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Where Can I File My 2011 Taxes

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Where Can I File My 2011 Taxes

Where can i file my 2011 taxes 2. Where can i file my 2011 taxes   Employees' Pay Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Tests for Deducting PayTest 1—Reasonableness Test 2—For Services Performed Kinds of PayAwards Bonuses Education Expenses Fringe Benefits Loans or Advances Property Reimbursements for Business Expenses Sick and Vacation Pay Introduction You can generally deduct the amount you pay your employees for the services they perform. Where can i file my 2011 taxes The pay may be in cash, property, or services. Where can i file my 2011 taxes It may include wages, salaries, bonuses, commissions, or other non-cash compensation such as vacation allowances and fringe benefits. Where can i file my 2011 taxes For information about deducting employment taxes, see chapter 5. Where can i file my 2011 taxes You can claim employment credits, such as the following, if you hire individuals who meet certain requirements. Where can i file my 2011 taxes Empowerment zone employment credit (Form 8844). Where can i file my 2011 taxes Indian employment credit (Form 8845). Where can i file my 2011 taxes Work opportunity credit (Form 5884). Where can i file my 2011 taxes Credit for employer differential wage payments (Form 8932). Where can i file my 2011 taxes Reduce your deduction for employee wages by the amount of employment credits you claim. Where can i file my 2011 taxes For more information about these credits, see the form on which the credit is claimed. Where can i file my 2011 taxes Topics - This chapter discusses: Tests for deducting pay Kinds of pay Useful Items - You may want to see: Publication 15 (Circular E), Employer's Tax Guide 15-A Employer's Supplemental Tax Guide 15-B Employer's Tax Guide to Fringe Benefits See chapter 12 for information about getting publications and forms. Where can i file my 2011 taxes Tests for Deducting Pay To be deductible, your employees' pay must be an ordinary and necessary business expense and you must pay or incur it. Where can i file my 2011 taxes These and other requirements that apply to all business expenses are explained in chapter 1. Where can i file my 2011 taxes In addition, the pay must meet both of the following tests. Where can i file my 2011 taxes Test 1. Where can i file my 2011 taxes It must be reasonable. Where can i file my 2011 taxes Test 2. Where can i file my 2011 taxes It must be for services performed. Where can i file my 2011 taxes The form or method of figuring the pay does not affect its deductibility. Where can i file my 2011 taxes For example, bonuses and commissions based on sales or earnings, and paid under an agreement made before the services were performed, are both deductible. Where can i file my 2011 taxes Test 1—Reasonableness You must be able to prove that the pay is reasonable. Where can i file my 2011 taxes Whether the pay is reasonable depends on the circumstances that existed when you contracted for the services, not those that exist when reasonableness is questioned. Where can i file my 2011 taxes If the pay is excessive, the excess pay is disallowed as a deduction. Where can i file my 2011 taxes Factors to consider. Where can i file my 2011 taxes   Determine the reasonableness of pay by the facts and circumstances. Where can i file my 2011 taxes Generally, reasonable pay is the amount that a similar business would pay for the same or similar services. Where can i file my 2011 taxes   To determine if pay is reasonable, also consider the following items and any other pertinent facts. Where can i file my 2011 taxes The duties performed by the employee. Where can i file my 2011 taxes The volume of business handled. Where can i file my 2011 taxes The character and amount of responsibility. Where can i file my 2011 taxes The complexities of your business. Where can i file my 2011 taxes The amount of time required. Where can i file my 2011 taxes The cost of living in the locality. Where can i file my 2011 taxes The ability and achievements of the individual employee performing the service. Where can i file my 2011 taxes The pay compared with the gross and net income of the business, as well as with distributions to shareholders if the business is a corporation. Where can i file my 2011 taxes Your policy regarding pay for all your employees. Where can i file my 2011 taxes The history of pay for each employee. Where can i file my 2011 taxes Test 2—For Services Performed You must be able to prove the payment was made for services actually performed. Where can i file my 2011 taxes Employee-shareholder salaries. Where can i file my 2011 taxes   If a corporation pays an employee who is also a shareholder a salary that is unreasonably high considering the services actually performed, the excessive part of the salary may be treated as a constructive dividend to the employee-shareholder. Where can i file my 2011 taxes The excessive part of the salary would not be allowed as a salary deduction by the corporation. Where can i file my 2011 taxes For more information on corporate distributions to shareholders, see Publication 542, Corporations. Where can i file my 2011 taxes Kinds of Pay Some of the ways you may provide pay to your employees in addition to regular wages or salaries are discussed next. Where can i file my 2011 taxes For specialized and detailed information on employees' pay and the employment tax treatment of employees' pay, see Publications 15, 15-A, and 15-B. Where can i file my 2011 taxes Awards You can generally deduct amounts you pay to your employees as awards, whether paid in cash or property. Where can i file my 2011 taxes If you give property to an employee as an employee achievement award, your deduction may be limited. Where can i file my 2011 taxes Achievement awards. Where can i file my 2011 taxes   An achievement award is an item of tangible personal property that meets all the following requirements. Where can i file my 2011 taxes It is given to an employee for length of service or safety achievement. Where can i file my 2011 taxes It is awarded as part of a meaningful presentation. Where can i file my 2011 taxes It is awarded under conditions and circumstances that do not create a significant likelihood of disguised pay. Where can i file my 2011 taxes Length-of-service award. Where can i file my 2011 taxes    An award will qualify as a length-of-service award only if either of the following applies. Where can i file my 2011 taxes The employee receives the award after his or her first 5 years of employment. Where can i file my 2011 taxes The employee did not receive another length-of-service award (other than one of very small value) during the same year or in any of the prior 4 years. Where can i file my 2011 taxes Safety achievement award. Where can i file my 2011 taxes    An award for safety achievement will qualify as an achievement award unless one of the following applies. Where can i file my 2011 taxes It is given to a manager, administrator, clerical employee, or other professional employee. Where can i file my 2011 taxes During the tax year, more than 10% of your employees, excluding those listed in (1), have already received a safety achievement award (other than one of very small value). Where can i file my 2011 taxes Deduction limit. Where can i file my 2011 taxes   Your deduction for the cost of employee achievement awards given to any one employee during the tax year is limited to the following. Where can i file my 2011 taxes $400 for awards that are not qualified plan awards. Where can i file my 2011 taxes $1,600 for all awards, whether or not qualified plan awards. Where can i file my 2011 taxes   A qualified plan award is an achievement award given as part of an established written plan or program that does not favor highly compensated employees as to eligibility or benefits. Where can i file my 2011 taxes   A highly compensated employee is an employee who meets either of the following tests. Where can i file my 2011 taxes The employee was a 5% owner at any time during the year or the preceding year. Where can i file my 2011 taxes The employee received more than $115,000 in pay for the preceding year. Where can i file my 2011 taxes You can choose to ignore test (2) if the employee was not also in the top 20% of employees ranked by pay for the preceding year. Where can i file my 2011 taxes   An award is not a qualified plan award if the average cost of all the employee achievement awards given during the tax year (that would be qualified plan awards except for this limit) is more than $400. Where can i file my 2011 taxes To figure this average cost, ignore awards of nominal value. Where can i file my 2011 taxes Deduct achievement awards as a nonwage business expense on your return or business schedule. Where can i file my 2011 taxes You may not owe employment taxes on the value of some achievement awards you provide to an employee. Where can i file my 2011 taxes See Publication 15-B. Where can i file my 2011 taxes Bonuses You can generally deduct a bonus paid to an employee if you intended the bonus as additional pay for services, not as a gift, and the services were performed. Where can i file my 2011 taxes However, the total bonuses, salaries, and other pay must be reasonable for the services performed. Where can i file my 2011 taxes If the bonus is paid in property, see Property , later. Where can i file my 2011 taxes Gifts of nominal value. Where can i file my 2011 taxes    If, to promote employee goodwill, you distribute food or merchandise of nominal value to your employees at holidays, you can deduct the cost of these items as a nonwage business expense. Where can i file my 2011 taxes Your deduction for de minimis gifts of food or drink are not subject to the 50% deduction limit that generally applies to meals. Where can i file my 2011 taxes For more information on this deduction limit, see Meals and lodging , later. Where can i file my 2011 taxes Education Expenses If you pay or reimburse education expenses for an employee, you can deduct the payments if they are part of a qualified educational assistance program. Where can i file my 2011 taxes Deduct them on the “Employee benefit programs” or other appropriate line of your tax return. Where can i file my 2011 taxes For information on educational assistance programs, see Educational Assistance in section 2 of Publication 15-B. Where can i file my 2011 taxes Fringe Benefits A fringe benefit is a form of pay for the performance of services. Where can i file my 2011 taxes You can generally deduct the cost of fringe benefits. Where can i file my 2011 taxes You may be able to exclude all or part of the value of some fringe benefits from your employees' pay. Where can i file my 2011 taxes You also may not owe employment taxes on the value of the fringe benefits. Where can i file my 2011 taxes See Table 2-1, Special Rules for Various Types of Fringe Benefits, in Publication 15-B for details. Where can i file my 2011 taxes Your deduction for the cost of fringe benefits for activities generally considered entertainment, amusement, or recreation, or for a facility used in connection with such an activity (for example, a company aircraft) for certain officers, directors, and more-than-10% shareholders is limited. Where can i file my 2011 taxes Certain fringe benefits are discussed next. Where can i file my 2011 taxes See Publication 15-B for more details on these and other fringe benefits. Where can i file my 2011 taxes Meals and lodging. Where can i file my 2011 taxes   You can usually deduct the cost of furnishing meals and lodging to your employees. Where can i file my 2011 taxes Deduct the cost in whatever category the expense falls. Where can i file my 2011 taxes For example, if you operate a restaurant, deduct the cost of the meals you furnish to employees as part of the cost of goods sold. Where can i file my 2011 taxes If you operate a nursing home, motel, or rental property, deduct the cost of furnishing lodging to an employee as expenses for utilities, linen service, salaries, depreciation, etc. Where can i file my 2011 taxes Deduction limit on meals. Where can i file my 2011 taxes   You can generally deduct only 50% of the cost of furnishing meals to your employees. Where can i file my 2011 taxes However, you can deduct the full cost of the following meals. Where can i file my 2011 taxes Meals whose value you include in an employee's wages. Where can i file my 2011 taxes Meals that qualify as a de minimis fringe benefit as discussed in section 2 of Publication 15-B. Where can i file my 2011 taxes This generally includes meals you furnish to employees at your place of business if more than half of these employees are provided the meals for your convenience. Where can i file my 2011 taxes Meals you furnish to your employees at the work site when you operate a restaurant or catering service. Where can i file my 2011 taxes Meals you furnish to your employees as part of the expense of providing recreational or social activities, such as a company picnic. Where can i file my 2011 taxes Meals you are required by federal law to furnish to crew members of certain commercial vessels (or would be required to furnish if the vessels were operated at sea). Where can i file my 2011 taxes This does not include meals you furnish on vessels primarily providing luxury water transportation. Where can i file my 2011 taxes Meals you furnish on an oil or gas platform or drilling rig located offshore or in Alaska. Where can i file my 2011 taxes This includes meals you furnish at a support camp that is near and integral to an oil or gas drilling rig located in Alaska. Where can i file my 2011 taxes Employee benefit programs. Where can i file my 2011 taxes   Employee benefit programs include the following. Where can i file my 2011 taxes Accident and health plans. Where can i file my 2011 taxes Adoption assistance. Where can i file my 2011 taxes Cafeteria plans. Where can i file my 2011 taxes Dependent care assistance. Where can i file my 2011 taxes Education assistance. Where can i file my 2011 taxes Life insurance coverage. Where can i file my 2011 taxes Welfare benefit funds. Where can i file my 2011 taxes   You can generally deduct amounts you spend on employee benefit programs on the applicable line of your tax return. Where can i file my 2011 taxes For example, if you provide dependent care by operating a dependent care facility for your employees, deduct your costs in whatever categories they fall (utilities, salaries, etc. Where can i file my 2011 taxes ). Where can i file my 2011 taxes Life insurance coverage. Where can i file my 2011 taxes   You cannot deduct the cost of life insurance coverage for you, an employee, or any person with a financial interest in your business, if you are directly or indirectly the beneficiary of the policy. Where can i file my 2011 taxes See Regulations section 1. Where can i file my 2011 taxes 264-1 for more information. Where can i file my 2011 taxes Welfare benefit funds. Where can i file my 2011 taxes   A welfare benefit fund is a funded plan (or a funded arrangement having the effect of a plan) that provides welfare benefits to your employees, independent contractors, or their beneficiaries. Where can i file my 2011 taxes Welfare benefits are any benefits other than deferred compensation or transfers of restricted property. Where can i file my 2011 taxes   Your deduction for contributions to a welfare benefit fund is limited to the fund's qualified cost for the tax year. Where can i file my 2011 taxes If your contributions to the fund are more than its qualified cost, carry the excess over to the next tax year. Where can i file my 2011 taxes   Generally, the fund's “qualified cost” is the total of the following amounts, reduced by the after-tax income of the fund. Where can i file my 2011 taxes The cost you would have been able to deduct using the cash method of accounting if you had paid for the benefits directly. Where can i file my 2011 taxes The contributions added to a reserve account that are needed to fund claims incurred but not paid as of the end of the year. Where can i file my 2011 taxes These claims can be for supplemental unemployment benefits, severance pay, or disability, medical, or life insurance benefits. Where can i file my 2011 taxes   For more information, see sections 419(c) and 419A of the Internal Revenue Code and the related regulations. Where can i file my 2011 taxes Loans or Advances You generally can deduct as wages an advance you make to an employee for services performed if you do not expect the employee to repay the advance. Where can i file my 2011 taxes However, if the employee performs no services, treat the amount you advanced as a loan. Where can i file my 2011 taxes If the employee does not repay the loan, treat it as income to the employee. Where can i file my 2011 taxes Below-market interest rate loans. Where can i file my 2011 taxes   On certain loans you make to an employee or shareholder, you are treated as having received interest income and as having paid compensation or dividends equal to that interest. Where can i file my 2011 taxes See Below-Market Loans in chapter 4. Where can i file my 2011 taxes Property If you transfer property (including your company's stock) to an employee as payment for services, you can generally deduct it as wages. Where can i file my 2011 taxes The amount you can deduct is the property's fair market value on the date of the transfer less any amount the employee paid for the property. Where can i file my 2011 taxes You can claim the deduction only for the tax year in which your employee includes the property's value in income. Where can i file my 2011 taxes Your employee is deemed to have included the value in income if you report it on Form W-2, Wage and Tax Statement, in a timely manner. Where can i file my 2011 taxes You treat the deductible amount as received in exchange for the property, and you must recognize any gain or loss realized on the transfer, unless it is the company's stock transferred as payment for services. Where can i file my 2011 taxes Your gain or loss is the difference between the fair market value of the property and its adjusted basis on the date of transfer. Where can i file my 2011 taxes These rules also apply to property transferred to an independent contractor for services, generally reported on Form 1099-MISC, Miscellaneous Income. Where can i file my 2011 taxes Restricted property. Where can i file my 2011 taxes   If the property you transfer for services is subject to restrictions that affect its value, you generally cannot deduct it and do not report gain or loss until it is substantially vested in the recipient. Where can i file my 2011 taxes However, if the recipient pays for the property, you must report any gain at the time of the transfer up to the amount paid. Where can i file my 2011 taxes    “Substantially vested” means the property is not subject to a substantial risk of forfeiture. Where can i file my 2011 taxes This means that the recipient is not likely to have to give up his or her rights in the property in the future. Where can i file my 2011 taxes Reimbursements for Business Expenses You can generally deduct the amount you pay or reimburse employees for business expenses incurred for your business. Where can i file my 2011 taxes However, your deduction may be limited. Where can i file my 2011 taxes If you make the payment under an accountable plan, deduct it in the category of the expense paid. Where can i file my 2011 taxes For example, if you pay an employee for travel expenses incurred on your behalf, deduct this payment as a travel expense. Where can i file my 2011 taxes If you make the payment under a nonaccountable plan, deduct it as wages and include it in the employee's Form W-2. Where can i file my 2011 taxes See Reimbursement of Travel, Meals, and Entertainment in chapter 11 for more information about deducting reimbursements and an explanation of accountable and nonaccountable plans. Where can i file my 2011 taxes Sick and Vacation Pay Sick pay. Where can i file my 2011 taxes   You can deduct amounts you pay to your employees for sickness and injury, including lump-sum amounts, as wages. Where can i file my 2011 taxes However, your deduction is limited to amounts not compensated by insurance or other means. Where can i file my 2011 taxes Vacation pay. Where can i file my 2011 taxes   Vacation pay is an employee benefit. Where can i file my 2011 taxes It includes amounts paid for unused vacation leave. Where can i file my 2011 taxes You can deduct vacation pay only in the tax year in which the employee actually receives it. Where can i file my 2011 taxes This rule applies regardless of whether you use the cash or accrual method of accounting. Where can i file my 2011 taxes Prev  Up  Next   Home   More Online Publications
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Where can i file my 2011 taxes 1. Where can i file my 2011 taxes   Overview of Depreciation Table of Contents Introduction Useful Items - You may want to see: What Property Can Be Depreciated?Property You Own Property Used in Your Business or Income-Producing Activity Property Having a Determinable Useful Life Property Lasting More Than One Year What Property Cannot Be Depreciated?Land Excepted Property When Does Depreciation Begin and End?Placed in Service Idle Property Cost or Other Basis Fully Recovered Retired From Service What Method Can You Use To Depreciate Your Property?Property You Placed in Service Before 1987 Property Owned or Used in 1986 Intangible Property Corporate or Partnership Property Acquired in a Nontaxable Transfer Election To Exclude Property From MACRS What Is the Basis of Your Depreciable Property?Cost as Basis Other Basis Adjusted Basis How Do You Treat Repairs and Improvements? Do You Have To File Form 4562? How Do You Correct Depreciation Deductions?Filing an Amended Return Changing Your Accounting Method Introduction Depreciation is an annual income tax deduction that allows you to recover the cost or other basis of certain property over the time you use the property. Where can i file my 2011 taxes It is an allowance for the wear and tear, deterioration, or obsolescence of the property. Where can i file my 2011 taxes This chapter discusses the general rules for depreciating property and answers the following questions. Where can i file my 2011 taxes What property can be depreciated? What property cannot be depreciated? When does depreciation begin and end? What method can you use to depreciate your property? What is the basis of your depreciable property? How do you treat repairs and improvements? Do you have to file Form 4562? How do you correct depreciation deductions? Useful Items - You may want to see: Publication 534 Depreciating Property Placed in Service Before 1987 535 Business Expenses 538 Accounting Periods and Methods 551 Basis of Assets Form (and Instructions) Sch C (Form 1040) Profit or Loss From Business Sch C-EZ (Form 1040) Net Profit From Business 2106 Employee Business Expenses 2106-EZ Unreimbursed Employee Business Expenses 3115 Application for Change in Accounting Method 4562 Depreciation and Amortization See chapter 6 for information about getting publications and forms. Where can i file my 2011 taxes What Property Can Be Depreciated? You can depreciate most types of tangible property (except land), such as buildings, machinery, vehicles, furniture, and equipment. Where can i file my 2011 taxes You also can depreciate certain intangible property, such as patents, copyrights, and computer software. Where can i file my 2011 taxes To be depreciable, the property must meet all the following requirements. Where can i file my 2011 taxes It must be property you own. Where can i file my 2011 taxes It must be used in your business or income-producing activity. Where can i file my 2011 taxes It must have a determinable useful life. Where can i file my 2011 taxes It must be expected to last more than one year. Where can i file my 2011 taxes The following discussions provide information about these requirements. Where can i file my 2011 taxes Property You Own To claim depreciation, you usually must be the owner of the property. Where can i file my 2011 taxes You are considered as owning property even if it is subject to a debt. Where can i file my 2011 taxes Example 1. Where can i file my 2011 taxes You made a down payment to purchase rental property and assumed the previous owner's mortgage. Where can i file my 2011 taxes You own the property and you can depreciate it. Where can i file my 2011 taxes Example 2. Where can i file my 2011 taxes You bought a new van that you will use only for your courier business. Where can i file my 2011 taxes You will be making payments on the van over the next 5 years. Where can i file my 2011 taxes You own the van and you can depreciate it. Where can i file my 2011 taxes Leased property. Where can i file my 2011 taxes   You can depreciate leased property only if you retain the incidents of ownership in the property (explained below). Where can i file my 2011 taxes This means you bear the burden of exhaustion of the capital investment in the property. Where can i file my 2011 taxes Therefore, if you lease property from someone to use in your trade or business or for the production of income, you generally cannot depreciate its cost because you do not retain the incidents of ownership. Where can i file my 2011 taxes You can, however, depreciate any capital improvements you make to the property. Where can i file my 2011 taxes See How Do You Treat Repairs and Improvements later in this chapter and Additions and Improvements under Which Recovery Period Applies in chapter 4. Where can i file my 2011 taxes   If you lease property to someone, you generally can depreciate its cost even if the lessee (the person leasing from you) has agreed to preserve, replace, renew, and maintain the property. Where can i file my 2011 taxes However, if the lease provides that the lessee is to maintain the property and return to you the same property or its equivalent in value at the expiration of the lease in as good condition and value as when leased, you cannot depreciate the cost of the property. Where can i file my 2011 taxes Incidents of ownership. Where can i file my 2011 taxes   Incidents of ownership in property include the following. Where can i file my 2011 taxes The legal title to the property. Where can i file my 2011 taxes The legal obligation to pay for the property. Where can i file my 2011 taxes The responsibility to pay maintenance and operating expenses. Where can i file my 2011 taxes The duty to pay any taxes on the property. Where can i file my 2011 taxes The risk of loss if the property is destroyed, condemned, or diminished in value through obsolescence or exhaustion. Where can i file my 2011 taxes Life tenant. Where can i file my 2011 taxes   Generally, if you hold business or investment property as a life tenant, you can depreciate it as if you were the absolute owner of the property. Where can i file my 2011 taxes However, see Certain term interests in property under Excepted Property, later. Where can i file my 2011 taxes Cooperative apartments. Where can i file my 2011 taxes   If you are a tenant-stockholder in a cooperative housing corporation and use your cooperative apartment in your business or for the production of income, you can depreciate your stock in the corporation, even though the corporation owns the apartment. Where can i file my 2011 taxes   Figure your depreciation deduction as follows. Where can i file my 2011 taxes Figure the depreciation for all the depreciable real property owned by the corporation in which you have a proprietary lease or right of tenancy. Where can i file my 2011 taxes If you bought your cooperative stock after its first offering, figure the depreciable basis of this property as follows. Where can i file my 2011 taxes Multiply your cost per share by the total number of outstanding shares, including any shares held by the corporation. Where can i file my 2011 taxes Add to the amount figured in (a) any mortgage debt on the property on the date you bought the stock. Where can i file my 2011 taxes Subtract from the amount figured in (b) any mortgage debt that is not for the depreciable real property, such as the part for the land. Where can i file my 2011 taxes Subtract from the amount figured in (1) any depreciation for space owned by the corporation that can be rented but cannot be lived in by tenant-stockholders. Where can i file my 2011 taxes Divide the number of your shares of stock by the total number of outstanding shares, including any shares held by the corporation. Where can i file my 2011 taxes Multiply the result of (2) by the percentage you figured in (3). Where can i file my 2011 taxes This is your depreciation on the stock. Where can i file my 2011 taxes   Your depreciation deduction for the year cannot be more than the part of your adjusted basis in the stock of the corporation that is allocable to your business or income-producing property. Where can i file my 2011 taxes You must also reduce your depreciation deduction if only a portion of the property is used in a business or for the production of income. Where can i file my 2011 taxes Example. Where can i file my 2011 taxes You figure your share of the cooperative housing corporation's depreciation to be $30,000. Where can i file my 2011 taxes Your adjusted basis in the stock of the corporation is $50,000. Where can i file my 2011 taxes You use one half of your apartment solely for business purposes. Where can i file my 2011 taxes Your depreciation deduction for the stock for the year cannot be more than $25,000 (½ of $50,000). Where can i file my 2011 taxes Change to business use. Where can i file my 2011 taxes   If you change your cooperative apartment to business use, figure your allowable depreciation as explained earlier. Where can i file my 2011 taxes The basis of all the depreciable real property owned by the cooperative housing corporation is the smaller of the following amounts. Where can i file my 2011 taxes The fair market value of the property on the date you change your apartment to business use. Where can i file my 2011 taxes This is considered to be the same as the corporation's adjusted basis minus straight line depreciation, unless this value is unrealistic. Where can i file my 2011 taxes The corporation's adjusted basis in the property on that date. Where can i file my 2011 taxes Do not subtract depreciation when figuring the corporation's adjusted basis. Where can i file my 2011 taxes   If you bought the stock after its first offering, the corporation's adjusted basis in the property is the amount figured in (1), above. Where can i file my 2011 taxes The fair market value of the property is considered to be the same as the corporation's adjusted basis figured in this way minus straight line depreciation, unless the value is unrealistic. Where can i file my 2011 taxes   For a discussion of fair market value and adjusted basis, see Publication 551. Where can i file my 2011 taxes Property Used in Your Business or Income-Producing Activity To claim depreciation on property, you must use it in your business or income-producing activity. Where can i file my 2011 taxes If you use property to produce income (investment use), the income must be taxable. Where can i file my 2011 taxes You cannot depreciate property that you use solely for personal activities. Where can i file my 2011 taxes Partial business or investment use. Where can i file my 2011 taxes   If you use property for business or investment purposes and for personal purposes, you can deduct depreciation based only on the business or investment use. Where can i file my 2011 taxes For example, you cannot deduct depreciation on a car used only for commuting, personal shopping trips, family vacations, driving children to and from school, or similar activities. Where can i file my 2011 taxes    You must keep records showing the business, investment, and personal use of your property. Where can i file my 2011 taxes For more information on the records you must keep for listed property, such as a car, see What Records Must Be Kept in chapter 5. Where can i file my 2011 taxes    Although you can combine business and investment use of property when figuring depreciation deductions, do not treat investment use as qualified business use when determining whether the business-use requirement for listed property is met. Where can i file my 2011 taxes For information about qualified business use of listed property, see What Is the Business-Use Requirement in chapter 5. Where can i file my 2011 taxes Office in the home. Where can i file my 2011 taxes   If you use part of your home as an office, you may be able to deduct depreciation on that part based on its business use. Where can i file my 2011 taxes For information about depreciating your home office, see Publication 587. Where can i file my 2011 taxes Inventory. Where can i file my 2011 taxes   You cannot depreciate inventory because it is not held for use in your business. Where can i file my 2011 taxes Inventory is any property you hold primarily for sale to customers in the ordinary course of your business. Where can i file my 2011 taxes   If you are a rent-to-own dealer, you may be able to treat certain property held in your business as depreciable property rather than as inventory. Where can i file my 2011 taxes See Rent-to-own dealer under Which Property Class Applies Under GDS in chapter 4. Where can i file my 2011 taxes   In some cases, it is not clear whether property is held for sale (inventory) or for use in your business. Where can i file my 2011 taxes If it is unclear, examine carefully all the facts in the operation of the particular business. Where can i file my 2011 taxes The following example shows how a careful examination of the facts in two similar situations results in different conclusions. Where can i file my 2011 taxes Example. Where can i file my 2011 taxes Maple Corporation is in the business of leasing cars. Where can i file my 2011 taxes At the end of their useful lives, when the cars are no longer profitable to lease, Maple sells them. Where can i file my 2011 taxes Maple does not have a showroom, used car lot, or individuals to sell the cars. Where can i file my 2011 taxes Instead, it sells them through wholesalers or by similar arrangements in which a dealer's profit is not intended or considered. Where can i file my 2011 taxes Maple can depreciate the leased cars because the cars are not held primarily for sale to customers in the ordinary course of business, but are leased. Where can i file my 2011 taxes If Maple buys cars at wholesale prices, leases them for a short time, and then sells them at retail prices or in sales in which a dealer's profit is intended, the cars are treated as inventory and are not depreciable property. Where can i file my 2011 taxes In this situation, the cars are held primarily for sale to customers in the ordinary course of business. Where can i file my 2011 taxes Containers. Where can i file my 2011 taxes   Generally, containers for the products you sell are part of inventory and you cannot depreciate them. Where can i file my 2011 taxes However, you can depreciate containers used to ship your products if they have a life longer than one year and meet the following requirements. Where can i file my 2011 taxes They qualify as property used in your business. Where can i file my 2011 taxes Title to the containers does not pass to the buyer. Where can i file my 2011 taxes   To determine if these requirements are met, consider the following questions. Where can i file my 2011 taxes Does your sales contract, sales invoice, or other type of order acknowledgment indicate whether you have retained title? Does your invoice treat the containers as separate items? Do any of your records state your basis in the containers? Property Having a Determinable Useful Life To be depreciable, your property must have a determinable useful life. Where can i file my 2011 taxes This means that it must be something that wears out, decays, gets used up, becomes obsolete, or loses its value from natural causes. Where can i file my 2011 taxes Property Lasting More Than One Year To be depreciable, property must have a useful life that extends substantially beyond the year you place it in service. Where can i file my 2011 taxes Example. Where can i file my 2011 taxes You maintain a library for use in your profession. Where can i file my 2011 taxes You can depreciate it. Where can i file my 2011 taxes However, if you buy technical books, journals, or information services for use in your business that have a useful life of one year or less, you cannot depreciate them. Where can i file my 2011 taxes Instead, you deduct their cost as a business expense. Where can i file my 2011 taxes What Property Cannot Be Depreciated? Certain property cannot be depreciated. Where can i file my 2011 taxes This includes land and certain excepted property. Where can i file my 2011 taxes Land You cannot depreciate the cost of land because land does not wear out, become obsolete, or get used up. Where can i file my 2011 taxes The cost of land generally includes the cost of clearing, grading, planting, and landscaping. Where can i file my 2011 taxes Although you cannot depreciate land, you can depreciate certain land preparation costs, such as landscaping costs, incurred in preparing land for business use. Where can i file my 2011 taxes These costs must be so closely associated with other depreciable property that you can determine a life for them along with the life of the associated property. Where can i file my 2011 taxes Example. Where can i file my 2011 taxes You constructed a new building for use in your business and paid for grading, clearing, seeding, and planting bushes and trees. Where can i file my 2011 taxes Some of the bushes and trees were planted right next to the building, while others were planted around the outer border of the lot. Where can i file my 2011 taxes If you replace the building, you would have to destroy the bushes and trees right next to it. Where can i file my 2011 taxes These bushes and trees are closely associated with the building, so they have a determinable useful life. Where can i file my 2011 taxes Therefore, you can depreciate them. Where can i file my 2011 taxes Add your other land preparation costs to the basis of your land because they have no determinable life and you cannot depreciate them. Where can i file my 2011 taxes Excepted Property Even if the requirements explained in the preceding discussions are met, you cannot depreciate the following property. Where can i file my 2011 taxes Property placed in service and disposed of in the same year. Where can i file my 2011 taxes Determining when property is placed in service is explained later. Where can i file my 2011 taxes Equipment used to build capital improvements. Where can i file my 2011 taxes You must add otherwise allowable depreciation on the equipment during the period of construction to the basis of your improvements. Where can i file my 2011 taxes See Uniform Capitalization Rules in Publication 551. Where can i file my 2011 taxes Section 197 intangibles. Where can i file my 2011 taxes You must amortize these costs. Where can i file my 2011 taxes Section 197 intangibles are discussed in detail in Chapter 8 of Publication 535. Where can i file my 2011 taxes Intangible property, such as certain computer software, that is not section 197 intangible property, can be depreciated if it meets certain requirements. Where can i file my 2011 taxes See Intangible Property , later. Where can i file my 2011 taxes Certain term interests. Where can i file my 2011 taxes Certain term interests in property. Where can i file my 2011 taxes   You cannot depreciate a term interest in property created or acquired after July 27, 1989, for any period during which the remainder interest is held, directly or indirectly, by a person related to you. Where can i file my 2011 taxes A term interest in property means a life interest in property, an interest in property for a term of years, or an income interest in a trust. Where can i file my 2011 taxes Related persons. Where can i file my 2011 taxes   For a description of related persons, see Related Persons, later. Where can i file my 2011 taxes For this purpose, however, treat as related persons only the relationships listed in items (1) through (10) of that discussion and substitute “50%” for “10%” each place it appears. Where can i file my 2011 taxes Basis adjustments. Where can i file my 2011 taxes   If you would be allowed a depreciation deduction for a term interest in property except that the holder of the remainder interest is related to you, you generally must reduce your basis in the term interest by any depreciation or amortization not allowed. Where can i file my 2011 taxes   If you hold the remainder interest, you generally must increase your basis in that interest by the depreciation not allowed to the term interest holder. Where can i file my 2011 taxes However, do not increase your basis for depreciation not allowed for periods during which either of the following situations applies. Where can i file my 2011 taxes The term interest is held by an organization exempt from tax. Where can i file my 2011 taxes The term interest is held by a nonresident alien individual or foreign corporation, and the income from the term interest is not effectively connected with the conduct of a trade or business in the United States. Where can i file my 2011 taxes Exceptions. Where can i file my 2011 taxes   The above rules do not apply to the holder of a term interest in property acquired by gift, bequest, or inheritance. Where can i file my 2011 taxes They also do not apply to the holder of dividend rights that were separated from any stripped preferred stock if the rights were purchased after April 30, 1993, or to a person whose basis in the stock is determined by reference to the basis in the hands of the purchaser. Where can i file my 2011 taxes When Does Depreciation Begin and End? You begin to depreciate your property when you place it in service for use in your trade or business or for the production of income. Where can i file my 2011 taxes You stop depreciating property either when you have fully recovered your cost or other basis or when you retire it from service, whichever happens first. Where can i file my 2011 taxes Placed in Service You place property in service when it is ready and available for a specific use, whether in a business activity, an income-producing activity, a tax-exempt activity, or a personal activity. Where can i file my 2011 taxes Even if you are not using the property, it is in service when it is ready and available for its specific use. Where can i file my 2011 taxes Example 1. Where can i file my 2011 taxes Donald Steep bought a machine for his business. Where can i file my 2011 taxes The machine was delivered last year. Where can i file my 2011 taxes However, it was not installed and operational until this year. Where can i file my 2011 taxes It is considered placed in service this year. Where can i file my 2011 taxes If the machine had been ready and available for use when it was delivered, it would be considered placed in service last year even if it was not actually used until this year. Where can i file my 2011 taxes Example 2. Where can i file my 2011 taxes On April 6, Sue Thorn bought a house to use as residential rental property. Where can i file my 2011 taxes She made several repairs and had it ready for rent on July 5. Where can i file my 2011 taxes At that time, she began to advertise it for rent in the local newspaper. Where can i file my 2011 taxes The house is considered placed in service in July when it was ready and available for rent. Where can i file my 2011 taxes She can begin to depreciate it in July. Where can i file my 2011 taxes Example 3. Where can i file my 2011 taxes James Elm is a building contractor who specializes in constructing office buildings. Where can i file my 2011 taxes He bought a truck last year that had to be modified to lift materials to second-story levels. Where can i file my 2011 taxes The installation of the lifting equipment was completed and James accepted delivery of the modified truck on January 10 of this year. Where can i file my 2011 taxes The truck was placed in service on January 10, the date it was ready and available to perform the function for which it was bought. Where can i file my 2011 taxes Conversion to business use. Where can i file my 2011 taxes   If you place property in service in a personal activity, you cannot claim depreciation. Where can i file my 2011 taxes However, if you change the property's use to use in a business or income-producing activity, then you can begin to depreciate it at the time of the change. Where can i file my 2011 taxes You place the property in service in the business or income-producing activity on the date of the change. Where can i file my 2011 taxes Example. Where can i file my 2011 taxes You bought a home and used it as your personal home several years before you converted it to rental property. Where can i file my 2011 taxes Although its specific use was personal and no depreciation was allowable, you placed the home in service when you began using it as your home. Where can i file my 2011 taxes You can begin to claim depreciation in the year you converted it to rental property because its use changed to an income-producing use at that time. Where can i file my 2011 taxes Idle Property Continue to claim a deduction for depreciation on property used in your business or for the production of income even if it is temporarily idle (not in use). Where can i file my 2011 taxes For example, if you stop using a machine because there is a temporary lack of a market for a product made with that machine, continue to deduct depreciation on the machine. Where can i file my 2011 taxes Cost or Other Basis Fully Recovered You stop depreciating property when you have fully recovered your cost or other basis. Where can i file my 2011 taxes You recover your basis when your section 179 and allowed or allowable depreciation deductions equal your cost or investment in the property. Where can i file my 2011 taxes See What Is the Basis of Your Depreciable Property , later. Where can i file my 2011 taxes Retired From Service You stop depreciating property when you retire it from service, even if you have not fully recovered its cost or other basis. Where can i file my 2011 taxes You retire property from service when you permanently withdraw it from use in a trade or business or from use in the production of income because of any of the following events. Where can i file my 2011 taxes You sell or exchange the property. Where can i file my 2011 taxes You convert the property to personal use. Where can i file my 2011 taxes You abandon the property. Where can i file my 2011 taxes You transfer the property to a supplies or scrap account. Where can i file my 2011 taxes The property is destroyed. Where can i file my 2011 taxes If you included the property in a general asset account, see How Do You Use General Asset Accounts in chapter 4 for the rules that apply when you dispose of that property. Where can i file my 2011 taxes What Method Can You Use To Depreciate Your Property? You must use the Modified Accelerated Cost Recovery System (MACRS) to depreciate most property. Where can i file my 2011 taxes MACRS is discussed in chapter 4. Where can i file my 2011 taxes You cannot use MACRS to depreciate the following property. Where can i file my 2011 taxes Property you placed in service before 1987. Where can i file my 2011 taxes Certain property owned or used in 1986. Where can i file my 2011 taxes Intangible property. Where can i file my 2011 taxes Films, video tapes, and recordings. Where can i file my 2011 taxes Certain corporate or partnership property acquired in a nontaxable transfer. Where can i file my 2011 taxes Property you elected to exclude from MACRS. Where can i file my 2011 taxes The following discussions describe the property listed above and explain what depreciation method should be used. Where can i file my 2011 taxes Property You Placed in Service Before 1987 You cannot use MACRS for property you placed in service before 1987 (except property you placed in service after July 31, 1986, if MACRS was elected). Where can i file my 2011 taxes Property placed in service before 1987 must be depreciated under the methods discussed in Publication 534. Where can i file my 2011 taxes For a discussion of when property is placed in service, see When Does Depreciation Begin and End , earlier. Where can i file my 2011 taxes Use of real property changed. Where can i file my 2011 taxes   You generally must use MACRS to depreciate real property that you acquired for personal use before 1987 and changed to business or income-producing use after 1986. Where can i file my 2011 taxes Improvements made after 1986. Where can i file my 2011 taxes   You must treat an improvement made after 1986 to property you placed in service before 1987 as separate depreciable property. Where can i file my 2011 taxes Therefore, you can depreciate that improvement as separate property under MACRS if it is the type of property that otherwise qualifies for MACRS depreciation. Where can i file my 2011 taxes For more information about improvements, see How Do You Treat Repairs and Improvements , later and Additions and Improvements under Which Recovery Period Applies in chapter 4. Where can i file my 2011 taxes Property Owned or Used in 1986 You may not be able to use MACRS for property you acquired and placed in service after 1986 if any of the situations described below apply. Where can i file my 2011 taxes If you cannot use MACRS, the property must be depreciated under the methods discussed in Publication 534. Where can i file my 2011 taxes For the following discussions, do not treat property as owned before you placed it in service. Where can i file my 2011 taxes If you owned property in 1986 but did not place it in service until 1987, you do not treat it as owned in 1986. Where can i file my 2011 taxes Personal property. Where can i file my 2011 taxes   You cannot use MACRS for personal property (section 1245 property) in any of the following situations. Where can i file my 2011 taxes You or someone related to you owned or used the property in 1986. Where can i file my 2011 taxes You acquired the property from a person who owned it in 1986 and as part of the transaction the user of the property did not change. Where can i file my 2011 taxes You lease the property to a person (or someone related to this person) who owned or used the property in 1986. Where can i file my 2011 taxes You acquired the property in a transaction in which: The user of the property did not change, and The property was not MACRS property in the hands of the person from whom you acquired it because of (2) or (3) above. Where can i file my 2011 taxes Real property. Where can i file my 2011 taxes   You generally cannot use MACRS for real property (section 1250 property) in any of the following situations. Where can i file my 2011 taxes You or someone related to you owned the property in 1986. Where can i file my 2011 taxes You lease the property to a person who owned the property in 1986 (or someone related to that person). Where can i file my 2011 taxes You acquired the property in a like-kind exchange, involuntary conversion, or repossession of property you or someone related to you owned in 1986. Where can i file my 2011 taxes MACRS applies only to that part of your basis in the acquired property that represents cash paid or unlike property given up. Where can i file my 2011 taxes It does not apply to the carried-over part of the basis. Where can i file my 2011 taxes Exceptions. Where can i file my 2011 taxes   The rules above do not apply to the following. Where can i file my 2011 taxes Residential rental property or nonresidential real property. Where can i file my 2011 taxes Any property if, in the first tax year it is placed in service, the deduction under the Accelerated Cost Recovery System (ACRS) is more than the deduction under MACRS using the half-year convention. Where can i file my 2011 taxes For information on how to figure depreciation under ACRS, see Publication 534. Where can i file my 2011 taxes Property that was MACRS property in the hands of the person from whom you acquired it because of (2) above. Where can i file my 2011 taxes Related persons. Where can i file my 2011 taxes   For this purpose, the following are related persons. Where can i file my 2011 taxes An individual and a member of his or her family, including only a spouse, child, parent, brother, sister, half-brother, half-sister, ancestor, and lineal descendant. Where can i file my 2011 taxes A corporation and an individual who directly or indirectly owns more than 10% of the value of the outstanding stock of that corporation. Where can i file my 2011 taxes Two corporations that are members of the same controlled group. Where can i file my 2011 taxes A trust fiduciary and a corporation if more than 10% of the value of the outstanding stock is directly or indirectly owned by or for the trust or grantor of the trust. Where can i file my 2011 taxes The grantor and fiduciary, and the fiduciary and beneficiary, of any trust. Where can i file my 2011 taxes 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. Where can i file my 2011 taxes A tax-exempt educational or charitable organization and any person (or, if that person is an individual, a member of that person's family) who directly or indirectly controls the organization. Where can i file my 2011 taxes Two S corporations, and an S corporation and a regular corporation, if the same persons own more than 10% of the value of the outstanding stock of each corporation. Where can i file my 2011 taxes A corporation and a partnership if the same persons own both of the following. Where can i file my 2011 taxes More than 10% of the value of the outstanding stock of the corporation. Where can i file my 2011 taxes More than 10% of the capital or profits interest in the partnership. Where can i file my 2011 taxes The executor and beneficiary of any estate. Where can i file my 2011 taxes A partnership and a person who directly or indirectly owns more than 10% of the capital or profits interest in the partnership. Where can i file my 2011 taxes Two partnerships, if the same persons directly or indirectly own more than 10% of the capital or profits interest in each. Where can i file my 2011 taxes The related person and a person who is engaged in trades or businesses under common control. Where can i file my 2011 taxes See section 52(a) and 52(b) of the Internal Revenue Code. Where can i file my 2011 taxes When to determine relationship. Where can i file my 2011 taxes   You must determine whether you are related to another person at the time you acquire the property. Where can i file my 2011 taxes   A partnership acquiring property from a terminating partnership must determine whether it is related to the terminating partnership immediately before the event causing the termination. Where can i file my 2011 taxes For this rule, a terminating partnership is one that sells or exchanges, within 12 months, 50% or more of its total interest in partnership capital or profits. Where can i file my 2011 taxes Constructive ownership of stock or partnership interest. Where can i file my 2011 taxes   To determine whether a person directly or indirectly owns any of the outstanding stock of a corporation or an interest in a partnership, apply the following rules. Where can i file my 2011 taxes Stock or a partnership interest 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. Where can i file my 2011 taxes However, for a partnership interest owned by or for a C corporation, this applies only to shareholders who directly or indirectly own 5% or more of the value of the stock of the corporation. Where can i file my 2011 taxes An individual is considered to own the stock or partnership interest directly or indirectly owned by or for the individual's family. Where can i file my 2011 taxes An individual who owns, except by applying rule (2), any stock in a corporation is considered to own the stock directly or indirectly owned by or for the individual's partner. Where can i file my 2011 taxes For purposes of rules (1), (2), or (3), stock or a partnership interest considered to be owned by a person under rule (1) is treated as actually owned by that person. Where can i file my 2011 taxes However, stock or a partnership interest considered to be owned by an individual under rule (2) or (3) is not treated as owned by that individual for reapplying either rule (2) or (3) to make another person considered to be the owner of the same stock or partnership interest. Where can i file my 2011 taxes Intangible Property Generally, if you can depreciate intangible property, you usually use the straight line method of depreciation. Where can i file my 2011 taxes However, you can choose to depreciate certain intangible property under the income forecast method (discussed later). Where can i file my 2011 taxes You cannot depreciate intangible property that is a section 197 intangible or that otherwise does not meet all the requirements discussed earlier under What Property Can Be Depreciated. Where can i file my 2011 taxes Straight Line Method This method lets you deduct the same amount of depreciation each year over the useful life of the property. Where can i file my 2011 taxes To figure your deduction, first determine the adjusted basis, salvage value, and estimated useful life of your property. Where can i file my 2011 taxes Subtract the salvage value, if any, from the adjusted basis. Where can i file my 2011 taxes The balance is the total depreciation you can take over the useful life of the property. Where can i file my 2011 taxes Divide the balance by the number of years in the useful life. Where can i file my 2011 taxes This gives you your yearly depreciation deduction. Where can i file my 2011 taxes Unless there is a big change in adjusted basis or useful life, this amount will stay the same throughout the time you depreciate the property. Where can i file my 2011 taxes If, in the first year, you use the property for less than a full year, you must prorate your depreciation deduction for the number of months in use. Where can i file my 2011 taxes Example. Where can i file my 2011 taxes In April, Frank bought a patent for $5,100 that is not a section 197 intangible. Where can i file my 2011 taxes He depreciates the patent under the straight line method, using a 17-year useful life and no salvage value. Where can i file my 2011 taxes He divides the $5,100 basis by 17 years to get his $300 yearly depreciation deduction. Where can i file my 2011 taxes He only used the patent for 9 months during the first year, so he multiplies $300 by 9/12 to get his deduction of $225 for the first year. Where can i file my 2011 taxes Next year, Frank can deduct $300 for the full year. Where can i file my 2011 taxes Patents and copyrights. Where can i file my 2011 taxes   If you can depreciate the cost of a patent or copyright, use the straight line method over the useful life. Where can i file my 2011 taxes The useful life of a patent or copyright is the lesser of the life granted to it by the government or the remaining life when you acquire it. Where can i file my 2011 taxes However, if the patent or copyright becomes valueless before the end of its useful life, you can deduct in that year any of its remaining cost or other basis. Where can i file my 2011 taxes Computer software. Where can i file my 2011 taxes   Computer software is generally a section 197 intangible and cannot be depreciated if you acquired it in connection with the acquisition of assets constituting a business or a substantial part of a business. Where can i file my 2011 taxes   However, computer software is not a section 197 intangible and can be depreciated, even if acquired in connection with the acquisition of a business, if it meets all of the following tests. Where can i file my 2011 taxes It is readily available for purchase by the general public. Where can i file my 2011 taxes It is subject to a nonexclusive license. Where can i file my 2011 taxes It has not been substantially modified. Where can i file my 2011 taxes   If the software meets the tests above, it may also qualify for the section 179 deduction and the special depreciation allowance, discussed later. Where can i file my 2011 taxes If you can depreciate the cost of computer software, use the straight line method over a useful life of 36 months. Where can i file my 2011 taxes    Tax-exempt use property subject to a lease. Where can i file my 2011 taxes   The useful life of computer software 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), cannot be less than 125% of the lease term. Where can i file my 2011 taxes Certain created intangibles. Where can i file my 2011 taxes   You can amortize certain intangibles created on or after December 31, 2003, over a 15-year period using the straight line method and no salvage value, even though they have a useful life that cannot be estimated with reasonable accuracy. Where can i file my 2011 taxes For example, amounts paid to acquire memberships or privileges of indefinite duration, such as a trade association membership, are eligible costs. Where can i file my 2011 taxes   The following are not eligible. Where can i file my 2011 taxes Any intangible asset acquired from another person. Where can i file my 2011 taxes Created financial interests. Where can i file my 2011 taxes Any intangible asset that has a useful life that can be estimated with reasonable accuracy. Where can i file my 2011 taxes Any intangible asset that has an amortization period or limited useful life that is specifically prescribed or prohibited by the Code, regulations, or other published IRS guidance. Where can i file my 2011 taxes Any amount paid to facilitate an acquisition of a trade or business, a change in the capital structure of a business entity, and certain other transactions. Where can i file my 2011 taxes   You must also increase the 15-year safe harbor amortization period to a 25-year period for certain intangibles related to benefits arising from the provision, production, or improvement of real property. Where can i file my 2011 taxes For this purpose, real property includes property that will remain attached to the real property for an indefinite period of time, such as roads, bridges, tunnels, pavements, and pollution control facilities. Where can i file my 2011 taxes Income Forecast Method You can choose to use the income forecast method instead of the straight line method to depreciate the following depreciable intangibles. Where can i file my 2011 taxes Motion picture films or video tapes. Where can i file my 2011 taxes Sound recordings. Where can i file my 2011 taxes Copyrights. Where can i file my 2011 taxes Books. Where can i file my 2011 taxes Patents. Where can i file my 2011 taxes Under the income forecast method, each year's depreciation deduction is equal to the cost of the property, multiplied by a fraction. Where can i file my 2011 taxes The numerator of the fraction is the current year's net income from the property, and the denominator is the total income anticipated from the property through the end of the 10th taxable year following the taxable year the property is placed in service. Where can i file my 2011 taxes For more information, see section 167(g) of the Internal Revenue Code. Where can i file my 2011 taxes Films, video tapes, and recordings. Where can i file my 2011 taxes   You cannot use MACRS for motion picture films, video tapes, and sound recordings. Where can i file my 2011 taxes For this purpose, sound recordings are discs, tapes, or other phonorecordings resulting from the fixation of a series of sounds. Where can i file my 2011 taxes You can depreciate this property using either the straight line method or the income forecast method. Where can i file my 2011 taxes Participations and residuals. Where can i file my 2011 taxes   You can include participations and residuals in the adjusted basis of the property for purposes of computing your depreciation deduction under the income forecast method. Where can i file my 2011 taxes The participations and residuals must relate to income to be derived from the property before the end of the 10th taxable year after the property is placed in service. Where can i file my 2011 taxes For this purpose, participations and residuals are defined as costs which by contract vary with the amount of income earned in connection with the property. Where can i file my 2011 taxes   Instead of including these amounts in the adjusted basis of the property, you can deduct the costs in the taxable year that they are paid. Where can i file my 2011 taxes Videocassettes. Where can i file my 2011 taxes   If you are in the business of renting videocassettes, you can depreciate only those videocassettes bought for rental. Where can i file my 2011 taxes If the videocassette has a useful life of one year or less, you can currently deduct the cost as a business expense. Where can i file my 2011 taxes Corporate or Partnership Property Acquired in a Nontaxable Transfer MACRS does not apply to property used before 1987 and transferred after 1986 to a corporation or partnership (except property the transferor placed in service after July 31, 1986, if MACRS was elected) to the extent its basis is carried over from the property's adjusted basis in the transferor's hands. Where can i file my 2011 taxes You must continue to use the same depreciation method as the transferor and figure depreciation as if the transfer had not occurred. Where can i file my 2011 taxes However, if MACRS would otherwise apply, you can use it to depreciate the part of the property's basis that exceeds the carried-over basis. Where can i file my 2011 taxes The nontaxable transfers covered by this rule include the following. Where can i file my 2011 taxes A distribution in complete liquidation of a subsidiary. Where can i file my 2011 taxes A transfer to a corporation controlled by the transferor. Where can i file my 2011 taxes An exchange of property solely for corporate stock or securities in a reorganization. Where can i file my 2011 taxes A contribution of property to a partnership in exchange for a partnership interest. Where can i file my 2011 taxes A partnership distribution of property to a partner. Where can i file my 2011 taxes Election To Exclude Property From MACRS If you can properly depreciate any property under a method not based on a term of years, such as the unit-of-production method, you can elect to exclude that property from MACRS. Where can i file my 2011 taxes You make the election by reporting your depreciation for the property on line 15 in Part II of Form 4562 and attaching a statement as described in the instructions for Form 4562. Where can i file my 2011 taxes You must make this election by the return due date (including extensions) for the tax year you place your property in service. Where can i file my 2011 taxes 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 six months of the due date of the return (excluding extensions). Where can i file my 2011 taxes Attach the election to the amended return and write “Filed pursuant to section 301. Where can i file my 2011 taxes 9100-2” on the election statement. Where can i file my 2011 taxes File the amended return at the same address you filed the original return. Where can i file my 2011 taxes Use of standard mileage rate. Where can i file my 2011 taxes   If you use the standard mileage rate to figure your tax deduction for your business automobile, you are treated as having made an election to exclude the automobile from MACRS. Where can i file my 2011 taxes See Publication 463 for a discussion of the standard mileage rate. Where can i file my 2011 taxes What Is the Basis of Your Depreciable Property? To figure your depreciation deduction, you must determine the basis of your property. Where can i file my 2011 taxes To determine basis, you need to know the cost or other basis of your property. Where can i file my 2011 taxes Cost as Basis The basis of property you buy is its cost plus amounts you paid for items such as sales tax (see Exception , below), freight charges, and installation and testing fees. Where can i file my 2011 taxes The cost includes the amount you pay in cash, debt obligations, other property, or services. Where can i file my 2011 taxes Exception. Where can i file my 2011 taxes   You can elect to deduct state and local general sales taxes instead of state and local income taxes as an itemized deduction on Schedule A (Form 1040). Where can i file my 2011 taxes If you make that choice, you cannot include those sales taxes as part of your cost basis. Where can i file my 2011 taxes Assumed debt. Where can i file my 2011 taxes   If you buy property and assume (or buy subject to) an existing mortgage or other debt on the property, your basis includes the amount you pay for the property plus the amount of the assumed debt. Where can i file my 2011 taxes Example. Where can i file my 2011 taxes You make a $20,000 down payment on property and assume the seller's mortgage of $120,000. Where can i file my 2011 taxes Your total cost is $140,000, the cash you paid plus the mortgage you assumed. Where can i file my 2011 taxes Settlement costs. Where can i file my 2011 taxes   The basis of real property also includes certain fees and charges you pay in addition to the purchase price. Where can i file my 2011 taxes These generally are shown on your settlement statement and include the following. Where can i file my 2011 taxes Legal and recording fees. Where can i file my 2011 taxes Abstract fees. Where can i file my 2011 taxes Survey charges. Where can i file my 2011 taxes Owner's title insurance. Where can i file my 2011 taxes Amounts the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, charges for improvements or repairs, and sales commissions. Where can i file my 2011 taxes   For fees and charges you cannot include in the basis of property, see Real Property in Publication 551. Where can i file my 2011 taxes Property you construct or build. Where can i file my 2011 taxes   If you construct, build, or otherwise produce property for use in your business, you may have to use the uniform capitalization rules to determine the basis of your property. Where can i file my 2011 taxes For information about the uniform capitalization rules, see Publication 551 and the regulations under section 263A of the Internal Revenue Code. Where can i file my 2011 taxes Other Basis Other basis usually refers to basis that is determined by the way you received the property. Where can i file my 2011 taxes For example, your basis is other than cost if you acquired the property in exchange for other property, as payment for services you performed, as a gift, or as an inheritance. Where can i file my 2011 taxes If you acquired property in this or some other way, see Publication 551 to determine your basis. Where can i file my 2011 taxes Property changed from personal use. Where can i file my 2011 taxes   If you held property for personal use and later use it in your business or income-producing activity, your depreciable basis is the lesser of the following. Where can i file my 2011 taxes The fair market value (FMV) of the property on the date of the change in use. Where can i file my 2011 taxes Your original cost or other basis adjusted as follows. Where can i file my 2011 taxes Increased by the cost of any permanent improvements or additions and other costs that must be added to basis. Where can i file my 2011 taxes Decreased by any deductions you claimed for casualty and theft losses and other items that reduced your basis. Where can i file my 2011 taxes Example. Where can i file my 2011 taxes Several years ago, Nia paid $160,000 to have her home built on a lot that cost her $25,000. Where can i file my 2011 taxes Before changing the property to rental use last year, she paid $20,000 for permanent improvements to the house and claimed a $2,000 casualty loss deduction for damage to the house. Where can i file my 2011 taxes Land is not depreciable, so she includes only the cost of the house when figuring the basis for depreciation. Where can i file my 2011 taxes Nia's adjusted basis in the house when she changed its use was $178,000 ($160,000 + $20,000 − $2,000). Where can i file my 2011 taxes On the same date, her property had an FMV of $180,000, of which $15,000 was for the land and $165,000 was for the house. Where can i file my 2011 taxes The basis for depreciation on the house is the FMV on the date of change ($165,000), because it is less than her adjusted basis ($178,000). Where can i file my 2011 taxes Property acquired in a nontaxable transaction. Where can i file my 2011 taxes   Generally, if you receive property in a nontaxable exchange, the basis of the property you receive is the same as the adjusted basis of the property you gave up. Where can i file my 2011 taxes Special rules apply in determining the basis and figuring the MACRS depreciation deduction and special depreciation allowance for property acquired in a like-kind exchange or involuntary conversion. Where can i file my 2011 taxes See Like-kind exchanges and involuntary conversions. Where can i file my 2011 taxes under How Much Can You Deduct? in chapter 3 and Figuring the Deduction for Property Acquired in a Nontaxable Exchange in chapter 4. Where can i file my 2011 taxes   There are also special rules for determining the basis of MACRS property involved in a like-kind exchange or involuntary conversion when the property is contained in a general asset account. Where can i file my 2011 taxes See How Do You Use General Asset Accounts in chapter 4. Where can i file my 2011 taxes Adjusted Basis To find your property's basis for depreciation, you may have to make certain adjustments (increases and decreases) to the basis of the property for events occurring between the time you acquired the property and the time you placed it in service. Where can i file my 2011 taxes These events could include the following. Where can i file my 2011 taxes Installing utility lines. Where can i file my 2011 taxes Paying legal fees for perfecting the title. Where can i file my 2011 taxes Settling zoning issues. Where can i file my 2011 taxes Receiving rebates. Where can i file my 2011 taxes Incurring a casualty or theft loss. Where can i file my 2011 taxes For a discussion of adjustments to the basis of your property, see Adjusted Basis in Publication 551. Where can i file my 2011 taxes If you depreciate your property under MACRS, you also may have to reduce your basis by certain deductions and credits with respect to the property. Where can i file my 2011 taxes For more information, see What Is the Basis for Depreciation in chapter 4. Where can i file my 2011 taxes . Where can i file my 2011 taxes Basis adjustment for depreciation allowed or allowable. Where can i file my 2011 taxes   You must reduce the basis of property by the depreciation allowed or allowable, whichever is greater. Where can i file my 2011 taxes Depreciation allowed is depreciation you actually deducted (from which you received a tax benefit). Where can i file my 2011 taxes Depreciation allowable is depreciation you are entitled to deduct. Where can i file my 2011 taxes   If you do not claim depreciation you are entitled to deduct, you must still reduce the basis of the property by the full amount of depreciation allowable. Where can i file my 2011 taxes   If you deduct more depreciation than you should, you must reduce your basis by any amount deducted from which you received a tax benefit (the depreciation allowed). Where can i file my 2011 taxes How Do You Treat Repairs and Improvements? If you improve depreciable property, you must treat the improvement as separate depreciable property. Where can i file my 2011 taxes Improvement means an addition to or partial replacement of property that adds to its value, appreciably lengthens the time you can use it, or adapts it to a different use. Where can i file my 2011 taxes You generally deduct the cost of repairing business property in the same way as any other business expense. Where can i file my 2011 taxes However, if a repair or replacement increases the value of your property, makes it more useful, or lengthens its life, you must treat it as an improvement and depreciate it. Where can i file my 2011 taxes Example. Where can i file my 2011 taxes You repair a small section on one corner of the roof of a rental house. Where can i file my 2011 taxes You deduct the cost of the repair as a rental expense. Where can i file my 2011 taxes However, if you completely replace the roof, the new roof is an improvement because it increases the value and lengthens the life of the property. Where can i file my 2011 taxes You depreciate the cost of the new roof. Where can i file my 2011 taxes Improvements to rented property. Where can i file my 2011 taxes   You can depreciate permanent improvements you make to business property you rent from someone else. Where can i file my 2011 taxes Do You Have To File Form 4562? Use Form 4562 to figure your deduction for depreciation and amortization. Where can i file my 2011 taxes Attach Form 4562 to your tax return for the current tax year if you are claiming any of the following items. Where can i file my 2011 taxes A section 179 deduction for the current year or a section 179 carryover from a prior year. Where can i file my 2011 taxes See chapter 2 for information on the section 179 deduction. Where can i file my 2011 taxes Depreciation for property placed in service during the current year. Where can i file my 2011 taxes Depreciation on any vehicle or other listed property, regardless of when it was placed in service. Where can i file my 2011 taxes See chapter 5 for information on listed property. Where can i file my 2011 taxes A deduction for any vehicle if the deduction is reported on a form other than Schedule C (Form 1040) or Schedule C-EZ (Form 1040). Where can i file my 2011 taxes Amortization of costs if the current year is the first year of the amortization period. Where can i file my 2011 taxes Depreciation or amortization on any asset on a corporate income tax return (other than Form 1120S, U. Where can i file my 2011 taxes S. Where can i file my 2011 taxes Income Tax Return for an S Corporation) regardless of when it was placed in service. Where can i file my 2011 taxes You must submit a separate Form 4562 for each business or activity on your return for which a Form 4562 is required. Where can i file my 2011 taxes Table 1-1 presents an overview of the purpose of the various parts of Form 4562. Where can i file my 2011 taxes Employee. Where can i file my 2011 taxes   Do not use Form 4562 if you are an employee and you deduct job-related vehicle expenses using either actual expenses (including depreciation) or the standard mileage rate. Where can i file my 2011 taxes Instead, use either Form 2106 or Form 2106-EZ. Where can i file my 2011 taxes Use Form 2106-EZ if you are claiming the standard mileage rate and you are not reimbursed by your employer for any expenses. Where can i file my 2011 taxes How Do You Correct Depreciation Deductions? If you deducted an incorrect amount of depreciation in any year, you may be able to make a correction by filing an amended return for that year. Where can i file my 2011 taxes See Filing an Amended Return , next. Where can i file my 2011 taxes If you are not allowed to make the correction on an amended return, you may be able to change your accounting method to claim the correct amount of depreciation. Where can i file my 2011 taxes See Changing Your Accounting Method , later. Where can i file my 2011 taxes Filing an Amended Return You can file an amended return to correct the amount of depreciation claimed for any property in any of the following situations. Where can i file my 2011 taxes You claimed the incorrect amount because of a mathematical error made in any year. Where can i file my 2011 taxes You claimed the incorrect amount because of a posting error made in any year. Where can i file my 2011 taxes You have not adopted a method of accounting for property placed in service by you in tax years ending after December 29, 2003. Where can i file my 2011 taxes You claimed the incorrect amount on property placed in service by you in tax years ending before December 30, 2003. Where can i file my 2011 taxes Adoption of accounting method defined. Where can i file my 2011 taxes   Generally, you adopt a method of accounting for depreciation by using a permissible method of determining depreciation when you file your first tax return, or by using the same impermissible method of determining depreciation in two or more consecutively filed tax returns. Where can i file my 2011 taxes   For an exception to this 2-year rule, see Revenue Procedure 2011-14 on page 330 of the Internal Revenue Bulletin 2011-4, available at www. Where can i file my 2011 taxes irs. Where can i file my 2011 taxes gov/pub/irs-irbs/irb11-04. Where can i file my 2011 taxes pdf. Where can i file my 2011 taxes (Note. Where can i file my 2011 taxes Revenue Procedure 2011-14 is clarified and modified by Revenue Procedure 2012-20. Where can i file my 2011 taxes For more information, see Revenue Procedure 2012-20 on page 700 of the Internal Revenue Bulletin 2012-14, available at www. Where can i file my 2011 taxes irs. Where can i file my 2011 taxes gov/pub/irs-irbs/irb12-14. Where can i file my 2011 taxes pdf. Where can i file my 2011 taxes )   For a safe harbor method of accounting to treat rotable spare parts as depreciable assets and procedures to obtain automatic consent to change to the safe harbor method of accounting, see Revenue Procedure 2007-48 on page 110 of Internal Revenue Bulletin 2007-29, available at www. Where can i file my 2011 taxes irs. Where can i file my 2011 taxes gov/pub/irs-irbs/irb07-29. Where can i file my 2011 taxes pdf. Where can i file my 2011 taxes When to file. Where can i file my 2011 taxes   If an amended return is allowed, you must file it by the later of the following. Where can i file my 2011 taxes 3 years from the date you filed your original return for the year in which you did not deduct the correct amount. Where can i file my 2011 taxes A return filed before an unextended due date is considered filed on that due date. Where can i file my 2011 taxes 2 years from the time you paid your tax for that year. Where can i file my 2011 taxes Changing Your Accounting Method Generally, you must get IRS approval to change your method of accounting. Where can i file my 2011 taxes You generally must file Form 3115, Application for Change in Accounting Method, to request a change in your method of accounting for depreciation. Where can i file my 2011 taxes The following are examples of a change in method of accounting for depreciation. Where can i file my 2011 taxes A change from an impermissible method of determining depreciation for depreciable property, if the impermissible method was used in two or more consecutively filed tax returns. Where can i file my 2011 taxes A change in the treatment of an asset from nondepreciable to depreciable or vice versa. Where can i file my 2011 taxes A change in the depreciation method, period of recovery, or convention of a depreciable asset. Where can i file my 2011 taxes A change from not claiming to claiming the special depreciation allowance if you did not make the election to not claim any special allowance. Where can i file my 2011 taxes A change from claiming a 50% special depreciation allowance to claiming a 30% special depreciation allowance for qualified property (including property that is included in a class of property for which you elected a 30% special allowance instead of a 50% special allowance). Where can i file my 2011 taxes Changes in depreciation that are not a change in method of accounting (and may only be made on an amended return) include the following. Where can i file my 2011 taxes An adjustment in the useful life of a depreciable asset for which depreciation is determined under section 167. Where can i file my 2011 taxes A change in use of an asset in the hands of the same taxpayer. Where can i file my 2011 taxes Making a late depreciation election or revoking a timely valid depreciation election (including the election not to deduct the special depreciation allowance). Where can i file my 2011 taxes If you elected not to claim any special allowance, a change from not claiming to claiming the special allowance is a revocation of the election and is not an accounting method change. Where can i file my 2011 taxes Generally, you must get IRS approval to make a late depreciation election or revoke a depreciation election. Where can i file my 2011 taxes You must submit a request for a letter ruling to make a late election or revoke an election. Where can i file my 2011 taxes Any change in the placed in service date of a depreciable asset. Where can i file my 2011 taxes See section 1. Where can i file my 2011 taxes 446-1(e)(2)(ii)(d) of the regulations for more information and examples. Where can i file my 2011 taxes IRS approval. Where can i file my 2011 taxes   In some instances, you may be able to get approval from the IRS to change your method of accounting for depreciation under the automatic change request procedures generally covered in Revenue Procedure 2011-14. Where can i file my 2011 taxes If you do not qualify to use the automatic procedures to get approval, you must use the advance consent request procedures generally covered in Revenue Procedure 97-27, 1997-1 C. Where can i file my 2011 taxes B. Where can i file my 2011 taxes 680. Where can i file my 2011 taxes Also see the Instructions for Form 3115 for more information on getting approval, including lists of scope limitations and automatic accounting method changes. Where can i file my 2011 taxes Additional guidance. Where can i file my 2011 taxes    For additional guidance and special procedures for changing your accounting method, automatic change procedures, amending your return, and filing Form 3115, see Revenue Procedure 2011-14 on page 330 of the Internal Revenue Bulletin 2011-4, available at www. Where can i file my 2011 taxes irs. Where can i file my 2011 taxes gov/pub/irs-irbs/irb11-04. Where can i file my 2011 taxes pdf. Where can i file my 2011 taxes (Note. Where can i file my 2011 taxes Revenue Procedure 2011-14 is clarified and modified by Revenue Procedure 2012-20. Where can i file my 2011 taxes For more information, see Revenue Procedure 2012-20 on page 700 of the Internal Revenue Bulletin 2012-14, available at www. Where can i file my 2011 taxes irs. Where can i file my 2011 taxes gov/pub/irs-irbs/irb12-14. Where can i file my 2011 taxes pdf. Where can i file my 2011 taxes )   For a safe harbor method of accounting to treat rotable spare parts as depreciable assets, see Revenue Procedure 2007-48 on page 110 of Internal Revenue Bulletin 2007-29, available at www. Where can i file my 2011 taxes irs. Where can i file my 2011 taxes gov/pub/irs-irbs/irb07-29. Where can i file my 2011 taxes pdf. Where can i file my 2011 taxes Table 1-1. Where can i file my 2011 taxes Purpose of Form 4562 This table describes the purpose of the various parts of Form 4562. Where can i file my 2011 taxes For more information, see Form 4562 and its instructions. Where can i file my 2011 taxes Part Purpose I • Electing the section 179 deduction • Figuring the maximum section 179 deduction for the current year • Figuring any section 179 deduction carryover to the next year II • Reporting the special depreciation allowance for property (other than listed property) placed in service during the tax year • Reporting depreciation deductions on property being depreciated under any method other than Modified Accelerated Cost Recovery System (MACRS) III • Reporting MACRS depreciation deductions for property placed in service before this year • Reporting MACRS depreciation deductions for property (other than listed property) placed in service during the current year IV • Summarizing other parts V • Reporting the special depreciation allowance for automobiles and other listed property • Reporting MACRS depreciation on automobiles and other listed property • Reporting the section 179 cost elected for automobiles and other listed property • Reporting information on the use of automobiles and other transportation vehicles VI • Reporting amortization deductions Section 481(a) adjustment. Where can i file my 2011 taxes   If you file Form 3115 and change from an impermissible method to a permissible method of accounting for depreciation, you can make a section 481(a) adjustment for any unclaimed or excess amount of allowable depreciation. Where can i file my 2011 taxes The adjustment is the difference between the total depreciation actually deducted for the property and the total amount allowable prior to the year of change. Where can i file my 2011 taxes If no depreciation was deducted, the adjustment is the total depreciation allowable prior to the year of change. Where can i file my 2011 taxes A negative section 481(a) adjustment results in a decrease in taxable income. Where can i file my 2011 taxes It is taken into account in the year of change and is reported on your business tax returns as “other expenses. Where can i file my 2011 taxes ” A positive section 481(a) adjustment results in an increase in taxable income. Where can i file my 2011 taxes It is generally taken into account over 4 tax years and is reported on your business tax returns as “other income. Where can i file my 2011 taxes ” However, you can elect to use a one-year adjustment period and report the adjustment in the year of change if the total adjustment is less than $25,000. Where can i file my 2011 taxes Make the election by completing the appropriate line on Form 3115. Where can i file my 2011 taxes   If you file a Form 3115 and change from one permissible method to another permissible method, the section 481(a) adjustment is zero. Where can i file my 2011 taxes Prev  Up  Next   Home   More Online Publications