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

Taxes late Index A Accelerated Cost Recovery System (ACRS), MACRS Depreciation (see also Modified Accelerated Cost Recovery System (MACRS)) Effective date, Depreciation Methods Accounting methods Accrual method, Accrual method. Taxes late Cash method, Cash method. Taxes late Change of method, Changing your accounting method. Taxes late Constructive receipt of income, Cash method. Taxes late , More information. Taxes late Accrual method taxpayers, Accrual method. Taxes late ACRS (Accelerated Cost Recovery System) Effective date, Depreciation Methods Active participation, Active participation. Taxes late Activities not for profit, Duplex. Taxes late Additions to property, Additions or improvements to property. Taxes late (see also Improvements) Basis, Increases to basis. Taxes late , Additions or improvements. Taxes late MACRS recovery period, Additions or improvements to property. Taxes late Adjusted basis MACRS depreciation, Adjusted Basis Adjusted gross income (AGI) Modified (see Modified adjusted gross income (MAGI)) Advance rent, Advance rent. Taxes late Security deposits, Security deposits. Taxes late Advertising, Types of Expenses Allocation of expenses Change of property to rental use, Payments added to capital account. Taxes late How to divide expenses, Dividing Expenses Part of property rented, Renting Part of Property, How to divide expenses. Taxes late Personal use of rental property, Personal use of rental property. Taxes late , Personal Use of Dwelling Unit (Including Vacation Home) Alternative Depreciation System (ADS) Election of, Electing ADS MACRS, MACRS Depreciation, Table 2-2d. Taxes late Alternative minimum tax (AMT) Accelerated depreciation methods, Alternative minimum tax (AMT). Taxes late Amended returns, Filing an amended return. Taxes late Apartments Basement apartments, Examples. Taxes late Dwelling units, Dwelling unit. Taxes late Appraisal fees, Settlement fees and other costs. Taxes late Assessments for maintenance, Assessments for local improvements. Taxes late Assessments, local (see Local assessments) Assistance (see Tax help) Assumption of mortgage, Assumption of a mortgage. Taxes late Attorneys' fees, Settlement fees and other costs. Taxes late , Increases to basis. Taxes late Automobiles MACRS recovery periods, Property Classes Under GDS B Basis Adjusted basis, Adjusted Basis Assessments for local improvements, Assessments for local improvements. Taxes late Basis other than cost, Basis Other Than Cost Cost basis, Cost Basis Decreases to, Decreases to basis. Taxes late Deductions Capitalization of costs vs. Taxes late , Deducting vs. Taxes late capitalizing costs. Taxes late Not greater than basis, Cost or Other Basis Fully Recovered Fair market value, Fair market value. Taxes late Increases to, Increases to basis. Taxes late MACRS depreciable basis, Basis of Depreciable Property Property changed to rental use, Basis of Property Changed to Rental Use C Capital expenditures Deductions vs. Taxes late effect on basis, Deducting vs. Taxes late capitalizing costs. Taxes late Local benefit taxes, Local benefit taxes. Taxes late Mortgages, payments to obtain, Expenses paid to obtain a mortgage. Taxes late Cars MACRS recovery periods, Property Classes Under GDS Cash method taxpayers, Cash method. Taxes late Casualty losses, Exception for Rental Real Estate With Active Participation Change of accounting method, Changing your accounting method. Taxes late Charitable contributions Use of property, Donation of use of the property. Taxes late Cleaning and maintenance, Types of Expenses Closing costs, Settlement fees and other costs. Taxes late Commissions, Types of Expenses Computers MACRS recovery periods, Property Classes Under GDS Condominiums, Condominiums, Dwelling unit. Taxes late Constructive receipt of income, Cash method. Taxes late , More information. Taxes late Cooperative housing, Cooperative apartments. Taxes late , Cooperatives, Dwelling unit. Taxes late Cost basis, Cost Basis Credit reports, Settlement fees and other costs. Taxes late Credits Residential energy credits, Decreases to basis. Taxes late D Days of personal use, What is a day of personal use? Days used for repairs and maintenance, Days used for repairs and maintenance. Taxes late Deductions Capitalizing costs vs. Taxes late effect on basis, Deducting vs. Taxes late capitalizing costs. Taxes late Depreciation (see Depreciation) Limitations on, Form 4562. Taxes late Passive activity losses (see Passive activity) Depreciation, Depreciation of Rental Property, Changing your accounting method. Taxes late Alternative Depreciation System (ADS) (see Modified Accelerated Cost Recovery System (MACRS)) Basis (see Basis) Change of accounting method, Changing your accounting method. Taxes late Change of property to rental use, Property Changed to Rental Use Claiming correct amount of, Claiming the Correct Amount of Depreciation Declining balance method, Depreciation Methods Duration of property expected to last more than one year, What Rental Property Can Be Depreciated? Eligible property, What Rental Property Can Be Depreciated? First-year expensing, Section 179 deduction. Taxes late MACRS (see Modified Accelerated Cost Recovery System (MACRS)) Methods, Depreciation Methods, Figuring Your Depreciation Deduction Ownership of property, What Rental Property Can Be Depreciated?, Property you own. Taxes late Rental expense, Depreciation. Taxes late Rented property, Rented property. Taxes late Section 179 deduction, Section 179 deduction. Taxes late Special depreciation allowances, Claiming the Special Depreciation Allowance Straight line method, Depreciation Methods Useful life, What Rental Property Can Be Depreciated?, Property having a determinable useful life. Taxes late Vacant rental property, Vacant rental property. Taxes late Discount, bonds and notes issued at (see Original issue discount (OID)) Dividing of expenses (see Allocation of expenses) Dwelling units Definition, Dwelling unit. Taxes late Fair rental price, Fair rental price. Taxes late Personal use of, Personal Use of Dwelling Unit (Including Vacation Home), What is a day of personal use? E Easements, Decreases to basis. Taxes late Equipment rental expense, Rental of equipment. Taxes late F Fair market value (FMV), Fair market value. Taxes late Fair rental price, Dividing Expenses, Fair rental price. Taxes late Fees Loan origination fees, Points, Settlement fees and other costs. Taxes late Points (see Points) Settlement fees and other costs, Settlement fees and other costs. Taxes late Tax return preparation fees, Legal and other professional fees. Taxes late First-year expensing, Section 179 deduction. Taxes late Form 1040 Not rented for profit income, Where to report. Taxes late Part of property rented, Renting Part of Property Rental income and expenses, Reporting Rental Income, Expenses, and Losses Schedule E, Schedule E (Form 1040) Form 1098 Mortgage interest, Form 1098, Mortgage Interest Statement. Taxes late Form 4684 Casualties and thefts, How to report. Taxes late Form 4797 Sales of business property, How to report. Taxes late Form 8582 Passive activity losses, Form 8582. Taxes late , Form 8582 not required. Taxes late Free tax services, Free help with your tax return. Taxes late G Gains and losses At-risk rules, At-Risk Rules Casualty and theft losses, Exception for Rental Real Estate With Active Participation Limits on rental losses, Form 4562. Taxes late Passive activity losses, Passive Activity Limits Rental real estate activities, Exception for Rental Real Estate With Active Participation Sale of rental property, Sale or exchange of rental property. Taxes late , How to report. Taxes late General depreciation system (GDS) (see Modified Accelerated Cost Recovery System (MACRS)) H Help (see Tax help) Home Main home, Main home. Taxes late Use as rental property (see Use of home) I Improvements, Table 1-1. Taxes late Examples of Improvements (see also Repairs) Assessments for local improvements, Assessments for local improvements. Taxes late Basis, Increases to basis. Taxes late , Additions or improvements. Taxes late Depreciation of rented property, Rented property. Taxes late MACRS recovery period, Additions or improvements to property. Taxes late Insurance, Types of Expenses Casualty or theft loss payments, Decreases to basis. Taxes late Change of property to rental use, Property Changed to Rental Use Fire insurance premiums, cost basis, Settlement fees and other costs. Taxes late Part of property rented, Renting Part of Property Premiums paid in advance, Insurance premiums paid in advance. Taxes late Title insurance, cost basis, Settlement fees and other costs. Taxes late Interest payments, Interest expense. Taxes late (see also Mortgages) Loan origination fees, Points Rental expenses, Types of Expenses L Land Cost basis, Separating cost of land and buildings. Taxes late Depreciation, Land. Taxes late Leases Cancellation payments, Canceling a lease. Taxes late Equipment leasing, Rental of equipment. Taxes late Limits Passive activity losses and credits, Passive Activity Limits Rental losses, Limits on Rental Losses Loans Assumption fees, Settlement fees and other costs. Taxes late Charges connected with getting or refinancing, cost basis, Settlement fees and other costs. Taxes late Low or no interest, Loans with low or no interest. Taxes late Origination fees, Points Local assessments, Assessments for local improvements. Taxes late Losses (see Gains and losses) M Missing children, photographs of, Reminders Modified Accelerated Cost Recovery System (MACRS), MACRS Depreciation, Figuring MACRS Depreciation Under ADS Additions or improvements to property, Additions or improvements to property. Taxes late Adjusted basis, Adjusted Basis Alternative Depreciation System (ADS), MACRS Depreciation, Figuring MACRS Depreciation Under ADS Basis other than cost, Basis Other Than Cost Conventions, Conventions Cost basis, Cost Basis Depreciable basis, Basis of Depreciable Property Effective date, Depreciation Methods Excluded property, Excluded Property General Depreciation System (GDS), MACRS Depreciation, Property Classes Under GDS, Figuring Your Depreciation Deduction Nonresidential rental property, Property Classes Under GDS Property used in rental activities (Table 2-1), Table 2-1. Taxes late MACRS Recovery Periods for Property Used in Rental Activities Recovery periods, Table 2-1. Taxes late MACRS Recovery Periods for Property Used in Rental Activities, 5-, 7-, or 15-year property. Taxes late Residential rental property, Property Classes Under GDS, Residential rental property. Taxes late Special depreciation allowances, Claiming the Special Depreciation Allowance Modified adjusted gross income (MAGI), Modified adjusted gross income (MAGI). Taxes late Mortgages, Expenses paid to obtain a mortgage. Taxes late Assumption of, cost basis, Assumption of a mortgage. Taxes late Change of property to rental use, Property Changed to Rental Use End of, OID, Loan or mortgage ends. Taxes late Interest, Interest expense. Taxes late , Property Changed to Rental Use, Renting Part of Property Mortgage insurance premiums, Settlement fees and other costs. Taxes late Part of property rented, Renting Part of Property N Nonresidential real property, Property Classes Under GDS Not-for-profit activities, Duplex. Taxes late O Original issue discount (OID), Points, Loan or mortgage ends. Taxes late P Part interest Expenses, Part interest. Taxes late Income, Part interest. Taxes late Passive activity Maximum special allowance, Maximum special allowance. Taxes late Personal property Rental income from, Property or services. Taxes late Personal use of rental property, Payments added to capital account. Taxes late , Personal Use of Dwelling Unit (Including Vacation Home) (see also Property changed to rental use) Placed-in-service date, Placed in Service Points, Types of Expenses, Points, Settlement fees and other costs. Taxes late Pre-rental expenses, Pre-rental expenses. Taxes late Principal residence (see Home) Profit, property not rented for, Duplex. Taxes late Property changed to rental use, Payments added to capital account. Taxes late Basis, Basis of Property Changed to Rental Use Publications (see Tax help) R Real estate professionals, Real estate professionals. Taxes late Real estate taxes, Real estate taxes. Taxes late Real property trades or businesses, Real property trades or businesses. Taxes late Recordkeeping requirements Travel and transportation expenses, Local transportation expenses. Taxes late , Travel expenses. Taxes late Recovery periods, Property Classes Under GDS Rent, Settlement fees and other costs. Taxes late Advance rent, Advance rent. Taxes late Fair price, Fair rental price. Taxes late Rental expenses, Rental Expenses Advertising, Types of Expenses Allocation between rental and personal uses, Dividing Expenses Change of property to rental use, Property Changed to Rental Use Cleaning and maintenance, Types of Expenses Commissions, Types of Expenses Depreciation, Depreciation. Taxes late Dwelling unit used as home, Dwelling Unit Used as a Home Equipment rental, Rental of equipment. Taxes late Home, property also used as, Rental of property also used as your home. Taxes late Improvements, Table 1-1. Taxes late Examples of Improvements Insurance, Types of Expenses, Insurance premiums paid in advance. Taxes late Interest payments, Types of Expenses, Interest expense. Taxes late Local transportation expenses, Types of Expenses, Local transportation expenses. Taxes late Part of property rented, Renting Part of Property Points, Types of Expenses, Points Pre-rental expenses, Pre-rental expenses. Taxes late Rental payments, Types of Expenses Repairs, Types of Expenses, Repairs and Improvements Sale of property, Vacant while listed for sale. Taxes late Tax return preparation fees, Legal and other professional fees. Taxes late Taxes, Types of Expenses Tenant, paid by, Expenses paid by tenant. Taxes late Travel expenses, Types of Expenses Utilities, Types of Expenses Vacant rental property, Vacant rental property. Taxes late Rental income Advance rent, Advance rent. Taxes late Cancellation of lease payments, Canceling a lease. Taxes late Dwelling unit used as home, Dwelling Unit Used as a Home Lease with option to buy, Lease with option to buy. Taxes late Not rented for profit, Not Rented for Profit Part interest, Part interest. Taxes late Property received from tenant, Property or services. Taxes late Reporting, Accrual method. Taxes late , Which Forms To Use Security deposit, Security deposits. Taxes late Services received from tenant, Property or services. Taxes late Uncollected rent, Uncollected rent. Taxes late Used as home, Rental of property also used as your home. Taxes late Rental losses, Exception for Rental Real Estate With Active Participation (see also Gains and losses) (see also Passive activity) Repairs, Types of Expenses, Repairs and Improvements (see also Improvements) Assessments for maintenance, Assessments for local improvements. Taxes late Personal use of rental property exception for days used for repairs and maintenance, Days used for repairs and maintenance. Taxes late S Sale of property Expenses, Vacant while listed for sale. Taxes late Gain or loss, Sale or exchange of rental property. Taxes late , How to report. Taxes late Main home, Sale of main home used as rental property. Taxes late Section 179 deductions, Section 179 deduction. Taxes late Security deposits, Security deposits. Taxes late Settlement fees, Settlement fees and other costs. Taxes late Shared equity financing agreements, Shared equity financing agreement. Taxes late Special depreciation allowances, Claiming the Special Depreciation Allowance Spouse Material participation, Participating spouse. Taxes late Standard mileage rates, Local transportation expenses. Taxes late Surveys, Settlement fees and other costs. Taxes late T Tables and figures Improvements, examples of (Table 1-1), Table 1-1. Taxes late Examples of Improvements MACRS optional tables (Table 2-2d), Table 2-2d. Taxes late MACRS optional tables (Tables 2-2a, 2-2b, and 2-2c), Tables 2-2a, 2-2b, and 2-2c. Taxes late MACRS recovery periods for property used in rental activities (Table 2-1), Table 2-1. Taxes late MACRS Recovery Periods for Property Used in Rental Activities Tax credits Residential energy credits, effect on basis, Decreases to basis. Taxes late Tax help, How To Get Tax Help Tax return preparation fees, Legal and other professional fees. Taxes late Taxes Deduction of, Types of Expenses Local benefit taxes, Local benefit taxes. Taxes late Real estate taxes, Real estate taxes. Taxes late Transfer taxes, Settlement fees and other costs. Taxes late Theft losses, Theft. Taxes late Title insurance, Settlement fees and other costs. Taxes late Transfer taxes, Settlement fees and other costs. Taxes late Travel and transportation expenses Local transportation expenses, Types of Expenses, Local transportation expenses. Taxes late Recordkeeping, Travel expenses. Taxes late Rental expenses, Types of Expenses Standard mileage rate, Local transportation expenses. Taxes late U Uncollected rent Income, Uncollected rent. Taxes late Use of home Before or after renting, Days used as a main home before or after renting. Taxes late Change to rental use, Property Changed to Rental Use Days of personal use, What is a day of personal use? Fair rental price, Fair rental price. Taxes late Passive activity rules exception, Exception for Personal Use of Dwelling Unit Personal use as dwelling unit, Personal Use of Dwelling Unit (Including Vacation Home) Utilities, Types of Expenses, Increases to basis. Taxes late V Vacant rental property, Vacant rental property. Taxes late Vacation homes Dwelling unit, Dwelling unit. Taxes late Fair rental price, Fair rental price. Taxes late Personal use of, Personal Use of Dwelling Unit (Including Vacation Home) Valuation Fair market value, Fair market value. Taxes late Prev  Up     Home   More Online Publications