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2010 1040x Form

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2010 1040x Form

2010 1040x form 7. 2010 1040x form   Depreciation, Depletion, and Amortization Table of Contents What's New for 2013 Introduction Topics - This chapter discusses: Useful Items - You may want to see: Overview of DepreciationWhat Property Can Be Depreciated? What Property Cannot Be Depreciated? When Does Depreciation Begin and End? Can You Use MACRS 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? Section 179 Expense DeductionWhat Property Qualifies? What Property Does Not Qualify? How Much Can You Deduct? How Do You Elect the Deduction? When Must You Recapture the Deduction? Claiming the Special Depreciation AllowanceWhat is Qualified Property? How Can You Elect Not To Claim the Allowance? When Must You Recapture an Allowance Figuring Depreciation Under MACRSWhich Depreciation System (GDS or ADS) Applies? Which Property Class Applies Under GDS? What Is the Placed-in-Service Date? What Is the Basis for Depreciation? Which Recovery Period Applies? Which Convention Applies? Which Depreciation Method Applies? How Is the Depreciation Deduction Figured? How Do You Use General Asset Accounts? When Do You Recapture MACRS Depreciation? Additional Rules for Listed PropertyWhat Is Listed Property? What Is the Business-Use Requirement? Do the Passenger Automobile Limits Apply? Depletion Who Can Claim Depletion? Figuring Depletion AmortizationBusiness Start-Up Costs Reforestation Costs Section 197 Intangibles What's New for 2013 Increased section 179 expense deduction dollar limits. 2010 1040x form  The maximum amount you can elect to deduct for most section 179 property you placed in service in 2013 is $500,000. 2010 1040x form This limit is reduced by the amount by which the cost of the property placed in service during the tax year exceeds $2 million. 2010 1040x form See Dollar Limits under Section 179 Expense Deduction , later. 2010 1040x form Extension of special depreciation allowance for certain qualified property acquired after December 31, 2007. 2010 1040x form . 2010 1040x form  You may be able to take a 50% special depreciation allowance for certain qualified property acquired after December 31, 2007, and placed in service before January 1, 2014. 2010 1040x form See Claiming the Special Depreciation Allowance , later. 2010 1040x form Expiration of the 3- year recovery period for certain race horses. 2010 1040x form  The 3-year recovery period for race horses two years old or younger will expire for such horses placed in service after December 31, 2013. 2010 1040x form Introduction If you buy or make improvements to farm property such as machinery, equipment, livestock, or a structure with a useful life of more than a year, you generally cannot deduct its entire cost in one year. 2010 1040x form Instead, you must spread the cost over the time you use the property and deduct part of it each year. 2010 1040x form For most types of property, this is called depreciation. 2010 1040x form This chapter gives information on depreciation methods that generally apply to property placed in service after 1986. 2010 1040x form For information on depreciating pre-1987 property, see Publication 534, Depreciating Property Placed in Service Before 1987. 2010 1040x form Topics - This chapter discusses: Overview of depreciation Section 179 expense deduction Special depreciation allowance Modified Accelerated Cost Recovery System (MACRS) Listed property Basic information on cost depletion (including timber depletion) and percentage depletion Amortization of the costs of going into business, reforestation costs, the costs of pollution control facilities, and the costs of section 197 intangibles Useful Items - You may want to see: Publication 463 Travel, Entertainment, Gift, and Car Expenses 534 Depreciating Property Placed in Service Before 1987 535 Business Expenses 544 Sales and Other Dispositions of Assets 551 Basis of Assets 946 How To Depreciate Property Form (and Instructions) T (Timber), Forest Activities Schedule 3115 Application for Change in Accounting Method 4562 Depreciation and Amortization 4797 Sales of Business Property See chapter 16 for information about getting publications and forms. 2010 1040x form It is important to keep good records for property you depreciate. 2010 1040x form Do not file these records with your return. 2010 1040x form Instead, you should keep them as part of the permanent records of the depreciated property. 2010 1040x form They will help you verify the accuracy of the depreciation of assets placed in service in the current and previous tax years. 2010 1040x form For general information on recordkeeping, see Publication 583, Starting a Business and Keeping Records. 2010 1040x form For specific information on keeping records for section 179 property and listed property, see Publication 946, How To Depreciate Property. 2010 1040x form Overview of Depreciation This overview discusses basic information on the following. 2010 1040x form What property can be depreciated. 2010 1040x form What property cannot be depreciated. 2010 1040x form When depreciation begins and ends. 2010 1040x form Whether MACRS can be used to figure depreciation. 2010 1040x form What is the basis of your depreciable property. 2010 1040x form How to treat repairs and improvements. 2010 1040x form When you must file Form 4562. 2010 1040x form How you can correct depreciation claimed incorrectly. 2010 1040x form What Property Can Be Depreciated? You can depreciate most types of tangible property (except land), such as buildings, machinery, equipment, vehicles, certain livestock, and furniture. 2010 1040x form You can also depreciate certain intangible property, such as copyrights, patents, and computer software. 2010 1040x form To be depreciable, the property must meet all the following requirements. 2010 1040x form It must be property you own. 2010 1040x form It must be used in your business or income-producing activity. 2010 1040x form It must have a determinable useful life. 2010 1040x form It must have a useful life that extends substantially beyond the year you place it in service. 2010 1040x form Property You Own To claim depreciation, you usually must be the owner of the property. 2010 1040x form You are considered as owning property even if it is subject to a debt. 2010 1040x form Leased property. 2010 1040x form   You can depreciate leased property only if you retain the incidents of ownership in the property. 2010 1040x form This means you bear the burden of exhaustion of the capital investment in the property. 2010 1040x form 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. 2010 1040x form You can, however, depreciate any capital improvements you make to the leased property. 2010 1040x form See Additions and Improvements under Which Recovery Period Applies in chapter 4 of Publication 946. 2010 1040x form   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. 2010 1040x form However, you cannot depreciate the cost of the property 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. 2010 1040x form Life tenant. 2010 1040x form   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. 2010 1040x form See Certain term interests in property , later, for an exception. 2010 1040x form 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. 2010 1040x form If you use property to produce income (investment use), the income must be taxable. 2010 1040x form You cannot depreciate property that you use solely for personal activities. 2010 1040x form However, if you use property for business or investment purposes and for personal purposes, you can deduct depreciation based only on the percentage of business or investment use. 2010 1040x form Example 1. 2010 1040x form   If you use your car for farm business, you can deduct depreciation based on its percentage of use in farming. 2010 1040x form If you also use it for investment purposes, you can depreciate it based on its percentage of investment use. 2010 1040x form Example 2. 2010 1040x form   If you use part of your home for business, you may be able to deduct depreciation on that part based on its business use. 2010 1040x form For more information, see Business Use of Your Home in chapter 4. 2010 1040x form Inventory. 2010 1040x form   You can never depreciate inventory because it is not held for use in your business. 2010 1040x form Inventory is any property you hold primarily for sale to customers in the ordinary course of your business. 2010 1040x form Livestock. 2010 1040x form   Livestock purchased for draft, breeding, or dairy purposes can be depreciated only if they are not kept in an inventory account. 2010 1040x form Livestock you raise usually has no depreciable basis because the costs of raising them are deducted and not added to their basis. 2010 1040x form However, see Immature livestock under When Does Depreciation Begin and End , later, for a special rule. 2010 1040x form Property Having a Determinable Useful Life To be depreciable, your property must have a determinable useful life. 2010 1040x form This means it must be something that wears out, decays, gets used up, becomes obsolete, or loses its value from natural causes. 2010 1040x form Irrigation systems and water wells. 2010 1040x form   Irrigation systems and wells used in a trade or business can be depreciated if their useful life can be determined. 2010 1040x form You can depreciate irrigation systems and wells composed of masonry, concrete, tile, metal, or wood. 2010 1040x form In addition, you can depreciate costs for moving dirt to construct irrigation systems and water wells composed of these materials. 2010 1040x form However, land preparation costs for center pivot irrigation systems are not depreciable. 2010 1040x form Dams, ponds, and terraces. 2010 1040x form   In general, you cannot depreciate earthen dams, ponds, and terraces unless the structures have a determinable useful life. 2010 1040x form What Property Cannot Be Depreciated? Certain property cannot be depreciated, even if the requirements explained earlier are met. 2010 1040x form This includes the following. 2010 1040x form Land. 2010 1040x form You can never depreciate the cost of land because land does not wear out, become obsolete, or get used up. 2010 1040x form The cost of land generally includes the cost of clearing, grading, planting, and landscaping. 2010 1040x form Although you cannot depreciate land, you can depreciate certain costs incurred in preparing land for business use. 2010 1040x form See chapter 1 of Publication 946. 2010 1040x form Property placed in service and disposed of in the same year. 2010 1040x form Determining when property is placed in service is explained later. 2010 1040x form Equipment used to build capital improvements. 2010 1040x form You must add otherwise allowable depreciation on the equipment during the period of construction to the basis of your improvements. 2010 1040x form Intangible property such as section 197 intangibles. 2010 1040x form This property does not have a determinable useful life and generally cannot be depreciated. 2010 1040x form However, see Amortization , later. 2010 1040x form Special rules apply to computer software (discussed below). 2010 1040x form Certain term interests (discussed below). 2010 1040x form Computer software. 2010 1040x form   Computer software is generally not a section 197 intangible even if acquired in connection with the acquisition of a business, if it meets all of the following tests. 2010 1040x form It is readily available for purchase by the general public. 2010 1040x form It is subject to a nonexclusive license. 2010 1040x form It has not been substantially modified. 2010 1040x form   If the software meets the tests above, it can be depreciated and may qualify for the section 179 expense deduction and the special depreciation allowance (if applicable), discussed later. 2010 1040x form Certain term interests in property. 2010 1040x form   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. 2010 1040x form This rule does not apply to the holder of a term interest in property acquired by gift, bequest, or inheritance. 2010 1040x form For more information, see chapter 1 of Publication 946. 2010 1040x form 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. 2010 1040x form 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. 2010 1040x form Placed in Service Property is placed 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. 2010 1040x form Even if you are not using the property, it is in service when it is ready and available for its specific use. 2010 1040x form Example. 2010 1040x form You bought a planter for use in your farm business. 2010 1040x form The planter was delivered in December 2012 after harvest was over. 2010 1040x form You begin to depreciate the planter for 2012 because it was ready and available for its specific use in 2012, even though it will not be used until the spring of 2013. 2010 1040x form If your planter comes unassembled in December 2012 and is put together in February 2013, it is not placed in service until 2013. 2010 1040x form You begin to depreciate it in 2013. 2010 1040x form If your planter was delivered and assembled in February 2013 but not used until April 2013, it is placed in service in February 2013, because this is when the planter was ready for its specified use. 2010 1040x form You begin to depreciate it in 2013. 2010 1040x form Fruit or nut trees and vines. 2010 1040x form   If you acquire an orchard, grove, or vineyard before the trees or vines have reached the income-producing stage, and they have a preproductive period of more than 2 years, you must capitalize the preproductive-period costs under the uniform capitalization rules (unless you elect not to use these rules). 2010 1040x form See chapter 6 for information about the uniform capitalization rules. 2010 1040x form Your depreciation begins when the trees and vines reach the income-producing stage (that is, when they bear fruit, nuts, or grapes in quantities sufficient to commercially warrant harvesting). 2010 1040x form Immature livestock. 2010 1040x form   Depreciation for livestock begins when the livestock reaches the age of maturity. 2010 1040x form If you bought immature livestock for drafting purposes, depreciation begins when they can be worked. 2010 1040x form If you bought immature livestock for dairy purposes, depreciation begins when they can be milked. 2010 1040x form If you bought immature livestock for breeding purposes, depreciation begins when they can be bred. 2010 1040x form Your basis for depreciation is your initial cost for the immature livestock. 2010 1040x form 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. 2010 1040x form 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. 2010 1040x form Cost or Other Basis Fully Recovered You stop depreciating property when you have fully recovered your cost or other basis. 2010 1040x form This happens when your section 179 and allowed or allowable depreciation deductions equal your cost or investment in the property. 2010 1040x form 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. 2010 1040x form 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. 2010 1040x form You sell or exchange the property. 2010 1040x form You convert the property to personal use. 2010 1040x form You abandon the property. 2010 1040x form You transfer the property to a supplies or scrap account. 2010 1040x form The property is destroyed. 2010 1040x form For information on abandonment of property, see chapter 8. 2010 1040x form For information on destroyed property, see chapter 11 and Publication 547, Casualties, Disasters, and Thefts. 2010 1040x form Can You Use MACRS To Depreciate Your Property? You must use the Modified Accelerated Cost Recovery System (MACRS) to depreciate most business and investment property placed in service after 1986. 2010 1040x form MACRS is explained later under Figuring Depreciation Under MACRS . 2010 1040x form You cannot use MACRS to depreciate the following property. 2010 1040x form Property you placed in service before 1987. 2010 1040x form Use the methods discussed in Publication 534. 2010 1040x form Certain property owned or used in 1986. 2010 1040x form See chapter 1 of Publication 946. 2010 1040x form Intangible property. 2010 1040x form Films, video tapes, and recordings. 2010 1040x form Certain corporate or partnership property acquired in a nontaxable transfer. 2010 1040x form Property you elected to exclude from MACRS. 2010 1040x form For more information, see chapter 1 of Publication 946. 2010 1040x form What Is the Basis of Your Depreciable Property? To figure your depreciation deduction, you must determine the basis of your property. 2010 1040x form To determine basis, you need to know the cost or other basis of your property. 2010 1040x form Cost or other basis. 2010 1040x form   The basis of property you buy is usually its cost plus amounts you paid for items such as sales tax, freight charges, and installation and testing fees. 2010 1040x form The cost includes the amount you pay in cash, debt obligations, other property, or services. 2010 1040x form   There are times when you cannot use cost as basis. 2010 1040x form In these situations, the fair market value (FMV) or the adjusted basis of the property may be used. 2010 1040x form Adjusted basis. 2010 1040x form   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. 2010 1040x form Basis adjustment for depreciation allowed or allowable. 2010 1040x form   After you place your property in service, you must reduce the basis of the property by the depreciation allowed or allowable, whichever is greater. 2010 1040x form Depreciation allowed is depreciation you actually deducted (from which you received a tax benefit). 2010 1040x form Depreciation allowable is depreciation you are entitled to deduct. 2010 1040x form   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. 2010 1040x form   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). 2010 1040x form   For more information, see chapter 6. 2010 1040x form How Do You Treat Repairs and Improvements? You generally deduct the cost of repairing business property in the same way as any other business expense. 2010 1040x form 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. 2010 1040x form Treat improvements as separate depreciable property. 2010 1040x form See chapter 1 of Publication 946 for more information. 2010 1040x form Example. 2010 1040x form You repair a small section on a corner of the roof of a barn that you rent to others. 2010 1040x form You deduct the cost of the repair as a business expense. 2010 1040x form However, if you replace the entire roof, the new roof is considered to be an improvement because it increases the value and lengthens the life for the property. 2010 1040x form You depreciate the cost of the new roof. 2010 1040x form Improvements to rented property. 2010 1040x form   You can depreciate permanent improvements you make to business property you rent from someone else. 2010 1040x form Do You Have To File Form 4562? Use Form 4562 to claim your deduction for depreciation and amortization. 2010 1040x form You must complete and attach Form 4562 to your tax return if you are claiming any of the following. 2010 1040x form A section 179 expense deduction for the current year or a section 179 carryover from a prior year. 2010 1040x form Depreciation for property placed in service during the current year. 2010 1040x form Depreciation on any vehicle or other listed property, regardless of when it was placed in service. 2010 1040x form Amortization of costs that began in the current year. 2010 1040x form For more information, see the Instructions for Form 4562. 2010 1040x form 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. 2010 1040x form You can file an amended return to correct the amount of depreciation claimed for any property in any of the following situations. 2010 1040x form You claimed the incorrect amount because of a mathematical error made in any year. 2010 1040x form You claimed the incorrect amount because of a posting error made in any year, for example, omitting an asset from the depreciation schedule. 2010 1040x form You have not adopted a method of accounting for the property placed in service by you in tax years ending after December 29, 2003. 2010 1040x form You claimed the incorrect amount on property placed in service by you in tax years ending before December 30, 2003. 2010 1040x form Note. 2010 1040x form You have adopted a method of accounting if you used the same incorrect method of depreciation for two or more consecutively filed returns. 2010 1040x form 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. 2010 1040x form See the Instructions for Form 3115. 2010 1040x form Section 179 Expense Deduction You can elect to recover all or part of the cost of certain qualifying property, up to a limit, by deducting it in the year you place the property in service. 2010 1040x form This is the section 179 expense deduction. 2010 1040x form You can elect the section 179 expense deduction instead of recovering the cost by taking depreciation deductions. 2010 1040x form This part of the chapter explains the rules for the section 179 expense deduction. 2010 1040x form It explains what property qualifies for the deduction, what property does not qualify for the deduction, the limits that may apply, how to elect the deduction, and when you may have to recapture the deduction. 2010 1040x form For more information, see chapter 2 of Publication 946. 2010 1040x form What Property Qualifies? To qualify for the section 179 expense deduction, your property must meet all the following requirements. 2010 1040x form It must be eligible property. 2010 1040x form It must be acquired for business use. 2010 1040x form It must have been acquired by purchase. 2010 1040x form Eligible Property To qualify for the section 179 expense deduction, your property must be one of the following types of depreciable property. 2010 1040x form Tangible personal property. 2010 1040x form Qualified real property. 2010 1040x form (Special rules apply to qualified real property that you elect to treat as qualified section 179 real property. 2010 1040x form For more information, see chapter 2 of Publication 946 and section 179(f) of the Internal Revenue Code. 2010 1040x form ) Other tangible property (except buildings and their structural components) used as: An integral part of manufacturing, production, or extraction or of furnishing transportation, communications, electricity, gas, water, or sewage disposal services; A research facility used in connection with any of the activities in (a) above; or A facility used in connection with any of the activities in (a) for the bulk storage of fungible commodities. 2010 1040x form Single purpose agricultural (livestock) or horticultural structures. 2010 1040x form Storage facilities (except buildings and their structural components) used in connection with distributing petroleum or any primary product of petroleum. 2010 1040x form Off-the-shelf computer software that is readily available for purchase by the general public, is subject to a nonexclusive lease, and has not been substantially modified. 2010 1040x form Tangible personal property. 2010 1040x form   Tangible personal property is any tangible property that is not real property. 2010 1040x form It includes the following property. 2010 1040x form Machinery and equipment. 2010 1040x form Property contained in or attached to a building (other than structural components), such as milk tanks, automatic feeders, barn cleaners, and office equipment. 2010 1040x form Gasoline storage tanks and pumps at retail service stations. 2010 1040x form Livestock, including horses, cattle, hogs, sheep, goats, and mink and other fur-bearing animals. 2010 1040x form Facility used for the bulk storage of fungible commodities. 2010 1040x form   A facility used for the bulk storage of fungible commodities is qualifying property for purposes of the section 179 expense deduction if it is used in connection with any of the activities listed earlier in item (3)(a). 2010 1040x form Bulk storage means the storage of a commodity in a large mass before it is used. 2010 1040x form Grain bins. 2010 1040x form   A grain bin is an example of a storage facility that is qualifying section 179 property. 2010 1040x form It is a facility used in connection with the production of grain or livestock for the bulk storage of fungible commodities. 2010 1040x form Single purpose agricultural or horticultural structures. 2010 1040x form   A single purpose agricultural (livestock) or horticultural structure is qualifying property for purposes of the section 179 expense deduction. 2010 1040x form Agricultural structure. 2010 1040x form   A single purpose agricultural (livestock) structure is any building or enclosure specifically designed, constructed, and used for both the following reasons. 2010 1040x form To house, raise, and feed a particular type of livestock and its produce. 2010 1040x form To house the equipment, including any replacements, needed to house, raise, or feed the livestock. 2010 1040x form For this purpose, livestock includes poultry. 2010 1040x form   Single purpose structures are qualifying property if used, for example, to breed chickens or hogs, produce milk from dairy cattle, or produce feeder cattle or pigs, broiler chickens, or eggs. 2010 1040x form The facility must include, as an integral part of the structure or enclosure, equipment necessary to house, raise, and feed the livestock. 2010 1040x form Horticultural structure. 2010 1040x form   A single purpose horticultural structure is either of the following. 2010 1040x form A greenhouse specifically designed, constructed, and used for the commercial production of plants. 2010 1040x form A structure specifically designed, constructed, and used for the commercial production of mushrooms. 2010 1040x form Use of structure. 2010 1040x form   A structure must be used only for the purpose that qualified it. 2010 1040x form For example, a hog barn will not be qualifying property if you use it to house poultry. 2010 1040x form Similarly, using part of your greenhouse to sell plants will make the greenhouse nonqualifying property. 2010 1040x form   If a structure includes work space, the work space can be used only for the following activities. 2010 1040x form Stocking, caring for, or collecting livestock or plants or their produce. 2010 1040x form Maintaining the enclosure or structure. 2010 1040x form Maintaining or replacing the equipment or stock enclosed or housed in the structure. 2010 1040x form Property Acquired by Purchase To qualify for the section 179 expense deduction, your property must have been acquired by purchase. 2010 1040x form For example, property acquired by gift or inheritance does not qualify. 2010 1040x form Property acquired from a related person (that is, your spouse, ancestors, or lineal descendants) is not considered acquired by purchase. 2010 1040x form Example. 2010 1040x form Ken is a farmer. 2010 1040x form He purchased two tractors, one from his brother and one from his father. 2010 1040x form He placed both tractors in service in the same year he bought them. 2010 1040x form The tractor purchased from his father does not qualify for the section 179 expense deduction because he is a related person (as defined above). 2010 1040x form The tractor purchased from his brother does qualify for the deduction because Ken is not a related person (as defined above). 2010 1040x form What Property Does Not Qualify? Land and improvements. 2010 1040x form   Land and land improvements, do not qualify as section 179 property. 2010 1040x form Land improvements include nonagricultural fences, swimming pools, paved parking areas, wharves, docks, bridges, and fences. 2010 1040x form However, agricultural fences do qualify as section 179 property. 2010 1040x form Similarly, field drainage tile also qualifies as section 179 property. 2010 1040x form Excepted property. 2010 1040x form   Even if the requirements explained in the preceding discussions are met, farmers cannot elect the section 179 expense deduction for the following property. 2010 1040x form Certain property you lease to others (if you are a noncorporate lessor). 2010 1040x form Certain property used predominantly to furnish lodging or in connection with the furnishing of lodging. 2010 1040x form Property used by a tax-exempt organization (other than a tax-exempt farmers' cooperative) unless the property is used mainly in a taxable unrelated trade or business. 2010 1040x form Property used by governmental units or foreign persons or entities (except property used under a lease with a term of less than 6 months). 2010 1040x form How Much Can You Deduct? Your section 179 expense deduction is generally the cost of the qualifying property. 2010 1040x form However, the total amount you can elect to deduct under section 179 is subject to a dollar limit and a business income limit. 2010 1040x form These limits apply to each taxpayer, not to each business. 2010 1040x form However, see Married individuals under Dollar Limits , later. 2010 1040x form See also the special rules for applying the limits for partnerships and S corporations under Partnerships and S Corporations , later. 2010 1040x form If you deduct only part of the cost of qualifying property as a section 179 expense deduction, you can generally depreciate the cost you do not deduct. 2010 1040x form Use Part I of Form 4562 to figure your section 179 expense deduction. 2010 1040x form Partial business use. 2010 1040x form   When you use property for business and nonbusiness purposes, you can elect the section 179 expense deduction only if you use it more than 50% for business in the year you place it in service. 2010 1040x form If you used the property more than 50% for business, multiply the cost of the property by the percentage of business use. 2010 1040x form Use the resulting business cost to figure your section 179 expense deduction. 2010 1040x form Trade-in of other property. 2010 1040x form   If you buy qualifying property with cash and a trade-in, its cost for purposes of the section 179 expense deduction includes only the cash you paid. 2010 1040x form For example, if you buy (for cash and a trade-in) a new tractor for use in your business, your cost for the section 179 expense deduction is the cash you paid. 2010 1040x form It does not include the adjusted basis of the old tractor you trade for the new tractor. 2010 1040x form Example. 2010 1040x form J-Bar Farms traded two cultivators having a total adjusted basis of $6,800 for a new cultivator costing $13,200. 2010 1040x form They received an $8,000 trade-in allowance for the old cultivators and paid $5,200 cash for the new cultivator. 2010 1040x form J-Bar also traded a used pickup truck with an adjusted basis of $8,000 for a new pickup truck costing $35,000. 2010 1040x form They received a $5,000 trade-in allowance and paid $30,000 cash for the new pickup truck. 2010 1040x form Only the cash paid by J-Bar qualifies for the section 179 expense deduction. 2010 1040x form J-Bar's business costs that qualify for a section 179 expense deduction are $35,200 ($5,200 + $30,000). 2010 1040x form Dollar Limits The total amount you can elect to deduct under section 179 for most property placed in service in 2013 is $500,000. 2010 1040x form If you acquire and place in service more than one item of qualifying property during the year, you can allocate the section 179 expense deduction among the items in any way, as long as the total deduction is not more than $500,000. 2010 1040x form Qualified real property that you elect to treat as section 179 property is limited to $250,000 of the maximum section 179 deduction of $500,000 for 2013. 2010 1040x form You do not have to claim the full $500,000. 2010 1040x form For specific information on the section 179 dollar limits, see chapter 2 of Publication 946. 2010 1040x form Reduced dollar limit for cost exceeding $2 million. 2010 1040x form   If the cost of your qualifying section 179 property placed in service in 2013 is over $2 million, you must reduce the dollar limit (but not below zero) by the amount of cost over $2 million. 2010 1040x form If the cost of your section 179 property placed in service during 2013 is $2,500,000 or more, you cannot take a section 179 expense deduction and you cannot carry over the cost that is more than $2,500,000. 2010 1040x form Example. 2010 1040x form This year, James Smith placed in service machinery costing $2,050,000. 2010 1040x form Because this cost is $50,000 more than $2 million, he must reduce his dollar limit to $450,000 ($500,000 − $50,000). 2010 1040x form Limits for sport utility vehicles. 2010 1040x form   The total amount you can elect to deduct for certain sport utility vehicles and certain other vehicles placed in service in 2013 is $25,000. 2010 1040x form This rule applies to any 4-wheeled vehicle primarily designed or used to carry passengers over public streets, roads, and highways that is rated at more than 6,000 pounds gross vehicle weight and not more than 14,000 pounds gross vehicle weight. 2010 1040x form   For more information, see chapter 2 of Publication 946. 2010 1040x form Limits for passenger automobiles. 2010 1040x form   For a passenger automobile that is placed in service in 2013, the total section 179 and depreciation deduction is limited. 2010 1040x form See Do the Passenger Automobile Limits Apply , later. 2010 1040x form Married individuals. 2010 1040x form   If you are married, how you figure your section 179 expense deduction depends on whether you file jointly or separately. 2010 1040x form If you file a joint return, you and your spouse are treated as one taxpayer in determining any reduction to the dollar limit, regardless of which of you purchased the property or placed it in service. 2010 1040x form If you and your spouse file separate returns, you are treated as one taxpayer for the dollar limit, including the reduction for costs over $2 million. 2010 1040x form You must allocate the dollar limit (after any reduction) equally between you, unless you both elect a different allocation. 2010 1040x form If the percentages elected by each of you do not total 100%, 50% will be allocated to each of you. 2010 1040x form Joint return after separate returns. 2010 1040x form   If you and your spouse elect to amend your separate returns by filing a joint return after the due date for filing your return, the dollar limit on the joint return is the lesser of the following amounts. 2010 1040x form The dollar limit (after reduction for any cost of section 179 property over $2 million). 2010 1040x form The total cost of section 179 property you and your spouse elected to expense on your separate returns. 2010 1040x form Business Income Limit The total cost you can deduct each year after you apply the dollar limit is limited to the taxable income from the active conduct of any trade or business during the year. 2010 1040x form Generally, you are considered to actively conduct a trade or business if you meaningfully participate in the management or operations of the trade or business. 2010 1040x form Any cost not deductible in one year under section 179 because of this limit can be carried to the next year. 2010 1040x form See Carryover of disallowed deduction , later. 2010 1040x form Taxable income. 2010 1040x form   In general, figure taxable income for this purpose by totaling the net income and losses from all trades and businesses you actively conducted during the year. 2010 1040x form In addition to net income or loss from a sole proprietorship, partnership, or S corporation, net income or loss derived from a trade or business also includes the following items. 2010 1040x form Section 1231 gains (or losses) as discussed in chapter 9. 2010 1040x form Interest from working capital of your trade or business. 2010 1040x form Wages, salaries, tips, or other pay earned by you (or your spouse if you file a joint return) as an employee of any employer. 2010 1040x form   In addition, figure taxable income without regard to any of the following. 2010 1040x form The section 179 expense deduction. 2010 1040x form The self-employment tax deduction. 2010 1040x form Any net operating loss carryback or carryforward. 2010 1040x form Any unreimbursed employee business expenses. 2010 1040x form Two different taxable income limits. 2010 1040x form   In addition to the business income limit for your section 179 expense deduction, you may have a taxable income limit for some other deduction (for example, charitable contributions). 2010 1040x form You may have to figure the limit for this other deduction taking into account the section 179 expense deduction. 2010 1040x form If so, complete the following steps. 2010 1040x form Step Action 1 Figure taxable income without the section 179 expense deduction or the other deduction. 2010 1040x form 2 Figure a hypothetical section 179 expense deduction using the taxable income figured in Step 1. 2010 1040x form 3 Subtract the hypothetical section 179 expense deduction figured in Step 2 from the taxable income figured in Step 1. 2010 1040x form 4 Figure a hypothetical amount for the other deduction using the amount figured in Step 3 as taxable income. 2010 1040x form 5 Subtract the hypothetical other deduction figured in Step 4 from the taxable income figured in  Step 1. 2010 1040x form 6 Figure your actual section 179 expense deduction using the taxable income figured in Step 5. 2010 1040x form 7 Subtract your actual section 179 expense deduction figured in Step 6 from the taxable income figured in Step 1. 2010 1040x form 8 Figure your actual other deduction using the taxable income figured in Step 7. 2010 1040x form Example. 2010 1040x form On February 1, 2013, the XYZ farm corporation purchased and placed in service qualifying section 179 property that cost $500,000. 2010 1040x form It elects to expense the entire $500,000 cost under section 179. 2010 1040x form In June, the corporation gave a charitable contribution of $10,000. 2010 1040x form A corporation's limit on charitable contributions is figured after subtracting any section 179 expense deduction. 2010 1040x form The business income limit for the section 179 expense deduction is figured after subtracting any allowable charitable contributions. 2010 1040x form XYZ's taxable income figured without the section 179 expense deduction or the deduction for charitable contributions is $520,000. 2010 1040x form XYZ figures its section 179 expense deduction and its deduction for charitable contributions as follows. 2010 1040x form Step 1. 2010 1040x form Taxable income figured without either deduction is $520,000. 2010 1040x form Step 2. 2010 1040x form Using $520,000 as taxable income, XYZ's hypothetical section 179 expense deduction is $500,000. 2010 1040x form Step 3. 2010 1040x form $20,000 ($520,000 − $500,000). 2010 1040x form Step 4. 2010 1040x form Using $20,000 (from Step 3) as taxable income, XYZ's hypothetical charitable contribution (limited to 10% of taxable income) is $2,000. 2010 1040x form Step 5. 2010 1040x form $518,000 ($520,000 − $2,000). 2010 1040x form Step 6. 2010 1040x form Using $518,000 (from Step 5) as taxable income, XYZ figures the actual section 179 expense deduction. 2010 1040x form Because the taxable income is at least $500,000, XYZ can take a $500,000 section 179 expense deduction. 2010 1040x form Step 7. 2010 1040x form $20,000 ($520,000 − $500,000). 2010 1040x form Step 8. 2010 1040x form Using $20,000 (from Step 7) as taxable income, XYZ's actual charitable contribution (limited to 10% of taxable income) is $2,000. 2010 1040x form Carryover of disallowed deduction. 2010 1040x form   You can carry over for an unlimited number of years the cost of any section 179 property you elected to expense but were unable to because of the business income limit. 2010 1040x form   The amount you carry over is used in determining your section 179 expense deduction in the next year. 2010 1040x form However, it is subject to the limits in that year. 2010 1040x form If you place more than one property in service in a year, you can select the properties for which all or a part of the cost will be carried forward. 2010 1040x form Your selections must be shown in your books and records. 2010 1040x form Example. 2010 1040x form Last year, Joyce Jones placed in service a machine that cost $8,000 and elected to deduct all $8,000 under section 179. 2010 1040x form The taxable income from her business (determined without regard to both a section 179 expense deduction for the cost of the machine and the self-employment tax deduction) was $6,000. 2010 1040x form Her section 179 expense deduction was limited to $6,000. 2010 1040x form The $2,000 cost that was not allowed as a section 179 expense deduction (because of the business income limit) is carried to this year. 2010 1040x form This year, Joyce placed another machine in service that cost $9,000. 2010 1040x form Her taxable income from business (determined without regard to both a section 179 expense deduction for the cost of the machine and the self-employment tax deduction) is $10,000. 2010 1040x form Joyce can deduct the full cost of the machine ($9,000) but only $1,000 of the carryover from last year because of the business income limit. 2010 1040x form She can carry over the balance of $1,000 to next year. 2010 1040x form Partnerships and S Corporations The section 179 expense deduction limits apply both to the partnership or S corporation and to each partner or shareholder. 2010 1040x form The partnership or S corporation determines its section 179 expense deduction subject to the limits. 2010 1040x form It then allocates the deduction among its partners or shareholders. 2010 1040x form If you are a partner in a partnership or shareholder of an S corporation, you add the amount allocated from the partnership or S corporation to any section 179 costs not related to the partnership or S corporation and then apply the dollar limit to this total. 2010 1040x form To determine any reduction in the dollar limit for costs over $560,000, you do not include any of the cost of section 179 property placed in service by the partnership or S corporation. 2010 1040x form After you apply the dollar limit, you apply the business income limit to any remaining section 179 costs. 2010 1040x form For more information, see chapter 2 of Publication 946. 2010 1040x form Example. 2010 1040x form In 2013, Partnership P placed in service section 179 property with a total cost of $2,160,000. 2010 1040x form P must reduce its dollar limit by $160,000 ($2,160,000 − $2,000,000). 2010 1040x form Its maximum section 179 expense deduction is $340,000 ($500,000 − $160,000), and it elects to expense that amount. 2010 1040x form Because P's taxable income from the active conduct of all its trades or businesses for the year was $400,000, it can deduct the full $340,000. 2010 1040x form P allocates $100,000 of its section 179 expense deduction and $110,000 of its taxable income to John, one of its partners. 2010 1040x form John also conducts a business as a sole proprietor and in 2013, placed in service in that business, section 179 property costing $28,000. 2010 1040x form John's taxable income from that business was $10,000. 2010 1040x form In addition to the $100,000 allocated from P, he elects to expense the $28,000 of his sole proprietorship's section 179 costs. 2010 1040x form However, John's deduction is limited to his business taxable income of $120,000 ($110,000 from P plus $10,000 from his sole proprietorship). 2010 1040x form He carries over $8,000 ($128,000 − $120,000) of the elected section 179 costs to 2014. 2010 1040x form How Do You Elect the Deduction? You elect to take the section 179 expense deduction by completing Part I of Form 4562. 2010 1040x form If you elect the deduction for listed property, complete Part V of  Form 4562 before completing Part I. 2010 1040x form   File Form 4562 with either of the following: Your original tax return (whether or not you filed it timely), or An amended return filed within the time prescribed by law. 2010 1040x form An election made on an amended return must specify the item of section 179 property to which the election applies and the part of the cost of each such item to be taken into account. 2010 1040x form The amended return must also include any resulting adjustments to taxable income. 2010 1040x form Revoking an election. 2010 1040x form   An election (or any specification made in the election) to take a section 179 expense deduction for 2013 can be revoked without IRS approval by filing an amended return. 2010 1040x form The amended return must be filed within the time prescribed by law. 2010 1040x form The amended return must also include any resulting adjustments to taxable income (for example, allowable depreciation in that tax year for the item of section 179 property for which the election pertains. 2010 1040x form ) Once made, the revocation is irrevocable. 2010 1040x form When Must You Recapture the Deduction? You may have to recapture the section 179 expense deduction if, in any year during the property's recovery period, the percentage of business use drops to 50% or less. 2010 1040x form In the year the business use drops to 50% or less, you include the recapture amount as ordinary income. 2010 1040x form You also increase the basis of the property by the recapture amount. 2010 1040x form Recovery periods for property are discussed later. 2010 1040x form If you sell, exchange, or otherwise dispose of the property, do not figure the recapture amount under the rules explained in this discussion. 2010 1040x form Instead, use the rules for recapturing depreciation explained in  chapter 9 under Section 1245 Property. 2010 1040x form   If the property is listed property, do not figure the recapture amount under the rules explained in this discussion when the percentage of business use drops to 50% or less. 2010 1040x form Instead, use the rules for recapturing depreciation explained in chapter 5 of Publication 946 under Recapture of Excess Depreciation. 2010 1040x form Figuring the recapture amount. 2010 1040x form   To figure the amount to recapture, take the following steps. 2010 1040x form Figure the allowable depreciation for the section 179 expense deduction you claimed. 2010 1040x form Begin with the year you placed the property in service and include the year of recapture. 2010 1040x form Subtract the depreciation figured in (1) from the section 179 expense deduction you actually claimed. 2010 1040x form The result is the amount you must recapture. 2010 1040x form Example. 2010 1040x form In January 2011, Paul Lamb, a calendar year taxpayer, bought and placed in service section 179 property costing $10,000. 2010 1040x form The property is not listed property. 2010 1040x form He elected a $5,000 section 179 expense deduction for the property and also elected not to claim a special depreciation allowance. 2010 1040x form He used the property only for business in 2011 and 2012. 2010 1040x form During 2013, he used the property 40% for business and 60% for personal use. 2010 1040x form He figures his recapture amount as follows. 2010 1040x form Section 179 expense deduction claimed (2011) $5,000 Minus: Allowable depreciation (instead of section 179 expense deduction):   2011 $1,250   2012 1,875   2013 ($1,250 × 40% (business)) 500 3,625 2013 — Recapture amount $1,375     Paul must include $1,375 in income for 2013. 2010 1040x form Where to report recapture. 2010 1040x form   Report any recapture of the section 179 expense deduction as ordinary income in Part IV of Form 4797 and include it in income on Schedule F (Form 1040). 2010 1040x form Recapture for qualified section 179 GO Zone property. 2010 1040x form   If any qualified section 179 GO Zone property ceases to be used in the GO Zone in a later year, you must recapture the benefit of the increased section 179 expense deduction as “other income. 2010 1040x form ” Claiming the Special Depreciation Allowance For qualified property (defined below) placed in service in 2013, you can take an additional 50% special depreciation allowance. 2010 1040x form The allowance is an additional deduction you can take after any section 179 expense deduction and before you figure regular depreciation under MACRS. 2010 1040x form Figure the special depreciation allowance by multiplying the depreciable basis of the qualified property by 50%. 2010 1040x form What is Qualified Property? For farmers, qualified property generally is certain qualified property acquired after December 31, 2007, and placed in service before January 1, 2014. 2010 1040x form Certain qualified property acquired after December 31, 2007, and placed in service before January 1, 2014. 2010 1040x form   Certain qualified property (defined below) acquired after December 31, 2007, and before January 1, 2014, is eligible for a 50% special depreciation allowance. 2010 1040x form   Qualified property includes the following: Tangible property depreciated under the Modified Accelerated Cost Recovery System (MACRS) with a recovery period of 20 years or less. 2010 1040x form Water utility property. 2010 1040x form Off-the-shelf computer software. 2010 1040x form Qualified leasehold improvement property. 2010 1040x form   Qualified property must also meet all of the following tests: You must have acquired qualified property by purchase after December 31, 2007. 2010 1040x form If a binding contract to acquire the property existed before January 1, 2008, the property does not qualify. 2010 1040x form Qualified property must be placed in service after December 31, 2007 and placed in service before January 1, 2014 (before January 1, 2015 for certain property with a long production period and for certain aircraft). 2010 1040x form The original use of the property must begin with you after December 31, 2007. 2010 1040x form For more information, see chapter 3 of Publication 946. 2010 1040x form How Can You Elect Not To Claim the Allowance? You can elect, for any class of property, not to deduct the special depreciation allowance for all property in such class placed in service during the tax year. 2010 1040x form To make the election, attach a statement to your return indicating the class of property for which you are making the election. 2010 1040x form Generally, you must make the election on a timely filed tax return (including extensions) for the year in which you place the property in service. 2010 1040x form However, if you timely filed your return for the year without making the election, you still can make the election by filing an amended return within 6 months of the due date of the original return (not including extensions). 2010 1040x form Attach the election statement to the amended return. 2010 1040x form On the amended return, write “Filed pursuant to section 301. 2010 1040x form 9100-2. 2010 1040x form ” Once made, the election may not be revoked without IRS consent. 2010 1040x form If you elect not to have the special depreciation allowance apply, the property may be subject to an alternative minimum tax adjustment for depreciation. 2010 1040x form When Must You Recapture an Allowance When you dispose of property for which you claimed a special depreciation allowance, any gain on the disposition is generally recaptured (included in income) as ordinary income up to the amount of the special depreciation allowance previously allowed or allowable. 2010 1040x form For more information, see chapter 3 of Publication 946. 2010 1040x form Figuring Depreciation Under MACRS The Modified Accelerated Cost Recovery System (MACRS) is used to recover the basis of most business and investment property placed in service after 1986. 2010 1040x form MACRS consists of two depreciation systems, the General Depreciation System (GDS) and the Alternative Depreciation System (ADS). 2010 1040x form Generally, these systems provide different methods and recovery periods to use in figuring depreciation deductions. 2010 1040x form To be sure you can use MACRS to figure depreciation for your property, see Can You Use MACRS To Depreciate Your Property, earlier. 2010 1040x form This part explains how to determine which MACRS depreciation system applies to your property. 2010 1040x form It also discusses the following information that you need to know before you can figure depreciation under MACRS. 2010 1040x form Property's recovery class. 2010 1040x form Placed-in-service date. 2010 1040x form Basis for depreciation. 2010 1040x form Recovery period. 2010 1040x form Convention. 2010 1040x form Depreciation method. 2010 1040x form Finally, this part explains how to use this information to figure your depreciation deduction. 2010 1040x form Which Depreciation System (GDS or ADS) Applies? Your use of either the General Depreciation System (GDS) or the Alternative Depreciation System (ADS) to depreciate property under MACRS determines what depreciation method and recovery period you use. 2010 1040x form You generally must use GDS unless you are specifically required by law to use ADS or you elect to use ADS. 2010 1040x form Required use of ADS. 2010 1040x form   You must use ADS for the following property. 2010 1040x form All property used predominantly in a farming business and placed in service in any tax year during which an election not to apply the uniform capitalization rules to certain farming costs is in effect. 2010 1040x form Listed property used 50% or less in a qualified business use. 2010 1040x form See Additional Rules for Listed Property , later. 2010 1040x form Any tax-exempt use property. 2010 1040x form Any tax-exempt bond-financed property. 2010 1040x form Any property imported from a foreign country for which an Executive Order is in effect because the country maintains trade restrictions or engages in other discriminatory acts. 2010 1040x form Any tangible property used predominantly outside the United States during the year. 2010 1040x form If you are required to use ADS to depreciate your property, you cannot claim the special depreciation allowance. 2010 1040x form Electing ADS. 2010 1040x form   Although your property may qualify for GDS, you can elect to use ADS. 2010 1040x form The election generally must cover all property in the same property class you placed in service during the year. 2010 1040x form However, the election for residential rental property and nonresidential real property can be made on a property-by-property basis. 2010 1040x form Once you make this election, you can never revoke it. 2010 1040x form   You make the election by completing line 20 in Part III of Form 4562. 2010 1040x form Which Property Class Applies Under GDS? The following is a list of the nine property classes under GDS. 2010 1040x form 3-year property. 2010 1040x form 5-year property. 2010 1040x form 7-year property. 2010 1040x form 10-year property. 2010 1040x form 15-year property. 2010 1040x form 20-year property. 2010 1040x form 25-year property. 2010 1040x form Residential rental property. 2010 1040x form Nonresidential real property. 2010 1040x form See Which Property Class Applies Under GDS in chapter 4 of Publication 946 for examples of the types of property included in each class. 2010 1040x form What Is the Placed-in-Service Date? You begin to claim depreciation when your property is placed in service for use either in a trade or business or for the production of income. 2010 1040x form The placed-in-service date for your property is the date the property is ready and available for a specific use. 2010 1040x form It is therefore not necessarily the date it is first used. 2010 1040x form If you converted property held for personal use to use in a trade or business or for the production of income, treat the property as being placed in service on the conversion date. 2010 1040x form See Placed in Service under When Does Depreciation Begin and End , earlier, for examples illustrating when property is placed in service. 2010 1040x form What Is the Basis for Depreciation? The basis for depreciation of MACRS property is the property's cost or other basis multiplied by the percentage of business/investment use. 2010 1040x form Reduce that amount by any credits and deductions allocable to the property. 2010 1040x form The following are examples of some of the credits and deductions that reduce basis. 2010 1040x form Any deduction for section 179 property. 2010 1040x form Any deduction for removal of barriers to the disabled and the elderly. 2010 1040x form Any disabled access credit, enhanced oil recovery credit, and credit for employer-provided childcare facilities and services. 2010 1040x form Any special depreciation allowance. 2010 1040x form Basis adjustment for investment credit property under section 50(c) of the Internal Revenue Code. 2010 1040x form For information about how to determine the cost or other basis of property, see What Is the Basis of Your Depreciable Property , earlier. 2010 1040x form Also, see chapter 6. 2010 1040x form For additional credits and deductions that affect basis, see section 1016 of the Internal Revenue Code. 2010 1040x form Which Recovery Period Applies? The recovery period of property is the number of years over which you recover its cost or other basis. 2010 1040x form It is determined based on the depreciation system (GDS or ADS) used. 2010 1040x form See Table 7-1 for recovery periods under both GDS and ADS for some commonly used assets. 2010 1040x form For a complete list of recovery periods, see the Table of Class Lives and Recovery Periods in Appendix B of Publication 946. 2010 1040x form House trailers for farm laborers. 2010 1040x form   To depreciate a house trailer you supply as housing for those who work on your farm, use one of the following recovery periods if the house trailer is mobile (it has wheels and a history of movement). 2010 1040x form A 7-year recovery period under GDS. 2010 1040x form A 10-year recovery period under ADS. 2010 1040x form   However, if the house trailer is not mobile (its wheels have been removed and permanent utilities and pipes attached to it), use one of the following recovery periods. 2010 1040x form A 20-year recovery period under GDS. 2010 1040x form A 25-year recovery period under ADS. 2010 1040x form Water wells. 2010 1040x form   Water wells used to provide water for raising poultry and livestock are land improvements. 2010 1040x form If they are depreciable, use one of the following recovery periods. 2010 1040x form A 15-year recovery period under GDS. 2010 1040x form A 20-year recovery period under ADS. 2010 1040x form   The types of water wells that can be depreciated were discussed earlier in Irrigation systems and water wells under Property Having a Determinable Useful Life . 2010 1040x form Table 7-1. 2010 1040x form Farm Property Recovery Periods   Recovery Period in Years Assets GDS ADS Agricultural structures (single purpose) 10 15 Automobiles 5 5 Calculators and copiers 5 6 Cattle (dairy or breeding) 5 7 Communication equipment1 7 10 Computer and peripheral equipment 5 5 Drainage facilities 15 20 Farm buildings2 20 25 Farm machinery and equipment 7 10 Fences (agricultural) 7 10 Goats and sheep (breeding) 5 5 Grain bin 7 10 Hogs (breeding) 3 3 Horses (age when placed in service)     Breeding and working (12 years or less) 7 10 Breeding and working (more than 12 years) 3 10 Racing horses 3 12 Horticultural structures (single purpose) 10 15 Logging machinery and equipment3 5 6 Nonresidential real property 394 40 Office furniture, fixtures, and equipment (not calculators, copiers, or typewriters) 7 10 Paved lots 15 20 Residential rental property 27. 2010 1040x form 5 40 Tractor units (over-the-road) 3 4 Trees or vines bearing fruit or nuts 10 20 Truck (heavy duty, unloaded weight 13,000 lbs. 2010 1040x form or more) 5 6 Truck (actual weight less than 13,000 lbs) 5 5 Water wells 15 20 1 Not including communication equipment listed in other classes. 2010 1040x form 2 Not including single purpose agricultural or horticultural structures. 2010 1040x form 3 Used by logging and sawmill operators for cutting of timber. 2010 1040x form 4 For property placed in service after May 12, 1993; for property placed in service before May 13, 1993,  the recovery period is 31. 2010 1040x form 5 years. 2010 1040x form Which Convention Applies? Under MACRS, averaging conventions establish when the recovery period begins and ends. 2010 1040x form The convention you use determines the number of months for which you can claim depreciation in the year you place property in service and in the year you dispose of the property. 2010 1040x form Use one of the following conventions. 2010 1040x form The half-year convention. 2010 1040x form The mid-month convention. 2010 1040x form The mid-quarter convention. 2010 1040x form For a detailed explanation of each convention, see Which Convention Applies in chapter 4 of Publication 946. 2010 1040x form Also, see the Instructions for Form 4562. 2010 1040x form Which Depreciation Method Applies? MACRS provides three depreciation methods under GDS and one depreciation method under ADS. 2010 1040x form The 200% declining balance method over a GDS recovery period. 2010 1040x form The 150% declining balance method over a GDS recovery period. 2010 1040x form The straight line method over a GDS recovery period. 2010 1040x form The straight line method over an ADS recovery period. 2010 1040x form Depreciation Table. 2010 1040x form   The following table lists the types of property you can depreciate under each method. 2010 1040x form The declining balance method is abbreviated as DB and the straight line method is abbreviated as SL. 2010 1040x form Depreciation Table System/Method   Type of Property GDS using  150% DB • All property used in a farming business (except real property)   • All 15- and 20-year property   • Nonfarm 3-, 5-, 7-, and 10-year property1 GDS using SL • Nonresidential real property   • Residential rental property   • Trees or vines bearing fruit or nuts   • All 3-, 5-, 7-, 10-, 15-, and 20-year property1 ADS using SL • Property used predomi- nantly outside the United States   • Farm property used when an election not to apply the uniform capitalization rules is in effect   • Tax-exempt property   • Tax-exempt bond-financed property   • Imported property2   • Any property for which you elect to use this method1 GDS using  200% DB • Nonfarm 3-, 5-, 7-, and 10-year property 1Elective method 2See section 168(g)(6) of the Internal Revenue  Code Property used in farming business. 2010 1040x form   For personal property placed in service after 1988 in a farming business, you must use the 150% declining balance method over a GDS recovery period or you can elect one of the following methods. 2010 1040x form The straight line method over a GDS recovery period. 2010 1040x form The straight line method over an ADS recovery period. 2010 1040x form For property placed in service before 1999, you could have elected to use the 150% declining balance method using the ADS recovery periods for certain property classes. 2010 1040x form If you made this election, continue to use the same method and recovery period for that property. 2010 1040x form Real property. 2010 1040x form   You can depreciate real property using the straight line method under either GDS or ADS. 2010 1040x form Switching to straight line. 2010 1040x form   If you use a declining balance method, you switch to the straight line method in the year it provides an equal or greater deduction. 2010 1040x form If you use the MACRS percentage tables, discussed later under How Is the Depreciation Deduction Figured , you do not need to determine in which year your deduction is greater using the straight line method. 2010 1040x form The tables have the switch to the straight line method built into their rates. 2010 1040x form Fruit or nut trees and vines. 2010 1040x form   Depreciate trees and vines bearing fruit or nuts under GDS using the straight line method over a 10-year recovery period. 2010 1040x form ADS required for some farmers. 2010 1040x form   If you elect not to apply the uniform capitalization rules to any plant shown in Table 6-1 of chapter 6 and produced in your farming business, you must use ADS for all property you place in service in any year the election is in effect. 2010 1040x form See chapter 6 for a discussion of the application of the uniform capitalization rules to farm property. 2010 1040x form Electing a different method. 2010 1040x form   As shown in the Depreciation Table , you can elect a different method for depreciation for certain types of property. 2010 1040x form You must make the election by the due date of the return (including extensions) for the year you placed the property in service. 2010 1040x form However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of your return (excluding extensions). 2010 1040x form Attach the election to the amended return and write “Filed pursuant to section 301. 2010 1040x form 9100-2” on the election statement. 2010 1040x form File the amended return at the same address you filed the original return. 2010 1040x form Once you make the election, you cannot change it. 2010 1040x form    If you elect to use a different method for one item in a property class, you must apply the same method to all property in that class placed in service during the year of the election. 2010 1040x form However, you can make the election on a property-by-property basis for residential rental and nonresidential real property. 2010 1040x form Straight line election. 2010 1040x form   Instead of using the declining balance method, you can elect to use the straight line method over the GDS recovery period. 2010 1040x form Make the election by entering “S/L” under column (f) in Part III of Form 4562. 2010 1040x form ADS election. 2010 1040x form   As explained earlier under Which Depreciation System (GDS or ADS) Applies , you can elect to use ADS even though your property may come under GDS. 2010 1040x form ADS uses the straight line method of depreciation over the ADS recovery periods, which are generally longer than the GDS recovery periods. 2010 1040x form The ADS recovery periods for many assets used in the business of farming are listed in Table 7–1. 2010 1040x form Additional ADS recovery periods for other classes of property may be found in the Table of Class Lives and Recovery Periods in Appendix B of Publication 946. 2010 1040x form How Is the Depreciation Deduction Figured? To figure your depreciation deduction under MACRS, you first determine the depreciation system, property class, placed-in-service date, basis amount, recovery period, convention, and depreciation method that applies to your property. 2010 1040x form Then you are ready to figure your depreciation deduction. 2010 1040x form You can figure it in one of two ways. 2010 1040x form You can use the percentage tables provided by the IRS. 2010 1040x form You can figure your own deduction without using the tables. 2010 1040x form Figuring your own MACRS deduction will generally result in a slightly different amount than using the tables. 2010 1040x form Using the MACRS Percentage Tables To help you figure your deduction under MACRS, the IRS has established percentage tables that incorporate the applicable convention and depreciation method. 2010 1040x form These percentage tables are in Appendix A of Publication 946. 2010 1040x form Rules for using the tables. 2010 1040x form   The following rules cover the use of the percentage tables. 2010 1040x form You must apply the rates in the percentage tables to your property's unadjusted basis. 2010 1040x form Unadjusted basis is the same basis amount you would use to figure gain on a sale but figured without reducing your original basis by any MACRS depreciation taken in earlier years. 2010 1040x form You cannot use the percentage tables for a short tax year. 2010 1040x form See chapter 4 of Publication 946 for information on how to figure the deduction for a short tax year. 2010 1040x form You generally must continue to use them for the entire recovery period of the property. 2010 1040x form You must stop using the tables if you adjust the basis of the property for any reason other than— Depreciation allowed or allowable, or An addition or improvement to the property, which is depreciated as a separate property. 2010 1040x form Basis adjustment due to casualty loss. 2010 1040x form   If you reduce the basis of your property because of a casualty, you cannot continue to use the percentage tables. 2010 1040x form For the year of the adjustment and the remaining recovery period, you must figure the depreciation yourself using the property's adjusted basis at the end of the year. 2010 1040x form See Figuring the Deduction Without Using the Tables in chapter 4 of Publication 946. 2010 1040x form Figuring depreciation using the 150% DB method and half-year convention. 2010 1040x form    Table 7-2 has the percentages for 3-, 5-, 7-, and 20-year property. 2010 1040x form The percentages are based on the 150% declining balance method with a change to the straight line method. 2010 1040x form This table covers only the half-year convention and the first 8 years for 20-year property. 2010 1040x form See Appendix A in Publication 946 for complete MACRS tables, including tables for the mid-quarter and mid-month convention. 2010 1040x form   The following examples show how to figure depreciation under MACRS using the percentages in Table 7-2 . 2010 1040x form Example 1. 2010 1040x form During the year, you bought an item of 7-year property for $10,000 and placed it in service. 2010 1040x form You do not elect a section 179 expense deduction for this property. 2010 1040x form In addition, the property is not qualified property for purposes of the special depreciation allowance. 2010 1040x form The unadjusted basis of the property is $10,000. 2010 1040x form You use the percentages in Table 7-2 to figure your deduction. 2010 1040x form Since this is 7-year property, you multiply $10,000 by 10. 2010 1040x form 71% to get this year's depreciation of $1,071. 2010 1040x form For next year, your depreciation will be $1,913 ($10,000 × 19. 2010 1040x form 13%). 2010 1040x form Example 2. 2010 1040x form You had a barn constructed on your farm at a cost of $20,000. 2010 1040x form You placed the barn in service this year. 2010 1040x form You elect not to claim the special depreciation allowance. 2010 1040x form The barn is 20-year property and you use the table percentages to figure your deduction. 2010 1040x form You figure this year's depreciation by multiplying $20,000 (unadjusted basis) by 3. 2010 1040x form 75% to get $750. 2010 1040x form For next year, your depreciation will be $1,443. 2010 1040x form 80 ($20,000 × 7. 2010 1040x form 219%). 2010 1040x form Table 7-2. 2010 1040x form 150% Declining Balance Method (Half-Year Convention) Year 3-Year 5-Year 7-Year 20-Year 1 25. 2010 1040x form 0 % 15. 2010 1040x form 00 % 10. 2010 1040x form 71 % 3. 2010 1040x form 750 % 2 37. 2010 1040x form 5   25. 2010 1040x form 50   19. 2010 1040x form 13   7. 2010 1040x form 219   3 25. 2010 1040x form 0   17. 2010 1040x form 85   15. 2010 1040x form 03   6. 2010 1040x form 677   4 12. 2010 1040x form 5   16. 2010 1040x form 66   12. 2010 1040x form 25   6. 2010 1040x form 177   5     16. 2010 1040x form 66   12. 2010 1040x form 25   5. 2010 1040x form 713   6     8. 2010 1040x form 33   12. 2010 1040x form 25   5. 2010 1040x form 285   7         12. 2010 1040x form 25   4. 2010 1040x form 888   8         6. 2010 1040x form 13   4. 2010 1040x form 522   Figuring depreciation using the straight line method and half-year convention. 2010 1040x form   The following table has the straight line percentages for 3-, 5-, 7-, and 20-year property using the half-year convention. 2010 1040x form The table covers only the first 8 years for 20-year property. 2010 1040x form See Appendix A in Publication 946 for complete MACRS tables, including tables for the mid-quarter and mid-month convention. 2010 1040x form Table 7-3. 2010 1040x form Straight Line Method (Half-Year Convention) Year 3-Year 5-Year 7-Year 20-Year 1 16. 2010 1040x form 67 % 10 % 7. 2010 1040x form 14 % 2. 2010 1040x form 5 % 2 33. 2010 1040x form 33   20   14. 2010 1040x form 29   5. 2010 1040x form 0   3 33. 2010 1040x form 33   20   14. 2010 1040x form 29   5. 2010 1040x form 0   4 16. 2010 1040x form 67   20   14. 2010 1040x form 28   5. 2010 1040x form 0   5     20   14. 2010 1040x form 29   5. 2010 1040x form 0   6     10   14. 2010 1040x form 28   5. 2010 1040x form 0   7         14. 2010 1040x form 29   5. 2010 1040x form 0   8         7. 2010 1040x form 14   5. 2010 1040x form 0    
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The 2010 1040x Form

2010 1040x form 2. 2010 1040x form   Electing the Section 179 Deduction Table of Contents Introduction Useful Items - You may want to see: What Property Qualifies?Eligible Property Property Acquired for Business Use Property Acquired by Purchase What Property Does Not Qualify?Land and Improvements Excepted Property How Much Can You Deduct?Dollar Limits Business Income Limit Partnerships and Partners S Corporations Other Corporations How Do You Elect the Deduction? When Must You Recapture the Deduction? Introduction You can elect to recover all or part of the cost of certain qualifying property, up to a limit, by deducting it in the year you place the property in service. 2010 1040x form This is the section 179 deduction. 2010 1040x form You can elect the section 179 deduction instead of recovering the cost by taking depreciation deductions. 2010 1040x form Estates and trusts cannot elect the section 179 deduction. 2010 1040x form This chapter explains what property does and does not qualify for the section 179 deduction, what limits apply to the deduction (including special rules for partnerships and corporations), and how to elect it. 2010 1040x form It also explains when and how to recapture the deduction. 2010 1040x form Useful Items - You may want to see: Publication 537 Installment Sales 544 Sales and Other Dispositions of Assets 954 Tax Incentives for Distressed Communities Form (and Instructions) 4562 Depreciation and Amortization 4797 Sales of Business Property See chapter 6 for information about getting publications and forms. 2010 1040x form What Property Qualifies? To qualify for the section 179 deduction, your property must meet all the following requirements. 2010 1040x form It must be eligible property. 2010 1040x form It must be acquired for business use. 2010 1040x form It must have been acquired by purchase. 2010 1040x form It must not be property described later under What Property Does Not Qualify . 2010 1040x form The following discussions provide information about these requirements and exceptions. 2010 1040x form Eligible Property To qualify for the section 179 deduction, your property must be one of the following types of depreciable property. 2010 1040x form Tangible personal property. 2010 1040x form Other tangible property (except buildings and their structural components) used as: An integral part of manufacturing, production, or extraction or of furnishing transportation, communications, electricity, gas, water, or sewage disposal services, A research facility used in connection with any of the activities in (a) above, or A facility used in connection with any of the activities in (a) for the bulk storage of fungible commodities. 2010 1040x form Single purpose agricultural (livestock) or horticultural structures. 2010 1040x form See chapter 7 of Publication 225 for definitions and information regarding the use requirements that apply to these structures. 2010 1040x form Storage facilities (except buildings and their structural components) used in connection with distributing petroleum or any primary product of petroleum. 2010 1040x form Off-the-shelf computer software. 2010 1040x form Qualified real property (described below). 2010 1040x form Tangible personal property. 2010 1040x form   Tangible personal property is any tangible property that is not real property. 2010 1040x form It includes the following property. 2010 1040x form Machinery and equipment. 2010 1040x form Property contained in or attached to a building (other than structural components), such as refrigerators, grocery store counters, office equipment, printing presses, testing equipment, and signs. 2010 1040x form Gasoline storage tanks and pumps at retail service stations. 2010 1040x form Livestock, including horses, cattle, hogs, sheep, goats, and mink and other furbearing animals. 2010 1040x form   The treatment of property as tangible personal property for the section 179 deduction is not controlled by its treatment under local law. 2010 1040x form For example, property may not be tangible personal property for the deduction even if treated so under local law, and some property (such as fixtures) may be tangible personal property for the deduction even if treated as real property under local law. 2010 1040x form Off-the-shelf computer software. 2010 1040x form   Off-the-shelf computer software placed in service during the tax year is qualifying property for purposes of the section 179 deduction. 2010 1040x form This is computer software that is readily available for purchase by the general public, is subject to a nonexclusive license, and has not been substantially modified. 2010 1040x form It includes any program designed to cause a computer to perform a desired function. 2010 1040x form However, a database or similar item is not considered computer software unless it is in the public domain and is incidental to the operation of otherwise qualifying software. 2010 1040x form Qualified real property. 2010 1040x form   You can elect to treat certain qualified real property you placed in service as section 179 property for tax years beginning in 2013. 2010 1040x form If this election is made, the term “section 179 property” will include any qualified real property that is: Qualified leasehold improvement property, Qualified restaurant property, or Qualified retail improvement property. 2010 1040x form The maximum section 179 expense deduction that can be elected for qualified section 179 real property is $250,000 of the maximum section 179 deduction of $500,000 in 2013. 2010 1040x form For more information, see Special rules for qualified section 179 real property, later. 2010 1040x form Also, see Election for certain qualified section 179 real property, later, for information on how to make this election. 2010 1040x form Qualified leasehold improvement property. 2010 1040x form   Generally, this is any improvement to an interior part of a building (placed in service before January 1, 2014) that is nonresidential real property, provided all of the requirements discussed in chapter 3 under Qualified leasehold improvement property are met. 2010 1040x form   In addition, an improvement made by the lessor does not qualify as qualified leasehold improvement property to any subsequent owner unless it is acquired from the original lessor by reason of the lessor’s death or in any of the following types of transactions. 2010 1040x form A transaction to which section 381(a) applies, A mere change in the form of conducting the trade or business so long as the property is retained in the trade or business as qualified leasehold improvement property and the taxpayer retains a substantial interest in the trade or business, A like-kind exchange, involuntary conversion, or re-acquisition of real property to the extent that the basis in the property represents the carryover basis, or Certain nonrecognition transactions to the extent that your basis in the property is determined by reference to the transferor’s or distributor’s basis in the property. 2010 1040x form Examples include the following. 2010 1040x form A complete liquidation of a subsidiary. 2010 1040x form A transfer to a corporation controlled by the transferor. 2010 1040x form An exchange of property by a corporation solely for stock or securities in another corporation in a reorganization. 2010 1040x form Qualified restaurant property. 2010 1040x form   Qualified restaurant property is any section 1250 property that is a building or an improvement to a building placed in service after December 31, 2008, and before January 1, 2014. 2010 1040x form Also, more than 50% of the building’s square footage must be devoted to preparation of meals and seating for on-premise consumption of prepared meals. 2010 1040x form Qualified retail improvement property. 2010 1040x form   Generally, this is any improvement (placed in service after December 31, 2008, and before January 1, 2014) to an interior portion of nonresidential real property if it meets the following requirements. 2010 1040x form The portion is open to the general public and is used in the retail trade or business of selling tangible property to the general public. 2010 1040x form The improvement is placed in service more than 3 years after the date the building was first placed in service. 2010 1040x form The expenses are not for the enlargement of the building, any elevator or escalator, any structural components benefiting a common area, or the internal structural framework of the building. 2010 1040x form In addition, an improvement made by the lessor does not qualify as qualified retail improvement property to any subsequent owner unless it is acquired from the original lessor by reason of the lessor’s death or in any of the following types of transactions. 2010 1040x form A transaction to which section 381(a) applies, A mere change in the form of conducting the trade or business so long as the property is retained in the trade or business as qualified leasehold improvement property and the taxpayer retains a substantial interest in the trade or business, A like-kind exchange, involuntary conversion, or re-acquisition of real property to the extent that the basis in the property represents the carryover basis, or Certain nonrecognition transactions to the extent that your basis in the property is determined by reference to the transferor’s or distributor’s basis in the property. 2010 1040x form Examples include the following. 2010 1040x form A complete liquidation of a subsidiary. 2010 1040x form A transfer to a corporation controlled by the transferor. 2010 1040x form An exchange of property by a corporation solely for stock or securities in another corporation in a reorganization. 2010 1040x form Property Acquired for Business Use To qualify for the section 179 deduction, your property must have been acquired for use in your trade or business. 2010 1040x form Property you acquire only for the production of income, such as investment property, rental property (if renting property is not your trade or business), and property that produces royalties, does not qualify. 2010 1040x form Partial business use. 2010 1040x form   When you use property for both business and nonbusiness purposes, you can elect the section 179 deduction only if you use the property more than 50% for business in the year you place it in service. 2010 1040x form If you use the property more than 50% for business, multiply the cost of the property by the percentage of business use. 2010 1040x form Use the resulting business cost to figure your section 179 deduction. 2010 1040x form Example. 2010 1040x form May Oak bought and placed in service an item of section 179 property costing $11,000. 2010 1040x form She used the property 80% for her business and 20% for personal purposes. 2010 1040x form The business part of the cost of the property is $8,800 (80% × $11,000). 2010 1040x form Property Acquired by Purchase To qualify for the section 179 deduction, your property must have been acquired by purchase. 2010 1040x form For example, property acquired by gift or inheritance does not qualify. 2010 1040x form Property is not considered acquired by purchase in the following situations. 2010 1040x form It is acquired by one component member of a controlled group from another component member of the same group. 2010 1040x form Its basis is determined either— In whole or in part by its adjusted basis in the hands of the person from whom it was acquired, or Under the stepped-up basis rules for property acquired from a decedent. 2010 1040x form It is acquired from a related person. 2010 1040x form Related persons. 2010 1040x form   Related persons are described under Related persons earlier. 2010 1040x form However, to determine whether property qualifies for the section 179 deduction, treat as an individual's family only his or her spouse, ancestors, and lineal descendants and substitute "50%" for "10%" each place it appears. 2010 1040x form Example. 2010 1040x form Ken Larch is a tailor. 2010 1040x form He bought two industrial sewing machines from his father. 2010 1040x form He placed both machines in service in the same year he bought them. 2010 1040x form They do not qualify as section 179 property because Ken and his father are related persons. 2010 1040x form He cannot claim a section 179 deduction for the cost of these machines. 2010 1040x form What Property Does Not Qualify? Certain property does not qualify for the section 179 deduction. 2010 1040x form This includes the following. 2010 1040x form Land and Improvements Land and land improvements do not qualify as section 179 property. 2010 1040x form Land improvements include swimming pools, paved parking areas, wharves, docks, bridges, and fences. 2010 1040x form Excepted Property Even if the requirements explained earlier under What Property Qualifies are met, you cannot elect the section 179 deduction for the following property. 2010 1040x form Certain property you lease to others (if you are a noncorporate lessor). 2010 1040x form Certain property used predominantly to furnish lodging or in connection with the furnishing of lodging. 2010 1040x form Air conditioning or heating units. 2010 1040x form Property used predominantly outside the United States, except property described in section 168(g)(4) of the Internal Revenue Code. 2010 1040x form Property used by certain tax-exempt organizations, except property used in connection with the production of income subject to the tax on unrelated trade or business income. 2010 1040x form Property used by governmental units or foreign persons or entities, except property used under a lease with a term of less than 6 months. 2010 1040x form Leased property. 2010 1040x form   Generally, you cannot claim a section 179 deduction based on the cost of property you lease to someone else. 2010 1040x form This rule does not apply to corporations. 2010 1040x form However, you can claim a section 179 deduction for the cost of the following property. 2010 1040x form Property you manufacture or produce and lease to others. 2010 1040x form Property you purchase and lease to others if both the following tests are met. 2010 1040x form The term of the lease (including options to renew) is less than 50% of the property's class life. 2010 1040x form For the first 12 months after the property is transferred to the lessee, the total business deductions you are allowed on the property (other than rents and reimbursed amounts) are more than 15% of the rental income from the property. 2010 1040x form Property used for lodging. 2010 1040x form   Generally, you cannot claim a section 179 deduction for property used predominantly to furnish lodging or in connection with the furnishing of lodging. 2010 1040x form However, this does not apply to the following types of property. 2010 1040x form Nonlodging commercial facilities that are available to those not using the lodging facilities on the same basis as they are available to those using the lodging facilities. 2010 1040x form Property used by a hotel or motel in connection with the trade or business of furnishing lodging where the predominant portion of the accommodations is used by transients. 2010 1040x form Any certified historic structure to the extent its basis is due to qualified rehabilitation expenditures. 2010 1040x form Any energy property. 2010 1040x form Energy property. 2010 1040x form   Energy property is property that meets the following requirements. 2010 1040x form It is one of the following types of property. 2010 1040x form Equipment that uses solar energy to generate electricity, to heat or cool a structure, to provide hot water for use in a structure, or to provide solar process heat, except for equipment used to generate energy to heat a swimming pool. 2010 1040x form Equipment placed in service after December 31, 2005, and before January 1, 2017, that uses solar energy to illuminate the inside of a structure using fiber-optic distributed sunlight. 2010 1040x form Equipment used to produce, distribute, or use energy derived from a geothermal deposit. 2010 1040x form For electricity generated by geothermal power, this includes equipment up to (but not including) the electrical transmission stage. 2010 1040x form Qualified fuel cell property or qualified microturbine property placed in service after December 31, 2005, and before January 1, 2017. 2010 1040x form The construction, reconstruction, or erection of the property must be completed by you. 2010 1040x form For property you acquire, the original use of the property must begin with you. 2010 1040x form The property must meet the performance and quality standards, if any, prescribed by Income Tax Regulations in effect at the time you get the property. 2010 1040x form   For periods before February 14, 2008, energy property does not include any property that is public utility property as defined by section 46(f)(5) of the Internal Revenue Code (as in effect on November 4, 1990). 2010 1040x form How Much Can You Deduct? Your section 179 deduction is generally the cost of the qualifying property. 2010 1040x form However, the total amount you can elect to deduct under section 179 is subject to a dollar limit and a business income limit. 2010 1040x form These limits apply to each taxpayer, not to each business. 2010 1040x form However, see Married Individuals under Dollar Limits , later. 2010 1040x form For a passenger automobile, the total section 179 deduction and depreciation deduction are limited. 2010 1040x form See Do the Passenger Automobile Limits Apply in chapter 5 . 2010 1040x form If you deduct only part of the cost of qualifying property as a section 179 deduction, you can generally depreciate the cost you do not deduct. 2010 1040x form Trade-in of other property. 2010 1040x form   If you buy qualifying property with cash and a trade-in, its cost for purposes of the section 179 deduction includes only the cash you paid. 2010 1040x form Example. 2010 1040x form Silver Leaf, a retail bakery, traded two ovens having a total adjusted basis of $680 for a new oven costing $1,320. 2010 1040x form They received an $800 trade-in allowance for the old ovens and paid $520 in cash for the new oven. 2010 1040x form The bakery also traded a used van with an adjusted basis of $4,500 for a new van costing $9,000. 2010 1040x form They received a $4,800 trade-in allowance on the used van and paid $4,200 in cash for the new van. 2010 1040x form Only the portion of the new property's basis paid by cash qualifies for the section 179 deduction. 2010 1040x form Therefore, Silver Leaf's qualifying costs for the section 179 deduction are $4,720 ($520 + $4,200). 2010 1040x form Dollar Limits The total amount you can elect to deduct under section 179 for most property placed in service in 2013 generally cannot be more than $500,000. 2010 1040x form If you acquire and place in service more than one item of qualifying property during the year, you can allocate the section 179 deduction among the items in any way, as long as the total deduction is not more than $500,000. 2010 1040x form You do not have to claim the full $500,000. 2010 1040x form Qualified real property (described earlier) that you elected to treat as section 179 real property is limited to $250,000 of the maximum deduction of $500,000 for 2013. 2010 1040x form The amount you can elect to deduct is not affected if you place qualifying property in service in a short tax year or if you place qualifying property in service for only a part of a 12-month tax year. 2010 1040x form After you apply the dollar limit to determine a tentative deduction, you must apply the business income limit (described later) to determine your actual section 179 deduction. 2010 1040x form Example. 2010 1040x form In 2013, you bought and placed in service $500,000 in machinery and a $25,000 circular saw for your business. 2010 1040x form You elect to deduct $475,000 for the machinery and the entire $25,000 for the saw, a total of $500,000. 2010 1040x form This is the maximum amount you can deduct. 2010 1040x form Your $25,000 deduction for the saw completely recovered its cost. 2010 1040x form Your basis for depreciation is zero. 2010 1040x form The basis for depreciation of your machinery is $25,000. 2010 1040x form You figure this by subtracting your $475,000 section 179 deduction for the machinery from the $500,000 cost of the machinery. 2010 1040x form Situations affecting dollar limit. 2010 1040x form   Under certain circumstances, the general dollar limits on the section 179 deduction may be reduced or increased or there may be additional dollar limits. 2010 1040x form The general dollar limit is affected by any of the following situations. 2010 1040x form The cost of your section 179 property placed in service exceeds $2,000,000. 2010 1040x form Your business is an enterprise zone business. 2010 1040x form You placed in service a sport utility or certain other vehicles. 2010 1040x form You are married filing a joint or separate return. 2010 1040x form Costs exceeding $2,000,000 If the cost of your qualifying section 179 property placed in service in a year is more than $2,000,000, you generally must reduce the dollar limit (but not below zero) by the amount of cost over $2,000,000. 2010 1040x form If the cost of your section 179 property placed in service during 2013 is $2,500,000 or more, you cannot take a section 179 deduction. 2010 1040x form Example. 2010 1040x form In 2013, Jane Ash placed in service machinery costing $2,100,000. 2010 1040x form This cost is $100,000 more than $2,000,000, so she must reduce her dollar limit to $400,000 ($500,000 − $100,000). 2010 1040x form Enterprise Zone Businesses An increased section 179 deduction is available to enterprise zone businesses for qualified zone property placed in service during the tax year, in an empowerment zone. 2010 1040x form For more information including the definitions of “enterprise zone business” and “qualified zone property,” see sections 1397A, 1397C, and 1397D of the Internal Revenue Code. 2010 1040x form The dollar limit on the section 179 deduction is increased by the smaller of: $35,000, or The cost of section 179 property that is also qualified zone property placed in service before January 1, 2014 (including such property placed in service by your spouse, even if you are filing a separate return). 2010 1040x form Note. 2010 1040x form   You take into account only 50% (instead of 100%) of the cost of qualified zone property placed in service in a year when figuring the reduced dollar limit for costs exceeding $2,000,000 (explained earlier). 2010 1040x form Sport Utility and Certain Other Vehicles You cannot elect to expense more than $25,000 of the cost of any heavy sport utility vehicle (SUV) and certain other vehicles placed in service during the tax year. 2010 1040x form This rule applies to any 4-wheeled vehicle primarily designed or used to carry passengers over public streets, roads, or highways, that is rated at more than 6,000 pounds gross vehicle weight and not more than 14,000 pounds gross vehicle weight. 2010 1040x form However, the $25,000 limit does not apply to any vehicle: Designed to seat more than nine passengers behind the driver's seat, Equipped with a cargo area (either open or enclosed by a cap) of at least six feet in interior length that is not readily accessible from the passenger compartment, or That has an integral enclosure fully enclosing the driver compartment and load carrying device, does not have seating rearward of the driver's seat, and has no body section protruding more than 30 inches ahead of the leading edge of the windshield. 2010 1040x form Married Individuals If you are married, how you figure your section 179 deduction depends on whether you file jointly or separately. 2010 1040x form If you file a joint return, you and your spouse are treated as one taxpayer in determining any reduction to the dollar limit, regardless of which of you purchased the property or placed it in service. 2010 1040x form If you and your spouse file separate returns, you are treated as one taxpayer for the dollar limit, including the reduction for costs over $2,000,000. 2010 1040x form You must allocate the dollar limit (after any reduction) between you equally, unless you both elect a different allocation. 2010 1040x form If the percentages elected by each of you do not total 100%, 50% will be allocated to each of you. 2010 1040x form Example. 2010 1040x form Jack Elm is married. 2010 1040x form He and his wife file separate returns. 2010 1040x form Jack bought and placed in service $2,000,000 of qualified farm machinery in 2013. 2010 1040x form His wife has her own business, and she bought and placed in service $30,000 of qualified business equipment. 2010 1040x form Their combined dollar limit is $470,000. 2010 1040x form This is because they must figure the limit as if they were one taxpayer. 2010 1040x form They reduce the $500,000 dollar limit by the $30,000 excess of their costs over $2,000,000. 2010 1040x form They elect to allocate the $470,000 dollar limit as follows. 2010 1040x form $446,500 ($470,000 x 95%) to Mr. 2010 1040x form Elm's machinery. 2010 1040x form $23,500 ($470,000 x 5%) to Mrs. 2010 1040x form Elm's equipment. 2010 1040x form If they did not make an election to allocate their costs in this way, they would have to allocate $235,000 ($470,000 × 50%) to each of them. 2010 1040x form Joint return after filing separate returns. 2010 1040x form   If you and your spouse elect to amend your separate returns by filing a joint return after the due date for filing your return, the dollar limit on the joint return is the lesser of the following amounts. 2010 1040x form The dollar limit (after reduction for any cost of section 179 property over $2,000,000). 2010 1040x form The total cost of section 179 property you and your spouse elected to expense on your separate returns. 2010 1040x form Example. 2010 1040x form The facts are the same as in the previous example except that Jack elected to deduct $30,000 of the cost of section 179 property on his separate return and his wife elected to deduct $2,000. 2010 1040x form After the due date of their returns, they file a joint return. 2010 1040x form Their dollar limit for the section 179 deduction is $32,000. 2010 1040x form This is the lesser of the following amounts. 2010 1040x form $470,000—The dollar limit less the cost of section 179 property over $2,000,000. 2010 1040x form $32,000—The total they elected to expense on their separate returns. 2010 1040x form Business Income Limit The total cost you can deduct each year after you apply the dollar limit is limited to the taxable income from the active conduct of any trade or business during the year. 2010 1040x form Generally, you are considered to actively conduct a trade or business if you meaningfully participate in the management or operations of the trade or business. 2010 1040x form Any cost not deductible in one year under section 179 because of this limit can be carried to the next year. 2010 1040x form Special rules apply to a 2013 deduction of qualified section 179 real property that is disallowed because of the business income limit. 2010 1040x form See Special rules for qualified section 179 property under Carryover of disallowed deduction, later. 2010 1040x form Taxable income. 2010 1040x form   In general, figure taxable income for this purpose by totaling the net income and losses from all trades and businesses you actively conducted during the year. 2010 1040x form Net income or loss from a trade or business includes the following items. 2010 1040x form Section 1231 gains (or losses). 2010 1040x form Interest from working capital of your trade or business. 2010 1040x form Wages, salaries, tips, or other pay earned as an employee. 2010 1040x form For information about section 1231 gains and losses, see chapter 3 in Publication 544. 2010 1040x form   In addition, figure taxable income without regard to any of the following. 2010 1040x form The section 179 deduction. 2010 1040x form The self-employment tax deduction. 2010 1040x form Any net operating loss carryback or carryforward. 2010 1040x form Any unreimbursed employee business expenses. 2010 1040x form Two different taxable income limits. 2010 1040x form   In addition to the business income limit for your section 179 deduction, you may have a taxable income limit for some other deduction. 2010 1040x form You may have to figure the limit for this other deduction taking into account the section 179 deduction. 2010 1040x form If so, complete the following steps. 2010 1040x form Step Action 1 Figure taxable income without the section 179 deduction or the other deduction. 2010 1040x form 2 Figure a hypothetical section 179 deduction using the taxable income figured in Step 1. 2010 1040x form 3 Subtract the hypothetical section 179 deduction figured in Step 2 from the taxable income figured in Step 1. 2010 1040x form 4 Figure a hypothetical amount for the other deduction using the amount figured in Step 3 as taxable income. 2010 1040x form 5 Subtract the hypothetical other deduction figured in Step 4 from the taxable income figured in Step 1. 2010 1040x form 6 Figure your actual section 179 deduction using the taxable income figured in Step 5. 2010 1040x form 7 Subtract your actual section 179 deduction figured in Step 6 from the taxable income figured in Step 1. 2010 1040x form 8 Figure your actual other deduction using the taxable income figured in Step 7. 2010 1040x form Example. 2010 1040x form On February 1, 2013, the XYZ corporation purchased and placed in service qualifying section 179 property that cost $500,000. 2010 1040x form It elects to expense the entire $500,000 cost under section 179. 2010 1040x form In June, the corporation gave a charitable contribution of $10,000. 2010 1040x form A corporation's limit on charitable contributions is figured after subtracting any section 179 deduction. 2010 1040x form The business income limit for the section 179 deduction is figured after subtracting any allowable charitable contributions. 2010 1040x form XYZ's taxable income figured without the section 179 deduction or the deduction for charitable contributions is $520,000. 2010 1040x form XYZ figures its section 179 deduction and its deduction for charitable contributions as follows. 2010 1040x form Step 1– Taxable income figured without either deduction is $520,000. 2010 1040x form Step 2– Using $520,000 as taxable income, XYZ's hypothetical section 179 deduction is $500,000. 2010 1040x form Step 3– $20,000 ($520,000 − $500,000). 2010 1040x form Step 4– Using $20,000 (from Step 3) as taxable income, XYZ's hypothetical charitable contribution (limited to 10% of taxable income) is $2,000. 2010 1040x form Step 5– $518,000 ($520,000 − $2,000). 2010 1040x form Step 6– Using $518,000 (from Step 5) as taxable income, XYZ figures the actual section 179 deduction. 2010 1040x form Because the taxable income is at least $500,000, XYZ can take a $500,000 section 179 deduction. 2010 1040x form Step 7– $20,000 ($520,000 − $500,000). 2010 1040x form Step 8– Using $20,000 (from Step 7) as taxable income, XYZ's actual charitable contribution (limited to 10% of taxable income) is $2,000. 2010 1040x form Carryover of disallowed deduction. 2010 1040x form   You can carry over for an unlimited number of years the cost of any section 179 property you elected to expense but were unable to because of the business income limit. 2010 1040x form This disallowed deduction amount is shown on line 13 of Form 4562. 2010 1040x form You use the amount you carry over to determine your section 179 deduction in the next year. 2010 1040x form Enter that amount on line 10 of your Form 4562 for the next year. 2010 1040x form   If you place more than one property in service in a year, you can select the properties for which all or a part of the costs will be carried forward. 2010 1040x form Your selections must be shown in your books and records. 2010 1040x form For this purpose, treat section 179 costs allocated from a partnership or an S corporation as one item of section 179 property. 2010 1040x form If you do not make a selection, the total carryover will be allocated equally among the properties you elected to expense for the year. 2010 1040x form   If costs from more than one year are carried forward to a subsequent year in which only part of the total carryover can be deducted, you must deduct the costs being carried forward from the earliest year first. 2010 1040x form Special rules for qualified section 179 real property. 2010 1040x form   You can carry over to 2013 a 2012 deduction attributable to qualified section 179 real property that you elected to expense but were unable to take because of the business income limitation. 2010 1040x form Any such 2012 carryover amounts that are not deducted in 2013, plus any 2013 disallowed section 179 expense deductions attributable to qualified real property, are not carried over to 2014. 2010 1040x form Instead these amounts are treated as property placed in service on the first day of 2013 for purposes of computing depreciation (including the special depreciation allowance, if applicable). 2010 1040x form See section 179(f) of the Internal Revenue Code and Notice 2013-59 for more information. 2010 1040x form If there is a sale or other disposition of your property (including a transfer at death) before you can use the full amount of any outstanding carryover of your disallowed section 179 deduction, neither you nor the new owner can deduct any of the unused amount. 2010 1040x form Instead, you must add it back to the property's basis. 2010 1040x form Partnerships and Partners The section 179 deduction limits apply both to the partnership and to each partner. 2010 1040x form The partnership determines its section 179 deduction subject to the limits. 2010 1040x form It then allocates the deduction among its partners. 2010 1040x form Each partner adds the amount allocated from partnerships (shown on Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc. 2010 1040x form ) to his or her nonpartnership section 179 costs and then applies the dollar limit to this total. 2010 1040x form To determine any reduction in the dollar limit for costs over $2,000,000, the partner does not include any of the cost of section 179 property placed in service by the partnership. 2010 1040x form After the dollar limit (reduced for any nonpartnership section 179 costs over $2,000,000) is applied, any remaining cost of the partnership and nonpartnership section 179 property is subject to the business income limit. 2010 1040x form Partnership's taxable income. 2010 1040x form   For purposes of the business income limit, figure the partnership's taxable income by adding together the net income and losses from all trades or businesses actively conducted by the partnership during the year. 2010 1040x form See the Instructions for Form 1065 for information on how to figure partnership net income (or loss). 2010 1040x form However, figure taxable income without regard to credits, tax-exempt income, the section 179 deduction, and guaranteed payments under section 707(c) of the Internal Revenue Code. 2010 1040x form Partner's share of partnership's taxable income. 2010 1040x form   For purposes of the business income limit, the taxable income of a partner engaged in the active conduct of one or more of a partnership's trades or businesses includes his or her allocable share of taxable income derived from the partnership's active conduct of any trade or business. 2010 1040x form Example. 2010 1040x form In 2013, Beech Partnership placed in service section 179 property with a total cost of $2,025,000. 2010 1040x form The partnership must reduce its dollar limit by $25,000 ($2,025,000 − $2,000,000). 2010 1040x form Its maximum section 179 deduction is $475,000 ($500,000 − $25,000), and it elects to expense that amount. 2010 1040x form The partnership's taxable income from the active conduct of all its trades or businesses for the year was $600,000, so it can deduct the full $475,000. 2010 1040x form It allocates $40,000 of its section 179 deduction and $50,000 of its taxable income to Dean, one of its partners. 2010 1040x form In addition to being a partner in Beech Partnership, Dean is also a partner in the Cedar Partnership, which allocated to him a $30,000 section 179 deduction and $35,000 of its taxable income from the active conduct of its business. 2010 1040x form He also conducts a business as a sole proprietor and, in 2013, placed in service in that business qualifying section 179 property costing $55,000. 2010 1040x form He had a net loss of $5,000 from that business for the year. 2010 1040x form Dean does not have to include section 179 partnership costs to figure any reduction in his dollar limit, so his total section 179 costs for the year are not more than $2,000,000 and his dollar limit is not reduced. 2010 1040x form His maximum section 179 deduction is $500,000. 2010 1040x form He elects to expense all of the $70,000 in section 179 deductions allocated from the partnerships ($40,000 from Beech Partnership plus $30,000 from Cedar Partnership), plus $55,000 of his sole proprietorship's section 179 costs, and notes that information in his books and records. 2010 1040x form However, his deduction is limited to his business taxable income of $80,000 ($50,000 from Beech Partnership, plus $35,000 from Cedar Partnership minus $5,000 loss from his sole proprietorship). 2010 1040x form He carries over $45,000 ($125,000 − $80,000) of the elected section 179 costs to 2014. 2010 1040x form He allocates the carryover amount to the cost of section 179 property placed in service in his sole proprietorship, and notes that allocation in his books and records. 2010 1040x form Different tax years. 2010 1040x form   For purposes of the business income limit, if the partner's tax year and that of the partnership differ, the partner's share of the partnership's taxable income for a tax year is generally the partner's distributive share for the partnership tax year that ends with or within the partner's tax year. 2010 1040x form Example. 2010 1040x form John and James Oak are equal partners in Oak Partnership. 2010 1040x form Oak Partnership uses a tax year ending January 31. 2010 1040x form John and James both use a tax year ending December 31. 2010 1040x form For its tax year ending January 31, 2013, Oak Partnership's taxable income from the active conduct of its business is $80,000, of which $70,000 was earned during 2012. 2010 1040x form John and James each include $40,000 (each partner's entire share) of partnership taxable income in computing their business income limit for the 2013 tax year. 2010 1040x form Adjustment of partner's basis in partnership. 2010 1040x form   A partner must reduce the basis of his or her partnership interest by the total amount of section 179 expenses allocated from the partnership even if the partner cannot currently deduct the total amount. 2010 1040x form If the partner disposes of his or her partnership interest, the partner's basis for determining gain or loss is increased by any outstanding carryover of disallowed section 179 expenses allocated from the partnership. 2010 1040x form Adjustment of partnership's basis in section 179 property. 2010 1040x form   The basis of a partnership's section 179 property must be reduced by the section 179 deduction elected by the partnership. 2010 1040x form This reduction of basis must be made even if a partner cannot deduct all or part of the section 179 deduction allocated to that partner by the partnership because of the limits. 2010 1040x form S Corporations Generally, the rules that apply to a partnership and its partners also apply to an S corporation and its shareholders. 2010 1040x form The deduction limits apply to an S corporation and to each shareholder. 2010 1040x form The S corporation allocates its deduction to the shareholders who then take their section 179 deduction subject to the limits. 2010 1040x form Figuring taxable income for an S corporation. 2010 1040x form   To figure taxable income (or loss) from the active conduct by an S corporation of any trade or business, you total the net income and losses from all trades or businesses actively conducted by the S corporation during the year. 2010 1040x form   To figure the net income (or loss) from a trade or business actively conducted by an S corporation, you take into account the items from that trade or business that are passed through to the shareholders and used in determining each shareholder's tax liability. 2010 1040x form However, you do not take into account any credits, tax-exempt income, the section 179 deduction, and deductions for compensation paid to shareholder-employees. 2010 1040x form For purposes of determining the total amount of S corporation items, treat deductions and losses as negative income. 2010 1040x form In figuring the taxable income of an S corporation, disregard any limits on the amount of an S corporation item that must be taken into account when figuring a shareholder's taxable income. 2010 1040x form Other Corporations A corporation's taxable income from its active conduct of any trade or business is its taxable income figured with the following changes. 2010 1040x form It is figured before deducting the section 179 deduction, any net operating loss deduction, and special deductions (as reported on the corporation's income tax return). 2010 1040x form It is adjusted for items of income or deduction included in the amount figured in 1, above, not derived from a trade or business actively conducted by the corporation during the tax year. 2010 1040x form How Do You Elect the Deduction? You elect to take the section 179 deduction by completing Part I of Form 4562. 2010 1040x form If you elect the deduction for listed property (described in chapter 5), complete Part V of Form 4562 before completing Part I. 2010 1040x form For property placed in service in 2013, file Form 4562 with either of the following. 2010 1040x form Your original 2013 tax return, whether or not you file it timely. 2010 1040x form An amended return for 2013 filed within the time prescribed by law. 2010 1040x form An election made on an amended return must specify the item of section 179 property to which the election applies and the part of the cost of each such item to be taken into account. 2010 1040x form The amended return must also include any resulting adjustments to taxable income. 2010 1040x form You must keep records that show the specific identification of each piece of qualifying section 179 property. 2010 1040x form These records must show how you acquired the property, the person you acquired it from, and when you placed it in service. 2010 1040x form Election for certain qualified section 179 real property. 2010 1040x form   You can elect to expense certain qualified real property that you placed in service as section 179 property for tax years beginning in 2013. 2010 1040x form If you elect to treat this property as section 179 property, you must elect the application of the special rules for qualified real property described in section 179(f) of the Internal Revenue Code. 2010 1040x form   To make the election, attach a statement indicating you are “electing the application of section 179(f) of the Internal Revenue Code” with either of the following. 2010 1040x form Your original 2013 tax return, whether or not you file it timely. 2010 1040x form An amended return for 2013 filed within the time prescribed by law. 2010 1040x form The amended return must also include any adjustments to taxable income. 2010 1040x form   The statement should indicate your election to expense certain qualified real property under section 179(f) on your return. 2010 1040x form It must specify one or more of the three types of qualified property (described under Qualified real property ) to which the election applies, the cost of each such type, and the portion of the cost of each such property to be taken into account. 2010 1040x form Also, report this on line 6 of Form 4562. 2010 1040x form    The maximum section 179 expense deduction that can be taken for qualified section 179 real property is limited to $250,000. 2010 1040x form Revoking an election. 2010 1040x form   An election (or any specification made in the election) to take a section 179 deduction for 2013 can be revoked without IRS approval by filing an amended return. 2010 1040x form The amended return must be filed within the time prescribed by law. 2010 1040x form The amended return must also include any resulting adjustments to taxable income. 2010 1040x form Once made, the revocation is irrevocable. 2010 1040x form When Must You Recapture the Deduction? You may have to recapture the section 179 deduction if, in any year during the property's recovery period, the percentage of business use drops to 50% or less. 2010 1040x form In the year the business use drops to 50% or less, you include the recapture amount as ordinary income in Part IV of Form 4797. 2010 1040x form You also increase the basis of the property by the recapture amount. 2010 1040x form Recovery periods for property are discussed under Which Recovery Period Applies in chapter 4 . 2010 1040x form If you sell, exchange, or otherwise dispose of the property, do not figure the recapture amount under the rules explained in this discussion. 2010 1040x form Instead, use the rules for recapturing depreciation explained in chapter 3 of Publication 544 under Section 1245 Property. 2010 1040x form For qualified real property (described earlier), see Notice 2013-59 for determining the portion of the gain that is attributable to section 1245 property upon the sale or other disposition of qualified real property. 2010 1040x form If the property is listed property (described in chapter 5 ), do not figure the recapture amount under the rules explained in this discussion when the percentage of business use drops to 50% or less. 2010 1040x form Instead, use the rules for recapturing excess depreciation in chapter 5 under What Is the Business-Use Requirement. 2010 1040x form Figuring the recapture amount. 2010 1040x form   To figure the amount to recapture, take the following steps. 2010 1040x form Figure the depreciation that would have been allowable on the section 179 deduction you claimed. 2010 1040x form Begin with the year you placed the property in service and include the year of recapture. 2010 1040x form Subtract the depreciation figured in (1) from the section 179 deduction you claimed. 2010 1040x form The result is the amount you must recapture. 2010 1040x form Example. 2010 1040x form In January 2011, Paul Lamb, a calendar year taxpayer, bought and placed in service section 179 property costing $10,000. 2010 1040x form The property is not listed property. 2010 1040x form The property is 3-year property. 2010 1040x form He elected a $5,000 section 179 deduction for the property and also elected not to claim a special depreciation allowance. 2010 1040x form He used the property only for business in 2011 and 2012. 2010 1040x form In 2013, he used the property 40% for business and 60% for personal use. 2010 1040x form He figures his recapture amount as follows. 2010 1040x form Section 179 deduction claimed (2011) $5,000. 2010 1040x form 00 Minus: Allowable depreciation using Table A-1 (instead of section 179 deduction):   2011 $1,666. 2010 1040x form 50   2012 2,222. 2010 1040x form 50   2013 ($740. 2010 1040x form 50 × 40% (business)) 296. 2010 1040x form 20 4,185. 2010 1040x form 20 2013 — Recapture amount $ 814. 2010 1040x form 80 Paul must include $814. 2010 1040x form 80 in income for 2013. 2010 1040x form If any qualified zone property placed in service during the year ceases to be used in an empowerment zone by an enterprise zone business in a later year, the benefit of the increased section 179 deduction must be reported as other income on your return. 2010 1040x form Prev  Up  Next   Home   More Online Publications