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Www irs gov formspubs 8. Www irs gov formspubs   Amortization Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: How To Deduct Amortization Starting a BusinessBusiness Start-Up Costs Costs of Organizing a Corporation Costs of Organizing a Partnership How To Amortize Getting a Lease Section 197 IntangiblesSection 197 Intangibles Defined Assets That Are Not Section 197 Intangibles Safe Harbor for Creative Property Costs Anti-Churning Rules Incorrect Amount of Amortization Deducted Disposition of Section 197 Intangibles Reforestation Costs Geological and Geophysical Costs Pollution Control FacilitiesNew identifiable treatment facility. Www irs gov formspubs Research and Experimental Costs Optional Write-off of Certain Tax Preferences Introduction Amortization is a method of recovering (deducting) certain capital costs over a fixed period of time. Www irs gov formspubs It is similar to the straight line method of depreciation. Www irs gov formspubs The various amortizable costs covered in this chapter are included in the list below. Www irs gov formspubs However, this chapter does not discuss amortization of bond premium. Www irs gov formspubs For information on that topic, see chapter 3 of Publication 550, Investment Income and Expenses. Www irs gov formspubs Topics - This chapter discusses: Deducting amortization Amortizing costs of starting a business Amortizing costs of getting a lease Amortizing costs of section 197 intangibles Amortizing reforestation costs Amortizing costs of geological and geophysical costs Amortizing costs of pollution control facilities Amortizing costs of research and experimentation Amortizing costs of certain tax preferences Useful Items - You may want to see: Publication 544 Sales and Other Dispositions of Assets 550 Investment Income and Expenses 946 How To Depreciate Property Form (and Instructions) 4562 Depreciation and Amortization 4626 Alternative Minimum Tax—Corporations 6251 Alternative Minimum Tax—Individuals See chapter 12 for information about getting publications and forms. Www irs gov formspubs How To Deduct Amortization To deduct amortization that begins during the current tax year, complete Part VI of Form 4562 and attach it to your income tax return. Www irs gov formspubs To report amortization from previous years, in addition to amortization that begins in the current year, list on Form 4562 each item separately. Www irs gov formspubs For example, in 2012, you began to amortize a lease. Www irs gov formspubs In 2013, you began to amortize a second lease. Www irs gov formspubs Report amortization from the new lease on line 42 of your 2013 Form 4562. Www irs gov formspubs Report amortization from the 2012 lease on line 43 of your 2013 Form 4562. Www irs gov formspubs If you do not have any new amortizable expenses for the current year, you are not required to complete Form 4562 (unless you are claiming depreciation). Www irs gov formspubs Report the current year's deduction for amortization that began in a prior year directly on the “Other deduction” or “Other expense line” of your return. Www irs gov formspubs Starting a Business When you start a business, treat all eligible costs you incur before you begin operating the business as capital expenditures which are part of your basis in the business. Www irs gov formspubs Generally, you recover costs for particular assets through depreciation deductions. Www irs gov formspubs However, you generally cannot recover other costs until you sell the business or otherwise go out of business. Www irs gov formspubs For a discussion on how to treat these costs, see If your attempt to go into business is unsuccessful under Capital Expenses in chapter 1. Www irs gov formspubs For costs paid or incurred after September 8, 2008, you can deduct a limited amount of start-up and organizational costs. Www irs gov formspubs The costs that are not deducted currently can be amortized ratably over a 180-month period. Www irs gov formspubs The amortization period starts with the month you begin operating your active trade or business. Www irs gov formspubs You are not required to attach a statement to make this election. Www irs gov formspubs You can choose to forgo this election by affirmatively electing to capitalize your start-up costs on your income tax return filed by the due date (including extensions) for the tax year in which the active trade or business begins. Www irs gov formspubs Once made, the election to either amortize or capitalize start-up costs is irrevocable and applies to all start-up costs that are related to your trade or business. Www irs gov formspubs See Regulations sections 1. Www irs gov formspubs 195-1, 1. Www irs gov formspubs 248-1, and 1. Www irs gov formspubs 709-1. Www irs gov formspubs For costs paid or incurred after October 22, 2004, and before September 9, 2008, you can elect to deduct a limited amount of business start-up and organizational costs in the year your active trade or business begins. Www irs gov formspubs Any costs not deducted can be amortized ratably over a 180-month period, beginning with the month you begin business. Www irs gov formspubs If the election is made, you must attach any statement required by Regulations sections 1. Www irs gov formspubs 195-1(b), 1. Www irs gov formspubs 248-1(c), and 1. Www irs gov formspubs 709-1(c), as in effect before September 9, 2008. Www irs gov formspubs Note. Www irs gov formspubs You can apply the provisions of Regulations sections 1. Www irs gov formspubs 195-1, 1. Www irs gov formspubs 248-1, and 1. Www irs gov formspubs 709-1 to all business start-up and organizational costs paid or incurred after October 22, 2004, provided the period of limitations on assessment has not expired for the year of the election. Www irs gov formspubs Otherwise, the provisions under Regulations sections 1. Www irs gov formspubs 195-1(b), 1. Www irs gov formspubs 248-1(c), and 1. Www irs gov formspubs 709-1(c), as in effect before September 9, 2008, will apply. Www irs gov formspubs For costs paid or incurred before October 23, 2004, you can elect to amortize business start-up and organization costs over an amortization period of 60 months or more. Www irs gov formspubs See How To Make the Election , later. Www irs gov formspubs The cost must qualify as one of the following. Www irs gov formspubs A business start-up cost. Www irs gov formspubs An organizational cost for a corporation. Www irs gov formspubs An organizational cost for a partnership. Www irs gov formspubs Business Start-Up Costs Start-up costs are amounts paid or incurred for: (a) creating an active trade or business; or (b) investigating the creation or acquisition of an active trade or business. Www irs gov formspubs Start-up costs include amounts paid or incurred in connection with an existing activity engaged in for profit; and for the production of income in anticipation of the activity becoming an active trade or business. Www irs gov formspubs Qualifying costs. Www irs gov formspubs   A start-up cost is amortizable if it meets both of the following tests. Www irs gov formspubs It is a cost you could deduct if you paid or incurred it to operate an existing active trade or business (in the same field as the one you entered into). Www irs gov formspubs It is a cost you pay or incur before the day your active trade or business begins. Www irs gov formspubs   Start-up costs include amounts paid for the following: An analysis or survey of potential markets, products, labor supply, transportation facilities, etc. Www irs gov formspubs Advertisements for the opening of the business. Www irs gov formspubs Salaries and wages for employees who are being trained and their instructors. Www irs gov formspubs Travel and other necessary costs for securing prospective distributors, suppliers, or customers. Www irs gov formspubs Salaries and fees for executives and consultants, or for similar professional services. Www irs gov formspubs Nonqualifying costs. Www irs gov formspubs   Start-up costs do not include deductible interest, taxes, or research and experimental costs. Www irs gov formspubs See Research and Experimental Costs , later. Www irs gov formspubs Purchasing an active trade or business. Www irs gov formspubs   Amortizable start-up costs for purchasing an active trade or business include only investigative costs incurred in the course of a general search for or preliminary investigation of the business. Www irs gov formspubs These are costs that help you decide whether to purchase a business. Www irs gov formspubs Costs you incur in an attempt to purchase a specific business are capital expenses that you cannot amortize. Www irs gov formspubs Example. Www irs gov formspubs On June 1st, you hired an accounting firm and a law firm to assist you in the potential purchase of XYZ, Inc. Www irs gov formspubs They researched XYZ's industry and analyzed the financial projections of XYZ, Inc. Www irs gov formspubs In September, the law firm prepared and submitted a letter of intent to XYZ, Inc. Www irs gov formspubs The letter stated that a binding commitment would result only after a purchase agreement was signed. Www irs gov formspubs The law firm and accounting firm continued to provide services including a review of XYZ's books and records and the preparation of a purchase agreement. Www irs gov formspubs On October 22nd, you signed a purchase agreement with XYZ, Inc. Www irs gov formspubs All amounts paid or incurred to investigate the business before October 22nd are amortizable investigative costs. Www irs gov formspubs Amounts paid on or after that date relate to the attempt to purchase the business and therefore must be capitalized. Www irs gov formspubs Disposition of business. Www irs gov formspubs   If you completely dispose of your business before the end of the amortization period, you can deduct any remaining deferred start-up costs. Www irs gov formspubs However, you can deduct these deferred start-up costs only to the extent they qualify as a loss from a business. Www irs gov formspubs Costs of Organizing a Corporation Amounts paid to organize a corporation are the direct costs of creating the corporation. Www irs gov formspubs Qualifying costs. Www irs gov formspubs   To qualify as an organizational cost, it must be: For the creation of the corporation, Chargeable to a capital account (see chapter 1), Amortized over the life of the corporation if the corporation had a fixed life, and Incurred before the end of the first tax year in which the corporation is in business. Www irs gov formspubs   A corporation using the cash method of accounting can amortize organizational costs incurred within the first tax year, even if it does not pay them in that year. Www irs gov formspubs   Examples of organizational costs include: The cost of temporary directors. Www irs gov formspubs The cost of organizational meetings. Www irs gov formspubs State incorporation fees. Www irs gov formspubs The cost of legal services. Www irs gov formspubs Nonqualifying costs. Www irs gov formspubs   The following items are capital expenses that cannot be amortized: Costs for issuing and selling stock or securities, such as commissions, professional fees, and printing costs. Www irs gov formspubs Costs associated with the transfer of assets to the corporation. Www irs gov formspubs Costs of Organizing a Partnership The costs to organize a partnership are the direct costs of creating the partnership. Www irs gov formspubs Qualifying costs. Www irs gov formspubs   A partnership can amortize an organizational cost only if it meets all the following tests. Www irs gov formspubs It is for the creation of the partnership and not for starting or operating the partnership trade or business. Www irs gov formspubs It is chargeable to a capital account (see chapter 1). Www irs gov formspubs It could be amortized over the life of the partnership if the partnership had a fixed life. Www irs gov formspubs It is incurred by the due date of the partnership return (excluding extensions) for the first tax year in which the partnership is in business. Www irs gov formspubs However, if the partnership uses the cash method of accounting and pays the cost after the end of its first tax year, see Cash method partnership under How To Amortize, later. Www irs gov formspubs It is for a type of item normally expected to benefit the partnership throughout its entire life. Www irs gov formspubs   Organizational costs include the following fees. Www irs gov formspubs Legal fees for services incident to the organization of the partnership, such as negotiation and preparation of the partnership agreement. Www irs gov formspubs Accounting fees for services incident to the organization of the partnership. Www irs gov formspubs Filing fees. Www irs gov formspubs Nonqualifying costs. Www irs gov formspubs   The following costs cannot be amortized. Www irs gov formspubs The cost of acquiring assets for the partnership or transferring assets to the partnership. Www irs gov formspubs The cost of admitting or removing partners, other than at the time the partnership is first organized. Www irs gov formspubs The cost of making a contract concerning the operation of the partnership trade or business including a contract between a partner and the partnership. Www irs gov formspubs The costs for issuing and marketing interests in the partnership such as brokerage, registration, and legal fees and printing costs. Www irs gov formspubs These “syndication fees” are capital expenses that cannot be depreciated or amortized. Www irs gov formspubs Liquidation of partnership. Www irs gov formspubs   If a partnership is liquidated before the end of the amortization period, the unamortized amount of qualifying organizational costs can be deducted in the partnership's final tax year. Www irs gov formspubs However, these costs can be deducted only to the extent they qualify as a loss from a business. Www irs gov formspubs How To Amortize Deduct start-up and organizational costs in equal amounts over the applicable amortization period (discussed earlier). Www irs gov formspubs You can choose an amortization period for start-up costs that is different from the period you choose for organizational costs, as long as both are not less than the applicable amortization period. Www irs gov formspubs Once you choose an amortization period, you cannot change it. Www irs gov formspubs To figure your deduction, divide your total start-up or organizational costs by the months in the amortization period. Www irs gov formspubs The result is the amount you can deduct for each month. Www irs gov formspubs Cash method partnership. Www irs gov formspubs   A partnership using the cash method of accounting can deduct an organizational cost only if it has been paid by the end of the tax year. Www irs gov formspubs However, any cost the partnership could have deducted as an organizational cost in an earlier tax year (if it had been paid that year) can be deducted in the tax year of payment. Www irs gov formspubs How To Make the Election To elect to amortize start-up or organizational costs, you must complete and attach Form 4562 to your return for the first tax year you are in business. Www irs gov formspubs You may also be required to attach an accompanying statement (described later) to your return. Www irs gov formspubs For start-up or organizational costs paid or incurred after September 8, 2008, an accompanying statement is not required. Www irs gov formspubs Generally, for start-up or organizational costs paid or incurred before September 9, 2008, and after October 22, 2004, unless you choose to apply Regulations sections 1. Www irs gov formspubs 195-1, 1. Www irs gov formspubs 248-1, and 1. Www irs gov formspubs 709-1, you must also attach an accompanying statement to elect to amortize the costs. Www irs gov formspubs If you have both start-up and organizational costs, attach a separate statement (if required) to your return for each type of cost. Www irs gov formspubs See Starting a Business , earlier, for more information. Www irs gov formspubs Generally, you must file the return by the due date (including any extensions). Www irs gov formspubs However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Www irs gov formspubs For more information, see the instructions for Part VI of Form 4562. Www irs gov formspubs You can choose to forgo the election to amortize by affirmatively electing to capitalize your start-up or organizational costs on your income tax return filed by the due date (including extensions) for the tax year in which the active trade or business begins. Www irs gov formspubs Note. Www irs gov formspubs The election to either amortize or capitalize start-up or organizational costs is irrevocable and applies to all start-up and organizational costs that are related to the trade or business. Www irs gov formspubs If your business is organized as a corporation or partnership, only the corporation or partnership can elect to amortize its start-up or organizational costs. Www irs gov formspubs A shareholder or partner cannot make this election. Www irs gov formspubs You, as a shareholder or partner, cannot amortize any costs you incur in setting up your corporation or partnership. Www irs gov formspubs Only the corporation or partnership can amortize these costs. Www irs gov formspubs However, you, as an individual, can elect to amortize costs you incur to investigate an interest in an existing partnership. Www irs gov formspubs These costs qualify as business start-up costs if you acquire the partnership interest. Www irs gov formspubs Start-up costs election statement. Www irs gov formspubs   If you elect to amortize your start-up costs, attach a separate statement (if required) that contains the following information. Www irs gov formspubs A description of the business to which the start-up costs relate. Www irs gov formspubs A description of each start-up cost incurred. Www irs gov formspubs The month your active business began (or was acquired). Www irs gov formspubs The number of months in your amortization period (which is generally 180 months). Www irs gov formspubs Filing the statement early. Www irs gov formspubs   You can elect to amortize your start-up costs by filing the statement with a return for any tax year before the year your active business begins. Www irs gov formspubs If you file the statement early, the election becomes effective in the month of the tax year your active business begins. Www irs gov formspubs Revised statement. Www irs gov formspubs   You can file a revised statement to include any start-up costs not included in your original statement. Www irs gov formspubs However, you cannot include on the revised statement any cost you previously treated on your return as a cost other than a start-up cost. Www irs gov formspubs You can file the revised statement with a return filed after the return on which you elected to amortize your start-up costs. Www irs gov formspubs Organizational costs election statement. Www irs gov formspubs   If you elect to amortize your corporation's or partnership's organizational costs, attach a separate statement (if required) that contains the following information. Www irs gov formspubs A description of each cost. Www irs gov formspubs The amount of each cost. Www irs gov formspubs The date each cost was incurred. Www irs gov formspubs The month your corporation or partnership began active business (or acquired the business). Www irs gov formspubs The number of months in your amortization period (which is generally 180 months). Www irs gov formspubs Partnerships. Www irs gov formspubs   The statement prepared for a cash basis partnership must also indicate the amount paid before the end of the year for each cost. Www irs gov formspubs   You do not need to separately list any partnership organizational cost that is less than $10. Www irs gov formspubs Instead, you can list the total amount of these costs with the dates the first and last costs were incurred. Www irs gov formspubs   After a partnership makes the election to amortize organizational costs, it can later file an amended return to include additional organizational costs not included in the partnership's original return and statement. Www irs gov formspubs Getting a Lease If you get a lease for business property, you may recover the cost of acquiring the lease by amortizing it over the term of the lease. Www irs gov formspubs The term of the lease for amortization purposes generally includes all renewal options (and any other period for which you and the lessor reasonably expect the lease to be renewed). Www irs gov formspubs However, renewal periods are not included if 75% or more of the cost of acquiring the lease is for the term of the lease remaining on the acquisition date (not including any period for which you may choose to renew, extend, or continue the lease). Www irs gov formspubs For more information on the costs of getting a lease, see Cost of Getting a Lease in  chapter 3. Www irs gov formspubs How to amortize. Www irs gov formspubs   Enter your deduction in Part VI of Form 4562 if you are deducting amortization that begins during the current year, or on the appropriate line of your tax return if you are not otherwise required to file Form 4562. Www irs gov formspubs Section 197 Intangibles Generally, you may amortize the capitalized costs of “section 197 intangibles” (defined later) ratably over a 15-year period. Www irs gov formspubs You must amortize these costs if you hold the section 197 intangibles in connection with your trade or business or in an activity engaged in for the production of income. Www irs gov formspubs You may not be able to amortize section 197 intangibles acquired in a transaction that did not result in a significant change in ownership or use. Www irs gov formspubs See Anti-Churning Rules, later. Www irs gov formspubs Your amortization deduction each year is the applicable part of the intangible's adjusted basis (for purposes of determining gain), figured by amortizing it ratably over 15 years (180 months). Www irs gov formspubs The 15-year period begins with the later of: The month the intangible is acquired, or The month the trade or business or activity engaged in for the production of income begins. Www irs gov formspubs You cannot deduct amortization for the month you dispose of the intangible. Www irs gov formspubs If you pay or incur an amount that increases the basis of an amortizable section 197 intangible after the 15-year period begins, amortize it over the remainder of the 15-year period beginning with the month the basis increase occurs. Www irs gov formspubs You are not allowed any other depreciation or amortization deduction for an amortizable section 197 intangible. Www irs gov formspubs Tax-exempt use property subject to a lease. Www irs gov formspubs   The amortization period for any section 197 intangible leased under a lease agreement entered into after March 12, 2004, to a tax-exempt organization, governmental unit, or foreign person or entity (other than a partnership), shall not be less than 125 percent of the lease term. Www irs gov formspubs Cost attributable to other property. Www irs gov formspubs   The rules for section 197 intangibles do not apply to any amount that is included in determining the cost of property that is not a section 197 intangible. Www irs gov formspubs For example, if the cost of computer software is not separately stated from the cost of hardware or other tangible property and you consistently treat it as part of the cost of the hardware or other tangible property, these rules do not apply. Www irs gov formspubs Similarly, none of the cost of acquiring real property held for the production of rental income is considered the cost of goodwill, going concern value, or any other section 197 intangible. Www irs gov formspubs Section 197 Intangibles Defined The following assets are section 197 intangibles and must be amortized over 180 months: Goodwill; Going concern value; Workforce in place; Business books and records, operating systems, or any other information base, including lists or other information concerning current or prospective customers; A patent, copyright, formula, process, design, pattern, know-how, format, or similar item; A customer-based intangible; A supplier-based intangible; Any item similar to items (3) through (7); A license, permit, or other right granted by a governmental unit or agency (including issuances and renewals); A covenant not to compete entered into in connection with the acquisition of an interest in a trade or business; Any franchise, trademark, or trade name; and A contract for the use of, or a term interest in, any item in this list. Www irs gov formspubs You cannot amortize any of the intangibles listed in items (1) through (8) that you created rather than acquired unless you created them in acquiring assets that make up a trade or business or a substantial part of a trade or business. Www irs gov formspubs Goodwill. Www irs gov formspubs   This is the value of a trade or business based on expected continued customer patronage due to its name, reputation, or any other factor. Www irs gov formspubs Going concern value. Www irs gov formspubs   This is the additional value of a trade or business that attaches to property because the property is an integral part of an ongoing business activity. Www irs gov formspubs It includes value based on the ability of a business to continue to function and generate income even though there is a change in ownership (but does not include any other section 197 intangible). Www irs gov formspubs It also includes value based on the immediate use or availability of an acquired trade or business, such as the use of earnings during any period in which the business would not otherwise be available or operational. Www irs gov formspubs Workforce in place, etc. Www irs gov formspubs   This includes the composition of a workforce (for example, its experience, education, or training). Www irs gov formspubs It also includes the terms and conditions of employment, whether contractual or otherwise, and any other value placed on employees or any of their attributes. Www irs gov formspubs   For example, you must amortize the part of the purchase price of a business that is for the existence of a highly skilled workforce. Www irs gov formspubs Also, you must amortize the cost of acquiring an existing employment contract or relationship with employees or consultants. Www irs gov formspubs Business books and records, etc. Www irs gov formspubs   This includes the intangible value of technical manuals, training manuals or programs, data files, and accounting or inventory control systems. Www irs gov formspubs It also includes the cost of customer lists, subscription lists, insurance expirations, patient or client files, and lists of newspaper, magazine, radio, and television advertisers. Www irs gov formspubs Patents, copyrights, etc. Www irs gov formspubs   This includes package design, computer software, and any interest in a film, sound recording, videotape, book, or other similar property, except as discussed later under Assets That Are Not Section 197 Intangibles . Www irs gov formspubs Customer-based intangible. Www irs gov formspubs   This is the composition of market, market share, and any other value resulting from the future provision of goods or services because of relationships with customers in the ordinary course of business. Www irs gov formspubs For example, you must amortize the part of the purchase price of a business that is for the existence of the following intangibles. Www irs gov formspubs A customer base. Www irs gov formspubs A circulation base. Www irs gov formspubs An undeveloped market or market growth. Www irs gov formspubs Insurance in force. Www irs gov formspubs A mortgage servicing contract. Www irs gov formspubs An investment management contract. Www irs gov formspubs Any other relationship with customers involving the future provision of goods or services. Www irs gov formspubs   Accounts receivable or other similar rights to income for goods or services provided to customers before the acquisition of a trade or business are not section 197 intangibles. Www irs gov formspubs Supplier-based intangible. Www irs gov formspubs   A supplier-based intangible is the value resulting from the future acquisitions, (through contract or other relationships with suppliers in the ordinary course of business) of goods or services that you will sell or use. Www irs gov formspubs The amount you pay or incur for supplier-based intangibles includes, for example, any portion of the purchase price of an acquired trade or business that is attributable to the existence of a favorable relationship with persons providing distribution services (such as a favorable shelf or display space or a retail outlet), or the existence of favorable supply contracts. Www irs gov formspubs Do not include any amount required to be paid for the goods or services to honor the terms of the agreement or other relationship. Www irs gov formspubs Also, see Assets That Are Not Section 197 Intangibles below. Www irs gov formspubs Government-granted license, permit, etc. Www irs gov formspubs   This is any right granted by a governmental unit or an agency or instrumentality of a governmental unit. Www irs gov formspubs For example, you must amortize the capitalized costs of acquiring (including issuing or renewing) a liquor license, a taxicab medallion or license, or a television or radio broadcasting license. Www irs gov formspubs Covenant not to compete. Www irs gov formspubs   Section 197 intangibles include a covenant not to compete (or similar arrangement) entered into in connection with the acquisition of an interest in a trade or business, or a substantial portion of a trade or business. Www irs gov formspubs An interest in a trade or business includes an interest in a partnership or a corporation engaged in a trade or business. Www irs gov formspubs   An arrangement that requires the former owner to perform services (or to provide property or the use of property) is not similar to a covenant not to compete to the extent the amount paid under the arrangement represents reasonable compensation for those services or for that property or its use. Www irs gov formspubs Franchise, trademark, or trade name. Www irs gov formspubs   A franchise, trademark, or trade name is a section 197 intangible. Www irs gov formspubs You must amortize its purchase or renewal costs, other than certain contingent payments that you can deduct currently. Www irs gov formspubs For information on currently deductible contingent payments, see chapter 11. Www irs gov formspubs Professional sports franchise. Www irs gov formspubs   A franchise engaged in professional sports and any intangible assets acquired in connection with acquiring the franchise (including player contracts) is a section 197 intangible amortizable over a 15-year period. Www irs gov formspubs Contract for the use of, or a term interest in, a section 197 intangible. Www irs gov formspubs   Section 197 intangibles include any right under a license, contract, or other arrangement providing for the use of any section 197 intangible. Www irs gov formspubs It also includes any term interest in any section 197 intangible, whether the interest is outright or in trust. Www irs gov formspubs Assets That Are Not Section 197 Intangibles The following assets are not section 197 intangibles. Www irs gov formspubs Any interest in a corporation, partnership, trust, or estate. Www irs gov formspubs Any interest under an existing futures contract, foreign currency contract, notional principal contract, interest rate swap, or similar financial contract. Www irs gov formspubs Any interest in land. Www irs gov formspubs Most computer software. Www irs gov formspubs (See Computer software , later. Www irs gov formspubs ) Any of the following assets not acquired in connection with the acquisition of a trade or business or a substantial part of a trade or business. Www irs gov formspubs An interest in a film, sound recording, video tape, book, or similar property. Www irs gov formspubs A right to receive tangible property or services under a contract or from a governmental agency. Www irs gov formspubs An interest in a patent or copyright. Www irs gov formspubs Certain rights that have a fixed duration or amount. Www irs gov formspubs (See Rights of fixed duration or amount , later. Www irs gov formspubs ) An interest under either of the following. Www irs gov formspubs An existing lease or sublease of tangible property. Www irs gov formspubs A debt that was in existence when the interest was acquired. Www irs gov formspubs A right to service residential mortgages unless the right is acquired in connection with the acquisition of a trade or business or a substantial part of a trade or business. Www irs gov formspubs Certain transaction costs incurred by parties to a corporate organization or reorganization in which any part of a gain or loss is not recognized. Www irs gov formspubs Intangible property that is not amortizable under the rules for section 197 intangibles can be depreciated if it meets certain requirements. Www irs gov formspubs You generally must use the straight line method over its useful life. Www irs gov formspubs For certain intangibles, the depreciation period is specified in the law and regulations. Www irs gov formspubs For example, the depreciation period for computer software that is not a section 197 intangible is generally 36 months. Www irs gov formspubs For more information on depreciating intangible property, see Intangible Property under What Method Can You Use To Depreciate Your Property? in chapter 1 of Publication 946. Www irs gov formspubs Computer software. Www irs gov formspubs   Section 197 intangibles do not include the following types of computer software. Www irs gov formspubs Software that meets all the following requirements. Www irs gov formspubs It is, or has been, readily available for purchase by the general public. Www irs gov formspubs It is subject to a nonexclusive license. Www irs gov formspubs It has not been substantially modified. Www irs gov formspubs This requirement is considered met if the cost of all modifications is not more than the greater of 25% of the price of the publicly available unmodified software or $2,000. Www irs gov formspubs Software that is not acquired in connection with the acquisition of a trade or business or a substantial part of a trade or business. Www irs gov formspubs Computer software defined. Www irs gov formspubs   Computer software includes all programs designed to cause a computer to perform a desired function. Www irs gov formspubs It also includes any database or similar item that is in the public domain and is incidental to the operation of qualifying software. Www irs gov formspubs Rights of fixed duration or amount. Www irs gov formspubs   Section 197 intangibles do not include any right under a contract or from a governmental agency if the right is acquired in the ordinary course of a trade or business (or in an activity engaged in for the production of income) but not as part of a purchase of a trade or business and either: Has a fixed life of less than 15 years, or Is of a fixed amount that, except for the rules for section 197 intangibles, would be recovered under a method similar to the unit-of-production method of cost recovery. Www irs gov formspubs However, this does not apply to the following intangibles. Www irs gov formspubs Goodwill. Www irs gov formspubs Going concern value. Www irs gov formspubs A covenant not to compete. Www irs gov formspubs A franchise, trademark, or trade name. Www irs gov formspubs A customer-related information base, customer-based intangible, or similar item. Www irs gov formspubs Safe Harbor for Creative Property Costs If you are engaged in the trade or business of film production, you may be able to amortize the creative property costs for properties not set for production within 3 years of the first capitalized transaction. Www irs gov formspubs You may amortize these costs ratably over a 15-year period beginning on the first day of the second half of the tax year in which you properly write off the costs for financial accounting purposes. Www irs gov formspubs If, during the 15-year period, you dispose of the creative property rights, you must continue to amortize the costs over the remainder of the 15-year period. Www irs gov formspubs Creative property costs include costs paid or incurred to acquire and develop screenplays, scripts, story outlines, motion picture production rights to books and plays, and other similar properties for purposes of potential future film development, production, and exploitation. Www irs gov formspubs Amortize these costs using the rules of Revenue Procedure 2004-36. Www irs gov formspubs For more information, see Revenue Procedure 2004-36, 2004-24 I. Www irs gov formspubs R. Www irs gov formspubs B. Www irs gov formspubs 1063, available at  www. Www irs gov formspubs irs. Www irs gov formspubs gov/irb/2004-24_IRB/ar16. Www irs gov formspubs html. Www irs gov formspubs A change in the treatment of creative property costs is a change in method of accounting. Www irs gov formspubs Anti-Churning Rules Anti-churning rules prevent you from amortizing most section 197 intangibles if the transaction in which you acquired them did not result in a significant change in ownership or use. Www irs gov formspubs These rules apply to goodwill and going concern value, and to any other section 197 intangible that is not otherwise depreciable or amortizable. Www irs gov formspubs Under the anti-churning rules, you cannot use 15-year amortization for the intangible if any of the following conditions apply. Www irs gov formspubs You or a related person (defined later) held or used the intangible at any time from July 25, 1991, through August 10, 1993. Www irs gov formspubs You acquired the intangible from a person who held it at any time during the period in (1) and, as part of the transaction, the user did not change. Www irs gov formspubs You granted the right to use the intangible to a person (or a person related to that person) who held or used it at any time during the period in (1). Www irs gov formspubs This applies only if the transaction in which you granted the right and the transaction in which you acquired the intangible are part of a series of related transactions. Www irs gov formspubs See Related person , later, for more information. Www irs gov formspubs Exceptions. Www irs gov formspubs   The anti-churning rules do not apply in the following situations. Www irs gov formspubs You acquired the intangible from a decedent and its basis was stepped up to its fair market value. Www irs gov formspubs The intangible was amortizable as a section 197 intangible by the seller or transferor you acquired it from. Www irs gov formspubs This exception does not apply if the transaction in which you acquired the intangible and the transaction in which the seller or transferor acquired it are part of a series of related transactions. Www irs gov formspubs The gain-recognition exception, discussed later, applies. Www irs gov formspubs Related person. Www irs gov formspubs   For purposes of the anti-churning rules, the following are related persons. Www irs gov formspubs An individual and his or her brothers, sisters, half-brothers, half-sisters, spouse, ancestors (parents, grandparents, etc. Www irs gov formspubs ), and lineal descendants (children, grandchildren, etc. Www irs gov formspubs ). Www irs gov formspubs A corporation and an individual who owns, directly or indirectly, more than 20% of the value of the corporation's outstanding stock. Www irs gov formspubs Two corporations that are members of the same controlled group as defined in section 1563(a) of the Internal Revenue Code, except that “more than 20%” is substituted for “at least 80%” in that definition and the determination is made without regard to subsections (a)(4) and (e)(3)(C) of section 1563. Www irs gov formspubs (For an exception, see section 1. Www irs gov formspubs 197-2(h)(6)(iv) of the regulations. Www irs gov formspubs ) A trust fiduciary and a corporation if more than 20% of the value of the corporation's outstanding stock is owned, directly or indirectly, by or for the trust or grantor of the trust. Www irs gov formspubs The grantor and fiduciary, and the fiduciary and beneficiary, of any trust. Www irs gov formspubs 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. Www irs gov formspubs The executor and beneficiary of an estate. Www irs gov formspubs A tax-exempt educational or charitable organization and a person who directly or indirectly controls the organization (or whose family members control it). Www irs gov formspubs A corporation and a partnership if the same persons own more than 20% of the value of the outstanding stock of the corporation and more than 20% of the capital or profits interest in the partnership. Www irs gov formspubs Two S corporations, and an S corporation and a regular corporation, if the same persons own more than 20% of the value of the outstanding stock of each corporation. Www irs gov formspubs Two partnerships if the same persons own, directly or indirectly, more than 20% of the capital or profits interests in both partnerships. Www irs gov formspubs A partnership and a person who owns, directly or indirectly, more than 20% of the capital or profits interests in the partnership. Www irs gov formspubs Two persons who are engaged in trades or businesses under common control (as described in section 41(f)(1) of the Internal Revenue Code). Www irs gov formspubs When to determine relationship. Www irs gov formspubs   Persons are treated as related if the relationship existed at the following time. Www irs gov formspubs In the case of a single transaction, immediately before or immediately after the transaction in which the intangible was acquired. Www irs gov formspubs In the case of a series of related transactions (or a series of transactions that comprise a qualified stock purchase under section 338(d)(3) of the Internal Revenue Code), immediately before the earliest transaction or immediately after the last transaction. Www irs gov formspubs Ownership of stock. Www irs gov formspubs   In determining whether an individual directly or indirectly owns any of the outstanding stock of a corporation, the following rules apply. Www irs gov formspubs Rule 1. Www irs gov formspubs   Stock directly or indirectly owned by or for a corporation, partnership, estate, or trust is considered owned proportionately by or for its shareholders, partners, or beneficiaries. Www irs gov formspubs Rule 2. Www irs gov formspubs   An individual is considered to own the stock directly or indirectly owned by or for his or her family. Www irs gov formspubs Family includes only brothers and sisters, half-brothers and half-sisters, spouse, ancestors, and lineal descendants. Www irs gov formspubs Rule 3. Www irs gov formspubs   An individual owning (other than by applying Rule 2) any stock in a corporation is considered to own the stock directly or indirectly owned by or for his or her partner. Www irs gov formspubs Rule 4. Www irs gov formspubs   For purposes of applying Rule 1, 2, or 3, treat stock constructively owned by a person under Rule 1 as actually owned by that person. Www irs gov formspubs Do not treat stock constructively owned by an individual under Rule 2 or 3 as owned by the individual for reapplying Rule 2 or 3 to make another person the constructive owner of the stock. Www irs gov formspubs Gain-recognition exception. Www irs gov formspubs   This exception to the anti-churning rules applies if the person you acquired the intangible from (the transferor) meets both of the following requirements. Www irs gov formspubs That person would not be related to you (as described under Related person , earlier) if the 20% test for ownership of stock and partnership interests were replaced by a 50% test. Www irs gov formspubs That person chose to recognize gain on the disposition of the intangible and pay income tax on the gain at the highest tax rate. Www irs gov formspubs See chapter 2 in Publication 544 for information on making this choice. Www irs gov formspubs   If this exception applies, the anti-churning rules apply only to the amount of your adjusted basis in the intangible that is more than the gain recognized by the transferor. Www irs gov formspubs Notification. Www irs gov formspubs   If the person you acquired the intangible from chooses to recognize gain under the rules for this exception, that person must notify you in writing by the due date of the return on which the choice is made. Www irs gov formspubs Anti-abuse rule. Www irs gov formspubs   You cannot amortize any section 197 intangible acquired in a transaction for which the principal purpose was either of the following. Www irs gov formspubs To avoid the requirement that the intangible be acquired after August 10, 1993. Www irs gov formspubs To avoid any of the anti-churning rules. Www irs gov formspubs More information. Www irs gov formspubs   For more information about the anti-churning rules, including additional rules for partnerships, see Regulations section 1. Www irs gov formspubs 197-2(h). Www irs gov formspubs Incorrect Amount of Amortization Deducted If you later discover that you deducted an incorrect amount for amortization for a section 197 intangible in any year, you may be able to make a correction for that year by filing an amended return. Www irs gov formspubs See Amended Return , next. Www irs gov formspubs If you are not allowed to make the correction on an amended return, you can change your accounting method to claim the correct amortization. Www irs gov formspubs See Changing Your Accounting Method , later. Www irs gov formspubs Amended Return If you deducted an incorrect amount for amortization, you can file an amended return to correct the following. Www irs gov formspubs A mathematical error made in any year. Www irs gov formspubs A posting error made in any year. Www irs gov formspubs An amortization deduction for a section 197 intangible for which you have not adopted a method of accounting. Www irs gov formspubs When to file. Www irs gov formspubs   If an amended return is allowed, you must file it by the later of the following dates. Www irs gov formspubs 3 years from the date you filed your original return for the year in which you did not deduct the correct amount. Www irs gov formspubs (A return filed early is considered filed on the due date. Www irs gov formspubs ) 2 years from the time you paid your tax for that year. Www irs gov formspubs Changing Your Accounting Method Generally, you must get IRS approval to change your method of accounting. Www irs gov formspubs File Form 3115, Application for Change in Accounting Method, to request a change to a permissible method of accounting for amortization. Www irs gov formspubs The following are examples of a change in method of accounting for amortization. Www irs gov formspubs A change in the amortization method, period of recovery, or convention of an amortizable asset. Www irs gov formspubs A change in the accounting for amortizable assets from a single asset account to a multiple asset account (pooling), or vice versa. Www irs gov formspubs A change in the accounting for amortizable assets from one type of multiple asset account to a different type of multiple asset account. Www irs gov formspubs Changes in amortization that are not a change in method of accounting include the following: A change in computing amortization in the tax year in which your use of the asset changes. Www irs gov formspubs An adjustment in the useful life of an amortizable asset. Www irs gov formspubs Generally, the making of a late amortization election or the revocation of a timely valid amortization election. Www irs gov formspubs Any change in the placed-in-service date of an amortizable asset. Www irs gov formspubs See Regulations section 1. Www irs gov formspubs 446-1(e)(2)(ii)(a) for more information and examples. Www irs gov formspubs Automatic approval. Www irs gov formspubs   In some instances, you may be able to get automatic approval from the IRS to change your method of accounting for amortization. Www irs gov formspubs For a list of automatic accounting method changes, see the Instructions for Form 3115. Www irs gov formspubs Also see the Instructions for Form 3115 for more information on getting approval, automatic approval procedures, and a list of exceptions to the automatic approval process. Www irs gov formspubs For more information, see Revenue Procedure 2006-12, as modified by Revenue Procedure 2006-37, and Revenue Procedure 2008-52, as amplified, clarified, and modified by Revenue Procedure 2009-39, as clarified and modified by Revenue Procedure 2011-14, as modified and amplified by Revenue Procedure 2011-22, as modified by Revenue Procedure 2012-39, or any successor. Www irs gov formspubs See Revenue Procedure 2006-12, 2006-3 I. Www irs gov formspubs R. Www irs gov formspubs B. Www irs gov formspubs 310, available at  www. Www irs gov formspubs irs. Www irs gov formspubs gov/irb/2006-03_IRB/ar14. Www irs gov formspubs html. Www irs gov formspubs  See Revenue Procedure 2006-37, 2006-38 I. Www irs gov formspubs R. Www irs gov formspubs B. Www irs gov formspubs 499, available at  www. Www irs gov formspubs irs. Www irs gov formspubs gov/irb/2006-38_IRB/ar10. Www irs gov formspubs html. Www irs gov formspubs  See Revenue Procedure 2008-52, 2008-36 I. Www irs gov formspubs R. Www irs gov formspubs B. Www irs gov formspubs 587, available at www. Www irs gov formspubs irs. Www irs gov formspubs gov/irb/2008-36_IRB/ar09. Www irs gov formspubs html. Www irs gov formspubs  See Revenue Procedure 2009-39, 2009-38 I. Www irs gov formspubs R. Www irs gov formspubs B. Www irs gov formspubs 371, available at  www. Www irs gov formspubs irs. Www irs gov formspubs gov/irb/2009-38_IRB/ar08. Www irs gov formspubs html. Www irs gov formspubs  See Revenue Procedure 2011-14, 2011-4 I. Www irs gov formspubs R. Www irs gov formspubs B. Www irs gov formspubs 330, available at  www. Www irs gov formspubs irs. Www irs gov formspubs gov/irb/2011-04_IRB/ar08. Www irs gov formspubs html. Www irs gov formspubs  See Revenue Procedure 2011-22, 2011-18 I. Www irs gov formspubs R. Www irs gov formspubs B. Www irs gov formspubs 737, available at  www. Www irs gov formspubs irs. Www irs gov formspubs gov/irb/2011-18_IRB/ar08. Www irs gov formspubs html. Www irs gov formspubs Also, see Revenue Procedure 2012-39, 2012-41 I. Www irs gov formspubs R. Www irs gov formspubs B. Www irs gov formspubs 470 available at www. Www irs gov formspubs irs. Www irs gov formspubs gov/irb/2012-41_IRB/index. Www irs gov formspubs html. Www irs gov formspubs Disposition of Section 197 Intangibles A section 197 intangible is treated as depreciable property used in your trade or business. Www irs gov formspubs If you held the intangible for more than 1 year, any gain on its disposition, up to the amount of allowable amortization, is ordinary income (section 1245 gain). Www irs gov formspubs If multiple section 197 intangibles are disposed of in a single transaction or a series of related transactions, treat all of the section 197 intangibles as if they were a single asset for purposes of determining the amount of gain that is ordinary income. Www irs gov formspubs Any remaining gain, or any loss, is a section 1231 gain or loss. Www irs gov formspubs If you held the intangible 1 year or less, any gain or loss on its disposition is an ordinary gain or loss. Www irs gov formspubs For more information on ordinary or capital gain or loss on business property, see chapter 3 in Publication 544. Www irs gov formspubs Nondeductible loss. Www irs gov formspubs   You cannot deduct any loss on the disposition or worthlessness of a section 197 intangible that you acquired in the same transaction (or series of related transactions) as other section 197 intangibles you still have. Www irs gov formspubs Instead, increase the adjusted basis of each remaining amortizable section 197 intangible by a proportionate part of the nondeductible loss. Www irs gov formspubs Figure the increase by multiplying the nondeductible loss on the disposition of the intangible by the following fraction. Www irs gov formspubs The numerator is the adjusted basis of each remaining intangible on the date of the disposition. Www irs gov formspubs The denominator is the total adjusted bases of all remaining amortizable section 197 intangibles on the date of the disposition. Www irs gov formspubs Covenant not to compete. Www irs gov formspubs   A covenant not to compete, or similar arrangement, is not considered disposed of or worthless before you dispose of your entire interest in the trade or business for which you entered into the covenant. Www irs gov formspubs Nonrecognition transfers. Www irs gov formspubs   If you acquire a section 197 intangible in a nonrecognition transfer, you are treated as the transferor with respect to the part of your adjusted basis in the intangible that is not more than the transferor's adjusted basis. Www irs gov formspubs You amortize this part of the adjusted basis over the intangible's remaining amortization period in the hands of the transferor. Www irs gov formspubs Nonrecognition transfers include transfers to a corporation, partnership contributions and distributions, like-kind exchanges, and involuntary conversions. Www irs gov formspubs   In a like-kind exchange or involuntary conversion of a section 197 intangible, you must continue to amortize the part of your adjusted basis in the acquired intangible that is not more than your adjusted basis in the exchanged or converted intangible over the remaining amortization period of the exchanged or converted intangible. Www irs gov formspubs Amortize over a new 15-year period the part of your adjusted basis in the acquired intangible that is more than your adjusted basis in the exchanged or converted intangible. Www irs gov formspubs Example. Www irs gov formspubs You own a section 197 intangible you have amortized for 4 full years. Www irs gov formspubs It has a remaining unamortized basis of $30,000. Www irs gov formspubs You exchange the asset plus $10,000 for a like-kind section 197 intangible. Www irs gov formspubs The nonrecognition provisions of like-kind exchanges apply. Www irs gov formspubs You amortize $30,000 of the $40,000 adjusted basis of the acquired intangible over the 11 years remaining in the original 15-year amortization period for the transferred asset. Www irs gov formspubs You amortize the other $10,000 of adjusted basis over a new 15-year period. Www irs gov formspubs For more information, see Regulations section 1. Www irs gov formspubs 197-2(g). Www irs gov formspubs Reforestation Costs You can elect to deduct a limited amount of reforestation costs paid or incurred during the tax year. Www irs gov formspubs See Reforestation Costs in chapter 7. Www irs gov formspubs You can elect to amortize the qualifying costs that are not deducted currently over an 84-month period. Www irs gov formspubs There is no limit on the amount of your amortization deduction for reforestation costs paid or incurred during the tax year. Www irs gov formspubs The election to amortize reforestation costs incurred by a partnership, S corporation, or estate must be made by the partnership, corporation, or estate. Www irs gov formspubs A partner, shareholder, or beneficiary cannot make that election. Www irs gov formspubs A partner's or shareholder's share of amortizable costs is figured under the general rules for allocating items of income, loss, deduction, etc. Www irs gov formspubs , of a partnership or S corporation. Www irs gov formspubs The amortizable costs of an estate are divided between the estate and the income beneficiary based on the income of the estate allocable to each. Www irs gov formspubs Qualifying costs. Www irs gov formspubs   Reforestation costs are the direct costs of planting or seeding for forestation or reforestation. Www irs gov formspubs Qualifying costs include only those costs you must capitalize and include in the adjusted basis of the property. Www irs gov formspubs They include costs for the following items. Www irs gov formspubs Site preparation. Www irs gov formspubs Seeds or seedlings. Www irs gov formspubs Labor. Www irs gov formspubs Tools. Www irs gov formspubs Depreciation on equipment used in planting and seeding. Www irs gov formspubs Qualifying costs do not include costs for which the government reimburses you under a cost-sharing program, unless you include the reimbursement in your income. Www irs gov formspubs Qualified timber property. Www irs gov formspubs   Qualified timber property is property that contains trees in significant commercial quantities. Www irs gov formspubs It can be a woodlot or other site that you own or lease. Www irs gov formspubs The property qualifies only if it meets all of the following requirements. Www irs gov formspubs It is located in the United States. Www irs gov formspubs It is held for the growing and cutting of timber you will either use in, or sell for use in, the commercial production of timber products. Www irs gov formspubs It consists of at least one acre planted with tree seedlings in the manner normally used in forestation or reforestation. Www irs gov formspubs Qualified timber property does not include property on which you have planted shelter belts or ornamental trees, such as Christmas trees. Www irs gov formspubs Amortization period. Www irs gov formspubs   The 84-month amortization period starts on the first day of the first month of the second half of the tax year you incur the costs (July 1 for a calendar year taxpayer), regardless of the month you actually incur the costs. Www irs gov formspubs You can claim amortization deductions for no more than 6 months of the first and last (eighth) tax years of the period. Www irs gov formspubs Life tenant and remainderman. Www irs gov formspubs   If one person holds the property for life with the remainder going to another person, the life tenant is entitled to the full amortization for qualifying reforestation costs incurred by the life tenant. Www irs gov formspubs Any remainder interest in the property is ignored for amortization purposes. Www irs gov formspubs Recapture. Www irs gov formspubs   If you dispose of qualified timber property within 10 years after the tax year you incur qualifying reforestation expenses, report any gain as ordinary income up to the amortization you took. Www irs gov formspubs See chapter 3 of Publication 544 for more information. Www irs gov formspubs How to make the election. Www irs gov formspubs   To elect to amortize qualifying reforestation costs, complete Part VI of Form 4562 and attach a statement that contains the following information. Www irs gov formspubs A description of the costs and the dates you incurred them. Www irs gov formspubs A description of the type of timber being grown and the purpose for which it is grown. Www irs gov formspubs Attach a separate statement for each property for which you amortize reforestation costs. Www irs gov formspubs   Generally, you must make the election on a timely filed return (including extensions) for the tax year in which you incurred the costs. Www irs gov formspubs However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Www irs gov formspubs Attach Form 4562 and the statement to the amended return and write “Filed pursuant to section 301. Www irs gov formspubs 9100-2” on Form 4562. Www irs gov formspubs File the amended return at the same address you filed the original return. Www irs gov formspubs Revoking the election. Www irs gov formspubs   You must get IRS approval to revoke your election to amortize qualifying reforestation costs. Www irs gov formspubs Your application to revoke the election must include your name, address, the years for which your election was in effect, and your reason for revoking it. Www irs gov formspubs Please provide your daytime telephone number (optional), in case we need to contact you. Www irs gov formspubs You, or your duly authorized representative, must sign the application and file it at least 90 days before the due date (without extensions) for filing your income tax return for the first tax year for which your election is to end. Www irs gov formspubs    Send the application to: Internal Revenue Service Associate Chief Counsel Passthroughs and Special Industries CC:PSI:6 1111 Constitution Ave. Www irs gov formspubs NW, IR-5300 Washington, DC 20224 Geological and Geophysical Costs You can amortize the cost of geological and geophysical expenses paid or incurred in connection with oil and gas exploration or development within the United States. Www irs gov formspubs These costs can be amortized ratably over a 24-month period beginning on the mid-point of the tax year in which the expenses were paid or incurred. Www irs gov formspubs For major integrated oil companies (as defined in section 167(h)(5)), these costs must be amortized ratably over a 5-year period for costs paid or incurred after May 17, 2006 (a 7-year period for costs paid or incurred after December 19, 2007). Www irs gov formspubs If you retire or abandon the property during the amortization period, no amortization deduction is allowed in the year of retirement or abandonment. Www irs gov formspubs Pollution Control Facilities You can elect to amortize the cost of a certified pollution control facility over 60 months. Www irs gov formspubs However, see Atmospheric pollution control facilities for an exception. Www irs gov formspubs The cost of a pollution control facility that is not eligible for amortization can be depreciated under the regular rules for depreciation. Www irs gov formspubs Also, you can claim a special depreciation allowance on a certified pollution control facility that is qualified property even if you elect to amortize its cost. Www irs gov formspubs You must reduce its cost (amortizable basis) by the amount of any special allowance you claim. Www irs gov formspubs See chapter 3 of Publication 946. Www irs gov formspubs A certified pollution control facility is a new identifiable treatment facility used in connection with a plant or other property in operation before 1976, to reduce or control water or atmospheric pollution or contamination. Www irs gov formspubs The facility must do so by removing, changing, disposing, storing, or preventing the creation or emission of pollutants, contaminants, wastes, or heat. Www irs gov formspubs The facility must be certified by state and federal certifying authorities. Www irs gov formspubs The facility must not significantly increase the output or capacity, extend the useful life, or reduce the total operating costs of the plant or other property. Www irs gov formspubs Also, it must not significantly change the nature of the manufacturing or production process or facility. Www irs gov formspubs The federal certifying authority will not certify your property to the extent it appears you will recover (over the property's useful life) all or part of its cost from the profit based on its operation (such as through sales of recovered wastes). Www irs gov formspubs The federal certifying authority will describe the nature of the potential cost recovery. Www irs gov formspubs You must then reduce the amortizable basis of the facility by this potential recovery. Www irs gov formspubs New identifiable treatment facility. Www irs gov formspubs   A new identifiable treatment facility is tangible depreciable property that is identifiable as a treatment facility. Www irs gov formspubs It does not include a building and its structural components unless the building is exclusively a treatment facility. Www irs gov formspubs Atmospheric pollution control facilities. Www irs gov formspubs   Certain atmospheric pollution control facilities can be amortized over 84 months. Www irs gov formspubs To qualify, the following must apply. Www irs gov formspubs The facility must be acquired and placed in service after April 11, 2005. Www irs gov formspubs If acquired, the original use must begin with you after April 11, 2005. Www irs gov formspubs The facility must be used in connection with an electric generation plant or other property placed in operation after December 31, 1975, that is primarily coal fired. Www irs gov formspubs If you construct, reconstruct, or erect the facility, only the basis attributable to the construction, reconstruction, or erection completed after April 11, 2005, qualifies. Www irs gov formspubs Basis reduction for corporations. Www irs gov formspubs   A corporation must reduce the amortizable basis of a pollution control facility by 20% before figuring the amortization deduction. Www irs gov formspubs More information. Www irs gov formspubs   For more information on the amortization of pollution control facilities, see Code sections 169 and 291(c) and the related regulations. Www irs gov formspubs Research and Experimental Costs You can elect to amortize your research and experimental costs, deduct them as current business expenses, or write them off over a 10-year period (see Optional write-off method below). Www irs gov formspubs If you elect to amortize these costs, deduct them in equal amounts over 60 months or more. Www irs gov formspubs The amortization period begins the month you first receive an economic benefit from the costs. Www irs gov formspubs For a definition of “research and experimental costs” and information on deducting them as current business expenses, see chapter 7. Www irs gov formspubs Optional write-off method. Www irs gov formspubs   Rather than amortize these costs or deduct them as a current expense, you have the option of deducting (writing off) research and experimental costs ratably over a 10-year period beginning with the tax year in which you incurred the costs. Www irs gov formspubs For more information, see Optional Write-off of Certain Tax Preferences , later, and section 59(e) of the Internal Revenue Code. Www irs gov formspubs Costs you can amortize. Www irs gov formspubs   You can amortize costs chargeable to a capital account (see chapter 1) if you meet both of the following requirements. Www irs gov formspubs You paid or incurred the costs in your trade or business. Www irs gov formspubs You are not deducting the costs currently. Www irs gov formspubs How to make the election. Www irs gov formspubs   To elect to amortize research and experimental costs, complete Part VI of Form 4562 and attach it to your income tax return. Www irs gov formspubs Generally, you must file the return by the due date (including extensions). Www irs gov formspubs However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Www irs gov formspubs Attach Form 4562 to the amended return and write “Filed pursuant to section 301. Www irs gov formspubs 9100-2” on Form 4562. Www irs gov formspubs File the amended return at the same address you filed the original return. Www irs gov formspubs   Your election is binding for the year it is made and for all later years unless you obtain approval from the IRS to change to a different method. Www irs gov formspubs Optional Write-off of Certain Tax Preferences You can elect to amortize certain tax preference items over an optional period beginning in the tax year in which you incurred the costs. Www irs gov formspubs If you make this election, there is no AMT adjustment. Www irs gov formspubs The applicable costs and the optional recovery periods are as follows: Circulation costs — 3 years, Intangible drilling and development costs — 60 months, Mining exploration and development costs — 10 years, and Research and experimental costs — 10 years. Www irs gov formspubs How to make the election. Www irs gov formspubs   To elect to amortize qualifying costs over the optional recovery period, complete Part VI of Form 4562 and attach a statement containing the following information to your return for the tax year in which the election begins: Your name, address, and taxpayer identification number; and The type of cost and the specific amount of the cost for which you are making the election. Www irs gov formspubs   Generally, the election must be made on a timely filed return (including extensions) for the tax year in which you incurred the costs. Www irs gov formspubs However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Www irs gov formspubs Attach Form 4562 to the amended return and write “Filed pursuant to section 301. Www irs gov formspubs 9100-2” on Form 4562. Www irs gov formspubs File the amended return at the same address you filed the original return. Www irs gov formspubs Revoking the election. Www irs gov formspubs   You must obtain consent from the IRS to revoke your election. Www irs gov formspubs Your request to revoke the election must be submitted to the IRS in the form of a letter ruling before the end of the tax year in which the optional recovery period ends. Www irs gov formspubs The request must contain all of the information necessary to demonstrate the rare and unusual circumstances that would justify granting revocation. Www irs gov formspubs If the request for revocation is approved, any unamortized costs are deductible in the year the revocation is effective. Www irs gov formspubs Prev  Up  Next   Home   More Online Publications
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The Www Irs Gov Formspubs

Www irs gov formspubs Publication 17 - Introductory Material Table of Contents What's New Reminders IntroductionIcons. Www irs gov formspubs Ordering forms and publications. Www irs gov formspubs Tax questions. Www irs gov formspubs All material in this publication may be reprinted freely. Www irs gov formspubs A citation to Your Federal Income Tax (2013) would be appropriate. Www irs gov formspubs The explanations and examples in this publication reflect the interpretation by the Internal Revenue Service (IRS) of: Tax laws enacted by Congress, Treasury regulations, and Court decisions. Www irs gov formspubs However, the information given does not cover every situation and is not intended to replace the law or change its meaning. Www irs gov formspubs This publication covers some subjects on which a court may have made a decision more favorable to taxpayers than the interpretation by the IRS. Www irs gov formspubs Until these differing interpretations are resolved by higher court decisions or in some other way, this publication will continue to present the interpretations by the IRS. Www irs gov formspubs All taxpayers have important rights when working with the IRS. Www irs gov formspubs These rights are described in Your Rights as a Taxpayer in the back of this publication. Www irs gov formspubs What's New This section summarizes important tax changes that took effect in 2013. Www irs gov formspubs Most of these changes are discussed in more detail throughout this publication. Www irs gov formspubs Future developments. Www irs gov formspubs  For the latest information about the tax law topics covered in this publication, including information about any tax legislation, go to www. Www irs gov formspubs irs. Www irs gov formspubs gov/pub17. Www irs gov formspubs Additional Medicare Tax. Www irs gov formspubs  Beginning in 2013, a 0. Www irs gov formspubs 9% Additional Medicare Tax applies to Medicare wages, railroad retirement (RRTA) compensation, and self-employment income that are more than: $125,000 if married filing separately, $250,000 if married filing jointly, or $200,000 for any other filing status. Www irs gov formspubs See Form 8959 and its instructions. Www irs gov formspubs Net Investment Income Tax. Www irs gov formspubs  Beginning in 2013, you may be subject to Net Investment Income Tax (NIIT). Www irs gov formspubs The NIIT is 3. Www irs gov formspubs 8% of the smaller of (a) your net investment income or (b) the excess of your modified adjusted gross income over: $125,000 if married filing separately, $250,000 if married filing jointly or qualifying widow(er), or $200,000 if any other filing status. Www irs gov formspubs See Form 8960 and its instructions. Www irs gov formspubs Change in tax rates. Www irs gov formspubs  The highest tax rate is 39. Www irs gov formspubs 6%. Www irs gov formspubs For more information, see the 2013 Tax Computation Worksheet or the 2013 Tax Rate Schedules near the end of this publication. Www irs gov formspubs Tax rate on net capital gain and qualified dividends. Www irs gov formspubs  The maximum tax rate of 15% on net capital gain and qualified dividends has increased to 20% for some taxpayers. Www irs gov formspubs See chapter 16. Www irs gov formspubs Medical and dental expenses. Www irs gov formspubs  You can deduct only the part of your medical and dental expenses that is more than 10% of your adjusted gross income (7. Www irs gov formspubs 5% if either you or your spouse is age 65 or older). Www irs gov formspubs See chapter 21. Www irs gov formspubs Personal exemption amount increased for certain taxpayers. Www irs gov formspubs  Your personal exemption is increased to $3,900. Www irs gov formspubs But the amount is reduced if your adjusted gross income is more than: $150,000 if married filing separately, $250,000 if single, $275,000 if head of household, or $300,000 if any other filing status. Www irs gov formspubs See chapter 3. Www irs gov formspubs Limit on itemized deductions. Www irs gov formspubs  You may not be able to deduct all of your itemized deductions if your adjusted gross income is more than: $150,000 if married filing separately, $250,000 if single, $275,000 if head of household, or $300,000 if any other filing status. Www irs gov formspubs See chapter 29. Www irs gov formspubs Same-sex marriages. Www irs gov formspubs  If you have a same-sex spouse whom you legally married in a state (or foreign country) that recognizes same-sex marriage, you and your spouse generally must use the married filing jointly or married filing separately filing status on your 2013 return, even if you and your spouse now live in a state (or foreign country) that does not recognize same-sex marriage. Www irs gov formspubs See chapter 2. Www irs gov formspubs If you meet certain requirements, you may be able to file amended returns to change your filing status for some earlier years. Www irs gov formspubs For details on filing amended returns, see chapter 1. Www irs gov formspubs Health flexible spending arrangements (FSAs). Www irs gov formspubs  You cannot have more than $2,500 in salary reduction contributions made to a health FSA for plan years beginning after 2012. Www irs gov formspubs See chapter 5. Www irs gov formspubs Expiring credits. Www irs gov formspubs  The plug-in electric vehicle credit and the refundable part of the credit for prior year minimum tax have expired. Www irs gov formspubs You cannot claim either one on your 2013 return. Www irs gov formspubs See chapter 37. Www irs gov formspubs Ponzi-type investment schemes. Www irs gov formspubs  There are new rules for how to claim a theft loss deduction on Form 4684 due to a Ponzi-type investment scheme. Www irs gov formspubs See chapter 25. Www irs gov formspubs Home office deduction simplified method. Www irs gov formspubs  If you can take a home office deduction, you may be able to use a simplified method to figure it. Www irs gov formspubs See Publication 587. Www irs gov formspubs Standard mileage rates. Www irs gov formspubs  The 2013 rate for business use of your car is increased to 56½ cents a mile. Www irs gov formspubs See chapter 26. Www irs gov formspubs The 2013 rate for use of your car to get medical care is increased to 24 cents a mile. Www irs gov formspubs See chapter 21. Www irs gov formspubs The 2013 rate for use of your car to move is increased to 24 cents a mile. Www irs gov formspubs See Publication 521, Moving Expenses. Www irs gov formspubs Reminders Listed below are important reminders and other items that may help you file your 2013 tax return. Www irs gov formspubs Many of these items are explained in more detail later in this publication. Www irs gov formspubs Enter your social security number (SSN). Www irs gov formspubs  Enter your SSN in the space provided on your tax form. Www irs gov formspubs If you filed a joint return for 2012 and are filing a joint return for 2013 with the same spouse, enter your names and SSNs in the same order as on your 2012 return. Www irs gov formspubs See chapter 1. Www irs gov formspubs Secure your tax records from identity theft. Www irs gov formspubs  Identity theft occurs when someone uses your personal information, such as your name, SSN, or other identifying information, without your permission, to commit fraud or other crimes. Www irs gov formspubs An identity thief may use your SSN to get a job or may file a tax return using your SSN to receive a refund. Www irs gov formspubs For more information about identity theft and how to reduce your risk from it, see chapter 1. Www irs gov formspubs Taxpayer identification numbers. Www irs gov formspubs  You must provide the taxpayer identification number for each person for whom you claim certain tax benefits. Www irs gov formspubs This applies even if the person was born in 2013. Www irs gov formspubs Generally, this number is the person's social security number (SSN). Www irs gov formspubs See chapter 1. Www irs gov formspubs Foreign source income. Www irs gov formspubs  If you are a U. Www irs gov formspubs S. Www irs gov formspubs citizen with income from sources outside the United States (foreign income), you must report all such income on your tax return unless it is exempt by U. Www irs gov formspubs S. Www irs gov formspubs law. Www irs gov formspubs This is true whether you live inside or outside the United States and whether or not you receive a Form W-2 or Form 1099 from the foreign payer. Www irs gov formspubs This applies to earned income (such as wages and tips) as well as unearned income (such as interest, dividends, capital gains, pensions, rents and royalties). Www irs gov formspubs If you live outside the United States, you may be able to exclude part or all of your foreign source earned income. Www irs gov formspubs For details, see Publication 54, Tax Guide for U. Www irs gov formspubs S. Www irs gov formspubs Citizens and Resident Aliens Abroad. Www irs gov formspubs Foreign financial assets. Www irs gov formspubs  If you had foreign financial assets in 2013, you may have to file Form 8938 with your return. Www irs gov formspubs Check www. Www irs gov formspubs IRS. Www irs gov formspubs gov/form8938 for details. Www irs gov formspubs Automatic 6-month extension to file tax return. Www irs gov formspubs  You can use Form 4868, Application for Automatic Extension of Time To File U. Www irs gov formspubs S. Www irs gov formspubs Individual Income Tax Return, to obtain an automatic 6-month extension of time to file your tax return. Www irs gov formspubs See chapter 1. Www irs gov formspubs Include your phone number on your return. Www irs gov formspubs  To promptly resolve any questions we have in processing your tax return, we would like to be able to call you. Www irs gov formspubs Please enter your daytime telephone number on your tax form next to your signature and occupation. Www irs gov formspubs If you are filing a joint return, you can enter either your or your spouse's daytime phone number. Www irs gov formspubs Payment of taxes. Www irs gov formspubs   You can pay your taxes online, by phone, or by check or money order. Www irs gov formspubs You can make a direct transfer from your bank account or use a credit or debit card. Www irs gov formspubs If you e-file, you can schedule an electronic payment. Www irs gov formspubs See chapter 1. Www irs gov formspubs Faster ways to file your return. Www irs gov formspubs  The IRS offers fast, accurate ways to file your tax return information without filing a paper tax return. Www irs gov formspubs You can use IRS e-file (electronic filing). Www irs gov formspubs See chapter 1. Www irs gov formspubs Free electronic filing. Www irs gov formspubs  You may be able to file your 2013 taxes online for free. Www irs gov formspubs See chapter 1. Www irs gov formspubs Change of address. Www irs gov formspubs  If you change your address, you should notify the IRS. Www irs gov formspubs See Change of Address in chapter 1. Www irs gov formspubs Refund on a late filed return. Www irs gov formspubs  If you were due a refund but you did not file a return, you generally must file your return within 3 years from the date the return was due (including extensions) to get that refund. Www irs gov formspubs See chapter 1. Www irs gov formspubs Frivolous tax returns. Www irs gov formspubs  The IRS has published a list of positions that are identified as frivolous. Www irs gov formspubs The penalty for filing a frivolous tax return is $5,000. Www irs gov formspubs See chapter 1. Www irs gov formspubs Filing erroneous claim for refund or credit. Www irs gov formspubs  You may have to pay a penalty if you file an erroneous claim for refund or credit. Www irs gov formspubs See chapter 1. Www irs gov formspubs Privacy Act and paperwork reduction information. Www irs gov formspubs   The IRS Restructuring and Reform Act of 1998, the Privacy Act of 1974, and the Paperwork Reduction Act of 1980 require that when we ask you for information we must first tell you what our legal right is to ask for the information, why we are asking for it, how it will be used, what could happen if we do not receive it, and whether your response is voluntary, required to obtain a benefit, or mandatory under the law. Www irs gov formspubs A complete statement on this subject can be found in your tax form instructions. Www irs gov formspubs Customer service for taxpayers. Www irs gov formspubs  You can set up a personal appointment at the most convenient Taxpayer Assistance Center, on the most convenient business day. Www irs gov formspubs See How To Get Tax Help in the back of this publication. Www irs gov formspubs Preparer e-file mandate. Www irs gov formspubs  Most paid preparers must e-file returns they prepare and file. Www irs gov formspubs Your preparer may make you aware of this requirement and the options available to you. Www irs gov formspubs Treasury Inspector General for Tax Administration. Www irs gov formspubs   If you want to confidentially report misconduct, waste, fraud, or abuse by an IRS employee, you can call 1-800-366-4484 (call 1-800-877-8339 if you are deaf, hard of hearing, or have a speech disability, and are using TTY/TDD equipment). Www irs gov formspubs You can remain anonymous. Www irs gov formspubs Photographs of missing children. Www irs gov formspubs  The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Www irs gov formspubs Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. Www irs gov formspubs 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. Www irs gov formspubs Introduction This publication covers the general rules for filing a federal income tax return. Www irs gov formspubs It supplements the information contained in your tax form instructions. Www irs gov formspubs It explains the tax law to make sure you pay only the tax you owe and no more. Www irs gov formspubs How this publication is arranged. Www irs gov formspubs   This publication closely follows Form 1040, U. Www irs gov formspubs S. Www irs gov formspubs Individual Income Tax Return. Www irs gov formspubs It is divided into six parts which cover different sections of Form 1040. Www irs gov formspubs Each part is further divided into chapters which generally discuss one line of the form. Www irs gov formspubs Do not worry if you file Form 1040A or Form 1040EZ. Www irs gov formspubs Anything included on a line of either of these forms is also included on Form 1040. Www irs gov formspubs   The table of contents inside the front cover and the index in the back of the publication are useful tools to help you find the information you need. Www irs gov formspubs What is in this publication. Www irs gov formspubs   The publication begins with the rules for filing a tax return. Www irs gov formspubs It explains: Who must file a return, Which tax form to use, When the return is due, How to e-file your return, and Other general information. Www irs gov formspubs It will help you identify which filing status you qualify for, whether you can claim any dependents, and whether the income you receive is taxable. Www irs gov formspubs The publication goes on to explain the standard deduction, the kinds of expenses you may be able to deduct, and the various kinds of credits you may be able to take to reduce your tax. Www irs gov formspubs   Throughout the publication are examples showing how the tax law applies in typical situations. Www irs gov formspubs Also throughout the publication are flowcharts and tables that present tax information in an easy-to-understand manner. Www irs gov formspubs   Many of the subjects discussed in this publication are discussed in greater detail in other IRS publications. Www irs gov formspubs References to those other publications are provided for your information. Www irs gov formspubs Icons. Www irs gov formspubs   Small graphic symbols, or icons, are used to draw your attention to special information. Www irs gov formspubs See Table 1 later for an explanation of each icon used in this publication. Www irs gov formspubs What is not covered in this publication. Www irs gov formspubs   Some material that you may find helpful is not included in this publication but can be found in your tax form instruction booklet. Www irs gov formspubs This includes lists of: Where to report certain items shown on information documents, and Recorded tax information topics (TeleTax). Www irs gov formspubs   If you operate your own business or have other self-employment income, such as from babysitting or selling crafts, see the following publications for more information. Www irs gov formspubs Publication 334, Tax Guide for Small Business (For Individuals Who Use Schedule C or C-EZ). Www irs gov formspubs Publication 535, Business Expenses. Www irs gov formspubs Publication 587, Business Use of Your Home (Including Use by Daycare Providers). Www irs gov formspubs Help from the IRS. Www irs gov formspubs   There are many ways you can get help from the IRS. Www irs gov formspubs These are explained under How To Get Tax Help in the back of this publication. Www irs gov formspubs Comments and suggestions. Www irs gov formspubs   We welcome your comments about this publication and your suggestions for future editions. Www irs gov formspubs   You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. Www irs gov formspubs NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. Www irs gov formspubs Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Www irs gov formspubs   You can send your comments from www. Www irs gov formspubs irs. Www irs gov formspubs gov/formspubs/. Www irs gov formspubs Click on “More Information” and then on “Comment on Tax Forms and Publications”. Www irs gov formspubs   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. Www irs gov formspubs Ordering forms and publications. Www irs gov formspubs   Visit www. Www irs gov formspubs irs. Www irs gov formspubs 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. Www irs gov formspubs Internal Revenue Service 1201 N. Www irs gov formspubs Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. Www irs gov formspubs   If you have a tax question, check the information available on IRS. Www irs gov formspubs gov or call 1-800-829-1040. Www irs gov formspubs We cannot answer tax questions sent to either of the above addresses. Www irs gov formspubs IRS mission. Www irs gov formspubs   Provide America's taxpayers top quality service by helping them understand and meet their tax responsibilities and by applying the tax law with integrity and fairness to all. Www irs gov formspubs Table 1. Www irs gov formspubs Legend of Icons Icon Explanation Items that may cause you particular problems, or an alert about pending legislation that may be enacted after this publication goes to print. Www irs gov formspubs An Internet site or an email address. Www irs gov formspubs An address you may need. Www irs gov formspubs Items you should keep in your personal records. Www irs gov formspubs Items you may need to figure or a worksheet you may need to complete and keep for your records. Www irs gov formspubs An important phone number. Www irs gov formspubs Helpful information you may need. Www irs gov formspubs Prev  Up  Next   Home   More Online Publications