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Tax debt help 3. Tax debt help   Claiming the Special Depreciation Allowance Table of Contents Introduction What Is Qualified Property?Qualified Reuse and Recycling Property Qualified Cellulosic Biofuel Plant Property Qualified Disaster Assistance Property Certain Qualified Property Acquired After December 31, 2007 Election to Accelerate Certain Credits in Lieu of the Special Depreciation Allowance How Much Can You Deduct? How Can You Elect Not To Claim an Allowance? When Must You Recapture an Allowance? Introduction You can take a special depreciation allowance to recover part of the cost of qualified property (defined next), placed in service during the tax year. Tax debt help The allowance applies only for the first year you place the property in service. Tax debt help For qualified property placed in service in 2013, you can take an additional 50% special allowance. Tax debt help The allowance is an additional deduction you can take after any section 179 deduction and before you figure regular depreciation under MACRS for the year you place the property in service. Tax debt help This chapter explains what is qualified property. Tax debt help It also includes rules regarding how to figure an allowance, how to elect not to claim an allowance, and when you must recapture an allowance. Tax debt help Corporations can elect to accelerate certain minimum tax credits in lieu of claiming the special depreciation allowance for eligible qualified property. Tax debt help See Election to Accelerate Certain Credits in Lieu of the Special Depreciation Allowance , later. Tax debt help See chapter 6 for information about getting publications and forms. Tax debt help What Is Qualified Property? Your property is qualified property if it is one of the following. Tax debt help Qualified reuse and recycling property. Tax debt help Qualified cellulosic biofuel plant property. Tax debt help Qualified disaster assistance property. Tax debt help Certain qualified property acquired after December 31, 2007. Tax debt help The following discussions provide information about the types of qualified property listed above for which you can take the special depreciation allowance. Tax debt help Qualified Reuse and Recycling Property You can take a 50% special depreciation allowance for qualified reuse and recycling property. Tax debt help Qualified reuse and recycling property is any machinery or equipment (not including buildings or real estate), along with any appurtenance, that is used exclusively to collect, distribute, or recycle qualified reuse and recyclable materials (as defined in section 168(m)(3)(B) of the Internal Revenue Code). Tax debt help Qualified reuse and recycling property also includes software necessary to operate such equipment. Tax debt help The property must meet the following requirements. Tax debt help The property must be depreciated under MACRS. Tax debt help The property must have a useful life of at least 5 years. Tax debt help The original use of the property must begin with you after August 31, 2008. Tax debt help You must have acquired the property by purchase (as discussed under Property Acquired by Purchase in chapter 2 ) after August 31, 2008, with no binding written contract for the acquisition in effect before September 1, 2008. Tax debt help The property must be placed in service for use in your trade or business after August 31, 2008. Tax debt help Excepted Property Qualified reuse and recycling property does not include any of the following. Tax debt help Any rolling stock or other equipment used to transport reuse or recyclable materials. Tax debt help Property required to be depreciated using the Alternative Depreciation System (ADS). Tax debt help For other property required to be depreciated using ADS, see Required use of ADS under Which Depreciation System (GDS or ADS) Applies , in chapter 4 . Tax debt help Other bonus depreciation property to which section 168(k) of the Internal Revenue Code applies. Tax debt help Property for which you elected not to claim any special depreciation allowance (discussed later). Tax debt help Property placed in service and disposed of in the same tax year. Tax debt help Property converted from business use to personal use in the same tax year acquired. Tax debt help Property converted from personal use to business use in the same or later tax year may be qualified reuse and recycling property. Tax debt help Qualified Cellulosic Biofuel Plant Property You can take a 50% special depreciation allowance for qualified cellulosic biofuel plant property. Tax debt help Cellulosic biofuel is any liquid fuel which is produced from any lignocellulosic or hemicellulosic matter that is available on a renewable or recurring basis. Tax debt help Examples include bagasse (from sugar cane), corn stalks, and switchgrass. Tax debt help The property must meet the following requirements. Tax debt help The property is used in the United States solely to produce cellulosic biofuel. Tax debt help The original use of the property must begin with you after December 20, 2006. Tax debt help You must have acquired the property by purchase (as discussed under Property Acquired by Purchase in chapter 2 ) after December 20, 2006, with no binding written contract for acquisition in effect before December 21, 2006. Tax debt help The property must be placed in service for use in your trade or business or for the production of income after October 3, 2008, and before January 3, 2013. Tax debt help Note. Tax debt help For property placed in service after January 2, 2013, and before January 1, 2014, you can take a 50% special depreciation allowance for qualified second generation biofuel plant property that is used solely in the United States to produce second generation biofuel (as defined in section 40(b)(6)(E)). Tax debt help The other requirements for qualified second generation biofuel plant property to be eligible for the special depreciation allowance are identical to the requirements discussed for Qualified Cellulosic Biofuel Plant Property above. Tax debt help Special Rules Sale-leaseback. Tax debt help   If you sold qualified cellulosic biofuel plant property you placed in service after October 3, 2008, and leased it back within 3 months after you originally placed it in service, the property is treated as originally placed in service no earlier than the date it is used by you under the leaseback. Tax debt help   The property will not qualify for the special allowance if the lessee or a related person to the lessee or lessor had a written binding contract in effect for the acquisition of the property before December 21, 2006. Tax debt help Syndicated leasing transactions. Tax debt help   If qualified cellulosic biofuel plant property is originally placed in service by a lessor after October 3, 2008, the property is sold within 3 months of the date it was placed in service, and the user of the property does not change, then the property is treated as originally placed in service by the taxpayer no earlier than the date of the last sale. Tax debt help   Multiple units of property subject to the same lease will be treated as originally placed in service no earlier than the date of sale if the property is sold within 3 months after the final unit is placed in service and the period between the times the first and last units are placed in service does not exceed 12 months. Tax debt help Excepted Property Qualified cellulosic biofuel plant property does not include any of the following. Tax debt help Property placed in service and disposed of in the same tax year. Tax debt help Property converted from business use to personal use in the same tax year it is acquired. Tax debt help Property converted from personal use to business use in the same or later tax year may be qualified cellulosic biomass ethanol plant property. Tax debt help Property required to be depreciated using the Alternative Depreciation System (ADS). Tax debt help For other property required to be depreciated using ADS, see Required use of ADS under Which Depreciation System (GDS or ADS) Applies , in chapter 4 . Tax debt help Property any portion of which is financed with the proceeds of any obligation the interest on which is exempt from tax under section 103 of the Internal Revenue Code. Tax debt help Property for which you elected not to claim any special depreciation allowance (discussed later). Tax debt help Property for which a deduction was taken under section 179C for certain qualified refinery property. Tax debt help Other bonus depreciation property to which section 168(k) of the Internal Revenue Code applies. Tax debt help Qualified Disaster Assistance Property You can take a 50% special depreciation allowance for qualified disaster assistance property placed in service in federally declared disaster areas in which the disaster occurred in 2009. Tax debt help A list of the federally declared disaster areas is available at the FEMA website at www. Tax debt help fema. Tax debt help gov. Tax debt help Your property is qualified disaster assistance property if it meets the following requirements. Tax debt help The property is nonresidential real property or residential real property placed in service before January 1, 2014, in a federally declared disaster area in which the disaster occurred in 2009. Tax debt help You must have acquired the property by purchase (as discussed under Property Acquired by Purchase in chapter 2 ) on or after the applicable disaster date, with no binding written contract for the acquisition in effect before the applicable disaster date. Tax debt help The property must rehabilitate property damaged, or replace property destroyed or condemned, as a result of the applicable federally declared disaster. Tax debt help The property must be similar in nature to, and located in the same county as, the rehabilitated or replaced property. Tax debt help The original use of the property within the applicable disaster area must have begun with you on or after the applicable disaster date. Tax debt help The property is placed in service by you on or before the date which is the last day of the fourth calendar year. Tax debt help Substantially all (80% or more) of the use of the property must be in the active conduct of your trade or business in a federally declared disaster area, occurring in 2009. Tax debt help It is not excepted property (explained later in Excepted Property ). Tax debt help Special Rules Sale-leaseback. Tax debt help   If you sold qualified disaster assistance property you placed in service after the applicable disaster date and leased it back within 3 months after you originally placed it in service, the property is treated as originally placed in service no earlier than the date it is used by you under the leaseback. Tax debt help   The property will not qualify for the special allowance if the lessee or a related person to the lessee or lessor had a written binding contract in effect for the acquisition of the property before the applicable disaster date. Tax debt help Syndicated leasing transactions. Tax debt help   If qualified disaster assistance property is originally placed in service by a lessor after the applicable disaster date, the property is sold within 3 months of the date it was placed in service, and the user of the property does not change, then the property is treated as originally placed in service by the taxpayer no earlier than the date of the last sale. Tax debt help   Multiple units of property subject to the same lease will be treated as originally placed in service no earlier than the date of sale if the property is sold within 3 months after the final unit is placed in service and the period between the times the first and last units are placed in service does not exceed 12 months. Tax debt help Excepted Property Qualified disaster assistance property does not include any of the following. Tax debt help Property required to be depreciated using the Alternative Depreciation System (ADS). Tax debt help For other property required to be depreciated using ADS, see Required use of ADS under Which Depreciation System (GDS or ADS) Applies , in chapter 4 . Tax debt help Property any portion of which is financed with the proceeds of a tax-exempt obligation under section 103 of the Internal Revenue Code. Tax debt help Any qualified revitalization building (defined later) placed in service before January 1, 2010, for which you have elected to claim a commercial revitalization deduction for qualified revitalization expenditures. Tax debt help Any property used in connection with any private or commercial golf course, country club, massage parlor, hot tub facility, suntan facility, or any store, the principal business of which is the sale of alcoholic beverages for consumption off premises. Tax debt help Any property for which the special allowance under section 168(k) or section 1400N(d) of the Internal Revenue Code applies. Tax debt help Property for which you elected not to claim any special depreciation allowance (discussed later). Tax debt help Property placed in service and disposed of in the same tax year. Tax debt help Property converted from business use to personal use in the same tax year acquired. Tax debt help Property converted from personal use to business use in the same or later tax year may be qualified disaster assistance property. Tax debt help Any gambling or animal racing property (defined later). Tax debt help Qualified revitalization building. Tax debt help   This is a commercial building and its structural components that you placed in service in a renewal community before January 1, 2010. Tax debt help If the building is new, the original use of the building must begin with you. Tax debt help If the building is not new, you must substantially rehabilitate the building and then place it in service. Tax debt help For more information, including definitions of substantially rehabilitated building and qualified revitalization expenditure, see section 1400I(b) of the Internal Revenue Code. Tax debt help Gambling or animal racing property. Tax debt help   Gambling or animal racing property includes the following personal and real property. Tax debt help Any equipment, furniture, software, or other property used directly in connection with gambling, the racing of animals, or the on-site viewing of such racing. Tax debt help Any real property determined by square footage (other than any portion that is less than 100 square feet) that is dedicated to gambling, the racing of animals, or the on-site viewing of such racing. Tax debt help Certain Qualified Property Acquired After December 31, 2007 You can take a 50% special depreciation deduction allowance for certain qualified property acquired after December 31, 2007. Tax debt help Your property is qualified property if it meets the following requirements. Tax debt help It is one of the following types of property. Tax debt help Tangible property depreciated under MACRS with a recovery period of 20 years or less. Tax debt help Water utility property. Tax debt help Computer software that is readily available for purchase by the general public, is subject to a nonexclusive license, and has not been substantially modified. Tax debt help (The cost of some computer software is treated as part of the cost of hardware and is depreciated under MACRS. Tax debt help ) Qualified leasehold improvement property (defined under Qualified leasehold improvement property later). Tax debt help You must have acquired the property after December 31, 2007, with no binding written contract for the acquisition in effect before January 1, 2008. Tax debt help The property must be placed in service for use in your trade or business or for the production of income before January 1, 2014 (before January 1, 2015, for certain property with a long production period and certain aircraft (defined next)). Tax debt help The original use of the property must begin with you after December 31, 2007. Tax debt help It is not excepted property (explained later in Excepted property). Tax debt help Qualified leasehold improvement property. Tax debt help    Generally, this is any improvement to an interior part of a building that is nonresidential real property, if all the following requirements are met. Tax debt help The improvement is made under or according to a lease by the lessee (or any sublessee) or the lessor of that part of the building. Tax debt help That part of the building is to be occupied exclusively by the lessee (or any sublessee) of that part. Tax debt help The improvement is placed in service more than 3 years after the date the building was first placed in service by any person. Tax debt help The improvement is section 1250 property. Tax debt help See chapter 3 in Publication 544, Sales and Other Dispositions of Assets, for the definition of section 1250 property. Tax debt help   However, a qualified leasehold improvement does not include any improvement for which the expenditure is attributable to any of the following. Tax debt help The enlargement of the building. Tax debt help Any elevator or escalator. Tax debt help Any structural component benefiting a common area. Tax debt help The internal structural framework of the building. Tax debt help   Generally, a binding commitment to enter into a lease is treated as a lease and the parties to the commitment are treated as the lessor and lessee. Tax debt help However, a lease between related persons is not treated as a lease. Tax debt help Related persons. Tax debt help   For this purpose, the following are related persons. Tax debt help Members of an affiliated group. Tax debt help An individual and a member of his or her family, including only a spouse, child, parent, brother, sister, half-brother, half-sister, ancestor, and lineal descendant. Tax debt help A corporation and an individual who directly or indirectly owns 80% or more of the value of the outstanding stock of that corporation. Tax debt help Two corporations that are members of the same controlled group. Tax debt help A trust fiduciary and a corporation if 80% or more of the value of the outstanding stock is directly or indirectly owned by or for the trust or grantor of the trust. Tax debt help The grantor and fiduciary, and the fiduciary and beneficiary, of any trust. Tax debt help 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. Tax debt help A tax-exempt educational or charitable organization and any person (or, if that person is an individual, a member of that person's family) who directly or indirectly controls the organization. Tax debt help Two S corporations, and an S corporation and a regular corporation, if the same persons own 80% or more of the value of the outstanding stock of each corporation. Tax debt help A corporation and a partnership if the same persons own both of the following. Tax debt help 80% or more of the value of the outstanding stock of the corporation. Tax debt help 80% or more of the capital or profits interest in the partnership. Tax debt help The executor and beneficiary of any estate. Tax debt help Long Production Period Property To be qualified property, long production period property must meet the following requirements. Tax debt help It must meet the requirements in (2)-(5), above. Tax debt help The property has a recovery period of at least 10 years or is transportation property. Tax debt help Transportation property is tangible personal property used in the trade or business of transporting persons or property. Tax debt help The property is subject to section 263A of the Internal Revenue Code. Tax debt help The property has an estimated production period exceeding 1 year and an estimated production cost exceeding $1,000,000. Tax debt help Noncommercial Aircraft To be qualified property, noncommercial aircraft must meet the following requirements. Tax debt help It must meet the requirements in (2)-(5), above. Tax debt help The aircraft must not be tangible personal property used in the trade or business of transporting persons or property (except for agricultural or firefighting purposes). Tax debt help The aircraft must be purchased (as discussed under Property Acquired by Purchase in chapter 2 ) by a purchaser who at the time of the contract for purchase, makes a nonrefundable deposit of the lesser of 10% of the cost or $100,000. Tax debt help The aircraft must have an estimated production period exceeding four months and a cost exceeding $200,000. Tax debt help Special Rules Sale-leaseback. Tax debt help   If you sold qualified property you placed in service after December 31, 2007, and leased it back within 3 months after you originally placed in service, the property is treated as originally placed in service no earlier than the date it is used by you under the leaseback. Tax debt help   The property will not qualify for the special depreciation allowance if the lessee or a related person to the lessee or lessor had a written binding contract in effect for the acquisition of the property before January 1, 2008. Tax debt help Syndicated leasing transactions. Tax debt help   If qualified property is originally placed in service by a lessor after December 31, 2007, the property is sold within 3 months of the date it was placed in service, and the user of the property does not change, then the property is treated as originally placed in service by the taxpayer no earlier than the date of the last sale. Tax debt help   Multiple units of property subject to the same lease will be treated as originally placed in service no earlier than the date of the last sale if the property is sold within 3 months after the final unit is placed in service and the period between the time the first and last units are placed in service does not exceed 12 months. Tax debt help Excepted Property Qualified property does not include any of the following. Tax debt help Property placed in service and disposed of in the same tax year. Tax debt help Property converted from business use to personal use in the same tax year acquired. Tax debt help Property converted from personal use to business use in the same or later tax year may be qualified property. Tax debt help Property required to be depreciated under the Alternative Depreciation System (ADS). Tax debt help This includes listed property used 50% or less in a qualified business use. Tax debt help For other property required to be depreciated using ADS, see Required use of ADS under Which Depreciation System (GDS or ADS) Applies , in chapter 4 . Tax debt help Qualified restaurant property (as defined in section 168(e)(7) of the Internal Revenue Code). Tax debt help Qualified retail improvement property (as defined in section 168(e)(8) of the Internal Revenue Code). Tax debt help Property for which you elected not to claim any special depreciation allowance (discussed later). Tax debt help Property for which you elected to accelerate certain credits in lieu of the special depreciation allowance (discussed next). Tax debt help Election to Accelerate Certain Credits in Lieu of the Special Depreciation Allowance An election made by a corporation to claim pre-2006 unused minimum tax credits in lieu of claiming the special depreciation allowance for either its first tax year ending after March 31, 2008, its first tax year ending after December 31, 2008, or its first tax year ending after December 31, 2010, continues to apply to round 2 extension property (as defined in section 168(k)(4)(I)(iv)), unless the corporation made an election not to apply the section 168(k)(4) election to round 2 extension property for its first tax year ending after December 31, 2010. Tax debt help For 2013, round 2 extension property generally is long production period and noncommercial aircraft if acquired after March 31, 2008, and placed in service after December 31, 2012, but before January 1, 2014. Tax debt help An election made by a corporation to claim pre-2006 unused minimum tax credits in lieu of claiming the special depreciation allowance for either its first tax year ending after March 31, 2008, its first tax year ending after December 31, 2008, or its first tax year ending after December 31, 2010, continues to apply to round 3 extension property (as defined in section 168(k)(4)(J)(iv)), unless the corporation makes an election not to apply the section 168(k)(4) election to round 3 extension property. Tax debt help If a corporation did not make a section 168(k)(4) election for either its first tax year ending after March 31, 2008, its first tax year ending after December 31, 2008, or its first tax year ending after December 31, 2010, the corporation may elect for its first tax year ending after December 31, 2012, to claim pre-2006 unused minimum tax credits in lieu of claiming the special depreciation allowance for only round 3 extension property. Tax debt help If you make an election to accelerate these credits in lieu of claiming the special depreciation allowance for eligible property, you must not take the 50% special depreciation allowance for the property and must depreciate the basis in the property under MACRS using the straight line method. Tax debt help See Which Depreciation Method Applies in chapter 4 . Tax debt help Once made, the election cannot be revoked without IRS consent. Tax debt help Additional guidance. Tax debt help   For additional guidance on the election to accelerate the research or minimum tax credit in lieu of claiming the special depreciation allowance, see Rev. Tax debt help Proc. Tax debt help 2008-65 on page 1082 of Internal Revenue Bulletin 2008-44, available at www. Tax debt help irs. Tax debt help gov/pub/irs-irbs/irb08-44. Tax debt help pdf, Rev. Tax debt help Proc. Tax debt help 2009-16 on page 449 of Internal Revenue Bulletin 2009-06, available at www. Tax debt help irs. Tax debt help gov/pub/irs-irbs/irb09-06. Tax debt help pdf, and Rev. Tax debt help Proc. Tax debt help 2009-33 on page 150 of Internal Revenue Bulletin 2009-29, available at www. Tax debt help irs. Tax debt help gov/pub/irs-irbs/irb09-29. Tax debt help pdf. Tax debt help Also, see Form 3800, General Business Credit; Form 8827, Credit for Prior Year Minimum Tax — Corporations; and related instructions. Tax debt help   Additional guidance regarding the election to accelerate the minimum tax credit in lieu of claiming the special depreciation allowance for round 2 extension property and round 3 extension property may also be available in later Internal Revenue Bulletins available at www. Tax debt help irs. Tax debt help gov/irb. Tax debt help How Much Can You Deduct? Figure the special depreciation allowance by multiplying the depreciable basis of qualified reuse and recycling property, qualified cellulosic biofuel plant property, qualified disaster assistance property, and certain qualified property acquired after December 31, 2007, by 50%. Tax debt help For qualified property other than listed property, enter the special allowance on line 14 in Part II of Form 4562. Tax debt help For qualified property that is listed property, enter the special allowance on line 25 in Part V of Form 4562. Tax debt help If you place qualified property in service in a short tax year, you can take the full amount of a special depreciation allowance. Tax debt help Depreciable basis. Tax debt help   This is the property's cost or other basis multiplied by the percentage of business/investment use, reduced by the total amount of any credits and deductions allocable to the property. Tax debt help   The following are examples of some credits and deductions that reduce depreciable basis. Tax debt help Any section 179 deduction. Tax debt help Any deduction for removal of barriers to the disabled and the elderly. Tax debt help Any disabled access credit, enhanced oil recovery credit, and credit for employer-provided childcare facilities and services. Tax debt help Basis adjustment to investment credit property under section 50(c) of the Internal Revenue Code. Tax debt help   For additional credits and deductions that affect basis, see section 1016 of the Internal Revenue Code. Tax debt help   For information about how to determine the cost or other basis of property, see What Is the Basis of Your Depreciable Property in chapter 1 . Tax debt help For a discussion of business/investment use, see Partial business or investment use under Property Used in Your Business or Income-Producing Activity in chapter 1 . Tax debt help Depreciating the remaining cost. Tax debt help   After you figure your special depreciation allowance for your qualified property, you can use the remaining cost to figure your regular MACRS depreciation deduction (discussed in chapter 4 . Tax debt help Therefore, you must reduce the depreciable basis of the property by the special depreciation allowance before figuring your regular MACRS depreciation deduction. Tax debt help Example. Tax debt help On November 1, 2013, Tom Brown bought and placed in service in his business qualified property that cost $450,000. Tax debt help He did not elect to claim a section 179 deduction. Tax debt help He deducts 50% of the cost ($225,000) as a special depreciation allowance for 2013. Tax debt help He uses the remaining $225,000 of cost to figure his regular MACRS depreciation deduction for 2013 and later years. Tax debt help Like-kind exchanges and involuntary conversions. Tax debt help   If you acquire qualified property in a like-kind exchange or involuntary conversion, the carryover basis of the acquired property is eligible for a special depreciation allowance. Tax debt help After you figure your special allowance, you can use the remaining carryover basis to figure your regular MACRS depreciation deduction. Tax debt help In the year you claim the allowance (the year you place in service the property received in the exchange or dispose of involuntarily converted property), you must reduce the carryover basis of the property by the allowance before figuring your regular MACRS depreciation deduction. Tax debt help See Figuring the Deduction for Property Acquired in a Nontaxable Exchange , in chapter 4 under How Is the Depreciation Deduction Figured . Tax debt help The excess basis (the part of the acquired property's basis that exceeds its carryover basis) is also eligible for a special depreciation allowance. Tax debt help How Can You Elect Not To Claim an Allowance? You can elect, for any class of property, not to deduct any special allowances for all property in such class placed in service during the tax year. Tax debt help To make an election, attach a statement to your return indicating what election you are making and the class of property for which you are making the election. Tax debt help When to make election. Tax debt help   Generally, you must make the election on a timely filed tax return (including extensions) for the year in which you place the property in service. Tax debt help   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 original return (not including extensions). Tax debt help Attach the election statement to the amended return. Tax debt help On the amended return, write “Filed pursuant to section 301. Tax debt help 9100-2. Tax debt help ” Revoking an election. Tax debt help   Once you elect not to deduct a special depreciation allowance for a class of property, you cannot revoke the election without IRS consent. Tax debt help A request to revoke the election is a request for a letter ruling. Tax debt help If you elect not to have any special allowance apply, the property may be subject to an alternative minimum tax adjustment for depreciation. Tax debt help When Must You Recapture an Allowance? When you dispose of property for which you claimed a special depreciation allowance, any gain on the disposition is generally recaptured (included in income) as ordinary income up to the amount of the special depreciation allowance previously allowed or allowable. Tax debt help See When Do You Recapture MACRS Depreciation in chapter 4 or more information. Tax debt help Recapture of allowance deducted for qualified GO Zone property. Tax debt help   If, in any year after the year you claim the special depreciation allowance for qualified GO Zone property (including specified GO Zone extension property), the property ceases to be used in the GO Zone, you may have to recapture as ordinary income the excess benefit you received from claiming the special depreciation allowance. Tax debt help For additional guidance, see Notice 2008-25 on page 484 of Internal Revenue Bulletin 2008-9. Tax debt help Qualified cellulosic biomass ethanol plant property and qualified cellulosic biofuel plant property. Tax debt help   If, in any year after the year you claim the special depreciation allowance for any qualified cellulosic biomass ethanol plant property or qualified biofuel plant property, the property ceases to be qualified cellulosic biomass ethanol plant property or qualified biofuel plant property, you may have to recapture as ordinary income the excess benefit you received from claiming the special depreciation allowance. Tax debt help Recapture of allowance for qualified Recovery Assistance property. Tax debt help   If, in any year after the year you claim the special depreciation allowance for qualified Recovery Assistance property, the property ceases to be used in the Kansas disaster area, you may have to recapture as ordinary income the excess benefit you received from claiming the special depreciation allowance. Tax debt help For additional guidance, see Notice 2008-67 on page 307 of Internal Revenue Bulletin 2008-32. Tax debt help Recapture of allowance for qualified disaster assistance property. Tax debt help   If, in any year after the year you claim the special depreciation allowance for qualified disaster assistance property, the property ceases to be used in the applicable disaster area, you may have to recapture as ordinary income the excess benefit you received from claiming the special depreciation allowance. Tax debt help   For additional guidance, see Notice 2008-67 on page 307 of Internal Revenue Bulletin 2008-32. Tax debt help Prev  Up  Next   Home   More Online Publications
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Retirement

Use these resources to help you estimate your retirement benefits, learn about factors that could affect your retirement, and more.

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Tax debt help 3. Tax debt help   Limit on Annual Additions Table of Contents Ministers and church employees. Tax debt help Includible Compensation for Your Most Recent Year of ServiceMost Recent Year of Service Includible Compensation The first component of MAC is the limit on annual additions. Tax debt help This is a limit on the total contributions (elective deferrals, nonelective contributions, and after-tax contributions) that can be made to your 403(b) account. Tax debt help The limit on annual additions generally is the lesser of: $51,000 for 2013 and $52,000 for 2014, or 100% of your includible compensation for your most recent year of service. Tax debt help More than one 403(b) account. Tax debt help If you contributed to more than one 403(b) account, you must combine the contributions made to all 403(b) accounts on your behalf by your employer. Tax debt help Ministers and church employees. Tax debt help   If you are a minister or a church employee, you may be able to increase your limit on annual additions or use different rules when figuring your limit on annual additions. Tax debt help For more information, see chapter 5. Tax debt help Participation in a qualified plan. Tax debt help If you participated in a 403(b) plan and a qualified plan, you must combine contributions made to your 403(b) account with contributions to a qualified plan and simplified employee pensions of all corporations, partnerships, and sole proprietorships in which you have more than 50% control. Tax debt help You can use Part I of Worksheet 1 in chapter 9 to figure your limit on annual additions. Tax debt help Includible Compensation for Your Most Recent Year of Service Definition. Tax debt help   Generally, includible compensation for your most recent year of service is the amount of taxable wages and benefits you received from the employer that maintained a 403(b) account for your benefit during your most recent year of service. Tax debt help When figuring your includible compensation for your most recent year of service, keep in mind that your most recent year of service may not be the same as your employer's most recent annual work period. Tax debt help This can happen if your tax year is not the same as your employer's annual work period. Tax debt help When figuring includible compensation for your most recent year of service, do not mix compensation or service of one employer with compensation or service of another employer. Tax debt help Most Recent Year of Service Your most recent year of service is your last full year of service, ending on the last day of your tax year that you worked for the employer that maintained a 403(b) account on your behalf. Tax debt help Tax year different from employer's annual work period. Tax debt help   If your tax year is not the same as your employer's annual work period, your most recent year of service is made up of parts of at least two of your employer's annual work periods. Tax debt help Example. Tax debt help A professor who reports her income on a calendar-year basis is employed on a full-time basis by a university that operates on an academic year (October through May). Tax debt help To figure her includible compensation for 2013, the professor's most recent year of service is her service from January through May 2013 and from October through December 2013. Tax debt help Figuring Your Most Recent Year of Service To figure your most recent year of service, begin by determining what is a full year of service for your position. Tax debt help A full year of service is equal to full-time employment for your employer's annual work period. Tax debt help After identifying a full year of service, begin counting the service you have provided for your employer starting with the service provided in the current year. Tax debt help Part-time or employed only part of the year. Tax debt help   If you are a part-time or a full-time employee who is employed for only part of the year, your most recent year of service is your service this year and your service for as many previous years as is necessary to total 1 full year of service. Tax debt help To determine your most recent year of service, add the following periods of service: Your service during the year for which you are figuring the limit on annual additions, and Your service during your preceding tax years until the total service equals 1 year of service or you have figured all of your service with the employer. Tax debt help Example. Tax debt help You were employed on a full-time basis from July through December 2011 (1/2 year of service), July through December 2012 (1/2 year of service), and October through December 2013 (1/4 year of service). Tax debt help Your most recent year of service for computing your limit on annual additions for 2013 is the total of your service during 2013 (1/4 year of service), your service during 2012 (1/2 year of service), and your service during the months October through December 2011 (1/4 year of service). Tax debt help Not yet employed for 1 year. Tax debt help   If, at the close of the year, you have not yet worked for your employer for 1 year (including time you worked for the same employer in all earlier years), use the period of time you have worked for the employer as your most recent year of service. Tax debt help Includible Compensation After identifying your most recent year of service, the next step is to identify the includible compensation associated with that full year of service. Tax debt help Includible compensation is not the same as income included on your tax return. Tax debt help Compensation is a combination of income and benefits received in exchange for services provided to your employer. Tax debt help Generally, includible compensation is the amount of income and benefits: Received from the employer who maintains your 403(b) account, and Must be included in your income. Tax debt help Includible compensation includes the following amounts. Tax debt help Elective deferrals (employer's contributions made on your behalf under a salary reduction agreement). Tax debt help Amounts contributed or deferred by your employer under a section 125 cafeteria plan. Tax debt help Amounts contributed or deferred, at the election of the employee, under an eligible section 457 nonqualified deferred compensation plan (state or local government or tax-exempt organization plan). Tax debt help  Note. Tax debt help For information about treating elective deferrals under section 457 plans as Roth contributions, see Publication 575. Tax debt help Wages, salaries, and fees for personal services earned with the employer maintaining your 403(b) account. Tax debt help Income otherwise excluded under the foreign earned income exclusion. Tax debt help Pre-tax contributions (employer's contributions made on your behalf according to your election) to a qualified transportation fringe benefit plan. Tax debt help Includible compensation does not include the following items. Tax debt help Your employer's contributions to your 403(b) account. Tax debt help Compensation earned while your employer was not an eligible employer. Tax debt help Your employer's contributions to a qualified plan that: Are on your behalf, and Are excludable from income. Tax debt help The cost of incidental life insurance. Tax debt help See Cost of Incidental Life Insurance, later. Tax debt help If you are a church employee or a foreign missionary, figure includible compensation using the rules explained in chapter 5. Tax debt help Contributions after retirement. Tax debt help   Nonelective contributions may be made for an employee for up to 5 years after retirement. Tax debt help These contributions would be based on includible compensation for the last year of service before retirement. Tax debt help Cost of Incidental Life Insurance Includible compensation does not include the cost of incidental life insurance. Tax debt help If all of your 403(b) accounts invest only in mutual funds, then you have no incidental life insurance. Tax debt help If you have an annuity contract, a portion of the cost of that contract may be for incidental life insurance. Tax debt help If so, the cost of the insurance is taxable to you in the year contributed and is considered part of your basis when distributed. Tax debt help Your employer will include the cost of your insurance as taxable wages in box 1 of Form W-2. Tax debt help Not all annuity contracts include life insurance. Tax debt help Contact your plan administrator to determine if your contract includes incidental life insurance. Tax debt help If it does, you will need to figure the cost of life insurance each year the policy is in effect. Tax debt help Figuring the cost of incidental life insurance. Tax debt help If you have determined that part of the cost of your annuity contract is for an incidental life insurance premium, you will need to determine the amount of the premium and subtract it from your includible compensation. Tax debt help To determine the amount of the life insurance premiums, you will need to know the following information. Tax debt help The value of your life insurance contract, which is the amount payable upon your death. Tax debt help The cash value of your life insurance contract at the end of the tax year. Tax debt help Your age on your birthday nearest the beginning of the policy year. Tax debt help Your current life insurance protection under an ordinary retirement income life insurance policy, which is the amount payable upon your death minus the cash value of the contract at the end of the year. Tax debt help You can use Worksheet A, in chapter 9, to determine the cost of your incidental life insurance. Tax debt help Example. Tax debt help Your new contract provides that your beneficiary will receive $10,000 if you should die before retirement. Tax debt help Your cash value in the contract at the end of the first year is zero. Tax debt help Your current life insurance protection for the first year is $10,000 ($10,000 − 0). Tax debt help The cash value in the contract at the end of year two is $1,000, and the current life insurance protection for the second year is $9,000 ($10,000 – $1,000). Tax debt help The 1-year cost of the protection can be calculated by using Figure 3-1, Table of One-Year Term Premiums for $1,000 Life Insurance Protection . Tax debt help The premium rate is determined based on your age on your birthday nearest the beginning of the policy year. Tax debt help Figure 3-1. Tax debt help Table of One-Year Term Premiums for $1,000 Life Insurance Protection Age Cost   Age Cost   Age Cost 0 $0. Tax debt help 70   35 $0. Tax debt help 99   70 $20. Tax debt help 62 1 0. Tax debt help 41   36 1. Tax debt help 01   71 22. Tax debt help 72 2 0. Tax debt help 27   37 1. Tax debt help 04   72 25. Tax debt help 07 3 0. Tax debt help 19   38 1. Tax debt help 06   73 27. Tax debt help 57 4 0. Tax debt help 13   39 1. Tax debt help 07   74 30. Tax debt help 18 5 0. Tax debt help 13   40 1. Tax debt help 10   75 33. Tax debt help 05 6 0. Tax debt help 14   41 1. Tax debt help 13   76 36. Tax debt help 33 7 0. Tax debt help 15   42 1. Tax debt help 20   77 40. Tax debt help 17 8 0. Tax debt help 16   43 1. Tax debt help 29   78 44. Tax debt help 33 9 0. Tax debt help 16   44 1. Tax debt help 40   79 49. Tax debt help 23 10 0. Tax debt help 16   45 1. Tax debt help 53   80 54. Tax debt help 56 11 0. Tax debt help 19   46 1. Tax debt help 67   81 60. Tax debt help 51 12 0. Tax debt help 24   47 1. Tax debt help 83   82 66. Tax debt help 74 13 0. Tax debt help 28   48 1. Tax debt help 98   83 73. Tax debt help 07 14 0. Tax debt help 33   49 2. Tax debt help 13   84 80. Tax debt help 35 15 0. Tax debt help 38   50 2. Tax debt help 30   85 88. Tax debt help 76 16 0. Tax debt help 52   51 2. Tax debt help 52   86 99. Tax debt help 16 17 0. Tax debt help 57   52 2. Tax debt help 81   87 110. Tax debt help 40 18 0. Tax debt help 59   53 3. Tax debt help 20   88 121. Tax debt help 85 19 0. Tax debt help 61   54 3. Tax debt help 65   89 133. Tax debt help 40 20 0. Tax debt help 62   55 4. Tax debt help 15   90 144. Tax debt help 30 21 0. Tax debt help 62   56 4. Tax debt help 68   91 155. Tax debt help 80 22 0. Tax debt help 64   57 5. Tax debt help 20   92 168. Tax debt help 75 23 0. Tax debt help 66   58 5. Tax debt help 66   93 186. Tax debt help 44 24 0. Tax debt help 68   59 6. Tax debt help 06   94 206. Tax debt help 70 25 0. Tax debt help 71   60 6. Tax debt help 51   95 228. Tax debt help 35 26 0. Tax debt help 73   61 7. Tax debt help 11   96 250. Tax debt help 01 27 0. Tax debt help 76   62 7. Tax debt help 96   97 265. Tax debt help 09 28 0. Tax debt help 80   63 9. Tax debt help 08   98 270. Tax debt help 11 29 0. Tax debt help 83   64 10. Tax debt help 41   99 281. Tax debt help 05 30 0. Tax debt help 87   65 11. Tax debt help 90       31 0. Tax debt help 90   66 13. Tax debt help 51       32 0. Tax debt help 93   67 15. Tax debt help 20       33 0. Tax debt help 96   68 16. Tax debt help 92       34 0. Tax debt help 98   69 18. Tax debt help 70                       If the current published premium rates per $1,000 of insurance protection charged by an insurer for individual 1-year term life insurance premiums available to all standard risks are lower than those in the preceding table, you can use the lower rates for figuring the cost of insurance in connection with individual policies issued by the same insurer. Tax debt help Example 1. Tax debt help Lynne Green, age 44, and her employer enter into a 403(b) plan that will provide her with a $500 a month annuity upon retirement at age 65. Tax debt help The agreement also provides that if she should die before retirement, her beneficiary will receive the greater of $20,000 or the cash surrender value in the life insurance contract. Tax debt help Using the facts presented we can determine the cost of Lynne's life insurance protection as shown in Table 3-1. Tax debt help Lynne's employer has included $28 for the cost of the life insurance protection in her current year's income. Tax debt help When figuring her includible compensation for this year, Lynne will subtract $28. Tax debt help Table 3-1. Tax debt help Worksheet A. Tax debt help Cost of Incidental Life Insurance Note. Tax debt help Use this worksheet to figure the cost of incidental life insurance included in your annuity contract. Tax debt help This amount will be used to figure includible compensation for your most recent year of service. Tax debt help 1. Tax debt help Enter the value of the contract (amount payable upon your death) 1. Tax debt help $20,000. Tax debt help 00 2. Tax debt help Enter the cash value in the contract at the end of the year 2. Tax debt help 0. Tax debt help 00 3. Tax debt help Subtract line 2 from line 1. Tax debt help This is the value of your current life insurance protection 3. Tax debt help $20,000. Tax debt help 00 4. Tax debt help Enter your age on your birthday nearest the beginning of the policy year 4. Tax debt help 44 5. Tax debt help Enter the 1-year term premium for $1,000 of life insurance based on your age. Tax debt help (From Figure 3-1) 5. Tax debt help $1. Tax debt help 40 6. Tax debt help Divide line 3 by $1,000 6. Tax debt help 20 7. Tax debt help Multiply line 6 by line 5. Tax debt help This is the cost of your incidental life insurance 7. Tax debt help $28. Tax debt help 00 Example 2. Tax debt help Lynne's cash value in the contract at the end of the second year is $1,000. Tax debt help In year two, the cost of Lynne's life insurance is calculated as shown in Table 3-2. Tax debt help In year two, Lynne's employer will include $29. Tax debt help 07 in her current year's income. Tax debt help Lynne will subtract this amount when figuring her includible compensation. Tax debt help Table 3-2. Tax debt help Worksheet A. Tax debt help Cost of Incidental Life Insurance Note. Tax debt help Use this worksheet to figure the cost of incidental life insurance included in your annuity contract. Tax debt help This amount will be used to figure includible compensation for your most recent year of service. Tax debt help 1. Tax debt help Enter the value of the contract (amount payable upon your death) 1. Tax debt help $20,000. Tax debt help 00 2. Tax debt help Enter the cash value in the contract at the end of the year 2. Tax debt help $1,000. Tax debt help 00 3. Tax debt help Subtract line 2 from line 1. Tax debt help This is the value of your current life insurance protection 3. Tax debt help $19,000. Tax debt help 00 4. Tax debt help Enter your age on your birthday nearest the beginning of the policy year 4. Tax debt help 45 5. Tax debt help Enter the 1-year term premium for $1,000 of life insurance based on your age. Tax debt help (From Figure 3-1) 5. Tax debt help $1. Tax debt help 53 6. Tax debt help Divide line 3 by $1,000 6. Tax debt help 19 7. Tax debt help Multiply line 6 by line 5. Tax debt help This is the cost of your incidental life insurance 7. Tax debt help $29. Tax debt help 07 Figuring Includible Compensation for Your Most Recent Year of Service You can use Worksheet B in chapter 9 to determine your includible compensation for your most recent year of service. Tax debt help Example. Tax debt help Floyd has been periodically working full-time for a local hospital since September 2011. Tax debt help He needs to figure his limit on annual additions for 2014. Tax debt help The hospital's normal annual work period for employees in Floyd's general type of work runs from January to December. Tax debt help During the periods that Floyd was employed with the hospital, the hospital has always been eligible to provide a 403(b) plan to employees. Tax debt help Additionally, the hospital has never provided the employees with a 457 deferred compensation plan, a transportation fringe benefit plan, or a cafeteria plan. Tax debt help Floyd has never worked abroad and there is no life insurance provided under the plan. Tax debt help Table 3-3 shows the service Floyd provided to his employer, his compensation for the periods worked, his elective deferrals, and his taxable wages. Tax debt help Table 3-3. Tax debt help Floyd's Compensation Note. Tax debt help This table shows information Floyd will use to figure includible compensation for his most recent year of service. Tax debt help   Year Years of Service Taxable Wages Elective Deferrals 2014 6/12 of  a year $42,000 $2,000 2013 4/12 of  a year $16,000 $1,650 2012 4/12 of  a year $16,000 $1,650 Before Floyd can figure his limit on annual additions, he must figure includible compensation for his most recent year of service. Tax debt help Because Floyd is not planning to work the entire 2014 year, his most recent year of service will include the time he is planning to work in 2014 plus time he worked in the preceding 3 years until the time he worked for the hospital totals 1 year. Tax debt help If the total time he worked is less than 1 year, Floyd will treat it as if it were 1 year. Tax debt help He figures his most recent year of service shown in the following list. Tax debt help Time he will work in 2014 is 6/12 of a year. Tax debt help Time worked in 2013 is 4/12 of a year. Tax debt help All of this time will be used to determine Floyd's most recent year of service. Tax debt help Time worked in 2012 is 4/12 of a year. Tax debt help Floyd only needs 2 months of the 4 months he worked in 2012 to have enough time to total 1 full year. Tax debt help Because he needs only one-half of the actual time he worked, Floyd will use only one-half of his income earned during that period to calculate wages that will be used in figuring his includible compensation. Tax debt help Using the information provided in Table 3-3, wages for Floyd's most recent year of service are $66,000 ($42,000 + $16,000 + $8,000). Tax debt help His includible compensation for his most recent year of service is figured as shown in Table 3-4. Tax debt help After figuring his includible compensation, Floyd determines his limit on annual additions for 2014 to be $52,000, the lesser of his includible compensation, $70,475 (Table 3-4), and the maximum amount of $52,000. Tax debt help Table 3-4. Tax debt help Worksheet B. Tax debt help Includible Compensation for Your Most Recent Year of Service1 Note. Tax debt help Use this worksheet to figure includible compensation for your most recent year of service. Tax debt help 1. Tax debt help Enter your includible wages from the employer maintaining your 403(b) account for your most recent year of service 1. Tax debt help $66,000 2. Tax debt help Enter elective deferrals excluded from your gross income for your most recent year of service2 2. Tax debt help 4,4753 3. Tax debt help Enter amounts contributed or deferred by your employer under a cafeteria plan for your most recent year of service 3. Tax debt help -0- 4. Tax debt help Enter amounts contributed or deferred by your employer according to your election to your 457 account (a nonqualified plan of a state or local government, or of a tax-exempt organization) for your most recent year of service 4. Tax debt help -0- 5. Tax debt help Enter pre-tax contributions (employer's contributions made on your behalf according to your election) to a qualified transportation fringe benefit plan for your most recent year of service 5. Tax debt help -0- 6. Tax debt help Enter your foreign earned income exclusion for your most recent year of service 6. Tax debt help -0- 7. Tax debt help Add lines 1, 2, 3, 4, 5, and 6 7. Tax debt help 70,475 8. Tax debt help Enter the cost of incidental life insurance that is part of your annuity contract for your most recent year of service 8. Tax debt help -0- 9. Tax debt help Enter compensation that was both: Earned during your most recent year of service, and Earned while your employer was not qualified to maintain a 403(b) plan 9. Tax debt help -0- 10. Tax debt help Add lines 8 and 9 10. Tax debt help -0- 11. Tax debt help Subtract line 10 from line 7. Tax debt help This is your includible compensation for your most recent year of service 11. Tax debt help 70,475 1Use estimated amounts if figuring includible compensation before the end of the year. Tax debt help 2Elective deferrals made to a designated Roth account are not excluded from your gross income and should not be included on this line. Tax debt help  3$4,475 ($2,000 + $1,650 + $825). Tax debt help Prev  Up  Next   Home   More Online Publications