provide services including a review of XYZ's books and records and the preparation of a purchase agreement. Irs 1040nr On October 22nd, you signed a purchase agreement with XYZ, Inc. Irs 1040nr All amounts paid or incurred to investigate the business before October 22nd are amortizable investigative costs. Irs 1040nr Amounts paid on or after that date relate to the attempt to purchase the business and therefore must be capitalized. Irs 1040nr Disposition of business. Irs 1040nr   If you completely dispose of your business before the end of the amortization period, you can deduct any remaining deferred start-up costs. Irs 1040nr However, you can deduct these deferred start-up costs only to the extent they qualify as a loss from a business. Irs 1040nr Costs of Organizing a Corporation Amounts paid to organize a corporation are the direct costs of creating the corporation. Irs 1040nr Qualifying costs. Irs 1040nr   To qualify as an organizational cost, it must be: For the creation of the corporation, Chargeable to a capital account (see chapter 1), Amortized over the life of the corporation if the corporation had a fixed life, and Incurred before the end of the first tax year in which the corporation is in business. Irs 1040nr   A corporation using the cash method of accounting can amortize organizational costs incurred within the first tax year, even if it does not pay them in that year. Irs 1040nr   Examples of organizational costs include: The cost of temporary directors. Irs 1040nr The cost of organizational meetings. Irs 1040nr State incorporation fees. Irs 1040nr The cost of legal services. Irs 1040nr Nonqualifying costs. Irs 1040nr   The following items are capital expenses that cannot be amortized: Costs for issuing and selling stock or securities, such as commissions, professional fees, and printing costs. Irs 1040nr Costs associated with the transfer of assets to the corporation. Irs 1040nr Costs of Organizing a Partnership The costs to organize a partnership are the direct costs of creating the partnership. Irs 1040nr Qualifying costs. Irs 1040nr   A partnership can amortize an organizational cost only if it meets all the following tests. Irs 1040nr It is for the creation of the partnership and not for starting or operating the partnership trade or business. Irs 1040nr It is chargeable to a capital account (see chapter 1). Irs 1040nr It could be amortized over the life of the partnership if the partnership had a fixed life. Irs 1040nr It is incurred by the due date of the partnership return (excluding extensions) for the first tax year in which the partnership is in business. Irs 1040nr However, if the partnership uses the cash method of accounting and pays the cost after the end of its first tax year, see Cash method partnership under How To Amortize, later. Irs 1040nr It is for a type of item normally expected to benefit the partnership throughout its entire life. Irs 1040nr   Organizational costs include the following fees. Irs 1040nr Legal fees for services incident to the organization of the partnership, such as negotiation and preparation of the partnership agreement. Irs 1040nr Accounting fees for services incident to the organization of the partnership. Irs 1040nr Filing fees. Irs 1040nr Nonqualifying costs. Irs 1040nr   The following costs cannot be amortized. Irs 1040nr The cost of acquiring assets for the partnership or transferring assets to the partnership. Irs 1040nr The cost of admitting or removing partners, other than at the time the partnership is first organized. Irs 1040nr The cost of making a contract concerning the operation of the partnership trade or business including a contract between a partner and the partnership. Irs 1040nr The costs for issuing and marketing interests in the partnership such as brokerage, registration, and legal fees and printing costs. Irs 1040nr These “syndication fees” are capital expenses that cannot be depreciated or amortized. Irs 1040nr Liquidation of partnership. Irs 1040nr   If a partnership is liquidated before the end of the amortization period, the unamortized amount of qualifying organizational costs can be deducted in the partnership's final tax year. Irs 1040nr However, these costs can be deducted only to the extent they qualify as a loss from a business. Irs 1040nr How To Amortize Deduct start-up and organizational costs in equal amounts over the applicable amortization period (discussed earlier). Irs 1040nr You can choose an amortization period for start-up costs that is different from the period you choose for organizational costs, as long as both are not less than the applicable amortization period. Irs 1040nr Once you choose an amortization period, you cannot change it. Irs 1040nr To figure your deduction, divide your total start-up or organizational costs by the months in the amortization period. Irs 1040nr The result is the amount you can deduct for each month. Irs 1040nr Cash method partnership. Irs 1040nr   A partnership using the cash method of accounting can deduct an organizational cost only if it has been paid by the end of the tax year. Irs 1040nr However, any cost the partnership could have deducted as an organizational cost in an earlier tax year (if it had been paid that year) can be deducted in the tax year of payment. Irs 1040nr How To Make the Election To elect to amortize start-up or organizational costs, you must complete and attach Form 4562 to your return for the first tax year you are in business. Irs 1040nr You may also be required to attach an accompanying statement (described later) to your return. Irs 1040nr For start-up or organizational costs paid or incurred after September 8, 2008, an accompanying statement is not required. Irs 1040nr Generally, for start-up or organizational costs paid or incurred before September 9, 2008, and after October 22, 2004, unless you choose to apply Regulations sections 1. Irs 1040nr 195-1, 1. Irs 1040nr 248-1, and 1. Irs 1040nr 709-1, you must also attach an accompanying statement to elect to amortize the costs. Irs 1040nr If you have both start-up and organizational costs, attach a separate statement (if required) to your return for each type of cost. Irs 1040nr See Starting a Business , earlier, for more information. Irs 1040nr Generally, you must file the return by the due date (including any extensions). Irs 1040nr However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Irs 1040nr For more information, see the instructions for Part VI of Form 4562. Irs 1040nr You can choose to forgo the election to amortize by affirmatively electing to capitalize your start-up or organizational costs on your income tax return filed by the due date (including extensions) for the tax year in which the active trade or business begins. Irs 1040nr Note. Irs 1040nr The election to either amortize or capitalize start-up or organizational costs is irrevocable and applies to all start-up and organizational costs that are related to the trade or business. Irs 1040nr If your business is organized as a corporation or partnership, only the corporation or partnership can elect to amortize its start-up or organizational costs. Irs 1040nr A shareholder or partner cannot make this election. Irs 1040nr You, as a shareholder or partner, cannot amortize any costs you incur in setting up your corporation or partnership. Irs 1040nr Only the corporation or partnership can amortize these costs. Irs 1040nr However, you, as an individual, can elect to amortize costs you incur to investigate an interest in an existing partnership. Irs 1040nr These costs qualify as business start-up costs if you acquire the partnership interest. Irs 1040nr Start-up costs election statement. Irs 1040nr   If you elect to amortize your start-up costs, attach a separate statement (if required) that contains the following information. Irs 1040nr A description of the business to which the start-up costs relate. Irs 1040nr A description of each start-up cost incurred. Irs 1040nr The month your active business began (or was acquired). Irs 1040nr The number of months in your amortization period (which is generally 180 months). Irs 1040nr Filing the statement early. Irs 1040nr   You can elect to amortize your start-up costs by filing the statement with a return for any tax year before the year your active business begins. Irs 1040nr If you file the statement early, the election becomes effective in the month of the tax year your active business begins. Irs 1040nr Revised statement. Irs 1040nr   You can file a revised statement to include any start-up costs not included in your original statement. Irs 1040nr However, you cannot include on the revised statement any cost you previously treated on your return as a cost other than a start-up cost. Irs 1040nr You can file the revised statement with a return filed after the return on which you elected to amortize your start-up costs. Irs 1040nr Organizational costs election statement. Irs 1040nr   If you elect to amortize your corporation's or partnership's organizational costs, attach a separate statement (if required) that contains the following information. Irs 1040nr A description of each cost. Irs 1040nr The amount of each cost. Irs 1040nr The date each cost was incurred. Irs 1040nr The month your corporation or partnership began active business (or acquired the business). Irs 1040nr The number of months in your amortization period (which is generally 180 months). Irs 1040nr Partnerships. Irs 1040nr   The statement prepared for a cash basis partnership must also indicate the amount paid before the end of the year for each cost. Irs 1040nr   You do not need to separately list any partnership organizational cost that is less than $10. Irs 1040nr Instead, you can list the total amount of these costs with the dates the first and last costs were incurred. Irs 1040nr   After a partnership makes the election to amortize organizational costs, it can later file an amended return to include additional organizational costs not included in the partnership's original return and statement. Irs 1040nr Getting a Lease If you get a lease for business property, you may recover the cost of acquiring the lease by amortizing it over the term of the lease. Irs 1040nr The term of the lease for amortization purposes generally includes all renewal options (and any other period for which you and the lessor reasonably expect the lease to be renewed). Irs 1040nr However, renewal periods are not included if 75% or more of the cost of acquiring the lease is for the term of the lease remaining on the acquisition date (not including any period for which you may choose to renew, extend, or continue the lease). Irs 1040nr For more information on the costs of getting a lease, see Cost of Getting a Lease in  chapter 3. Irs 1040nr How to amortize. Irs 1040nr   Enter your deduction in Part VI of Form 4562 if you are deducting amortization that begins during the current year, or on the appropriate line of your tax return if you are not otherwise required to file Form 4562. Irs 1040nr Section 197 Intangibles Generally, you may amortize the capitalized costs of “section 197 intangibles” (defined later) ratably over a 15-year period. Irs 1040nr You must amortize these costs if you hold the section 197 intangibles in connection with your trade or business or in an activity engaged in for the production of income. Irs 1040nr You may not be able to amortize section 197 intangibles acquired in a transaction that did not result in a significant change in ownership or use. Irs 1040nr See Anti-Churning Rules, later. Irs 1040nr Your amortization deduction each year is the applicable part of the intangible's adjusted basis (for purposes of determining gain), figured by amortizing it ratably over 15 years (180 months). Irs 1040nr The 15-year period begins with the later of: The month the intangible is acquired, or The month the trade or business or activity engaged in for the production of income begins. Irs 1040nr You cannot deduct amortization for the month you dispose of the intangible. Irs 1040nr If you pay or incur an amount that increases the basis of an amortizable section 197 intangible after the 15-year period begins, amortize it over the remainder of the 15-year period beginning with the month the basis increase occurs. Irs 1040nr You are not allowed any other depreciation or amortization deduction for an amortizable section 197 intangible. Irs 1040nr Tax-exempt use property subject to a lease. Irs 1040nr   The amortization period for any section 197 intangible leased under a lease agreement entered into after March 12, 2004, to a tax-exempt organization, governmental unit, or foreign person or entity (other than a partnership), shall not be less than 125 percent of the lease term. Irs 1040nr Cost attributable to other property. Irs 1040nr   The rules for section 197 intangibles do not apply to any amount that is included in determining the cost of property that is not a section 197 intangible. Irs 1040nr For example, if the cost of computer software is not separately stated from the cost of hardware or other tangible property and you consistently treat it as part of the cost of the hardware or other tangible property, these rules do not apply. Irs 1040nr Similarly, none of the cost of acquiring real property held for the production of rental income is considered the cost of goodwill, going concern value, or any other section 197 intangible. Irs 1040nr Section 197 Intangibles Defined The following assets are section 197 intangibles and must be amortized over 180 months: Goodwill; Going concern value; Workforce in place; Business books and records, operating systems, or any other information base, including lists or other information concerning current or prospective customers; A patent, copyright, formula, process, design, pattern, know-how, format, or similar item; A customer-based intangible; A supplier-based intangible; Any item similar to items (3) through (7); A license, permit, or other right granted by a governmental unit or agency (including issuances and renewals); A covenant not to compete entered into in connection with the acquisition of an interest in a trade or business; Any franchise, trademark, or trade name; and A contract for the use of, or a term interest in, any item in this list. Irs 1040nr You cannot amortize any of the intangibles listed in items (1) through (8) that you created rather than acquired unless you created them in acquiring assets that make up a trade or business or a substantial part of a trade or business. Irs 1040nr Goodwill. Irs 1040nr   This is the value of a trade or business based on expected continued customer patronage due to its name, reputation, or any other factor. Irs 1040nr Going concern value. Irs 1040nr   This is the additional value of a trade or business that attaches to property because the property is an integral part of an ongoing business activity. Irs 1040nr It includes value based on the ability of a business to continue to function and generate income even though there is a change in ownership (but does not include any other section 197 intangible). Irs 1040nr It also includes value based on the immediate use or availability of an acquired trade or business, such as the use of earnings during any period in which the business would not otherwise be available or operational. Irs 1040nr Workforce in place, etc. Irs 1040nr   This includes the composition of a workforce (for example, its experience, education, or training). Irs 1040nr It also includes the terms and conditions of employment, whether contractual or otherwise, and any other value placed on employees or any of their attributes. Irs 1040nr   For example, you must amortize the part of the purchase price of a business that is for the existence of a highly skilled workforce. Irs 1040nr Also, you must amortize the cost of acquiring an existing employment contract or relationship with employees or consultants. Irs 1040nr Business books and records, etc. Irs 1040nr   This includes the intangible value of technical manuals, training manuals or programs, data files, and accounting or inventory control systems. Irs 1040nr It also includes the cost of customer lists, subscription lists, insurance expirations, patient or client files, and lists of newspaper, magazine, radio, and television advertisers. Irs 1040nr Patents, copyrights, etc. Irs 1040nr   This includes package design, computer software, and any interest in a film, sound recording, videotape, book, or other similar property, except as discussed later under Assets That Are Not Section 197 Intangibles . Irs 1040nr Customer-based intangible. Irs 1040nr   This is the composition of market, market share, and any other value resulting from the future provision of goods or services because of relationships with customers in the ordinary course of business. Irs 1040nr For example, you must amortize the part of the purchase price of a business that is for the existence of the following intangibles. Irs 1040nr A customer base. Irs 1040nr A circulation base. Irs 1040nr An undeveloped market or market growth. Irs 1040nr Insurance in force. Irs 1040nr A mortgage servicing contract. Irs 1040nr An investment management contract. Irs 1040nr Any other relationship with customers involving the future provision of goods or services. Irs 1040nr   Accounts receivable or other similar rights to income for goods or services provided to customers before the acquisition of a trade or business are not section 197 intangibles. Irs 1040nr Supplier-based intangible. Irs 1040nr   A supplier-based intangible is the value resulting from the future acquisitions, (through contract or other relationships with suppliers in the ordinary course of business) of goods or services that you will sell or use. Irs 1040nr The amount you pay or incur for supplier-based intangibles includes, for example, any portion of the purchase price of an acquired trade or business that is attributable to the existence of a favorable relationship with persons providing distribution services (such as a favorable shelf or display space or a retail outlet), or the existence of favorable supply contracts. Irs 1040nr Do not include any amount required to be paid for the goods or services to honor the terms of the agreement or other relationship. Irs 1040nr Also, see Assets That Are Not Section 197 Intangibles below. Irs 1040nr Government-granted license, permit, etc. Irs 1040nr   This is any right granted by a governmental unit or an agency or instrumentality of a governmental unit. Irs 1040nr For example, you must amortize the capitalized costs of acquiring (including issuing or renewing) a liquor license, a taxicab medallion or license, or a television or radio broadcasting license. Irs 1040nr Covenant not to compete. Irs 1040nr   Section 197 intangibles include a covenant not to compete (or similar arrangement) entered into in connection with the acquisition of an interest in a trade or business, or a substantial portion of a trade or business. Irs 1040nr An interest in a trade or business includes an interest in a partnership or a corporation engaged in a trade or business. Irs 1040nr   An arrangement that requires the former owner to perform services (or to provide property or the use of property) is not similar to a covenant not to compete to the extent the amount paid under the arrangement represents reasonable compensation for those services or for that property or its use. Irs 1040nr Franchise, trademark, or trade name. Irs 1040nr   A franchise, trademark, or trade name is a section 197 intangible. Irs 1040nr You must amortize its purchase or renewal costs, other than certain contingent payments that you can deduct currently. Irs 1040nr For information on currently deductible contingent payments, see chapter 11. Irs 1040nr Professional sports franchise. Irs 1040nr   A franchise engaged in professional sports and any intangible assets acquired in connection with acquiring the franchise (including player contracts) is a section 197 intangible amortizable over a 15-year period. Irs 1040nr Contract for the use of, or a term interest in, a section 197 intangible. Irs 1040nr   Section 197 intangibles include any right under a license, contract, or other arrangement providing for the use of any section 197 intangible. Irs 1040nr It also includes any term interest in any section 197 intangible, whether the interest is outright or in trust. Irs 1040nr Assets That Are Not Section 197 Intangibles The following assets are not section 197 intangibles. Irs 1040nr Any interest in a corporation, partnership, trust, or estate. Irs 1040nr Any interest under an existing futures contract, foreign currency contract, notional principal contract, interest rate swap, or similar financial contract. Irs 1040nr Any interest in land. Irs 1040nr Most computer software. Irs 1040nr (See Computer software , later. Irs 1040nr ) Any of the following assets not acquired in connection with the acquisition of a trade or business or a substantial part of a trade or business. Irs 1040nr An interest in a film, sound recording, video tape, book, or similar property. Irs 1040nr A right to receive tangible property or services under a contract or from a governmental agency. Irs 1040nr An interest in a patent or copyright. Irs 1040nr Certain rights that have a fixed duration or amount. Irs 1040nr (See Rights of fixed duration or amount , later. Irs 1040nr ) An interest under either of the following. Irs 1040nr An existing lease or sublease of tangible property. Irs 1040nr A debt that was in existence when the interest was acquired. Irs 1040nr A right to service residential mortgages unless the right is acquired in connection with the acquisition of a trade or business or a substantial part of a trade or business. Irs 1040nr Certain transaction costs incurred by parties to a corporate organization or reorganization in which any part of a gain or loss is not recognized. Irs 1040nr Intangible property that is not amortizable under the rules for section 197 intangibles can be depreciated if it meets certain requirements. Irs 1040nr You generally must use the straight line method over its useful life. Irs 1040nr For certain intangibles, the depreciation period is specified in the law and regulations. Irs 1040nr For example, the depreciation period for computer software that is not a section 197 intangible is generally 36 months. Irs 1040nr For more information on depreciating intangible property, see Intangible Property under What Method Can You Use To Depreciate Your Property? in chapter 1 of Publication 946. Irs 1040nr Computer software. Irs 1040nr   Section 197 intangibles do not include the following types of computer software. Irs 1040nr Software that meets all the following requirements. Irs 1040nr It is, or has been, readily available for purchase by the general public. Irs 1040nr It is subject to a nonexclusive license. Irs 1040nr It has not been substantially modified. Irs 1040nr This requirement is considered met if the cost of all modifications is not more than the greater of 25% of the price of the publicly available unmodified software or $2,000. Irs 1040nr Software that is not acquired in connection with the acquisition of a trade or business or a substantial part of a trade or business. Irs 1040nr Computer software defined. Irs 1040nr   Computer software includes all programs designed to cause a computer to perform a desired function. Irs 1040nr It also includes any database or similar item that is in the public domain and is incidental to the operation of qualifying software. Irs 1040nr Rights of fixed duration or amount. Irs 1040nr   Section 197 intangibles do not include any right under a contract or from a governmental agency if the right is acquired in the ordinary course of a trade or business (or in an activity engaged in for the production of income) but not as part of a purchase of a trade or business and either: Has a fixed life of less than 15 years, or Is of a fixed amount that, except for the rules for section 197 intangibles, would be recovered under a method similar to the unit-of-production method of cost recovery. Irs 1040nr However, this does not apply to the following intangibles. Irs 1040nr Goodwill. Irs 1040nr Going concern value. Irs 1040nr A covenant not to compete. Irs 1040nr A franchise, trademark, or trade name. Irs 1040nr A customer-related information base, customer-based intangible, or similar item. Irs 1040nr Safe Harbor for Creative Property Costs If you are engaged in the trade or business of film production, you may be able to amortize the creative property costs for properties not set for production within 3 years of the first capitalized transaction. Irs 1040nr You may amortize these costs ratably over a 15-year period beginning on the first day of the second half of the tax year in which you properly write off the costs for financial accounting purposes. Irs 1040nr If, during the 15-year period, you dispose of the creative property rights, you must continue to amortize the costs over the remainder of the 15-year period. Irs 1040nr Creative property costs include costs paid or incurred to acquire and develop screenplays, scripts, story outlines, motion picture production rights to books and plays, and other similar properties for purposes of potential future film development, production, and exploitation. Irs 1040nr Amortize these costs using the rules of Revenue Procedure 2004-36. Irs 1040nr For more information, see Revenue Procedure 2004-36, 2004-24 I. Irs 1040nr R. Irs 1040nr B. Irs 1040nr 1063, available at  www. Irs 1040nr irs. Irs 1040nr gov/irb/2004-24_IRB/ar16. Irs 1040nr html. Irs 1040nr A change in the treatment of creative property costs is a change in method of accounting. Irs 1040nr Anti-Churning Rules Anti-churning rules prevent you from amortizing most section 197 intangibles if the transaction in which you acquired them did not result in a significant change in ownership or use. Irs 1040nr These rules apply to goodwill and going concern value, and to any other section 197 intangible that is not otherwise depreciable or amortizable. Irs 1040nr Under the anti-churning rules, you cannot use 15-year amortization for the intangible if any of the following conditions apply. Irs 1040nr You or a related person (defined later) held or used the intangible at any time from July 25, 1991, through August 10, 1993. Irs 1040nr You acquired the intangible from a person who held it at any time during the period in (1) and, as part of the transaction, the user did not change. Irs 1040nr You granted the right to use the intangible to a person (or a person related to that person) who held or used it at any time during the period in (1). Irs 1040nr This applies only if the transaction in which you granted the right and the transaction in which you acquired the intangible are part of a series of related transactions. Irs 1040nr See Related person , later, for more information. Irs 1040nr Exceptions. Irs 1040nr   The anti-churning rules do not apply in the following situations. Irs 1040nr You acquired the intangible from a decedent and its basis was stepped up to its fair market value. Irs 1040nr The intangible was amortizable as a section 197 intangible by the seller or transferor you acquired it from. Irs 1040nr This exception does not apply if the transaction in which you acquired the intangible and the transaction in which the seller or transferor acquired it are part of a series of related transactions. Irs 1040nr The gain-recognition exception, discussed later, applies. Irs 1040nr Related person. Irs 1040nr   For purposes of the anti-churning rules, the following are related persons. Irs 1040nr An individual and his or her brothers, sisters, half-brothers, half-sisters, spouse, ancestors (parents, grandparents, etc. Irs 1040nr ), and lineal descendants (children, grandchildren, etc. Irs 1040nr ). Irs 1040nr A corporation and an individual who owns, directly or indirectly, more than 20% of the value of the corporation's outstanding stock. Irs 1040nr Two corporations that are members of the same controlled group as defined in section 1563(a) of the Internal Revenue Code, except that “more than 20%” is substituted for “at least 80%” in that definition and the determination is made without regard to subsections (a)(4) and (e)(3)(C) of section 1563. Irs 1040nr (For an exception, see section 1. Irs 1040nr 197-2(h)(6)(iv) of the regulations. Irs 1040nr ) A trust fiduciary and a corporation if more than 20% of the value of the corporation's outstanding stock is owned, directly or indirectly, by or for the trust or grantor of the trust. Irs 1040nr The grantor and fiduciary, and the fiduciary and beneficiary, of any trust. Irs 1040nr The fiduciaries of two different trusts, and the fiduciaries and beneficiaries of two different trusts, if the same person is the grantor of both trusts. Irs 1040nr The executor and beneficiary of an estate. Irs 1040nr A tax-exempt educational or charitable organization and a person who directly or indirectly controls the organization (or whose family members control it). Irs 1040nr A corporation and a partnership if the same persons own more than 20% of the value of the outstanding stock of the corporation and more than 20% of the capital or profits interest in the partnership. Irs 1040nr Two S corporations, and an S corporation and a regular corporation, if the same persons own more than 20% of the value of the outstanding stock of each corporation. Irs 1040nr Two partnerships if the same persons own, directly or indirectly, more than 20% of the capital or profits interests in both partnerships. Irs 1040nr A partnership and a person who owns, directly or indirectly, more than 20% of the capital or profits interests in the partnership. Irs 1040nr Two persons who are engaged in trades or businesses under common control (as described in section 41(f)(1) of the Internal Revenue Code). Irs 1040nr When to determine relationship. Irs 1040nr   Persons are treated as related if the relationship existed at the following time. Irs 1040nr In the case of a single transaction, immediately before or immediately after the transaction in which the intangible was acquired. Irs 1040nr In the case of a series of related transactions (or a series of transactions that comprise a qualified stock purchase under section 338(d)(3) of the Internal Revenue Code), immediately before the earliest transaction or immediately after the last transaction. Irs 1040nr Ownership of stock. Irs 1040nr   In determining whether an individual directly or indirectly owns any of the outstanding stock of a corporation, the following rules apply. Irs 1040nr Rule 1. Irs 1040nr   Stock directly or indirectly owned by or for a corporation, partnership, estate, or trust is considered owned proportionately by or for its shareholders, partners, or beneficiaries. Irs 1040nr Rule 2. Irs 1040nr   An individual is considered to own the stock directly or indirectly owned by or for his or her family. Irs 1040nr Family includes only brothers and sisters, half-brothers and half-sisters, spouse, ancestors, and lineal descendants. Irs 1040nr Rule 3. Irs 1040nr   An individual owning (other than by applying Rule 2) any stock in a corporation is considered to own the stock directly or indirectly owned by or for his or her partner. Irs 1040nr Rule 4. Irs 1040nr   For purposes of applying Rule 1, 2, or 3, treat stock constructively owned by a person under Rule 1 as actually owned by that person. Irs 1040nr Do not treat stock constructively owned by an individual under Rule 2 or 3 as owned by the individual for reapplying Rule 2 or 3 to make another person the constructive owner of the stock. Irs 1040nr Gain-recognition exception. Irs 1040nr   This exception to the anti-churning rules applies if the person you acquired the intangible from (the transferor) meets both of the following requirements. Irs 1040nr That person would not be related to you (as described under Related person , earlier) if the 20% test for ownership of stock and partnership interests were replaced by a 50% test. Irs 1040nr That person chose to recognize gain on the disposition of the intangible and pay income tax on the gain at the highest tax rate. Irs 1040nr See chapter 2 in Publication 544 for information on making this choice. Irs 1040nr   If this exception applies, the anti-churning rules apply only to the amount of your adjusted basis in the intangible that is more than the gain recognized by the transferor. Irs 1040nr Notification. Irs 1040nr   If the person you acquired the intangible from chooses to recognize gain under the rules for this exception, that person must notify you in writing by the due date of the return on which the choice is made. Irs 1040nr Anti-abuse rule. Irs 1040nr   You cannot amortize any section 197 intangible acquired in a transaction for which the principal purpose was either of the following. Irs 1040nr To avoid the requirement that the intangible be acquired after August 10, 1993. Irs 1040nr To avoid any of the anti-churning rules. Irs 1040nr More information. Irs 1040nr   For more information about the anti-churning rules, including additional rules for partnerships, see Regulations section 1. Irs 1040nr 197-2(h). Irs 1040nr Incorrect Amount of Amortization Deducted If you later discover that you deducted an incorrect amount for amortization for a section 197 intangible in any year, you may be able to make a correction for that year by filing an amended return. Irs 1040nr See Amended Return , next. Irs 1040nr If you are not allowed to make the correction on an amended return, you can change your accounting method to claim the correct amortization. Irs 1040nr See Changing Your Accounting Method , later. Irs 1040nr Amended Return If you deducted an incorrect amount for amortization, you can file an amended return to correct the following. Irs 1040nr A mathematical error made in any year. Irs 1040nr A posting error made in any year. Irs 1040nr An amortization deduction for a section 197 intangible for which you have not adopted a method of accounting. Irs 1040nr When to file. Irs 1040nr   If an amended return is allowed, you must file it by the later of the following dates. Irs 1040nr 3 years from the date you filed your original return for the year in which you did not deduct the correct amount. Irs 1040nr (A return filed early is considered filed on the due date. Irs 1040nr ) 2 years from the time you paid your tax for that year. Irs 1040nr Changing Your Accounting Method Generally, you must get IRS approval to change your method of accounting. Irs 1040nr File Form 3115, Application for Change in Accounting Method, to request a change to a permissible method of accounting for amortization. Irs 1040nr The following are examples of a change in method of accounting for amortization. Irs 1040nr A change in the amortization method, period of recovery, or convention of an amortizable asset. Irs 1040nr A change in the accounting for amortizable assets from a single asset account to a multiple asset account (pooling), or vice versa. Irs 1040nr A change in the accounting for amortizable assets from one type of multiple asset account to a different type of multiple asset account. Irs 1040nr Changes in amortization that are not a change in method of accounting include the following: A change in computing amortization in the tax year in which your use of the asset changes. Irs 1040nr An adjustment in the useful life of an amortizable asset. Irs 1040nr Generally, the making of a late amortization election or the revocation of a timely valid amortization election. Irs 1040nr Any change in the placed-in-service date of an amortizable asset. Irs 1040nr See Regulations section 1. Irs 1040nr 446-1(e)(2)(ii)(a) for more information and examples. Irs 1040nr Automatic approval. Irs 1040nr   In some instances, you may be able to get automatic approval from the IRS to change your method of accounting for amortization. Irs 1040nr For a list of automatic accounting method changes, see the Instructions for Form 3115. Irs 1040nr Also see the Instructions for Form 3115 for more information on getting approval, automatic approval procedures, and a list of exceptions to the automatic approval process. Irs 1040nr For more information, see Revenue Procedure 2006-12, as modified by Revenue Procedure 2006-37, and Revenue Procedure 2008-52, as amplified, clarified, and modified by Revenue Procedure 2009-39, as clarified and modified by Revenue Procedure 2011-14, as modified and amplified by Revenue Procedure 2011-22, as modified by Revenue Procedure 2012-39, or any successor. Irs 1040nr See Revenue Procedure 2006-12, 2006-3 I. Irs 1040nr R. Irs 1040nr B. Irs 1040nr 310, available at  www. Irs 1040nr irs. Irs 1040nr gov/irb/2006-03_IRB/ar14. Irs 1040nr html. Irs 1040nr  See Revenue Procedure 2006-37, 2006-38 I. Irs 1040nr R. Irs 1040nr B. Irs 1040nr 499, available at  www. Irs 1040nr irs. Irs 1040nr gov/irb/2006-38_IRB/ar10. Irs 1040nr html. Irs 1040nr  See Revenue Procedure 2008-52, 2008-36 I. Irs 1040nr R. Irs 1040nr B. Irs 1040nr 587, available at www. Irs 1040nr irs. Irs 1040nr gov/irb/2008-36_IRB/ar09. Irs 1040nr html. Irs 1040nr  See Revenue Procedure 2009-39, 2009-38 I. Irs 1040nr R. Irs 1040nr B. Irs 1040nr 371, available at  www. Irs 1040nr irs. Irs 1040nr gov/irb/2009-38_IRB/ar08. Irs 1040nr html. Irs 1040nr  See Revenue Procedure 2011-14, 2011-4 I. Irs 1040nr R. Irs 1040nr B. Irs 1040nr 330, available at  www. Irs 1040nr irs. Irs 1040nr gov/irb/2011-04_IRB/ar08. Irs 1040nr html. Irs 1040nr  See Revenue Procedure 2011-22, 2011-18 I. Irs 1040nr R. Irs 1040nr B. Irs 1040nr 737, available at  www. Irs 1040nr irs. Irs 1040nr gov/irb/2011-18_IRB/ar08. Irs 1040nr html. Irs 1040nr Also, see Revenue Procedure 2012-39, 2012-41 I. Irs 1040nr R. Irs 1040nr B. Irs 1040nr 470 available at www. Irs 1040nr irs. Irs 1040nr gov/irb/2012-41_IRB/index. Irs 1040nr html. Irs 1040nr Disposition of Section 197 Intangibles A section 197 intangible is treated as depreciable property used in your trade or business. Irs 1040nr If you held the intangible for more than 1 year, any gain on its disposition, up to the amount of allowable amortization, is ordinary income (section 1245 gain). Irs 1040nr If multiple section 197 intangibles are disposed of in a single transaction or a series of related transactions, treat all of the section 197 intangibles as if they were a single asset for purposes of determining the amount of gain that is ordinary income. Irs 1040nr Any remaining gain, or any loss, is a section 1231 gain or loss. Irs 1040nr If you held the intangible 1 year or less, any gain or loss on its disposition is an ordinary gain or loss. Irs 1040nr For more information on ordinary or capital gain or loss on business property, see chapter 3 in Publication 544. Irs 1040nr Nondeductible loss. Irs 1040nr   You cannot deduct any loss on the disposition or worthlessness of a section 197 intangible that you acquired in the same transaction (or series of related transactions) as other section 197 intangibles you still have. Irs 1040nr Instead, increase the adjusted basis of each remaining amortizable section 197 intangible by a proportionate part of the nondeductible loss. Irs 1040nr Figure the increase by multiplying the nondeductible loss on the disposition of the intangible by the following fraction. Irs 1040nr The numerator is the adjusted basis of each remaining intangible on the date of the disposition. Irs 1040nr The denominator is the total adjusted bases of all remaining amortizable section 197 intangibles on the date of the disposition. Irs 1040nr Covenant not to compete. Irs 1040nr   A covenant not to compete, or similar arrangement, is not considered disposed of or worthless before you dispose of your entire interest in the trade or business for which you entered into the covenant. Irs 1040nr Nonrecognition transfers. Irs 1040nr   If you acquire a section 197 intangible in a nonrecognition transfer, you are treated as the transferor with respect to the part of your adjusted basis in the intangible that is not more than the transferor's adjusted basis. Irs 1040nr You amortize this part of the adjusted basis over the intangible's remaining amortization period in the hands of the transferor. Irs 1040nr Nonrecognition transfers include transfers to a corporation, partnership contributions and distributions, like-kind exchanges, and involuntary conversions. Irs 1040nr   In a like-kind exchange or involuntary conversion of a section 197 intangible, you must continue to amortize the part of your adjusted basis in the acquired intangible that is not more than your adjusted basis in the exchanged or converted intangible over the remaining amortization period of the exchanged or converted intangible. Irs 1040nr Amortize over a new 15-year period the part of your adjusted basis in the acquired intangible that is more than your adjusted basis in the exchanged or converted intangible. Irs 1040nr Example. Irs 1040nr You own a section 197 intangible you have amortized for 4 full years. Irs 1040nr It has a remaining unamortized basis of $30,000. Irs 1040nr You exchange the asset plus $10,000 for a like-kind section 197 intangible. Irs 1040nr The nonrecognition provisions of like-kind exchanges apply. Irs 1040nr You amortize $30,000 of the $40,000 adjusted basis of the acquired intangible over the 11 years remaining in the original 15-year amortization period for the transferred asset. Irs 1040nr You amortize the other $10,000 of adjusted basis over a new 15-year period. Irs 1040nr For more information, see Regulations section 1. Irs 1040nr 197-2(g). Irs 1040nr Reforestation Costs You can elect to deduct a limited amount of reforestation costs paid or incurred during the tax year. Irs 1040nr See Reforestation Costs in chapter 7. Irs 1040nr You can elect to amortize the qualifying costs that are not deducted currently over an 84-month period. Irs 1040nr There is no limit on the amount of your amortization deduction for reforestation costs paid or incurred during the tax year. Irs 1040nr The election to amortize reforestation costs incurred by a partnership, S corporation, or estate must be made by the partnership, corporation, or estate. Irs 1040nr A partner, shareholder, or beneficiary cannot make that election. Irs 1040nr A partner's or shareholder's share of amortizable costs is figured under the general rules for allocating items of income, loss, deduction, etc. Irs 1040nr , of a partnership or S corporation. Irs 1040nr The amortizable costs of an estate are divided between the estate and the income beneficiary based on the income of the estate allocable to each. Irs 1040nr Qualifying costs. Irs 1040nr   Reforestation costs are the direct costs of planting or seeding for forestation or reforestation. Irs 1040nr Qualifying costs include only those costs you must capitalize and include in the adjusted basis of the property. Irs 1040nr They include costs for the following items. Irs 1040nr Site preparation. Irs 1040nr Seeds or seedlings. Irs 1040nr Labor. Irs 1040nr Tools. Irs 1040nr Depreciation on equipment used in planting and seeding. Irs 1040nr Qualifying costs do not include costs for which the government reimburses you under a cost-sharing program, unless you include the reimbursement in your income. Irs 1040nr Qualified timber property. Irs 1040nr   Qualified timber property is property that contains trees in significant commercial quantities. Irs 1040nr It can be a woodlot or other site that you own or lease. Irs 1040nr The property qualifies only if it meets all of the following requirements. Irs 1040nr It is located in the United States. Irs 1040nr It is held for the growing and cutting of timber you will either use in, or sell for use in, the commercial production of timber products. Irs 1040nr It consists of at least one acre planted with tree seedlings in the manner normally used in forestation or reforestation. Irs 1040nr Qualified timber property does not include property on which you have planted shelter belts or ornamental trees, such as Christmas trees. Irs 1040nr Amortization period. Irs 1040nr   The 84-month amortization period starts on the first day of the first month of the second half of the tax year you incur the costs (July 1 for a calendar year taxpayer), regardless of the month you actually incur the costs. Irs 1040nr You can claim amortization deductions for no more than 6 months of the first and last (eighth) tax years of the period. Irs 1040nr Life tenant and remainderman. Irs 1040nr   If one person holds the property for life with the remainder going to another person, the life tenant is entitled to the full amortization for qualifying reforestation costs incurred by the life tenant. Irs 1040nr Any remainder interest in the property is ignored for amortization purposes. Irs 1040nr Recapture. Irs 1040nr   If you dispose of qualified timber property within 10 years after the tax year you incur qualifying reforestation expenses, report any gain as ordinary income up to the amortization you took. Irs 1040nr See chapter 3 of Publication 544 for more information. Irs 1040nr How to make the election. Irs 1040nr   To elect to amortize qualifying reforestation costs, complete Part VI of Form 4562 and attach a statement that contains the following information. Irs 1040nr A description of the costs and the dates you incurred them. Irs 1040nr A description of the type of timber being grown and the purpose for which it is grown. Irs 1040nr Attach a separate statement for each property for which you amortize reforestation costs. Irs 1040nr   Generally, you must make the election on a timely filed return (including extensions) for the tax year in which you incurred the costs. Irs 1040nr However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Irs 1040nr Attach Form 4562 and the statement to the amended return and write “Filed pursuant to section 301. Irs 1040nr 9100-2” on Form 4562. Irs 1040nr File the amended return at the same address you filed the original return. Irs 1040nr Revoking the election. Irs 1040nr   You must get IRS approval to revoke your election to amortize qualifying reforestation costs. Irs 1040nr Your application to revoke the election must include your name, address, the years for which your election was in effect, and your reason for revoking it. Irs 1040nr Please provide your daytime telephone number (optional), in case we need to contact you. Irs 1040nr You, or your duly authorized representative, must sign the application and file it at least 90 days before the due date (without extensions) for filing your income tax return for the first tax year for which your election is to end. Irs 1040nr    Send the application to: Internal Revenue Service Associate Chief Counsel Passthroughs and Special Industries CC:PSI:6 1111 Constitution Ave. Irs 1040nr NW, IR-5300 Washington, DC 20224 Geological and Geophysical Costs You can amortize the cost of geological and geophysical expenses paid or incurred in connection with oil and gas exploration or development within the United States. Irs 1040nr These costs can be amortized ratably over a 24-month period beginning on the mid-point of the tax year in which the expenses were paid or incurred. Irs 1040nr For major integrated oil companies (as defined in section 167(h)(5)), these costs must be amortized ratably over a 5-year period for costs paid or incurred after May 17, 2006 (a 7-year period for costs paid or incurred after December 19, 2007). Irs 1040nr If you retire or abandon the property during the amortization period, no amortization deduction is allowed in the year of retirement or abandonment. Irs 1040nr Pollution Control Facilities You can elect to amortize the cost of a certified pollution control facility over 60 months. Irs 1040nr However, see Atmospheric pollution control facilities for an exception. Irs 1040nr The cost of a pollution control facility that is not eligible for amortization can be depreciated under the regular rules for depreciation. Irs 1040nr Also, you can claim a special depreciation allowance on a certified pollution control facility that is qualified property even if you elect to amortize its cost. Irs 1040nr You must reduce its cost (amortizable basis) by the amount of any special allowance you claim. Irs 1040nr See chapter 3 of Publication 946. Irs 1040nr A certified pollution control facility is a new identifiable treatment facility used in connection with a plant or other property in operation before 1976, to reduce or control water or atmospheric pollution or contamination. Irs 1040nr The facility must do so by removing, changing, disposing, storing, or preventing the creation or emission of pollutants, contaminants, wastes, or heat. Irs 1040nr The facility must be certified by state and federal certifying authorities. Irs 1040nr The facility must not significantly increase the output or capacity, extend the useful life, or reduce the total operating costs of the plant or other property. Irs 1040nr Also, it must not significantly change the nature of the manufacturing or production process or facility. Irs 1040nr The federal certifying authority will not certify your property to the extent it appears you will recover (over the property's useful life) all or part of its cost from the profit based on its operation (such as through sales of recovered wastes). Irs 1040nr The federal certifying authority will describe the nature of the potential cost recovery. Irs 1040nr You must then reduce the amortizable basis of the facility by this potential recovery. Irs 1040nr New identifiable treatment facility. Irs 1040nr   A new identifiable treatment facility is tangible depreciable property that is identifiable as a treatment facility. Irs 1040nr It does not include a building and its structural components unless the building is exclusively a treatment facility. Irs 1040nr Atmospheric pollution control facilities. Irs 1040nr   Certain atmospheric pollution control facilities can be amortized over 84 months. Irs 1040nr To qualify, the following must apply. Irs 1040nr The facility must be acquired and placed in service after April 11, 2005. Irs 1040nr If acquired, the original use must begin with you after April 11, 2005. Irs 1040nr The facility must be used in connection with an electric generation plant or other property placed in operation after December 31, 1975, that is primarily coal fired. Irs 1040nr If you construct, reconstruct, or erect the facility, only the basis attributable to the construction, reconstruction, or erection completed after April 11, 2005, qualifies. Irs 1040nr Basis reduction for corporations. Irs 1040nr   A corporation must reduce the amortizable basis of a pollution control facility by 20% before figuring the amortization deduction. Irs 1040nr More information. Irs 1040nr   For more information on the amortization of pollution control facilities, see Code sections 169 and 291(c) and the related regulations. Irs 1040nr Research and Experimental Costs You can elect to amortize your research and experimental costs, deduct them as current business expenses, or write them off over a 10-year period (see Optional write-off method below). Irs 1040nr If you elect to amortize these costs, deduct them in equal amounts over 60 months or more. Irs 1040nr The amortization period begins the month you first receive an economic benefit from the costs. Irs 1040nr For a definition of “research and experimental costs” and information on deducting them as current business expenses, see chapter 7. Irs 1040nr Optional write-off method. Irs 1040nr   Rather than amortize these costs or deduct them as a current expense, you have the option of deducting (writing off) research and experimental costs ratably over a 10-year period beginning with the tax year in which you incurred the costs. Irs 1040nr For more information, see Optional Write-off of Certain Tax Preferences , later, and section 59(e) of the Internal Revenue Code. Irs 1040nr Costs you can amortize. Irs 1040nr   You can amortize costs chargeable to a capital account (see chapter 1) if you meet both of the following requirements. Irs 1040nr You paid or incurred the costs in your trade or business. Irs 1040nr You are not deducting the costs currently. Irs 1040nr How to make the election. Irs 1040nr   To elect to amortize research and experimental costs, complete Part VI of Form 4562 and attach it to your income tax return. Irs 1040nr Generally, you must file the return by the due date (including extensions). Irs 1040nr However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Irs 1040nr Attach Form 4562 to the amended return and write “Filed pursuant to section 301. Irs 1040nr 9100-2” on Form 4562. Irs 1040nr File the amended return at the same address you filed the original return. Irs 1040nr   Your election is binding for the year it is made and for all later years unless you obtain approval from the IRS to change to a different method. Irs 1040nr Optional Write-off of Certain Tax Preferences You can elect to amortize certain tax preference items over an optional period beginning in the tax year in which you incurred the costs. Irs 1040nr If you make this election, there is no AMT adjustment. Irs 1040nr The applicable costs and the optional recovery periods are as follows: Circulation costs — 3 years, Intangible drilling and development costs — 60 months, Mining exploration and development costs — 10 years, and Research and experimental costs — 10 years. Irs 1040nr How to make the election. Irs 1040nr   To elect to amortize qualifying costs over the optional recovery period, complete Part VI of Form 4562 and attach a statement containing the following information to your return for the tax year in which the election begins: Your name, address, and taxpayer identification number; and The type of cost and the specific amount of the cost for which you are making the election. Irs 1040nr   Generally, the election must be made on a timely filed return (including extensions) for the tax year in which you incurred the costs. Irs 1040nr However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Irs 1040nr Attach Form 4562 to the amended return and write “Filed pursuant to section 301. Irs 1040nr 9100-2” on Form 4562. Irs 1040nr File the amended return at the same address you filed the original return. Irs 1040nr Revoking the election. Irs 1040nr   You must obtain consent from the IRS to revoke your election. Irs 1040nr Your request to revoke the election must be submitted to the IRS in the form of a letter ruling before the end of the tax year in which the optional recovery period ends. Irs 1040nr The request must contain all of the information necessary to demonstrate the rare and unusual circumstances that would justify granting revocation. Irs 1040nr If the request for revocation is approved, any unamortized costs are deductible in the year the revocation is effective. Irs 1040nr Prev  Up  Next   Home   More Online Publications