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Turbotax login Publication 596 - Introductory Material Table of Contents Future Developments What is the EIC? Can I Claim the EIC? Do I Need This Publication? Do I Have To Have A Child To Qualify For The EIC? How Do I Figure the Amount of EIC? How Can I Quickly Locate Specific information? Is There Help Online? What's New for 2013 Reminders Future Developments For the latest information about developments related to Publication 596, such as legislation enacted after it was published, go to www. Turbotax login irs. Turbotax login gov/pub596. Turbotax login What is the EIC? The earned income credit (EIC) is a tax credit for certain people who work and have earned income under $51,567. Turbotax login A tax credit usually means more money in your pocket. Turbotax login It reduces the amount of tax you owe. Turbotax login The EIC may also give you a refund. Turbotax login Can I Claim the EIC? To claim the EIC, you must meet certain rules. Turbotax login These rules are summarized in Table 1. Turbotax login Table 1. Turbotax login Earned Income Credit in a Nutshell First, you must meet all the rules in this column. Turbotax login Second, you must meet all the rules in one of these columns, whichever applies. Turbotax login Third, you must meet the rule in this column. Turbotax login Chapter 1. Turbotax login  Rules for Everyone Chapter 2. Turbotax login  Rules If You Have a Qualifying Child Chapter 3. Turbotax login  Rules If You Do Not Have a Qualifying Child Chapter 4. Turbotax login  Figuring and Claiming the EIC 1. Turbotax login Your adjusted gross income (AGI) must be less than:  • $46,227 ($51,567 for married filing jointly) if you have three or more qualifying children,  • $43,038 ($48,378 for married filing jointly) if you have two qualifying children,  • $37,870 ($43,210 for married filing jointly) if you have one qualifying child, or   • $14,340 ($19,680 for married filing jointly) if you do not have a qualifying child. Turbotax login 2. Turbotax login You must have a valid social security number. Turbotax login   3. Turbotax login Your filing status cannot be Married filing separately. Turbotax login   4. Turbotax login You must be a U. Turbotax login S. Turbotax login citizen or resident alien all year. Turbotax login   5. Turbotax login You cannot file Form 2555 or Form 2555-EZ (relating to foreign earned income). Turbotax login   6. Turbotax login Your investment income must be $3,300 or less. Turbotax login    7. Turbotax login You must have earned income. Turbotax login 8. Turbotax login Your child must meet the relationship, age, residency, and joint return tests. Turbotax login   9. Turbotax login Your qualifying child cannot be used by more than one person to claim the EIC. Turbotax login   10. Turbotax login You cannot be a qualifying child of another person. Turbotax login 11. Turbotax login You must be at least age 25 but under age 65. Turbotax login    12. Turbotax login You cannot be the dependent of another person. Turbotax login   13. Turbotax login You cannot be a qualifying child of another person. Turbotax login   14. Turbotax login You must have lived in the United States more than half of the year. Turbotax login 15. Turbotax login Your earned income must be less than:  • $46,227 ($51,567 for married filing jointly) if you have three or more qualifying children,  • $43,038 ($48,378 for married filing jointly) if you have two qualifying children,  • $37,870 ($43,210 for married filing jointly) if you have one qualifying child, or  • $14,340 ($19,680 for married filing jointly) if you do not have a qualifying child. Turbotax login Do I Need This Publication? Certain people who file Form 1040 must use Worksheet 1 in this publication, instead of Step 2 in their Form 1040 instructions, when they are checking whether they can take the EIC. Turbotax login You are one of those people if any of the following statements are true for 2013. Turbotax login You are filing Schedule E (Form 1040). Turbotax login You are reporting income from the rental of personal property not used in a trade or business. Turbotax login You are reporting income on Form 1040, line 21, from Form 8814 (relating to election to report child's interest and dividends). Turbotax login You are reporting an amount on Form 1040, line 13, that includes an amount from Form 4797. Turbotax login If none of the statements above apply to you, your tax form instructions have all the information you need to find out if you can claim the EIC and to figure the amount of your EIC. Turbotax login You do not need this publication. Turbotax login But you can read it to find out whether you can take the EIC and to learn more about the EIC. Turbotax login Do I Have To Have A Child To Qualify For The EIC? No, you can qualify for the EIC without a qualifying child if you are at least age 25 but under age 65 and your earned income is less than $14,340 ($19,680 if married filing jointly). Turbotax login See chapter 3. Turbotax login How Do I Figure the Amount of EIC? If you can claim the EIC, you can either have the IRS figure the amount of your credit, or you can figure it yourself. Turbotax login To figure it yourself, you can complete a worksheet in the instructions for the form you file. Turbotax login To find out how to have the IRS figure it for you, see chapter 4. Turbotax login How Can I Quickly Locate Specific information? You can use the index to look up specific information. Turbotax login In most cases, index entries will point you to headings, tables, or a worksheet. Turbotax login Is There Help Online? Yes. Turbotax login You can use the EITC Assistant at www. Turbotax login irs. Turbotax login gov/eitc to find out if you may be eligible for the credit. Turbotax login The EITC Assistant is available in English and Spanish. Turbotax login What's New for 2013 Earned income amount is more. Turbotax login The maximum amount of income you can earn and still get the credit has increased. Turbotax login You may be able to take the credit if: You have three or more qualifying children and you earned less than $46,227 ($51,567 if married filing jointly), You have two qualifying children and you earned less than $43,038 ($48,378 if married filing jointly), You have one qualifying child and you earned less than $37,870 ($43,210 if married filing jointly), or You do not have a qualifying child and you earned less than $14,340 ($19,680 if married filing jointly). Turbotax login Your adjusted gross income also must be less than the amount in the above list that applies to you. Turbotax login For details, see Rules 1 and 15. Turbotax login Investment income amount is more. Turbotax login The maximum amount of investment income you can have and still get the credit has increased to $3,300. Turbotax login See Rule 6—Your Investment Income Must Be $3,300 or Less . Turbotax login Reminders Increased EIC on certain joint returns. Turbotax login . Turbotax login  A married person filing a joint return may get more EIC than someone with the same income but a different filing status. Turbotax login As a result, the EIC table has different columns for married persons filing jointly than for everyone else. Turbotax login When you look up your EIC in the EIC Table, be sure to use the correct column for your filing status and the number of children you have. Turbotax login Earned income credit has no effect on certain welfare benefits. Turbotax login  Any refund you receive because of the EIC cannot be counted as income when determining whether you or anyone else is eligible for benefits or assistance, or how much you or anyone else can receive, under any federal program or under any state or local program financed in whole or in part with federal funds. Turbotax login These programs include the following. Turbotax login Temporary Assistance for Needy Families (TANF). Turbotax login Medicaid. Turbotax login Supplemental security income (SSI). Turbotax login Supplemental Nutrition Assistance Program (food stamps). Turbotax login Low-income housing. Turbotax login In addition, when determining eligibility, the refund cannot be counted as a resource for at least 12 months after you receive it. Turbotax login Check with your local benefit coordinator to find out if your refund will affect your benefits. Turbotax login Do not overlook your state credit. Turbotax login  If you can claim the EIC on your federal income tax return, you may be able to take a similar credit on your state or local income tax return. Turbotax login For a list of states that offer a state EIC, go to www. Turbotax login irs. Turbotax login gov/eitc. Turbotax login EIC questioned by IRS. Turbotax login  The IRS may ask you to provide documents to prove you are entitled to claim the EIC. Turbotax login We will tell you what documents to send us. Turbotax login These may include: birth certificates, school records, etc. Turbotax login The process of establishing your eligibility will delay your refund. Turbotax login Spanish version of Publication 596. Turbotax login  You can order Publicación 596SP, Crédito por Ingreso del Trabajo, from the IRS. Turbotax login It is a Spanish translation of Publication 596. Turbotax login See How To Get Tax Help to find out how to order this and other IRS forms and publications. Turbotax login Photographs of missing children. Turbotax login  The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Turbotax login Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. Turbotax login You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. Turbotax login Comments and suggestions. Turbotax login  We welcome your comments about this publication and your suggestions for future editions. Turbotax login You can write to us at the following address:  Internal Revenue Service Individual Forms and Publications Branch 1111 Constitution Ave. Turbotax login NW, IR-6526 Washington, DC 20224 We respond to many letters by telephone. Turbotax login Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Turbotax login You can send your comments from www. Turbotax login irs. Turbotax login gov/formspubs/. Turbotax login Click on “More Information” and then on “Comment on Tax Forms and Publications. Turbotax login ” Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. Turbotax login Ordering forms and publications. Turbotax login  Visit www. Turbotax login irs. Turbotax login gov/formspubs/ to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received. Turbotax login  Internal Revenue Service 1201 N. Turbotax login Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. Turbotax login  If you have a tax question, check the information available on IRS. Turbotax login gov or call 1-800-829-1040. Turbotax login We cannot answer tax questions sent to either of the above addresses. Turbotax login Prev  Up  Next   Home   More Online Publications
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Turbotax login 2. Turbotax login   Electing the Section 179 Deduction Table of Contents Introduction Useful Items - You may want to see: What Property Qualifies?Eligible Property Property Acquired for Business Use Property Acquired by Purchase What Property Does Not Qualify?Land and Improvements Excepted Property How Much Can You Deduct?Dollar Limits Business Income Limit Partnerships and Partners S Corporations Other Corporations How Do You Elect the Deduction? When Must You Recapture the Deduction? Introduction You can elect to recover all or part of the cost of certain qualifying property, up to a limit, by deducting it in the year you place the property in service. Turbotax login This is the section 179 deduction. Turbotax login You can elect the section 179 deduction instead of recovering the cost by taking depreciation deductions. Turbotax login Estates and trusts cannot elect the section 179 deduction. Turbotax login This chapter explains what property does and does not qualify for the section 179 deduction, what limits apply to the deduction (including special rules for partnerships and corporations), and how to elect it. Turbotax login It also explains when and how to recapture the deduction. Turbotax login Useful Items - You may want to see: Publication 537 Installment Sales 544 Sales and Other Dispositions of Assets 954 Tax Incentives for Distressed Communities Form (and Instructions) 4562 Depreciation and Amortization 4797 Sales of Business Property See chapter 6 for information about getting publications and forms. Turbotax login What Property Qualifies? To qualify for the section 179 deduction, your property must meet all the following requirements. Turbotax login It must be eligible property. Turbotax login It must be acquired for business use. Turbotax login It must have been acquired by purchase. Turbotax login It must not be property described later under What Property Does Not Qualify . Turbotax login The following discussions provide information about these requirements and exceptions. Turbotax login Eligible Property To qualify for the section 179 deduction, your property must be one of the following types of depreciable property. Turbotax login Tangible personal property. Turbotax login Other tangible property (except buildings and their structural components) used as: An integral part of manufacturing, production, or extraction or of furnishing transportation, communications, electricity, gas, water, or sewage disposal services, A research facility used in connection with any of the activities in (a) above, or A facility used in connection with any of the activities in (a) for the bulk storage of fungible commodities. Turbotax login Single purpose agricultural (livestock) or horticultural structures. Turbotax login See chapter 7 of Publication 225 for definitions and information regarding the use requirements that apply to these structures. Turbotax login Storage facilities (except buildings and their structural components) used in connection with distributing petroleum or any primary product of petroleum. Turbotax login Off-the-shelf computer software. Turbotax login Qualified real property (described below). Turbotax login Tangible personal property. Turbotax login   Tangible personal property is any tangible property that is not real property. Turbotax login It includes the following property. Turbotax login Machinery and equipment. Turbotax login Property contained in or attached to a building (other than structural components), such as refrigerators, grocery store counters, office equipment, printing presses, testing equipment, and signs. Turbotax login Gasoline storage tanks and pumps at retail service stations. Turbotax login Livestock, including horses, cattle, hogs, sheep, goats, and mink and other furbearing animals. Turbotax login   The treatment of property as tangible personal property for the section 179 deduction is not controlled by its treatment under local law. Turbotax login For example, property may not be tangible personal property for the deduction even if treated so under local law, and some property (such as fixtures) may be tangible personal property for the deduction even if treated as real property under local law. Turbotax login Off-the-shelf computer software. Turbotax login   Off-the-shelf computer software placed in service during the tax year is qualifying property for purposes of the section 179 deduction. Turbotax login This is computer software that is readily available for purchase by the general public, is subject to a nonexclusive license, and has not been substantially modified. Turbotax login It includes any program designed to cause a computer to perform a desired function. Turbotax login However, a database or similar item is not considered computer software unless it is in the public domain and is incidental to the operation of otherwise qualifying software. Turbotax login Qualified real property. Turbotax login   You can elect to treat certain qualified real property you placed in service as section 179 property for tax years beginning in 2013. Turbotax login If this election is made, the term “section 179 property” will include any qualified real property that is: Qualified leasehold improvement property, Qualified restaurant property, or Qualified retail improvement property. Turbotax login The maximum section 179 expense deduction that can be elected for qualified section 179 real property is $250,000 of the maximum section 179 deduction of $500,000 in 2013. Turbotax login For more information, see Special rules for qualified section 179 real property, later. Turbotax login Also, see Election for certain qualified section 179 real property, later, for information on how to make this election. Turbotax login Qualified leasehold improvement property. Turbotax login   Generally, this is any improvement to an interior part of a building (placed in service before January 1, 2014) that is nonresidential real property, provided all of the requirements discussed in chapter 3 under Qualified leasehold improvement property are met. Turbotax login   In addition, an improvement made by the lessor does not qualify as qualified leasehold improvement property to any subsequent owner unless it is acquired from the original lessor by reason of the lessor’s death or in any of the following types of transactions. Turbotax login A transaction to which section 381(a) applies, A mere change in the form of conducting the trade or business so long as the property is retained in the trade or business as qualified leasehold improvement property and the taxpayer retains a substantial interest in the trade or business, A like-kind exchange, involuntary conversion, or re-acquisition of real property to the extent that the basis in the property represents the carryover basis, or Certain nonrecognition transactions to the extent that your basis in the property is determined by reference to the transferor’s or distributor’s basis in the property. Turbotax login Examples include the following. Turbotax login A complete liquidation of a subsidiary. Turbotax login A transfer to a corporation controlled by the transferor. Turbotax login An exchange of property by a corporation solely for stock or securities in another corporation in a reorganization. Turbotax login Qualified restaurant property. Turbotax login   Qualified restaurant property is any section 1250 property that is a building or an improvement to a building placed in service after December 31, 2008, and before January 1, 2014. Turbotax login Also, more than 50% of the building’s square footage must be devoted to preparation of meals and seating for on-premise consumption of prepared meals. Turbotax login Qualified retail improvement property. Turbotax login   Generally, this is any improvement (placed in service after December 31, 2008, and before January 1, 2014) to an interior portion of nonresidential real property if it meets the following requirements. Turbotax login The portion is open to the general public and is used in the retail trade or business of selling tangible property to the general public. Turbotax login The improvement is placed in service more than 3 years after the date the building was first placed in service. Turbotax login The expenses are not for the enlargement of the building, any elevator or escalator, any structural components benefiting a common area, or the internal structural framework of the building. Turbotax login In addition, an improvement made by the lessor does not qualify as qualified retail improvement property to any subsequent owner unless it is acquired from the original lessor by reason of the lessor’s death or in any of the following types of transactions. Turbotax login A transaction to which section 381(a) applies, A mere change in the form of conducting the trade or business so long as the property is retained in the trade or business as qualified leasehold improvement property and the taxpayer retains a substantial interest in the trade or business, A like-kind exchange, involuntary conversion, or re-acquisition of real property to the extent that the basis in the property represents the carryover basis, or Certain nonrecognition transactions to the extent that your basis in the property is determined by reference to the transferor’s or distributor’s basis in the property. Turbotax login Examples include the following. Turbotax login A complete liquidation of a subsidiary. Turbotax login A transfer to a corporation controlled by the transferor. Turbotax login An exchange of property by a corporation solely for stock or securities in another corporation in a reorganization. Turbotax login Property Acquired for Business Use To qualify for the section 179 deduction, your property must have been acquired for use in your trade or business. Turbotax login Property you acquire only for the production of income, such as investment property, rental property (if renting property is not your trade or business), and property that produces royalties, does not qualify. Turbotax login Partial business use. Turbotax login   When you use property for both business and nonbusiness purposes, you can elect the section 179 deduction only if you use the property more than 50% for business in the year you place it in service. Turbotax login If you use the property more than 50% for business, multiply the cost of the property by the percentage of business use. Turbotax login Use the resulting business cost to figure your section 179 deduction. Turbotax login Example. Turbotax login May Oak bought and placed in service an item of section 179 property costing $11,000. Turbotax login She used the property 80% for her business and 20% for personal purposes. Turbotax login The business part of the cost of the property is $8,800 (80% × $11,000). Turbotax login Property Acquired by Purchase To qualify for the section 179 deduction, your property must have been acquired by purchase. Turbotax login For example, property acquired by gift or inheritance does not qualify. Turbotax login Property is not considered acquired by purchase in the following situations. Turbotax login It is acquired by one component member of a controlled group from another component member of the same group. Turbotax login Its basis is determined either— In whole or in part by its adjusted basis in the hands of the person from whom it was acquired, or Under the stepped-up basis rules for property acquired from a decedent. Turbotax login It is acquired from a related person. Turbotax login Related persons. Turbotax login   Related persons are described under Related persons earlier. Turbotax login However, to determine whether property qualifies for the section 179 deduction, treat as an individual's family only his or her spouse, ancestors, and lineal descendants and substitute "50%" for "10%" each place it appears. Turbotax login Example. Turbotax login Ken Larch is a tailor. Turbotax login He bought two industrial sewing machines from his father. Turbotax login He placed both machines in service in the same year he bought them. Turbotax login They do not qualify as section 179 property because Ken and his father are related persons. Turbotax login He cannot claim a section 179 deduction for the cost of these machines. Turbotax login What Property Does Not Qualify? Certain property does not qualify for the section 179 deduction. Turbotax login This includes the following. Turbotax login Land and Improvements Land and land improvements do not qualify as section 179 property. Turbotax login Land improvements include swimming pools, paved parking areas, wharves, docks, bridges, and fences. Turbotax login Excepted Property Even if the requirements explained earlier under What Property Qualifies are met, you cannot elect the section 179 deduction for the following property. Turbotax login Certain property you lease to others (if you are a noncorporate lessor). Turbotax login Certain property used predominantly to furnish lodging or in connection with the furnishing of lodging. Turbotax login Air conditioning or heating units. Turbotax login Property used predominantly outside the United States, except property described in section 168(g)(4) of the Internal Revenue Code. Turbotax login Property used by certain tax-exempt organizations, except property used in connection with the production of income subject to the tax on unrelated trade or business income. Turbotax login Property used by governmental units or foreign persons or entities, except property used under a lease with a term of less than 6 months. Turbotax login Leased property. Turbotax login   Generally, you cannot claim a section 179 deduction based on the cost of property you lease to someone else. Turbotax login This rule does not apply to corporations. Turbotax login However, you can claim a section 179 deduction for the cost of the following property. Turbotax login Property you manufacture or produce and lease to others. Turbotax login Property you purchase and lease to others if both the following tests are met. Turbotax login The term of the lease (including options to renew) is less than 50% of the property's class life. Turbotax login For the first 12 months after the property is transferred to the lessee, the total business deductions you are allowed on the property (other than rents and reimbursed amounts) are more than 15% of the rental income from the property. Turbotax login Property used for lodging. Turbotax login   Generally, you cannot claim a section 179 deduction for property used predominantly to furnish lodging or in connection with the furnishing of lodging. Turbotax login However, this does not apply to the following types of property. Turbotax login Nonlodging commercial facilities that are available to those not using the lodging facilities on the same basis as they are available to those using the lodging facilities. Turbotax login Property used by a hotel or motel in connection with the trade or business of furnishing lodging where the predominant portion of the accommodations is used by transients. Turbotax login Any certified historic structure to the extent its basis is due to qualified rehabilitation expenditures. Turbotax login Any energy property. Turbotax login Energy property. Turbotax login   Energy property is property that meets the following requirements. Turbotax login It is one of the following types of property. Turbotax login Equipment that uses solar energy to generate electricity, to heat or cool a structure, to provide hot water for use in a structure, or to provide solar process heat, except for equipment used to generate energy to heat a swimming pool. Turbotax login Equipment placed in service after December 31, 2005, and before January 1, 2017, that uses solar energy to illuminate the inside of a structure using fiber-optic distributed sunlight. Turbotax login Equipment used to produce, distribute, or use energy derived from a geothermal deposit. Turbotax login For electricity generated by geothermal power, this includes equipment up to (but not including) the electrical transmission stage. Turbotax login Qualified fuel cell property or qualified microturbine property placed in service after December 31, 2005, and before January 1, 2017. Turbotax login The construction, reconstruction, or erection of the property must be completed by you. Turbotax login For property you acquire, the original use of the property must begin with you. Turbotax login The property must meet the performance and quality standards, if any, prescribed by Income Tax Regulations in effect at the time you get the property. Turbotax login   For periods before February 14, 2008, energy property does not include any property that is public utility property as defined by section 46(f)(5) of the Internal Revenue Code (as in effect on November 4, 1990). Turbotax login How Much Can You Deduct? Your section 179 deduction is generally the cost of the qualifying property. Turbotax login However, the total amount you can elect to deduct under section 179 is subject to a dollar limit and a business income limit. Turbotax login These limits apply to each taxpayer, not to each business. Turbotax login However, see Married Individuals under Dollar Limits , later. Turbotax login For a passenger automobile, the total section 179 deduction and depreciation deduction are limited. Turbotax login See Do the Passenger Automobile Limits Apply in chapter 5 . Turbotax login If you deduct only part of the cost of qualifying property as a section 179 deduction, you can generally depreciate the cost you do not deduct. Turbotax login Trade-in of other property. Turbotax login   If you buy qualifying property with cash and a trade-in, its cost for purposes of the section 179 deduction includes only the cash you paid. Turbotax login Example. Turbotax login Silver Leaf, a retail bakery, traded two ovens having a total adjusted basis of $680 for a new oven costing $1,320. Turbotax login They received an $800 trade-in allowance for the old ovens and paid $520 in cash for the new oven. Turbotax login The bakery also traded a used van with an adjusted basis of $4,500 for a new van costing $9,000. Turbotax login They received a $4,800 trade-in allowance on the used van and paid $4,200 in cash for the new van. Turbotax login Only the portion of the new property's basis paid by cash qualifies for the section 179 deduction. Turbotax login Therefore, Silver Leaf's qualifying costs for the section 179 deduction are $4,720 ($520 + $4,200). Turbotax login Dollar Limits The total amount you can elect to deduct under section 179 for most property placed in service in 2013 generally cannot be more than $500,000. Turbotax login If you acquire and place in service more than one item of qualifying property during the year, you can allocate the section 179 deduction among the items in any way, as long as the total deduction is not more than $500,000. Turbotax login You do not have to claim the full $500,000. Turbotax login Qualified real property (described earlier) that you elected to treat as section 179 real property is limited to $250,000 of the maximum deduction of $500,000 for 2013. Turbotax login The amount you can elect to deduct is not affected if you place qualifying property in service in a short tax year or if you place qualifying property in service for only a part of a 12-month tax year. Turbotax login After you apply the dollar limit to determine a tentative deduction, you must apply the business income limit (described later) to determine your actual section 179 deduction. Turbotax login Example. Turbotax login In 2013, you bought and placed in service $500,000 in machinery and a $25,000 circular saw for your business. Turbotax login You elect to deduct $475,000 for the machinery and the entire $25,000 for the saw, a total of $500,000. Turbotax login This is the maximum amount you can deduct. Turbotax login Your $25,000 deduction for the saw completely recovered its cost. Turbotax login Your basis for depreciation is zero. Turbotax login The basis for depreciation of your machinery is $25,000. Turbotax login You figure this by subtracting your $475,000 section 179 deduction for the machinery from the $500,000 cost of the machinery. Turbotax login Situations affecting dollar limit. Turbotax login   Under certain circumstances, the general dollar limits on the section 179 deduction may be reduced or increased or there may be additional dollar limits. Turbotax login The general dollar limit is affected by any of the following situations. Turbotax login The cost of your section 179 property placed in service exceeds $2,000,000. Turbotax login Your business is an enterprise zone business. Turbotax login You placed in service a sport utility or certain other vehicles. Turbotax login You are married filing a joint or separate return. Turbotax login Costs exceeding $2,000,000 If the cost of your qualifying section 179 property placed in service in a year is more than $2,000,000, you generally must reduce the dollar limit (but not below zero) by the amount of cost over $2,000,000. Turbotax login If the cost of your section 179 property placed in service during 2013 is $2,500,000 or more, you cannot take a section 179 deduction. Turbotax login Example. Turbotax login In 2013, Jane Ash placed in service machinery costing $2,100,000. Turbotax login This cost is $100,000 more than $2,000,000, so she must reduce her dollar limit to $400,000 ($500,000 − $100,000). Turbotax login Enterprise Zone Businesses An increased section 179 deduction is available to enterprise zone businesses for qualified zone property placed in service during the tax year, in an empowerment zone. Turbotax login For more information including the definitions of “enterprise zone business” and “qualified zone property,” see sections 1397A, 1397C, and 1397D of the Internal Revenue Code. Turbotax login The dollar limit on the section 179 deduction is increased by the smaller of: $35,000, or The cost of section 179 property that is also qualified zone property placed in service before January 1, 2014 (including such property placed in service by your spouse, even if you are filing a separate return). Turbotax login Note. Turbotax login   You take into account only 50% (instead of 100%) of the cost of qualified zone property placed in service in a year when figuring the reduced dollar limit for costs exceeding $2,000,000 (explained earlier). Turbotax login Sport Utility and Certain Other Vehicles You cannot elect to expense more than $25,000 of the cost of any heavy sport utility vehicle (SUV) and certain other vehicles placed in service during the tax year. Turbotax login This rule applies to any 4-wheeled vehicle primarily designed or used to carry passengers over public streets, roads, or highways, that is rated at more than 6,000 pounds gross vehicle weight and not more than 14,000 pounds gross vehicle weight. Turbotax login However, the $25,000 limit does not apply to any vehicle: Designed to seat more than nine passengers behind the driver's seat, Equipped with a cargo area (either open or enclosed by a cap) of at least six feet in interior length that is not readily accessible from the passenger compartment, or That has an integral enclosure fully enclosing the driver compartment and load carrying device, does not have seating rearward of the driver's seat, and has no body section protruding more than 30 inches ahead of the leading edge of the windshield. Turbotax login Married Individuals If you are married, how you figure your section 179 deduction depends on whether you file jointly or separately. Turbotax login If you file a joint return, you and your spouse are treated as one taxpayer in determining any reduction to the dollar limit, regardless of which of you purchased the property or placed it in service. Turbotax login If you and your spouse file separate returns, you are treated as one taxpayer for the dollar limit, including the reduction for costs over $2,000,000. Turbotax login You must allocate the dollar limit (after any reduction) between you equally, unless you both elect a different allocation. Turbotax login If the percentages elected by each of you do not total 100%, 50% will be allocated to each of you. Turbotax login Example. Turbotax login Jack Elm is married. Turbotax login He and his wife file separate returns. Turbotax login Jack bought and placed in service $2,000,000 of qualified farm machinery in 2013. Turbotax login His wife has her own business, and she bought and placed in service $30,000 of qualified business equipment. Turbotax login Their combined dollar limit is $470,000. Turbotax login This is because they must figure the limit as if they were one taxpayer. Turbotax login They reduce the $500,000 dollar limit by the $30,000 excess of their costs over $2,000,000. Turbotax login They elect to allocate the $470,000 dollar limit as follows. Turbotax login $446,500 ($470,000 x 95%) to Mr. Turbotax login Elm's machinery. Turbotax login $23,500 ($470,000 x 5%) to Mrs. Turbotax login Elm's equipment. Turbotax login If they did not make an election to allocate their costs in this way, they would have to allocate $235,000 ($470,000 × 50%) to each of them. Turbotax login Joint return after filing separate returns. Turbotax login   If you and your spouse elect to amend your separate returns by filing a joint return after the due date for filing your return, the dollar limit on the joint return is the lesser of the following amounts. Turbotax login The dollar limit (after reduction for any cost of section 179 property over $2,000,000). Turbotax login The total cost of section 179 property you and your spouse elected to expense on your separate returns. Turbotax login Example. Turbotax login The facts are the same as in the previous example except that Jack elected to deduct $30,000 of the cost of section 179 property on his separate return and his wife elected to deduct $2,000. Turbotax login After the due date of their returns, they file a joint return. Turbotax login Their dollar limit for the section 179 deduction is $32,000. Turbotax login This is the lesser of the following amounts. Turbotax login $470,000—The dollar limit less the cost of section 179 property over $2,000,000. Turbotax login $32,000—The total they elected to expense on their separate returns. Turbotax login Business Income Limit The total cost you can deduct each year after you apply the dollar limit is limited to the taxable income from the active conduct of any trade or business during the year. Turbotax login Generally, you are considered to actively conduct a trade or business if you meaningfully participate in the management or operations of the trade or business. Turbotax login Any cost not deductible in one year under section 179 because of this limit can be carried to the next year. Turbotax login Special rules apply to a 2013 deduction of qualified section 179 real property that is disallowed because of the business income limit. Turbotax login See Special rules for qualified section 179 property under Carryover of disallowed deduction, later. Turbotax login Taxable income. Turbotax login   In general, figure taxable income for this purpose by totaling the net income and losses from all trades and businesses you actively conducted during the year. Turbotax login Net income or loss from a trade or business includes the following items. Turbotax login Section 1231 gains (or losses). Turbotax login Interest from working capital of your trade or business. Turbotax login Wages, salaries, tips, or other pay earned as an employee. Turbotax login For information about section 1231 gains and losses, see chapter 3 in Publication 544. Turbotax login   In addition, figure taxable income without regard to any of the following. Turbotax login The section 179 deduction. Turbotax login The self-employment tax deduction. Turbotax login Any net operating loss carryback or carryforward. Turbotax login Any unreimbursed employee business expenses. Turbotax login Two different taxable income limits. Turbotax login   In addition to the business income limit for your section 179 deduction, you may have a taxable income limit for some other deduction. Turbotax login You may have to figure the limit for this other deduction taking into account the section 179 deduction. Turbotax login If so, complete the following steps. Turbotax login Step Action 1 Figure taxable income without the section 179 deduction or the other deduction. Turbotax login 2 Figure a hypothetical section 179 deduction using the taxable income figured in Step 1. Turbotax login 3 Subtract the hypothetical section 179 deduction figured in Step 2 from the taxable income figured in Step 1. Turbotax login 4 Figure a hypothetical amount for the other deduction using the amount figured in Step 3 as taxable income. Turbotax login 5 Subtract the hypothetical other deduction figured in Step 4 from the taxable income figured in Step 1. Turbotax login 6 Figure your actual section 179 deduction using the taxable income figured in Step 5. Turbotax login 7 Subtract your actual section 179 deduction figured in Step 6 from the taxable income figured in Step 1. Turbotax login 8 Figure your actual other deduction using the taxable income figured in Step 7. Turbotax login Example. Turbotax login On February 1, 2013, the XYZ corporation purchased and placed in service qualifying section 179 property that cost $500,000. Turbotax login It elects to expense the entire $500,000 cost under section 179. Turbotax login In June, the corporation gave a charitable contribution of $10,000. Turbotax login A corporation's limit on charitable contributions is figured after subtracting any section 179 deduction. Turbotax login The business income limit for the section 179 deduction is figured after subtracting any allowable charitable contributions. Turbotax login XYZ's taxable income figured without the section 179 deduction or the deduction for charitable contributions is $520,000. Turbotax login XYZ figures its section 179 deduction and its deduction for charitable contributions as follows. Turbotax login Step 1– Taxable income figured without either deduction is $520,000. Turbotax login Step 2– Using $520,000 as taxable income, XYZ's hypothetical section 179 deduction is $500,000. Turbotax login Step 3– $20,000 ($520,000 − $500,000). Turbotax login Step 4– Using $20,000 (from Step 3) as taxable income, XYZ's hypothetical charitable contribution (limited to 10% of taxable income) is $2,000. Turbotax login Step 5– $518,000 ($520,000 − $2,000). Turbotax login Step 6– Using $518,000 (from Step 5) as taxable income, XYZ figures the actual section 179 deduction. Turbotax login Because the taxable income is at least $500,000, XYZ can take a $500,000 section 179 deduction. Turbotax login Step 7– $20,000 ($520,000 − $500,000). Turbotax login Step 8– Using $20,000 (from Step 7) as taxable income, XYZ's actual charitable contribution (limited to 10% of taxable income) is $2,000. Turbotax login Carryover of disallowed deduction. Turbotax login   You can carry over for an unlimited number of years the cost of any section 179 property you elected to expense but were unable to because of the business income limit. Turbotax login This disallowed deduction amount is shown on line 13 of Form 4562. Turbotax login You use the amount you carry over to determine your section 179 deduction in the next year. Turbotax login Enter that amount on line 10 of your Form 4562 for the next year. Turbotax login   If you place more than one property in service in a year, you can select the properties for which all or a part of the costs will be carried forward. Turbotax login Your selections must be shown in your books and records. Turbotax login For this purpose, treat section 179 costs allocated from a partnership or an S corporation as one item of section 179 property. Turbotax login If you do not make a selection, the total carryover will be allocated equally among the properties you elected to expense for the year. Turbotax login   If costs from more than one year are carried forward to a subsequent year in which only part of the total carryover can be deducted, you must deduct the costs being carried forward from the earliest year first. Turbotax login Special rules for qualified section 179 real property. Turbotax login   You can carry over to 2013 a 2012 deduction attributable to qualified section 179 real property that you elected to expense but were unable to take because of the business income limitation. Turbotax login Any such 2012 carryover amounts that are not deducted in 2013, plus any 2013 disallowed section 179 expense deductions attributable to qualified real property, are not carried over to 2014. Turbotax login Instead these amounts are treated as property placed in service on the first day of 2013 for purposes of computing depreciation (including the special depreciation allowance, if applicable). Turbotax login See section 179(f) of the Internal Revenue Code and Notice 2013-59 for more information. Turbotax login If there is a sale or other disposition of your property (including a transfer at death) before you can use the full amount of any outstanding carryover of your disallowed section 179 deduction, neither you nor the new owner can deduct any of the unused amount. Turbotax login Instead, you must add it back to the property's basis. Turbotax login Partnerships and Partners The section 179 deduction limits apply both to the partnership and to each partner. Turbotax login The partnership determines its section 179 deduction subject to the limits. Turbotax login It then allocates the deduction among its partners. Turbotax login Each partner adds the amount allocated from partnerships (shown on Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc. Turbotax login ) to his or her nonpartnership section 179 costs and then applies the dollar limit to this total. Turbotax login To determine any reduction in the dollar limit for costs over $2,000,000, the partner does not include any of the cost of section 179 property placed in service by the partnership. Turbotax login After the dollar limit (reduced for any nonpartnership section 179 costs over $2,000,000) is applied, any remaining cost of the partnership and nonpartnership section 179 property is subject to the business income limit. Turbotax login Partnership's taxable income. Turbotax login   For purposes of the business income limit, figure the partnership's taxable income by adding together the net income and losses from all trades or businesses actively conducted by the partnership during the year. Turbotax login See the Instructions for Form 1065 for information on how to figure partnership net income (or loss). Turbotax login However, figure taxable income without regard to credits, tax-exempt income, the section 179 deduction, and guaranteed payments under section 707(c) of the Internal Revenue Code. Turbotax login Partner's share of partnership's taxable income. Turbotax login   For purposes of the business income limit, the taxable income of a partner engaged in the active conduct of one or more of a partnership's trades or businesses includes his or her allocable share of taxable income derived from the partnership's active conduct of any trade or business. Turbotax login Example. Turbotax login In 2013, Beech Partnership placed in service section 179 property with a total cost of $2,025,000. Turbotax login The partnership must reduce its dollar limit by $25,000 ($2,025,000 − $2,000,000). Turbotax login Its maximum section 179 deduction is $475,000 ($500,000 − $25,000), and it elects to expense that amount. Turbotax login The partnership's taxable income from the active conduct of all its trades or businesses for the year was $600,000, so it can deduct the full $475,000. Turbotax login It allocates $40,000 of its section 179 deduction and $50,000 of its taxable income to Dean, one of its partners. Turbotax login In addition to being a partner in Beech Partnership, Dean is also a partner in the Cedar Partnership, which allocated to him a $30,000 section 179 deduction and $35,000 of its taxable income from the active conduct of its business. Turbotax login He also conducts a business as a sole proprietor and, in 2013, placed in service in that business qualifying section 179 property costing $55,000. Turbotax login He had a net loss of $5,000 from that business for the year. Turbotax login Dean does not have to include section 179 partnership costs to figure any reduction in his dollar limit, so his total section 179 costs for the year are not more than $2,000,000 and his dollar limit is not reduced. Turbotax login His maximum section 179 deduction is $500,000. Turbotax login He elects to expense all of the $70,000 in section 179 deductions allocated from the partnerships ($40,000 from Beech Partnership plus $30,000 from Cedar Partnership), plus $55,000 of his sole proprietorship's section 179 costs, and notes that information in his books and records. Turbotax login However, his deduction is limited to his business taxable income of $80,000 ($50,000 from Beech Partnership, plus $35,000 from Cedar Partnership minus $5,000 loss from his sole proprietorship). Turbotax login He carries over $45,000 ($125,000 − $80,000) of the elected section 179 costs to 2014. Turbotax login He allocates the carryover amount to the cost of section 179 property placed in service in his sole proprietorship, and notes that allocation in his books and records. Turbotax login Different tax years. Turbotax login   For purposes of the business income limit, if the partner's tax year and that of the partnership differ, the partner's share of the partnership's taxable income for a tax year is generally the partner's distributive share for the partnership tax year that ends with or within the partner's tax year. Turbotax login Example. Turbotax login John and James Oak are equal partners in Oak Partnership. Turbotax login Oak Partnership uses a tax year ending January 31. Turbotax login John and James both use a tax year ending December 31. Turbotax login For its tax year ending January 31, 2013, Oak Partnership's taxable income from the active conduct of its business is $80,000, of which $70,000 was earned during 2012. Turbotax login John and James each include $40,000 (each partner's entire share) of partnership taxable income in computing their business income limit for the 2013 tax year. Turbotax login Adjustment of partner's basis in partnership. Turbotax login   A partner must reduce the basis of his or her partnership interest by the total amount of section 179 expenses allocated from the partnership even if the partner cannot currently deduct the total amount. Turbotax login If the partner disposes of his or her partnership interest, the partner's basis for determining gain or loss is increased by any outstanding carryover of disallowed section 179 expenses allocated from the partnership. Turbotax login Adjustment of partnership's basis in section 179 property. Turbotax login   The basis of a partnership's section 179 property must be reduced by the section 179 deduction elected by the partnership. Turbotax login This reduction of basis must be made even if a partner cannot deduct all or part of the section 179 deduction allocated to that partner by the partnership because of the limits. Turbotax login S Corporations Generally, the rules that apply to a partnership and its partners also apply to an S corporation and its shareholders. Turbotax login The deduction limits apply to an S corporation and to each shareholder. Turbotax login The S corporation allocates its deduction to the shareholders who then take their section 179 deduction subject to the limits. Turbotax login Figuring taxable income for an S corporation. Turbotax login   To figure taxable income (or loss) from the active conduct by an S corporation of any trade or business, you total the net income and losses from all trades or businesses actively conducted by the S corporation during the year. Turbotax login   To figure the net income (or loss) from a trade or business actively conducted by an S corporation, you take into account the items from that trade or business that are passed through to the shareholders and used in determining each shareholder's tax liability. Turbotax login However, you do not take into account any credits, tax-exempt income, the section 179 deduction, and deductions for compensation paid to shareholder-employees. Turbotax login For purposes of determining the total amount of S corporation items, treat deductions and losses as negative income. Turbotax login In figuring the taxable income of an S corporation, disregard any limits on the amount of an S corporation item that must be taken into account when figuring a shareholder's taxable income. Turbotax login Other Corporations A corporation's taxable income from its active conduct of any trade or business is its taxable income figured with the following changes. Turbotax login It is figured before deducting the section 179 deduction, any net operating loss deduction, and special deductions (as reported on the corporation's income tax return). Turbotax login It is adjusted for items of income or deduction included in the amount figured in 1, above, not derived from a trade or business actively conducted by the corporation during the tax year. Turbotax login How Do You Elect the Deduction? You elect to take the section 179 deduction by completing Part I of Form 4562. Turbotax login If you elect the deduction for listed property (described in chapter 5), complete Part V of Form 4562 before completing Part I. Turbotax login For property placed in service in 2013, file Form 4562 with either of the following. Turbotax login Your original 2013 tax return, whether or not you file it timely. Turbotax login An amended return for 2013 filed within the time prescribed by law. Turbotax login An election made on an amended return must specify the item of section 179 property to which the election applies and the part of the cost of each such item to be taken into account. Turbotax login The amended return must also include any resulting adjustments to taxable income. Turbotax login You must keep records that show the specific identification of each piece of qualifying section 179 property. Turbotax login These records must show how you acquired the property, the person you acquired it from, and when you placed it in service. Turbotax login Election for certain qualified section 179 real property. Turbotax login   You can elect to expense certain qualified real property that you placed in service as section 179 property for tax years beginning in 2013. Turbotax login If you elect to treat this property as section 179 property, you must elect the application of the special rules for qualified real property described in section 179(f) of the Internal Revenue Code. Turbotax login   To make the election, attach a statement indicating you are “electing the application of section 179(f) of the Internal Revenue Code” with either of the following. Turbotax login Your original 2013 tax return, whether or not you file it timely. Turbotax login An amended return for 2013 filed within the time prescribed by law. Turbotax login The amended return must also include any adjustments to taxable income. Turbotax login   The statement should indicate your election to expense certain qualified real property under section 179(f) on your return. Turbotax login It must specify one or more of the three types of qualified property (described under Qualified real property ) to which the election applies, the cost of each such type, and the portion of the cost of each such property to be taken into account. Turbotax login Also, report this on line 6 of Form 4562. Turbotax login    The maximum section 179 expense deduction that can be taken for qualified section 179 real property is limited to $250,000. Turbotax login Revoking an election. Turbotax login   An election (or any specification made in the election) to take a section 179 deduction for 2013 can be revoked without IRS approval by filing an amended return. Turbotax login The amended return must be filed within the time prescribed by law. Turbotax login The amended return must also include any resulting adjustments to taxable income. Turbotax login Once made, the revocation is irrevocable. Turbotax login When Must You Recapture the Deduction? You may have to recapture the section 179 deduction if, in any year during the property's recovery period, the percentage of business use drops to 50% or less. Turbotax login In the year the business use drops to 50% or less, you include the recapture amount as ordinary income in Part IV of Form 4797. Turbotax login You also increase the basis of the property by the recapture amount. Turbotax login Recovery periods for property are discussed under Which Recovery Period Applies in chapter 4 . Turbotax login If you sell, exchange, or otherwise dispose of the property, do not figure the recapture amount under the rules explained in this discussion. Turbotax login Instead, use the rules for recapturing depreciation explained in chapter 3 of Publication 544 under Section 1245 Property. Turbotax login For qualified real property (described earlier), see Notice 2013-59 for determining the portion of the gain that is attributable to section 1245 property upon the sale or other disposition of qualified real property. Turbotax login If the property is listed property (described in chapter 5 ), do not figure the recapture amount under the rules explained in this discussion when the percentage of business use drops to 50% or less. Turbotax login Instead, use the rules for recapturing excess depreciation in chapter 5 under What Is the Business-Use Requirement. Turbotax login Figuring the recapture amount. Turbotax login   To figure the amount to recapture, take the following steps. Turbotax login Figure the depreciation that would have been allowable on the section 179 deduction you claimed. Turbotax login Begin with the year you placed the property in service and include the year of recapture. Turbotax login Subtract the depreciation figured in (1) from the section 179 deduction you claimed. Turbotax login The result is the amount you must recapture. Turbotax login Example. Turbotax login In January 2011, Paul Lamb, a calendar year taxpayer, bought and placed in service section 179 property costing $10,000. Turbotax login The property is not listed property. Turbotax login The property is 3-year property. Turbotax login He elected a $5,000 section 179 deduction for the property and also elected not to claim a special depreciation allowance. Turbotax login He used the property only for business in 2011 and 2012. Turbotax login In 2013, he used the property 40% for business and 60% for personal use. Turbotax login He figures his recapture amount as follows. Turbotax login Section 179 deduction claimed (2011) $5,000. Turbotax login 00 Minus: Allowable depreciation using Table A-1 (instead of section 179 deduction):   2011 $1,666. Turbotax login 50   2012 2,222. Turbotax login 50   2013 ($740. Turbotax login 50 × 40% (business)) 296. Turbotax login 20 4,185. Turbotax login 20 2013 — Recapture amount $ 814. Turbotax login 80 Paul must include $814. Turbotax login 80 in income for 2013. Turbotax login If any qualified zone property placed in service during the year ceases to be used in an empowerment zone by an enterprise zone business in a later year, the benefit of the increased section 179 deduction must be reported as other income on your return. Turbotax login Prev  Up  Next   Home   More Online Publications