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1040x Forms

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1040x Forms

1040x forms 1. 1040x forms   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. 1040x forms It is an allowance for the wear and tear, deterioration, or obsolescence of the property. 1040x forms This chapter discusses the general rules for depreciating property and answers the following questions. 1040x forms 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. 1040x forms What Property Can Be Depreciated? You can depreciate most types of tangible property (except land), such as buildings, machinery, vehicles, furniture, and equipment. 1040x forms You also can depreciate certain intangible property, such as patents, copyrights, and computer software. 1040x forms To be depreciable, the property must meet all the following requirements. 1040x forms It must be property you own. 1040x forms It must be used in your business or income-producing activity. 1040x forms It must have a determinable useful life. 1040x forms It must be expected to last more than one year. 1040x forms The following discussions provide information about these requirements. 1040x forms Property You Own To claim depreciation, you usually must be the owner of the property. 1040x forms You are considered as owning property even if it is subject to a debt. 1040x forms Example 1. 1040x forms You made a down payment to purchase rental property and assumed the previous owner's mortgage. 1040x forms You own the property and you can depreciate it. 1040x forms Example 2. 1040x forms You bought a new van that you will use only for your courier business. 1040x forms You will be making payments on the van over the next 5 years. 1040x forms You own the van and you can depreciate it. 1040x forms Leased property. 1040x forms   You can depreciate leased property only if you retain the incidents of ownership in the property (explained below). 1040x forms This means you bear the burden of exhaustion of the capital investment in the property. 1040x forms 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. 1040x forms You can, however, depreciate any capital improvements you make to the property. 1040x forms See How Do You Treat Repairs and Improvements later in this chapter and Additions and Improvements under Which Recovery Period Applies in chapter 4. 1040x forms   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. 1040x forms 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. 1040x forms Incidents of ownership. 1040x forms   Incidents of ownership in property include the following. 1040x forms The legal title to the property. 1040x forms The legal obligation to pay for the property. 1040x forms The responsibility to pay maintenance and operating expenses. 1040x forms The duty to pay any taxes on the property. 1040x forms The risk of loss if the property is destroyed, condemned, or diminished in value through obsolescence or exhaustion. 1040x forms Life tenant. 1040x forms   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. 1040x forms However, see Certain term interests in property under Excepted Property, later. 1040x forms Cooperative apartments. 1040x forms   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. 1040x forms   Figure your depreciation deduction as follows. 1040x forms Figure the depreciation for all the depreciable real property owned by the corporation in which you have a proprietary lease or right of tenancy. 1040x forms If you bought your cooperative stock after its first offering, figure the depreciable basis of this property as follows. 1040x forms Multiply your cost per share by the total number of outstanding shares, including any shares held by the corporation. 1040x forms Add to the amount figured in (a) any mortgage debt on the property on the date you bought the stock. 1040x forms 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. 1040x forms 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. 1040x forms Divide the number of your shares of stock by the total number of outstanding shares, including any shares held by the corporation. 1040x forms Multiply the result of (2) by the percentage you figured in (3). 1040x forms This is your depreciation on the stock. 1040x forms   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. 1040x forms 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. 1040x forms Example. 1040x forms You figure your share of the cooperative housing corporation's depreciation to be $30,000. 1040x forms Your adjusted basis in the stock of the corporation is $50,000. 1040x forms You use one half of your apartment solely for business purposes. 1040x forms Your depreciation deduction for the stock for the year cannot be more than $25,000 (½ of $50,000). 1040x forms Change to business use. 1040x forms   If you change your cooperative apartment to business use, figure your allowable depreciation as explained earlier. 1040x forms The basis of all the depreciable real property owned by the cooperative housing corporation is the smaller of the following amounts. 1040x forms The fair market value of the property on the date you change your apartment to business use. 1040x forms This is considered to be the same as the corporation's adjusted basis minus straight line depreciation, unless this value is unrealistic. 1040x forms The corporation's adjusted basis in the property on that date. 1040x forms Do not subtract depreciation when figuring the corporation's adjusted basis. 1040x forms   If you bought the stock after its first offering, the corporation's adjusted basis in the property is the amount figured in (1), above. 1040x forms 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. 1040x forms   For a discussion of fair market value and adjusted basis, see Publication 551. 1040x forms 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. 1040x forms If you use property to produce income (investment use), the income must be taxable. 1040x forms You cannot depreciate property that you use solely for personal activities. 1040x forms Partial business or investment use. 1040x forms   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. 1040x forms 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. 1040x forms    You must keep records showing the business, investment, and personal use of your property. 1040x forms 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. 1040x forms    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. 1040x forms For information about qualified business use of listed property, see What Is the Business-Use Requirement in chapter 5. 1040x forms Office in the home. 1040x forms   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. 1040x forms For information about depreciating your home office, see Publication 587. 1040x forms Inventory. 1040x forms   You cannot depreciate inventory because it is not held for use in your business. 1040x forms Inventory is any property you hold primarily for sale to customers in the ordinary course of your business. 1040x forms   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. 1040x forms See Rent-to-own dealer under Which Property Class Applies Under GDS in chapter 4. 1040x forms   In some cases, it is not clear whether property is held for sale (inventory) or for use in your business. 1040x forms If it is unclear, examine carefully all the facts in the operation of the particular business. 1040x forms The following example shows how a careful examination of the facts in two similar situations results in different conclusions. 1040x forms Example. 1040x forms Maple Corporation is in the business of leasing cars. 1040x forms At the end of their useful lives, when the cars are no longer profitable to lease, Maple sells them. 1040x forms Maple does not have a showroom, used car lot, or individuals to sell the cars. 1040x forms Instead, it sells them through wholesalers or by similar arrangements in which a dealer's profit is not intended or considered. 1040x forms 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. 1040x forms 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. 1040x forms In this situation, the cars are held primarily for sale to customers in the ordinary course of business. 1040x forms Containers. 1040x forms   Generally, containers for the products you sell are part of inventory and you cannot depreciate them. 1040x forms However, you can depreciate containers used to ship your products if they have a life longer than one year and meet the following requirements. 1040x forms They qualify as property used in your business. 1040x forms Title to the containers does not pass to the buyer. 1040x forms   To determine if these requirements are met, consider the following questions. 1040x forms 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. 1040x forms This means that it must be something that wears out, decays, gets used up, becomes obsolete, or loses its value from natural causes. 1040x forms 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. 1040x forms Example. 1040x forms You maintain a library for use in your profession. 1040x forms You can depreciate it. 1040x forms 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. 1040x forms Instead, you deduct their cost as a business expense. 1040x forms What Property Cannot Be Depreciated? Certain property cannot be depreciated. 1040x forms This includes land and certain excepted property. 1040x forms Land You cannot depreciate the cost of land because land does not wear out, become obsolete, or get used up. 1040x forms The cost of land generally includes the cost of clearing, grading, planting, and landscaping. 1040x forms Although you cannot depreciate land, you can depreciate certain land preparation costs, such as landscaping costs, incurred in preparing land for business use. 1040x forms 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. 1040x forms Example. 1040x forms You constructed a new building for use in your business and paid for grading, clearing, seeding, and planting bushes and trees. 1040x forms Some of the bushes and trees were planted right next to the building, while others were planted around the outer border of the lot. 1040x forms If you replace the building, you would have to destroy the bushes and trees right next to it. 1040x forms These bushes and trees are closely associated with the building, so they have a determinable useful life. 1040x forms Therefore, you can depreciate them. 1040x forms Add your other land preparation costs to the basis of your land because they have no determinable life and you cannot depreciate them. 1040x forms Excepted Property Even if the requirements explained in the preceding discussions are met, you cannot depreciate the following property. 1040x forms Property placed in service and disposed of in the same year. 1040x forms Determining when property is placed in service is explained later. 1040x forms Equipment used to build capital improvements. 1040x forms You must add otherwise allowable depreciation on the equipment during the period of construction to the basis of your improvements. 1040x forms See Uniform Capitalization Rules in Publication 551. 1040x forms Section 197 intangibles. 1040x forms You must amortize these costs. 1040x forms Section 197 intangibles are discussed in detail in Chapter 8 of Publication 535. 1040x forms Intangible property, such as certain computer software, that is not section 197 intangible property, can be depreciated if it meets certain requirements. 1040x forms See Intangible Property , later. 1040x forms Certain term interests. 1040x forms Certain term interests in property. 1040x forms   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. 1040x forms 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. 1040x forms Related persons. 1040x forms   For a description of related persons, see Related Persons, later. 1040x forms 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. 1040x forms Basis adjustments. 1040x forms   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. 1040x forms   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. 1040x forms However, do not increase your basis for depreciation not allowed for periods during which either of the following situations applies. 1040x forms The term interest is held by an organization exempt from tax. 1040x forms 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. 1040x forms Exceptions. 1040x forms   The above rules do not apply to the holder of a term interest in property acquired by gift, bequest, or inheritance. 1040x forms 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. 1040x forms 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. 1040x forms 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. 1040x forms 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. 1040x forms Even if you are not using the property, it is in service when it is ready and available for its specific use. 1040x forms Example 1. 1040x forms Donald Steep bought a machine for his business. 1040x forms The machine was delivered last year. 1040x forms However, it was not installed and operational until this year. 1040x forms It is considered placed in service this year. 1040x forms 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. 1040x forms Example 2. 1040x forms On April 6, Sue Thorn bought a house to use as residential rental property. 1040x forms She made several repairs and had it ready for rent on July 5. 1040x forms At that time, she began to advertise it for rent in the local newspaper. 1040x forms The house is considered placed in service in July when it was ready and available for rent. 1040x forms She can begin to depreciate it in July. 1040x forms Example 3. 1040x forms James Elm is a building contractor who specializes in constructing office buildings. 1040x forms He bought a truck last year that had to be modified to lift materials to second-story levels. 1040x forms The installation of the lifting equipment was completed and James accepted delivery of the modified truck on January 10 of this year. 1040x forms 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. 1040x forms Conversion to business use. 1040x forms   If you place property in service in a personal activity, you cannot claim depreciation. 1040x forms 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. 1040x forms You place the property in service in the business or income-producing activity on the date of the change. 1040x forms Example. 1040x forms You bought a home and used it as your personal home several years before you converted it to rental property. 1040x forms 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. 1040x forms 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. 1040x forms 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). 1040x forms 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. 1040x forms Cost or Other Basis Fully Recovered You stop depreciating property when you have fully recovered your cost or other basis. 1040x forms You recover your basis when your section 179 and allowed or allowable depreciation deductions equal your cost or investment in the property. 1040x forms See What Is the Basis of Your Depreciable Property , later. 1040x forms 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. 1040x forms 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. 1040x forms You sell or exchange the property. 1040x forms You convert the property to personal use. 1040x forms You abandon the property. 1040x forms You transfer the property to a supplies or scrap account. 1040x forms The property is destroyed. 1040x forms 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. 1040x forms What Method Can You Use To Depreciate Your Property? You must use the Modified Accelerated Cost Recovery System (MACRS) to depreciate most property. 1040x forms MACRS is discussed in chapter 4. 1040x forms You cannot use MACRS to depreciate the following property. 1040x forms Property you placed in service before 1987. 1040x forms Certain property owned or used in 1986. 1040x forms Intangible property. 1040x forms Films, video tapes, and recordings. 1040x forms Certain corporate or partnership property acquired in a nontaxable transfer. 1040x forms Property you elected to exclude from MACRS. 1040x forms The following discussions describe the property listed above and explain what depreciation method should be used. 1040x forms 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). 1040x forms Property placed in service before 1987 must be depreciated under the methods discussed in Publication 534. 1040x forms For a discussion of when property is placed in service, see When Does Depreciation Begin and End , earlier. 1040x forms Use of real property changed. 1040x forms   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. 1040x forms Improvements made after 1986. 1040x forms   You must treat an improvement made after 1986 to property you placed in service before 1987 as separate depreciable property. 1040x forms Therefore, you can depreciate that improvement as separate property under MACRS if it is the type of property that otherwise qualifies for MACRS depreciation. 1040x forms 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. 1040x forms 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. 1040x forms If you cannot use MACRS, the property must be depreciated under the methods discussed in Publication 534. 1040x forms For the following discussions, do not treat property as owned before you placed it in service. 1040x forms If you owned property in 1986 but did not place it in service until 1987, you do not treat it as owned in 1986. 1040x forms Personal property. 1040x forms   You cannot use MACRS for personal property (section 1245 property) in any of the following situations. 1040x forms You or someone related to you owned or used the property in 1986. 1040x forms 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. 1040x forms You lease the property to a person (or someone related to this person) who owned or used the property in 1986. 1040x forms 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. 1040x forms Real property. 1040x forms   You generally cannot use MACRS for real property (section 1250 property) in any of the following situations. 1040x forms You or someone related to you owned the property in 1986. 1040x forms You lease the property to a person who owned the property in 1986 (or someone related to that person). 1040x forms You acquired the property in a like-kind exchange, involuntary conversion, or repossession of property you or someone related to you owned in 1986. 1040x forms MACRS applies only to that part of your basis in the acquired property that represents cash paid or unlike property given up. 1040x forms It does not apply to the carried-over part of the basis. 1040x forms Exceptions. 1040x forms   The rules above do not apply to the following. 1040x forms Residential rental property or nonresidential real property. 1040x forms 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. 1040x forms For information on how to figure depreciation under ACRS, see Publication 534. 1040x forms Property that was MACRS property in the hands of the person from whom you acquired it because of (2) above. 1040x forms Related persons. 1040x forms   For this purpose, the following are related persons. 1040x forms 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. 1040x forms A corporation and an individual who directly or indirectly owns more than 10% of the value of the outstanding stock of that corporation. 1040x forms Two corporations that are members of the same controlled group. 1040x forms 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. 1040x forms The grantor and fiduciary, and the fiduciary and beneficiary, of any trust. 1040x forms 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. 1040x forms 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. 1040x forms 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. 1040x forms A corporation and a partnership if the same persons own both of the following. 1040x forms More than 10% of the value of the outstanding stock of the corporation. 1040x forms More than 10% of the capital or profits interest in the partnership. 1040x forms The executor and beneficiary of any estate. 1040x forms A partnership and a person who directly or indirectly owns more than 10% of the capital or profits interest in the partnership. 1040x forms Two partnerships, if the same persons directly or indirectly own more than 10% of the capital or profits interest in each. 1040x forms The related person and a person who is engaged in trades or businesses under common control. 1040x forms See section 52(a) and 52(b) of the Internal Revenue Code. 1040x forms When to determine relationship. 1040x forms   You must determine whether you are related to another person at the time you acquire the property. 1040x forms   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. 1040x forms 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. 1040x forms Constructive ownership of stock or partnership interest. 1040x forms   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. 1040x forms 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. 1040x forms 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. 1040x forms An individual is considered to own the stock or partnership interest directly or indirectly owned by or for the individual's family. 1040x forms 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. 1040x forms 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. 1040x forms 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. 1040x forms Intangible Property Generally, if you can depreciate intangible property, you usually use the straight line method of depreciation. 1040x forms However, you can choose to depreciate certain intangible property under the income forecast method (discussed later). 1040x forms 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. 1040x forms Straight Line Method This method lets you deduct the same amount of depreciation each year over the useful life of the property. 1040x forms To figure your deduction, first determine the adjusted basis, salvage value, and estimated useful life of your property. 1040x forms Subtract the salvage value, if any, from the adjusted basis. 1040x forms The balance is the total depreciation you can take over the useful life of the property. 1040x forms Divide the balance by the number of years in the useful life. 1040x forms This gives you your yearly depreciation deduction. 1040x forms 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. 1040x forms 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. 1040x forms Example. 1040x forms In April, Frank bought a patent for $5,100 that is not a section 197 intangible. 1040x forms He depreciates the patent under the straight line method, using a 17-year useful life and no salvage value. 1040x forms He divides the $5,100 basis by 17 years to get his $300 yearly depreciation deduction. 1040x forms 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. 1040x forms Next year, Frank can deduct $300 for the full year. 1040x forms Patents and copyrights. 1040x forms   If you can depreciate the cost of a patent or copyright, use the straight line method over the useful life. 1040x forms 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. 1040x forms 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. 1040x forms Computer software. 1040x forms   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. 1040x forms   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. 1040x forms It is readily available for purchase by the general public. 1040x forms It is subject to a nonexclusive license. 1040x forms It has not been substantially modified. 1040x forms   If the software meets the tests above, it may also qualify for the section 179 deduction and the special depreciation allowance, discussed later. 1040x forms If you can depreciate the cost of computer software, use the straight line method over a useful life of 36 months. 1040x forms    Tax-exempt use property subject to a lease. 1040x forms   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. 1040x forms Certain created intangibles. 1040x forms   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. 1040x forms For example, amounts paid to acquire memberships or privileges of indefinite duration, such as a trade association membership, are eligible costs. 1040x forms   The following are not eligible. 1040x forms Any intangible asset acquired from another person. 1040x forms Created financial interests. 1040x forms Any intangible asset that has a useful life that can be estimated with reasonable accuracy. 1040x forms 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. 1040x forms 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. 1040x forms   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. 1040x forms 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. 1040x forms Income Forecast Method You can choose to use the income forecast method instead of the straight line method to depreciate the following depreciable intangibles. 1040x forms Motion picture films or video tapes. 1040x forms Sound recordings. 1040x forms Copyrights. 1040x forms Books. 1040x forms Patents. 1040x forms Under the income forecast method, each year's depreciation deduction is equal to the cost of the property, multiplied by a fraction. 1040x forms 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. 1040x forms For more information, see section 167(g) of the Internal Revenue Code. 1040x forms Films, video tapes, and recordings. 1040x forms   You cannot use MACRS for motion picture films, video tapes, and sound recordings. 1040x forms For this purpose, sound recordings are discs, tapes, or other phonorecordings resulting from the fixation of a series of sounds. 1040x forms You can depreciate this property using either the straight line method or the income forecast method. 1040x forms Participations and residuals. 1040x forms   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. 1040x forms 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. 1040x forms 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. 1040x forms   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. 1040x forms Videocassettes. 1040x forms   If you are in the business of renting videocassettes, you can depreciate only those videocassettes bought for rental. 1040x forms If the videocassette has a useful life of one year or less, you can currently deduct the cost as a business expense. 1040x forms 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. 1040x forms You must continue to use the same depreciation method as the transferor and figure depreciation as if the transfer had not occurred. 1040x forms 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. 1040x forms The nontaxable transfers covered by this rule include the following. 1040x forms A distribution in complete liquidation of a subsidiary. 1040x forms A transfer to a corporation controlled by the transferor. 1040x forms An exchange of property solely for corporate stock or securities in a reorganization. 1040x forms A contribution of property to a partnership in exchange for a partnership interest. 1040x forms A partnership distribution of property to a partner. 1040x forms 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. 1040x forms 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. 1040x forms You must make this election by the return due date (including extensions) for the tax year you place your property in service. 1040x forms 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). 1040x forms Attach the election to the amended return and write “Filed pursuant to section 301. 1040x forms 9100-2” on the election statement. 1040x forms File the amended return at the same address you filed the original return. 1040x forms Use of standard mileage rate. 1040x forms   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. 1040x forms See Publication 463 for a discussion of the standard mileage rate. 1040x forms What Is the Basis of Your Depreciable Property? To figure your depreciation deduction, you must determine the basis of your property. 1040x forms To determine basis, you need to know the cost or other basis of your property. 1040x forms 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. 1040x forms The cost includes the amount you pay in cash, debt obligations, other property, or services. 1040x forms Exception. 1040x forms   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). 1040x forms If you make that choice, you cannot include those sales taxes as part of your cost basis. 1040x forms Assumed debt. 1040x forms   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. 1040x forms Example. 1040x forms You make a $20,000 down payment on property and assume the seller's mortgage of $120,000. 1040x forms Your total cost is $140,000, the cash you paid plus the mortgage you assumed. 1040x forms Settlement costs. 1040x forms   The basis of real property also includes certain fees and charges you pay in addition to the purchase price. 1040x forms These generally are shown on your settlement statement and include the following. 1040x forms Legal and recording fees. 1040x forms Abstract fees. 1040x forms Survey charges. 1040x forms Owner's title insurance. 1040x forms 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. 1040x forms   For fees and charges you cannot include in the basis of property, see Real Property in Publication 551. 1040x forms Property you construct or build. 1040x forms   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. 1040x forms For information about the uniform capitalization rules, see Publication 551 and the regulations under section 263A of the Internal Revenue Code. 1040x forms Other Basis Other basis usually refers to basis that is determined by the way you received the property. 1040x forms 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. 1040x forms If you acquired property in this or some other way, see Publication 551 to determine your basis. 1040x forms Property changed from personal use. 1040x forms   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. 1040x forms The fair market value (FMV) of the property on the date of the change in use. 1040x forms Your original cost or other basis adjusted as follows. 1040x forms Increased by the cost of any permanent improvements or additions and other costs that must be added to basis. 1040x forms Decreased by any deductions you claimed for casualty and theft losses and other items that reduced your basis. 1040x forms Example. 1040x forms Several years ago, Nia paid $160,000 to have her home built on a lot that cost her $25,000. 1040x forms 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. 1040x forms Land is not depreciable, so she includes only the cost of the house when figuring the basis for depreciation. 1040x forms Nia's adjusted basis in the house when she changed its use was $178,000 ($160,000 + $20,000 − $2,000). 1040x forms 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. 1040x forms 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). 1040x forms Property acquired in a nontaxable transaction. 1040x forms   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. 1040x forms 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. 1040x forms See Like-kind exchanges and involuntary conversions. 1040x forms under How Much Can You Deduct? in chapter 3 and Figuring the Deduction for Property Acquired in a Nontaxable Exchange in chapter 4. 1040x forms   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. 1040x forms See How Do You Use General Asset Accounts in chapter 4. 1040x forms 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. 1040x forms These events could include the following. 1040x forms Installing utility lines. 1040x forms Paying legal fees for perfecting the title. 1040x forms Settling zoning issues. 1040x forms Receiving rebates. 1040x forms Incurring a casualty or theft loss. 1040x forms For a discussion of adjustments to the basis of your property, see Adjusted Basis in Publication 551. 1040x forms 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. 1040x forms For more information, see What Is the Basis for Depreciation in chapter 4. 1040x forms . 1040x forms Basis adjustment for depreciation allowed or allowable. 1040x forms   You must reduce the basis of property by the depreciation allowed or allowable, whichever is greater. 1040x forms Depreciation allowed is depreciation you actually deducted (from which you received a tax benefit). 1040x forms Depreciation allowable is depreciation you are entitled to deduct. 1040x forms   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. 1040x forms   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). 1040x forms How Do You Treat Repairs and Improvements? If you improve depreciable property, you must treat the improvement as separate depreciable property. 1040x forms 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. 1040x forms You generally deduct the cost of repairing business property in the same way as any other business expense. 1040x forms 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. 1040x forms Example. 1040x forms You repair a small section on one corner of the roof of a rental house. 1040x forms You deduct the cost of the repair as a rental expense. 1040x forms 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. 1040x forms You depreciate the cost of the new roof. 1040x forms Improvements to rented property. 1040x forms   You can depreciate permanent improvements you make to business property you rent from someone else. 1040x forms Do You Have To File Form 4562? Use Form 4562 to figure your deduction for depreciation and amortization. 1040x forms Attach Form 4562 to your tax return for the current tax year if you are claiming any of the following items. 1040x forms A section 179 deduction for the current year or a section 179 carryover from a prior year. 1040x forms See chapter 2 for information on the section 179 deduction. 1040x forms Depreciation for property placed in service during the current year. 1040x forms Depreciation on any vehicle or other listed property, regardless of when it was placed in service. 1040x forms See chapter 5 for information on listed property. 1040x forms 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). 1040x forms Amortization of costs if the current year is the first year of the amortization period. 1040x forms Depreciation or amortization on any asset on a corporate income tax return (other than Form 1120S, U. 1040x forms S. 1040x forms Income Tax Return for an S Corporation) regardless of when it was placed in service. 1040x forms You must submit a separate Form 4562 for each business or activity on your return for which a Form 4562 is required. 1040x forms Table 1-1 presents an overview of the purpose of the various parts of Form 4562. 1040x forms Employee. 1040x forms   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. 1040x forms Instead, use either Form 2106 or Form 2106-EZ. 1040x forms Use Form 2106-EZ if you are claiming the standard mileage rate and you are not reimbursed by your employer for any expenses. 1040x forms 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. 1040x forms See Filing an Amended Return , next. 1040x forms 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. 1040x forms See Changing Your Accounting Method , later. 1040x forms 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. 1040x forms You claimed the incorrect amount because of a mathematical error made in any year. 1040x forms You claimed the incorrect amount because of a posting error made in any year. 1040x forms You have not adopted a method of accounting for property placed in service by you in tax years ending after December 29, 2003. 1040x forms You claimed the incorrect amount on property placed in service by you in tax years ending before December 30, 2003. 1040x forms Adoption of accounting method defined. 1040x forms   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. 1040x forms   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. 1040x forms irs. 1040x forms gov/pub/irs-irbs/irb11-04. 1040x forms pdf. 1040x forms (Note. 1040x forms Revenue Procedure 2011-14 is clarified and modified by Revenue Procedure 2012-20. 1040x forms For more information, see Revenue Procedure 2012-20 on page 700 of the Internal Revenue Bulletin 2012-14, available at www. 1040x forms irs. 1040x forms gov/pub/irs-irbs/irb12-14. 1040x forms pdf. 1040x forms )   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. 1040x forms irs. 1040x forms gov/pub/irs-irbs/irb07-29. 1040x forms pdf. 1040x forms When to file. 1040x forms   If an amended return is allowed, you must file it by the later of the following. 1040x forms 3 years from the date you filed your original return for the year in which you did not deduct the correct amount. 1040x forms A return filed before an unextended due date is considered filed on that due date. 1040x forms 2 years from the time you paid your tax for that year. 1040x forms Changing Your Accounting Method Generally, you must get IRS approval to change your method of accounting. 1040x forms You generally must file Form 3115, Application for Change in Accounting Method, to request a change in your method of accounting for depreciation. 1040x forms The following are examples of a change in method of accounting for depreciation. 1040x forms 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. 1040x forms A change in the treatment of an asset from nondepreciable to depreciable or vice versa. 1040x forms A change in the depreciation method, period of recovery, or convention of a depreciable asset. 1040x forms A change from not claiming to claiming the special depreciation allowance if you did not make the election to not claim any special allowance. 1040x forms 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). 1040x forms Changes in depreciation that are not a change in method of accounting (and may only be made on an amended return) include the following. 1040x forms An adjustment in the useful life of a depreciable asset for which depreciation is determined under section 167. 1040x forms A change in use of an asset in the hands of the same taxpayer. 1040x forms Making a late depreciation election or revoking a timely valid depreciation election (including the election not to deduct the special depreciation allowance). 1040x forms 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. 1040x forms Generally, you must get IRS approval to make a late depreciation election or revoke a depreciation election. 1040x forms You must submit a request for a letter ruling to make a late election or revoke an election. 1040x forms Any change in the placed in service date of a depreciable asset. 1040x forms See section 1. 1040x forms 446-1(e)(2)(ii)(d) of the regulations for more information and examples. 1040x forms IRS approval. 1040x forms   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. 1040x forms 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. 1040x forms B. 1040x forms 680. 1040x forms Also see the Instructions for Form 3115 for more information on getting approval, including lists of scope limitations and automatic accounting method changes. 1040x forms Additional guidance. 1040x forms    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. 1040x forms irs. 1040x forms gov/pub/irs-irbs/irb11-04. 1040x forms pdf. 1040x forms (Note. 1040x forms Revenue Procedure 2011-14 is clarified and modified by Revenue Procedure 2012-20. 1040x forms For more information, see Revenue Procedure 2012-20 on page 700 of the Internal Revenue Bulletin 2012-14, available at www. 1040x forms irs. 1040x forms gov/pub/irs-irbs/irb12-14. 1040x forms pdf. 1040x forms )   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. 1040x forms irs. 1040x forms gov/pub/irs-irbs/irb07-29. 1040x forms pdf. 1040x forms Table 1-1. 1040x forms Purpose of Form 4562 This table describes the purpose of the various parts of Form 4562. 1040x forms For more information, see Form 4562 and its instructions. 1040x forms 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. 1040x forms   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. 1040x forms 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. 1040x forms If no depreciation was deducted, the adjustment is the total depreciation allowable prior to the year of change. 1040x forms A negative section 481(a) adjustment results in a decrease in taxable income. 1040x forms It is taken into account in the year of change and is reported on your business tax returns as “other expenses. 1040x forms ” A positive section 481(a) adjustment results in an increase in taxable income. 1040x forms It is generally taken into account over 4 tax years and is reported on your business tax returns as “other income. 1040x forms ” 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. 1040x forms Make the election by completing the appropriate line on Form 3115. 1040x forms   If you file a Form 3115 and change from one permissible method to another permissible method, the section 481(a) adjustment is zero. 1040x forms Prev  Up  Next   Home   More Online Publications
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Forms and Schedules for Form 1040

Schedule A (Form 1040), Itemized Deductions
Use Schedule A (Form 1040) to figure your itemized deductions. In most cases, your federal income tax will be less if you take the larger of your itemized deductions or your standard deduction.

Schedule B (Form 1040), Interest and Ordinary Dividends
Use Schedule B to report your taxable interest or ordinary dividends.

Schedule C (Form 1040), Profit or Loss From Business
Use this schedule to report income or loss from a business you operated or a profession you practiced as a sole proprietor. An activity qualifies as a business if your primary purpose for engaging in the activity is for income or profit and you are involved in the activity with continuity and regularity.

Schedule C-EZ (Form 1040), Net Profit From Business
You can use Schedule C-EZ instead of Schedule C if you operated a business or practiced a profession as a sole proprietorship or qualified joint venture, or you were a statutory employee and you have met all the requirements listed in Schedule C-EZ, Part I.

Schedule D (Form 1040), Capital Gains and Losses
Use Schedule D (Form 1040) to report the sale or exchange of capital assets, gains from involuntary conversions of capital assets, capital gain distributions and nonbusiness bad debts.

Schedule E (Form 1040), Supplemental Income and Loss
Use Schedule E (Form 1040) to report income or loss from rental real estate, royalties, partnerships, S corporations, estates, trusts, and residual interests in REMICs.

Schedule EIC (Form 1040A or 1040), Earned Income Credit
After you have figured your earned income credit (EIC), use this schedule to give the IRS information about your qualifying child(ren).

Schedule F (Form 1040), Profit or Loss From Farming
Use Schedule F (Form 1040) to report farm income and expenses.

Schedule H (Form 1040), Household Employment Taxes
Use this schedule to report household employment taxes if you paid any one household employee cash wages of $1,800 or more during the calendar year, withheld federal income tax during the calendar year for any household employee, or paid total cash wages of $1,000 or more in any calendar quarter of the year or previous year to all household employees.

Schedule J (Form 1040), Income Averaging for Farmers and Fishermen
Use Schedule J (Form 1040) to elect to figure your income tax by averaging, over the previous 3 years (base years), all or part of your taxable income from your trade or business of farming or fishing.

Schedule R (Form 1040A or 1040), Credit for the Elderly or the Disabled
Use this schedule to figure the credit for the elderly or the disabled.

Schedule SE (Form 1040), Self-Employment Tax
Use this schedule to figure the tax due on net earnings from self-employment.

Form 1040-V, Payment Voucher for Form 1040
This form is a statement you send with your check or money order for any balance due on the “Amount you owe” line of your Form 1040, Form 1040A, or Form 1040EZ.

Form 1040X, Amended U.S. Individual Income Tax Return
Used by individual taxpayers to amend prior year tax returns.

Form 2106, Employee Business Expenses
Use this form if you are an employee deducting ordinary and necessary expenses for your job.

Form 2210, Underpayment of Estimated Tax by Individuals, Estates, and Trusts
Use this form to see if you owe a penalty for underpaying your estimated tax and, if you do, to figure the amount of the penalty.

Form 2441, Child and Dependent Care Expenses
If you paid someone to care for your child (under age 13) or other qualifying person so you (and your spouse if filing jointly) could work or look for work, you may be able to take the credit for child and dependent care expenses.

Form 2848, Power of Attorney and Declaration of Representative
Use Form 2848 to authorize an individual to represent you before the IRS. The individual you authorize must be a person eligible to practice before the IRS.

Form 3903, Moving Expenses
Use Form 3903 to figure your moving expense deduction for a move related to the start of work at a new principal place of work (workplace). If the new workplace is outside the United States or its possessions, you must be a U.S. citizen or resident alien to deduct your expenses.

Form 4562, Depreciation and Amortization
Use Form 4562 to claim your deduction for depreciation and amortization, make the election under section 179 to expense certain property, and provide information on the business/investment use of automobiles and other listed property.

Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return
A U.S. citizen or resident files this form to request an automatic extension of time to file a U.S. individual income tax return.

Form 4952, Investment Interest Expense Deduction
Use this form to figure the amount of investment interest expense you can deduct for the current year and the amount you can carry forward to future years.

Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts
Use Form 5329 to report additional taxes on IRAs, other qualified retirement plans, modified endowment contracts, Coverdell ESAs, QTPs, Archer MSAs, or HSAs.

Form 6251, Alternative Minimum Tax - Individuals
Use this form to figure the amount, if any, of your alternative minimum tax (AMT).

Form 8283, Noncash Charitable Contributions
Individuals, partnerships, and corporations file this form to report information about noncash charitable contributions when the amount of their deduction for all noncash gifts is more than $500.

Form 8582, Passive Activity Loss Limitations
Noncorporate taxpayers use this form to figure the amount of any passive activity loss (PAL) for the current tax year.

Form 8606, Nondeductible IRAs
Use this form to report nondeductible contributions you made to traditional IRAs; distributions from traditional, SEP, or SIMPLE IRAs, if you have ever made nondeductible contributions to traditional IRAs; conversions from traditional, SEP, or SIMPLE IRAs to Roth IRAs; and distributions from Roth IRAs

Schedule 8812 (Form 1040A or 1040), Child Tax Credit
Use Part I of this schedule to document that any child for whom you entered an ITIN and for whom you also checked the "if qualifying child for child tax credit" box, is a resident of the United States because the child meets the substantial presence test and is not otherwise treated as a nonresident alien. Use Parts II–IV of Schedule 8812 to figure the additional child tax credit.

Form 8822, Change of Address
Use this form to notify the Internal Revenue Service of a change to your home mailing address.

Form 8829, Expenses for Business Use of Your Home
Use this form to figure the allowable expenses for business use of your home on Schedule C (Form 1040) and any carryover to next year of amounts not deductible this year.

Form 8863, Education Credits (American Opportunity and Lifetime Learning Credits)
Use this form to figure and claim your education credits, which are based on qualified education expenses paid to an eligible postsecondary educational institution.

Form 8949, Sales and Other Dispositions of Capital Assets
Use this form to reconcile amounts that were reported to you and the IRS on Form 1099-B or 1099-S (or substitute statement) with the amounts you report on your return.

Form 9465, Installment Agreement Request
Use form to request a monthly installment plan if you cannot pay the full amount you owe shown on your tax return (or on a notice we sent you).

Page Last Reviewed or Updated: 20-Feb-2014

The 1040x Forms

1040x forms 6. 1040x forms   Insurance Table of Contents What's New Introduction Topics - This chapter discusses: Useful Items - You may want to see: Deductible PremiumsSelf-Employed Health Insurance Deduction Nondeductible Premiums Capitalized Premiums When To Deduct Premiums What's New Retiree drug subsidy. 1040x forms  Beginning in 2013, sponsors of certain qualified retiree prescription drug plans must account for the subsidy received by reducing the amount of qualified retiree prescription drug plans expense by the subsidy received (taking into account the taxpayer's accounting method). 1040x forms For more information, see the retiree drug subsidy frequently asked questions on IRS. 1040x forms gov. 1040x forms Introduction You generally can deduct the ordinary and necessary cost of insurance as a business expense if it is for your trade, business, or profession. 1040x forms However, you may have to capitalize certain insurance costs under the uniform capitalization rules. 1040x forms For more information, see Capitalized Premiums , later. 1040x forms Topics - This chapter discusses: Deductible premiums Nondeductible premiums Capitalized premiums When to deduct premiums Useful Items - You may want to see: Publication 15-B Employer's Tax Guide to Fringe Benefits 525 Taxable and Nontaxable Income 538 Accounting Periods and Methods 547 Casualties, Disasters, and Thefts Form (and Instructions) 1040 U. 1040x forms S. 1040x forms Individual Income Tax Return See chapter 12 for information about getting publications and forms. 1040x forms Deductible Premiums You generally can deduct premiums you pay for the following kinds of insurance related to your trade or business. 1040x forms Insurance that covers fire, storm, theft, accident, or similar losses. 1040x forms Credit insurance that covers losses from business bad debts. 1040x forms Group hospitalization and medical insurance for employees, including long-term care insurance. 1040x forms If a partnership pays accident and health insurance premiums for its partners, it generally can deduct them as guaranteed payments to partners. 1040x forms If an S corporation pays accident and health insurance premiums for its more-than-2% shareholder-employees, it generally can deduct them, but must also include them in the shareholder's wages subject to federal income tax withholding. 1040x forms See Publication 15-B. 1040x forms Liability insurance. 1040x forms Malpractice insurance that covers your personal liability for professional negligence resulting in injury or damage to patients or clients. 1040x forms Workers' compensation insurance set by state law that covers any claims for bodily injuries or job-related diseases suffered by employees in your business, regardless of fault. 1040x forms If a partnership pays workers' compensation premiums for its partners, it generally can deduct them as guaranteed payments to partners. 1040x forms If an S corporation pays workers' compensation premiums for its more-than-2% shareholder-employees, it generally can deduct them, but must also include them in the shareholder's wages. 1040x forms Contributions to a state unemployment insurance fund are deductible as taxes if they are considered taxes under state law. 1040x forms Overhead insurance that pays for business overhead expenses you have during long periods of disability caused by your injury or sickness. 1040x forms Car and other vehicle insurance that covers vehicles used in your business for liability, damages, and other losses. 1040x forms If you operate a vehicle partly for personal use, deduct only the part of the insurance premium that applies to the business use of the vehicle. 1040x forms If you use the standard mileage rate to figure your car expenses, you cannot deduct any car insurance premiums. 1040x forms Life insurance covering your officers and employees if you are not directly or indirectly a beneficiary under the contract. 1040x forms Business interruption insurance that pays for lost profits if your business is shut down due to a fire or other cause. 1040x forms Self-Employed Health Insurance Deduction You may be able to deduct premiums paid for medical and dental insurance and qualified long-term care insurance for yourself, your spouse, and your dependents. 1040x forms The insurance can also cover your child who was under age 27 at the end of 2013, even if the child was not your dependent. 1040x forms A child includes your son, daughter, stepchild, adopted child, or foster child. 1040x forms A foster child is any child placed with you by an authorized placement agency or by judgment, decree, or other order of any court of competent jurisdiction. 1040x forms One of the following statements must be true. 1040x forms You were self-employed and had a net profit for the year reported on Schedule C (Form 1040), Profit or Loss From Business; Schedule C-EZ (Form 1040), Net Profit From Business; or Schedule F (Form 1040), Profit or Loss From Farming. 1040x forms You were a partner with net earnings from self-employment for the year reported on Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc. 1040x forms , box 14, code A. 1040x forms You used one of the optional methods to figure your net earnings from self-employment on Schedule SE. 1040x forms You received wages in 2013 from an S corporation in which you were a more-than-2% shareholder. 1040x forms Health insurance premiums paid or reimbursed by the S corporation are shown as wages on Form W-2, Wage and Tax Statement. 1040x forms The insurance plan must be established, or considered to be established as discussed in the following bullets, under your business. 1040x forms For self-employed individuals filing a Schedule C, C-EZ, or F, a policy can be either in the name of the business or in the name of the individual. 1040x forms For partners, a policy can be either in the name of the partnership or in the name of the partner. 1040x forms You can either pay the premiums yourself or your partnership can pay them and report the premium amounts on Schedule K-1 (Form 1065) as guaranteed payments to be included in your gross income. 1040x forms However, if the policy is in your name and you pay the premiums yourself, the partnership must reimburse you and report the premium amounts on Schedule K-1 (Form 1065) as guaranteed payments to be included in your gross income. 1040x forms Otherwise, the insurance plan will not be considered to be established under your business. 1040x forms For more-than-2% shareholders, a policy can be either in the name of the S corporation or in the name of the shareholder. 1040x forms You can either pay the premiums yourself or your S corporation can pay them and report the premium amounts on Form W-2 as wages to be included in your gross income. 1040x forms However, if the policy is in your name and you pay the premiums yourself, the S corporation must reimburse you and report the premium amounts on Form W-2 as wages to be included in your gross income. 1040x forms Otherwise, the insurance plan will not be considered to be established under your business. 1040x forms Medicare premiums you voluntarily pay to obtain insurance in your name that is similar to qualifying private health insurance can be used to figure the deduction. 1040x forms If you previously filed returns without using Medicare premiums to figure the deduction, you can file timely amended returns to refigure the deduction. 1040x forms For more information, see Form 1040X, Amended U. 1040x forms S. 1040x forms Individual Income Tax Return. 1040x forms Amounts paid for health insurance coverage from retirement plan distributions that were nontaxable because you are a retired public safety officer cannot be used to figure the deduction. 1040x forms Take the deduction on Form 1040, line 29. 1040x forms Qualified long-term care insurance. 1040x forms   You can include premiums paid on a qualified long-term care insurance contract when figuring your deduction. 1040x forms But, for each person covered, you can include only the smaller of the following amounts. 1040x forms The amount paid for that person. 1040x forms The amount shown below. 1040x forms Use the person's age at the end of the tax year. 1040x forms Age 40 or younger–$360 Age 41 to 50–$680 Age 51 to 60–$1,360 Age 61 to 70–$3,640 Age 71 or older–$4,550 Qualified long-term care insurance contract. 1040x forms   A qualified long-term care insurance contract is an insurance contract that only provides coverage of qualified long-term care services. 1040x forms The contract must meet all the following requirements. 1040x forms It must be guaranteed renewable. 1040x forms It must provide that refunds, other than refunds on the death of the insured or complete surrender or cancellation of the contract, and dividends under the contract may be used only to reduce future premiums or increase future benefits. 1040x forms It must not provide for a cash surrender value or other money that can be paid, assigned, pledged, or borrowed. 1040x forms It generally must not pay or reimburse expenses incurred for services or items that would be reimbursed under Medicare, except where Medicare is a secondary payer or the contract makes per diem or other periodic payments without regard to expenses. 1040x forms Qualified long-term care services. 1040x forms   Qualified long-term care services are: Necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, and rehabilitative services, and Maintenance or personal care services. 1040x forms The services must be required by a chronically ill individual and prescribed by a licensed health care practitioner. 1040x forms Worksheet 6-A. 1040x forms Self-Employed Health Insurance Deduction Worksheet Note. 1040x forms Use a separate worksheet for each trade or business under which an insurance plan is established. 1040x forms 1. 1040x forms Enter the total amount paid in 2013 for health insurance coverage established under your business for 2013 for you, your spouse, and your dependents. 1040x forms Your insurance can also cover your child who was under age 27 at the end of 2013, even if the child was not your dependent. 1040x forms But do not include the following. 1040x forms   Amounts for any month you were eligible to participate in a health plan subsidized by your or your spouse's employer or the employer of either your dependent or your child who was under the age of 27 at the end of 2013. 1040x forms Any amounts paid from retirement plan distributions that were nontaxable because you are a retired public safety officer. 1040x forms Any amounts you included on Form 8885, line 4. 1040x forms Any qualified health insurance premiums you paid to “U. 1040x forms S. 1040x forms Treasury-HCTC. 1040x forms ” Any health coverage tax credit advance payments shown in box 1 of Form 1099-H. 1040x forms Any payments for qualified long-term care insurance (see line 2) 1. 1040x forms   2. 1040x forms For coverage under a qualified long-term care insurance contract, enter for each person covered the smaller of the following amounts. 1040x forms       a) Total payments made for that person during the year. 1040x forms       b) The amount shown below. 1040x forms Use the person's age at the end of the tax year. 1040x forms         $360— if that person is age 40 or younger          $680— if age 41 to 50         $1,360— if age 51 to 60         $3,640— if age 61 to 70         $4,550— if age 71 or older         Do not include payments for any month you were eligible to participate in a long-term care insurance plan subsidized by your or your spouse’s employer or the employer of either your dependent or your child who was under the age of 27 at the end of 2013. 1040x forms If more than one person is covered, figure separately the amount to enter for each person. 1040x forms Then enter the total of those amounts 2. 1040x forms   3. 1040x forms Add lines 1 and 2 3. 1040x forms   4. 1040x forms Enter your net profit* and any other earned income** from the trade or business under which the insurance plan is established. 1040x forms Do not include Conservation Reserve Program payments exempt from self-employment tax. 1040x forms If the business is an S corporation, skip to line 11 4. 1040x forms   5. 1040x forms Enter the total of all net profits* from: Schedule C (Form 1040), line 31; Schedule C-EZ (Form 1040), line 3; Schedule F (Form 1040), line 34; or Schedule K-1 (Form 1065), box 14, code A; plus any other income allocable to the profitable businesses. 1040x forms Do not include Conservation Reserve Program payments exempt from self-employment tax. 1040x forms See the Instructions for Schedule SE (Form 1040). 1040x forms Do not include any net losses shown on these schedules. 1040x forms 5. 1040x forms   6. 1040x forms Divide line 4 by line 5 6. 1040x forms   7. 1040x forms Multiply Form 1040, line 27, by the percentage on line 6 7. 1040x forms   8. 1040x forms Subtract line 7 from line 4 8. 1040x forms   9. 1040x forms Enter the amount, if any, from Form 1040, line 28, attributable to the same trade or business in which the insurance plan is established 9. 1040x forms   10. 1040x forms Subtract line 9 from line 8 10. 1040x forms   11. 1040x forms Enter your Medicare wages (Form W-2, box 5) from an S corporation in which you are a more-than-2% shareholder and in which the insurance plan is established 11. 1040x forms   12. 1040x forms Enter any amount from Form 2555, line 45, attributable to the amount entered on line 4 or 11 above, or any amount from Form 2555-EZ, line 18, attributable to the amount entered on line 11 above 12. 1040x forms   13. 1040x forms Subtract line 12 from line 10 or 11, whichever applies 13. 1040x forms   14. 1040x forms Enter the smaller of line 3 or line 13 here and on Form 1040, line 29. 1040x forms Do not include this amount when figuring any medical expense deduction on Schedule A (Form 1040). 1040x forms 14. 1040x forms   * If you used either optional method to figure your net earnings from self-employment from any business, do not enter your net profit from the business. 1040x forms Instead, enter the amount attributable to that business from Schedule SE (Form 1040), Section B, line 4b. 1040x forms * *Earned income includes net earnings and gains from the sale, transfer, or licensing of property you created. 1040x forms However, it does not include capital gain income. 1040x forms Chronically ill individual. 1040x forms   A chronically ill individual is a person who has been certified as one of the following. 1040x forms An individual who has been unable, due to loss of functional capacity for at least 90 days, to perform at least two activities of daily living without substantial assistance from another individual. 1040x forms Activities of daily living are eating, toileting, transferring (general mobility), bathing, dressing, and continence. 1040x forms An individual who requires substantial supervision to be protected from threats to health and safety due to severe cognitive impairment. 1040x forms The certification must have been made by a licensed health care practitioner within the previous 12 months. 1040x forms Benefits received. 1040x forms   For information on excluding benefits you receive from a long-term care contract from gross income, see Publication 525. 1040x forms Other coverage. 1040x forms   You cannot take the deduction for any month you were eligible to participate in any employer (including your spouse's) subsidized health plan at any time during that month, even if you did not actually participate. 1040x forms In addition, if you were eligible for any month or part of a month to participate in any subsidized health plan maintained by the employer of either your dependent or your child who was under age 27 at the end of 2013, do not use amounts paid for coverage for that month to figure the deduction. 1040x forms   These rules are applied separately to plans that provide long-term care insurance and plans that do not provide long-term care insurance. 1040x forms However, any medical insurance payments not deductible on Form 1040, line 29, can be included as medical expenses on Schedule A (Form 1040), Itemized Deductions, if you itemize deductions. 1040x forms Effect on itemized deductions. 1040x forms   Subtract the health insurance deduction from your medical insurance when figuring medical expenses on Schedule A (Form 1040) if you itemize deductions. 1040x forms Effect on self-employment tax. 1040x forms   For tax years beginning before or after 2010, you cannot subtract the self-employed health insurance deduction when figuring net earnings for your self-employment tax from the business under which the insurance plan is established, or considered to be established as discussed earlier. 1040x forms For more information, see Schedule SE (Form 1040). 1040x forms How to figure the deduction. 1040x forms   Generally, you can use the worksheet in the Form 1040 instructions to figure your deduction. 1040x forms However, if any of the following apply, you must use Worksheet 6-A in this chapter. 1040x forms You had more than one source of income subject to self-employment tax. 1040x forms You file Form 2555, Foreign Earned Income, or Form 2555-EZ, Foreign Earned Income Exclusion. 1040x forms You are using amounts paid for qualified long-term care insurance to figure the deduction. 1040x forms If you are claiming the health coverage tax credit, complete Form 8885, Health Coverage Tax Credit, before you figure this deduction. 1040x forms Health coverage tax credit. 1040x forms   You may be able to take this credit only if you were an eligible trade adjustment assistance (TAA) recipient, alternative TAA (ATAA) recipient, reemployment trade adjustment assistance (RTAA) recipient, or Pension Benefit Guaranty Corporation (PBGC) pension recipient. 1040x forms Use Form 8885 to figure the amount, if any, of this credit. 1040x forms   When figuring the amount to enter on line 1 of Worksheet 6-A, do not include the following. 1040x forms Any amounts you included on Form 8885, line 4. 1040x forms Any qualified health insurance premiums you paid to “U. 1040x forms S. 1040x forms Treasury-HCTC. 1040x forms ” Any health coverage tax credit advance payments shown in box 1 of Form 1099-H, Health Coverage Tax Credit (HCTC) Advance Payments. 1040x forms More than one health plan and business. 1040x forms   If you have more than one health plan during the year and each plan is established under a different business, you must use separate worksheets (Worksheet 6-A) to figure each plan's net earnings limit. 1040x forms Include the premium you paid under each plan on line 1 or line 2 of that separate worksheet and your net profit (or wages) from that business on line 4 (or line 11). 1040x forms For a plan that provides long-term care insurance, the total of the amounts entered for each person on line 2 of all worksheets cannot be more than the appropriate limit shown on line 2 for that person. 1040x forms Nondeductible Premiums You cannot deduct premiums on the following kinds of insurance. 1040x forms Self-insurance reserve funds. 1040x forms You cannot deduct amounts credited to a reserve set up for self-insurance. 1040x forms This applies even if you cannot get business insurance coverage for certain business risks. 1040x forms However, your actual losses may be deductible. 1040x forms See Publication 547. 1040x forms Loss of earnings. 1040x forms You cannot deduct premiums for a policy that pays for lost earnings due to sickness or disability. 1040x forms However, see the discussion on overhead insurance, item (8), under Deductible Premiums , earlier. 1040x forms Certain life insurance and annuities. 1040x forms For contracts issued before June 9, 1997, you cannot deduct the premiums on a life insurance policy covering you, an employee, or any person with a financial interest in your business if you are directly or indirectly a beneficiary of the policy. 1040x forms You are included among possible beneficiaries of the policy if the policy owner is obligated to repay a loan from you using the proceeds of the policy. 1040x forms A person has a financial interest in your business if the person is an owner or part owner of the business or has lent money to the business. 1040x forms For contracts issued after June 8, 1997, you generally cannot deduct the premiums on any life insurance policy, endowment contract, or annuity contract if you are directly or indirectly a beneficiary. 1040x forms The disallowance applies without regard to whom the policy covers. 1040x forms Partners. 1040x forms If, as a partner in a partnership, you take out an insurance policy on your own life and name your partners as beneficiaries to induce them to retain their investments in the partnership, you are considered a beneficiary. 1040x forms You cannot deduct the insurance premiums. 1040x forms Insurance to secure a loan. 1040x forms If you take out a policy on your life or on the life of another person with a financial interest in your business to get or protect a business loan, you cannot deduct the premiums as a business expense. 1040x forms Nor can you deduct the premiums as interest on business loans or as an expense of financing loans. 1040x forms In the event of death, the proceeds of the policy are generally not taxed as income even if they are used to liquidate the debt. 1040x forms Capitalized Premiums Under the uniform capitalization rules, you must capitalize the direct costs and part of the indirect costs for certain production or resale activities. 1040x forms Include these costs in the basis of property you produce or acquire for resale, rather than claiming them as a current deduction. 1040x forms You recover the costs through depreciation, amortization, or cost of goods sold when you use, sell, or otherwise dispose of the property. 1040x forms Indirect costs include premiums for insurance on your plant or facility, machinery, equipment, materials, property produced, or property acquired for resale. 1040x forms Uniform capitalization rules. 1040x forms   You may be subject to the uniform capitalization rules if you do any of the following, unless the property is produced for your use other than in a business or an activity carried on for profit. 1040x forms Produce real property or tangible personal property. 1040x forms For this purpose, tangible personal property includes a film, sound recording, video tape, book, or similar property. 1040x forms Acquire property for resale. 1040x forms However, these rules do not apply to the following property. 1040x forms Personal property you acquire for resale if your average annual gross receipts are $10 million or less for the 3 prior tax years. 1040x forms Property you produce if you meet either of the following conditions. 1040x forms Your indirect costs of producing the property are $200,000 or less. 1040x forms You use the cash method of accounting and do not account for inventories. 1040x forms More information. 1040x forms   For more information on these rules, see Uniform Capitalization Rules in Publication 538 and the regulations under Internal Revenue Code section 263A. 1040x forms When To Deduct Premiums You can usually deduct insurance premiums in the tax year to which they apply. 1040x forms Cash method. 1040x forms   If you use the cash method of accounting, you generally deduct insurance premiums in the tax year you actually paid them, even if you incurred them in an earlier year. 1040x forms However, see Prepayment , later. 1040x forms Accrual method. 1040x forms   If you use an accrual method of accounting, you cannot deduct insurance premiums before the tax year in which you incur a liability for them. 1040x forms In addition, you cannot deduct insurance premiums before the tax year in which you actually pay them (unless the exception for recurring items applies). 1040x forms For more information about the accrual method of accounting, see chapter 1. 1040x forms For information about the exception for recurring items, see Publication 538. 1040x forms Prepayment. 1040x forms   You cannot deduct expenses in advance, even if you pay them in advance. 1040x forms This rule applies to any expense paid far enough in advance to, in effect, create an asset with a useful life extending substantially beyond the end of the current tax year. 1040x forms   Expenses such as insurance are generally allocable to a period of time. 1040x forms You can deduct insurance expenses for the year to which they are allocable. 1040x forms Example. 1040x forms In 2013, you signed a 3-year insurance contract. 1040x forms Even though you paid the premiums for 2013, 2014, and 2015 when you signed the contract, you can only deduct the premium for 2013 on your 2013 tax return. 1040x forms You can deduct in 2014 and 2015 the premium allocable to those years. 1040x forms Dividends received. 1040x forms   If you receive dividends from business insurance and you deducted the premiums in prior years, at least part of the dividends generally are income. 1040x forms For more information, see Recovery of amount deducted (tax benefit rule) in chapter 1 under How Much Can I Deduct. 1040x forms Prev  Up  Next   Home   More Online Publications