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Irs Tax Forms 1040x

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Irs Tax Forms 1040x

Irs tax forms 1040x 8. Irs tax forms 1040x   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 tax forms 1040x 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 tax forms 1040x It is similar to the straight line method of depreciation. Irs tax forms 1040x The various amortizable costs covered in this chapter are included in the list below. Irs tax forms 1040x However, this chapter does not discuss amortization of bond premium. Irs tax forms 1040x For information on that topic, see chapter 3 of Publication 550, Investment Income and Expenses. Irs tax forms 1040x 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 tax forms 1040x 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 tax forms 1040x To report amortization from previous years, in addition to amortization that begins in the current year, list on Form 4562 each item separately. Irs tax forms 1040x For example, in 2012, you began to amortize a lease. Irs tax forms 1040x In 2013, you began to amortize a second lease. Irs tax forms 1040x Report amortization from the new lease on line 42 of your 2013 Form 4562. Irs tax forms 1040x Report amortization from the 2012 lease on line 43 of your 2013 Form 4562. Irs tax forms 1040x 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 tax forms 1040x 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 tax forms 1040x 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 tax forms 1040x Generally, you recover costs for particular assets through depreciation deductions. Irs tax forms 1040x However, you generally cannot recover other costs until you sell the business or otherwise go out of business. Irs tax forms 1040x 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 tax forms 1040x For costs paid or incurred after September 8, 2008, you can deduct a limited amount of start-up and organizational costs. Irs tax forms 1040x The costs that are not deducted currently can be amortized ratably over a 180-month period. Irs tax forms 1040x The amortization period starts with the month you begin operating your active trade or business. Irs tax forms 1040x You are not required to attach a statement to make this election. Irs tax forms 1040x 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 tax forms 1040x 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 tax forms 1040x See Regulations sections 1. Irs tax forms 1040x 195-1, 1. Irs tax forms 1040x 248-1, and 1. Irs tax forms 1040x 709-1. Irs tax forms 1040x 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 tax forms 1040x Any costs not deducted can be amortized ratably over a 180-month period, beginning with the month you begin business. Irs tax forms 1040x If the election is made, you must attach any statement required by Regulations sections 1. Irs tax forms 1040x 195-1(b), 1. Irs tax forms 1040x 248-1(c), and 1. Irs tax forms 1040x 709-1(c), as in effect before September 9, 2008. Irs tax forms 1040x Note. Irs tax forms 1040x You can apply the provisions of Regulations sections 1. Irs tax forms 1040x 195-1, 1. Irs tax forms 1040x 248-1, and 1. Irs tax forms 1040x 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 tax forms 1040x Otherwise, the provisions under Regulations sections 1. Irs tax forms 1040x 195-1(b), 1. Irs tax forms 1040x 248-1(c), and 1. Irs tax forms 1040x 709-1(c), as in effect before September 9, 2008, will apply. Irs tax forms 1040x 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 tax forms 1040x See How To Make the Election , later. Irs tax forms 1040x The cost must qualify as one of the following. Irs tax forms 1040x A business start-up cost. Irs tax forms 1040x An organizational cost for a corporation. Irs tax forms 1040x An organizational cost for a partnership. Irs tax forms 1040x 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 tax forms 1040x 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 tax forms 1040x Qualifying costs. Irs tax forms 1040x   A start-up cost is amortizable if it meets both of the following tests. Irs tax forms 1040x 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 tax forms 1040x It is a cost you pay or incur before the day your active trade or business begins. Irs tax forms 1040x   Start-up costs include amounts paid for the following: An analysis or survey of potential markets, products, labor supply, transportation facilities, etc. Irs tax forms 1040x Advertisements for the opening of the business. Irs tax forms 1040x Salaries and wages for employees who are being trained and their instructors. Irs tax forms 1040x Travel and other necessary costs for securing prospective distributors, suppliers, or customers. Irs tax forms 1040x Salaries and fees for executives and consultants, or for similar professional services. Irs tax forms 1040x Nonqualifying costs. Irs tax forms 1040x   Start-up costs do not include deductible interest, taxes, or research and experimental costs. Irs tax forms 1040x See Research and Experimental Costs , later. Irs tax forms 1040x Purchasing an active trade or business. Irs tax forms 1040x   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 tax forms 1040x These are costs that help you decide whether to purchase a business. Irs tax forms 1040x Costs you incur in an attempt to purchase a specific business are capital expenses that you cannot amortize. Irs tax forms 1040x Example. Irs tax forms 1040x On June 1st, you hired an accounting firm and a law firm to assist you in the potential purchase of XYZ, Inc. Irs tax forms 1040x They researched XYZ's industry and analyzed the financial projections of XYZ, Inc. Irs tax forms 1040x In September, the law firm prepared and submitted a letter of intent to XYZ, Inc. Irs tax forms 1040x The letter stated that a binding commitment would result only after a purchase agreement was signed. Irs tax forms 1040x 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 tax forms 1040x On October 22nd, you signed a purchase agreement with XYZ, Inc. Irs tax forms 1040x All amounts paid or incurred to investigate the business before October 22nd are amortizable investigative costs. Irs tax forms 1040x Amounts paid on or after that date relate to the attempt to purchase the business and therefore must be capitalized. Irs tax forms 1040x Disposition of business. Irs tax forms 1040x   If you completely dispose of your business before the end of the amortization period, you can deduct any remaining deferred start-up costs. Irs tax forms 1040x However, you can deduct these deferred start-up costs only to the extent they qualify as a loss from a business. Irs tax forms 1040x Costs of Organizing a Corporation Amounts paid to organize a corporation are the direct costs of creating the corporation. Irs tax forms 1040x Qualifying costs. Irs tax forms 1040x   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 tax forms 1040x   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 tax forms 1040x   Examples of organizational costs include: The cost of temporary directors. Irs tax forms 1040x The cost of organizational meetings. Irs tax forms 1040x State incorporation fees. Irs tax forms 1040x The cost of legal services. Irs tax forms 1040x Nonqualifying costs. Irs tax forms 1040x   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 tax forms 1040x Costs associated with the transfer of assets to the corporation. Irs tax forms 1040x Costs of Organizing a Partnership The costs to organize a partnership are the direct costs of creating the partnership. Irs tax forms 1040x Qualifying costs. Irs tax forms 1040x   A partnership can amortize an organizational cost only if it meets all the following tests. Irs tax forms 1040x It is for the creation of the partnership and not for starting or operating the partnership trade or business. Irs tax forms 1040x It is chargeable to a capital account (see chapter 1). Irs tax forms 1040x It could be amortized over the life of the partnership if the partnership had a fixed life. Irs tax forms 1040x 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 tax forms 1040x 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 tax forms 1040x It is for a type of item normally expected to benefit the partnership throughout its entire life. Irs tax forms 1040x   Organizational costs include the following fees. Irs tax forms 1040x Legal fees for services incident to the organization of the partnership, such as negotiation and preparation of the partnership agreement. Irs tax forms 1040x Accounting fees for services incident to the organization of the partnership. Irs tax forms 1040x Filing fees. Irs tax forms 1040x Nonqualifying costs. Irs tax forms 1040x   The following costs cannot be amortized. Irs tax forms 1040x The cost of acquiring assets for the partnership or transferring assets to the partnership. Irs tax forms 1040x The cost of admitting or removing partners, other than at the time the partnership is first organized. Irs tax forms 1040x 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 tax forms 1040x The costs for issuing and marketing interests in the partnership such as brokerage, registration, and legal fees and printing costs. Irs tax forms 1040x These “syndication fees” are capital expenses that cannot be depreciated or amortized. Irs tax forms 1040x Liquidation of partnership. Irs tax forms 1040x   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 tax forms 1040x However, these costs can be deducted only to the extent they qualify as a loss from a business. Irs tax forms 1040x How To Amortize Deduct start-up and organizational costs in equal amounts over the applicable amortization period (discussed earlier). Irs tax forms 1040x 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 tax forms 1040x Once you choose an amortization period, you cannot change it. Irs tax forms 1040x To figure your deduction, divide your total start-up or organizational costs by the months in the amortization period. Irs tax forms 1040x The result is the amount you can deduct for each month. Irs tax forms 1040x Cash method partnership. Irs tax forms 1040x   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 tax forms 1040x 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 tax forms 1040x 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 tax forms 1040x You may also be required to attach an accompanying statement (described later) to your return. Irs tax forms 1040x For start-up or organizational costs paid or incurred after September 8, 2008, an accompanying statement is not required. Irs tax forms 1040x 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 tax forms 1040x 195-1, 1. Irs tax forms 1040x 248-1, and 1. Irs tax forms 1040x 709-1, you must also attach an accompanying statement to elect to amortize the costs. Irs tax forms 1040x If you have both start-up and organizational costs, attach a separate statement (if required) to your return for each type of cost. Irs tax forms 1040x See Starting a Business , earlier, for more information. Irs tax forms 1040x Generally, you must file the return by the due date (including any extensions). Irs tax forms 1040x 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 tax forms 1040x For more information, see the instructions for Part VI of Form 4562. Irs tax forms 1040x 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 tax forms 1040x Note. Irs tax forms 1040x 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 tax forms 1040x 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 tax forms 1040x A shareholder or partner cannot make this election. Irs tax forms 1040x You, as a shareholder or partner, cannot amortize any costs you incur in setting up your corporation or partnership. Irs tax forms 1040x Only the corporation or partnership can amortize these costs. Irs tax forms 1040x However, you, as an individual, can elect to amortize costs you incur to investigate an interest in an existing partnership. Irs tax forms 1040x These costs qualify as business start-up costs if you acquire the partnership interest. Irs tax forms 1040x Start-up costs election statement. Irs tax forms 1040x   If you elect to amortize your start-up costs, attach a separate statement (if required) that contains the following information. Irs tax forms 1040x A description of the business to which the start-up costs relate. Irs tax forms 1040x A description of each start-up cost incurred. Irs tax forms 1040x The month your active business began (or was acquired). Irs tax forms 1040x The number of months in your amortization period (which is generally 180 months). Irs tax forms 1040x Filing the statement early. Irs tax forms 1040x   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 tax forms 1040x If you file the statement early, the election becomes effective in the month of the tax year your active business begins. Irs tax forms 1040x Revised statement. Irs tax forms 1040x   You can file a revised statement to include any start-up costs not included in your original statement. Irs tax forms 1040x 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 tax forms 1040x You can file the revised statement with a return filed after the return on which you elected to amortize your start-up costs. Irs tax forms 1040x Organizational costs election statement. Irs tax forms 1040x   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 tax forms 1040x A description of each cost. Irs tax forms 1040x The amount of each cost. Irs tax forms 1040x The date each cost was incurred. Irs tax forms 1040x The month your corporation or partnership began active business (or acquired the business). Irs tax forms 1040x The number of months in your amortization period (which is generally 180 months). Irs tax forms 1040x Partnerships. Irs tax forms 1040x   The statement prepared for a cash basis partnership must also indicate the amount paid before the end of the year for each cost. Irs tax forms 1040x   You do not need to separately list any partnership organizational cost that is less than $10. Irs tax forms 1040x Instead, you can list the total amount of these costs with the dates the first and last costs were incurred. Irs tax forms 1040x   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 tax forms 1040x 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 tax forms 1040x 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 tax forms 1040x 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 tax forms 1040x For more information on the costs of getting a lease, see Cost of Getting a Lease in  chapter 3. Irs tax forms 1040x How to amortize. Irs tax forms 1040x   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 tax forms 1040x Section 197 Intangibles Generally, you may amortize the capitalized costs of “section 197 intangibles” (defined later) ratably over a 15-year period. Irs tax forms 1040x 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 tax forms 1040x 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 tax forms 1040x See Anti-Churning Rules, later. Irs tax forms 1040x 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 tax forms 1040x 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 tax forms 1040x You cannot deduct amortization for the month you dispose of the intangible. Irs tax forms 1040x 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 tax forms 1040x You are not allowed any other depreciation or amortization deduction for an amortizable section 197 intangible. Irs tax forms 1040x Tax-exempt use property subject to a lease. Irs tax forms 1040x   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 tax forms 1040x Cost attributable to other property. Irs tax forms 1040x   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 tax forms 1040x 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 tax forms 1040x 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 tax forms 1040x 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 tax forms 1040x 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 tax forms 1040x Goodwill. Irs tax forms 1040x   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 tax forms 1040x Going concern value. Irs tax forms 1040x   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 tax forms 1040x 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 tax forms 1040x 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 tax forms 1040x Workforce in place, etc. Irs tax forms 1040x   This includes the composition of a workforce (for example, its experience, education, or training). Irs tax forms 1040x 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 tax forms 1040x   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 tax forms 1040x Also, you must amortize the cost of acquiring an existing employment contract or relationship with employees or consultants. Irs tax forms 1040x Business books and records, etc. Irs tax forms 1040x   This includes the intangible value of technical manuals, training manuals or programs, data files, and accounting or inventory control systems. Irs tax forms 1040x 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 tax forms 1040x Patents, copyrights, etc. Irs tax forms 1040x   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 tax forms 1040x Customer-based intangible. Irs tax forms 1040x   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 tax forms 1040x For example, you must amortize the part of the purchase price of a business that is for the existence of the following intangibles. Irs tax forms 1040x A customer base. Irs tax forms 1040x A circulation base. Irs tax forms 1040x An undeveloped market or market growth. Irs tax forms 1040x Insurance in force. Irs tax forms 1040x A mortgage servicing contract. Irs tax forms 1040x An investment management contract. Irs tax forms 1040x Any other relationship with customers involving the future provision of goods or services. Irs tax forms 1040x   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 tax forms 1040x Supplier-based intangible. Irs tax forms 1040x   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 tax forms 1040x 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 tax forms 1040x 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 tax forms 1040x Also, see Assets That Are Not Section 197 Intangibles below. Irs tax forms 1040x Government-granted license, permit, etc. Irs tax forms 1040x   This is any right granted by a governmental unit or an agency or instrumentality of a governmental unit. Irs tax forms 1040x 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 tax forms 1040x Covenant not to compete. Irs tax forms 1040x   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 tax forms 1040x An interest in a trade or business includes an interest in a partnership or a corporation engaged in a trade or business. Irs tax forms 1040x   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 tax forms 1040x Franchise, trademark, or trade name. Irs tax forms 1040x   A franchise, trademark, or trade name is a section 197 intangible. Irs tax forms 1040x You must amortize its purchase or renewal costs, other than certain contingent payments that you can deduct currently. Irs tax forms 1040x For information on currently deductible contingent payments, see chapter 11. Irs tax forms 1040x Professional sports franchise. Irs tax forms 1040x   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 tax forms 1040x Contract for the use of, or a term interest in, a section 197 intangible. Irs tax forms 1040x   Section 197 intangibles include any right under a license, contract, or other arrangement providing for the use of any section 197 intangible. Irs tax forms 1040x It also includes any term interest in any section 197 intangible, whether the interest is outright or in trust. Irs tax forms 1040x Assets That Are Not Section 197 Intangibles The following assets are not section 197 intangibles. Irs tax forms 1040x Any interest in a corporation, partnership, trust, or estate. Irs tax forms 1040x Any interest under an existing futures contract, foreign currency contract, notional principal contract, interest rate swap, or similar financial contract. Irs tax forms 1040x Any interest in land. Irs tax forms 1040x Most computer software. Irs tax forms 1040x (See Computer software , later. Irs tax forms 1040x ) 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 tax forms 1040x An interest in a film, sound recording, video tape, book, or similar property. Irs tax forms 1040x A right to receive tangible property or services under a contract or from a governmental agency. Irs tax forms 1040x An interest in a patent or copyright. Irs tax forms 1040x Certain rights that have a fixed duration or amount. Irs tax forms 1040x (See Rights of fixed duration or amount , later. Irs tax forms 1040x ) An interest under either of the following. Irs tax forms 1040x An existing lease or sublease of tangible property. Irs tax forms 1040x A debt that was in existence when the interest was acquired. Irs tax forms 1040x 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 tax forms 1040x 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 tax forms 1040x Intangible property that is not amortizable under the rules for section 197 intangibles can be depreciated if it meets certain requirements. Irs tax forms 1040x You generally must use the straight line method over its useful life. Irs tax forms 1040x For certain intangibles, the depreciation period is specified in the law and regulations. Irs tax forms 1040x For example, the depreciation period for computer software that is not a section 197 intangible is generally 36 months. Irs tax forms 1040x 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 tax forms 1040x Computer software. Irs tax forms 1040x   Section 197 intangibles do not include the following types of computer software. Irs tax forms 1040x Software that meets all the following requirements. Irs tax forms 1040x It is, or has been, readily available for purchase by the general public. Irs tax forms 1040x It is subject to a nonexclusive license. Irs tax forms 1040x It has not been substantially modified. Irs tax forms 1040x 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 tax forms 1040x 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 tax forms 1040x Computer software defined. Irs tax forms 1040x   Computer software includes all programs designed to cause a computer to perform a desired function. Irs tax forms 1040x It also includes any database or similar item that is in the public domain and is incidental to the operation of qualifying software. Irs tax forms 1040x Rights of fixed duration or amount. Irs tax forms 1040x   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 tax forms 1040x However, this does not apply to the following intangibles. Irs tax forms 1040x Goodwill. Irs tax forms 1040x Going concern value. Irs tax forms 1040x A covenant not to compete. Irs tax forms 1040x A franchise, trademark, or trade name. Irs tax forms 1040x A customer-related information base, customer-based intangible, or similar item. Irs tax forms 1040x 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 tax forms 1040x 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 tax forms 1040x 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 tax forms 1040x 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 tax forms 1040x Amortize these costs using the rules of Revenue Procedure 2004-36. Irs tax forms 1040x For more information, see Revenue Procedure 2004-36, 2004-24 I. Irs tax forms 1040x R. Irs tax forms 1040x B. Irs tax forms 1040x 1063, available at  www. Irs tax forms 1040x irs. Irs tax forms 1040x gov/irb/2004-24_IRB/ar16. Irs tax forms 1040x html. Irs tax forms 1040x A change in the treatment of creative property costs is a change in method of accounting. Irs tax forms 1040x 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 tax forms 1040x These rules apply to goodwill and going concern value, and to any other section 197 intangible that is not otherwise depreciable or amortizable. Irs tax forms 1040x Under the anti-churning rules, you cannot use 15-year amortization for the intangible if any of the following conditions apply. Irs tax forms 1040x You or a related person (defined later) held or used the intangible at any time from July 25, 1991, through August 10, 1993. Irs tax forms 1040x 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 tax forms 1040x 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 tax forms 1040x 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 tax forms 1040x See Related person , later, for more information. Irs tax forms 1040x Exceptions. Irs tax forms 1040x   The anti-churning rules do not apply in the following situations. Irs tax forms 1040x You acquired the intangible from a decedent and its basis was stepped up to its fair market value. Irs tax forms 1040x The intangible was amortizable as a section 197 intangible by the seller or transferor you acquired it from. Irs tax forms 1040x 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 tax forms 1040x The gain-recognition exception, discussed later, applies. Irs tax forms 1040x Related person. Irs tax forms 1040x   For purposes of the anti-churning rules, the following are related persons. Irs tax forms 1040x An individual and his or her brothers, sisters, half-brothers, half-sisters, spouse, ancestors (parents, grandparents, etc. Irs tax forms 1040x ), and lineal descendants (children, grandchildren, etc. Irs tax forms 1040x ). Irs tax forms 1040x A corporation and an individual who owns, directly or indirectly, more than 20% of the value of the corporation's outstanding stock. Irs tax forms 1040x 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 tax forms 1040x (For an exception, see section 1. Irs tax forms 1040x 197-2(h)(6)(iv) of the regulations. Irs tax forms 1040x ) 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 tax forms 1040x The grantor and fiduciary, and the fiduciary and beneficiary, of any trust. Irs tax forms 1040x 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 tax forms 1040x The executor and beneficiary of an estate. Irs tax forms 1040x A tax-exempt educational or charitable organization and a person who directly or indirectly controls the organization (or whose family members control it). Irs tax forms 1040x 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 tax forms 1040x 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 tax forms 1040x Two partnerships if the same persons own, directly or indirectly, more than 20% of the capital or profits interests in both partnerships. Irs tax forms 1040x A partnership and a person who owns, directly or indirectly, more than 20% of the capital or profits interests in the partnership. Irs tax forms 1040x 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 tax forms 1040x When to determine relationship. Irs tax forms 1040x   Persons are treated as related if the relationship existed at the following time. Irs tax forms 1040x In the case of a single transaction, immediately before or immediately after the transaction in which the intangible was acquired. Irs tax forms 1040x 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 tax forms 1040x Ownership of stock. Irs tax forms 1040x   In determining whether an individual directly or indirectly owns any of the outstanding stock of a corporation, the following rules apply. Irs tax forms 1040x Rule 1. Irs tax forms 1040x   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 tax forms 1040x Rule 2. Irs tax forms 1040x   An individual is considered to own the stock directly or indirectly owned by or for his or her family. Irs tax forms 1040x Family includes only brothers and sisters, half-brothers and half-sisters, spouse, ancestors, and lineal descendants. Irs tax forms 1040x Rule 3. Irs tax forms 1040x   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 tax forms 1040x Rule 4. Irs tax forms 1040x   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 tax forms 1040x 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 tax forms 1040x Gain-recognition exception. Irs tax forms 1040x   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 tax forms 1040x 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 tax forms 1040x 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 tax forms 1040x See chapter 2 in Publication 544 for information on making this choice. Irs tax forms 1040x   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 tax forms 1040x Notification. Irs tax forms 1040x   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 tax forms 1040x Anti-abuse rule. Irs tax forms 1040x   You cannot amortize any section 197 intangible acquired in a transaction for which the principal purpose was either of the following. Irs tax forms 1040x To avoid the requirement that the intangible be acquired after August 10, 1993. Irs tax forms 1040x To avoid any of the anti-churning rules. Irs tax forms 1040x More information. Irs tax forms 1040x   For more information about the anti-churning rules, including additional rules for partnerships, see Regulations section 1. Irs tax forms 1040x 197-2(h). Irs tax forms 1040x 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 tax forms 1040x See Amended Return , next. Irs tax forms 1040x 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 tax forms 1040x See Changing Your Accounting Method , later. Irs tax forms 1040x Amended Return If you deducted an incorrect amount for amortization, you can file an amended return to correct the following. Irs tax forms 1040x A mathematical error made in any year. Irs tax forms 1040x A posting error made in any year. Irs tax forms 1040x An amortization deduction for a section 197 intangible for which you have not adopted a method of accounting. Irs tax forms 1040x When to file. Irs tax forms 1040x   If an amended return is allowed, you must file it by the later of the following dates. Irs tax forms 1040x 3 years from the date you filed your original return for the year in which you did not deduct the correct amount. Irs tax forms 1040x (A return filed early is considered filed on the due date. Irs tax forms 1040x ) 2 years from the time you paid your tax for that year. Irs tax forms 1040x Changing Your Accounting Method Generally, you must get IRS approval to change your method of accounting. Irs tax forms 1040x File Form 3115, Application for Change in Accounting Method, to request a change to a permissible method of accounting for amortization. Irs tax forms 1040x The following are examples of a change in method of accounting for amortization. Irs tax forms 1040x A change in the amortization method, period of recovery, or convention of an amortizable asset. Irs tax forms 1040x A change in the accounting for amortizable assets from a single asset account to a multiple asset account (pooling), or vice versa. Irs tax forms 1040x A change in the accounting for amortizable assets from one type of multiple asset account to a different type of multiple asset account. Irs tax forms 1040x 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 tax forms 1040x An adjustment in the useful life of an amortizable asset. Irs tax forms 1040x Generally, the making of a late amortization election or the revocation of a timely valid amortization election. Irs tax forms 1040x Any change in the placed-in-service date of an amortizable asset. Irs tax forms 1040x See Regulations section 1. Irs tax forms 1040x 446-1(e)(2)(ii)(a) for more information and examples. Irs tax forms 1040x Automatic approval. Irs tax forms 1040x   In some instances, you may be able to get automatic approval from the IRS to change your method of accounting for amortization. Irs tax forms 1040x For a list of automatic accounting method changes, see the Instructions for Form 3115. Irs tax forms 1040x 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 tax forms 1040x 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 tax forms 1040x See Revenue Procedure 2006-12, 2006-3 I. Irs tax forms 1040x R. Irs tax forms 1040x B. Irs tax forms 1040x 310, available at  www. Irs tax forms 1040x irs. Irs tax forms 1040x gov/irb/2006-03_IRB/ar14. Irs tax forms 1040x html. Irs tax forms 1040x  See Revenue Procedure 2006-37, 2006-38 I. Irs tax forms 1040x R. Irs tax forms 1040x B. Irs tax forms 1040x 499, available at  www. Irs tax forms 1040x irs. Irs tax forms 1040x gov/irb/2006-38_IRB/ar10. Irs tax forms 1040x html. Irs tax forms 1040x  See Revenue Procedure 2008-52, 2008-36 I. Irs tax forms 1040x R. Irs tax forms 1040x B. Irs tax forms 1040x 587, available at www. Irs tax forms 1040x irs. Irs tax forms 1040x gov/irb/2008-36_IRB/ar09. Irs tax forms 1040x html. Irs tax forms 1040x  See Revenue Procedure 2009-39, 2009-38 I. Irs tax forms 1040x R. Irs tax forms 1040x B. Irs tax forms 1040x 371, available at  www. Irs tax forms 1040x irs. Irs tax forms 1040x gov/irb/2009-38_IRB/ar08. Irs tax forms 1040x html. Irs tax forms 1040x  See Revenue Procedure 2011-14, 2011-4 I. Irs tax forms 1040x R. Irs tax forms 1040x B. Irs tax forms 1040x 330, available at  www. Irs tax forms 1040x irs. Irs tax forms 1040x gov/irb/2011-04_IRB/ar08. Irs tax forms 1040x html. Irs tax forms 1040x  See Revenue Procedure 2011-22, 2011-18 I. Irs tax forms 1040x R. Irs tax forms 1040x B. Irs tax forms 1040x 737, available at  www. Irs tax forms 1040x irs. Irs tax forms 1040x gov/irb/2011-18_IRB/ar08. Irs tax forms 1040x html. Irs tax forms 1040x Also, see Revenue Procedure 2012-39, 2012-41 I. Irs tax forms 1040x R. Irs tax forms 1040x B. Irs tax forms 1040x 470 available at www. Irs tax forms 1040x irs. Irs tax forms 1040x gov/irb/2012-41_IRB/index. Irs tax forms 1040x html. Irs tax forms 1040x Disposition of Section 197 Intangibles A section 197 intangible is treated as depreciable property used in your trade or business. Irs tax forms 1040x 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 tax forms 1040x 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 tax forms 1040x Any remaining gain, or any loss, is a section 1231 gain or loss. Irs tax forms 1040x If you held the intangible 1 year or less, any gain or loss on its disposition is an ordinary gain or loss. Irs tax forms 1040x For more information on ordinary or capital gain or loss on business property, see chapter 3 in Publication 544. Irs tax forms 1040x Nondeductible loss. Irs tax forms 1040x   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 tax forms 1040x Instead, increase the adjusted basis of each remaining amortizable section 197 intangible by a proportionate part of the nondeductible loss. Irs tax forms 1040x Figure the increase by multiplying the nondeductible loss on the disposition of the intangible by the following fraction. Irs tax forms 1040x The numerator is the adjusted basis of each remaining intangible on the date of the disposition. Irs tax forms 1040x The denominator is the total adjusted bases of all remaining amortizable section 197 intangibles on the date of the disposition. Irs tax forms 1040x Covenant not to compete. Irs tax forms 1040x   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 tax forms 1040x Nonrecognition transfers. Irs tax forms 1040x   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 tax forms 1040x You amortize this part of the adjusted basis over the intangible's remaining amortization period in the hands of the transferor. Irs tax forms 1040x Nonrecognition transfers include transfers to a corporation, partnership contributions and distributions, like-kind exchanges, and involuntary conversions. Irs tax forms 1040x   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 tax forms 1040x 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 tax forms 1040x Example. Irs tax forms 1040x You own a section 197 intangible you have amortized for 4 full years. Irs tax forms 1040x It has a remaining unamortized basis of $30,000. Irs tax forms 1040x You exchange the asset plus $10,000 for a like-kind section 197 intangible. Irs tax forms 1040x The nonrecognition provisions of like-kind exchanges apply. Irs tax forms 1040x 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 tax forms 1040x You amortize the other $10,000 of adjusted basis over a new 15-year period. Irs tax forms 1040x For more information, see Regulations section 1. Irs tax forms 1040x 197-2(g). Irs tax forms 1040x Reforestation Costs You can elect to deduct a limited amount of reforestation costs paid or incurred during the tax year. Irs tax forms 1040x See Reforestation Costs in chapter 7. Irs tax forms 1040x You can elect to amortize the qualifying costs that are not deducted currently over an 84-month period. Irs tax forms 1040x There is no limit on the amount of your amortization deduction for reforestation costs paid or incurred during the tax year. Irs tax forms 1040x The election to amortize reforestation costs incurred by a partnership, S corporation, or estate must be made by the partnership, corporation, or estate. Irs tax forms 1040x A partner, shareholder, or beneficiary cannot make that election. Irs tax forms 1040x 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 tax forms 1040x , of a partnership or S corporation. Irs tax forms 1040x 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 tax forms 1040x Qualifying costs. Irs tax forms 1040x   Reforestation costs are the direct costs of planting or seeding for forestation or reforestation. Irs tax forms 1040x Qualifying costs include only those costs you must capitalize and include in the adjusted basis of the property. Irs tax forms 1040x They include costs for the following items. Irs tax forms 1040x Site preparation. Irs tax forms 1040x Seeds or seedlings. Irs tax forms 1040x Labor. Irs tax forms 1040x Tools. Irs tax forms 1040x Depreciation on equipment used in planting and seeding. Irs tax forms 1040x 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 tax forms 1040x Qualified timber property. Irs tax forms 1040x   Qualified timber property is property that contains trees in significant commercial quantities. Irs tax forms 1040x It can be a woodlot or other site that you own or lease. Irs tax forms 1040x The property qualifies only if it meets all of the following requirements. Irs tax forms 1040x It is located in the United States. Irs tax forms 1040x 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 tax forms 1040x It consists of at least one acre planted with tree seedlings in the manner normally used in forestation or reforestation. Irs tax forms 1040x Qualified timber property does not include property on which you have planted shelter belts or ornamental trees, such as Christmas trees. Irs tax forms 1040x Amortization period. Irs tax forms 1040x   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 tax forms 1040x You can claim amortization deductions for no more than 6 months of the first and last (eighth) tax years of the period. Irs tax forms 1040x Life tenant and remainderman. Irs tax forms 1040x   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 tax forms 1040x Any remainder interest in the property is ignored for amortization purposes. Irs tax forms 1040x Recapture. Irs tax forms 1040x   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 tax forms 1040x See chapter 3 of Publication 544 for more information. Irs tax forms 1040x How to make the election. Irs tax forms 1040x   To elect to amortize qualifying reforestation costs, complete Part VI of Form 4562 and attach a statement that contains the following information. Irs tax forms 1040x A description of the costs and the dates you incurred them. Irs tax forms 1040x A description of the type of timber being grown and the purpose for which it is grown. Irs tax forms 1040x Attach a separate statement for each property for which you amortize reforestation costs. Irs tax forms 1040x   Generally, you must make the election on a timely filed return (including extensions) for the tax year in which you incurred the costs. Irs tax forms 1040x 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 tax forms 1040x Attach Form 4562 and the statement to the amended return and write “Filed pursuant to section 301. Irs tax forms 1040x 9100-2” on Form 4562. Irs tax forms 1040x File the amended return at the same address you filed the original return. Irs tax forms 1040x Revoking the election. Irs tax forms 1040x   You must get IRS approval to revoke your election to amortize qualifying reforestation costs. Irs tax forms 1040x 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 tax forms 1040x Please provide your daytime telephone number (optional), in case we need to contact you. Irs tax forms 1040x 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 tax forms 1040x    Send the application to: Internal Revenue Service Associate Chief Counsel Passthroughs and Special Industries CC:PSI:6 1111 Constitution Ave. Irs tax forms 1040x 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 tax forms 1040x 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 tax forms 1040x 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 tax forms 1040x If you retire or abandon the property during the amortization period, no amortization deduction is allowed in the year of retirement or abandonment. Irs tax forms 1040x Pollution Control Facilities You can elect to amortize the cost of a certified pollution control facility over 60 months. Irs tax forms 1040x However, see Atmospheric pollution control facilities for an exception. Irs tax forms 1040x The cost of a pollution control facility that is not eligible for amortization can be depreciated under the regular rules for depreciation. Irs tax forms 1040x 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 tax forms 1040x You must reduce its cost (amortizable basis) by the amount of any special allowance you claim. Irs tax forms 1040x See chapter 3 of Publication 946. Irs tax forms 1040x 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 tax forms 1040x The facility must do so by removing, changing, disposing, storing, or preventing the creation or emission of pollutants, contaminants, wastes, or heat. Irs tax forms 1040x The facility must be certified by state and federal certifying authorities. Irs tax forms 1040x 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 tax forms 1040x Also, it must not significantly change the nature of the manufacturing or production process or facility. Irs tax forms 1040x 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 tax forms 1040x The federal certifying authority will describe the nature of the potential cost recovery. Irs tax forms 1040x You must then reduce the amortizable basis of the facility by this potential recovery. Irs tax forms 1040x New identifiable treatment facility. Irs tax forms 1040x   A new identifiable treatment facility is tangible depreciable property that is identifiable as a treatment facility. Irs tax forms 1040x It does not include a building and its structural components unless the building is exclusively a treatment facility. Irs tax forms 1040x Atmospheric pollution control facilities. Irs tax forms 1040x   Certain atmospheric pollution control facilities can be amortized over 84 months. Irs tax forms 1040x To qualify, the following must apply. Irs tax forms 1040x The facility must be acquired and placed in service after April 11, 2005. Irs tax forms 1040x If acquired, the original use must begin with you after April 11, 2005. Irs tax forms 1040x 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 tax forms 1040x 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 tax forms 1040x Basis reduction for corporations. Irs tax forms 1040x   A corporation must reduce the amortizable basis of a pollution control facility by 20% before figuring the amortization deduction. Irs tax forms 1040x More information. Irs tax forms 1040x   For more information on the amortization of pollution control facilities, see Code sections 169 and 291(c) and the related regulations. Irs tax forms 1040x 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 tax forms 1040x If you elect to amortize these costs, deduct them in equal amounts over 60 months or more. Irs tax forms 1040x The amortization period begins the month you first receive an economic benefit from the costs. Irs tax forms 1040x For a definition of “research and experimental costs” and information on deducting them as current business expenses, see chapter 7. Irs tax forms 1040x Optional write-off method. Irs tax forms 1040x   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 tax forms 1040x For more information, see Optional Write-off of Certain Tax Preferences , later, and section 59(e) of the Internal Revenue Code. Irs tax forms 1040x Costs you can amortize. Irs tax forms 1040x   You can amortize costs chargeable to a capital account (see chapter 1) if you meet both of the following requirements. Irs tax forms 1040x You paid or incurred the costs in your trade or business. Irs tax forms 1040x You are not deducting the costs currently. Irs tax forms 1040x How to make the election. Irs tax forms 1040x   To elect to amortize research and experimental costs, complete Part VI of Form 4562 and attach it to your income tax return. Irs tax forms 1040x Generally, you must file the return by the due date (including extensions). Irs tax forms 1040x 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 tax forms 1040x Attach Form 4562 to the amended return and write “Filed pursuant to section 301. Irs tax forms 1040x 9100-2” on Form 4562. Irs tax forms 1040x File the amended return at the same address you filed the original return. Irs tax forms 1040x   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 tax forms 1040x 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 tax forms 1040x If you make this election, there is no AMT adjustment. Irs tax forms 1040x 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 tax forms 1040x How to make the election. Irs tax forms 1040x   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 tax forms 1040x   Generally, the election must be made on a timely filed return (including extensions) for the tax year in which you incurred the costs. Irs tax forms 1040x 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 tax forms 1040x Attach Form 4562 to the amended return and write “Filed pursuant to section 301. Irs tax forms 1040x 9100-2” on Form 4562. Irs tax forms 1040x File the amended return at the same address you filed the original return. Irs tax forms 1040x Revoking the election. Irs tax forms 1040x   You must obtain consent from the IRS to revoke your election. Irs tax forms 1040x 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 tax forms 1040x The request must contain all of the information necessary to demonstrate the rare and unusual circumstances that would justify granting revocation. Irs tax forms 1040x If the request for revocation is approved, any unamortized costs are deductible in the year the revocation is effective. Irs tax forms 1040x Prev  Up  Next   Home   More Online Publications
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Susquehanna River Basin Commission

The Susquehanna River Basin Commission is an interstate body, with representatives from New York, Maryland, Pennsylvania and the federal government, that manages the environmental stewardship and economic development of the Susquehanna river and its tributaries.

Contact the Agency or Department

Website: Susquehanna River Basin Commission

E-mail:

Address: 1721 Front St
Harrisburg, PA 17102

Phone Number: (717) 238-0423

The Irs Tax Forms 1040x

Irs tax forms 1040x Publication 587 - Main Content Table of Contents Qualifying for a DeductionExclusive Use Regular Use Trade or Business Use Principal Place of Business Place To Meet Patients, Clients, or Customers Separate Structure Figuring the DeductionUsing Actual Expenses Using the Simplified Method Daycare Facility Standard meal and snack rates. Irs tax forms 1040x Sale or Exchange of Your HomeGain on Sale Depreciation Basis Adjustment Reporting the Sale More Information Business Furniture and EquipmentListed Property Property Bought for Business Use Personal Property Converted to Business Use Recordkeeping Where To DeductSelf-Employed Persons Employees Partners How To Get Tax HelpLow Income Taxpayer Clinics Worksheet To Figure the Deduction for Business Use of Your HomeInstructions for the Worksheet Worksheets To Figure the Deduction for Business Use of Your Home (Simplified Method) Instructions for the Simplified Method Worksheet Instructions for the Daycare Facility Worksheet Instructions for the Area Adjustment Worksheet Qualifying for a Deduction Generally, you cannot deduct items related to your home, such as mortgage interest, real estate taxes, utilities, maintenance, rent, depreciation, or property insurance, as business expenses. Irs tax forms 1040x However, you may be able to deduct expenses related to the business use of part of your home if you meet specific requirements. Irs tax forms 1040x Even then, the deductible amount of these types of expenses may be limited. Irs tax forms 1040x Use this section and Figure A, later, to decide if you can deduct expenses for the business use of your home. Irs tax forms 1040x To qualify to deduct expenses for business use of your home, you must use part of your home: Exclusively and regularly as your principal place of business (defined later), Exclusively and regularly as a place where you meet or deal with patients, clients, or customers in the normal course of your trade or business, In the case of a separate structure which is not attached to your home, in connection with your trade or business, On a regular basis for certain storage use (see Storage of inventory or product samples , later), For rental use (see Publication 527), or As a daycare facility (see Daycare Facility , later). Irs tax forms 1040x Additional tests for employee use. Irs tax forms 1040x   If you are an employee and you use a part of your home for business, you may qualify for a deduction for its business use. Irs tax forms 1040x You must meet the tests discussed earlier plus: Your business use must be for the convenience of your employer, and You must not rent any part of your home to your employer and use the rented portion to perform services as an employee for that employer. Irs tax forms 1040x If the use of the home office is merely appropriate and helpful, you cannot deduct expenses for the business use of your home. Irs tax forms 1040x Exclusive Use To qualify under the exclusive use test, you must use a specific area of your home only for your trade or business. Irs tax forms 1040x The area used for business can be a room or other separately identifiable space. Irs tax forms 1040x The space does not need to be marked off by a permanent partition. Irs tax forms 1040x You do not meet the requirements of the exclusive use test if you use the area in question both for business and for personal purposes. Irs tax forms 1040x Example. Irs tax forms 1040x You are an attorney and use a den in your home to write legal briefs and prepare clients' tax returns. Irs tax forms 1040x Your family also uses the den for recreation. Irs tax forms 1040x The den is not used exclusively in your trade or business, so you cannot claim a deduction for the business use of the den. Irs tax forms 1040x Exceptions to Exclusive Use You do not have to meet the exclusive use test if either of the following applies. Irs tax forms 1040x You use part of your home for the storage of inventory or product samples (discussed next). Irs tax forms 1040x You use part of your home as a daycare facility, discussed later under Daycare Facility . Irs tax forms 1040x Note. Irs tax forms 1040x With the exception of these two uses, any portion of the home used for business purposes must meet the exclusive use test. Irs tax forms 1040x Storage of inventory or product samples. Irs tax forms 1040x    If you use part of your home for storage of inventory or product samples, you can deduct expenses for the business use of your home without meeting the exclusive use test. Irs tax forms 1040x However, you must meet all the following tests. Irs tax forms 1040x You sell products at wholesale or retail as your trade or business. Irs tax forms 1040x You keep the inventory or product samples in your home for use in your trade or business. Irs tax forms 1040x Your home is the only fixed location of your trade or business. Irs tax forms 1040x You use the storage space on a regular basis. Irs tax forms 1040x The space you use is a separately identifiable space suitable for storage. Irs tax forms 1040x Example. Irs tax forms 1040x Your home is the only fixed location of your business of selling mechanics' tools at retail. Irs tax forms 1040x You regularly use half of your basement for storage of inventory and product samples. Irs tax forms 1040x You sometimes use the area for personal purposes. Irs tax forms 1040x The expenses for the storage space are deductible even though you do not use this part of your basement exclusively for business. Irs tax forms 1040x Regular Use To qualify under the regular use test, you must use a specific area of your home for business on a regular basis. Irs tax forms 1040x Incidental or occasional business use is not regular use. Irs tax forms 1040x You must consider all facts and circumstances in determining whether your use is on a regular basis. Irs tax forms 1040x Trade or Business Use To qualify under the trade-or-business-use test, you must use part of your home in connection with a trade or business. Irs tax forms 1040x If you use your home for a profit-seeking activity that is not a trade or business, you cannot take a deduction for its business use. Irs tax forms 1040x Example. Irs tax forms 1040x You use part of your home exclusively and regularly to read financial periodicals and reports, clip bond coupons, and carry out similar activities related to your own investments. Irs tax forms 1040x You do not make investments as a broker or dealer. Irs tax forms 1040x So, your activities are not part of a trade or business and you cannot take a deduction for the business use of your home. Irs tax forms 1040x Principal Place of Business You can have more than one business location, including your home, for a single trade or business. Irs tax forms 1040x To qualify to deduct the expenses for the business use of your home under the principal place of business test, your home must be your principal place of business for that trade or business. Irs tax forms 1040x To determine whether your home is your principal place of business, you must consider: The relative importance of the activities performed at each place where you conduct business, and The amount of time spent at each place where you conduct business. Irs tax forms 1040x Your home office will qualify as your principal place of business if you meet the following requirements. Irs tax forms 1040x You use it exclusively and regularly for administrative or management activities of your trade or business. Irs tax forms 1040x You have no other fixed location where you conduct substantial administrative or management activities of your trade or business. Irs tax forms 1040x If, after considering your business locations, your home cannot be identified as your principal place of business, you cannot deduct home office expenses. Irs tax forms 1040x However, see the later discussions under Place To Meet Patients, Clients, or Customers and Separate Structure for other ways to qualify to deduct home office expenses. Irs tax forms 1040x Administrative or management activities. Irs tax forms 1040x   There are many activities that are administrative or managerial in nature. Irs tax forms 1040x The following are a few examples. Irs tax forms 1040x Billing customers, clients, or patients. Irs tax forms 1040x Keeping books and records. Irs tax forms 1040x Ordering supplies. Irs tax forms 1040x Setting up appointments. Irs tax forms 1040x Forwarding orders or writing reports. Irs tax forms 1040x Administrative or management activities performed at other locations. Irs tax forms 1040x   The following activities performed by you or others will not disqualify your home office from being your principal place of business. Irs tax forms 1040x You have others conduct your administrative or management activities at locations other than your home. Irs tax forms 1040x (For example, another company does your billing from its place of business. Irs tax forms 1040x ) You conduct administrative or management activities at places that are not fixed locations of your business, such as in a car or a hotel room. Irs tax forms 1040x You occasionally conduct minimal administrative or management activities at a fixed location outside your home. Irs tax forms 1040x You conduct substantial nonadministrative or nonmanagement business activities at a fixed location outside your home. Irs tax forms 1040x (For example, you meet with or provide services to customers, clients, or patients at a fixed location of the business outside your home. Irs tax forms 1040x ) You have suitable space to conduct administrative or management activities outside your home, but choose to use your home office for those activities instead. Irs tax forms 1040x Please click here for the text description of the image. Irs tax forms 1040x Can you deduct business use of the home expenses? Example 1. Irs tax forms 1040x John is a self-employed plumber. Irs tax forms 1040x Most of John's time is spent at customers' homes and offices installing and repairing plumbing. Irs tax forms 1040x He has a small office in his home that he uses exclusively and regularly for the administrative or management activities of his business, such as phoning customers, ordering supplies, and keeping his books. Irs tax forms 1040x John writes up estimates and records of work completed at his customers' premises. Irs tax forms 1040x He does not conduct any substantial administrative or management activities at any fixed location other than his home office. Irs tax forms 1040x John does not do his own billing. Irs tax forms 1040x He uses a local bookkeeping service to bill his customers. Irs tax forms 1040x John's home office qualifies as his principal place of business for deducting expenses for its use. Irs tax forms 1040x He uses the home office for the administrative or managerial activities of his plumbing business and he has no other fixed location where he conducts these administrative or managerial activities. Irs tax forms 1040x His choice to have his billing done by another company does not disqualify his home office from being his principal place of business. Irs tax forms 1040x He meets all the qualifications, including principal place of business, so he can deduct expenses (subject to certain limitations, explained later) for the business use of his home. Irs tax forms 1040x Example 2. Irs tax forms 1040x Pamela is a self-employed sales representative for several different product lines. Irs tax forms 1040x She has an office in her home that she uses exclusively and regularly to set up appointments and write up orders and other reports for the companies whose products she sells. Irs tax forms 1040x She occasionally writes up orders and sets up appointments from her hotel room when she is away on business overnight. Irs tax forms 1040x Pamela's business is selling products to customers at various locations throughout her territory. Irs tax forms 1040x To make these sales, she regularly visits customers to explain the available products and take orders. Irs tax forms 1040x Pamela's home office qualifies as her principal place of business for deducting expenses for its use. Irs tax forms 1040x She conducts administrative or management activities there and she has no other fixed location where she conducts substantial administrative or management activities. Irs tax forms 1040x The fact that she conducts some administrative or management activities in her hotel room (not a fixed location) does not disqualify her home office from being her principal place of business. Irs tax forms 1040x She meets all the qualifications, including principal place of business, so she can deduct expenses (subject to certain limitations, explained later) for the business use of her home. Irs tax forms 1040x Example 3. Irs tax forms 1040x Paul is a self-employed anesthesiologist. Irs tax forms 1040x He spends the majority of his time administering anesthesia and postoperative care in three local hospitals. Irs tax forms 1040x One of the hospitals provides him with a small shared office where he could conduct administrative or management activities. Irs tax forms 1040x Paul very rarely uses the office the hospital provides. Irs tax forms 1040x He uses a room in his home that he has converted to an office. Irs tax forms 1040x He uses this room exclusively and regularly to conduct all the following activities. Irs tax forms 1040x Contacting patients, surgeons, and hospitals regarding scheduling. Irs tax forms 1040x Preparing for treatments and presentations. Irs tax forms 1040x Maintaining billing records and patient logs. Irs tax forms 1040x Satisfying continuing medical education requirements. Irs tax forms 1040x Reading medical journals and books. Irs tax forms 1040x Paul's home office qualifies as his principal place of business for deducting expenses for its use. Irs tax forms 1040x He conducts administrative or management activities for his business as an anesthesiologist there and he has no other fixed location where he conducts substantial administrative or management activities for this business. Irs tax forms 1040x His choice to use his home office instead of the one provided by the hospital does not disqualify his home office from being his principal place of business. Irs tax forms 1040x His performance of substantial nonadministrative or nonmanagement activities at fixed locations outside his home also does not disqualify his home office from being his principal place of business. Irs tax forms 1040x He meets all the qualifications, including principal place of business, so he can deduct expenses (subject to certain limitations, explained later) for the business use of his home. Irs tax forms 1040x Example 4. Irs tax forms 1040x Kathleen is employed as a teacher. Irs tax forms 1040x She is required to teach and meet with students at the school and to grade papers and tests. Irs tax forms 1040x The school provides her with a small office where she can work on her lesson plans, grade papers and tests, and meet with parents and students. Irs tax forms 1040x The school does not require her to work at home. Irs tax forms 1040x Kathleen prefers to use the office she has set up in her home and does not use the one provided by the school. Irs tax forms 1040x She uses this home office exclusively and regularly for the administrative duties of her teaching job. Irs tax forms 1040x Kathleen must meet the convenience-of-the-employer test, even if her home qualifies as her principal place of business for deducting expenses for its use. Irs tax forms 1040x Her employer provides her with an office and does not require her to work at home, so she does not meet the convenience-of-the-employer test and cannot claim a deduction for the business use of her home. Irs tax forms 1040x More Than One Trade or Business The same home office can be the principal place of business for two or more separate business activities. Irs tax forms 1040x Whether your home office is the principal place of business for more than one business activity must be determined separately for each of your trade or business activities. Irs tax forms 1040x You must use the home office exclusively and regularly for one or more of the following purposes. Irs tax forms 1040x As the principal place of business for one or more of your trades or businesses. Irs tax forms 1040x As a place to meet or deal with patients, clients, or customers in the normal course of one or more of your trades or businesses. Irs tax forms 1040x If your home office is a separate structure, in connection with one or more of your trades or businesses. Irs tax forms 1040x You can use your home office for more than one business activity, but you cannot use it for any nonbusiness (i. Irs tax forms 1040x e. Irs tax forms 1040x , personal) activities. Irs tax forms 1040x If you are an employee, any use of the home office in connection with your employment must be for the convenience of your employer. Irs tax forms 1040x See Rental to employer , later, if you rent part of your home to your employer. Irs tax forms 1040x Example. Irs tax forms 1040x Tracy White is employed as a teacher. Irs tax forms 1040x Her principal place of work is the school, which provides her office space to do her school work. Irs tax forms 1040x She also has a mail order jewelry business. Irs tax forms 1040x All her work in the jewelry business is done in her home office and the office is used exclusively for that business. Irs tax forms 1040x If she meets all the other tests, she can deduct expenses for the business use of her home for the jewelry business. Irs tax forms 1040x If Tracy also uses the office for work related to her teaching, she must meet the exclusive use test for both businesses to qualify for the deduction. Irs tax forms 1040x As an employee, Tracy must also meet the convenience-of-the-employer test to qualify for the deduction. Irs tax forms 1040x She does not meet this test for her work as a teacher, so she cannot claim a deduction for the business use of her home for either activity. Irs tax forms 1040x Place To Meet Patients, Clients, or Customers If you meet or deal with patients, clients, or customers in your home in the normal course of your business, even though you also carry on business at another location, you can deduct your expenses for the part of your home used exclusively and regularly for business if you meet both the following tests. Irs tax forms 1040x You physically meet with patients, clients, or customers on your premises. Irs tax forms 1040x Their use of your home is substantial and integral to the conduct of your business. Irs tax forms 1040x Doctors, dentists, attorneys, and other professionals who maintain offices in their homes generally will meet this requirement. Irs tax forms 1040x Using your home for occasional meetings and telephone calls will not qualify you to deduct expenses for the business use of your home. Irs tax forms 1040x The part of your home you use exclusively and regularly to meet patients, clients, or customers does not have to be your principal place of business. Irs tax forms 1040x Example. Irs tax forms 1040x June Quill, a self-employed attorney, works 3 days a week in her city office. Irs tax forms 1040x She works 2 days a week in her home office used only for business. Irs tax forms 1040x She regularly meets clients there. Irs tax forms 1040x Her home office qualifies for a business deduction because she meets clients there in the normal course of her business. Irs tax forms 1040x Separate Structure You can deduct expenses for a separate free-standing structure, such as a studio, workshop, garage, or barn, if you use it exclusively and regularly for your business. Irs tax forms 1040x The structure does not have to be your principal place of business or a place where you meet patients, clients, or customers. Irs tax forms 1040x Example. Irs tax forms 1040x John Berry operates a floral shop in town. Irs tax forms 1040x He grows the plants for his shop in a greenhouse behind his home. Irs tax forms 1040x He uses the greenhouse exclusively and regularly in his business, so he can deduct the expenses for its use, subject to certain limitations, explained later. Irs tax forms 1040x Figuring the Deduction After you determine that you meet the tests under Qualifying for a Deduction , you can begin to figure how much you can deduct. Irs tax forms 1040x When figuring the amount you can deduct for the business use of your home, you will use either your actual expenses or a simplified method. Irs tax forms 1040x Electing to use the simplified method. Irs tax forms 1040x   The simplified method is an alternative to the calculation, allocation, and substantiation of actual expenses. Irs tax forms 1040x You choose whether or not to figure your deduction using the simplified method each taxable year. Irs tax forms 1040x See Using the Simplified Method , later. Irs tax forms 1040x Rental to employer. Irs tax forms 1040x   If you rent part of your home to your employer and you use the rented part in performing services for your employer as an employee, your deduction for the business use of your home is limited. Irs tax forms 1040x You can deduct mortgage interest, qualified mortgage insurance premiums, real estate taxes, and personal casualty losses for the rented part, subject to any limitations. Irs tax forms 1040x However, you cannot deduct otherwise allowable trade or business expenses, business casualty losses, or depreciation related to the use of your home (or use the simplified method as an alternative to deducting these actual expenses) in performing services for your employer. Irs tax forms 1040x Using Actual Expenses If you do not or cannot elect to use the simplified method for a home, you will figure your deduction for that home using your actual expenses. Irs tax forms 1040x You will also need to figure the percentage of your home used for business and the limit on the deduction. Irs tax forms 1040x If you are an employee or a partner, or you use your home in your farming business and you file Schedule F (Form 1040), you can use the Worksheet To Figure the Deduction for Business Use of Your Home, near the end of this publication, to help you figure your deduction. Irs tax forms 1040x If you use your home in a trade or business and you file Schedule C (Form 1040), you will use Form 8829 to figure your deduction. Irs tax forms 1040x Part-year use. Irs tax forms 1040x   You cannot deduct expenses for the business use of your home incurred during any part of the year you did not use your home for business purposes. Irs tax forms 1040x For example, if you begin using part of your home for business on July 1, and you meet all the tests from that date until the end of the year, consider only your expenses for the last half of the year in figuring your allowable deduction. Irs tax forms 1040x Expenses related to tax-exempt income. Irs tax forms 1040x   Generally, you cannot deduct expenses that are related to tax-exempt allowances. Irs tax forms 1040x However, if you receive a tax-exempt parsonage allowance or a tax-exempt military allowance, your expenses for mortgage interest and real estate taxes are deductible under the normal rules. Irs tax forms 1040x No deduction is allowed for other expenses related to the tax-exempt allowance. Irs tax forms 1040x   If your housing is provided free of charge and the value of the housing is tax exempt, you cannot deduct the rental value of any portion of the housing. Irs tax forms 1040x Actual Expenses You must divide the expenses of operating your home between personal and business use. Irs tax forms 1040x The part of a home operating expense you can use to figure your deduction depends on both of the following. Irs tax forms 1040x Whether the expense is direct, indirect, or unrelated. Irs tax forms 1040x The percentage of your home used for business. Irs tax forms 1040x Table 1, next, describes the types of expenses you may have and the extent to which they are deductible. Irs tax forms 1040x Table 1. Irs tax forms 1040x Types of Expenses  Expense  Description  Deductibility Direct Expenses only for  the business part  of your home. Irs tax forms 1040x Deductible in full. Irs tax forms 1040x *   Examples:  Painting or repairs  only in the area  used for business. Irs tax forms 1040x Exception: May be only partially  deductible in a daycare facility. Irs tax forms 1040x See Daycare Facility , later. Irs tax forms 1040x Indirect Expenses for  keeping up and running your  entire home. Irs tax forms 1040x Deductible based on the percentage of your home used for business. Irs tax forms 1040x *   Examples:  Insurance, utilities, and  general repairs. Irs tax forms 1040x   Unrelated Expenses only for  the parts of your  home not used  for business. Irs tax forms 1040x Not deductible. Irs tax forms 1040x   Examples:  Lawn care or painting  a room not used  for business. Irs tax forms 1040x   *Subject to the deduction limit, discussed later. Irs tax forms 1040x Form 8829 and the Worksheet To Figure the Deduction for Business Use of Your Home have separate columns for direct and indirect expenses. Irs tax forms 1040x Certain expenses are deductible whether or not you use your home for business. Irs tax forms 1040x If you qualify to deduct business use of the home expenses, use the business percentage of these expenses to figure your total business use of the home deduction. Irs tax forms 1040x These expenses include the following. Irs tax forms 1040x Real estate taxes. Irs tax forms 1040x Qualified mortgage insurance premiums. Irs tax forms 1040x Deductible mortgage interest. Irs tax forms 1040x Casualty losses. Irs tax forms 1040x Other expenses are deductible only if you use your home for business. Irs tax forms 1040x You can use the business percentage of these expenses to figure your total business use of the home deduction. Irs tax forms 1040x These expenses generally include (but are not limited to) the following. Irs tax forms 1040x Depreciation (covered under Depreciating Your Home , later). Irs tax forms 1040x Insurance. Irs tax forms 1040x Rent paid for the use of property you do not own but use in your trade or business. Irs tax forms 1040x Repairs. Irs tax forms 1040x Security system. Irs tax forms 1040x Utilities and services. Irs tax forms 1040x Real estate taxes. Irs tax forms 1040x   To figure the business part of your real estate taxes, multiply the real estate taxes paid by the percentage of your home used for business. Irs tax forms 1040x   For more information on the deduction for real estate taxes, see Publication 530, Tax Information for Homeowners. Irs tax forms 1040x Deductible mortgage interest. Irs tax forms 1040x   To figure the business part of your deductible mortgage interest, multiply this interest by the percentage of your home used for business. Irs tax forms 1040x You can include interest on a second mortgage in this computation. Irs tax forms 1040x If your total mortgage debt is more than $1,000,000 or your home equity debt is more than $100,000, your deduction may be limited. Irs tax forms 1040x For more information on what interest is deductible, see Publication 936, Home Mortgage Interest Deduction. Irs tax forms 1040x Qualified mortgage insurance premiums. Irs tax forms 1040x   To figure the business part of your qualified mortgage insurance premiums, multiply the premiums by the percentage of your home used for business. Irs tax forms 1040x You can include premiums for insurance on a second mortgage in this computation. Irs tax forms 1040x If your adjusted gross income is more than $100,000 ($50,000 if your filing status is married filing separately), your deduction may be limited. Irs tax forms 1040x For more information, see Publication 936, and Line 13 in the Instructions for Schedule A (Form 1040). Irs tax forms 1040x Casualty losses. Irs tax forms 1040x    If you have a casualty loss on your home that you use for business, treat the casualty loss as a direct expense, an indirect expense, or an unrelated expense, depending on the property affected. Irs tax forms 1040x A direct expense is the loss on the portion of the property you use only in your business. Irs tax forms 1040x Use the entire loss to figure the business use of the home deduction. Irs tax forms 1040x An indirect expense is the loss on property you use for both business and personal purposes. Irs tax forms 1040x Use only the business portion to figure the deduction. Irs tax forms 1040x An unrelated expense is the loss on property you do not use in your business. Irs tax forms 1040x Do not use any of the loss to figure the deduction. Irs tax forms 1040x Example. Irs tax forms 1040x You meet the rules to take a deduction for an office in your home that is 10% of the total area of your house. Irs tax forms 1040x A storm damages your roof. Irs tax forms 1040x This is an indirect expense as the roof is part of the whole house and is considered to be used both for business and personal purposes. Irs tax forms 1040x You would complete Form 4684, Casualties and Thefts, to report your loss. Irs tax forms 1040x You complete both section A (Personal Use Property) and section B (Business and Income-Producing Property) as your home is used both for business and personal purposes. Irs tax forms 1040x Since you use 90% of your home for personal purposes, use 90% of the cost or adjusted basis of your home, insurance or other reimbursement, and fair market value, both before and after the storm, to figure the amounts to enter on lines 2, 3, 5, and 6 of Form 4684. Irs tax forms 1040x Since you use 10% of your home for business purposes, use 10% of the cost or adjusted basis of your home, insurance or other reimbursement, and fair market value, both before and after the storm, to figure the amounts to enter on lines 20, 21, 23, and 24 of Form 4684. Irs tax forms 1040x Forms and worksheets to use. Irs tax forms 1040x   If you are filing Schedule C (Form 1040), get Form 8829 and follow the instructions for casualty losses. Irs tax forms 1040x If you are an employee or a partner, or you file Schedule F (Form 1040), use the Worksheet To Figure the Deduction for Business Use of Your Home, near the end of this publication. Irs tax forms 1040x You will also need to get Form 4684. Irs tax forms 1040x More information. Irs tax forms 1040x   For more information on casualty losses, see Publication 547, Casualties, Disasters, and Thefts. Irs tax forms 1040x Insurance. Irs tax forms 1040x   You can deduct the cost of insurance that covers the business part of your home. Irs tax forms 1040x However, if your insurance premium gives you coverage for a period that extends past the end of your tax year, you can deduct only the business percentage of the part of the premium that gives you coverage for your tax year. Irs tax forms 1040x You can deduct the business percentage of the part that applies to the following year in that year. Irs tax forms 1040x Rent. Irs tax forms 1040x   If you rent the home you occupy and meet the requirements for business use of the home, you can deduct part of the rent you pay. Irs tax forms 1040x To figure your deduction, multiply your rent payments by the percentage of your home used for business. Irs tax forms 1040x   If you own your home, you cannot deduct the fair rental value of your home. Irs tax forms 1040x However, see Depreciating Your Home , later. Irs tax forms 1040x Repairs. Irs tax forms 1040x   The cost of repairs that relate to your business, including labor (other than your own labor), is a deductible expense. Irs tax forms 1040x For example, a furnace repair benefits the entire home. Irs tax forms 1040x If you use 10% of your home for business, you can deduct 10% of the cost of the furnace repair. Irs tax forms 1040x   Repairs keep your home in good working order over its useful life. Irs tax forms 1040x Examples of common repairs are patching walls and floors, painting, wallpapering, repairing roofs and gutters, and mending leaks. Irs tax forms 1040x However, repairs are sometimes treated as a permanent improvement and are not deductible. Irs tax forms 1040x See Permanent improvements , later, under Depreciating Your Home. Irs tax forms 1040x Security system. Irs tax forms 1040x   If you install a security system that protects all the doors and windows in your home, you can deduct the business part of the expenses you incur to maintain and monitor the system. Irs tax forms 1040x You also can take a depreciation deduction for the part of the cost of the security system relating to the business use of your home. Irs tax forms 1040x Utilities and services. Irs tax forms 1040x   Expenses for utilities and services, such as electricity, gas, trash removal, and cleaning services, are primarily personal expenses. Irs tax forms 1040x However, if you use part of your home for business, you can deduct the business part of these expenses. Irs tax forms 1040x Generally, the business percentage for utilities is the same as the percentage of your home used for business. Irs tax forms 1040x Telephone. Irs tax forms 1040x   The basic local telephone service charge, including taxes, for the first telephone line into your home (i. Irs tax forms 1040x e. Irs tax forms 1040x , landline) is a nondeductible personal expense. Irs tax forms 1040x However, charges for business long-distance phone calls on that line, as well as the cost of a second line into your home used exclusively for business, are deductible business expenses. Irs tax forms 1040x Do not include these expenses as a cost of using your home for business. Irs tax forms 1040x Deduct these charges separately on the appropriate form or schedule. Irs tax forms 1040x For example, if you file Schedule C (Form 1040), deduct these expenses on line 25, Utilities (instead of line 30, Expenses for business use of your home). Irs tax forms 1040x Depreciating Your Home If you own your home and qualify to deduct expenses for its business use, you can claim a deduction for depreciation. Irs tax forms 1040x Depreciation is an allowance for the wear and tear on the part of your home used for business. Irs tax forms 1040x You cannot depreciate the cost or value of the land. Irs tax forms 1040x You recover its cost when you sell or otherwise dispose of the property. Irs tax forms 1040x Before you figure your depreciation deduction, you need to know the following information. Irs tax forms 1040x The month and year you started using your home for business. Irs tax forms 1040x The adjusted basis and fair market value of your home (excluding land) at the time you began using it for business. Irs tax forms 1040x The cost of any improvements before and after you began using the property for business. Irs tax forms 1040x The percentage of your home used for business. Irs tax forms 1040x See Business Percentage , later. Irs tax forms 1040x Adjusted basis defined. Irs tax forms 1040x   The adjusted basis of your home is generally its cost, plus the cost of any permanent improvements you made to it, minus any casualty losses or depreciation deducted in earlier tax years. Irs tax forms 1040x For a discussion of adjusted basis, see Publication 551. Irs tax forms 1040x Permanent improvements. Irs tax forms 1040x   A permanent improvement increases the value of property, adds to its life, or gives it a new or different use. Irs tax forms 1040x Examples of improvements are replacing electric wiring or plumbing, adding a new roof or addition, paneling, or remodeling. Irs tax forms 1040x    You must carefully distinguish between repairs and improvements. Irs tax forms 1040x See Repairs , earlier, under Actual Expenses. Irs tax forms 1040x You also must keep accurate records of these expenses. Irs tax forms 1040x These records will help you decide whether an expense is a deductible or a capital (added to the basis) expense. Irs tax forms 1040x However, if you make repairs as part of an extensive remodeling or restoration of your home, the entire job is an improvement. Irs tax forms 1040x Example. Irs tax forms 1040x You buy an older home and fix up two rooms as a beauty salon. Irs tax forms 1040x You patch the plaster on the ceilings and walls, paint, repair the floor, install an outside door, and install new wiring, plumbing, and other equipment. Irs tax forms 1040x Normally, the patching, painting, and floor work are repairs and the other expenses are permanent improvements. Irs tax forms 1040x However, because the work gives your property a new use, the entire remodeling job is a permanent improvement and its cost is added to the basis of the property. Irs tax forms 1040x You cannot deduct any portion of it as a repair expense. Irs tax forms 1040x Adjusting for depreciation deducted in earlier years. Irs tax forms 1040x   Decrease the basis of your property by the depreciation you deducted, or could have deducted, on your tax returns under the method of depreciation you properly selected. Irs tax forms 1040x If you deducted less depreciation than you could have under the method you selected, decrease the basis by the amount you could have deducted under that method. Irs tax forms 1040x If you did not deduct any depreciation, decrease the basis by the amount you could have deducted. Irs tax forms 1040x   If you deducted more depreciation than you should have, decrease your basis by the amount you should have deducted, plus the part of the excess depreciation you deducted that actually decreased your tax liability for any year. Irs tax forms 1040x   If you deducted the incorrect amount of depreciation, see Publication 946. Irs tax forms 1040x Fair market value defined. Irs tax forms 1040x   The fair market value of your home is the price at which the property would change hands between a buyer and a seller, neither having to buy or sell, and both having reasonable knowledge of all necessary facts. Irs tax forms 1040x Sales of similar property, on or about the date you begin using your home for business, may be helpful in determining the property's fair market value. Irs tax forms 1040x Figuring the depreciation deduction for the current year. Irs tax forms 1040x   If you began using your home for business before 2013, continue to use the same depreciation method you used in past tax years. Irs tax forms 1040x   If you began using your home for business for the first time in 2013, depreciate the business part as nonresidential real property under the modified accelerated cost recovery system (MACRS). Irs tax forms 1040x Under MACRS, nonresidential real property is depreciated using the straight line method over 39 years. Irs tax forms 1040x For more information on MACRS and other methods of depreciation, see Publication 946. Irs tax forms 1040x   To figure the depreciation deduction, you must first figure the part of the cost of your home that can be depreciated (depreciable basis). Irs tax forms 1040x The depreciable basis is figured by multiplying the percentage of your home used for business by the smaller of the following. Irs tax forms 1040x The adjusted basis of your home (excluding land) on the date you began using your home for business. Irs tax forms 1040x The fair market value of your home (excluding land) on the date you began using your home for business. Irs tax forms 1040x Depreciation table. Irs tax forms 1040x   If 2013 was the first year you used your home for business, you can figure your 2013 depreciation for the business part of your home by using the appropriate percentage from the following table. Irs tax forms 1040x Table 2. Irs tax forms 1040x MACRS Percentage Table for 39-Year Nonresidential Real Property Month First Used for Business Percentage To Use 1 2. Irs tax forms 1040x 461% 2 2. Irs tax forms 1040x 247% 3 2. Irs tax forms 1040x 033% 4 1. Irs tax forms 1040x 819% 5 1. Irs tax forms 1040x 605% 6 1. Irs tax forms 1040x 391% 7 1. Irs tax forms 1040x 177% 8 0. Irs tax forms 1040x 963% 9 0. Irs tax forms 1040x 749% 10 0. Irs tax forms 1040x 535% 11 0. Irs tax forms 1040x 321% 12 0. Irs tax forms 1040x 107%   Multiply the depreciable basis of the business part of your home by the percentage from the table for the first month you use your home for business. Irs tax forms 1040x See Publication 946 for the percentages for the remaining tax years of the recovery period. Irs tax forms 1040x Example. Irs tax forms 1040x In May, George Miller began to use one room in his home exclusively and regularly to meet clients. Irs tax forms 1040x This room is 8% of the square footage of his home. Irs tax forms 1040x He bought the home in 2003 for $125,000. Irs tax forms 1040x He determined from his property tax records that his adjusted basis in the house (exclusive of land) is $115,000. Irs tax forms 1040x In May, the house had a fair market value of $165,000. Irs tax forms 1040x He multiplies his adjusted basis of $115,000 (which is less than the fair market value) by 8%. Irs tax forms 1040x The result is $9,200, his depreciable basis for the business part of the house. Irs tax forms 1040x George files his return based on the calendar year. Irs tax forms 1040x May is the 5th month of his tax year. Irs tax forms 1040x He multiplies his depreciable basis of $9,200 by 1. Irs tax forms 1040x 605% (. Irs tax forms 1040x 01605), the percentage from the table for the 5th month. Irs tax forms 1040x His depreciation deduction is $147. Irs tax forms 1040x 66. Irs tax forms 1040x Depreciating permanent improvements. Irs tax forms 1040x   Add the costs of permanent improvements made before you began using your home for business to the basis of your property. Irs tax forms 1040x Depreciate these costs as part of the cost of your home as explained earlier. Irs tax forms 1040x The costs of improvements made after you begin using your home for business (that affect the business part of your home, such as a new roof) are depreciated separately. Irs tax forms 1040x Multiply the cost of the improvement by the business-use percentage and depreciate the result over the recovery period that would apply to your home if you began using it for business at the same time as the improvement. Irs tax forms 1040x For improvements made this year, the recovery period is 39 years. Irs tax forms 1040x For the percentage to use for the first year, see Table 2, earlier. Irs tax forms 1040x For more information on recovery periods, see Publication 946. Irs tax forms 1040x Business Percentage To find the business percentage, compare the size of the part of your home that you use for business to your whole house. Irs tax forms 1040x Use the resulting percentage to figure the business part of the expenses for operating your entire home. Irs tax forms 1040x You can use any reasonable method to determine the business percentage. Irs tax forms 1040x The following are two commonly used methods for figuring the percentage. Irs tax forms 1040x Divide the area (length multiplied by the width) used for business by the total area of your home. Irs tax forms 1040x If the rooms in your home are all about the same size, you can divide the number of rooms used for business by the total number of rooms in your home. Irs tax forms 1040x Example 1. Irs tax forms 1040x Your office is 240 square feet (12 feet × 20 feet). Irs tax forms 1040x Your home is 1,200 square feet. Irs tax forms 1040x Your office is 20% (240 ÷ 1,200) of the total area of your home. Irs tax forms 1040x Your business percentage is 20%. Irs tax forms 1040x Example 2. Irs tax forms 1040x You use one room in your home for business. Irs tax forms 1040x Your home has 10 rooms, all about equal size. Irs tax forms 1040x Your office is 10% (1 ÷ 10) of the total area of your home. Irs tax forms 1040x Your business percentage is 10%. Irs tax forms 1040x Use lines 1-7 of Form 8829, or lines 1-3 on the Worksheet To Figure the Deduction for Business Use of Your Home (near the end of this publication) to figure your business percentage. Irs tax forms 1040x Deduction Limit If your gross income from the business use of your home equals or exceeds your total business expenses (including depreciation), you can deduct all your business expenses related to the use of your home. Irs tax forms 1040x If your gross income from the business use of your home is less than your total business expenses, your deduction for certain expenses for the business use of your home is limited. Irs tax forms 1040x Your deduction of otherwise nondeductible expenses, such as insurance, utilities, and depreciation of your home (with depreciation of your home taken last), that are allocable to the business, is limited to the gross income from the business use of your home minus the sum of the following. Irs tax forms 1040x The business part of expenses you could deduct even if you did not use your home for business (such as mortgage interest, real estate taxes, and casualty and theft losses that are allowable as itemized deductions on Schedule A (Form 1040)). Irs tax forms 1040x These expenses are discussed in detail under Actual Expenses , earlier. Irs tax forms 1040x The business expenses that relate to the business activity in the home (for example, business phone, supplies, and depreciation on equipment), but not to the use of the home itself. Irs tax forms 1040x If you are self-employed, do not include in (2) above your deduction for one-half of your self-employment tax. Irs tax forms 1040x Carryover of unallowed expenses. Irs tax forms 1040x   If your deductions are greater than the current year's limit, you can carry over the excess to the next year in which you use actual expenses. Irs tax forms 1040x They are subject to the deduction limit for that year, whether or not you live in the same home during that year. Irs tax forms 1040x Figuring the deduction limit and carryover. Irs tax forms 1040x   If you are an employee or a partner, or you file Schedule F (Form 1040), use the Worksheet To Figure the Deduction for Business Use of Your Home, near the end of this publication. Irs tax forms 1040x If you file Schedule C (Form 1040), figure your deduction limit and carryover on Form 8829. Irs tax forms 1040x Example. Irs tax forms 1040x You meet the requirements for deducting expenses for the business use of your home. Irs tax forms 1040x You use 20% of your home for business. Irs tax forms 1040x In 2013, your business expenses and the expenses for the business use of your home are deducted from your gross income in the following order. Irs tax forms 1040x    Gross income from business $6,000 Minus:   Deductible mortgage interest and real estate taxes (20%) 3,000 Business expenses not related to the use of your home (100%) (business phone, supplies, and depreciation on equipment) 2,000 Deduction limit $1,000 Minus other expenses allocable to business use of home:   Maintenance, insurance, and utilities (20%) 800 Depreciation allowed (20% = $1,600 allowable, but subject to balance of deduction limit) 200 Other expenses up to the deduction limit $1,000 Depreciation carryover to 2014 ($1,600 − $200) (subject to deduction limit in 2014) $1,400   You can deduct all of the business part of your deductible mortgage interest and real estate taxes ($3,000). Irs tax forms 1040x You also can deduct all of your business expenses not related to the use of your home ($2,000). Irs tax forms 1040x Additionally, you can deduct all of the business part of your expenses for maintenance, insurance, and utilities, because the total ($800) is less than the $1,000 deduction limit. Irs tax forms 1040x Your deduction for depreciation for the business use of your home is limited to $200 ($1,000 minus $800) because of the deduction limit. Irs tax forms 1040x You can carry over the $1,400 balance and add it to your depreciation for 2014, subject to your deduction limit in 2014. Irs tax forms 1040x More than one place of business. Irs tax forms 1040x   If part of the gross income from your trade or business is from the business use of part of your home and part is from a place other than your home, you must determine the part of your gross income from the business use of your home before you figure the deduction limit. Irs tax forms 1040x In making this determination, consider the time you spend at each location, the business investment in each location, and any other relevant facts and circumstances. Irs tax forms 1040x If your home office qualifies as your principal place of business, you can deduct your daily transportation costs between your home and another work location in the same trade or business. Irs tax forms 1040x For more information on transportation costs, see Publication 463, Travel, Entertainment, Gift, and Car Expenses. Irs tax forms 1040x Using the Simplified Method The simplified method is an alternative to the calculation, allocation, and substantiation of actual expenses. Irs tax forms 1040x In most cases, you will figure your deduction by multiplying $5, the prescribed rate, by the area of your home used for a qualified business use. Irs tax forms 1040x The area you use to figure your deduction is limited to 300 square feet. Irs tax forms 1040x See Simplified Amount , later, for information about figuring the amount of the deduction. Irs tax forms 1040x For more information about the simplified method, see Revenue Procedure 2013-13, 2013-06 I. Irs tax forms 1040x R. Irs tax forms 1040x B. Irs tax forms 1040x 478, available at www. Irs tax forms 1040x irs. Irs tax forms 1040x gov/irb/2013-06_IRB/ar09. Irs tax forms 1040x html. Irs tax forms 1040x Actual expenses and depreciation of your home. Irs tax forms 1040x   If you elect to use the simplified method, you cannot deduct any actual expenses for the business except for business expenses that are not related to the use of the home. Irs tax forms 1040x You also cannot deduct any depreciation (including any additional first-year depreciation) or section 179 expense for the portion of the home that is used for a qualified business use. Irs tax forms 1040x The depreciation deduction allowable for that portion of the home is deemed to be zero for a year you use the simplified method. Irs tax forms 1040x If you figure your deduction for business use of the home using actual expenses in a subsequent year, you will have to use the appropriate optional depreciation table for MACRS to figure your depreciation. Irs tax forms 1040x More information. Irs tax forms 1040x   For more information about claiming depreciation in a subsequent year, see Revenue Procedure 2013-13, 2013-06 I. Irs tax forms 1040x R. Irs tax forms 1040x B. Irs tax forms 1040x 478, available at www. Irs tax forms 1040x irs. Irs tax forms 1040x gov/irb/2013-06_IRB/ar09. Irs tax forms 1040x html. Irs tax forms 1040x See Publication 946 for the optional depreciation tables Although you cannot deduct any depreciation or section 179 expense for the portion of your home used for a qualified business use, you may still claim depreciation or the section 179 expense deduction on other assets used in the business (for example, furniture and equipment). Irs tax forms 1040x Expenses deductible without regard to business use. Irs tax forms 1040x   When using the simplified method, treat as personal expenses those business expenses related to the use of the home that are deductible without regard to whether there is a qualified business use of the home. Irs tax forms 1040x These expenses include mortgage interest, real estate taxes, and casualty losses, subject to any limitations. Irs tax forms 1040x See Where To Deduct , later. Irs tax forms 1040x If you also rent part of your home, you must still allocate these expenses between rental use and personal use (for this purpose, personal use includes business use reported using the simplified method). Irs tax forms 1040x No deduction of carryover of actual expenses. Irs tax forms 1040x   If you used actual expenses to figure your deduction for business use of the home in a prior year and your deduction was limited, you cannot deduct the disallowed amount carried over from the prior year during a year you figure your deduction using the simplified method. Irs tax forms 1040x Instead, you will continue to carry over the disallowed amount to the next year that you use actual expenses to figure your deduction. Irs tax forms 1040x Electing the Simplified Method You choose whether or not to figure your deduction using the simplified method each taxable year. Irs tax forms 1040x Make the election for a home by using the simplified method to figure the deduction for the qualified business use of that home on a timely filed, original federal income tax return. Irs tax forms 1040x An election for a taxable year, once made, is irrevocable. Irs tax forms 1040x A change from using the simplified method in one year to actual expenses in a succeeding taxable year, or vice-versa, is not a change in method of accounting and does not require the consent of the Commissioner. Irs tax forms 1040x Shared use. Irs tax forms 1040x   If you share your home with someone else who also uses the home in a business that qualifies for this deduction, each of you make your own election. Irs tax forms 1040x More than one qualified business use. Irs tax forms 1040x   If you conduct more than one business that qualifies for this deduction in your home, your election to use the simplified method applies to all your qualified business uses of that home. Irs tax forms 1040x More than one home. Irs tax forms 1040x   If you used more than one home during the year (for example, you moved during the year), you can elect to use the simplified method for only one of the homes. Irs tax forms 1040x You must figure the deduction for any other home using actual expenses. Irs tax forms 1040x Simplified Amount Your deduction for the qualified business use of a home is the sum of each amount you figure for a separate qualified business use of your home. Irs tax forms 1040x To figure your deduction for the business use of a home using the simplified method, you will need to know the following information for each qualified business use of the home. Irs tax forms 1040x The allowable area of your home used in conducting the business. Irs tax forms 1040x If you did not conduct the business for the entire year in the home or the area changed during the year, you will need to know the allowable area you used and the number of days you conducted the business for each month. Irs tax forms 1040x The gross income from the business use of your home. Irs tax forms 1040x The amount of the business expenses that are not related to the use of your home. Irs tax forms 1040x If the qualified business use is for a daycare facility that uses space in your home on a regular (but not exclusive) basis, you will also need to know the percentage of time that part of your home is used for daycare. Irs tax forms 1040x To figure the amount you can deduct for qualified business use of your home using the simplified method, follow these 3 steps. Irs tax forms 1040x Multiply the allowable area by $5 (or less than $5 if the qualified business use is for a daycare that uses space in your home on a regular, but not exclusive, basis). Irs tax forms 1040x See Allowable area and Space used regularly for daycare , later. Irs tax forms 1040x Subtract the expenses from the business that are not related to the use of the home from the gross income related to the business use of the home. Irs tax forms 1040x If these expenses are greater than the gross income from the business use of the home, then you cannot take a deduction for this business use of the home. Irs tax forms 1040x See Gross income limitation , later. Irs tax forms 1040x Take the smaller of the amounts from (1) and (2). Irs tax forms 1040x This is the amount you can deduct for this qualified business use of your home using the simplified method. Irs tax forms 1040x If you are an employee or a partner, or you use your home in your farming business and file Schedule F (Form 1040), you can use the Simplified Method Worksheet, near the end of this publication, to help you figure your deduction. Irs tax forms 1040x If you use your home in a trade or business and you file Schedule C (Form 1040), you will use the Simplified Method Worksheet in your Instructions for Schedule C to figure your deduction. Irs tax forms 1040x Allowable area. Irs tax forms 1040x   In most cases, the allowable area is the smaller of the actual area (in square feet) of your home used in conducting the business and 300 square feet. Irs tax forms 1040x Your allowable area may be smaller if you conducted the business as a qualified joint venture with your spouse, the area used by the business was shared with another qualified business use, you used the home for the business for only part of the year, or the area used by the business changed during the year. Irs tax forms 1040x You can use the Area Adjustment Worksheet (for simplified method), near the end of this publication, to help you figure your allowable area for a qualified business use. Irs tax forms 1040x Area used by a qualified joint venture. Irs tax forms 1040x   If the qualified business use of the home is also a qualified joint venture, you and your spouse will figure the deduction for the business use separately. Irs tax forms 1040x Split the actual area used in conducting business between you and your spouse in the same manner you split your other tax attributes. Irs tax forms 1040x Then, each spouse will figure the allowable area separately. Irs tax forms 1040x For more information about qualified joint ventures, see Qualified Joint Venture in the Instructions for Schedule C. Irs tax forms 1040x Shared use. Irs tax forms 1040x   If you share your home with someone else who uses the home to conduct business that also qualifies for this deduction, you may not include the same square feet to figure your deduction as the other person. Irs tax forms 1040x You must allocate the shared space between you and the other person in a reasonable manner. Irs tax forms 1040x Example. Irs tax forms 1040x Kristin and Lindsey are roommates. Irs tax forms 1040x Kristin uses 300 square feet of their home for a qualified business use. Irs tax forms 1040x Lindsey uses 200 square feet of their home for a separate qualified business use. Irs tax forms 1040x The qualified business uses share 100 square feet. Irs tax forms 1040x In addition to the portion that they do not share, Kristin and Lindsey can both claim 50 of the 100 square feet or divide the 100 square feet between them in any reasonable manner. Irs tax forms 1040x If divided evenly, Kristin could claim 250 square feet using the simplified method and Lindsey could claim 150 square feet. Irs tax forms 1040x More than one qualified business use. Irs tax forms 1040x   If you conduct more than one business qualifying for the deduction, you are limited to a maximum of 300 square feet for all of the businesses. Irs tax forms 1040x Allocate the actual square footage used (up to the maximum of 300 square feet) among your qualified business uses in a reasonable manner. Irs tax forms 1040x However, do not allocate more square feet to a qualified business use than you actually use for that business. Irs tax forms 1040x Rental use. Irs tax forms 1040x   The simplified method does not apply to rental use. Irs tax forms 1040x A rental use that qualifies for the deduction must be figured using actual expenses. Irs tax forms 1040x If the rental use and a qualified business use share the same area, you will have to allocate the actual area used between the two uses. Irs tax forms 1040x You cannot use the same area to figure a deduction for the qualified business use as you are using to figure the deduction for the rental use. Irs tax forms 1040x Part-year use or area changes. Irs tax forms 1040x   If your qualified business use was for a portion of the taxable year (for example, a seasonal business or a business that begins during the taxable year) or you changed the square footage of your qualified business use, your deduction is limited to the average monthly allowable square footage. Irs tax forms 1040x You calculate the average monthly allowable square footage by adding the amount of allowable square feet you used in each month and dividing the sum by 12. Irs tax forms 1040x When determining the average monthly allowable square footage, you cannot take more than 300 square feet into account for any one month. Irs tax forms 1040x Additionally, if your qualified business use was less than 15 days in a month, you must use -0- for that month. Irs tax forms 1040x Example 1. Irs tax forms 1040x Andy files his federal income tax return on a calendar year basis. Irs tax forms 1040x On July 20, he began using 420 square feet of his home for a qualified business use. Irs tax forms 1040x He continued to use the 420 square feet until the end of the year. Irs tax forms 1040x His average monthly allowable square footage is 125 square feet, which is figured using 300 square feet for each month August through December divided by the number of months in the taxable year ((0 + 0 + 0 + 0 + 0 + 0 + 0 + 300 + 300 + 300 + 300 + 300)/12). Irs tax forms 1040x Example 2. Irs tax forms 1040x Amy files her federal income tax return on a calendar year basis. Irs tax forms 1040x On April 20, she began using 100 square feet of her home for a qualified business use. Irs tax forms 1040x On August 5, she expanded the area of her qualified use to 330 square feet. Irs tax forms 1040x Amy continued to use the 330 square feet until the end of the year. Irs tax forms 1040x Her average monthly allowable square footage is 150 square feet, which is figured using 100 square feet for May through July and 300 square feet for August through December divided by the number of months in the taxable year ((0 + 0 + 0 + 0 + 100 + 100 +100 + 300 + 300 + 300 + 300 + 300)/12). Irs tax forms 1040x Gross income limitation. Irs tax forms 1040x   Your deduction for business use of the home is limited to an amount equal to the gross income derived from the qualified business use of the home reduced by the business deductions that are unrelated to the use of your home. Irs tax forms 1040x If the business deductions that are unrelated to the use of your home are greater than the gross income derived from the qualified business use of your home, then you cannot take a deduction for this qualified business use of your home. Irs tax forms 1040x Business expenses not related to use of the home. Irs tax forms 1040x   These expenses relate to the business activity in the home, but not to the use of the home itself. Irs tax forms 1040x You can still deduct business expenses that are unrelated to the use of the home. Irs tax forms 1040x See Where To Deduct , later. Irs tax forms 1040x Examples of business expenses that are unrelated to the use of the home are advertising, wages, supplies, dues, and depreciation for equipment. Irs tax forms 1040x Space used regularly for daycare. Irs tax forms 1040x   If you do not use the area of your home exclusively for daycare, you must reduce the prescribed rate (maximum $5 per square foot) before figuring your deduction. Irs tax forms 1040x The reduced rate will equal the prescribed rate times a fraction. Irs tax forms 1040x The numerator of the fraction is the number of hours that the space was used during the year for daycare and the denominator is the total number of hours during the year that the space was available for all uses. Irs tax forms 1040x You can use the Daycare Facility Worksheet (for simplified method), near the end of this publication, to help you figure the reduced rate. Irs tax forms 1040x    If you used at least 300 square feet for daycare regularly and exclusively during the year, then you do not need to reduce the prescribed rate or complete the Daycare Facility Worksheet. Irs tax forms 1040x Daycare Facility If you use space in your home on a regular basis for providing daycare, you may be able to claim a deduction for that part of your home even if you use the same space for nonbusiness purposes. Irs tax forms 1040x To qualify for this exception to the exclusive use rule, you must meet both of the following requirements. Irs tax forms 1040x You must be in the trade or business of providing daycare for children, persons age 65 or older, or persons who are physically or mentally unable to care for themselves. Irs tax forms 1040x You must have applied for, been granted, or be exempt from having, a license, certification, registration, or approval as a daycare center or as a family or group daycare home under state law. Irs tax forms 1040x You do not meet this requirement if your application was rejected or your license or other authorization was revoked. Irs tax forms 1040x Figuring the deduction. Irs tax forms 1040x   If you elect to use the simplified method for your home, figure your deduction as described earlier in Using the Simplified Method under Figuring the Deduction. Irs tax forms 1040x    If you are figuring your deduction using actual expenses and you regularly use part of your home for daycare, figure what part is used for daycare, as explained in Business Percentage , earlier, under Figuring the Deduction. Irs tax forms 1040x If you also use that part exclusively for daycare, deduct all the allocable expenses, subject to the deduction limit, as explained earlier. Irs tax forms 1040x   If the use of part of your home as a daycare facility is regular, but not exclusive, you must figure the percentage of time that part of your home is used for daycare. Irs tax forms 1040x A room that is available for use throughout each business day and that you regularly use in your business is considered to be used for daycare throughout each business day. Irs tax forms 1040x You do not have to keep records to show the specific hours the area was used for business. Irs tax forms 1040x You can use the area occasionally for personal reasons. Irs tax forms 1040x However, a room you use only occasionally for business does not qualify for the deduction. Irs tax forms 1040x To find the percentage of time you actually use your home for business, compare the total time used for business to the total time that part of your home can be used for all purposes. Irs tax forms 1040x You can compare the hours of business use in a week with the number of hours in a week (168). Irs tax forms 1040x Or you can compare the hours of business use for the year with the number of hours in the year (8,760 in 2013). Irs tax forms 1040x If you started or stopped using your home for daycare in 2013, you must prorate the number of hours based on the number of days the home was available for daycare. Irs tax forms 1040x Example 1. Irs tax forms 1040x Mary Lake used her basement to operate a daycare business for children. Irs tax forms 1040x She figures the business percentage of the basement as follows. Irs tax forms 1040x Square footage of the basement Square footage of her home = 1,600 3,200 = 50%           She used the basement for daycare an average of 12 hours a day, 5 days a week, for 50 weeks a year. Irs tax forms 1040x During the other 12 hours a day, the family could use the basement. Irs tax forms 1040x She figures the percentage of time the basement was used for daycare as follows. Irs tax forms 1040x Number of hours used for daycare (12 x 5 x 50) Total number of hours in the year (24 x 365) = 3,000 8,760 = 34. Irs tax forms 1040x 25%           Mary can deduct 34. Irs tax forms 1040x 25% of any direct expenses for the basement. Irs tax forms 1040x However, because her indirect expenses are for the entire house, she can deduct only 17. Irs tax forms 1040x 13% of the indirect expenses. Irs tax forms 1040x She figures the percentage for her indirect expenses as follows. Irs tax forms 1040x Business percentage of the basement 50% Multiplied by: Percentage of time used for daycare × 34. Irs tax forms 1040x 25% Percentage for indirect expenses 17. Irs tax forms 1040x 13% Mary completes Form 8829, Part I, figuring the percentage of her home used for business, including the percentage of time the basement was used. Irs tax forms 1040x In Part II, Mary figures her deductible expenses. Irs tax forms 1040x She uses the following information to complete Part II. Irs tax forms 1040x Gross income from her daycare business $50,000 Expenses not related to the business use of the home $25,000 Tentative profit $25,000 Rent $8,400 Utilities $850 Painting the basement $500 Mary enters her tentative profit, $25,000, on line 8. Irs tax forms 1040x (This figure is the same as the amount on line 29 of her Schedule C (Form 1040). Irs tax forms 1040x ) The expenses she paid for rent and utilities relate to her entire home. Irs tax forms 1040x Therefore, she enters the amount paid for rent on line 18, column (b), and the amount paid for utilities on line 20, column (b). Irs tax forms 1040x She shows the total of these expenses on line 22, column (b). Irs tax forms 1040x For line 23, she multiplies the amount on line 22, column (b) by the percentage on line 7 and enters the result, $1,585. Irs tax forms 1040x Mary paid $500 to have the basement painted. Irs tax forms 1040x The painting is a direct expense. Irs tax forms 1040x However, because she did not use the basement exclusively for daycare, she must multiply $500 by the percentage of time the basement was used for daycare (34. Irs tax forms 1040x 25% – line 6). Irs tax forms 1040x She enters $171 (34. Irs tax forms 1040x 25% × $500) on line 19, column (a). Irs tax forms 1040x She adds line 22, column (a), and line 23 and enters $1,756 ($171 + $1,585) on line 25. Irs tax forms 1040x This is less than her deduction limit (line 15), so she can deduct the entire amount. Irs tax forms 1040x She follows the instructions to complete the rest of Part II and enters $1,756 on lines 33 and 35. Irs tax forms 1040x She then carries the $1,756 to line 30 of her Schedule C (Form 1040). Irs tax forms 1040x Example 2. Irs tax forms 1040x Assume the same facts as in Example 1 except that Mary also has another room that was available each business day for children to take naps in. Irs tax forms 1040x Although she did not keep a record of the number of hours the room was actually used for naps, it was used for part of each business day. Irs tax forms 1040x Since the room was available for business use during regular operating hours each business day and was used regularly in the business, it is considered used for daycare throughout each business day. Irs tax forms 1040x The basement and room are 60% of the total area of her home. Irs tax forms 1040x In figuring her expenses, 34. Irs tax forms 1040x 25% of any direct expenses for the basement and room are deductible. Irs tax forms 1040x In addition, 20. Irs tax forms 1040x 55% (34. Irs tax forms 1040x 25% × 60%) of her indirect expenses are deductible. Irs tax forms 1040x Example 3. Irs tax forms 1040x Assume the same facts as in Example 1 except that Mary stopped using her home for a daycare facility on June 24, 2013. Irs tax forms 1040x She used the basement for daycare an average of 12 hours a day, 5 days a week, but for only 25 weeks of the year. Irs tax forms 1040x During the other 12 hours a day, the family could still use the basement. Irs tax forms 1040x She figures the percentage of time the basement was used for business as follows. Irs tax forms 1040x Number of hours used for daycare (12 x 5 x 25) Total number of hours during period used (24 x 175) = 1,500 4,200 = 35. Irs tax forms 1040x 71%           Mary can deduct 35. Irs tax forms 1040x 71% of any direct expenses for the basement. Irs tax forms 1040x However, because her indirect expenses are for the entire house, she can deduct only 17. Irs tax forms 1040x 86% of the indirect expenses. Irs tax forms 1040x She figures the percentage for her indirect expenses as follows. Irs tax forms 1040x Business percentage of the basement 50% Multiplied by: Percentage of time used for daycare × 35. Irs tax forms 1040x 71% Percentage for indirect expenses 17. Irs tax forms 1040x 86% Meals. Irs tax forms 1040x   If you provide food for your daycare recipients, do not include the expense as a cost of using your home for business. Irs tax forms 1040x Claim it as a separate deduction on your Schedule C (Form 1040). Irs tax forms 1040x You can never deduct the cost of food consumed by you or your family. Irs tax forms 1040x You can deduct as a business expense 100% of the actual cost of food consumed by your daycare recipients (see Standard meal and snack rates , later, for an optional method for eligible children) and generally only 50% of the cost of food consumed by your employees. Irs tax forms 1040x However, you can deduct 100% of the cost of food consumed by your employees if its value can be excluded from their wages as a de minimis fringe benefit. Irs tax forms 1040x For more information on meals that meet these requirements, see Meals in chapter 2 of Publication 15-B, Employer's Tax Guide to Fringe Benefits. Irs tax forms 1040x   If you deduct the actual cost of food for your daycare business, keep a separate record (with receipts) of your family's food costs. Irs tax forms 1040x   Reimbursements you receive from a sponsor under the Child and Adult Care Food Program of the Department of Agriculture are taxable only to the extent they exceed your expenses for food for eligible children. Irs tax forms 1040x If your reimbursements are more than your expenses for food, show the difference as income in Part I of Schedule C (Form 1040). Irs tax forms 1040x If your food expenses are greater than the reimbursements, show the difference as an expense in Part V of Schedule C (Form 1040). Irs tax forms 1040x Do not include payments or expenses for your own children if they are eligible for the program. Irs tax forms 1040x Follow this procedure even if you receive a Form 1099-MISC, Miscellaneous Income, reporting a payment from the sponsor. Irs tax forms 1040x Standard meal and snack rates. Irs tax forms 1040x   If you qualify as a family daycare provider, you can use the standard meal and snack rates, instead of actual costs, to compute the deductible cost of meals and snacks provided to eligible children. Irs tax forms 1040x For these purposes: A family daycare provider is a person engaged in the business of providing family daycare. Irs tax forms 1040x Family daycare is childcare provided to eligible children in the home of the family daycare provider. Irs tax forms 1040x The care must be non-medical, not involve a transfer of legal custody, and generally last less than 24 hours each day. Irs tax forms 1040x Eligible children are minor children receiving family daycare in the home of the family daycare provider. Irs tax forms 1040x Eligible children do not include children who are full-time or part-time residents in the home where the childcare is provided or children whose parents or guardians are residents of the same home. Irs tax forms 1040x Eligible children do not include children who receive daycare services for personal reasons of the provider. Irs tax forms 1040x For example, if a provider provides daycare services for a relative as a favor to that relative, that child is not an eligible child. Irs tax forms 1040x   You can compute the deductible cost of each meal and snack you actually purchased and served to an eligible child during the time period you provided family daycare using the standard meal and snack rates shown in Table 3, later. Irs tax forms 1040x You can use the standard meal and snack rates for a maximum of one breakfast, one lunch, one dinner, and three snacks per eligible child per day. Irs tax forms 1040x If you receive reimbursement for a particular meal or snack, you can deduct only the portion of the applicable standard meal or snack rate that is more than the amount of the reimbursement. Irs tax forms 1040x   You can use either the standard meal and snack rates or actual costs to calculate the deductible cost of food provided to eligible children in the family daycare for any particular tax year. Irs tax forms 1040x If you choose to use the standard meal and snack rates for a particular tax year, you must use the rates for all your deductible food costs for eligible children during that tax year. Irs tax forms 1040x However, if you use the standard meal and snack rates in any tax year, you can use actual costs to compute the deductible cost of food in any other tax year. Irs tax forms 1040x   If you use the standard meal and snack rates, you must maintain records to substantiate the computation of the total amount deducted for the cost of food provided to eligible children. Irs tax forms 1040x The records kept should include the name of each child, dates and hours of attendance in the daycare, and the type and quantity of meals and snacks served. Irs tax forms 1040x This information can be recorded in a log similar to the one shown in Exhibit A, near the end of this publication. Irs tax forms 1040x   The standard meal and snack rates include beverages, but do not include non-food supplies used for food preparation, service, or storage, such as containers, paper products, or utensils. Irs tax forms 1040x These expenses can be claimed as a separate deduction on your Schedule C (Form 1040). Irs tax forms 1040x     Table 3. Irs tax forms 1040x Standard Meal and Snack Rates1 Location of Family Daycare Provider Breakfast Lunch Dinner Snack States other than Alaska an